An Expiring T is Not Necessarily a Short Sell Signal

I have been somewhat successful selectively selling short at an expiring T.  However, this is not a short sell signal.  Many other factors should be considered before initiating a short position.  Just to review things for a moment, I see all my T's have expired as of today.  Also, markets have had a tendency to top out after the job report announcements.  The concluding factor to my decision to sell short is the fact that the S&P 500 has been up for six (6) days in a row.  Just count the green candles on a daily candlestick chart.  Stock markets are not like a roulette wheel because stock markets are not a random walk.  I opened my short position in the late afternoon with the following trades:
Bot BGZ @ 15.30
Sld Sht BGU @ 55.93
Bot SDS @ 32.85
Sld Sht SSO @ 39.89

All the T’s will have Expired By 1:10 on Friday 3/5/10

  

The above chart shows the daily close of the S&P 500.  Take special notice of the small brown T within the much larger Orange T on this chart.  This small T expired on Tuesday of this week March 2, 2010.  It is hard to tell how much influence the large orange T will have on the expiring brown T and the direction of market prices at this time.  It should be noted that the market has noticably slowed in the last two days since this T expired. 

 

The two (2) charts above show the intraday 10-minute prices of the DIA or Diamonds.  The Diamonds are an ETF that is a proxy for the Dow Jones Industrial Average.  The current brown T is similar to the brown T in the daily S&P 500 chart.  The brown T in the DIA 10-minute charts will expire at 1:10 PM on Friday March 5,2010. 
George Rahal has pointed out on his blog White Magic and its Exposure that markets have a tendency to top out the day that job reports are announced. The monthly job report is due at 8:30 AM tomorrow Friday March 5, 2010.  With all these negative signs, I am looking to put on a short position Friday afternoon.  I will post my observations and any executions when I do.   DC

Time Series Analysis of Stock Market Averages: The New T-Theory

By David Corna

When purchasing a stock, the greatest risk to an investor is what professionals call “Market Risk”.  Market Risk is what is happening to the general market averages like the popular Dow Jones Industrial Average or the S&P 500 Average.  This is why investors avoid buying stocks during a bear market.  No matter how well you select a particular stock, the rise or fall of the general market averages will affect the price of your stock selection.  A rising tide raises all boats and investors are more motivated to buy stocks during bull markets.  It is therefore necessary to determine the general direction of the market when considering the purchase of a selected stock and also the possible duration of the uptrend.  Time Series Analysis is a mathematically based tool used to determine the general market direction and the time and duration the direction will persist.

 My New T–Theory is a form of Time Series Analysis that is derived from the mathematical concept of Symmetry and is so named because of the symmetry of the letter T.  Terry Laundry, an Electrical Engineering graduate of M.I.T., named the T-Theory™  at www.ttheory.com and he has been publishing work about his T-Theory™ on the web for many years.  Terry has successfully applied his T-Theory™ to his investment strategy since 1978 and has handily outperformed the market averages.

There are only three variables in Time Series Analysis; these are Price, Volume and Time.  Price and Volume are the dependent variables while Time is the independent variable.    T Theory™ links price to volume and time by identifying a time period of “cash build-up” market under performance followed by an equal amount of time of superior price appreciation.  Special oscillators based on daily up volume and down volume are used as a proxy for the daily ratio of up volume to down volume.  This oscillator is a tool used to identify oversold conditions and identify the center post of a new T. The left side of the T is a lower probability time period of price appreciation.  The right side of the T is a high probability period of exceptional price appreciation.  The key to success in following the T-Theory™ is to be invested during the time represented by the right side of the T and to either liquidate any positions or drastically reduce positions as the right side of the T expires.  

My New T-Theory addresses shorter-term market moves by applying a unique oscillator to 10-minute intra day charts.  For the swing trader, my New T-Theory provides an easily defined system for entering the market on the long side and also specific stop loss sell orders limiting market losses.  If a new center post has been discovered and a new position established in stocks and the price of the market average drops below the low price of the new center post, all positions should be immediately liquidated.   

Below is a daily chart of the S&P 500 illustrating the symmetry of T’s that are constructed by using my special oscillator that is a proxy for the up volume down volume ratio derived from the intra-day price changes.

This chart of the daily closing price of the S&P 500 average in blue and a special oscillator in orange helps to identify periods of cash build up as well as the center post of the T’s.  Examination of the right side of the T’s demonstrates the exceptional price appreciation of the market averages compared to the left side of the T.  Smaller T’s can be identified within the larger T’s and these smaller T’s are helpful for shorter term trading.  These short term T’s are confirmed by intra day charts of 10-minute periods to be shown later.  To use the New T-Theory to maximize your investment returns simply buy your favorite no load mutual fund or ETF after a new center post has been identified.  Place a stop sell order at the price shown at the bottom of the T.  Hold your position through most of the time period predicted on the right side of the T.  Before the T expires, selectively take profits in your long positions so you are totally out of the trade just before the right side of the T expires.

