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Okay, interersting week ahead -- Friday's late rally has setup possibly a sucker trader's rally. Reading and listening to the pros I follow over the weekend believe the 'big' money guys are looking for that hammer type candle to end this decline. You know, that 'capitulation' selling on the open and then a huge rally out of it.
The targets have been met on the downside for all technicians. That's the great news. Now it's a game of chicken - who's gonna step up first.
The high price of the VIX along with the tons of shorting options via ETFs allow for hedging of long positions in so many new ways that you really can't expect there to be that washout event all the time because if you're properly hedged with short positions, you don't have to be a forced seller because your hedged positions offset any losses in the longs.
So, if everyone is hedged, then there's no washout event coming. And if everyne is sitting on their hands, then the market keeps drifting down with simply no bid support, not selling pressure.
I think that's what's going on now. The forced sellers got blown out in the 1st and 3rd waves. They're out. So, what gets the market going up? The belief here is that March is the turning point. But when? Everyone is talking about March 12th because of the House hearing on Mark To Market. Could be. But Friday's late day rally might set the market to SPX 730ish, which then suckers in some new money, then the market falls one last time back to this area to give you that final 'wooosh'. That's when the party starts. A 3 month rally into summer that takes the SPX over 900. 1000+ seems to be the target. But let's take it one step at a time.
Now, that said, these same guys I follow all manage money and they are worried because they are over 50% cash and don't want to be left behind. They all need to make up some ground. So, if this is the low Friday, then they are afraid they are going to be forced to chase it with the fear of there not being a fake out.
So, now the pros are bamboozled. But all agree on one thing - the trade is LONG.
I'll try to update the cycles later this weekend, but this is interesting -- March 20th is a major Gann symmetry date with S&P 640ish being the target. It's not so much the exact price levels with Gann Theory, but more so the price levels around angles of degree.
We're right there.
Now, that said, Cramer has an interesting take on the 'max risk' for the DOW on the downside. He says 5230 based on the worst case scenarios for each stock in the DOW. Makes a ton of sense and if those numbers work out, then you'll see the market move NOW upward because with that number being confirmed as the most you should have to worry about on the downside assuming absolute worst case scenarios for each 30 stocks in the DOW, then you know you're at the bottom area within 500 points.
So, the rally we're going to get will be that 'B' wave taking the SPX to around 1000 which will scare the hell out of the shorts as 718, then 741, then 800, then 850, then 900, then 950 get taken out. 40% of the gains in a bull phase happen typically in the first 10 trading days. As those price levels which were once major support levels get taken out, short stops will be blown through along with technical buy triggers bringing in tons of cash. $9 TRILLION right now in cash on the sidelines.
SPX 800 gets the TNA to $22ish.
BRCM goes to $22.50+ and the world is a great place again - until the next meltdown.
There is a game going on of 'chicken' in the market between competing technical views. Pure technicians look only at support/resistance and pattern breaks. Ed Downs is basing that opinion on that triangle he's been showing for a month. He's right, it projects to 5600. But then there's a different point of view. That's elliotwave and that really is what most of the big traders are watching.
If you go strictly in wave counts, we are in a clear 5th wave which projects in strict fibonacci levels. Those levels are now satisfied. I find it very funny how the 5 best market timers out there are now all on the same page -- BUY NOW. They all must be looking at the same thing.
BILL FLECKENSTIEN
GARY SHILLING
DOUG KASS
MOE ANSARI
ROBERT PRECHTER
Actually, Kass and Ansari are saying THIS WEEK marks the low of this 'A' wave.
So, the triangle break projects 5600. But the wave counts say now. We'll see who's right. But in any case, the bottom is right around here. The resulting rally will be fast and bigger than anyone expects. I tend to think the catalyst will be that House hearing on mark to market next week.
That is pretty funny. The line, 'If I'd followed CNBC, I'd have a million dollars today, that is, assuming I started with $100 mill'.
Oh, the power of leverage. No one knew or wanted to accept the amount many were levereged in their positions. It's fun on the way up, but watch out on the other side.
But of course, the entire thing is way more complicated than Stewart could ever understand. Cramer really has put his foot in his mouth bigtime over the years. But hey, at least he goes out and gives an opinion.
