S&P Confirms the NASDAQ Signal?

 

BarroMetrics Views: S&P Confirms the NASDAQ Signal?

A 10% correction in the wind?

Before I begin – if you are planning to take part in Singapore, a caution: we have only 18 seats left. I expect these gone today. Do register early or you may miss out. If you do miss out, register for the live-streaming. (I prefer being present, but it would be better than missing out!)

Turning to today……..

An important event occurred: the S&P took the first step, of a two-step confirmation, to confirm June 29’s NASDAQ sell signal.

Let’s turn to Figure 1, NASDAQ, showing the 13-week swing (black line, quarterly trend). It shows that line will turn down at 5295. It also shows the S&P 13-week swing; its line turns down at 2315 (both basis cash)

Figure 2 shows the 18-day swing and 5-day swing (blue line, weekly trend). The 18-d shows no change in trend, whereas the 05-day shows the breach of the uptrend. There is a Normal Change in Trend pattern. But, the filters, momentum, time and price have yet to be triggered. Consequently, we may still see a rebound in the 5-day generate buy signal.

Figure 3 shows that the 18-day correction will nudge into 13-week corrective territory at 2366 Penetration of 2323 will confirm that we are seeing a 13-weeek correction. A move into the the ’80-120′, 13-week correction band (grey lines) is important. Why?

Because a 13-week correction suggests an 18-day impulse move. Of course, an  18-day impulse move encompasses a 05-day swing trend down.

By combining the two, the stats suggest a minimum 10% correction, giving us a price target of around 5300 to 5310.

In the two-step confirmation, the second step will be a tandem, bearish conviction-close (of at least normal range and volume).

Will we see that tonight? We may, we have NFP at 8:30 EST. Expectations are for a figure of 170K with the unemployment rate coming at 4.3. The consensus ranges:

  • NFP 140k to 200k
  • Rate 4.2% to 4.4%

Let’s see what happens.

FIGURE 1 13-week NASDAQ & S&P

 

FIGURE 2 05-day and 18-day NASDAQ & S&P

FIGURE 3 18-d ’80-120′ Band

Last Call – July 12

BarroMetrics Views: Last Call – July 12

One last call for our July 12 event in Singapore. The in-person registration link is:

http://www.barrometrics.com/avoid-3-biggest-mistakes-traders-make-july-2017

The registration fee of SGD 20 (about USD 14-15) is refundable on attendance on July 12.

Not living in Singapore or can’t make July 12? No problems, we are live-streaming and providing a video to the event.

Here’s the rego page:

http://www.barrometrics.com/avoid-3-biggest-mistakes-traders-make-july-2017-livestream

The registration fee of SGD 20 (about USD 14-15) is non-refundable.

What do you get for attending?

Firstly, we’re looking to change the abysmal success-trading stats. By attending, you’ll acquire a model for trading success. But, note this is a partnership: we provide the information, you provide the action.

If you are looking for a no-work, get-rich approach, don’t come. July 12 is grounded in reality – what I have found works in over 30 years trading.

Secondly, this is a value-rich offer. Here’s one of many emails:

hello Ray,
no issue with me. you can place me for the live stream. the cost is trivial for the knowledge shared.
thanks.
best regards.
eddie

We needed to postpone the event from July 5 to July 12 because July 5 was a public holiday in the US. (We will be trading the FX markets, so we wanted a day whose volatility was not circumscribed by holidays).

Eddie had registered for the July 5, in-person, presentation and could not attend July 12. We had to move him to the live-stream.

Why did he consider the cost trivial? Well, he has attended one of my courses. So, he knows how much effort we put into our side of the partnership – and the results he secured when he lived up to his.

Secondly, there’s the super value package you receive by attending:

  • Video of July 12
  • The Rule of 3Ms for Preparation, Execution and Review of Trading Mindmap (includes Free Viewer or HTML)
  • Equity Spreadsheet + Video
  • Mechanical system + Video
  • Video for Psych template in Evernote:
  • Deliberative Practice Material
    1. The Beginners Guide to Deliberative Practice
    2. The Making of An Expert
    3. Beyond the 10,000 Hour Myth – How We Really Acquire Skills

The in-person event is limited to 100 registrations. Our joint-venture Oanda began its staggered mail out yesterday. If you are planning to register for Singapore, best do it as soon as possible to avoid disappointment.

http://www.barrometrics.com/avoid-3-biggest-mistakes-traders-make-july-2017

There is no limit to the live-stream.

http://www.barrometrics.com/avoid-3-biggest-mistakes-traders-make-july-2017-livestream

We’ll close registrations for both on Monday, July 10th, 23:00 Singapore.

