Friday, March 30, 2012

Charts for the Millennium

Post Writer Thumbnail Grand Super Cycle

It is quite rare that you find charts that are worth holding onto for the next quarter century or more. Well, consider yourself lucky because that is exactly what you are about to stumble upon. Trust us; you can pass this chart series on down to the kids and grandkids for posterity, with confidence.

Part-I
SPECIAL REPORT: March 2012

This priceless series of charts intends to help answer five of the most pressing questions of the day:

    1. How much more upside is there left in the broad equity markets relative to both price and time.
    2. What are the trendline price-targets at future resistance levels, and in what future years might these upside price targets occur?
    3. Once the current cyclical bull market ends, what are the trendline price-targets at future support levels, and in what future years might these downside price targets occur?
    4. Given our current wave count, what is the most likely path the market may take in tracing out the next several bull and bear markets over the next 25-years.
    5. Aside from which specific path markets may take in completing their cycles, what is the best strategy to stay on the right side of the market in all timeframes?

 

In this feature post, we will provide a basic primer to this chart series and then provide you with answers to all of the above questions in part-II of this Special Report, which you can freely access after giving us some likes on our Facebook page. Okay then, let’s get started.

 

Tablet for Special Report

We start out with the tablet above, which carves out twin sets of our proprietary yearly bar charts of the longest contiguous price record in all of financial history.

These charts take you on a one-of-a-kind journey spanning the peak of the South Sea Bubble in 1720 through the Panic of 1857, through the roaring twenties, the depression decade of the 1930’s, right up to the global insolvency crisis and bailouts of 2008-2012, and beyond.

Yet remarkably, mystically, and miraculously, despite such a complete and calamitous financial history, bull markets rage on and remain prevalent cornerstones to modern societies no matter what it takes to create, sustain, or inspire their return.

Spanning a total of 319-years to date, the data set splices price levels extracted from the British All-Shares Index [1693-1853], the Clement Burgess Index [1854-1896], and the Dow Jones Industrial Average, from 1896 - 2012.

Our tablet illustrates two price series both of which are identical. The stark difference in appearance is the result of plotting the data in arithmetic scale [top] contrasted with its logarithmic scale shown in the lower portion of the tablet.

Many are of the opinion that arithmetic scale is somewhat deceptive, and that logarithmic scales are better suited for illustrating “percentage” vs. “absolute” gains or losses especially over longer timeframes.

In our view, it is essential to monitor both scales. The arithmetic scale is quite useful in that it provides for an accurate visual reflection of the real pain level endured upon an absolute 50% decline in prices [2007-2009], whereas the logarithmic scale falsely illustrates nothing but a minor correction amid a never-ending one-way bull market.

Given the massive percentage gains over long timeframes, the arithmetic scale registers outdated low-level price action as nothing but a flat line in contrast to the logarithmic scale, which is able to show percentage movements in discernible waves that have taken place across the entire span of data. You can learn more about the two scales here.

Below and behold, we leave you (for now) with our best interpretation of R.N. Elliott’s classic fractal wave structures unfolding their ultimate sequence tracing out five waves of Grand Supercycle dimension from 1693 through 2012.

GSC Graphic for Special Report

Left Behind, and Chasing Armageddon since 1995, Prechter’s credible interpretation of the above chart [lower right inset] assumed that the 1929 crest and crash into the 1932 low were waves III and IV of GRAND-SUPERCYCLE dimension, which rather incorrectly suggested that the ultimate crest of the GRAND bull market tidal wave was imminent in 1995 near or around Dow 5000.

In contrast, the rendition we depict above, illustrates the 1929 crest and crash into the 1932 low as waves I and II at Supercycle dimension, which is one fractal degree beneath GRAND or the largest of R.N. Elliott’s original nine degrees of trend.

This suggests more accurately that the highs of 1999 or 2007 were more likely associated with a third wave of Super Cycle dimension suggesting that we are still trading amidst Super Cycle wave IV down [green label].