MRVL's report tonight I think is what's behind the strength in the $SOX overall. These things have been doing very well. The $SOX leads the nasdaq which leads everything else.
Now you get that bottom today or tomorrow and then a moonshot in the Nas with the Russell leading.
My goal on this play with the TNA is this--- long straight the April $10 calls now with a basis of about $4. If the TNA is around $10 or under $14 by April 20th, then I just exercise the calls and take the stock long. Then start shorting $15 calls against the position.
But I think the trade works like this -- the Russell runs to near 500 by April 20th. That takes the TNA to around $25. Those $4 $10 calls turn into $15 or a near 4 bagger in a month and a half.
I think it happens.
THIS WEEK MARKS THE LOW. I'm saying it proud and loud. (or loud and proud - whichever you prefer)
Today or tomorrow marks it.
The rally starting will be a B wave taking us to July-ish. Possibly SPX 1000+
Nenner was dead wrong in that prediction. He said the rally would take the SPX to 1000 by March 9th. Well?
Instead it went from 800 to 690.
The wave counts us in a 5th of an A. That projected the SPX to 640 to 680. 686 was the low I think so far. That satisfies.
The 'B' wave move projects to SPX 1000 to 1100.
Then watch out below!
Well, you might like this more:
http://www.cnbc.com/id/29510966
It's funny how these elliotwave cycles always time right with events. If March 12th turns out to be a date that the House and SEC loosen those mark to mark accoutning rules, Najarian is dead on.
Short sellers are going to be bailing on those starting now in risk of getting caught in that.
BRCM's 10 EMA crossed today the SMA. Look for a trade. I'm starting to think this is the bottom with now the most bearish of bears who've been the most accurate calling for THIS WEEK to be the low of this 'A' wave.
Doug Kass of Real Money, Robert Prechter of Elliotwave International, and Cramer.
Here's a post from Prechter's EWI update--
http://theimpatienttrader.blogspot.com/2009/02/robert-prechters-elliotts-wave-count.html
So, watch for BRCM to break $18 and thus this downtrend. Also, the $RUT will(should) lead out with a move to 500.
Okay, I just answered my own question -- here's what I'm going to do -- I'm going to do a bull call spread on the TNA with the April Calls.
Here's the trade -- I'm going for a profit of $20k+ using $14,500 at risk.
BUY - April TNA $10 call at $4.30
SELL - April TNA $20 call at $.75
NET DEBIT of $3.55. (the numbers don't have to be the same as long as the debit is $3.55 or less for the $10/$20 spread)
Here's how I think it will work out ---
The TNA needs to be above $20 by April op-ex for this to be 100% profitable. The $RUT needs to be around 420 for that to happen. That seems very easy from here.
We'll see. I think the odds are very good on this trade the more I look at it. Risking $14,500 for a $25k profit seems like a good bet considering the setup.
I'm going to do something a little different - because of the way the market has probably hit many of you, I think it's time to start to leverage bets to get a lot of it back. There are basically two ways to do this - either options or futures. The problem with futures is the way the market nosedives making what used to be safe 'spread' trades hard to sit on. The SPX just nosedived almost 100 points in 3 days.
So, I'm looking at doing a trade here using the Russell 2000. Specifically, I'm debating whether or not to use the TNA outright or the options on it. I'm leaning toward the options. First, look at this chart of the $RUT...
Notice the two 10 period moving averages. The EMA is fighting to cross north of the SMA. Add to it the 2 period RSI is a tad higher than it was on a lower low than the last time it was under 2. Both good signs of a turn coming. The longer term chart shows the $RUT right here at 378 potentially knocking on support going back to 2001
But the 1998 and 2002 lows are still above 300 as you can see. So, your risk in the straight $RUT trade is around there. (IWM).
That said, a simple move in the RUT back to 400 would bring the TNA up nearly $1.50 to about $15 I'm guessing. It trades 3x the % gain of the $RUT. The April $12.50 calls are trading at $3 on the ask. So, your basis would be $15.50. But the time value would be enormous if the market catches a bid here. You could more than triple your money on these easily if the TNA just moved to $17. That was simply last week's price. It's tempting to take.
