Thursday, January 31, 2013


The Red Light, and what it means

Today the RumWave predictive model produced a "sell" signal.  Appropriately, I have turned on the Red Light.  It is important to discuss what this does, and does not mean.

What it means:  The stock market is at a point that is likely the high point for the next 10-20 trading days.

What it doesn't mean:  Bet the farm on short positions.

My interpretation of this iteration of the red light is that we are likely to see a 3ish percent pull back before resuming the upward move.  My favorite Elliot Wave blogger suggests that Wave 3 just completed with Wave 4 constituting a pull back.  Wave 5 should take the market to new highs.  I agree with his assessment. I don't think the decline will be a long lasting one.. maybe a week or so.

Today's scores:

I'll begin keeping track of the "UltraWave" score on the scoreboard using a ticker symbol called SDOW.  It is a 3x inverse ETF of the DJIA.


Wednesday, January 30, 2013

Breaking point

Almost a red light

The RumWave chart is very, very, very close to a "sell" signal.  It technically has not reached my trigger, but it literally could not be any closer based on the fidelity of my measurements.  I think the market turned a corner in the last two hours of trading today, and I'll show you why I think that.

First, the scores:

Take a look at the Daily and 4 hour score oscillator graphs (above).  They have turned over from their highest level.

Above is a 4 hour candle chart of the DIA (an ETF of the DJIA.)  The heikin ashi candle finally turned red in the form of a "doji" which is a momentum shift indicator.  The RSI and Stochastic are sharply declining.

A quick look at the SPX (above) shows the same indicators, but traditional technical analysis would have us look for an increase in volume for additional confirmation of the trend change.....

The chart above shows the SPY, 1 hour candles, with volume.  I've highlighted a horizontal line at the volume during the last hour of today's selling.  The level of volume was much higher than has been typical for all of January.

The last chart I'll reference tonight is the Russell 2000.  I like to look at the small caps because I believe they often lead the large caps lower.  Yesterday the Russell was showing some weakness while the Dow was moving higher.. red flag #1.  Today around noon the RUT chart (above) showed a red candle and a sharply declining RSI.  The last candle of the day was confirmatory in that it showed an increase in momentum to the downside... red flag #2.

I doubt market bulls will just step aside and let the market get hammered lower, so there may be some flailing around for just a bit, but I fully expect to have the RumWave "sell" signal in the next day or two.


Tuesday, January 29, 2013

Can't be stopped

Signs point to continued rally

Today's charts and strong market action continued to show how much bullish sentiment there is.  So many of the headwinds that caused problems in the second half of 2012 have been removed or postponed.  Europe is seemingly doing better, there's no election worry, there's no fiscal cliff worry, and the debt ceiling debate has been postponed until May (how convenient.)   Housing is reportedly rebounding and earnings have cleared the hurdles set by analysts   Other than the fact that the DJIA chart has been almost vertical in its ascent to current levels, I find there to be very little standing between bulls and new market highs.

Will there be a pullback?  Of course.  I've done a terrible job trying to predict it, so I'll just wait for it to happen and continue to try to read the tea leaves looking for the first indication of the turn.  The RumWave chart is still in a "hold 'em if you got 'em" range, so until the red light comes on there's still bullish possibilities.

Today's Scores:


Monday, January 28, 2013

Quick post

Short post tonight because its my wife's birthday and I'm not going to spend the evening on the computer. Here's what u need to know:

No change in light... Yellow light.

DJIA: technical reversal signals present. I bought a small position in a DIA put.


Sunday, January 27, 2013

Don't fight the tape

I've been beaten into submission

The trend is your friend... Don't fight the tape... Don't fight the Fed... If you can't beat 'em, join em.  However you want to say it, I have to change my tune for the time being.  I'll go along with the bullish sentiment that has gripped the bears by the throat.  The RumWave has not yet produced a "Sell" signal, so by all my tested measures, the market is still in "go" mode.  That said, I still think we are way way overbought and the charts just look ripe for a collapse.  I'll jump on the bandwagon for now.

