Investors and traders around the world continually search to find or increase their edge in the financial markets to boost profits. The next few months are going to be critical for investors because the number seven is now in play for the stock market.
What does this mean?
In magical lore seven is a magical number., While all numbers are ascribed certain properties and energies, seven is a number of power, a lucky number, a number of psychic and mystical powers, of secrecy and the search for truth.
Seven is used 735 times in the bible and if you total up all words including “sevenfold” and “seventh” there is a total of 860 references.
The origin of seven’s power lies in the lunar cycle. The moon has four phases lasts about seven days. The Sumerians gave the week seven days. Life cycles on earth also have phases demarcated by seven, and there are seven years to each stage of human growth, seven colors to the rainbow, seven notes in the musical scale, seven petitions in the Lord’s Prayer, and seven deadly sins.
More importantly for investors the number seven and multiples of seven have a powerful influence on money. The US stock market is now trading in the seventh year window and it should not be taken lightly.
While I could go into a lot more detail about how I use seven in my algorithmic trading strategy to swing trade the S&P 500 index. This article focuses on the investing outlook.
See this video about seven… http://youtu.be/W8B14NSIWc8
I am fortunate enough that I have been trading since 1997 and have seen the how the stock market cycles affect human behavior and businesses specifically the financial newsletter industry which I have been involved in since the first day my trading career.
The stock market appears to be nearing a critical turning point that will change the lives and behaviors of investors for years to come.
The good news is that I have experienced four of these turning points and human behavior shifts in my career before and we currently entering the fifth turning point. I feel obligated to share this valuable insight with those of you who read my work. The next major market move could have a dramatic impact on your wealth and retirement years.
Being heavily involved in the financial newsletter industry I have not only seen but survived several of these major cycles which forced many newsletters to go out of business. The cycles at play here are the market trend and the behavior of traders and investors.
The combined forces of these two cycles are what cleanse the newsletter industry of poor quality services. It becomes almost impossible to obtain new clients without word of mouth/referrals from happy users and if the quality of the newsletter is poor, eventually they lack enough users to make it feasible to operate. Unfortunately it’s the brutal truth, and over the last couple years I am seeing newsletters and even to top trading magazines that have been around for decades closing their doors.
The business cycle can easily be explained by observing the chart below of the SP500 index. In short, when the stock market has been rising for six or more months investors start to become confident in that they can make money on their own. And in fact they can if they buy and hold during a bull market.
But what happens as the market continues to rise for many years is that more and more investors and traders realize they can make money on their own. The longer the uptrend remains intact the less will need the help of a trading and investing newsletter making it difficult to get new customers in this highly competitive industry.
Currently investors are behaving almost identical to what I saw during 1999 – 2001, from 2006 – 2007, and now 2014 – 2015 market tops.
Did you notice anything with those market tops? They are 7 years apart…
Let’s now take a look at the best times in the business cycle where traders and investors are in desperate need of help and start subscribing to multiple paid financial newsletter services. The strongest times for business took place during 2002 – 2003, and again in 2008 – 2010. This is when investor not only lost most of their wealth, but their faith in how they invest, who they invest with, and the stock market as a whole.
Did you notice any there also? They are 7 years apart also…
Those of you who follow me know that I do not pick market tops or bottoms. Rather I focus on identifying trends and cycles in the market and only trade and invest with the active confirmed trend.
You also know that trying to pick market tops and bottoms is a suckers game and a sure fire way to lose a lot of money and build a serious complex that the market is manipulated, not tradable, and that it may be time for you to give up on trading all together.
Well, I am here to say that the market is tradable, and can generate traders and investors a boat load of money once you understand how and why it moves. Most importantly you need to understand money/position management and be patient for consistent long term gains.
Take a look at the chart below for a clear visual of 7 year cycle highs and lows at play.
While I do not invest based on this major seven year cycle I do actively trade a smaller market cycle which provides roughly 35 – 65 trades per year. This strategy allows me to profit during these major bull markets and also during the multi-year bear markets when the majority of investors are losing boat loads of their hard earned money.
The reason I do not invest in the seven year cycle is because the market can still have 30+% price swings within bull and bear markets and that type of volatility is beyond what I am comfortable with. Also because I can actively invest with my automated trading system so I don’t need to lift a finger or watch the stock market each day, week or month.