The smaller subdividing five-waves of advance at Cycle degree [blue labels] from the 1932 low suggest that it is quite plausible that the 50% decline from 2007-2009 [sight the arithmetic scale above] may well have marked all-of the Cycle degree “A” wave, which further suggests that the current bull market is of Cycle degree.

If correct, this would place the current bull within the family of rather deceptive “B” waves, which by the way, reserve every right to expand well beyond the standing all-time-highs.

Here are just a few examples of what you will be able to measure (in visual chart form) in part-II of this report, which you can access through our Facebook link:

· Regardless of whether or not the 1999-2007 highs mark the Super or Grand Super Cycle III wave, it is plausible that the answering IV wave down (however long it takes) may settle in the near vicinity of the 2009 lows. The worst-case scenario would most likely involve a retest or breach of the 1982-1974 lows.

· Looking out optimistically to this studies furthest Fibonacci turn-year it is possible that the Dow could be trading as high as 23,825 or beyond by the year 2036. That amounts to roughly 80% above current levels in 24-years time or gains of 3.35% per year on average.

· Looking out pessimistically to this study’s furthest Fibonacci turn-year, it is possible that the Dow could be trading as low as 3,756 or below by the year 2036. That amounts to roughly 71% beneath current levels in 24-years time or declines of -2.98% per year on average.

It is clear that there is a broad range of potential outcomes that may occur over the next 25-years, all of which will impose major affects on the economy as well as on long-term investment and retirement portfolios.

Although these ranges are broad in both time and price, the nearer they get, the easier they become to forecast, especially once directional bias clearly shifts from bullish to bearish.

Such insights in concert with clearly defined strategies of engagement that keep you on the right side of market embody the practical solutions and guidance provided by Elliott Wave Technology.

Join us, like us, and whatever you do, do not be fooled again. You can start right here.

It is our greatest hope that this Special Report and series of charts will serve an ever-growing inquisitive public for many years to come and perhaps well after we have completed our own journey across this span of time, which we call life, that is but a moment in the sight of the Sun.

Until Next Time,

Trade Better / Invest Smarter

 

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Tuesday, March 20, 2012

The Cost of Avoiding Armageddon

We simply could not resist sharing this tell-tale graphic.  We borrowed this illustrative chart-attack from Zero-Hedge, who borrowed it from Bloomberg, who borrowed it from Strategas Research Partners.

Chart-Attack

In our view, these are the prices thus far paid to foster financial monopolies, political corruption, the status quo, and to bankrupt those Left Behind, Chasing Armageddon.

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Sunday, March 18, 2012

Is Gold getting a tad seductive at recent levels?

Paris Hilton - Gold Body Paint-2

The consolidation in the Gold price has sure gotten our attention of late.

Perhaps this latest sell-off in Gold should also grab the attention those underinvested or late to the game that have been waiting for better entry points.

Physical Gold (not GLD or paper futures) is simply a staple insurance product like “life” or “home” to which everyone should reflexively allocate and rebalance on occasion, 10% - 20% of their entire net worth.

This GOLD screen cast pretty much nailed the recent 1522 low, which implied a rather nice rally after doing so, and that’s exactly what we got.  NOTE: adjust player setting to 480p for the best resolution.

Small Mercedes IconWant to take a Free “Zero-to-Sexy” Test Drive through some of the best chart work, forecasting, and trading guidance in all timeframes. Just “Like Us” on Facebook and you’re off to the races.

Until Next Time,

Trade Better / Invest Smarter

 

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Tuesday, March 13, 2012

End of Day Surge post FOMC

Stocks End of Day Surge

Equity markets were up straight out of the gate and all throughout the day and then surged even higher into the last hour of trade as the market responded rather exuberantly after digesting comments from the Feds FOMC meeting.