In the chart below you will notice a red dashed line at the bottom of each T.  This is the stop loss signal.  If a T has been identified and a long position taken in the market and the market average drops below the red dotted line all long positions should be liquidated and aggressive traders can consider a short position.  You can set up an alert on web pages like Yahoo that will notify you when a price is reached on the S&P 500, DIA or the SPY.  When you are notified that the price has dropped below the center post low, all long positions should be liquidated before the close. 

The chart below is an intra day chart of the Diamonds (DIA).  This is an ETF or exchange traded fund representing a portfolio of the stocks equivalent to the Dow Jones Industrial Averages.  One share represents 1/100^th  of the Dow averages.  The Spiders (SPY) is an exchange traded fund that represents 1/10^th of the S&P 500.  These stocks are a proxy for the market averages they represent and the price moves in close concert to the price of the underlying average. 

This 10-minute chart above of the DIA or Diamonds, demonstrates the application of the New T-Theory to the Dow Jones Averages.  The T’s are colored the same as the corresponding T’s on the daily S&P 500 above that.  This chart just takes a microscopic look at the New T-Theory applied to a different market average in different time dimensions.  This exercise demonstrates that the New T-Theory works as a fractal and its application to different averages in different time dimentions results in similar predictions.  This supports the validity of the theory.

In the future I will be posting updated charts of this New T-Theory with timely purchases and sales of ETF’s.  In order to explain in greater detail my New T-Theory, the updated charts will be accompanied by detailed explanations and execution prices of various ETF’s.

DC

Sarah Palin is the Maria Callas of the Republican Party by David Corna

Sarah Palin is the Maria Callas of the Republican Party.  Maria Callas was an American born Greek Soprano who became the greatest bel canto soprano of the 20^th century.  Maria Callas performed in the Royal Opera House at Covent Garden in London, England. Maria sang Italian, German and French arias before an English speaking audience that did not really care to understand either the scenario or words of the libretto that she sang.  Anyone who is familiar with opera scenarios knows that they are all silly stories that do not make much sense.  Maria Callas’ audience cared only for the bel canto sounds that she sang.  This was her talent and the art she performed. 

Maria Callas was paramour to Aristotle Onassis, a Greek shipping magnate and by extension, a multimillionaire.  Aristotle could not understand why Maria wanted to go off to London and perform for such a pittance when he provided her all the luxuries that money could buy.  Maria was passionate about her art and Aristotle did not understand this. 

So what does Sarah Palin have to do with Maria Callas?  Let me explain.  Sarah is misunderstood in the same way that Maria was by Aristotle.  It is only Sarah Palin’s audience that recognizes her great talent.  All those Aristotles out there should quit trying to figure out what she is saying, because the words and the scenario do not matter.  She is a great American who is passionate about her art and plies her craft when she performs in front of a live audience.   We should take a moment to listen in order to appreciate her rhetoric because talents like Sarah Palin come along only once in a generation.  Sarah weaves her logos, pathos and ethos into an elegant tapestry and then undoes her weaving only to begin weaving the tapestry again before another enchanted audience.  There is no need neither to understand the words nor even consider the scenario of which she is speaking for these are not important.  Just as we appreciated Maria Callas at a live concert as a member of her audience, we can only appreciate Sarah Palin as she holds a live audience in the palm of her hand.

  

Why are all the Aristotles criticizing Sarah Palin for quitting her job as Governor of Alaska?  It is not because of the pittance she was paid as governor that she has moved on.org.  She has discovered her own Covent Garden and is now embarked on a world speaking tour in her mommy jeans with her flirtatious librarian demeanor, sans her beautifully cobbled Italian stilettos, and a license to call Vice-president Biden,  “Joe”.  Sarah has taken to heart the advice Henry David Thorough, (not the comic strip writer), and gone “in the direction of her dreams” in order to practice her art.  We Americans are drawn to her irreverence just like the substance and facts of a Dan Brown novel.  You can forget about her words because it is not necessary that they have any meaning and we can disregard any scenario discerned from her speeches because they are irrelevant.  Sarah Palin has utilized her own ethos to create a new logos in order to elicit a pathos in American politics that has been long absent.

George Rahal Has Returned to His Blog

Just as Cincinnatus returned from his small farm in exile and became Dictator of Rome, thus, George Rahal has returned to his blog as chief technical analyst and trader.  Well done George!
George presents a very bullish theses on his blog, http://g-rahal.blogspot.com/ . His argument is so strong that I was discouraged to enter the market with a short position when my T's expired.  The decision was well warranted and saved me some money.  I am currently updating my charts in order to discover and support George's bullish theses.