NASDAQ – Sell Signal?

BarroMetrics Views: NASDAQ – Sell Signal?

A friend of mine, Tom Wong (fund manager in NY), dropped me a line to say I was focusing on the wrong index. I ought to be looking at the NASDAQ: this index that will lead the decline because it’s been the one leading the rise.

He’s right.

Figure 1 shows a comparison since the last quarterly swing low. The NASDAQ has risen 26.77% while the S&P only 17.76%.

Figure 2 shows the current NASDAQ; Figure 3, the current S&P.

[The red lines represent the 18-day swing (monthly trend), the black ones, the equivalent of the 13-week swing (quarterly)].

Neither chart has generated a change in trend pattern. So, at this stage,  if we see a decline, I’m taking the view that we’ll be seeing a correction either in the 13-week or 18-day swings. Because of the Ray Wave count, I lean towards a 13-week correction.

If that proves true, what percentage correction are we likely to see?

Figure 4 shows the NASDAQ calculations. The sample size is too small to be reliable. Working with what we have, I’d say 13% to 19% (S&P around 10% – the sample size there is reliable).

What would I need to see to say that a correction is on the way? A bearish conviction-close in the S&P below the June 29 low (2405) by Monday, July 10. By ‘bearish conviction-close’, I mean:

  • an open no lower than in the top third of the day’s range.
  • a close no higher than in the bottom quarter of the day’s range.
  • with a true range of not less than 60.

The S&P bearish conviction-close would confirm the NASDAQ heads up generated on June 30, 2017.

I’ll look to trade the 18-d correction following the first 13-week leg down. The strategy means I’m sidelined for the 18-day, first leg down.

Image credits: safehaven, optuma

FIGURE 1 NASDAQ & S&P

FIGURE 2 NASDAQ

FIGURE 3 S&P

FIGURE 4 NASDAQ Stats

Using MindMaps

BarrosMetrics Views: Using MindMaps

Nothing to do with trading or finance today. Occasionally, I come across an offer that I’ll pass on, simply because I consider it great value. Today is such a day.

But first: Happy July 4 to all my US readers!

Those who know me, know that I am passionate about improving my skills. Many moons ago, I adopted Mindmapping. I apply this skill to all areas of my life – reading, memory, planning, etc.

Last year I took a course called Mindmap to Kanban by Faizel Mohidin.

You’ve never heard of Kanban? At the time, neither had I. But, with Mindmap to Kanban, I learned and am now applying it daily. It’s has improved my personal effectiveness by 50% or more. If you want to learn more about personal Kanban go to:

http://www.personalkanban.com/pk/.

Figure 1 has an overview of the course contents.

Faizel has gone on to develop quite a few other programs. Another I took was his Learning Management Program. Again I found it useful and beneficial. Figure 2 for course contents.

So why am I telling you all this?

Faizel has a special offer open to Thursday – all his courses (USD 1282.00) for USD 279 (4.61:1 Reward: Risk!)

  • 6 Week MMK High Performance Coaching ($497 Value)
  • MMK High Performance System ($197 Value)
  • Learning Management Program ($197 Value)
  • Personal Business Model ($97 Value)
  • Worker’s Guide to Using Mind Maps ($97 Value)
  • Premium Webinars ($197 Value)

To view the offer, go to

http://usingmindmapsacademy.com/p/using-mind-maps-academy-lifetime-membership-special/

If you have questions, please write to Faizel at

fmohidin@usingmindmaps.com

Usual disclaimer: I am not an affiliate and don’t receive a commission if you sign up. I’m recommending the offer because I have taken two of the courses; I consider the $297 great value.

FIGURE 1  MindMap to Kanban

FIGURE 2 Learning Management

July 15 Topping Scenario S&P

BarroMetrics Views: July 15 Topping Scenario S&P

In two weeks, we’ll be entering that time zone when a possible top in the S&P may take place: July 15 to August 11.  It doesn’t look like my price targets will be met; I was looking for a high around 2560 to 2640. If in fact, we fail to attain the price targets by the time window, what would that mean?

  1. The top won’t take place; or
  2. If it does, it’s likely to be top marking a correction of around 10%. Assuming the 2454 high is not exceeded, 2208 would mark the end of the 10%  correction.
  3. The correction would then be followed by new highs. I have some dates in mid to late October. Under this scenario, the October dates may mark a long-term, bull market top.