Before the Fed’s comments, the VIX, fell to a near five-year low of 13.99 intraday. It’s a gauge of how much investors are paying to protect against losses in the S&P 500, which has rallied five straight days. The VIX ended the day at 14.80, down 5.4 percent.

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Monday, March 12, 2012

Sovereign Bond Risk Jumps to 8-week High

ISDA Building GreeceToday, Bloomberg is reporting that the cost of insuring against default on European sovereign bonds rose to the highest in eight weeks after the declaration of a “credit event” triggering $3.2 billion of Greek protection contracts. You can read the rest of this report here.

In our opinion, it appears as if coordinated efforts emanating from the global cartel of central bankers in concert with respective political authorities has thus far been successful in “kicking the can down the road” yet again.

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Friday, March 9, 2012

How Sexy was Gold last month?

Gold is Sexy-2Feb. 2012 | Gold futures | 3-trades | 2-mos. | 25K
Well, if you look at our short-term mark-to-market performance for the month of February, you would at first glance conclude that from its perspective, Gold was not very sexy at all.

However, if you take a minute to read about one of the deceptive nuances of mark-to-market reporting, you will soon come to realize, that with respect to short-term trade in Gold futures, February was indeed a rather sexy month here at Elliott Wave Technology. 

This feature provides a more concise follow-up and visual account of exactly how things panned out for us.  In fact, the Gold market in February was

 

Paris Hilton - Gold Body Paint-2...SEXY as ALL HELL ! 
We have split the following five charts between two genres to chronicle precisely just how sexy and titillating the short-term Gold market was in February.

Before we get into more eye candy (of the charting kind that is), let’s warm up by getting better acquainted with the methods used to court the market in this regard.

The first of the two methods of engagement involves the identification of chart patterns that yield specific point values within their construct. Let’s take a look at these first.

Chart Pattern Trade-Triggers (Let’s Get VISUAL)

We identify these patterns quite simply with a trajectory or trendline, which we then refer to as trade triggers. Naturally, each trade trigger harbors a directional bias; it is either bullish or bearish

Typically, we use buy-stops to move long and sell-stops to go short in order to speculate on these types of chart-pattern trade-triggers. As you will see in the charts that follow, the entire process from pattern to trigger to price-target is totally a visual experience.

In addition to identifying the trigger lines in advance, we also identify a specific price, pivot point, or stop-loss level at which the trade would technically fail. This allows us to measure the full risk associated with each particular setup before deciding whether to take the trade or not.

Furthermore, each trigger-line drawn has a specific upside or downside point value associated with it. These point values provide us with a precise profit and exit target, which upon achievement, we capture via the placement of resting limit orders to exit, which we set just moments after our initial entry orders fill.

Insofar as we are concerned, Chart Pattern Trade-Triggers come under the classification of “Charting and Forecasting.” As such, we feature them regularly in the Near Term Outlook and Position Traders Perspective, which you can learn more about here, and yes, we use these triggers successfully in all timeframes.

With that said, now we can move on to that eye candy (within the genre of charting and forecasting) that we alluded to earlier.

The February Gold Chronicles:

We begin our journey back on January 9, 2012, with an extract from our Near Term Outlook publication.

Within the archived image posted below, the first paragraph of commentary prefixed “ABOVE,” describes a full-size longer-term chart that resides at the top half of its page, which we removed in order to draw your attention to comments prefixed “LEFT,” which describe the advance setup of our first chart pattern trade trigger.

In the last line of the second paragraph, we stated, “Though a pullback toward 1563 is plausible, so long as the 1522.60 low holds, we cite a 113-point buy trigger on a breakout above the falling green trendline.”

Looking at the 30-minute Bar chart of Gold below, you can visually see a falling green trendline with a green up-arrow with a 113-pts. reference tag associated with it.

Upon closer visual inspection, it was rather clear to observe that this prospective buy trigger (basis nearby Gold futures) would elect upon a move north of 1630 or so. As such, we set buy stops to move long at 1630 with sell initial sell stops to cover beneath 1522.50, which risked 107-pts, giving us a little better than even odds in our attempt to capture this triggers 113-pts of upside.

