Saturday, March 30, 2013

April Outlook - Daniel T. Ferrera

Ferrera is a Gann disciple and produces longer term cyclic forecasts.  His 2013 forecast is calling for a change in trend in 2013, and according to this chart that change should happen as soon as April. Here is a chart from a site advertising his outlook service (for sale of course and not cheap):

  • With the Dow again pushing ALL TIME HIGHS, in the face of a weak economy, and impending global crises, and unemployment, do you expect that these prices will hold forever? Do you think we are about to break through to new highs and an extended Bull Market? Are you reading this because you are seeking advice on when this situation is going to turn around, one way or the other? Ferrera says that 2013 IS A CRITICAL YEAR, expected to produce a significant change in the markets, and he has collated over a dozen different forecasting techniques to cross-verify his own exhaustive analysis. If you are invested in or concerned about the markets in any way, you will not want to miss this important insight into what’s coming in the next few years…
I  do not disagree with this outlook.

Saturday, March 23, 2013

Update SPX - Mar23, 2013

As I have pointed out multiple times the past couple of weeks - up trending markets tend to have shorter cycles that are right translated (larger/longer up legs).  This is what we've seen since mid November, but it appears the shorter cycles are becoming a bit more symetrical which is expected as the up trend tops and turns.

Still we expect a cycle bottom by or before mid-April.  The expected downside is about 80 points from the top (1560 - 80 = 1480) , but possibly less as not all the shorter cycles are set to bottom at the same point.  Here are a couple of views (longer and shorter):

GL traders

3/25/ 11:00 am update ...

3/26 10:45 am update:

3/27 10:45 am update

Monday, March 18, 2013

trend reversal? update 3/22

It appears we may be setting a symetrical cycle.  If so it could mean a trend reversal of the longer cycle.  Take a look (updated chart 03/20):

3/22   Short cycles becoming more symetrical (top?):

GL traders

Sunday, March 10, 2013

Is it golden - Mar gold update - Mar 18

Notice how that short cycles have been left translated for HUI since mid Sept.  Appears that we now have a leg down and up that are fairly symetrical.  So a small down leg and a turn would imply that the longer trend is ready to (may have) turned....  So our future may be golden soon.

Here is the visual:

 GL traders

03/18 Playing out as projected so far:


Saturday, March 9, 2013

Bull markets are right translated

In an ideal world a cycle top would be half way between two bottoms.  Unfortunately the world is not ideal.  When the trend of the longer cycles are up the shorter cycles tend to be right translated (top to the right of the cycle mid point).  So any down turn is squeezed into the last part (less than half) of the cycle. I know of no firm rule for fixing where in that second half the top will occur.  Often a larger part of the down side is in the last 1/4 to 1/8 of the total cycle. The  reverse is true (left translated) for a down trend.

I have discussed left an right translation before, but I would like to give you one more visual representation of this. 

How does this play out in the real world?  See for yourself:

If we are near a trend change then the current move up should be short lived... 

Thursday, March 7, 2013

How does silver look - Mar 7, 2013

Looks like a short term bottom may be in order.  Here is a visual:

GL traders

Wednesday, March 6, 2013

market update Mar 6, 2013

Market continues to extend up past expected top.  As I have noted in an uptrending market (covering multiple shorter cycles) the shorter cycles tend to be right translated (up legs longer - time and points) than the down leg.  Of course this is getting a bit over  done!!!  Today though was mixed (NAZ down).

Still, market beginning to look a lot like it did from June thru mid November 2012.  Maybe it will play out that way again?  Here is a visual (DOW):

Gl traders

Charles Nenner on Bloomberg Mar 2013

Appl $360
Intel (semis) top in a couple of weeks
DOW 5000 by cycles bottom in 2017


Sunday, March 3, 2013

SPX uptrend is right translated

You may observe when an equity is trending up that the up leg is longer (points up and time) than the down leg (points and time).  This is referred to as "right translated".  Take a look at the S&P 500 (uptrend until a week or so ago).  This understanding of cycles may be helpful in timing your trades.

