Friday, January 29, 2010

The Necessity of Your Own Analysis






When you depend on someone else to do the analysis, when a mistake is made and you lose money, you have no idea of where the mistake was made because you did not do the work.  I made a mistake and I will attempt to illustrate how the error was made.  This was not the first time I made the same mistake.
I have been struggling with the mistakes I have made with T Theory for the 10 minute DIA.  I have repeated a mistake I have made previously and I would like to explain it to you for any comment or insight you may have.  This is why it is imperative that you do your own analysis because if you use other people’s conclusions and they are wrong, you do not know why you were wrong.  I began to recognize more and more shorter T's some of which I was not convinced were valid T's but I marked them anyway.  While I focused on all the new smaller T's of relatively short time duration, I totally missed the overlying large T that encompasses all the other T's I had drawn.  I made this mistake before and on both occasions the larger overlying T was very accurate and precisely forecast a key market turn.  When I went over all my charts I found that I was not paying attention to the Longer term T and trying to make too much out of the shorter term T's some of which I was not comfortable with. 
While I was updating my daily charts I noticed that one of my special oscillators for the Daily S&P 500, illustrated a shadow of the short term 10 minute DIA chart T's with the T’s drawn strictly from the oscillator.  Closer investigation revealed that the daily T's began within one day of the beginning of the10 minute T's and within one day of the center post. 

The charts above and immediately below show the long green T that began in late November and expired just before the market dropped 700 points.  These charts also illustrate the red X'ed T that is a Failed T or a Bear T that was formed in the immediate downtrend and these Bear T’s are good at forecasting the center post of a new Bull T as the Red X’d T does in the charts.  The Failed T and I have identified a new center post that began at 12:30 yesterday 1/28/2010 and will expire on Monday February 1, 2010 at 12:00 PM.  This is a rather short T and the short T’s expire quickly and most the price advance occurs immediately after the center post formation.
The possibility exists that the market will go lower after the expiration of this latest T so I am looking to short the market on Monday.













Notice how the Red X'ed T expires at the new center post and the right side of the long Green T encompasses a period of superior price appreciation and expires just before the market began the current downtrend.











The smaller T is the most probable marker for a market rally since most of the longer new T  is taken up by a Failed or Bear T.












Here are some of the smaller T's that drew my attention away from the longer duration T in the first two charts.  There is also a closer look at the Failed or Bear T that helps point out the new center post.  These short term T's are tricky to trade and should not draw your attention away from finding the longer term trend.
























The above chart is a daily chart of the S&P 500 and its corresponding oscillator.  These small daily T's are mostly defined by the hi lo of the oscillator but they reflect almost to the day the longer term T's of the 10 minute charts.  This will be a valuable tool for defining new longer term 10 minute T's.

Tuesday, January 19, 2010

An Overwhelming Body of Evidence




These charts constitute an overwhelming body of evidence that a new centerpost was confirmed about 10:00 AM this morning 1/19/2010.  We can either lead, follow or get out of the way because this market is going higher.  I executed the following orders this morning:

Bot DIA @ 106.58
Bot BGU @ 56.63
Sold Short BGZ @ 15.75

It takes a long time to upload my charts so I am ordering a faster Internet service.  DC


I am placing Stop Loss orders at the following levels:

Sell Stop DIA @ 105.40
Sell Stop BGU @ 54.90
Buy Stop BGZ @ 16.35

Inductive Reasoning verses Deductive Reasoning and why I went wrong!

The difficulty of applying new analytic techniques to stock market analyses is the necessity of using Inductive Reasoning in our investigative process.  Inductive Reasoning is the operating mechanism of the Scientific Method.  Let me first define my terms.  Deductive Reasoning is the process we learned from Euclid when we studied Geometry. Deductive Reasoning of mathematics is an exhaustive process whereby a set of premises (givens) leads us to one and only one unique conclusion we call a Theorem.  A Theorem  is not a Theory.  A Theorem is a unique law of the universe derived through Deductive Reasoning.  A Theory, on the other hand, is a Hypothesis formulated from a series of observations in nature whereby an overwhelming series of valid arguments and experimental repetition form a body of evidence supporting the veracity of the Theory.  Any valid theory is able to predict an outcome within probability limits and demonstrates both causality and coherence. 
  
