Friday, June 29, 2012

End of 2nd Qtr

Pull back Monday?

We have seen a MONSTER rally that has eaten my short position for lunch.  But, as a rule, I don't react to big moves on the day they happen.  The combination of a good "agreement" from Europe, the end of the quarter, and the end of the week were all positive influences on this market.  Yesterday I thought the technicals were already too high to sustain the rally.. I was wrong.  Here's the breakdown of today's numbers. The score that jumps off the screen is the RumWave score in red.  The 4 hr and Daily are high, but not unsustainable.  

The slow stochastic on the 4 hr chart (top) shows that the market has room to continue higher, but it would be reasonable to expect a slight pull back based on the red line being so high.  On the Daily chart (bottom) we see the first large candlestick higher.  We also see a bullish crossing point on the slow stochastic.  Both of those tell me there might be more room to run up.

All of these factors lead me to this conclusion:  it is reasonable to expect a pullback Monday, perhaps as large as half the gain today (around 130ish points).  At that point I will consider closing my short position.  The reason is that this same scenario played out at the end of 2011 when the Euro crisis was temporarily resolved.  The RumWave triggered a sell signal, had a sharp decline, then grinded higher for months.  I'm not saying that will happen, just that it is a possibility.  In that particular scenario, the best decision was to buy into the market, even though the RumWave was already pretty high.  

Pre market update

Huge pop in the futures as a result of EU news. The last few pops have faded quickly, so we will have to see how the day progresses. This will be painful for my current holdings, but one thing I've learned with the RumWave is that an emotional reaction to market swings is never the right answer. So I will "take the pain" today. If something makes me change my mind on my forecast, I will likely reposition Monday, not today. I'm looking forward to the end of the day to see how it shakes out!

Thursday, June 28, 2012

Big rally ain't so good for technicals

Impressive rally, but not good for technicals

Wow, what a strong push at the end of the day.  Unfortunately, it may have been the worst thing for the short term market.  It sounds counter intuitive, but such an abrupt climb caused some extreme oversold signals on the very short term charts.  Below is the 15 Minute DJIA chart.  The %B is 137%.  That is just crazy.  I can't say I've ever seen it that high, and I've certainly never seen it not pull back from such levels.  The slow stochastic is also ridiculously high and needs to come down.  So, to recap, we closed the day lower and are due for an intraday style pull back... not so good.  

On the score chart the Daily score hasn't changed much at all.  The 4 hr climbed a bit and the RumWave score continued it's ascent... on a lower close.  Another bad sign.  

The 4 Hr and Daily charts are below.  Neither make a strong enough case for me to get out of my 3x inverse DJIA ETF.

 I'm still on a HOLD status going into the weekend.


Wednesday, June 27, 2012

Thursday could get interesting

Thursday could get interesting.

The market continued the rally today, extending gains from yesterday.  Our 4 hr chart score from yesterday was the fuel, and the good housing news was the match that lit it off.

Yesterday, the 4-hour score was at 57.  For reference, the baseline for a wave bottom is 15 and a score above 200 would indicate a wave top.  So, in the range of the nominal scores, it was fairly low.  Hence the green color.  Note that the 4-hour score went back up to 75 today.  Also note that the RumWave score also increased, returning to the orange color with a score of 296.  The Daily was the only score that decreased.  All that being said, I just don't think the market is ready to start a sizable upswing.  There are lots of opportunities tomorrow for the market to be disappointed.  Coupled with the knowledge that the RumWave is predicting further declines I'm expecting a move lower tomorrow.

4 Hr Chart

The 4-hour shows a bullish cross on the slow stochastic.  It is interesting , but note what was happening on the 9th of May on the chart... same bullish cross and we continued downhill for a while.

Daily Chart

The Daily Chart is not extraordinarily bearish or bullish here.. just kind of in the middle.  But, again note the action around 9 May.  The slow stochastic and trend quality indicator looked about the same, and we went downhill.

The bottom line is that despite the last couple days, the evidence points to a further decline.  We'll see how it goes.  I'm still HOLDING my 3x inverse DJIA ETF.


Tuesday, June 26, 2012

Still Room to Decline

Still room to decline

Today the market liked the positive side of the line, which was expected from the 4 hour chart score yesterday.  The Daily and RumWave scores are continuing on the trend of getting "less bad".  However, I would not be surprised by a resumed downward trend tomorrow or Thursday.  Overall, I am still in a HOLD status on my short 3x ETF.  

DJIA 4 Hr Chart
The 4 hour chart above shows a nice wave pattern on the most recent decline.  It seems apparent to me that there have been two waves down.  I expect a third leg according to basic Elliot Wave principles.