If the corrective top scenario is correct:

  • I’d like to see a drop into the Linear Band Buy Zones (bottom red and black lines in Figure 1). The red vertical lines mark the corrective time window from which the rally into July 15 – August 11 will come. The corrective price zone comes in at 2322 to 2290.
  • The rally into the July 15 high will be on low volume and range.
  •  Ideally, the topping pattern will form below the Linear Regression midline. Given the position of the Linear Regression Bands, the July 15 cycle high will come in below 2454.
  • My best guess for the topping price range is around 2400 to 2435.
  • In summary:
  1. The S&P drops to 2322 to 2290 from July 3 to around July 11.
  2. It rallies to 2400 to 2435 by July 15 to August 11.
  3. It then drops 10%.

Will the topping picture turn out as I expect? Probably not. But, by having a clear picture in mind, I have a better chance of working out if a top is likely as we move into July 15.

Let’s see how events play out.

Image credits: Scenariosusa

Figure 1 S&P Cash 19-day and 73-Day Swing

(Chart courtesy of Optuma)

3 Essential Qualities for Success

BarroMetrics Views: 3 Essential Qualities for Success

I was reading a blog my Michael Hyatt about three qualities effective leaders have (What Ike’s Secret D-Day Letter…). And, I thought,

‘Yep, that’s also true for traders’!

Eisenhower wrote a secret letter ahead of the Normandy invasion – in case the invasion failed. In it he takes full responsibility for the ‘failure’: ‘The troops, the air, and the Navy did all that Bravery and devotion to duty could do. If any blame or fault attaches to the attempt it is mine alone.’

From that letter, traders can integrate three critical lessons:

  1. He practised ‘extreme ownership’. This phrase recently has come into vogue (just Google it and you’ll see what I mean). But, it has been around for aeons. Dad taught it to us, and I’m a septuagenarian!

Dad called ‘accountability’ – take total responsibility for actions within your control. As traders, we decide when to enter and when to exit. Trade-by-trade, matters will occur beyond our control; but, in the long run, we will be profitable if:

  • our plan has an edge,
  • we execute consistently and
  • we practise appropriate position sizing

2. He addressed the downside: Eisenhower succeeded not by ignoring the challenges he was facing but by meeting them head-on.

Mechanical traders do this by understanding the stats of their system:

  • the expectancy return,
  • the average dollar win & loss,
  • the theoretical consecutive loss probability,
  • the average ROI, etc.

Discretionary rule-based traders face the challenge this way: by understanding, not only the structures they are trading, but also the principles underlying the structures.  For example, in the Wyckoff model, we are taught the ‘buying climax’. The trader needs to know not only the pattern but also the conditions giving rise to the pattern.

3. He used contingent thinking: expect the best, prepare for the worst.  I use the ‘if-then’ approach. I adapted this from the goal-achievement material (see How to use if-then planning to achieve any goal). When coaching, I find getting traders to integrate this thinking one of the most difficult skills to teach. The question I seek to answer:

‘What do you have to see to tell you that your (trading) scenario is wrong? 

And then use the ‘if-then’ formula to generate action if that scenario comes about.  The answer often allows me to exit early, ahead of the stop-loss being hit.

If you think about it, you’ll see that the initial stop loss is a form of an ‘if-then’ statement. For the discretionary trader, exiting before a stop loss gets hit is a big plus – if done for the right reasons.

The problem is the student-trader is afraid to look into the question. Why? Because after asking that question, he encounters the fear: ‘what happens if I exit early and miss a humongous profit!??’ 

He doesn’t seem to ask: ‘how much will I save by exiting early rather than being stopped out?’ 

And he fails to look into the stats, to see if early exit costs or saves him money.

My question for you: how many of the three qualities does your trading exhibit?

 

Apologies!

Hi Gals and Guys

Deepest apologies. By now those who registered for the July 5 event, would have received our advice  –  I totally messed up!

I assumed July 5 was a work day in the US. In fact, it’s the last day of the July 4 holiday. As a result, we should see very quiet trading. The live-trading is a core port of the July presentation. Rather than be certain of having to skip it, I decided to postpone.

I realise that some you will not be able to attend. Of course, we will refund the S$20.00. On the other hand, if you wanted the video and all the bonuses, we can:

  • For those in Singapore, swap you to the live-stream. You’ll receive the video and all the goodies.
  • For those ex-Singapore, you’ll receive the video as well as the extras.

I’ll let you decide – just drop us a line.

The new date is July 12. I hope to see you there.


BTW, if you are an Aussie reader, drop me a line at

ramonbarros@tradingsuccess.com

and I’ll send you a piece on Aussie real estate prices. The piece makes for an interesting read.

Please write to the address above and not to the blog or support.

