We will exit the QQQQ long position on the open Monday as the VLE closed down today more than 4% from its recent swing high and closed below its 25dema. It will require one more day to confirm a new short signal as the 25dema has only declined one day. This applies to the Cabots Tides system as well.
It can be frustrating trading in a month like February for trend following system traders, yet consider how difficult January may have been for those who were trying to buy the bottom. It is probably true that those able to buy the swing lows and sell the swing highs in February made money but this is not where the big money is made in my opinion.
It looks like one more new low for the Qs before a substantial rally begins. However, the best course of action is to wait for a new buy signal before taking a position.
This weekend I will introduce a very simple but effective system based on closing prices that requires very little time to implement. I will recap the status of the system year to date.
The primary lesson to learn from February is not to be discouraged with losses. They are just part of this business.
Friday, February 29, 2008
Wednesday, February 27, 2008
Long & Neutral
Today we exited the Cabot Tides short position on the open at 43.77 for a gain of 14.6%. This is an excellent gain in just less than 8 weeks with an ARR of 95.1%. Not bad for a one trade.
For the VLA system we went long the QQQQ at 43.77. It is interesting to note the number of people calling for a 5th wave breakdown in the Nasdaq 100 based on the formation of a triangle. What the triangle is telling us is that it could be a 4th wave with a new low to follow, or it could be a b wave with new bear market rally highs to follow in wave c. Price trumps pattern - always. Breadth informs our interpretation of pattern. At the present time the Nasdaq summation index is rising, and there are other breadth indicators that are positive. Therefore, it would be risky to trade against price for a reversal here. This is where the market prognosticators mislead the inexperienced trader into taking high risk trades.
Regardless of which system you trade, discipline is the key. Discipline requires the willingness to take losses for the possibility of greater future gains. Hope and fear must be shattered on the altar of discipline.
For the VLA system we went long the QQQQ at 43.77. It is interesting to note the number of people calling for a 5th wave breakdown in the Nasdaq 100 based on the formation of a triangle. What the triangle is telling us is that it could be a 4th wave with a new low to follow, or it could be a b wave with new bear market rally highs to follow in wave c. Price trumps pattern - always. Breadth informs our interpretation of pattern. At the present time the Nasdaq summation index is rising, and there are other breadth indicators that are positive. Therefore, it would be risky to trade against price for a reversal here. This is where the market prognosticators mislead the inexperienced trader into taking high risk trades.
Regardless of which system you trade, discipline is the key. Discipline requires the willingness to take losses for the possibility of greater future gains. Hope and fear must be shattered on the altar of discipline.
Tuesday, February 26, 2008
Two New Signals
The VLE closed above the 25dema and the 25dema has advanced two consecutive days giving us a buy signal. We will go long on the open with the VLA System.
The Cabot Tides System issued a short exit signal today as 3 of the 5 indexes closed above their respective 25demas and the 25demas have advance two days in a row. Therefore, we will exit the short position of the Cabot Tides System tomorrow on the open.
The monthly trend is still down and this rally looks like a bear market upward correction. It may be choppy, so be prepared.
Later on we will examine filters that can be used to reduce whipsaws. After a strong start to the year in January with our short signals, we have been chopped up on the VLE signals.
The Cabot Tides System issued a short exit signal today as 3 of the 5 indexes closed above their respective 25demas and the 25demas have advance two days in a row. Therefore, we will exit the short position of the Cabot Tides System tomorrow on the open.
The monthly trend is still down and this rally looks like a bear market upward correction. It may be choppy, so be prepared.
Later on we will examine filters that can be used to reduce whipsaws. After a strong start to the year in January with our short signals, we have been chopped up on the VLE signals.
Friday, February 22, 2008
Potential Short
If the VLE closes lower today, a new short signal will likely be generated. One note of caution though. The signal is coming at the apparent completion of a triangle. From Elliott Wave Theory we know that this means that the forthcoming decline is probably the end of the impulse wave down from the 10/31/07 high. Therefore, one should not expect the decline to be persistent. If there are multiple gaps down on very increasing volume, it is possible that this is a 3rd wave and the decline will be persistent. The point being that any significant reversal on volume should be respected.
Tuesday, February 19, 2008
No Change
Currently, the VLE is still in Neutral. To confirm a signal it must now close above the 25dema with the 25dema rising for two consecutive days or it must close below 2062.49 to confirm a short signal.
It is of interest to note that the QQQQ has yet to even approach it's 25dema. Later on we will examine whether adding a filter for the QQQQ to close above or below its 25dema to confirm the VLE signal.
The Cabot Tides system is still on a short signal as are most intermediate term systems. Many have been anticipating a change in trend. IBD even called a follow-through day last week. However, the recent distribution days are calling it into question.
It appears that most major markets are working triangle consolidations that most likely will resolve to the downside. If they are indeed triangles, we know from Elliott Wave Theory that the following wave should be the last in the series, so any intermediate term buy signal thereafter should not be ignored.
It is of interest to note that the QQQQ has yet to even approach it's 25dema. Later on we will examine whether adding a filter for the QQQQ to close above or below its 25dema to confirm the VLE signal.
The Cabot Tides system is still on a short signal as are most intermediate term systems. Many have been anticipating a change in trend. IBD even called a follow-through day last week. However, the recent distribution days are calling it into question.
It appears that most major markets are working triangle consolidations that most likely will resolve to the downside. If they are indeed triangles, we know from Elliott Wave Theory that the following wave should be the last in the series, so any intermediate term buy signal thereafter should not be ignored.
Wednesday, February 13, 2008
Short Exit Follow-up
Exited the recent short signal on the open at 44.39 for a loss of 4.82%. This brings the total return for this system year to date to -3.11%. Before you decide that this is unacceptable, you must realize that any trend following system is going to have a drawdown from time to time before the next major trend is established which may change these results for the better.
Exit Short On VLA System
The VLE gave a neutral signal yesterday by closing above its 25dema, but not 4% above its intraday swing low of 2/7/08. The 25dema is also flat. The earliest that a new long signal could be generated is tomorrow if the 25dema rises the next two days and closes above 2140.87.
For those who did not exit the previous long signal using the opening gap stop approach, the course of action is to remain long until the next long neutral or short signal.
For those who went short on the open on 2/7/08, the proper action is to exit short on the open today, or to use the reverse procedure from 2/7/08. In this case you would wait for the first 15 to 30 min to see if a top is put in and then place a stop loss order above that level. However, with the positive news from AMAT and the better than expected retail sales report this morning the opening gap is not likely to be filled.
The Cabot Tides system remains short.
For those who did not exit the previous long signal using the opening gap stop approach, the course of action is to remain long until the next long neutral or short signal.
For those who went short on the open on 2/7/08, the proper action is to exit short on the open today, or to use the reverse procedure from 2/7/08. In this case you would wait for the first 15 to 30 min to see if a top is put in and then place a stop loss order above that level. However, with the positive news from AMAT and the better than expected retail sales report this morning the opening gap is not likely to be filled.
The Cabot Tides system remains short.
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