Here is the chart:

GL traders

RWM (inverse ETF) left translated

Equities in a down trend tend to produce "left translated" cycles.  What does that mean?  It means the up leg is shorter (time and points up) than the down leg (time and points down).  This knowledge lets you adjust your holding period accordingly.

Take a look at RWM to see how "left translation" shows up on a chart:

GL traders

Friday, March 1, 2013

Developing a buy system


Chart 7 -
The standard oscillators in can be overlaid on the centered detrend (or on top of prices) in the search for an oscillator that tops and bottoms as the trading cycles top and bottom. Not surprisingly, the performance of these oscillators for identifying trading cycle tops and bottoms can be improved by a few simple techniques.

To use an oscillator to identify cycle tops and bottoms look for three characteristics:

1. The oscillator turns when prices turn
2. The oscillator does not "wiggle" much at cycle tops and bottoms
3. The oscillator has amplitude moves that take it to the extremes of an
allowable range as the cycles bottom and top.

One such oscillator is the Wilder RSI. If the RSI 3 is used it provides frequent enough oscillation to fit a swing trader's needs. A smoothed RSI with a 3 bar averge is best (RSI3M3). It shows the bottoms and tops of the trading cycle almost as well as the centered detrend and can be used as a mechanical trading signal and cycle identifier… And the RSI3M3 is current to the most recent price bar, turning down in this chart to identify the most recent trading cycle top (not normally identified by the centered detrend (DPO)).


Chart 7 - The RSI3M3 oscillator is current to the most recent price bar and shows cycle tops and
bottoms as well as the centered detrend.

NOTE: Many use the RSI without understanding its relationship to cycles. By using 20/80 lines we may miss some trades that could be taken if we used 30/70 lines. Still we caught good entries at 1, 3, 5, and 7. We got good exits at 2, 4, 6 and 8. Using 20/80 or 30/70 is an individual decision (20/80 is a more conserative approach).


Chart 8 -
There are four steps to construct a mechanical buy signal illustrated on the
following chart with buy signals for an RSI3M3 oscillator:

1. The RSI3M3 drops below the buy line at 30. By dropping below the buy
line the oscillator shows an oversold condition common at cycle bottoms.

2. The oscillator turns up to show the market momentum is reversing. The
price bar that turned the oscillator up is colored or thickened (or otherwise indicate)\
 to show that it is a setup bar.

3. A buy stop to go long is placed one tick above the high of the setup bar.
By waiting for the high of the setup bar to be exceeded, instead of trading on
the close, the accuracy of the buy signal is increased from 10% to 25%,
depending upon market and time frame.

4. Once a market is entered a protective sell stop is placed one tick below
the cycle bottom . Sell stops would be placed one tick below A and B. In A the setup bar was also the  cycle bottom and entry occurred the following day.

In B the setup bar occurs two days before the cycle bottom, but entry occurs the day
following the cycle bottom.

Chart 8 – Mechanical Trading Signals
reduce judgement and put you in control becausealways know the risk (entry price to protective stop).

 Chart 9 - In this chart, the up arrows identify the seven trading cycle bottoms labeled 1
through 7 in the oscillator panel. The down arrows show the cycle tops. The setup bars
are marked with horizonal orange bars marking the ideal entry point. There are seven buy signals, of which six were identified by RSI3M3 identified by falling below 30. Most entries were 2 days or less from the time bottom was made and the RSI reversed to the up side. Bottom 6 was above 30. Simply raising the buy line would not have helped, as over the long term a higher buy line at 40 or 50 would have more losers than the lower buy line at 30.

But these bottoms can be identified and traded by detrending the RSI3M3.


Chart 9 – RSI3M3 Buy Signals –
Five of seven trading cycle bottoms were identified with these buy signals. The orange horizonal setup bars
are followed by entry. Five of the seven signals could have made money.


You need to spend some effort in defining automatic sell signals similiarly to what we have done with buy signals. You may want to set a stop close underneath current price when/if the RSI moves above 70?

To be continued....