A Nation Divided?

BarroMetrics Views: A Nation Divided?

Yesterday, I was watching CNN and Fox and could not help but be struck by the thought that, today, the US is hopelessly divided along ideological lines – Democrats and Republicans. Neither party or group seems to be willing to work towards getting the economy going and working past the Washington gridlock that passes for governing.

Let’s just take a quick gander at just one event: The nomination of Neil Gorsuch to the Supreme Court 

Gorsuch has been nominated to replace Antonin Scalia who died in February 2016. The Supreme Court is locked 4-4 since Judge Scalia’s death. By that I mean four of the judges are liberal, and four are conservative – think of it as a clash between judicial restraint (conservatives) and judicial activism (liberals).

Justice Scalia was a conservatist with a towering reputation and had placed a stamp on the Supreme Court during his tenure. With his death during Obama’s last term provided the Democrats with an opportunity to reverse the tide of decisions that they saw as going against them. (See for example The Simply Breathtaking Taking Consequences of Justice Scalia’s Death).

Unfortunately for the Democrats, the Republican-controlled Senate refused to hold hearings on Obama’s pick, Judge Merrick Garland because it was Obama’s last year in office.

That sets the context.

Let’s turn to the current situation.

Judge Neil Gorsuch is a judge in the Justice Scalia mold (See, for example In Judge Neil Gorsuch, an Echo of Scalia in Philosophy and Style). Yet in his nomination to the Denver-based 10 Circuit Court of Appeals, he had overwhelming Democratic support.

Today, the Senate Democrats will block Gorsuch’s nomination with a filibuster. The Republican’s have said if that happens, they will employ the ‘nuclear option’ and change the numbers needed for nomination from sixty (60) to a simple majority of 51. This tactic was first used by

This tactic was first used by the Democrats in 2013 to eliminate filibusters on executive branch nominations and federal judicial appointments except for those to the Supreme Court. The Republicans will now extend that option to Supreme Court nominations.  Given the House and Senate constitution, the nuclear option will guarantee Gorsuch’s nomination.

But, the battle has shown that there is little chance of the two parties coming together. This may have severe consequences on passing Trump bills that are not supported by some Republicans e.g. the Obama Health Care Repeal. One such bill is the Cross-Border Tax.

What does this mean for the stock market? The rally since the Trump election appears to be based on the sentiment that we’ll see the massive changes to lift US growth. This battle seems to say that this confidence is misplaced. How then will the stock market react when its expectations are dashed?

 

Wither S&P?

BarroMetrics Views: Wither S&P?

With Singapore seminar occupying most of my time, this blog has suffered. I’ll be looking to resume posting four times a week.

The S&P is, for me, in no man’s land.

After the Trump rally on Nov 9, I was looking for a parabolic wave 5 to end this structure.  That scenario was looking good until March 1. The subsequent down move was too strong for a parabolic wave.  So, I thought we might have seen a top – even though my price targets had not been reached. But, the move south from the reaction high at 2391.80 was too weak to be the start of a bear. And, so far, the move up has been anaemic.

I’m waiting for the market to give a signal in the form of a breakout above 2402 or breakdown below 2320.

Figure 1 shows the structure.

FIGURE 1 S&P 5-d and 18-d Swings

S&P Buy Triggered

BarroMetrics Views: S&P Buy Triggered?

Figure 1 shows the current position. On Monday, we saw a failed downside breakout. Today we saw an attempted upside breakout that did not quite measure up to my buy signal for three reasons:

  1. The close was too close to the middle of the range – I’d have liked a close at 2355 or higher (basis nearest futures month) – that would have provided a bullish acceptance bar.
  2. I wanted to see an acceptance bar above ‘A’ in Figure 1 (around 2356)
  3. On the 60-min chart: I don’t have a confirmed change in trend signal.  For me to say that the current downtrend in the 5-day swing has ended, I want to see confirmation of a change in trend in the 60-min, 5-period swing.
For all these reasons, I am still on the sidelines.

Let’s see what tomorrow brings.

FIGURE 1 ES Daily

S&P Sell?

BarroMetrics Views:  S&P Sell?

As expected, the preps in Singapore for the April 1 presentation is disrupting my blogging time.

Still, tonight I just had to post because the S&P in the European time zone is showing a bearish acceptance bar. If this continues into the US timeframe, we’ll have the signal I was looking for to confirm a top, a top that will mark a substantial decline – at least 15%.

Let’s see what tomorrow brings.

 

Presentations

BarroMetric Views: Presentations

My blog publication schedule may be disrupted March 22 to April 2.

