The Long-Term Trend Monitor is Here
Timing the Markets: It's Easier Than You Think
CHART-
CAST PILOT: Lifetime Performance
Left Behind, Chasing Armegeddon
How will you know when to buy and sell?
Simple solution to grow your long-term nest egg
Should you own Gold and Silver?Where do your tendencies lie within the realm of hope, fear and greed? It is rather important that you know...>>read more
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.
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.
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.
Want 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
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.
Today, 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.
Feb. 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…
...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.
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.”
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.
ZERO-to-SEXY
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.
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.
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
'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.
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.
Until next time,
Trade Better / Invest Smarter
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.
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.
Run-ups and Drawdowns
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.