Everyone agrees we're in a 5th wave here. The target seems to be SPX 600 so I am hesitant to take the trade right here. But it might be worth edging into it. I'm even willing to take a loss on some other trades to gamble here with it because the payoff is so great with clear signs of a turn coming.
Hmmmmmmmm
Here's the problem with that - watch that video that MRVLreader posted a few posts back. They have a chart that goes back to the early 80's and shows we're at that rising support.
Every primary trend has a correction at some time. Those corrections are measured as 'ABC' wave counts. They just do. We haven't had one yet of this primary trend. Now we are. The wave guys I follow are counting this is an A wave now ending, the B wave about to begin taking the S&P back up to potentially 1100ish, then the final C wave taking us potentially down to DOW 5000kish. That could happen between Sep and sometime in 2010 which will end this entire thing.
What's interesting is that the break of 740 yesterday didn't create a panic selloff as expected. It held up pretty well. That tells you the sellers for now are done with only technical traders trading mostly and playing games with support/resistance levels. They try to break them to see if it creates stop loss hits. When it doesn't, it proves the 'forced sellers' are out of the way.
For now.
I know many look to places like Canada and some European countries as the gold standard for how to do things. The one problem with that is take Canada for example -- you have to prove you are going to be a productive successful addition to the country in order to live there. At least move there. Here, you can be the biggest loser you can be and have everyone else pay for it. Look at 'octo-mom'. The problem here and with the Democratic party in general is that failure is rewarded by giving it money to continue.
The Democratic party's philosophy of taxing wealth to transfer it to the 'little' guy - ie, the poor who are by definition lazy and unproductive, is cowardly. They are cowards. Why? Because the true hard choice in that equation is to not steal money from the productive, it's to tell the deadweight 'no more'. The typical liberal person is a person with 'feelings'. They feel better than everyone else because in their minds they care more. They think that the typical 'rich' Republican is only out for themselves and will screw anyone at any price to get more.
When your kid does something you don't like, do you reward him/her for it? No, you punish in some way that behavior in order to set them on the right path. Why? Because you want them to succeed. Bad behavior leads to loserville. If you sit in front of the TV for hours and never get up to exercise, you get fat and lazy, right? If you workout consistently, you feel and look better, right?
Taxes successful people to make up a budget probelm is a cowardly act because it means you don't have the ability to look someone in the eye and tell them they can't have anymore. In the case of a large group of elected politicians, it means telling their voting block what they voted for won't be done. Then they lose their jobs (seats).
But in the meantime, a large portion of society is quickly becoming dependant on government which is nothing more than your tax money. And now, 'they' think the solution is to take more from those who make it all?
I just don't understand why they think that works when in no other place in history has it been proven to work. Canaday doens't have a large % of poor people. Europe doesn't have a large % of poor people. A quasi socialistic system will work if most everyone is productive and working for the better of the entire system/society in which they live. That's why Canada works. It won't work here because there are too many that are too lazy to become 'productive'.
The setup is clear - The mess in the 1970s created Ronald Reagan. The mess in the 1930s created Eisenhower. I'll even say Kennedy in 1960 only won because of the corruption in Chicago with Daley - however, he was by today's standards more conservative than just about every Republican and a pretty good Pres for what little he did.
Obama and this whackjob of a congress we have now is setting up for the next revolution. Because what 'they' don't get is that many 'middle class' people today want to be rich, not just get by.
You're absolutely right - the only reason these clowns in congress won't do what works is because to do it means they basically give up their entire source of power - the tax code. They use the tax code for social engineering. You do this with your money - you get that reward. And so on. Obama was praised as a 'pragmatist' - ie, do what works. He's on the fast track to becoming one of the biggest jokes in the country's history. And that's no small feat considering Bush.
See, I play it both ways.
You buy on a pullback to the 10 SMA. So, put a limit buy at whatever the 10 SMA is once you see that cross.
Your exit will be typically fast - within a day or two max.
Don't get greedy. We're not in a market that is in a long bull market.
However, did anyone see CNBC today? There were two guys (one Peter Eliadias of Stockmarket Cycles) who pulled up a 30 year chart. If you take the low from 1982 and connect it through the 1987 crash low and then the 1992 (I think) low, you get a consistent trend line going up. Magically, SPX 740 is that level. That's why SPX has held that level so well. If it breaks then watch out. If not, or the longer it stays around here without breaking, the bigger and faster the short squeeze taking the market up to who knows where.
