Sunday, April 24, 2011

Market Journal: Coming of Age

By Joe Russo, Elliott Wave Technology | April 23, 2011

Buy & Hold Update: 

April 15 – Elliott Wave Technology (GRA): The passive buy & hold for the long-haul strategy has unequivocally failed post 2000. Despite this fact there appears to be no shortage of pundits suggesting that the bear market bottom in 2009 marked a generational low. (Think 1932, 1974, or 1987)  Thus, if one resets their perception of a buy & hold time clock to begin at the 2009 low, then they’d be correct in stating that buying and holding from the 2009 bottom has worked well to date.  (25-months and counting)  Nowhere close to anything that can be defined as “the long-haul”, have they supposed that a “new” long-haul has got to start somewhere, eagerly latching onto the 2009 bottom as that starting point.   In contrast, we are more inclined to embrace the notion that the generational highs achieved in 2000 and 2007 will more likely than not require a substantially longer period to resolve, rebalance, and correct their enormous overshoots.   Considering that many if not all of the systemic maladies that collapsed the financial system remain cancerously embedded within the halls of its corrupt institutions, it is prudent to be prepared for the possibility of additional unwinding in the years ahead.  Despite such prudence, it is clearly unwise to fade or fight the all powerful institutional cartel comprised of high-powered lobby-groups, government, Wall Street, and the central banks that fund them.   Though abhorring the level of indefensible corruption still resident throughout the financial sphere, our Guardian Revere Advisory shall pursue its inherent directives and remain objectively aligned with the Primary/Cycle degrees of trend for as long as those trends may last.  Our long standing credo at the GRA remains the same, don’t be fooled again.




Wave Watch:

April 12 – Elliott Wave Technology (IMF):  For ardent wave watchers, the biggest challenge to our Interim Monthly Forecasting efforts remains the accurate reconciliation of Elliott’s degrees of trend at the last four major pivots.  The first is the pivot high in 2000 followed by the 2002 low, the 2007 high, and the fourth pivot being the 2009 low.  We are currently rising sharply toward a fifth pivot.   The one thing that we have been most certain of is that the bull market rally off the 2009 bottom is NOT a “TWO-Wave” at any degree, meaning that those waiting for a killer THREE-WAVE DOWN will continue to bankrupt their trading accounts holding to such misguidance.  Given the speed and amplitude resident within the last four (and now fifth) pivots, the two best terminal labels for the 2009 low remain “A” waves of either Primary or Cycle degree.  Simply stated, the 8-9 years from the 2000 crest is much too short a time span to comprise all-of the SuperCycle IV wave.  In our view, that much anticipated generational low in equity values will arrive only upon the terminal of SuperCycle IV.  At present, we do not believe the markets have put in their SuperCycle lows.  Beyond the proverbial coin toss, the only thing that will assist in reconciling these rather large fast-moving pivots is the future course of price action over the coming years.  The current bull market thrust toward pivot five will be the most deceptive as it may be an extremely bearish “B” wave at Primary/Cycle degree, or it may be ascending toward terminating a kinder and gentler “A” wave at Primary degree.  With each passing month we shall patiently wait for the price action to slowly reveal itself as to which of Elliott’s degreed terminals is behind us, and which is yet to come.   Right now, the only answer remains within the coin toss mentioned above.  




Intermediate-Term Chart of the Week:

April 19 – Elliott Wave Technology (Position Traders Perspective):  Flirting once again with historic multi-decade lows, position traders have no choice but to factor in the eroding value of the world reserve currency into their strategic trading plans.  Thus far, the ever-weakening fiat dollar has worked wonders in keeping equity values on their near vertical ascent from the abyss in 2009.  In our view, there shall come a point within the purposeful fiat erosion where the inflationary effects will begin to stifle corporate earnings.  Right now we appear to be moving through a sweet spot whereby earnings are improving surprisingly well despite the dollar coming very close to crossing the line of being far too inflationary for its own good, and the good of the transnational corporations who benefit from the competitive currency translations.  Despite the dismal long-term fundamentals inherent in the currency, we are anticipating the inevitable onset of a technical rally.



Intermediate-Term System Traders Market of the Week:

April 21 – Elliott Wave Technology (PTP-Systems Trader):  After taking some whipsaw heat on a short position established in Q4 of 2008, the discipline inherent in our trading systems quick admission in being wrong and reversing back to the long side of Gold in early 2009 is a perfect example of how an unbiased non-discretionary trading system should ideally engage the markets.  To toss a little icing on the cake, Gold hit a long standing price target of 1495 from the charting side of our forecasting work.  The 23K in month-to-date equity shown in the lower panel of our chart is nothing compared to the 580-pts of amassed profit at $100 per point.  Multiply that by 3-contracts at this level of engagement and you’ll find that open equity on this trade is just south of two-hundred grand.  Despite such numbers, we stay with the discipline embedded in the code, and we’ll take whatever profit the market delivers whenever the current trend shows a reasonably sustainable sign of reversing.  Until then, it’s a “buy and hold” until it’s a “Sell”.