I doubt that I'm the only one that has been in the bearish camp for the last couple weeks that has capitulated to the bullish ways.  It seems like the perfect time for a reversal!

Daily Scores:

Take note of the Daily and 4 hour scores in relation to their previous peaks (above).  Not really sure how much higher they can go.  The RumWave continues to decline.  Oddly, it has reached a level of support while the DJIA has continued to climb.  Usually, that level of support would lead me to predict a large market move to the upside..

The DJIA chart above shows no signs of breaking down just yet.  Clean-bottom green Heikin Ashi candles indicate the trend is still intact.  RSI and Stochastics are pointing up.  MACD is still moving up, but the lines are ever so slightly closer together and the histogram (green and red bars) have been the darker shade of green for a while.  By itself, those dark green bars don't really mean anything when I consider all the other positive indicators.

The NASDAQ is in a channel, and is bouncing off the bottom of that channel.  The green doji style candle is indicative of a possible change in direction (to the upside) and the RSI and Stochastic are positive.  The MACD is still pointing down, but the blue line is now leveling out.  It seems primed for a pop to the upside.. which is why I have a Call on the QQQ.

Last, we will look at the SPX.  No bearish signs yet.  Green, clean candles.  RSI, Stochastic, and MACD all showing upward direction.

One last thought.  The RumWave has not produced a sell signal through all of this year's market gains.  While it is true that the "Green Light" never got turned on because it was usurped by the Fiscal Cliff news, I do still find it encouraging that the indication to ride the wave has remained valid.


Questions or comments?  Email me: 

Follow me on Twitter for real time daily analysis:  @RumWave 

Thursday, January 24, 2013

Money where my mouth is

I put my money where my mouth is

Today I saw enough information to decide to buy a Put (a bearish option).. on the NASDAQ (QQQ).  It is a little outside my normal lane of playing the DJIA, but the signal looked pretty strong.  There's also some evidence that the S&P may finally be out of steam, but the DJIA is still showing strength.

Daily Scores:

Below is a snapshot of the SPY.  I've placed some red arrows to show what has alerted me to a possible sign of exhaustion.  The Heikin Ashi candle under the red arrow has what I'm calling a "dirty" bottom.  Meaning, there is a wick on the bottom of the candle while all the ones leading up to it were clean.  The Slow Stochastic is pointing down and the MACD is at a crossing point.  I'll be looking for a red candle tomorrow to confirm the trend change and I'd like to see the RSI slope down as well.

Below is a 4 hour chart of the QQQ (NASDAQ.)  Apple gave it the excuse to print two red candles with clean tops, a descending RSI, a descending slow stochastic, and a declining MACD with bright red histogram candles of increasing size.  It had met 5 of my 5 criteria for a short term purchase when I looked at it around noon today.

These signals are not RumWave medium term sell signals.  Rather, they are short term directional changes.  Any plays at this point are of "gamble" quality.


Questions or comments?  Email me:  (for real, not much email lately)

Follow me on Twitter:  @RumWave

Wednesday, January 23, 2013

AAPL Catalyst

Seriously, this is getting ridiculous.

Today the markets continued powering higher with no sign of easing up... until the Apple quarterly earnings were announced after the close (generally accepted as a "miss").  I think it may be just the catalyst we need to instigate a pullback of a few percent.  I sure hope we get it, because parabolic moves to the upside are usually met with parabolic moves to the downside.. hence the term parabola.  I submit this picture as evidence:

I'm not the smartest guy in the world, but I can see that the chart above is due for some red candles.  RSI is the highest it's been on the chart and so is the Slow Stochastic.  I just can't see us going a lot higher without some kind of giveback first.

