Saturday, December 29, 2012

Cliff Jumping

They've got to pass something..anything.

The US Congress and Senate must pass something to avoid a nosedive in worldwide equity markets.  (Duh.)  It really doesn't matter what it is.  As I write this on Saturday afternoon, DJIA futures are down 200+ points according to the Wall Street Journal.  What does seem certain is that a "grand bargain" is out of question.  So the question will be whether or not whatever agreement is reached is enough to satisfy the markets.  I purposely keep this blog a-political so I'll stop pontificating on the potential outcomes of the cliff at this point.

My bearish option position is alive again and a decline Monday would bring me from almost a total loss to a profit.  Goes to show you how much faith in a system is important.  Speaking of the RumWave, it is not displaying a buying opportunity.  In fact, it favors a dramatic move to the downside.  That being said, my daily scores are near the point at which they typically change directions.

Daily scores:

The DJIA daily chart above shows me that there is still room to move lower, although it is not necessary.  We are in an acceptable range to change directions.

The DJIA 4 hr chart also shows room to move lower.

Above is a chart of the Russell 2000.  I've been keeping a close eye on this chart because my bearish option position reflects this index.  The small caps have been quite stubborn in their willingness to decline.. which has been a bit frustrating for me.

TSP / 401k / IRA:  Safety

Questions or comments?  Email me:


Thursday, December 27, 2012

Headline trading = volitile

Political theater

Today's market action was just one of those crazy days.  If you were privy to congressional day planners, you could make a killing just by looking at what events are scheduled.  Any sign of fiscal cliff conversation = bullish trade.  Any time Senators speak = bearish trade.

I was able to watch CNBC pretty much the entire day today (my little version of heaven) and it sounded like the "cliff" deadline is artificial and the market knows it.  A couple of our elected leaders alluded to the fact that a "framework" for a deal was the probable outcome with the actual deal being accomplished by the end of Jan with a "retroactive" bill that would undo the damage done by the cliff.  It's a big gamble and a bit of arrogance for our elected leaders to believe that they hold all the keys necessary to undo whatever may be the world economy's fate.

If I was to only look at the charts of the DJIA and friends, I'd draw a conclusion that we are at a short term market low.  The 4 hr chart is showing a bullish candlestick pattern (tweezers bottom), a very low slow stochastic, a MACD histogram that is turning bullish and price at the lower end of the bollinger bands. However, the RumWave chart does not suggest that it is time to buy.. so I won't.

Today's scores (minus the days I was on vacation)

TSP / IRA / 401K:  Safety


Thursday, December 20, 2012

End of the world


One prediction I feel very confident in is that the world will not end tomorrow.  Seriously, some Mayan a bazillion years ago thought to himself, "That seems like far enough to build this calendar, surely someone will pick up the work by then."  Sadly he underestimated the laziness and lack of critical thinking / independent thought skills of the modern world.

Anyway, the stock market continues to be awash in gyrations that seem to be trending higher.  Here's a thought on fiscal cliff outcomes outlined by a friend of mine.
Outcome 1) no resolution to fiscal cliff = raise taxes & cut spending.
Outcome 2) agreeable resolution = raise taxes & cut spending.

Today's scores:

TSP / 401K / IRA:  Safety

PROGRAMMING NOTE:  I'm going on Christmas vacation, Clark Griswold style. I won't have access to my normal charts and files so for the next week I'll only post text, and only if something is worthy of discussion.  Enjoy your holidays!


Wednesday, December 19, 2012

Sensitive to news

Not very stable right now

Right now things don't appear to be very stable or predictable.  For that reason most investors will probably be happiest on the sideline until the end of the year.  Sure, you may miss a move higher but you may also miss a huge sell off.

My favorite Elliot Wave blogger seems to think there are up to three possible outcomes for the next little while.  I think he's pretty smart, so the indecisiveness associated with his analysis makes me want to sit everything out for a bit longer.  I still have my bearish option position, but it is just a speculation play to keep me excited about things.

Today's Scores:

TSP / 401k / Roth gameplan:  Safety


Tuesday, December 18, 2012

News dominates

Pricing in a resolution

The market looks to be pricing in a resolution to the fiscal cliff.  Despite what I considered to be negative commentary from the news outlets, traders seem to just be happy that negotiations are underway.  Time will tell whether or not the result of a resolution will be good enough to keep the market satisfied.

