Traders' Library Blog

Stocata S&P500 Technical Analysis: May 26, 2012.

Last week I wrote: "With 1295 we reach the target mentioned on the weekly chart last week. And here we said "the trend is down". With 5 times a lower low, this was certainly the case. We are falling out of the downward pitchfork and we are reaching support of the 200 day average. Next target down is around 1250, but I expect an up reaction before that with a correction wave 2 (more on my new 123 wave count system HERE) ".

We got an up correction to around 1330, close to what I thought would be a first target. There is no close short position signal from STS8 (more info about my STS8 Swing Trading System HERE). With about half of the STS8 rules you would expect a further up correction, but it is evenly possible that the downtrend will continue without a further correction now. The wave 2 correction is not yet confirmed. If we get a further up correction, it will probably move to between 1340 and 1350. Hard to predict next week, I believe there is a 50/50 change up or down.

The total closed profit trading the index is 76.5% (with the low of the previous week; a paper profit of 86.5%) from the start in March 2009. We have a 123-wave, wave 3.1 down. We have to consider that it is not impossible that we started a long term down move. My SVEPRExp expert system remains black, we have an open short position (more about the expert system SVEPRExp HERE! Weekly chart HERE.

Stocata FOREX Update EUR/USD: May 26, 2012.

May 26, 2012: Last week I wrote: "Our short position was doing very well. The Euro fell beyond the target at 1.2753 but started an up correction Friday. I do expect a further correction in first instance towards 1.2830, back to the median line of the down moving pitchfork. A correction back to 1.30 should not be excluded. Longer term the trend remains down. There is no close short signal from my STS8 swing trading system".

With 1.2824 on Monday, we were close to the expected further up correction of 1.2830. The rest of the week was a strong move down confirming what I wrote last week "the trend remains down". The Euro fell out of the downward pitchfork. There is no sign yet that we should expect a reaction up. So there is a good chance that we will move once more a bit further down next week.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is black. We are holding a short position. More information about this expert system HERE.

Top 10 Forex Events Outlook: May 21-25

May 20, 2012 (Allthingsforex.com) – The euro will retain its center stage spot next week as traders anxiously watch the latest polls from Greece and the headlines from the euro-area as EU inspectors visit Portugal on Monday, the ECB President speaks on Thursday and the EU Council meets on Friday, while several important economic reports from the Euro-zone will be likely to expose May as another month of economic weakness in the region.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., May 22, 4:30 am, ET.

The main measure of inflation preferred by the Bank of England is forecast to see inflationary pressures falling significantly lower to 3.0% y/y in April from 3.5% y/y in March. If it heads back to the bank’s desired 2% to 3% range, inflation should not be an obstacle to more QE by the Bank of England in the near future.

2.    USD- U.S. Existing Home Sales, the main gauge of housing market conditions measuring sales of previously constructed homes, Tues., May 22, 10:00 am, ET. 

The U.S. housing data in the last few years has been nothing to brag about, but in the “new normal” even the slightest increase in home sales could be considered as a hopeful sign. Sales of existing homes in the U.S. are forecast to remain unimpressive with a small rise to 4.6 million in April from 4.48 million in March.

3.    JPY- Japan Trade Balance of the difference between imports and exports, Tues., May 22, 7:50 pm, ET.

The Japanese economy is expected to see the trade deficit shrinking with a reading to 600 billion yen in April compared with 621.3 billion yen in March. A contributing factor to the deficit reduction will be an estimated increase in exports by 11.8% y/y in April from 5.9% y/y in March. Released, a few hours ahead of the Bank of Japan’s interest rate announcement, a positive trade balance report could lend support to the yen.

4.    JPY- Bank of Japan Interest Rate Announcement, Wed., May 23, around 12:00 am, ET.

Stocata S&P500 Technical Analysis: May 19, 2012.

Last week I wrote: "Reaching a low of 1343, we came very close to our mentioned target of 1340 the previous week. We have a new valid wave 3.1 down (more on my new 123 wave count system HERE). All indicators are moving down. There is support from the 100 day moving average and from the previous low of a wave 2. For next week there may be some up correction, but the trend is down! My swing trading system is in a down move (more info about my STS8 Swing Trading System HERE)".

With 1295 we reach the target mentioned on the weekly chart last week. And here we said "the trend is down". With 5 times a lower low, this was certainly the case. We are falling out of the downward pitchfork and we are reaching support of the 200 day average. Next target down is around 1250, but I expect an up reaction before that with a correction wave 2 (more on my new 123 wave count system HERE). There is no close short position signal from STS8 (more info about my STS8 Swing Trading System HERE).

The total closed profit trading the index is 76.5% (now 86.5% including the paper profit) from the start in March 2009. We have a 123-wave, wave 3.1 down. We have to consider that it is not impossible that we started a long term down move. My SVEPRExp expert system remains black, we have an open short position with a nice paper profit (more about the expert system SVEPRExp HERE!

Stocata FOREX Update EUR/USD: May 19, 2012.