The daily scores above continue to display the bearish divergence between the RumWave chart and all of the major averages.  Interestingly, there is not only a divergence between the RumWave chart and the DJIA, but the internal components of the RumWave are also displaying a MASSIVE bearish divergence.  I haven't seen this happen before, so it is uncharted territory (pun intended.)  

The charts of the DJI, SPY, and QQQ (above) show almost no signs of weakness going into the close.  However, after action trading is pretty ugly on the QQQ as a result of AAPL.

I hate to be a perma-bear, but I can't help it based on the information I have.  I just hope that people chasing this trend don't get completely crushed.


TSP:  G Fund

401k / IRA:  Safety

Questions or comments?  Email me:

Follow me on Twitter:  @RumWave 

Tuesday, January 22, 2013


The weekend work of a stock nerd

Ok, so I've been calling a decline in major averages for some time now.  I can't deny that the market that has been rallying in my face despite my calls.  So, I spent a lot of time this weekend going over some charts identifying some patterns and coming up with fairly accurate short term signals.  They supported the most recent continuing rally, and today suggests that the rally isn't quite done.

The RumWave scores continue to decline while the others continue higher.  I can't find an instance since 2008 that this pattern continued with a good result for bullish investors... but, nonetheless, the market is the ultimate truth so I'll yield.

Here are charts of the DIA, SPY, and QQQ (all trade-able proxies for major indices.)  They are 4 hour charts, with Heikin Ashi candles, RSI_EMA, Slow Stochastic, and MACD.  My studies over the weekend revealed that when the candles don't have a bottom wick, the upward trend remains intact.  One of the first tips that a change in trend is coming is a candle with a wick on both sides of the candle body.  Then, a look at the oscillators will often show the next move.  Downward sloping indicators indicate the next move is probably down.  Upward sloping indicators indicate the next move is probably up.  Today's DIA and SPY charts show no bottom wick and upward sloping oscillators... bullish for tomorrow.  (The first 4 hours anyway.)  The QQQ is wavering and slightly undecided, but the oscillators point up.

This stuff 'aint rocket surgery.  I'm thinking about a bullish trend for a bit tomorrow, but I'm not inclined to buy anything to chase it.  I just don't like the uber-high values of the RSI and slow stochastics.  I'll look for indications that the trend is changing, then make a move.


Saturday, January 19, 2013

A look at Elliot Wave

Lets take a look at Elliot Wave 

Friday gave the market a good rally to be happy about going into the long weekend... for bulls and bears.  For the Bulls, it confirmed their already bullish sentiment that the market is moving to new highs.  For the Bears, the rally produced the last wave necessary in terms of Elliot Wave completion for the the impulse that started on 1 Jan.

Scores as of Friday:

Below are 4 hour charts and 1 day charts of the DJIA (DIA)  and the S&P (SPY).  I've outlined the Elliot Wave patterns with yellow dashed lines.  It is pretty easy to see with the Heikin Ashi candles turned on.  This suggests that the decline that I've been talking about for so long is probably here.... probably.  I've seen EW theory be blown out of the water more than once, so it is by no means a sure thing.

Next week.. declines.


Thursday, January 17, 2013

Didn't expect that..

Decisive move to the upside, in my face!

So, I've been prophesying a sharp snap to the downside for the last few days.. I was wrong.  Obviously the market rallied today despite my expectations.  So be it.  Fortunately I was not in any un-salvageable positions, and I was fortunate enough to have some time to watch the market during the first hour and a half. That allowed me to employ some new day-trading techniques I've been looking at, and I'm going to share them with you tonight.  But first, the daily scores:

Now for the interesting part.  Regular readers will recognize my affinity for Heikin Ashi candles.  I love 'em.  Last week I posted an illustration of the "twisted ribbon" that I look for with Heikin Ashis that shows the market an an inflection point.  Once the candles get compressed, the favored direction of the market is shown and a play can be made.  Check it:

Here is what I saw just prior to the market open (lighter shaded region is post / pre market trading.)  From this, I thought the market was poised to open higher and then quickly reverse course as it has done all this week:

Here is what I saw on the first few minutes after the open (this is a 15 min chart).  The opening candle indicates a moment of indecision in the market.  Based on the initial move of the market on the chart on the 5 minute chart (not depicted) I bought a Put on the $DIA.  However, note the lower oscillators have taken a positive slope.  Now, I'm thinking the bias is to the upside.. may need to neutralize my trade.