My New T Theory is based upon observations of an implied symmetry in the ten minute time-price series of The Dow Jones Industrial Average and its special underlying price oscillators.  Because of the verisimilitudes of the chart patterns, I formed a hypotheses that my new T Theory can be applied to more narrow market averages like the S&P Financial Sector average.  In my rush to judgement, I quickly concluded that if the theory worked on a more narrow market average then it could be applied to an individual commodity or a single stock.  Inductive Reasoning has led me to conclude that beyond any qualification or reservation my latest hypothesis is invalid!   DC January 19, 2010

Friday, January 15, 2010

Stopped out of my Long XLF position

I was stopped out this morning at the opening at the following prices:

Sold FAS @ 83.00
Sold XLF @ 14.98
Buy Stop FAZ @ 17.18

Wednesday, January 13, 2010

The XLF Financial ETF has a new Center Post



The XLF formed a bottom or a new Center Post today.  In  yesterdays commemts, I pointedout how the oscillators were over three standard deviations below the zero line which indicates a very oversold condition.  This is when a new center post is most likely to form.  The new centerpost was confirmed around 1:00 PM today. As a result I went long the XLF with the following trades.

Bought XLF @ 15.17
Bought FAS @ 16.95
Sold Short FAZ @ 16.95

Tuesday, January 12, 2010

Closing out all long positions DIA T is expiring


All of these charts are the DIA 10 minute for today 1/12/2010.  They all show the latest T expiring.  I have closed out my positions at the following prices:
Sold DIA @ 105.89  + $0.39
Sold BGU @ 55.29  - $0.37
Bought BGZ @ 16.18  -$0.08




Here are all the Oscillators I use to draw 10 Minute Chart T's of XLF


This is the basic oscillator chart derived from Terry Laundry's calculations and it only reveals the cash build up phase upon close scrutinizing.  This basic oscillator is best adapted to reveal strong over bought and over sold situations.  You should take note that the XLF is approaching four (4) sigma or four (4) standard deviations below the zero line.  This is an extremely rare event and we should begin to look for a low price for establishing a new center post.


This is the first derivative of the basic oscillator for the 10 minute XLF.  This oscillator is almost (3) three standard deviations (sigma) below the zero line.


Note how quickly the price sold off as this T expired.



Here is another look at T's drawn from another oscillator illustrating the sell off after the expiration of the T.


Here are two (2) more oscillators showing how all the oscillators consort to illustrate the cash build up phase and the market appretiation phase that follows.  There is a small T that is relieved by these oscillators and it turns out to be a Bear T.  According to Terry Laundry, The right side ending of a Bear T will approximate the position of a new center post.  We will see about this one.



This is a very smoothed oscillator that illustrates a T that expired almost exactly at the top of the market.


Here is a pastiche of various oscillators used ti identify the center post and left side of the T.

Financials usually sell off first at an interim top and they are the first to rally at the bottom.  I still have my positions in DIA, BGU, and BGZ.  I had a nice profit in them at the close yesterday but I did not hear the Ducks quacking.  Currently I am at break even and  I will wait till the close to decide whether to hold the positions or   liquidate.  I am looking for a new center post.






Banks and Financials from XLF were all over the news this morning



SEC seeks to widen BofA suit. The SEC requested court permission to expand its lawsuit against Bank of America


Banks may face clawback fees. Obama may propose a fee on banks to help reduce the deficit


Cuomo targets bank bonuses. New York Attorney General Andrew Cuomo requested information on 2009 bonus plans from eight major TARP recipients, including Bank of America


Banks may get special bankruptcy court. Lawmakers are considering the creation of a special bankruptcy court for financial firms


China raises reserve ratio. The People's Bank of China increased bank reserve ratios this morning by half a percentage point, effective January 18.


New primary dealer rules. The New York Federal Reserve announced a tighter set of standards for primary dealers, including a much higher minimum net capital level


Record profit for Fed. According to calculations by The Washington Post, the Federal Reserve booked a $45B profit last year, the highest earnings in its 96-year history. Much of the profit came from Fed bond purchases aimed at driving down interest rates.


This last post about the Fed is worth writing a  PhD thesis.  The Fed Chairman is a genius and genius is a bull market.  I am currently updating my XLF chart for posting later today.
N.B. note well that BAC was upgraded last week.  Is there a reason why these analysts seem to always upgrade a stock at the top of the run?  When I was a NASDAQ market maker the saying was, "When the Ducks quack, feed them".

Monday, January 11, 2010

Daily Chart Oscillators Offer a Bullish Look for January 2010



The chart above shows the basic volume oscillator using Terry Laundry's formula to calculate the function.  I have drawn the latest three (3) T's using this oscillator to determine the cash build up phase which is the time duration of the left half of the T.  The right side of the T is the time period where we expect a high probability superior market price appreciation.  As the price chart illustrates, once the middle post of the T has been discovered then the right side of the T is a rising market.  It is said that Genius is a bull market.  I say that true genius is to recognize the bull market.  T Theory cannot forecast the time when the next center post will be places, however, the right side of the center post T is hauntingly accurate at predicting the end of a bull move. My New T Theory has developed some new oscillators that help to quickly recognize a new center post placement or in plainer English, to find the bottom of the downtrend.