My bearish option play is down a lot.  But, risk is risky and I'm only playing with an amount I'm willing to lose.  I plan to keep holding it.  I may not get it all back, but I think there will be a better opportunity to get it back.  Even if I don't, I entered the trade knowing I was willing to let it go to zero.  Just the way I'm playing the game, for this relatively small position.

Today's scores:

Scores pushed higher today.  I don't see any strong signs on the charts of the market reversing course tomorrow, but we'll see.  News is the driver of this market.  


Monday, December 17, 2012

One day, a trend does not make

Easy there, perma bulls

Today felt like a great win for bullish positions.  I know, I have some stuff in my IRA that benefited from the rally and some of my good friends made great bullish calls on some options.  My bearish option play got hammered.  Ultimately, the RumWave chart is still in bearish mode (or, at a minimum not bullish) so I'll keep trusting it.

Today's scores:

We'll see how tomorrow turns out!

TSP: G fund

401k / Roth:  Safety


Saturday, December 15, 2012

Bounce probable

Little bounce is likely

Before I begin the stock market analysis, I'd like to acknowledge the tragic murder of innocent children and their teachers in Connecticut.   It is a senseless tragedy that has impacted the entire country.  My thoughts are with the families of those involved and the first responders who will live with the images of that tragic event.  As a father of two young children, I can imagine no worse event.

The market closed modestly lower Friday.  This had the effect of cooling off my daily scores:

I expect to see a bounce on Monday.  The chart below is of the DJIA, 30 minute candles.  A bullish divergence is visible indicating a small rebound is probable.

Overall, I am still holding my bearish option play.

TSP:  G fund

401k / IRA:  Safety


Thursday, December 13, 2012

Done going higher

RumWave Sell Signal 

Today the market seemed to give up the ghost.  The RumWave chart made a solid move into the "red light" criteria around 11:00 CST.  At about 2:20 CST I sent an email out to my friends alerting them that the red light would be illuminated this evening, and that I planned to move into a bearish option position.  I purchased a Put on the IWM at about 2:30 CST.  My intended holding period is 10-20 trading days.  However, if the facts change I'll cash out.  From here until I decide otherwise, I'll update the "Ultra Wave" with a short position in SDOW, a 3x inverse of the DJIA.  Full disclosure, I am not personally in this position.  I'm only in my bearish option play.

Bearish plays are very high risk in this environment   Any news about a fiscal cliff deal could trump otherwise valid signals.  However, I trust my modeling and backtesting.

Today's scores:

TSP:  G fund

401k:  Safety

Questions or comments?  Email me:


Wednesday, December 12, 2012

Bearish setup continues to form

Bearish setup continues formation

Today I didn't get to do a lot of real-time monitoring of the market, but I was able to catch the gist of it listening to CNBC and Bloomberg on my way home.  It seems like the market rallied yesterday and the first half of today on the hopes of yet another round of Fed easing.  However, once it was signaled that there may, one day, be an end to the easy money the market went into "two year old having a fit in the grocery store isle" mode.

What is more interesting to me is that the bearish RumWave setup I've been writing about the last couple posts continues to form.  Additionally, the DJIA chart is showing a bearish candle on the daily chart and a bearish divergence on the 30 minute chart.  The Elliot Wave blogs I follow suggest that this may not be the 5th wave.  However one of them does suggest that the market is entering an "inflection point" range that could have significant impact on 2013.

Today's scores:

Ultimately, the RumWave chart has not met the "red light" criteria.

TSP:  G fund

401k:  Safety

Questions or comments?  Feel free to email me:


Tuesday, December 11, 2012

Chasing is never a good idea

Chasing is never a good idea

I've learned a lot of lessons the hard way in my investing life.  One of those lessons is that it is never a good idea to chase a bull run.  It is very tempting to jump back in the market on days like today.  Most "average joe" investors tend to let the "what if-itis" creep in.. "What if it just keeps going up?  I don't want to miss it!"

To that, I say, "patience, grasshopper."  We have a long time to make money, and you only have to get rich once (in most cases.)  The market will present a better entry opportunity, or at least one that is less likely to immediately reverse course and make you want to throw in the towel on equity investments.

Today's scores:

The RumWave chart continued defiantly higher today, creating a little breathing room between its current state and a "red light" signal.  However, a particularly nasty setup is in the process of forming.  This particular setup, if it continues, will mirror RumWave chart warnings prior to all the major market sell offs since 2008 (yes, I'm talking about the big ones.)  The sky isn't falling yet, but it is definitely worth watching.  A recession as a result of failed fiscal cliff negotiations would seem to line up with the timing on the RumWave chart.  I will obviously keep everyone informed on what I'm seeing.