 This is where I got nervous about my trade.  Below we see a lower wick of the candle that is higher than the previous, a body that is higher than the previous, and a top wick that is ever so slightly higher than the previous.  RSI, Slow Stocastic, and MACD are upward sloping.  The MACD histogram has stopped declining.  I'm a bit concerned now..

 Here's the coup de gras.  Large body candle, upper wick way higher than the previous...  I'm out.  Purchased a Call to neutralize the trade for the rest of the day.

And here's the rest of the day.  The decision to neutralize when I did was a good one.

So, I was wrong about the timing of the snap back.  Do I still think it will happen.. of course.  I would definitely not chase this trend... there will be plenty of more opportunities to get in low and sell high.

Hope you enjoyed the pics!


Wednesday, January 16, 2013

Rinse and repeat

S&P almost a carbon copy of yesterday

This morning I tweeted (@RumWave) that the market was set up to open lower and then move higher.. it did just that.  For day traders, this was a great looking setup.  I wasn't able to play in the game because I was flying the first half of the day.

The daily scores below are starting to turn over a bit, but there is still a massive divergence between the RumWave chart and the major markets.

I still think it will snap down a solid 1% to 1.5%, only a question of when..


Tuesday, January 15, 2013

Was that the pullback?

The waiting is the hardest part

For the last few posts I've been calling for a not-insignificant snap back in the market action.  I thought it was happening this morning at the open, but alas the market rallied into the positive.  So be it.  I'm not one to say the market is wrong and I'm right, so perhaps the decline wasn't as scary as I thought.  I'm not giving the all-clear, but from an Elliot Wave perspective it looks like the short term market is trying to push a bit higher.

It is worth noting, however, that the original conditions that caused me to be concerned (a bearish divergence between the RumWave and the major averages) have not changed.  In fact, they are even worse now.   Waiting is the most difficult part of my strategy.  Many of my friends are anxiously awaiting the next "green light."  We're no where near it.  In actuality, we're much closer to a red light (and will get one before a green light.)

All that said, there is plenty of room for small gambles here and there.  I'm guilty of it.. trading is addictive.  I moved into and out of a Put for a small gain, then into and out of a Call for a small gain within the last two days. Sidenote.. making money in trading stimulates the same part of your brain as cocaine.. saw that on a TV show once so it must be true!

Today's scores:

Rumwave scores becoming less red = leading indicator.


Monday, January 14, 2013

Broken clocks are right twice a day

Still doesn't look all that great to me

If I keep saying the decline is coming, I'll eventually be right!  I say that in jest, but I often think about that logic anytime perma-bulls or perma-bears open their yappers.  But in all seriousness, I think a nasty little setback is just around the corner.  The RumWave suggests it, and I believe it.

For me, the RumWave chart acts as a tie breaker when different sources of information are contradictory.  Every night I read a blog I consider to be bullish in nature and a blog that I consider to be bearish in nature.  Often they both bring up valid points, and sometimes they are things I hadn't noticed or thought of.  In this case, the bears are supported by my RumWave model.

As a final thought, the major averages are up about 3% for the first half of Jan.  Its a great start, but a pullback is necessary.  After all, if we continued this pace for the rest of the year, the major averages would be up around 72%, which is just not realistic.

Daily scores:

TSP:  G fund

IRA / 401k:  Low risk funds

Questions or comments?  Email me:

Follow me on twitter for unfiltered thoughts on daily market events... @RumWave