In addition, if our resting buy-stop order filled, we would immediately set limit orders to sell 113-pts north of the trigger-point or in this case at an exit price of $1742 dollars an ounce.

 

Archived Trade Trigger and Commentary

 

On the next day, January 10, 2012, Gold broke out above the trade trigger and our buy stops elected at 1630.

The next chart below illustrates an extremely sexy and profitable outcome, which resolved on February 1, 2012 when our limit orders to exit at target filled at 1742, delivering 113-pts or $11,300 dollars in profits per contract traded.  As the late Steve Jobs often said, But wait, there’s more.”

 

Gold-Feb 11k target capture at 1742

 

About a week later on Wednesday February 8, 2012, we spotted another buy-trigger. This one cited 42-pts of upside and looked as though it would trigger from around the 1746 handle.

So we once again placed buy stops to move long at 1746 with sell stops to cover at 1705, which would give us about even odds at grabbing an upside target at 1788.

The next day on February 9, 2012 our buy stops elected in what appeared to be a false head fake breakout to the upside. Knowing and accepting our predefined risk parameters, we held steady with our initial stop loss, and further maintained resting limit orders to exit throughout the trade win, lose, or draw.

After enduring a week of painful drawdowns in excess of -$4,000 dollars at the 1705.50 trough, we thought for sure we would stop out, so we fully prepared to write the trade off as a loser.

To our delight, 1705.50 held pivot low and from there, as if on command to suit our limit orders to exit with 42-pts or $4,200 in profit, on February 28, 2012 Gold delivered us our 1788 exit upon printing a pivot high of 1789. Moments later, the price of Gold collapsed nearly $100 sinking more than 5 ½ % in a matter of hours.

Next, in our last two charts, we will move on to the second genre of engagement, which is much more mechanical but just as sexy.

 

Gold-Feb 4-2k target capture at 1788

 

ZERO-to-SEXY

Gold Mercedes-2

We have extracted the last two charts below from our Chart-Cast Pilot publication, which embraces automated algorithmic buy and sell signals that we have coded to capture Elliott Waves within three basic timeframes.

Since Elliott Waves represent the development and structure of trends spanning nine fractal degrees, by its very nature and at its core, Elliott Wave Theory is the embodiment of trend following.

Rather than all nine degrees of trend, we have simplified our trading strategies to capture Elliott Waves in three basic timeframes, long-term, mid-level, and short-term.

Each of our three strategies is always in the market, and as with any trend following strategy, our entry and exit points will rarely, if ever reverse near absolute highs or lows, and instead, attempt to catch the meaty middle of a move, and allow profits to run.

Furthermore, the strategies do not use stops per se, instead the each strategy employs a protective “stop and reverse” feature rather than a predefined stop-loss exit level.

Rocket Man

Below, we draw your attention to our short-term trading strategy in the Gold futures market. 

Note that we did not take profits on shorts at or near the 1522.60 low, nor did we get long there. Instead, we awaited confirmation of a suitable change in trend dynamics from which to reverse our position bias with the highest possible odds of sustainable long-term success.

As the old saying goes, “do not shoot (or pull the trigger) until you can see the white’s of their eyes,” and each of our trading strategies are programmed to do just that.

 

CCP long-Entry on Jan-6

 

Finally, we will wrap it all up in this last chart, which illustrates how this programmed trade resolved.

As an aside, you can clearly see by the now familiar 1788 price target capture (circled), that we do provide and overlay ancillary trade triggers on our strategy charts.

We do this for several reasons. One reason is for those who wish to take ancillary side-bets outside the purview of the trading strategy, and another reason is for those who may at their discretion, wish to exit early and get flat at a specific target price rather than wait for a reversing signal confirmation, which is guaranteed to drawdown peak open trade equity.