TSP Gameplan:  G fund

401k Gameplan:  Safety.

Questions or comments?  Email me: 

Monday, December 10, 2012

Holding pattern

Still no sign of giving up

This market has some fight in it.  At the close today the RumWave chart still did not break down so the red light is not out.  This market has already proven that it is not afraid to take an overbought condition and make it even more overbought with big news.  The perfect example was the QE3 announcement.  It could happen again with the fiscal cliff.  Once again, if I was in a bullish position I'd stay in it.

I genuinely don't think a RumWave "buy" signal is possible before the end of the year so it looks like the annual gain for 2012 will be 57%.  If we would have stayed in past my most recent decision to sell it would be up about 5% more, but I'm very happy with my decision given the information I had.  I'd do it again in a heartbeat.

Today's scores:

If you are good at color vision tests, you may notice that the RumWave score is slightly less red than the others.  This is because one of the variables that go into the calculation is actually declining right now.  I'm keeping an eye on it, as it could lead to a danger sign.  But for now, all seems good.


Saturday, December 8, 2012

Showing some strength


Although I am still very cautious here, the market (DJIA at least) is showing some signs of strength.  The RumWave chart is also showing some resiliency so I'm not turning on the "red light."   However, that doesn't mean that I want to start new positions here.  If I was still in a bullish trade, I'd stay in it, but I'm not.

According to the 2012 Congressional recess schedule, Congress plans to recess on 15 Dec.  I'm sure that they will extend if a deal hasn't been made, but I haven't heard anyone talking about it yet.  Political theater anyone?

Here are the daily scores.. they are pretty high now and still climbing:

I thought it might be interesting to take a step back and look at the forest for a minute.  Above is a chart of the Wilshire 5000, weekly view.  I'm a big believer in "don't outsmart your common sense."  I'm pretty sure a 4th grader could look at this pattern and suggest what will likely happen for the next few candlesticks.

 Above is the DJIA 4 hour chart.  The Dow broke out of the bearish divergence trend.

Above is a daily chart of the DJIA.  With the Heikin Ashi candles we can see a higher high on the most recent candle wick.  That indicates strength.

 The SPX has not been as strong.  Above is a SPX 4 hr chart.  The slow stochastic is still in a downtrend, but it is on the verge of getting out of it.

So, the bottom line is that I don't have a good foundation to go short or go long.  That may change next week, but we are in a very news sensitive period.  I'm happy to sit on the sidelines for a bit.


401k Gameplan:  Safety

Questions or comments?  Email me: 


Thursday, December 6, 2012

No red light yet

Still not breaking down

Today the RumWave chart did not break below "red light" territory.  This indicates that there may still be some up side to this run.  The scores below still show us in an overbought state, so I won't be starting any new positions.  I'm looking forward to a worry free weekend after this whipsaw week!

Daily scores:

TSP Gameplan:  G fund

401k Gameplan:  Safety

Thanks to all my readers across the globe!  I appreciate every page view I get!  For what it's worth, Toronto, you're my top viewing city according to Google Analytics.  Everyone else, feel free to tell your friends if you like what you read.  Thanks again! 


Wednesday, December 5, 2012

Wild day

What the heck, man?

The chronology of my trading day with a bearish option position:
4:30am - Wake up, check futures, DJIA + 30.... "Dang" I thought.
7:00am - Brief to fly, check futures, DJIA + 50ish... "Crap" I thought.
9:30am - Sortie complete, check market, DJIA in steep decline... "Sweet!" I thought "That's more like it"
10:00am - Begin debrief of sortie feeling good about market movement
10:45am - Debrief complete, check market, DJIA moving rapidly higher..."What the heck?"
10:46am - Read CNBC headline about presidential remarks regarding fiscal cliff... "You gotta be kidding me."
10:47am - Sell bearish option position for a cumulative loss of $5...

No doubt it was a strange day.  DJIA outstripped the S&P and the NASDAQ closed significantly lower.  Who knows... new day, new jet as we say in my line of work.


The RumWave chart is clinging to life by the smallest of margins, and at one point today it had fallen below the "red light" criteria.  Nonetheless, still no red light at the close.  Elliot Wave theory would suggest that today was a "B" wave and that tomorrow should be a downward "C" wave.  We'll see!