I hope you found this report useful in some way, and I ask that you share it with others.
Since July of 2014 the big cap stocks have continued to make new highs as investors dump more and more money into the stock market. Overall bullishness on the stock market is now at extremely high levels which typically happen before a major stock market correction and sometimes start a full blown bear market.
While the average investor continues to become more and more bullish, the market breadth/health has been rapidly deteriorating. Unless you are market savvy you would not know how weak the market actually is and this always leads to strong losses and drawdowns for the uninformed investor.
What we know and most do not about this rising market, is that the big cap stocks in the SP500 index appear to be holding the overall market up and masking the weakness. So as investors become more bullish at these lofty levels putting more money into generic funds that push the SP500 higher, we see strong selling and unwinding of the more leveraged position like small cap stocks.
Over the past couple years the SP500 has formed a series of bullish corrections and running corrections. But the current formation is that of a bearish mega phone pattern and these typically point to lower prices.
SP500 BIG CAP STOCKS:
THE BOLD STOCKS:
I have always liked to follow the NYSE index because its a basket of 1900 stocks with 1500 of them being U.S companies. Its breadth/strength makes it a much better indicator of the market performance than the more narrow indexes with less stocks.
While this index remains in a bull market, it only looks as though it’s a few months away from a possible reversal and confirmation of a new bear market.
If you have ever read Stan Weinstein’s book then you know he followed GM share price closely. He believed that what GM did, the stock market would follow, to some extent. GM was/is an early leader of the US economy and stock prices in general.
The chart below paints a clear picture of the Stage 1 Accumulation in 2011- 2012, and also of the Stage 3 Distribution phase in 2013 – 2014. GM shares have traded down literally from the first week of the year and have now broken below critical support. Things could get interesting…
MY TRADING CONCLUSION:
In short, I remain bullish on the stock market with both my short term and investing outlook but I am very cautious and have closed out several large positions recently. Cash is king and I plan to protect, rather than invest my nest egg when risk is higher than normal.
Short term trading where trades only last 3-10 days is the way to go at this stage of the game. Some recent winning ETF trades with my ETF newsletter www.TheGoldAndOilGuy.com have been in SCO, a quick bounce trade in UCO, REM, and our current trade as of last week EEM.
The majority of my investment capital is traded with my automated trading system. It trades the S&P500 index directly in my brokerage account catching these 3-10 day swings in the market saving me time while reducing my emotional attachment to the market.
Everyone has been calling for a bottom in Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.
A lot of newsletter and analysts are calling a bottom. Technically it’s just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation.
If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.
Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I’m just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.
Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern.
It’s important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.
The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.
Crude oil’s previous trend was up, but it’s been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.
A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.
My Gold and Oil Conclusion
Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall.
Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.
It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.
This will catch most investor’s off guard. It’s human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.
I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.
Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don’t be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.
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Charting your way to financial freedom,
One thing I have talked about several times which cannot be understated is that is the tendency for investors to believe that complex trading ideas and automated trading systems are better than simple, logical ones.
At first thought this notion is completely understandable. After all, if an idea is fairly simple, how could it possibly be “a secret” and investors not using it yet?
Successful trading and investing is not about how good you look or how impressive you sound in videos. It’s about what, when and how you do it. It does not matter if you are placing the trades yourself or using an automated trading system. What, when and how the investment is traded is all that matters.
It’s known that highly intelligent people struggle with the markets because they believe intelligence will improve their trading results. The reality is, they do not thing simple trade setups and strategies that look like they will make easy money, will work. Why? Because they think that the market is complex and thus trades should not be simple to spot and time, therefore the simple ideas should not work.
In all fairness “simple trading” is not really that simple. Successful trading requires the right kind of simplicity, in the right amount at just the right time. This is what creates the highly profitable investors and automated trading systems.
Why The Short Traders Are Losing Money This Week:
They are fighting a bull market which is still pointing to higher prices.
Take a look at the chart below of the SP500 futures index. You will notice the bars are color coded; this is done by my automated trading system which identifies the market trend which trades should be trading in line with.
The stock market remains in a full blown bull market. Investors should remain long for time being. On the other hand active investors should be trading with the current market trend which is shown on the chart.