 

Gold -DAY-of-ARTICLE

 

So here, the key distinction in the resolution to this programmed trade is where it booked profits and reversed short. As you can see, the trade held long throughout the triple digit plunge to 1690, and did not take its $10,080 dollars per contract in profit until March 1, 2012 at a price of 1720.40.

All told and in stark contrast to what our monthly mark-to-market reporting may have implied, the three trades depicted herein netted more than $25,000 dollars per contract in trade profits in short-term trading accounts for the very sexy month of February 2012.

 

Until Next Time,

Trade Better / Invest Smarter

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Wednesday, March 7, 2012

Fed Mulling Sterilization

Fed Building

'MAD SCIENTISTS'
From Reuters: ”The U.S. stock market gained ground on a report, which suggested the Fed is actively considering how to be more aggressive in spurring growth.”
In my opinion, this is yet another piece of unequivocal evidence of an overreaching interventionist central bank attempting to dictate economic outcomes as it sees fit.  You can read the rest of this Reuters report here.

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Tuesday, March 6, 2012

Largest Market Drop in 3-months

Market DropWith Apple (APPL) trading down -5% from recent parabolic highs and with the financials under pressure over renewed concerns in the Euro-zone, equity markets are suffering their largest single-day loss in 3-months.


Mar-6 Vix

 

Bulls beware:  The interventionist authorities are losing control of their sustained and insanely bullish VIX reading beneath the 20 level.

 

 


Bears beware:  The sudden and quintessential all-at-once declines rendered after prolonged bullish levitation can often find support over the near term – then jettison right back up toward previous highs.

Market Drop March 6

Until next time,

Trade Better / Invest Smarter

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Sunday, March 4, 2012

February Portfolios Return: 3.45%

HS6ClipImage_4f2a1fdf For the month of February, the benchmark S&P 500 put in another stellar performance, up another 4.32% for the month, which puts it at a 9% return  year-to-date.

This is a phenomenal two-month return considering that the average yearly return for the past ten years has been just 4.17%. 

Further along in this update we will also discuss and demystify the realities and deceptions of Mark-to-Market reporting.

Compared to the S&P benchmark, Pilot portfolios fared pretty well, mildly underperforming the benchmark by less than 1%.

Our mark-to-market broad market portfolio posted a 2.09% return for the month, while our mark-to-market stock portfolio posted a 4.8% return. Trade in Crude Oil and Apple (AAPL) were our best performing markets, while trade in the Long Bond and Amazon (AMZN) were our worst.

February-2012 Performance

 more on the >> The realities and deceptions of Mark-to-Market reporting

Firstly, profits and losses posted in monthly return profiles do not convey actual realized gains or losses (see mark-to-market period-analysis last paragraph).  Instead, the monthly performance profiles serve more as an accurate statement of account.

For example:

If we ran a hedge fund based upon the above listed portfolio, and we were required to send out monthly account statements to each of our shareholders, mark-to-market accounting would provide the best snapshot of performance from one statement period to the next.

This is a best practice method of reporting even though several positions comprising the portfolio might remain open, or may have been on the books for several months or years.

When reported losses are in fact hidden profits

To help focus your attention once again, we highlight our mark-to-market short-term trading results in the Gold market in order to illuminate precisely how such reported drawdowns might be rather deceiving, and how reported losses may well disguise a simple drawdown of open profits within a given reporting period.

This month, we report a mark-to-market monthly drawdown or LOSS of ($2400) in short-term Gold futures trading accounts however, the reality is that we took no such loss and in fact, at the close of February, our short-term bullish position in Gold was actually in profit by $9,530 dollars per contract.

You might be scratching your head asking how in the world can we close out the month of February with $9,530 in actual open trade profits in this account and report a $2,420 loss for the month.  At face value, the numbers simply do not add up.

Enter mark-to-market accounting.  This is how it works: 

In the above Gold futures example, back on January 6, we established a new position, moving long one contract of nearby Gold futures at an entry price of 1619.60. 