Tuesday, December 4, 2012

Very close to the red light

Seems toppy

The bullish wave that started around 16 Nov seems like it has exhausted itself.  The RumWave chart retreated a bit today.  It is now very close to the "red light" signal.  I re-entered my bearish option play today.  We'll see how it turns out.  It is very very risky and I'm playing a little bit of a timing game.

Today's scores:

It is important to remember the the RumWave method considers all US stocks (8700ish) in its calculations so the slight decline in scores today could be (and likely is) a leading indicator of a short term sell off.  If it gets triggered tomorrow I'll turn on the red light, indicating that the top is likely in.


Monday, December 3, 2012

Chickened out

Wish I could have that one back

Today I got a little skittish on my bearish gamble play and sold out at break even.  I'm regretting that because the divergences I pointed out on the weekend post are still intact.  If I would have had access to my home charts I might have decided to stay in the play.  Now, the other bloggers I follow are pointing out the EW count and bearish divergences.  I hope the market doesn't sell off huge in the opening tomorrow so that I can re position myself.

It is worth noting that the RumWave chart did decline a bit today, but did not trigger a "sell" recommendation.

Today's scores:

TSP gameplan:  G fund

401k gameplan:  Safety.


Questions or comments about the RumWave?  Email me:

Sunday, December 2, 2012

Look out, danger signs


Friday was an interesting day that ended up flat overall.  The RumWave chart continued higher as well did most of the scores for my daily scoring system.  Additionally, bearish divergences showed up on the DJIA 4 hr chart and the SPX 4 hr chart.  All of those things indicate to me that we are seeing a market that is overextended in the short term.  I won't turn on the red light until my criteria is met with the RumWave, but I did buy a small bearish position on a small cap index fund Friday as a gamble in an effort to lead turn what I believe will be a short term pullback.

Daily scores:

The daily scores above are now all in the red zone.  They could stay up there, but as we think of the scores as a spring, the spring is over extended and stretched out.  All that is needed is a catalyst to release the spring back to its neutral state.

Above is a screen capture of all my calculated scores since the system's inception.  The very top graph is the cumulative daily score.  You can see how big of a move we've had; far bigger than any previous moves.

The chart above is a SPX 4hr chart.  I've highlighted bearish divergences with yellow dashed lines.  We can see higher highs on the upper price graph, but lower highs on the Slow Stochastic and RSI.  The CCI is essentially flat. 

 The chart above is a DJIA 4 hr chart.  Bearish divergences are highlighted with yellow dashed lines.  We see higher highs on the upper price graph with lower highs on the Slow Stochastic, RSI, and CCI.

While bearish divergences do not always result in declines, they seem to be reliable more often than not.  The fact that they are visible on the DJIA and SPX improve the likliehood of a short therm decline.  A bearish divergence is also visible on the Russell 2000 4 hr chart, but only on the Slow Stochastic chart.

From an Elliot Wave perspective, at it's most basic interpretation level, I can count a 5 wave up pattern from 16 Nov to 30 Nov on the 4 hr charts.  This would lend itself to a corrective A-B-C pattern next.

So, the bottom line is that I think a corrective short term pullback is due.


401k Gameplan:  Safe positions.

Questions, comments?  Email me @ 

Thursday, November 29, 2012

100% sideline now

No skin left in the game

Today I was finally stopped out of my final DJIA play.  Ironically, the RumWave chart made a big move to the positive side of the outlook.  I'm not really sure what that means, to be honest, so I'm happily just watching things for now.  The daily scores are all very high and there are some bearish divergences on the DJIA 1 hr and 30 minute charts.  A significant decline tomorrow would probably turn the "red light" on.

Today's scores:

TSP Gameplan:  Move to safety, G fund

401 K Gameplan:  Bond fund or other safe zone


Questions, comments?  Email me: 

Wednesday, November 28, 2012

Still don't like it

Happily on the sideline

Today I should have been stopped out of my last bullish position with the early morning drop.  However, due to my own mistake in placing the order I remained in the market unintentionally.  As it turns out I was lucky and ended the day with a gain.

I still don't like what I'm seeing on the RumWave chart.  I will reset my trailing stop again to move my last position into cash.

Today's scores:

There's a lot of red on that picture of the daily scores.  I don't know if it will just be a small correction or a big one yet, but I'll be happily watching from the sidelines knowing that I beat the entire DJIA index year to date with one ETF trade over less than two weeks.