Right now I think the guys on Fast Money are right that there are only two traders in the market -- short sellers and shorts getting squeezed. No long term long investors. Those mutual fund investors hold the key to the support of the market. Right now, why? Why buy? The longer they wait it out, the cheaper they get in. The only problem with waiting too long is that the further the market overall falls, the less and less amount of people they'll find to invest - or be willing to invest. So, they end up creating a problem for themselves.
The sooner the market starts to climb, the faster the overall consumer sentiment will rise as the wealth effect will take over again making everyone not worry about whether or not they'll have any money left.
But then again you got Obama's budget. That's scary stuff. A reduction in home mortgage interest deductions? Huh? Is he insane? Raising capital gains tax? huh? Either he's going to end up being the dumbest President in history or he's going to be the smartest having out-smarted the best and brightest economists and historical examples.
Since everyone thinks he's the messiah, who knows.
The market could be signaling he's dead wrong and the market knows and senses it. This isn't the best time to be gambling. I don't understand why they can't do what's worked EVERY TIME it's been done. CUT TAXES DRAMATICALLY and then let the public do what they do best with THEIR money - BUY STUFF WITH IT!
The 1980s are the best example - Reagan came into a situation with 13% interest rates, 6% inflation and a combined top tax rate of over 70%. What in the world was Carter thinking?
What Reagan did was cut that top rate to 25%, but more importantly, allowed you to write off (if you owned a biz) literally everything. You go out to eat? Write it off as a biz expense. Imagine what that did to the restaurant biz! One of the largest employers in the country and the place where most start biz's.
Basically anything you bought for your biz you could write off. It took about 2 years, but when it all got going, WOW did it. What we have now is the complete opposite with not one real life example to go back and point to to prove the pholosophy works. Gambling with YOUR money on a liberal fantasy of how wonderful the world could be if only that tax money was spent in the 'right' way.
Boy, we'll see. The market says no way. But, the market has been proven wrong before. I don't know when, but I'm told it has.
DOW to gain 50%???
http://www.cnbc.com/id/29350894
I think many are counting the waves as I am. B wave rally to come.
No, you're not following what I said -- the system for daytrading applies to e-minis because of the profit % on small moves.
But that chart of DIS intra day proves it works - consider the second bar over the north crossover which confirmed the cross on the close of that bar. You then put a buy limit at the SMA which it touched and the took off before falling.
The problem? DIS 'took off' but only .05. That's the problem with daytrading stocks using this.
The 'system' for stocks is for swingtrading on the daily bars. Daytrading should only be done with this on ES futures because those small moves are very profitable.
That's a tough one. That's why I only naked short puts.
Let's see-- you got an excersise notice of a call you were short. You don't have the shares. Because the transaction has to happen, I think you have to buy the stock or you might be able to buy a call option to cover it also. Your broker would then exercise your call as a bull call spread.
It's a little different for stocks. Basically, you play by the rules. Wait for the ema to cross the sma. Then only buy/short the pullback to the sma.
Place a limit order about .10 above/below the 10 sma. You'll typically get filled and then exit the end of the day.
The 'system' is simple -- for daytrading ES emini futures only --- plot a 10 sma AND 10 ema. That's it!
When the ema crosses, enter the trade for a 1 point goal per crossover in either direction. You'd be amazed how consistent it is. It's that simple. There are deeper rules for the 'system' itself put to me by a friend who works for GS. But I just trade it this way for scalping 1 point ($50) moves.
1 point per contract means you're investing about $3000 per trade. 5 contracts requires about $15k depending on your broker's margin requirements for futures. 5 contracts at 1 point gets you $50x5= $250 each trade. I have had only 1 trade in probably 40+ in the last week since I've been doing it that didn't work.
Now that said, if you got about $25k to trade with, want to know how to make about $3 to $4k a month?
Covered ES e-mini call trades. Talk about a cash machine.
