Monday, October 24, 2016

SPX Update: No (fill in the blank)

Honestly, there's only so much you can write about a market that's been range-bound for 11 days before you run out of original things to say.  You can always repeat yourself, but that starts to get boring after a while, and also starts to get boring after a while.  For both the reader AND the writer.  Thus, I'm going to let the charts do all the talking today.

We'll start with a chart that I consider to be my crowning achievement -- my "master work" if you will -- the culmination of everything I've ever learned.  This was the first chart I drew this weekend, and the projections on this particular chart will almost certainly prove to be correct:

Ha ha!  Just a little Stockcharts humor there, designed to elicit angry responses from our Congressional "leaders."  And to break the monotony of saying "No change" again.

Anyway, here are the real charts, which, if I recall correctly, were SUPPOSED to be doing all the talking (glares sternly at charts).  First is the SPX bigger picture chart, which, you guessed it, is the same as last update:

SPX short-term:

And a few prudent notes:

In conclusion, I haven't said "no change" this often since the last time I strolled down 42nd street.  Trade safe.

Friday, October 21, 2016

SPX Update: Bears Still Defending 2150

SPX has done very little in recent sessions, except continue to reject rally attempts near the key 2150/red trend line resistance zone discussed last Friday.  Thus bears are at least keeping hope alive for a more immediately bearish resolution to this pattern, so I've updated the chart below to include one version of the more bearish option:

A near-term SPX chart below:

In conclusion, there's still no change, since the market has ground sideways all week.  Bears have continued to defend 2150, keeping hopes alive for more directly bearish near-term options.  I remain bearish on the larger pattern, and (to reiterate what I've been saying all week) do not currently believe that 2114 is a significant low.  Trade safe.

Wednesday, October 19, 2016

SPX and NYA Updates

Sometimes you can look at a near-term pattern and say, "Ah, this is obvious.  Here's what happens next!"  Other times, you feel like you need to see just a little more from the market.

In terms of the current picture, I'm still slightly leaning toward the blue 2/b path outlined last Friday, but bulls have not yet reclaimed the key resistance zone (also outlined on Friday) -- so the market does seem to be keeping its options open at the moment, perhaps "waiting" on the ECB tomorrow.  Thus, there is still no material change to the recent updates:

The larger pattern appears more clear-cut, and I still have a difficult time seeing this as anything bullish:

In conclusion, as mentioned previously, the downward wave from 2193 SPX appears incomplete, so I'm still inclined to believe that lower lows are coming.  The main question is still whether we'll follow the blue 2/b path, or if near-term overhead resistance will continue to contain the market.  Trade safe.

Monday, October 17, 2016

SPX Update: No Change

There's very little to add to Friday's update, except to note that bears did make a stand at the 2145-50 resistance zone, which I mentioned as the next meaningful level and the zone that bulls need to reclaim. 

In conclusion, there's very little to add today.  Either bulls get back above the red trend line, or they don't -- either way, I think there are still lower-lows lurking in the market's future, the main question seems to be whether those come directly, or after a bit more rally.  Trade safe.

Friday, October 14, 2016

SPX Captures Target 2 for 50+ Points of Profit

Yesterday started off uglier than Ben Bernanke's beard after a dust storm, but then SPX hit Target 2 and bounced like a really bouncy thing made of rubber (writer's note: come back later and substitute witty simile -- if there's time, which there probably isn't).

Presuming readers took at least partial profits at Target 2, then 50+ points of profit in a couple weeks is probably good enough, so bears can relax and play it by ear from here.  Which may be good, because I'm inclined to suspect the market has another trick up its sleeve.  Specifically, the trick noted at the end of Wednesday's update:

I should add that there is one option that bottoms near Target 2 (first chart), then rallies back up all the way to test the zone near the all-time high, THEN drops back toward (or below) Target 2 again... but I'll cover that in more detail if it becomes appropriate.

It's become appropriate to cover that, but let's start off with the 1-minute chart:

Here's a chart of the potential mentioned on Wednesday:

In conclusion, I'm somewhat inclined to suspect the complex flat outlined above, but there is no way to "prove" such a pattern until it unfolds.  This is 100% gut instinct, so I could well be wrong about the bounce continuing.  For readers who have followed these updates for the past couple weeks and are thus 50 points of closed profit to the good, it probably doesn't matter much, because there should presently be no feelings of desperation or fear of "missing out."  The bull potential is that the decline is a complete WXY correction, and thus heading to new highs -- another good reason for bears to be very cautious here, and await the pattern shown above (and its corresponding relatively-low-risk entry) before considering new positions.  If we start to see impulsive looking declines prior to the blue path materializing, then we'll consider the possibility that a continued decline may unfold more directly.  Trade safe.

Wednesday, October 12, 2016

SPX Update: Target 1 Finally Captured

For at least the past 18 years, I've been repeating that I felt the decline from 2179.99 was impulsive, and thus due for another leg down.  It seems like longer than 18 years since I first began discussing that prediction, but another leg down finally happened yesterday.  I'm going to let the charts take it from here:

Let's take a quick look at the "obvious" bull option, then we'll look at why I'm inclined to think it's probably not playing out:

To me, the subwaves don't seem to fit the bull option too well:

In conclusion, Target 1 from 9/30 was finally captured, and the prediction for another leg down has been satisfied.  I'm still inclined to think that there's more downside pending, but bears couldn't be blamed for displaying a little caution here near the next key level of 2119.  I should add that there is one option that bottoms near Target 2 (first chart), then rallies back up all the way to test the zone near the all-time high, THEN drops back toward (or below) Target 2 again... but I'll cover that in more detail if it becomes appropriate.  Trade safe.