I’ll be in Singapore for two presentations.

  1. On March 23, a presentation only for Oanda clients, the Elite Trader’s Club.
  2. On April 1, a public event – at UOB Kay Hian Auditorium, 8 Anthony Road:

“How to Leave the 90% Who Lose Money and Join the Winning 10%”!

At UOB, we’ll be looking to provide:

  • the knowledge needed to become successful and
  • the models needed to integrate that knowledge into a set of skills.

Also, there will also be some great giveaways:

  • Four high-quality books – among the best to help traders become better, and
  • A lucky draw for a mystery gift, one that has led to phenomenal improvement.

Needless to say, I expect the event to be highly successful. It’s certainly the case if our registrations are anything to go by. The auditorium holds 100, and we are more than half-full – we started the marketing just today!

If you’d like to attend, register at

http://www.barrometrics.com/ray-barros-trading-success-foundation

 

 

Learning from History?

BarroMetrics Views: Learning from History?

Is the mainstream press willing to learn from history? Judging from the Dutch and forecasts for the French elections, I don’t think so.

In the Dutch elections, the press was all agog about Wildes winning. Yet, in the polls, he was a long way behind; and if you surmised anything about Dutch electors, the probability of Wildes winning, on this occasion, was remote. After the result, the press proclaimed that sanity had been preserved and forecasted a similar result for the French.

Wait a minute guys and gals, didn’t Wildes’ party become the second largest party, netting 26 seats? I wouldn’t be writing off Le Pen on that outcome.

Turning to the French – first round April 23 and the second May 7.

The mainstream pundits are predicting a Le Pen-Macron win on April 23 and have all but written Le Pen off for the May 7 run-off (Google ‘who will win the French elections’ and you’ll see what I mean).

For the May 7 round, the Betfair Exchange has Macron odds-on to win at 20-21, with Le Pen at 13-5 (2.6-1).

The French polls remind me of Brexit and US elections all over again. The focus is off tangent. They seem to ignore the strong undercurrent of French sentiment against current French immigration policies. Le Pen is all for exiting the Schengen border-free zone while Macron is for keeping it. This is the most critical difference in their policies.

If Le Pen wins on April 23 and is at 2-1 or more for the May 7 elections, I’ll be tempted to have a friendly bet. At those prices, she is under the odds.

 

 

Balancing Point

BarroMetrics Views: Balancing Point

It appears to me that US stocks are a balancing point. Quite a few of the commentators I like are flashing amber warnings (e.g. see attached PDF from Zero Hedge). Gann Global has a time window for a possible turning point from now until April 4.

I take a slightly different view. I do not see the public participation that I’d normally associate with a ‘bubble’ market. I have assessed the move since Trump’s election (Nov 7, 2016) as the start of the ‘bubble’.  For a top to come in, I’d prefer to see a parabolic rise into end March/early April.

Figure 1 shows the S&P off the 2016 lows. I wanted to compare the Nov 2016 range and volume with the Trump move. The purple line is the drawn off the one std high of the H-L of an 18-day volume average.

Extend the horizontal line to the left off Feb 2016, we see volume easily matching the 2016-02 levels; extend it to the right, and the range and volume levels drop off – not the volume and range I’d normally associate with a healthy bull market. But, it is the volume and range I’d associate with the bull driven by QE. The difference between the current ‘Trump-hope’  drive and the QE drive is currently we are seeing much greater public participation, the participation that makes for a top.

Figure 2 shows a clearer picture of the current price action – looks like we are poised to move one way or another. A move down from here on the same volume and range would probably be a buying opportunity; a move down sustained sharply increased volume and range would be a warning that a top is in.

Let’s see what happens.

FIGURE 1 18-d Swing S&P Cash

FIGURE 2 18-d Swing S&P Cash

Will Mid-March Madness Maul the Stock Market in 2017

Global Headwinds Look Like Mother of All Storms

A Tool for Success 2

BarroMetrics Views: A Tool for Success 2

Although I have been speaking about journalling as if it were one, there are actually two aspects to it:

  1. The stats side and
  2. The psych side.

The stats side require the details of the trade. For example, date of trade, instrument, long or short, entry, exit, initial stop, size, setup and trigger. The minimum stats required would the Expectancy Details – either or:

  1. (Average Dollar Win x Win Rate) – (Average Dollar Loss x Loss Rate) = $X
  2. (1+(Average Dollar Win/Average Dollar Loss))x Win Rate -1 = %.