I have no idea where to get ES emini option chains other than through IB's workstation in which you need an account. They cost $1.81 per contract. But here's what I do month after month --
ES futures options trade twice a month. They expire on the typical 3rd Friday and then the following week. What you want to do is have the money to buy at least 5 ES contracts with the expiration at least 2 months out. ES contracts expire every 3 months (Dec, March, June, Sep). Every month the index (SPX) will have some kind of selloff. Forget the recent selloffs you're used to. The typical one will only be about max 50 to 70 points within any month timeframe. When you get an RSI reading (2 period to 5 period) under 20, then you buy 5 contracts. That will cost you about $15k. Then you are going to find the call option that expires within 4 weeks, perferrably 3, at least 70 points in the money. That's your cushion that will rarely - if ever - get put at risk in that 3 to 4 week timeframe. Remember, 70 points on the SPX is basically the same as 700 on the DOW. That's a big and RARE move. The last 3 months of the 2008 were an anomoly.
That 70 point in the money call option will typically always have at least 11 to 15 points time value over the net cost of the ES future you bought. I just did this for March 20 expiration today. I bought 10 ES March e-mini contracts at 765 and sold the March 20(both expire the same day) 695 calls for $82. Add $82 to 695 and you get 777 for your take out price.
777 - the 765 I paid for the ES and you basically have a 12 point (in my opinion) guaranteed profit. Each point pays you $50. $50x 10 = $5000.
Now I should have done this yesterday because the options were pricing in a larger move on Obama's speech. They had nearly a 20 point spread from the base cost of the Emini and that was on the 695 calls! I could have gotten short the 650s for that 12 points. The SPX going to 650 in 3 weeks? C'mon.
Now the down side to doing this is the drawdown while in the trade. You have to get used to being upside down and locked in that upside down situation until nearly expiration day. It's just the way it works. But it's cash in the bank month after month.
Okay, now you know I don't get political. But those of you who voted democrat in the last election, is THIS what you had in mind????
http://www.tradingmarkets.com/.site/stocks/commentary/editorial/Traders-Tax-Bill-80359.cfm
The 'traders tax bill' that 'they' want to basically charge you a 1/4% 'fee' for each trade you do? ARE YOU FRIGGN INSANE? So, it would cost about $50 per trade for a $17,000 trade, or 1000 shares of BRCM. Huh?
Only a democrat would even consider this garbage.
Hope and change, huh?
If these idiots that are now running things continue down the path they're going with pissing all this money away on donor paybacks called 'stimulus' and then taxing the hell out of the people who actually make money in this country, 2010 is going to look a lot like 1994 and Obama is going to make Carter look Reagan-ess.
The fact that an elected congressman could even contrive of such a stupid thing says tons about the mindset of the entire party.
Remember how I said Robert Prechter from ElliotWave international is typically always wrong? I hope he's not this time. Today he came out and called for all shorts to be 'pulled in'. I think he's calling the wave counts the same. In other words, we're on the verge of this 'B' rally.
The market overall is always going up. Just pull up a 100 year chart and the trend is overall up. The move down we're in now is a pullback within a long term trend. Pullbacks in elliotwave terms are defined by 3 waves where the main trend is in 5. The 3 wave pullbacks are known as 'ABC's. The first being an 'impulse' corrective wave called 'A', with the 'B' being a correction of that and then the final leg 'C' wave to complete it. Typically you see the 'C' wave equal the length of the 'A' wave known as 'AWE' or 'Alternate Wave Equality'. Some PHd made that up, I'm sure.
The A and C waves being impulse waves are made up a 5 waves and the 'B' wave 3. It's like its own little 'ABC' wave.
So, knowing all that, you can clearly count 5 waves down from Aug to now. We're currently in the midst of a wave 5. That should complete the 'A' wave. The next leg is the B wave which when you do fib retracements from the A wave could take you to as high as SPX 1100 for a 50% retracement. Then it's potentially SPX 500 to 600 off that if you consider AWE theory. But that's down the line going into next year.
Okay, interesting setup here -- the downside targets on the SPX if you do a fibo projection is basically in the range of 650 to 680. But watch DOW 7200. That's 1997 support. The market is falling now on nothing other than technicals. It's a game now of chicken between the big money guys and the shorts. Who's gonna blink first? When you get into a 5th wave move, you know the smart guys are ready to pounce on the turn. The second you see someone step up and put in a large bid, everyone should pile in afraid to miss it.