Market corrections within a bull market are sharp and short lived. As an active investor you will be lucky to catch one or two short trades during these pullbacks before the uptrend is retaken.
It is important to know that eventually one of these bull market corrections will be the straw that breaks the camel’s back, and kick starts a new bear market. This his why I always move to cash and look to short each of these corrections. We just never know WHEN a full blown bear market will start. If you are holding your positions through these corrections and think you’re a great investor, just wait until the market does actually breakdown and most of your gains are gone before you realize it. I will admit, its very easy to get lazy with investments after years of rising prices. Laziness and a the lack of a trading strategy for a falling market is what causes 99% of investors to lose their money.
I believe in trading defensively. Sure it’s more work, takes time to follow, and there are extra trading commission fees, but its a small price to pay to keep the majority of your gains.
Here is the big picture and trend of the SP500 index. Simple fact is, eventually things are going to get really ugly. By stepping back and looking at this chart, it’s clear the market must still fall substantially in value to break below its critical support trend line and before we can confirm a true bear market is in place.
Do you want to see your nest egg drop 20-30% before you decide to exit? Or do you want to profit from this initial correction when it does happen, and make even more money when the stock market drops for a year or two after taking your account to new all-time highs.
The good news is that if you keep things simple by following the intermediate trend, like the color coded chart above, you can keep making money as the market rises to ridiculous new highs, and avoid market corrections, and possibly even profit from them.
In my next article I will show you a simple trading strategy that I have used for many years to time stock market bottoms and tops for swing trading. Best part is that the data I use is available online for free.
One final note, there are automated trading systems that does all this for you. I also use it and have it trade my own investment capital for me. You can learn more about it and join my mailing list here:http://www.algotrades.net/automated-trading-system-2/
If you are an investor or trader who lives or works in within Canada and you are interested in algorithmic trading Canada, automatic investing Canada, and automated trading Canada, then look no further. AlgoTrades Systems is a Canadian company located in Ontario, just north of Toronto.
If you live in one of these Canadian provinces you can use their algorithmic trading system: Ontario, Quebec, Alberta, Nova Scotia, Saskatchewan, Manitoba, New Brunswick, Newfoundland and Labrador, Prince Edward Island (PEI), and even the North West Territories, and Nunavut.
Unfortunately if you are interested in algorithmic trading and live in British Columbia, you are out of luck. British Columbia is the only location in the world that does not allow algorithmic trading (automated trading systems) for their residents. So much for a free country…
Research shows that the United States (USA) is number one for people searching algorithmic trading systems, with India being second, and Canada third. I was blown away that Canada was #3 for algorithmic trading.
Say goodbye to searching for hot stocks, figuring out technical patterns, or even reading market opinions. AlgoTrades does all the searching, timing and investing for you using our advanced algorithmic trading systems.
You only have to hook up your trading account – it is very simple and only takes a few minutes – and then you can finally relax while we let sophisticated algorithms take profits out of the market for you.
The number of algorithmic traders in some of Canada’s largest cities are vast within these top cities: Vancouver, Calgary, Edmonton, Ottawa, Toronto, Montreal, Winnipeg, Hamilton, Kitchener, Camebridge, Waterloo, St. Catharines, Oshawa, Whitby, Carlington, Victoria, Windsor, Saskatoon, Regina, St. Johns, Sherbrooke, Barrie, Kelowna, and Halifax.
Algorithmic trading which is also known as automated trading has changed the way I trade and invest dramatically. As you know trading is extremely difficult to be consistently profitable in. The #1 reason individuals fail is because they struggle with their emotions and end up trading with the general market sentiment. While the herd mentality/feeling can and most of the time feels like the proper (logical) way to look at the market, trading with the “herd mentality” is the silent killer.
I am going to teach you how to read market sentiment so you can swing trade and profit consistently from emotional traders to earn 1% – 3% per month trading the SP500 index. If you want to make money, you need to trade against the herd (masses) at key support and resistance levels in the market. Plus you should have a robot (algorithmic trading system) execute these trades for you. Because, you need to completely remove your emotions from the game, and because it’s not rocket science to identify key levels where you should be entering and exiting the market with your money.