DJIA Daily Chart
The Daily chart above shows no signs of bearish sentiment letting up.  Still plenty of room to decline here, especially when we consider the levels on the slow stochastic and the %B studies.

Reader Requested Scores
The reader requested scores are shown above.  Of the three, FLEX looks like it has the best opportunity to move higher in the next few days.  I like it when the Daily and 4 Hr chart both look green.  Important to note, however, is that they are not the "most green" that they could be.  It is difficult to determine that just by looking at one day scores... unless you built the formulas... which I did.

For my AAPL fans (and I know a lot of our readers are using Macs and/or iPhones to view the blog) the 4 hr looks OK, but I wouldn't be a buyer here based on the yellow return on the daily chart.


Monday, June 25, 2012

Halfway Down

Halfway Down The Wave

Today's decline was expected by the RumWave.  We look to be about halfway done with the down move, but may see a pop tomorrow based on the daily scores.

The 4 hour score looks like it is ready for a bit of a relief rally after the last few days.  The RumWave score has crossed out of the "red" territory.  However, it is not time to go long until it turns green and I post the green light.

As a follow up to Friday's post, here is today's EUR/USD chart.  The 4 hour chart score was calculated at 7pm CST.  Since currencies are traded 24 hrs during the week this score is only valid at one particular time.  The Daily chart score is better than yesterday, but still not signaling good potential for an upward move.

If you would like me to throw your favorite stock into the score system, post a comment below with the symbol. I'll take the first 3 and post them on tomorrow's update.

The 4 hour chart above matches with the daily scores, the slow stochastic and %B studies show that the market is relatively low from a technical standpoint.  This supports the idea that tomorrow could be an up day.

 The Daily chart is still discouraging, suggesting that the downtrend still has room to run.

Introducing the UltraWave

Regular site visitors probably noticed the different colors on the scoreboard background.  Although I have stated several times that shorting this market isn't a good idea, I back tested what would have happened if I bought SDOW (3x inverse DJIA ETF) when the "sell" criteria were met.  Overall, it increased my returns on the portfolio.  However, there were several instances that it did not make any money or actually LOST money (around 4%).

Right now I have positions in SDOW because I think the bullish impulse that just ended was really "steep" for lack of a better term.  Correspondingly, the RumWave historically shows an equally steep decline in similar past instances.  Coupled with the fact that summer trading is usually quite volatile, and the fundamental problems in Europe have not been solved, I feel comfortable being slightly short here.

The scoreboard now includes returns from SDOW since last Friday.

If you have not made a short purchase, I recommend you wait it out for the opportunity to go long.  It is just too late to jump in here, I think.  For that reason, I'm putting out the Yellow light recommending a HOLD.  If you are still in long positions, I'd still recommend selling on a rally tomorrow with the expectation of buying again in the next week or two.


Sunday, June 24, 2012

Why I'm not a Day Trader

Why I'm not a Day Trader

One of the most common questions I get from friends or coworkers when they find out I'm an avid participant in the stock market is, "What are you, a day trader or something?"  I personally hate to be thrown into that bucket because it's just not what I do.  I don't like labels anyway, but if I had to have one I'd be more appropriately called a swing trader.

Here are the reasons I don't day trade:
1.  I don't have time.
2.  I don't need to. The scoreboard says it all. I'm thrilled with the results versus the amount of time invested.
3.  I have a full time job.
4.  I've proven to myself that I'm not as good of an individual stock picker as I would like.  Being really good at it takes tremendous amount of time and energy.  I'd rather be playing with my kids.
5.  Super-computer algorithms.  If you think you can outsmart the particle scientists, physicists, and artificial intelligentsia writing these codes.. I say good luck.  You are a better man or woman that me.
6.  I don't need to.  Oh wait, did I already say that?
7.  I don't want to pay commission fees every day.  That just murders your returns.  I've made 8 trades this year.  This includes buying and selling.  That is much more palatable than the 200 or so that I would have made if I bought and sold once each trading day this year.  That's almost $2k in trading fees.  No thanks.

The RumWave method is great for busy people who want good returns.  No brokers, no individual stock headline risk (we trade Index ETFs), low cumulative commission fees for your trades.  It literally takes less than 15 minutes to make a decision each day whether or not to buy or sell.  My time spent at the computer has increased with my decision to write this blog, but it is something that I enjoy doing.  

Best of luck to all your trades!

Saturday, June 23, 2012

Sold the Bounce Friday

Sold the bounce.

I decided to sell the bounce on Friday.  Not as much profit as I wanted (or had prior to Friday), but I'll take it.  