The two stats are slightly different. The first produces a dollar result, whereas the second produces a percentage result. The first says, given my results, each trade will generate $X; where the second says ‘for every $1.00 risked, I can expect, on average X% in the S’.

But other stats are useful, e.g

  1. What if I set my stop using a different method?
  2. What if I entered using a different trigger? etc
  • If you are trading mechanically, some questions:
  1. Has the system stopped working?
  2. Has the critical sequence of loss been exceeded?

The psych aspect seeks to record the conditions, internal and external, under which we trade best and under which we trade poorly. For example: under what conditions are we likely to breach our rules? Following a sequence of consecutive wins? Following a sequence of consecutive losses?

Before Edgewonk the answers were often difficult to find and certainly time-consuming. The software makes life a lot easier.

 

 

A Tool for Success

BarroMetrics Views: A Tool for Success

At least 90% of retail traders lose money in the long run. You don’t believe me, just Gooogle “90% of traders lose money”. For example, here’s a reported study from Tradeciety “Scientist Discovered Why Most Traders Lose Money – 24 Surprising Statistics“.

So if I were to say to you: “Use this tool, it will guarantee improvement!”, Would you use it? You’d think so, right? Especially since the tool could be free or at most cost only a minuscule amount when compared to your trading capital.

Yet, this has been my greatest challenge – to help motivate at least most of our students consistently use the tool. And the tool? Keep a trading journal. Yes, I know, you’ve probably heard it a million times! But, do you keep one?

You do?

If the stats are right, you’d be one of the few.

So why is journal keeping important? Think of it as a performance metric – akin to the data a professional athlete keeps about his performance – and for the same purpose: it’s the info we need to improve. 

In this piece, I’ll be looking at the most common reasons why ‘I don’t keep a journal’.

I don’t have the time! I am too busy trading!

For scalpers and active day traders, this may be a legitimate reason. Still, it takes only a minute or two to write a few bullet points that can be filled in later.

It’s important to write down the key points as soon as possible – if only because the longer the time-lapse between entry and journalling, the greater the possibility we’ll miss a key point.

I appreciate that the shorter the trader’s timeframe, the greater the temptation not to journal because journaling distracts from trading. Still, no matter how active, there will be a spare minute or two for bullet points.

For the swing trader and longer time-frame traders, “too busy” is an excuse. You have more than enough time for your journal entry.  You need to ask yourself: “what’s stopping me?”

Usually, the answer is found in our avoidance of pain strategy. If we refuse to accept the pain losses bring, we tend to run from losing trades. So, we find ‘we don’t have to journal this losing trade’. If we have a couple of consecutive losses, we soon find that we are way behind in our journaling. Now we have another excuse – “I don’t have the time to journal because I am too far behind!”

The solution is to:

  1. Make an entry as soon as possible after the event: pre-entry, entry, during and review.
  2. Breaking a trade down into its parts makes it much easier to journal.
  3. Also, you have ‘sunk costs’ working for you even if a trade turns out to be a loser. You’ve done most of the entry, only the review needs attention.
  4. Accept the losing trades bring pain. I’ve been trading over 30 years, and I still hate to lose money. But, by
  • accepting that losses must happen,
  • seeing losses as a learning experience, and
  • anchoring the feeling to making a journal entry

I’ve been able to make sure that every trade is journaled.

Tomorrow, I’ll look at what to journal.

 

 

 

 

Interest Rates Rise – Impact on US Stock Indices?

 

BarroMetrics Views: Interest Rates Rise – Impact on US Stock Indices?

Non-Farm today and I am expecting a figure that is is at least on the better side of consensus (Consensus range: 162K to 240K, Consensus: 200K).

If I prove correct, that will clear the path for the FED to raise rates. That it would, provided the job figure produced no surprises, was made clear by Kaplan and Fisher. It was also confirmed by Yellen.

Let’s assume rates do rise. What effect will that have on the S&P?

I suggest very little in the way of a bearish reaction.

I see this current move as being the last leg of the   13-w bull market that started in 2008. It’s what I call an R2 move (parabolic rise) that is driven by sentiment. My sentiment tools rate the current move to be on par with the 1987 top. Gann Global has a possible date for the top in the time zone, March 17 to April 10.

However, I do think we’ll see a bullish reaction, given that the S&P is in a parabolic move up. Gann Global has a possible date for the top in the time zone, March 17 to April 10.  I’d like to see the S&P put on another 10% before I become overly bearish. In the meantime, I am keeping an eye on the corrections: a 3% drop will signal a top is in place.