Upon close examination of the top chart you will notice that the cacophony of the vicissitudes characterizing the basic volume oscillator function can easily confuse anyone.  As a result, I have developed a series of derivative functions that that more clearly define the new center post placement and can clearly illustrates the cash build up phase.  The above chart illustrates three (3) functions with smoother curves that provide clear visual evidence of the new center post of each T and where the left side of the center post begins.  These new functions are a valuable tool in drawing our T's for T Theory.



The above chart shows further derivative functions that produce oscillators that form a bottom in concert and sometimes form a top simultaneously.  The horizontal lines are drawn at the level of one (1) standard deviation  of the functions. I have drawn double T's to illustrate the different tops each oscillator shows for the cash build up phase.  Both of the latest T's indicate further duration of the bullish persistence of  the Dow Jones Average.  The bullish daily T's combined with the bullish 10 minute T's confirm my bullish positions of Long DIA and BGU and short BGZ put on 1/6/2010.  The DIA is up 1% and BGU and BGZ are up 3% at todays close.







A further refinement of the New T Theory are my directional oscillators.  The oscillators in the above chart will cross each other when confirming a  uptrend.   The red and green oscillators will cross at the center post and at the end of a defined T.  These red and green oscillators are a good indicator for finding the position of a new center post and also confirms the end of a defined T.   Currently these oscillators are in bullish territory.  The outlook for January is very bullish at the present time. The only thing to worry about is a bursting of the bubble in China.  They have built a large inventory of unsold goods for export that the Chinese government is financing.  What will happen when they realize that all this inventory cannot be financed forever.  Someone in the Oxidant has to buy those goods and it is not happening. For now in the American Stock Market it is onward and upward.

Friday, January 8, 2010

New Chart and Oscillators: XLF 10 min 1/7/10


Here is a new chart of the Financial ETF with oscillators.  If our theory of Time Symmetry is valid, then any diversified index should behave in the same manner and out Time Symmetry theory has a predictability characteristic that goes beyond broad based market indexes.  In the case of the Financial ETF, this is a diversified portfolio of stocks representing one of the nine (9) economic sectors.  Whenever you take a position in a security, the most critical risk is the market risk so you should open a position during a market up trend.  The second most critical risk is the sector risk therefore it is imperative that the stock you select in in an economic sector that is in an uptrend an outperforming the other sectors.  The chart above illustrates that the XLF is in a strong up trend on the right side of the T.

In the first four (4) trading days of 2010, the financial ETF has outperformed all other sectors.  The above chart illustrates a strong up trend as the green uptrend oscillator moved above the red downtrend oscillator.

The above chart illustrates two T's where the first T expired and the price dropped and the current T that expires sometime this morning 1/8/10.

This is a familiar oscillator that confirms the beginning and ends of the last two T's.



This is a chart of the price oscillator that further confirms that the current T will expire this morning and we can see what happens.

Wednesday, January 6, 2010

January Outlook is Bullish





I have returned from a wonderful holiday and found that my data was unavailable so I had to update my prices by hand.  You really have to appreciate the immense value of cut and paste.  The top chart is my basic volume oscillator which is based on my substitute for the up-down volume ratio.   A close look at this oscillator shows a cash build up beginning 12/21/09 and ending on 12/31/09.


The adjacent chart is an oscillator based on the last price for every 10 minute period.  The calculation of this oscillator is the same as the calculation of the basic volume oscillator, however, the closing price is substituted for the net volume figure.  This is a better illustration of the cash build up since 12/21.


The third chart is a more familiar oscillator that is the most sensitive to change of direction.  Here again we see the cash build up beginning on 12/21 and this T continues well into January of 2010.  Furthermore, this chart demonstrates the expiring T in late December with the market dropping to make a low for the formation of a new center post for this new T.


This fourth chart Illustrates a double T formation in the current T.  This portends something happening this Friday when the job data is announced. Needless to say, the market is a strong buy at this time.  I went long the market on the close 1/5/10.







The last two charts are direction indicators the first is more sensitive than the second or last chart.  The first indicator just went positive and the slower indicator is approaching the positive territory.  These are both very bullish indicators.






On the close of trading 1/5/10, I executed the following orders:

Bought DIA  @ 105.50
Bought BGU  @ 55.66
Sold Short BGZ  @ 16.10