My scoring system is proving to be quite interesting.  It makes it easy to see when things are getting out of hand.  You can see in the picture above how everything was very very red the day before the large drop in the market.  That would have been the ideal place to take profits.  Hind sight being 20/20 I should have recognized this from the internal numbers that go into the overall score.  Although I don't post them, they are also color coded on my spreadsheet and on 20 Jun there were a lot of pink and red numbers all over the place.  Good to know for next time!

Just for grins, I applied the scoring system to the EUR/USD.  Interestingly, the Euro looks ready to pop up a bit from the 4 hr chart.  The Daily is less optimistic.  With our markets tied to the Euro (generally speaking) it is something worth watching.

The RumWave is still high, so I'm anticipating further declines next week.  We shall see!  Happy Trading!

Thursday, June 21, 2012

Sell Signal today!

Today's dramatic action triggered the sell signal in the RumWave.  A likely bounce tomorrow will give bulls a good opportunity to get out of your long positions.  Especially if you are in a leveraged ETF.  

SHORT CONSIDERATIONS:  I generally discourage them in a bull market.  Only EXTREMELY AGGRESSIVE traders with HIGH RISK tolerance should play with them here.

The scores above show the turn today.  What is interesting to me is that the RumWave is still quite high.  This indicates that there is a lot of room to fall.  However, the 1 hr and 30 minute charts are very oversold so we should bounce tomorrow.

4 Hr Chart
The above chart is discouraging from an Elliot Wave standpoint.  It indicates that the probable direction of the market is down, and we could expect to see a 5 wave move down.

Daily Chart

Afternoon update: SELL SIGNAL TODAY. I'll post more data when I get home from work.

Wednesday, June 20, 2012

Still no sell signal.

Continue riding the wave!  No sell signal yet.  When I heard the action resulting from the Fed statements today I thought we would get a sell signal from my proprietary RumWave chart.  We didn't!  This wave is showing some good resiliency in the face of overbought territory.  From an Elliot Wave perspective, we are at an inflection point.  The question is whether this wave is an A-B-C correction to a larger bearish market, or if it is truly a reversal after a 10% correction.  I think the latter is true.  I think if we were going to see the market resume a bearish trend, it would have triggered the sell today.

 The scores above continue to reflect an overbought wave.  However, that doesn't mean its done going up.  I'm watching the RumWave chart (which I don't post pictures of) for the critical point.  The good news is that the 4 hr chart score decreased ever so slightly.  That is actually a good thing in terms of the wave's ability to move higher.
4 Hr Chart
 The 4 hr chart shows a nice calming of the candlesticks without displaying bearish tendencies
Daily Chart
The Daily is also showing a nice calming of the wave.  Bollenger %B is pulling back slightly, which gives us a little room to move up without pushing the envelope.

The bottom line is that the RumWave is still saying we should hold our positions.. so I will!

Tuesday, June 19, 2012

Waiting for sell signal

The RumWave is reaching it's highest technical levels.  This is territory that triggers caution.  The daily scores above show the trend of this wave and how we are reaching overbought territory.  However, RumWave followers should keep holding their positions for now.  I'm waiting for the sell signal, which has not arrived yet.  This specific sell signal usually precedes the DJIA's decline by about one day.  So, when it happens the pink dot will turn to red on this blog.  At that point you should take profits.  When will it show up?  I can't say.  It may be tomorrow, it may be 10 days from now.  That is why I am still condoning a HOLD, BUT READY TO SELL status.
DJIA 4hr Chart

The 4 hr chart above still looks good.  Today's candle is stronger than yesterdays, and the Bollinger %B pulled back slightly.  The Trend Quality is still increasing, which is bullish.  The ADX/R is also getting closer together.   We should keep an eye on that, as it help to indicate strength of a move.

DJIA Daily Chart
 The Daily chart above also still looks good for the same reasons as the 4 Hr.

So, the Bottom Line is to keep holding and wait for the signal.

Monday, June 18, 2012

Still some bullish room to run, but remain ready to secure profits.

ALERT:  This is a change in status for the RumWave.  I think there is still one more impulse to the wave up, but we are getting very hot on the daily indicator scores below.  Conservative followers may take profits here.  However, I am holding my long positions. 

Today issued a bit of relief on some of the chart oscillators (Bollenger %B in particular), but the overall daily score increased in all three categories.  Additionally, the candlesticks on the 4 hour chart are showing a slowdown as we predicted last Friday.  This jives with the Elliot Wave count which suggests another push higher after this week's soft patch.  

 The daily chart below shows the wave trend still intact.

Thanks for reading!

Sunday, June 17, 2012

Does the news move the market, or does the market move the news?

This is a question to ponder as we move forward through the upcoming news events the rest of this year.  Elections around the globe, federal bank easing rumors, natural disasters, etc all seem to "move" the market.. but do they really?  In my development and observation of the RumWave I have reached a conclusion that the news outlets are often clueless about why the market is doing what it is doing.  