You start by looking at the market completely backwards. Focus on buying positions during heavy volume sell-offs (panic) and sell your positions during heavy volume rallies (greed). This was a very tough transition for me and I still get nervous and emotional during these times when my system enters and exits positions. This strategy feels completely wrong at the beginning but the profits speak for themselves!
One Of My Algorithmic Trading Strategies
This trading strategy is my favorite because I know the masses are panicking out of positions, sweating, and having heart burn, while my automated trading system is entering a high probability position against them. This analysis may seem basic at first glance, and that is because it is, but when you combine the analysis of each indicator explained below, you end up with a highly effective trading strategy. I took things on step further and converted into an automated trading strategy. This is one of nine automated trading strategies I use.
SP500 – 5 Minute Chart – Algorithmic Trading Strategy #1
This SP500 chart shows where a high probability short trade should be executed based on the algorithm trading indicator. It is important to know that over the past 6 years the SP500 has provided a 1.25% profit on average each time one of these extreme sentiment readings occur on the charts. While that may not sound like much of a return, know this happens several times each month and better yet, if you trade the ES mini futures, you get a lot more leverage. ES trading turns a 1.25% index gain into roughly a 10% gain based on futures margin requirements for one contract.
Anyways, the red indicator on the chart is a simple volume based indicator which measures fear and greed in the market. It is very accurate at picking market tops and bottoms. And I calculate it by taking the NYSE up volume and dividing it by the down volume. When you see this indicator start to rise it tells us the majority of traders (the herd) are buying (greedy) and we should start looking for a short entry.
Let me show you how to find the trade using the market sentiment…
The NYSE advance/ decline line Algorithm Trading Strategy #2
How to use the NYSE advance decline indicator. It’s simple really, when there are 1500+ stocks trading up on the day then the market is getting overbought. Meaning too many stocks have moved up in a short period of time and traders will most likely start taking profits. When the other two indicators talked about in this article are confirming a short sell signal the odds highly favor a selloff in the stock market that should last 1-3 days.
Last algorithmic trading strategy #3 is the put/call ratio
The put call trading algorithm can be a little tougher to use at times because when the market is trending down the ratio tends to fluctuate near the top. It stays near the bottom of the chart when the market is trending up but it is just the extreme spikes we are looking for.
When the broad market bounces and we see the put/call ratio drop into the lower band it’s telling me the majority of traders have finally become bullish. This tends to happen once a previous high is broken as it triggers short covering and breakout traders start to buy within a false rally during a down trending market.
Algorithmic Trading Strategies Conclusion:
If all you do is use these three indicators, focus on the 5 or 10 minute charts, trade only with trend of the daily charts 20 day moving average, and take partial profits at 1%, again at 2%, while keeping a small position open as a trend trade, you will become a more consistent trader and be able to profit from a falling stock market.
My proven algorithmic trading strategy running live but this is in a rising market… $3200 in profits made quickly, with low stress and 100% hands-free, what else can you ask for…?
It is critical that once you take partial profits at a 1% gain, you start moving your protective stop into the money to lock in a profit for the balance of the position. All three indicators need to reach the extreme levels at the same time for a trade to be triggered. Know that I have seen the market continue a trend during extremely oversold market conditions which lasted for months at times. Do not try to bet against the market just because you think its oversold and should not be shorted, just ride the trend for all its worth. Eventually your last trade will lose as the trend reverses, but wait for it, and expect to lose a trade from time to time,
Final thoughts, this strategy works just as well during a bull market. There are some minor changes required on each of the indicators which I will cover in another automated trading strategy article soon, so stay tuned for more logical trading tips.
Have My Bull & Bear Market Strategies Automatically Traded For You: www.AlgoTrades.net
Back in the day when I was a newbie trader and investor I used to follow several stocks, sectors and commodities that had a setup chart patterns. I would draw all over them and then wait to catch the day of the breakout.
Unfortunately I would miss a good chunk of the trades because they would breakout when I want not watching the chart forcing me to miss some unbelievable momentum and swing trading opportunities. I used to get rather frustrated with trading to put it kindly.
But I eventually learned that there are several ways to avoid this from happening and each of these options work much better than watching the charts like a hawk waiting for that breakout that may or may not happen.
The beauty of my trading system is that it allows me to buy on the breakout whenever a strong breakout happens without me, I have methods that will automatically enter me into a long position on the first pullback after a confirmed trend reversal.