Monday, October 10, 2016

SPX Update -- and One Rarely-Discussed Aspect of Trading Rules That Will Make or Break You

Since the market is still stuck in the trading range, we're going to talk about trading psychology.  I'm going to cover three interrelated topics, which connect in a subtle way that isn't often discussed.  Since we're still in a trading range, and that can lead to a less-than-exciting trading day, let's start there...

One of the biggest enemies of the trader is boredom.  Contrary to popular belief (especially among teens), boredom does not come about from having a lack of “fun” things to do.  It comes about from a lack of productive things to do.  In my opinion, boredom is simply one of several symptoms that can develop from a feeling of general emptiness.  And while that emptiness can be glossed over and temporarily hidden with frenzied “fun,” it cannot be truly filled by vacuous activity.
That’s why we quickly grow bored again as soon as the fun stops:  It doesn’t nourish us in any lasting manner; and certainly not in the way that truly productive accomplishments do.  After a meaningful accomplishment, we can sit and rest for a while, and we feel satisfied from a job well done.  We can be doing “nothing,” but we are not bored... because the emptiness has been filled (at least partially), or our self-esteem has grown, or our character has been enhanced, or some necessary task has been accomplished -- or all of the above.   

This is why “fun” works as a reward for productivity (after we're in the fulfilling mindset that accomplishment brings), but it does not support being chased endlessly for its own sake.  When fun is treated as an end in itself, the emptiness may retreat into the background momentarily, but it never goes away.

Anyway, my point is that many traders understand this, at least instinctively (whether or not they’ve ever put it into words).  The problem isn’t that they’re too lazy, the problem is that they can become hooked on trying too hard to accomplish something productive.  

And that leads to overtrading.   It leads to forcing trades.  It leads to bad decisions, and, sometimes, to acts of outright desperation.  Is there a solution?

Well, the solution may be to redefine our individual views of “productive” action.  I’ve often preached that non-action can be just as important as action.  If a trader has clear rules, then they can derive a sense of accomplishment from NOT taking entries that violate their rules. This is easier said than done, because the market is virtually always going to do something in the way of movement.  So when one resists, say, a buy entry because it violates their rules… and then the (untaken) trade goes on to develop into what would have been a 1000% gain, it can feel like you did the wrong thing. 
Which leads us to the area I don’t hear talked about regarding rules:  The psychological importance.  Everyone talks about how you need rules to maintain discipline, and that’s true – but you also need rules to defend yourself psychologically against the one (potential) enemy who knows your every weakness:  Yourself.  That may, in fact, be the most important aspect of trading rules. 

With clear rules, you have an emotional fallback when that trade you never took goes on to become the greatest winner in history.  You can chalk it up to luck, or blind chance, or whatever (because it probably was), and say to yourself, “Hey, good for the people that took that trade.  I didn’t take that trade because MY system didn’t give me any reason to.”  And you can get on with your life.  And your next trade.
But without clear rules, you will beat yourself up endlessly for not taking that big-winner trade -- because without rules, you don’t really know WHY you didn’t take the trade.  How can you defend yourself if you don’t know why you didn’t take the trade, you just know it was a huge winner?  Just like in life, without clear guiding principles, your entire position is psychologically untenable over the long haul. 
So my point is this:  Without a well-defined trading system, you walk an endless edge where you are always one trade away from total destruction.  The amazing thing is, this one single trade can destroy you even if you never took the trade! Because the repercussions of one “incredible missed trade” will put you in the absolute wrong mindset to make your next trades successful.  You’ll be operating under a psychological gun of regret, and in a “not gonna miss the next one!” mentality -- and you’ll be tempted to jump into every long-shot, high-risk trade you can lay your hands on.  And (unless you get really lucky and hit a big winner), as the money dwindles, your mindset will rapidly spiral out of control.

So do yourself a favor, if you haven’t already:  Before you enter another trade, sit down and figure out exactly what your rules are.  Then agree to support yourself emotionally for honoring those rules.  Period.  Honoring your rules is your “win” -- that’s your productive activity.  No matter what happens to the trade (or non-trade!) afterwards.  As you go along, of course, periodically review and adjust your rules if you see areas that need improvement.   But stick to your rules, and never beat yourself up for maintaining discipline.  No matter how it ends up.

You now have a psychologically-tenable position from which to advance or retreat as you see fit.  You have the emotional foundation needed to support yourself through the inevitable ups and downs.  And you are no longer one bad trade, or one missed trade, away from going on tilt and wiping yourself out. 

Chart-wise, there's nothing to update but the near-term chart, so I've done so below.  For the larger bull/bear options, please refer back to the prior update:

In conclusion, the short-term pattern suggests that Friday's high was a b-wave, thus likely destined to be broken (although all that's technically required is a break of the red a wave high).  As I discussed in depth last update, I continue to feel bears should be cautious here, and only short the upper edges of this range, if they short at all.  Trade safe.