At the end of January, Gold closed at 1739.10 leaving us with unrealized open profits of $11,950 dollars per contract.  It is from here (the condition of $11,950 in unrealized profits) that we began our reporting baseline for the current “February” period.  Are you with us so far?  Okay good.

So, by the end of February’s current reporting period, still holding our January 6 long position from 1619.60, Gold settled the February books at a closing price of 1714.90 leaving us with ( 95.30-points x $100 = ) unrealized open trade profits of $9,530 per contract.

Where does that leave us performance wise for February?  You got that right, it leaves us with a ($2,420) drawdown or loss for the reporting period, which began the month with $11,950 in unrealized open profit and closed the month with a reduction in open profits. 

So, to sum it all up, we started February with $11,950 in unrealized trade profits on the books, and ended February with (-$2,420.) less, or $9,530 in unrealized trade profits on the books. 

That is how reported losses may be disguised as hidden profits.

How did this trade resolve?

The trade list below reflects transactions made in short-term trading accounts for nearby Gold futures.  We have generated the spreadsheets below from recent activity in our short-term Gold trading accounts. 

Below, we have listed four completed trade transactions from 11/17/11 through the last trade referenced above, which elected on 01/06/12 at the $1619.60 entry price.

In the last transaction listed, we closed our long positions on 03/01/12 at a price of $1720.40, which yielded a two-month “REALIZED PROFIT” on the transaction of $10,080 dollars per contract.

Note that the profit and loss amounts reflected under the cumulative net profit column include transaction cost adjustments.

Feb Short-Term Gold Trades - 1

Run-ups and Drawdowns

Feb Short-Term Gold Trades - 2

To wrap up this illustration, we provide you with a few rather interesting mark-to-market related statistics: the run-ups, drawdowns, and total efficiency for each trade transaction.

If we were to evaluate a two month reporting period, we would observe that our January long position in nearby Gold futures had a maximum equity run-up of $16,940 dollars at its peak (a 93.85% efficiency correlation), and a negative equity drawdown of (-$1,110)  at the worst point within the trade. 

At the end of the day, we achieved a 55.84% total efficiency correlation upon closing out this trade on 03/01/12 with more than a $10,000 dollar PROFIT IN JUST TWO MONTHS

In closing, we leave you with more background information surrounding the best practice of mark-to-market accounting.

 

Until next time, Trade Better / Invest Smarter

 

Mark-to-Market Period Analysis

Mark-to-Market is another term for closing the books at certain time intervals for accurately reporting profit, loss, and performance. When we perform Mark-to-Market on a monthly basis, it means that though various positions may remain open, for periodical reporting purposes, we close the accounting books at the end of each month and thereby mark those positions to market.

Without a Mark-to-Market, it would be impossible to know where to allocate profit or losses within a given period.

For example, say that a trade that begins November 1 and closes January 31 makes 30%. The Mark-to-Market allocates the proper percentages to each month as opposed to the entire amount at the end of the three-month holding period.

History and development

The practice of mark-to-market as an accounting device first developed among traders on futures exchanges in the 20th century. It was not until the 1980’s that the practice spread to big banks and corporations far from the traditional exchange trading pits, and beginning in the 1990’s, mark-to-market accounting began to give rise to scandals.

To understand the original practice, consider that a futures trader, when taking a position, deposits money with the exchange, called a "margin.” This intends to protect the exchange against loss. At the end of every trading day, the contract is marked to its present market value. If the trader is on the winning side of a deal, his contract has increased in value that day, and the exchange pays this profit into his account.

On the other hand, if the market price of his contract has declined, the exchange charges his account that holds the deposited margin. If the balance of these accounts falls below the deposit required to maintain the position, the trader must immediately pay additional margin into the account to maintain his position (a "margin call").

As an example, the Chicago Mercantile Exchange, taking the process one-step further, marks positions to market twice a day, at 10:00 am and 2:00 pm.

 

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