The positive trade-off of buying a pullback that follows a trend reversal or chart pattern is that buying pullbacks is often lower risk than buying breakouts because there is a lower risk of the breakout failing.
Before I get into those details let me update you on what gold stocks just did and what I expect them to do in the near future.
Recently we have seen big money move into gold stocks. Gold and silver stocks are popping on high volume which is great to see. While it is exciting gold stocks are not yet in the clear from further selling or sideways trading.
If you are familiar with Stan Weinstein or have followed my work for a while you likely understand the four stages the market goes through (same on all time frames). Looking at the chart below its clear that the gold stock index HUI has completed a stage 4 decline and appears to be in the second half of an accumulation stage 1.
The stages in this chart I am talking about are big picture trends which last a year or two, more of an investors 35,000 foot view on the market. I breakout and rally above the $280 level will be very bullish, any pause or pullback after that will provide a low-risk opportunity to get involved.
I will let you in on a little secret of mine, and almost never buy an upside breakout, I actually wait for the first pullback. And on the flip side, I always short on the breakdown, and if I miss it, I will then get short on the first bounce.
If you have not read my report on the next countries to start bull markets then checkout it out here: Click Here
In my next article I am going to tell you exactly how to avoid missing the breakdowns and how to be entered automatically into these trades when the market has its first pullback for 100% Hands-Free Trading.
Find This Article Educational? Delivered To Your Inbox Free Here www.GoldAndOilGuy.com
Index ETF Trading Strategies: Stocks have kick started this week with a 0.85% pop in price but the big question is if the market can hold up. Last week stocks repeatedly gap higher and sold off with strong volume telling us that institutions are slowing phasing out of stocks (distribution selling) unloading shares into strength and passing them onto the a average investor to be left holding bag.
I want to show you a couple charts which show the price action, volume and money flow of the SP500 so you have a visual of what I am talking about.
In the chart below you can see the price gaps followed by selling. Why is this important? It is important because during a down trend the market makers and big money plays who have the money and tools to manipulate the markets will allow the market drift higher or they will run price up in overnight or premarket trading when volume is light. Once the 9:30am ET opening bell rings volume and liquidity spike which allows the big money player to sell remaining long positions and or add to short positions they have.
If you look at the blue on balance volume line at the bottom of the chart you can clearly see that more contracts are being sold than bought which is typically an early warning sign that the market is about to fall farther.
Below is a marked up screen shot of my automated trading system which I use for timing both futures and ETF trading strategies. The color coded bars tell you the market trend along with the strength of buyers and sellers.
When you couple market cycles, trends, volume/money flow, along with chart patterns we can forecast and trade markets with a high degree of accuracy in terms of market direction and timing. Ross Clark & I talk about cycle analysis, market stages etc… which you can listen to live here: http://talkdigitalnetwork.com/2014/03/this-week-in-money-129/
My Index ETF Trading Strategies Conclusion:
Just to be clear on the current market trend and my overall outlook let me explain a little more. Overall, the broad stock market remains in an uptrend. Thursday and Friday of last week we started getting orange bars on the chart telling us that cycles, volume, and momentum are now neutral. It’s 50/50 on which way the market will go from here, so until the market internals (cycles, volume, breadth) push the odds in our favor enough for a short sell trade or a new long entry we will not add new positions to our portfolio.
It is important to understand that nearly 75% of stocks/investments move with the broad market. So we don’t want to add more long positions when the odds are not in favor of higher prices. Trading in general is not hard to do, but creating, following, executing properly money and position management is. If you have trouble with following or creating an ETF trading strategy you can have my ETF trading system for rising, falling and sideways markets traded automatically in your trading account.
Learn more here about my Automated Trading Systems
Ross Clark has specialized in technical analysis of the markets since the 1970’s. As a charter member of CompuTrac and then user of TradeStation he has developed trading programs and proprietary indicators. It is his belief that market timing and shifts in asset allocation can add value to investment portfolios.
Ross and Chris talk about technical trading mastery and Vermeulen’s New Book that covers exciting topics like cycle analysis and automated trading systems in a live radio broadcast last week which is now available online.
LISTEN HERE: http://talkdigitalnetwork.com/2014/03/this-week-in-money-129/
Chris Vermeulen – ETF Trading Newsletter