Last week I wrote: "As expected we had an up reaction on Monday as predicted by the hourly chart but the rest of the week there was a continuation of the down move. Indicators are oversold, so I do expect some consolidation, but the trend is down. The expert is black for a short position, a continuation that was already announced 2 weeks ago by the hourly chart".

Our short position was doing very well. The Euro fell beyond the target at 1.2753 but started an up correction Friday. I do expect a further correction in first instance towards 1.2830, back to the median line of the down moving pitchfork. A correction back to 1.30 should not be excluded. Longer term the trend remains down. There is no close short signal from my STS8 swing trading system (STS8 rules HERE).

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is black. But as written two weeks ago "in view of all resistance I keep the open short position for now", we are still holding the short position. More information about this expert system HERE and HERE.

Check Your Expectations!

I talk to prospective clients every week and one of the "red flags" I am on guard for is unrealistic expectations. Often I find the trader expects to turn his $2,000 account into a million dollars before the end of the year. Other traders have concluded from some of the marketing pitches that losses can be avoided entirely if you just know the "secrets" of adjustments.

Trading options can be very conservative or very aggressive. I am sure I could look back through recent history and develop some very attractive trades along the lines of, "If I had bought this call option just before Apple announced their earnings...". It wouldn't be hard to imagine scenarios where my thousands turn into hundreds of thousands. But is that realistic?

Why Do You Trade?

You may think that this is an obvious question. Certainly, we all trade to make money, but I am asking you to dig a little deeper. Why do you enjoy trading? Do you feel a sense of satisfaction when you have analyzed a particular stock and successfully predicted the market's response? Or is it more along the lines of being excited about making $5,000 in three days?

 

In my experience, better traders tend to approach their trading like a business - a coldly analytical business. They certainly savor their successes, but they aren't adrenaline junkies - they are serious business people.  If a deeper self-analysis reveals that you are trading for the excitement, watch out! That could be dangerous.

 

The Deception Of Large Gains

 

Do you understand the natural characteristics of your strategy? If your favorite trade is an OTM debit spread that has a potential gain of 300%, you should recognize the probabilities underlying this trade. This is an example of the classic low probability trade; you may only win one out of ten trades, but when it hits, it is huge. So the long-term pattern of results consists of frequent, small losses punctuated by occasional large gains.

The classic high probability trade has the opposite pattern: frequent small gains with occasional large losses. Neither trade is superior and neither trade will be profitable in the long-term without a robust system of risk management.

Often beginning traders are seduced by the prospects of several hundred percent gains but don't appreciate the low probabilities of success associated with this trade.

Neither trade is superior but the trader's expectations need to be grounded in the underlying probabilities.

Stocata S&P500 Technical Analysis: May 12, 2012.

Last week I wrote: "Because the stop loss just above the top 3.4 was not reached, we still have the short position open. Last Thursday the index fell again under the 8 day exponential average ready to continue the move down. All indicators are moving down and we have a confirmed wave 3 down, (more on my new 123 wave count system HERE). My expert system SVEPRExp turned red. The first target now is the 100 day average around 1340".

Reaching a low of 1343, we came very close to our mentioned target of 1340 the previous week. We have a new valid wave 3.1 down (more on my new 123 wave count system HERE). All indicators are moving down. There is support from the 100 day moving average and from the previous low of a wave 2. For next week there may be some up correction, but the trend is down! My swing trading system is in a down move (more info about my STS8 Swing Trading System HERE).

The total closed profit trading the index is 76.5% from the start in March 2009. We have a valid 123-wave, wave 3 down. We have to consider that it is not impossible that we started a long term down move. My SVEPRExp expert system turned black, we have an open short position. Since not all conditions to close this short trade the previous week, the short position is still open and now confirmed by the expert system.

Stocata FOREX Update EUR/USD: May 12, 2012.

Last week I wrote: "With 160 pips down the past week, our expectation is fulfilled. We reached the 261.8% Fibonacci target in the hourly chart. We are now below all averages. We have a confirmed wave 3 down and we are moving towards the median line of a down moving pitchfork. All indicators are moving down. On Wednesday all STS8 rules were in favor of opening a short position which we already did based on the hourly chart last week. We can expect a further move down, probably after a short reaction in the hourly char

As expected we had an up reaction on Monday as predicted by the hourly chart but the rest of the week there was a continuation of the down move. Indicators are oversold, so I do expect some consolidation, but the trend is down. The expert is black for a short position, a continuation that was already announced 2 weeks ago by the hourly chart.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is black. But as written two weeks ago "in view of all resistance I keep the open short position for now", we are still holding the short position now confirmed on the daily chart. More information about this expert system HERE and HERE.

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Denver Trading Forum--Bonus Session Added

Don’t miss the Denver Trading Forum next week!  We just added a bonus session on Friday night—it is a must attend.

Friday, May 18, 2012 7:00 pm – 8:30 pm

Straight Answers on Trading

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Trading Week Outlook: May 7 - May 11

May 6, 2012 (Allthingsforex.com) – As a result of an economic calendar light on crucial economic data from both sides of the Atlantic, we expect risk to be the dominant driver for the markets and the major currencies in the week ahead.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe. 