Taking Profits Because I Can

I an currently long DIA @ 101.27 from last Friday and Long BGU @ 48.31 from Tuesday just after the opening.  I am also short BGZ @ 17.97 from Tuesday morning and this is essentially a long position.  I am going to take my profits because I have a nice one.  The current T does not begin to expire until some time Friday but I am taking my profits anyway.  I executed the following orders at these prices:
Sold DIA @103.22  + 1.95
Sold BGU @ 50.21 + 1.90
Bot to cover BGZ @ 17.20 + .71

The Larger Perspective of the T

The above chart illustrates the Larger T's that are in play and the Olive Green T is the same T that I illustrated in my last post on my "Not quite ready to lay out a short" post.  From a longer perspective you can see the larger T developing over the smaller olive T by comparing the two charts.  The above chart is as of the close Thursday 2/11/10 and shows the olive green T from the chart in my previous post.  The chart below is an updated chart of the above.

The chart above clearly shows the formation of a new large T that is the primary force in the current uptrend.  This chart is from the close on Friday 2/12/10.   I was tempted to take out a short position at the expiration of the smaller T but I was not convinced we were still in a downtrend and then the larger T came into focus obviation any short play.

The above chart as of the close Friday 2/12/10 is a clear buy signal for the DIA indicating a strong uptrend that will last through Friday 2/19/10 and expire sometime Monday 2/22/10.  I bought the DIA on the close last Friday:  Bot DIA @ 101.27

This is another look at the new T this one indicating a bull move into the late morning of next Monday.  I put on the following long position this morning after the opening:

Bot BGU @ 48.31

Sold Short BGZ @ 17.97  

I never put a market but order in on the opening because prices are manipulated the most at the opening. I usually wait for 15 to 30 minutes and look for a good entry point.  

Not Quite Ready to Lay Out a Short Position

The above chart shows an oscillator that is an augmentation of my basic oscillator.  The oscillator does a nice job at illustrating the cash build up phase.  The current chart shows that we have some more time until the current T expires.  At that time I will look to execute my short position.

Just Closed Out my Long Positions

Thanks to a new oscillator that George Rahal brought to my attention, I held on to my positions until just a few moments ago at 1.15 today 2/10/10.  I closed out my long position at the following prices:

Sold DIA @ 100.80  +.43
Sold BGU @ 46.40  + .26
Bot to Cover BGZ @ 18.69  + .13

Rick Santelli and all the other "God Guns and Guts made America Great Conservatives"

Today Ben Bernanke announced that the Federal Reserve would begin to pay interest on deposits held at the Federal Reserve.  This will essentially remove cash from the banking system and reduce the money supply.  The result of this announcement sent the market averages in a downward spiral.  This is why Rick Santelli and his comrades on the floor of the futures exchange hate government intervention.  When futures traders are on to a trend, they want to profit from that trend no matter what the effect of that trend is on everyone else in the country.  They would like to stay short throughout the total collapse of the entire economy and condemn any government intervention as the path to Perdition.  I have always called these traders "God, Guns and Guts Made America Great Conservative Republicans" now they started calling them selves the "Tea Party"
The reality is that the last T I drew was going to end sometime this afternoon 2/10/10 anyway so Mr. Bernanke just accelerated the end of that T and in doing so has saved the Republic. I am going to close out my long position and go short between now and the close.

DIA has formed a New Center Post and is a Buy

These are charts of the DIA as of 9:40 this morning 2/9/10 at the opening.  A new center post was formed at Friday's close.  The right side of the T is the time of exceptional performance and time to get long.  The different oscillators all indicate an extremely oversold condition during the trading session on Friday.  The beginning of the cash build up period began about 2:00 on 2/2/10 and the center post occurred around 2:00 on 2/5/10.  This indicates three days of up market on the right side of the T.

This T will not expire until tomorrow afternoon after 2:00.


Just after the opening this morning I executed the following orders:

Bot DIA @ 100.37
Bot BGU @ 46.14
Sold Short BGZ @ 18.82

I Should Have Pulled the Trigger Yesterday!!

These charts of XLF are as of the close Monday February 8, 2010.  The horizontal lines on my charts are drawn at approximately one (1) standard deviation of the oscillator that is drawn on the chart.  The charts illustrated here show an extreme movement of the various oscillators to several standard deviations below the Zero line that is essentially the mean.  Many times you will see a lower low in the price while the oscillator will form a higher low.  This divergence is very bullish.  I almost covered my short and went long yesterday, Monday, near the close, however, I could not pull the trigger.  Today's pre-opening futures market action convinced me that we have formed a new center post from which we can trade to the long side of the market.  At the opening this morning I covered my short position in the XLF and went long.

I executed orders at the following prices:

Bought to cover FAS @ 64.30 + 8.01
Sold Long FAZ @ 20.95  +  1.88

Here is a chart depicting the last three (3) T's formed in the XLF.  You will note how the stock sells off after the T has expired.  This has become a very good short sell signal.

I went long the DIA on the opening and will publish those charts along with the price executions.

XLF Revisited

These charts of the XLF as of 3:00 PM Wednesday February 3, 2010 indicate an expiring T from the standpoint of three different oscillators.  The financials seem to always lead the market in the general direction of all averages.  Since the most profitable strategy has been to short the average at the time of the expiring T I executed the following orders;

Sold Short FAS @ 72.31

Bot FAZ @ 19.07

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.

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

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

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

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.