Near Term Chart of the Week:

April 20 – Elliott Wave Technology (Near Term Outlook):  In addition to our standard charting and forecasting protocols, we regularly provide discretionary short-term trade set-ups within our Near Term Outlook.  This one happened to tag a short-term upside price target for Gold at 1508, which was good for 12-pts of upside.  We are also following a short trade for Gold with a defined stop.  Despite that short, two additional upside price targets remain in the 1500’s for the shiny metal.  Though one may not take each and every trade set-up identified, or any at all, the point values and price targets listed provide valuable information relative to other discretionary strategies one may be employing.



 Near-Term System Traders Market of the Week:

April 21 – Elliott Wave Technology (NTO Systems Trader):  After taking some whipsaw heat on a short position established in the summer of 2010, the discipline inherent in our trading systems quick admission in being wrong and reversing back to the long side of Oil that same fall is a perfect example of how an unbiased non-discretionary trading system should ideally engage the markets.  To toss a little icing on the cake, Crude Oil recently hit an upside price target of 109 from the charting side of our forecasting work.  The 5.6K in month-to-date equity shown in the lower panel of our chart is nothing compared to the 32-pts of amassed profit at $1000 per point.  Multiply that by the single contract traded at this level of engagement and you’ll find that open equity on this trade sits just south of 33K.  Despite such numbers, we stay with the discipline embedded in the code, and we’ll take whatever profit the market delivers whenever the current trend shows a reasonably sustainable sign of reversing.  Until then, it’s a “buy and hold” until it’s a “Sell”.  It’s that simple.



 E-mini Systems Trader Update:

April 21 – Elliott Wave Technology (DTP):  In a market cycle such as the current one whereby price has rallied in near vertical fashion with little or no meaningful interruption, the practice of “swing trading” is a completely lost cause – UNLESS – one is able engage the art of a countertrend trading discipline amidst much shorter timeframes.  By design, that’s precisely how our E-mini systems trader is built to engage.  Though we have had months of equal losses, this month is thus far racking up profits of $3,451 with another week remaining in April.



Coming of Age:

We had the opportunity to see the award winning documentary “Inside Job” over the weekend.  We highly recommend it.  Though it did not illuminate anything that we were not already aware of, the nature in which all of the various layers of high-level corruption were meticulously documented along with the known fact that nothing of substance has changed, is what inspired our closing rant.

Returning from the abyss courtesy of the most powerful cartel of institutional thieves in charge of legally protecting concentrated monopolies in the egregiously greedy and otherwise fraudulent endeavor of engineering individual bonuses and income streams on par with winning one’s state Lotto on a quarterly basis, the current bull market fabricated on their behalf at the expense of the commoner is beginning to reach a stage of maturity whereby it must soon prove its merit and worthiness.

In the months and years ahead we shall clearly see the precise level of grace and sustainability in which this miraculously engineered bull market matures from the financial sphere’s deserved state of total failure in 2008-2009.  Will it be able to stand on its own accord, or will it stumble, fall, or begin acting in an unpredictable, erratic, and dangerous fashion akin to the monster Frankenstein who was mythically created from similar distorted experiments within a realm that too was not intended to be reverse engineered on such levels. 

To say that we live in interesting times is flattering; to recognize that we continue to live in inconceivably unbelievable times would be far more fitting.

When investing or trading remember that you are fighting a constant war, and there is no room for sensitivity.  We have all been deliberately incented to dance with thieves, and we’ll be damned if any of them strip us of a single penny when it’s all said and done.  Quite the contrary, Elliott Wave Technology is on a quest to claim perpetual victory across the board in every timeframe.  We correct course quickly when wrong, because we only have only one gear, which is winning, and one adversary, which is price.
 

Trade Better/Invest Smarter
 Joe Russo
Publisher and Chief Technical Analyst
Elliott Wave Technology


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Friday, April 22, 2011

R.E.S.T, the King of Commodities

Theories, Goals, & Reality
As defined by the medical community, the term "exceptional survival" is living to a specified age (75, 80, 85, or 90 years) without incidence of major chronic disease and without physical or cognitive impairment.

In the trading and investment arena one might characterize such survival as producing positive absolute returns over a multi-decade time horizon without incidence of a major losing year and without drawing down one's accounts to the point of impairment. (Think "Risk of Ruin," the point at which your account can no longer raise margin to trade.)

From the perspective of a pragmatic strategy trader, the medical term struck a chord as a viable input variable relative to what individuals are driven to do with their Remaining Exceptional Survival Time or R.E.S.T as we've coined it.

We all want as much R.E.S.T as humanly possible
From a strategic point of view, we realized that additional input variables would be needed to round out the R.E.S.T input.  Two that came to immediate mind were a legacy directive and resource input. 

One's legacy directive is tied to what one is motivated to accomplish within their remaining exceptional survival time.  The resource input calibrates the basic essential elements required to achieve one's legacy goals within their R.E.S.T period.

·         R.E.S.T - (est. # years)
·         Legacy - (your goals)
·         Resources - (needed to acquire goals)

Little R.E.S.T for the apprehensive
As with many real-time measures, each of the three inputs is variable and subject to revision based upon dynamic factors that are at times beyond the control of the individual.