This time though the move up will be fierce and fast. And, it wil last longer than many expect. You'll basically have a 3 wave move up in this 'B' wave.
Then the big decline comes later this year to DOW 6k. (or lower)
BRCM looks to be breaking that wedge which is also a 4th. So, you might see below $13 on it. But I doubt it with the overall market already in 5ths. Stocks like BRCM trade with the market, not against it.
Here's the problem with EWI - they have been so dead wrong for so long. Every once in awhile they get it right, but from my experience, they've been wrong I'd say at least 60% of the time. I used to subscribe a couple years ago and then they put out this 'alert'. Now they get upwards of $60+ a month for a subscription. They then put out this alert wanting you to pay $200 for what they have stumbled on. I did (sucker) and basically they said they had a setup in Silver that showed it breaking down possibly in a 50% loss move on a wedge break. They supplied the wave counts to back it up. What happened? It DOUBLED in 2 months!
Nice guys. Robert Prechter runs it. He's been so wrong for so long it's amazing he has anyone subscribing. It's one thing to be right in the end, but if you're wrong all the way up, you probably don't have any money left in the end.
That said, the wave count sets up like this ---
I use IB with Quotetracker for charts.
The more I've been trading this system, the more I'm refining it. As with anything mechanical, pure mechanics don't work all the time or at least consistently enough to produce a stable income. So, that leaves you with having to use your gut feeling many times along with the system guiding you in the right direction.
That said, this is basically how I've refined it - and it works nearly 100% -- when you see that ema trend north of the sma, just go short. It's that simple. The opposite is true also. But for emini trading, just shoot for 1 point or so on each reversal. That's where you'll get into trouble. Getting greedy. Just go for one point. You'll zap 1 point here and there all day long. Like I said, it's like an ATM machine. And you'll never ever be on the wrong side of the trend or get in late.
The best setup is when you have a consistent down or uptrend, and then the ema trades north of the sma BEFORE the trend changes. That's when you enter with 3x+ your normal contract count. For example, go long 5 or 10 contracts on that trade rather than one or two.
Look at these charts:
Anyone using my ATM machine system? Wow. Got long 2 hours before that run in the SPX by almost 20 points.
What I'm talking about in terms of this being a great time to buy is that we're making a divergant low which is a classic 5th wave low on lower volume than the last big 3rd wave decline.
First, look at this chart of the Q's
Then, look at the SPX:
http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=0&mn=6&dy=0&i=p42178781026&a=161711165&r=2310>
However, this is what tells the tale:
I trade it by basically taking what the trade gives me that day. I don't like to hold trades for too long. However, the SPX is making a MONSTER divergant low that's setting up for a big big rally. Watch DOW 7450 for entry.
I followed Nenner years back and he's been pretty good. Forgot about him lately and was interesting that CNBC interview. He says he's typically a day off. Well, today was the day. With the DOW hitting the Nov lows and now all technicians satisfied of a retest, I'd be very interested to see what happens from here. A 5th wave doesn't have to break the lows of the 3rd. With the nasdaq and especially the $SOX stronger now than in Nov, I'd say this is a major divergant (positive) low in the DOW than in Nov which is a classic 5th wave low. So, we could see a big move this week up that lasts into summer.
BTW - stockcharts.com doesn't allow the 3rd setting in the Parabolic SAR settings, so I didn't add it per my friend Greg's rec'. There's a specific setting you can set it to for daytrading on a 5 min chart on most platforms. If you trade with IB, then you can use Quotetracker (free) as your chart that uses IB as a datafeed source. It has great indicators built in.
That's probably not the best stock to trade this with because the MA's spread are so tight consistently. The financials etfs are so manipulated by hedging I wouldn't use them to trade this with. Use the simple ETF (xlf) for your signals. But I'd focus more on stocks with good volume/following and index ETFs.
Yup. Look at that trade! A buy today that gets you over $1 profit by the end of the day. It's an ATM machine!
That was the level of the breakout of the wedge. But it's moot now with the DOW hitting the Nov lows. Here's the trade --- as you know I'm a big believer in BRCM. Pay very close attention to what's going on. When the DOW was at this level back in Nov BRCM was at $13. Today it's over $17 at the same DOW level. What does that tell you? BRCM just announced they secured Nokia's entire 3g chipset deal.
