Shoulder forming, still bullish

Shoulder forming, still bullish

RUM Wave indicators are still bullish, so I think we are seeing the right shoulder forming on the inverted head and shoulder pattern.  An argument could be made that it will pan out as depicted above, with the price pulling back to the 61.6% retracement level, which is coincident with the opposite shoulder.  At that point we would meet multiple levels of price support. That scenario would make sense against the other studies I have below the main graph.  So, my original stops will remain in place and I'll take what the market gives.

Squiggily Lines and potential scenario

Inverted Head and Shoulders?

A potential inverted head and shoulders scenario is unfolding on the 4 hr chart.  Inverted head and shoulders patterns are ultimately bullish, but we are at a point where we should be ready for an immediate pullback. Below, I have highlighted the neckline of the pattern (yellow dash.)  For this pattern to hold true, we would see the price pull back to (approximately) this point and reverse to the upside.  If the price continued to decline past the neckline, it could indicate a bearish move.  However, I don't believe this will be the case because all of my RUM Wave indicators (which I trust more than any other analysis system) suggest that we are at the beginning of this particular wave.

Move up was predicted, back in my plays

Move up was predicted on Friday

Last week I stated on the blog that one of my indicators that has previously , and reliably, predicted a rapid move to the upside was telling me that  we would likely see a rally over the "next 1-3 trading sessions."  As I had called it, we saw it materialize yesterday and today.  I think this is the start of a medium term rally.  I have re-entered the positions I was stopped out of during the head fake that happened last week.

Stopped out, but still optimistic

That's why I use stops..

The market moves since the last buy signal were initially profitable, but the recent market turn lower was not predicted by traditional RUM Wave indicators.  My stops were set appropriately and protected my initial investment.  This is precisely why I recommend using stops to my friends.

At this time I am seeing an unusual set of indications on the RUM Wave model.   I'm slightly uneasy about what it means because I could not find another similar set of conditions (dating back to January 2007.)  There is, however, one indicator in my model that has been very reliable in the past at predicting a sudden and sharp reversal to the upside.  The duration of such a move is unclear because of the other mixed signals I'm seeing, but I expect to see it materialize over the next 1-3 trading sessions.

Buy Signal

MARKET ALERT:  BUY SIGNAL GENERATED
RUM Wave indicators generated a buy signal yesterday.  This suggests that US Equities will move to the upside over the short - medium term.

Report Card

Report Card

I thought it might be a good time to reflect on how we have been doing with our predictions.  Above is a chart of the UDOW with arrows pointing to published blog posts for Buy, Secure Profits, and Sell signals.

As you can see, I have been able to reliably predict good market entry points.  After the Buy signals, we have seen a significant market move to the upside.  This is where a leveraged ETF, like UDOW, can produce reliable profits. 

There are a couple keys to success when it comes to trading this method.  They are generally related to trader psychology:
1) Don't get greedy - when you have reached a profit level you are comfortable with, take some exposure off the table.  Setting a trailing stop can be a very effective way to maximize your gains after a "secure profit" signal is generated.
2) Avoid the "What if?" - after you take profits, don't look back.  You'll probably tell yourself that you could have stayed in longer and taken a bigger gain.  Doing this will only cause your brain to get greedy and make a bad decision.
3) Understand that this is about reliability - My trades have all been profitable, in one way or another.  Sometimes we get a big gain, sometimes we get a smaller gain.. but they are all gains.  Every wave is different.

Ultimately, I'm very pleased with my trading!  To my knowledge, there is not anyone else out there using my method to predict these market turns.  I look forward to continuing the winning trend!

MARKET ALERT: Sell Signal Generated

MARKET ALERT:  SELL SIGNAL GENERATED

Yesterday the RUM Wave indicators met "Sell" criteria.  This forecasts a short to medium downward trend in major market averages.