Allowing for life's occasional curveballs, examining ones specific R.E.S.T goals can in our view, be a philosophically illuminating and productive exercise. 

So long as we don't get hit in the head with a debilitating wild pitch, the exercise can go a long way in answering the essential question of what one wants to do with the rest of their life and why.

Have you already succeeded in meeting your legacy directives?  If not, what's left to accomplish, and what resources will be needed in order to achieve those directives?

That's life, and there's no denying it. 
Eventually, each of us runs out of R.E.S.T, becomes ill, and then passes.  Thereafter, life goes on without us.  All that remains from our former survival is that which we've left behind in our wake.

Collectively, businesses, trusts, families, communities, cities, states, and countries have an exceptional survival time far beyond that of any single individual.   In fact, if each of the individuals comprising their larger collectives lived their lives with a robust and productive set of legacy directives, no matter how long each single  life endured, the collective should in theory be self sustaining.

R.E.S.T (The most valuable commodity in the Universe)
In the grandest scheme of things, the planet we inhabit has its own R.E.S.T period, therefore, Humanity's R.E.S.T is ultimately contingent upon the species ability to outsmart Mother Nature in the race against time toward finding an alternate means of survival once all of the Earth's resources are depleted or naturally destroyed. (Think the Space Program, Mission Control, and NASA)

Trivial Pursuit
Returning to more trivial matters, the recent threat of downgrade to US sovereign debt is not news; nonetheless, the market provided its quintessential knee-jerk reaction to the recent headline release.

The US continues to roll the dice on its R.E.S.T
In our view, the US has lost sight of its legacy directives, and in process is quickly running out of a key financial resource (its projected income vs. debt ratios) to sustain its exceptional existence.  The concept and political necessity to raise sovereign debt limits into virtual perpetuity is one that is egregiously flawed, and one that is likely to end badly. 

The good ole US of A keeps doubling down on losing bets simply because it has had the luxury and power to get away with it for decades.  The bill for this severe misallocation and abuse of global stature is now coming due.  The continued willful ignorance in avoiding the elephant in the room greatly increases the odds of the nation's risk of ruin.

We are at a point in history where one can seriously begin to question whether or not the USA has indeed run out of R.E.S.T, and survives only on the life-support rendered by those with the remaining powers to impose it.  (Think Central Banks in concert with powerful lobby groups that fund big, bloated, and broken governments.)

Well, that's our big theory for today.  It's simple, and though it has no direct correlation with trading or investment strategies, we hope you found it illuminating at some level.  Theories are interesting but the reality of price rules the day.  Price rules every day, and all of the time - end of story. 

Bunk Theory - Day-to-Day Reality Rules
In our view, "theories" are entertaining and perhaps stimulating on an intellectual level however, when it comes to putting on trades, you can take all of your theories and flush 'em right down the toilet because once your money is committed, all that counts is price, timing, entry and exit.

When, where, and why did you get "in", with what bias, and when, where, and why will you get out - period.  All of the clever anecdotes, theories, and arguments go right out the window.  In the thick of battle, theories and interesting observations are useless fodder and an immense waste of time, energy, and resources.  It's that simple.

If you agree with our reality based approach, then you're going to like Elliott Wave Technology's brand of theory-free market forecasting and trading guidance.

Sure, we use the basic tenets of theories and technical analysis to frame our perspective of the price action, but that's about as far as we go. 

We don't waste valuable time producing reams of fundamental arguments in attempt to justify or explain how these theories neatly fit all of the puzzle pieces together in a logically argued package of compelling ideas. 

By the time you digest such levels of entertainment and distraction you'll find your trades that are aligned with those arguments are going deeper and deeper into drawdown.

We have a different approach.  Instead of trying to entertain, seduce, and impress you with our clever theories and observations, we spend the bulk of our free time productively developing investment and trading strategies that prove to engage and capture price movement, lock-in profits, and mitigate risk across a wide range of markets and timeframes.


Three for Three in the S&P
The chart above will close out this article with a quick behind the scenes look at the results of our handy-work in developing one of the many short-term trading strategy's we've constructed to engage the S&P at the smallest degrees of trend.

Three trades in three days deliver 68-pts or $3400 in E-Mini profits per single contract traded.  We've become quite accustomed to taking the big boys to the cleaners in such fashion without ever once having to explain or theorize the reasons for each of our entries and exits.  All of our trading disciplines have been coded into our platform and execute automatically based upon changing market conditions.

Bear in mind we code and apply similar types of trading strategies that engage various markets at Minor, Intermediate, Primary, and Cycle degrees of trend.  The back tested results of each most certainly meet the market definition of exception survival.  Once you get with our programs, the R.E.S.T is easy.

SUMMARY:
When investing or trading remember that you are fighting a constant war, and there is no room for sensitivity.  Elliott Wave Technology is on a quest to claim victory across the board in every timeframe.  We correct course quickly when wrong, because we only have one gear, and that's getting it right. 


Trade Better/Invest Smarter
Joe Russo
Chief Editor and Technical Analyst
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