 

Recession Warning Tools

BarroMetrics Views: Recession Warning Tools

First off, thank you! Thanks to all those who took a moment to drop me a ‘get well’ note. It was very kind of you. My back is much better – still tender but at least the excruciating pain is gone. At least, I can sit! The anti-inflammatory pills, pain killers and ointment did their job.

Turning to today……..

…….. I’d like to look at:

  • Two tools that have served as advance warning signals of a recession to come; and
  • A new confirming tool.

The first is the St Louis FED, Adjusted Monetary Base.  The AMB shows the amount deposited by US banks in the Federal Reserve. At the moment, the FED is paying close to commercial rates. As a result, banks prefer to leave their funds with the FED rather than lending to Main Street – hence the lack of inflation. Once the AMB starts to trend down, we’ll be seeing money flowing into the economy. That will cause inflation to rise – based on FED history, faster than it will anticipate. It will then have to play catch-up with dramatic rate rises or face hyperinflation. Their catch-up leads to a recession.

Figure 1 shows the AMB. The signal I’m looking for is a breakdown that is followed by a strongly trending bear market. The bear trend will signal the release of funds to Main Street. As I said, that’s when we’ll see inflation rise and probably rise dramatically. There’s usually a 3 to 6-month lead time from the time the ABM figures to the time inflation is signalled by the CPI.

The next tool is the yield curve. In normal times, the longer-term maturities have a higher rate than the shorter ones. If the yield curve flattens and then inverts (long-term rates dip below short-term), we have a warning of a recession. I have attached a short piece by the FED that explains the indicator. (Figure 2)

Yesterday, FT ran an article suggesting the yield spread was sending an amber warning of a recession. Frankly, I think they are way ahead of themselves.

According to the FED, one of the most successful predictive yield models is the spread between the 3-month bills and 10-month notes. Figure 3 shows the spread. Yes, the spread is narrowing – the 10-year notes are ‘flat to down’, and the 3-month bills are ‘rising’. But, the current spread between the two is only 1.17 (St Louis Fed Reserve).

According to Attachment 2, with this spread, the probability of the yield curve correctly predicting a recession is less than 10%. That said, like the AMB, it’s an indicator I check regularly.

The final tool: one I was recently introduced to by Port Phillip Publishing. It’s the Baker Hughes Rigg Count of US oil and gas rigs.  Figure 4 is a chart of the BHRC with the recessions marked. Port Phillip says:

We have marked the years of US recessions…..We pay particular attention to the amount of time that has passed since the end of the last US recession — eight years. And the fact that the recessions seem to begin as the rig count is on the rise, rather than when it’s falling.”

My analysis of a chart of the BHRC and recession dates:

  1. This indicator lags the recession starts, and
  2. It serves as an excellent confirmation tool.

That said, oil prices are down 18% in 2017 and oil rigs are on the rise. The chart may be saying ‘get ready’.

So why am looking at recession indicators? Usually, the stock market tops before a recession. But within the current context (given the exuberance of the US stock market) we may well see a recession before the stock market tops.

FIGURE 1 Adjusted Monetary Base

(Chart through courtesy of  St Louis Fed Reserve)

2017-06-28 Yield Curve Predictor of Recessions FED

Attachment 2: FED explaining of Yield Curve

FIGURE 3 10-Year Notes cf 3-month Bills

(Chart through courtesy of  Quandl)

Figure 4 Baker Hughes Rigg Count

(Chart through courtesy of Bloomberg)

 

No Blog

June 28, 2017

Sorry, Guys and Gals…..

Yesterday, I slipped and either tore, or severely strained, some back muscles – making sitting and walking very painful. If the muscles are only strained, I’ll be back in a couple of days; if they have been torn, well…..who knows?

Hopefully, they are only strained.

Image Credits: nordic outbreak

Consequences Protectionism: Trade War – Black Swan? (2)

BarroMetrics Views: Consequences Protectionism

The image heading this blog fairly well sets out the general consequences, costs go up, supply goes down, and as a result, prices go up.

But, in the current context, there are two very consequences:

  1. Possible mini-trade war with US allies.
  2. A trade war with China

The tariffs would not be aimed specifically at China. As such, they would hit Canada, Germany, South Korea, Turkey and Mexico more than China. Undoubtedly, they would react in kind.

Also, the EU trade commissioner, Cecilia Malmstrom, has warned that the EU would have to respond.

If Trump does impose tariffs that affect China, can you see it not responding? I can’t. So, add China to the list above.

A world trade war, at this delicate juncture, could send stock markets tumbling at a rate that no amount of QE would halt.

Let’s see what happens.

Image credits: action institute