I distinctly remember listening to CNBC one day as I was driving in my truck and hearing a commentator say "I can't figure out why we are up today!"  I, however, was armed with the knowledge of the RumWave and had anticipated the upward move.  For the rest of the day the media superstars were grasping at straws to create a story that explained the market's bullish behavior.  

Sure, sometimes a major news story (like a nuclear power plant explosion) happens that causes an unexpected turn but those are few and far between.  I truly believe that the markets go where they want to go, and news stories are constantly lagging the fight.  When a story seems to move the market, I find it to be at a time when the market was ready to go that direction anyway.  I also always try to remember that all those reporters get paid to keep my attention locked to their network, newspaper, magazine, etc.  If it bleeds it leads, and if it scares us bad enough we won't change the channel.  

Special Thanks to our International readers!!!  

This blog has gone global in the blink of an eye.  Readers from all over Europe, Australia, Canada, and the US are catching onto the RumWave.  Thanks so much for reading!  I never thought someone in Australia or Lebanon would be reading these ideas.  Best luck to all of you and your investments!

Happy Father's Day!

For the Dads out there that bust their butts trying to provide for their families, well done!  Let us never loose sight of why we spend time trying to beat this market.  For most of us, it is to provide for a college education, pay for weddings, buy that first car, or just keep the electric bill paid.  My aim is to help you keep that commitment with this trading method.  Enjoy your day!

Saturday, June 16, 2012

Hot and getting Hotter

This wave is getting Hot, so I would expect a small slow down sometime early next week.  But, I still think there is more room to run before we take profits.  

Above is a new empirical method of tracking wave progress I have recently started.  Each day I enter some numbers into an excel spreadsheet I built and it pops out a color coded score to indicate just how "hot" the wave is.  I use a Daily chart, a 4 hour Chart, and my RumWave chart.  From the picture, you can see that the 4 hour is super hot, the daily is pretty hot, and the RumWave is warm.

The 4 hour chart above looks encouraging.  The candle health, for lack of a better phrase, still looks good.  From an Elliot Wave perspective, it looks to be about halfway through the "3"wave.  I'm not an EW expert, but I read blogs written by some people who are and they are seeing the same thing.

The Daily chart shows a good, strong candle from Friday's action.  The trend quality indicator printed a small green tic which I like.  What has me a little cautious is the %B indicator which tells me where we are in relation to the Bollinger Bands.  It is sitting at 98%, which is pretty high.  It doesn't necessarily mean we'll bounce off it, but it is a small caution flag that we are approaching an overbought regime.  

Overall, we are still in a HOLD status, with an anticipation of some kind of slowdown or pullback next week.

Thursday, June 14, 2012


It appears that the inverted Head and Shoulder pattern is starting to launch.  The two charts below are very bullish.  We are in the middle of the wave.

The chart below is a daily chart of the DJIA.  I prefer the Heikin Ashi candlesticks versus the standard candlesticks because they give me a better feel for momentum.  Two things stand out to me on this one.  First, the bottom of the candlesticks are in a ascending pattern.  That's good.  Second the tops of the candlesticks are in a ascending pattern..  That is also good.  When the tops and the bottoms get close together like a ribbon that has been twisted (see the left side of the chart) that indicates the momentum is drying up.  That was happening until today.  Now we see a resurgence of upward momentum which historically indicates another significant upward move.  The third thing I REALLY like is the trend indicator.  The red bars fell off the chart today.  Historically, this is VERY bullish.

 The chart below is a 4 hour chart.  It shows a nice breakout above the trend channel that we have been seeing for the last few weeks.  Very nice.

Overall, however, I don't recommend starting new positions. If you are already long, congratulations and enjoy the ride.  If not, don't worry.  I'll get you in on the next one.  You have plenty of time to make your money!

Wednesday, June 13, 2012

The stars are aligning for a big rally next week.

The inverted head and shoulders pattern is still intact.  To create a symmetrical right and left shoulder the market needs to be down tomorrow and/or Friday.  The perfect place would be 12,300 DJIA.  Fortunately, a standard head and shoulders pattern printed on the 1 hour chart.  The target for it is....wait for it.... 12,300.  I am still recommending holding bullish positions, but I'd be willing to bless buying on Friday.

I think Monday will be a Win-Win no matter the outcome of the Greek elections.  If the sane people win, there will be much rejoicing.  If the crazies (Syriza or whatever they are called) win, everyone will start talking about QE3 or the Fed stepping in to save Europe because they will have to.  Beyond that, this inverted head and shoulders is super easy to see, and should be a self-fulfilling prophesy for technical traders.. and I think there are enough of them to move the market.