If this is the 5th wave final leg of this wave count in the market, with BRCM trading $4 higher on this decline than last, BRCM is going to bust into the $20s when the DOW takes off on the 'B' corrective wave that will take it to most likely 10k. The final low probably won't be until 2010 on a 'c' final push lower. But for now, watch the semi stocks and especially BRCM. A break north of $19 confirms a breakout.
I use 5 min and strictly trade this system. It works I find best by using the 10 ema signal for entry and not waiting for a pullback. When the 10 ema moves north of the 10 sma, then you got a signal that it's about to move. You'll take some heat possibly, but you'll most likley get at least a point out of every cross. It's been 100% for me the last 2 weeks.
It's like an ATM machine.
Hey guys, all those that are privately emailing me, I don't subscribe to this site so I can't respond. You have to post your questions publicly.
Oh, don't get me wrong. I'm not promoting the stock and personally have no interest in it. I'm just putting out the chart to show how the system works. I pulled it up and saw the ema crossing the sma while still in a downtrend. I think it's a perfect example of what I'm explaining.
We'll see!
Regardless of the company details, it's a trade and the trade here is to buy into the cross of the ema ahead of a potential turn north as indicated by the ema moving faster warning you of a move.
To test the system, look at this chart of AXYS - a defense stock Cramer was pushing on Friday. Notice the red ema has crossed the sma north but the stock is still going down. Is this is a sign of a turn before the turn???
I know - all these semis are running on what I think is the stimulus breakout. Apparently there's a bunch of money in it for broadband build out. SIGM makes settop box chips and there's money for coupons for people to buy digital converters. Look at this chart of BRCM about to break out :
Because this is how the pros trade. You can use any variation you want if you can backtest it to work. I was told that this is how they do it - but mostly on daytrading e-minis.
This last week I had at least 2 and mostly 3 trades a day just following the rules. Use a cross of the red(ema) through the blue(sma) and then buy the pullback to the sma.(or short).
Every trade was a winner with very little 'heat' (the amount the trade initially goes against you).
And what's more interesting was the way in which the ema signals you to a move yet to come. Just watch it. EVERY time, and I mean EVERY time, the ema crosses, you typically have a winning trade just on that alone. Scalping for 1 point keeps you safe. Don't try to hit homers. But you'll notice that the ema will cross well before a price change. And the reason why is extremely easy to understand -- the ema is calculating the last 3 bars closings with more weight than the last 10 as the sma does. If the last few bars are closing strong in relation to the overall last 10, then the ema is going to start to move faster in whatever direction that trend is changing. So, your signal is visual with the ema crossing through the sma.
It's so simple it's almost stupid. And, I can't believe I have never thought of it. I've always used 2 different time period sma's. This though is doing exactly what you're trying to achieve with a fast and slow ma cross. You're trying to get a shorter timeframe ma to signal a trend change visually right? Well, wouldn't a combination of the same MA work better? Think about it - your goal in using a MA cross system is to make sure you're on the right side of the trend at all times, right? But what you really want is to know what's going to happen in the future. The only way to do that is to use price action. No indicator can tell you what's going to happen in the future. You can use extremes on RSI or Stochastics as a reference for tops and bottom areas - and those works many times well. But for day and swing trading, you need to be as accurate as you can be.
By using one time period MA, and using a fast(ema) and slow(sma) version of that same time period, you're seeing visually in real time what is truly going on with the PRICE ACTION, and nothing else. It's hard to look at a bunch of candles and really see what's being screamed at you. If you have a downtrend that keeps going down but the last few bars are starting to close near the highs of thier ranges, you might not actually see that clearly unless you really look closely. What does that tell you? You're in a downtrend, but suddenly the candles are getting stronger and stronger. Obviously things could be about to change. That ema is going to start to register that. Plotting it against the slower version of it gives you that visual representation you need.
Now one more step is using the Parabolic SAR with different settings that Stockcharts won't allow. Ninja trader and Quotetracker both do and I assume it's because of it being a daytrading setting. When you add that, you get an even better indication of reversals. But I think the 10 ema/sma cross is so ingenious especially after having traded it for the last week successfully and seeing it and profiting from it so easily, I don't think you really need another indicator.