1.    EUR- Elections in France and Greece, Sun., May 6, all day event. 

Political uncertainty would be likely to cause market jitters and should keep the pressure on the single currency. Current polls suggest the potential for a fractional government in Greece which could create instability and might force another election within the next month or two, adding to the uncertainty about the future of the debt-ridden nation and its commitment to follow the requirements of its second bailout package.

2.    CHF- Swiss CPI- Consumer Price Index, Mon., May 7, 3:15 am, ET.

We expect the Swiss inflation report to demonstrate that despite of the recent month over month increase in the inflation gauge, deflation continues to be an issue for the Swiss economy, increasing the odds of the need for additional action by the Swiss National Bank to weaken the franc. The consumer price index is forecast to inch higher by a smaller 0.2% m/m in April after rising by 0.6% m/m in March.

3.    JPY- Current Account Balance, Wed., May 9, 7:50 pm, ET.

In January, Japan registered its biggest monthly current account deficit since 1985 with a shortfall of 437 billion yen. The account surplus has been a backbone of yen strength throughout the past few decades. Because of the surplus Japan does not need to rely on foreign purchases of government bonds. However, following the January report, investors began to question the country’s ability to handle an already massive amount of debt which exceeds 200% of GDP. Japan is forecast to ring a smaller current account of about 1.44 trillion yen in March compared with 1.17 trillion in the previous month.

4.    AUD- Australia Labor Force Survey, Wed., May 9, 9:30 pm, ET. 

Watching the Market...

Steve Palmquist.

Author of ‘The Timely Trades Letter’.    

‘How to Take Money from the Markets’,  

and   Money-Making Candlestick Patterns.

 

When the market is resting, like it did last week, I set up the alerts function that my broker provides to text my iPhone when the market moves either above or below the resting area. When I get the text message I look at the market to see if trading is warranted. In this case I was notified when the market made a move on Friday. I looked at the market chart on my iPhone, determined that no swing trades were warranted, because I was focused on longs and the market had moved down a bit. This process takes just a few minutes and can be done from almost anywhere; or with a brief break, in most any job. New traders often make this too hard, they want to watch the market all day, afraid they will miss something. Sending the alerts to a cell phone, for both stock triggers and key market levels, allows traders to work on other things and just take a look at the market when something interesting happens. If I am too busy to get to the computer I do not worry about it; any decent move does not require you to be in on the first day, almost by definition. All of my backtesting research for the trading tools I use, and the ones published in my books was done using end of day data; trades were entered at the open the day after the trigger. Again, this illustrates that one does not need to watch the market all day. In fact, it seems that the more people watch the market the worse they do. They start making emotional decisions rather than data based decisions. I am trading patterns in market environments in which they have demonstrated interesting results. There is no emotion in trading a pattern, it is either there or it is not. The stock has either moved above the trigger price, or it has not. The market is either in an appropriate environment for trading or it is not. 

 

Trading should be data driven, not based on emotion, wishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in  ‘How to Take Money from the Markets’, and  Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks. 

 

 

 

 

Stocata S&P500 Technical Analysis: May 5, 2012.

Last week I wrote: "We complied with the STS8 rules for opening a short position two weeks ago and we still are complying now (more info about my STS8 Swing Trading System HERE)".

Unfortunately I mixed up charts last week, using the chart of the week before, also writing the comments! I make a new start this week.

Because the stop loss just above the top 3.4 was not reached, we still have the short position open. Last Thursday the index fell again under the 8 day exponential average ready to continue the move down. All indicators are moving down and we have a confirmed wave 3 down, (more on my new 123 wave count system HERE). My expert system SVEPRExp turned red. The first target now is the 100 day average around 1340.

The total closed profit trading the index is 76.5% from the start in March 2009.

We have a valid 123-wave for a new wave 3 down. We have to consider that it is not impossible that we are starting a long term down move. My SVEPRExp expert system turned red again, we have an open short position. Since not all conditions to close this short trade were met the previous week, the short position is still open.

Stocata FOREX Update EUR/USD: May 5, 2012.

Last week I wrote: "The Euro went down to the level of the low side of the up moving pitchfork on the weekly chart, but closes above the high side of the down moving pitchfork on the daily chart. We are close to a previous resistance and the down moving 200 day average. The hourly chart complies with the 8 STS8 rules for selling. The Euro may still reach the 200 day average, but I do expect lower Euro prices next week.".

With 160 pips down the past week, our expectation is fulfilled. We reached the 261.8% Fibonacci target in the hourly chart. We are now below all averages. We have a confirmed wave 3 down and we are moving towards the median line of a down moving pitchfork. All indicators are moving down. On Wednesday all STS8 rules were in favor of opening a short position which we already did based on the hourly chart last week. We can expect a further move down, probably after a short reaction in the hourly chart.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is green. But as written last week "in view of all resistance I keep the open short position for now", we are still holding the short position. More information about this expert system HERE and HERE.

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