Where is market heading ? Short , Medium Term Grey's analysis

Grey1 · Mar 12, 2008

After the huge SPIKE yesterday I thought it would be a good idea to express my views for those of you who are still short .

One of the characteristics of a bear market is the number of unexpected and large spikes up on the way down ,,, SPIKES are not TRENDS or change in the trend and they often extend to a maximum of 3 days. SPIKES often occur if the market is OS/OB . Massive spikes can be fuelled by a catalysts such as the one yesterday
I have two views here ..

1) Technical ,, Any trader with a few year s of experience knows the difference between a tend and spike,, spikes are ripples in an ocean and not a WAVE ,, SPIKES don't last long however WAVES do last much longer before they calm down ,, The down ward wave/ trend is always much stronger than any weak ripples . Ripples cannot stop the direction of a wave . As a result I feel yesterday's huge spike will probably have a ripple effect with financial stocks gaining momentum pushing the market to above probably for another 1-2 days ( I am being generous here,,) but wont change the down ward trend.
2) Fundamental
We had a shower of 230Biilion which in fairness is what market wanted and been asking for last past few month but IMHO this is an inflationary move and does not solve the underlying issues .
The problem with the economy is all over the internet and it is no point for me to repeat them but from my own experience I can certainly tell you that the recession is going to last for a very long time and these short term incentives are nothing more than pain killers for many confused hedge fund managers who are young and in experienced and are looking to impress their boss's by calling the bottom .

Conclusion :--
Short term .,, next 1 -2 days we could have a swing of around 50- 80 points either way ( biased to upside) with a next leg down as early as Friday ..
Long term ,, next 3 month ,, Market needs to test the 11600 level ..I feel we need to sell off hugely in the form of capitulation before things getting any better

This is my view , I am not God I have been wrong many times in the past and might be wrong again , Please do your own research .

iq200 · Mar 12, 2008

Very good analysis Iraj. Makes sense IMO. I think you summed it up a while ago that the money all the govts and in particular the US are now piling is too little too late. People get swayed like lemmings by short term measures very quickly and hence the big move yesterday. But obviously the underlying problems are still there.
Cheers,
Imran

Charlton · Mar 12, 2008

Grey's strategies

Grey1 said:
After the huge SPIKE yesterday I thought it would be a good idea to express my views for those of you who are still short .

One of the characteristics of a bear market is the number of unexpected and large spikes up on the way down ,,, SPIKES are not TRENDS or change in the trend and they often extend to a maximum of 3 days. SPIKES often occur if the market is OS/OB . Massive spikes can be fuelled by a catalysts such as the one yesterday
I have two views here ..

1) Technical ,, Any trader with a few year s of experience knows the difference between a tend and spike,, spikes are ripples in an ocean and not a WAVE ,, SPIKES don't last long however WAVES do last much longer before they calm down ,, The down ward wave/ trend is always much stronger than any weak ripples . Ripples cannot stop the direction of a wave . As a result I feel yesterday's huge spike will probably have a ripple effect with financial stocks gaining momentum pushing the market to above probably for another 1-2 days ( I am being generous here,,) but wont change the down ward trend.
2) Fundamental
We had a shower of 230Biilion which in fairness is what market wanted and been asking for last past few month but IMHO this is an inflationary move and does not solve the underlying issues .
The problem with the economy is all over the internet and it is no point for me to repeat them but from my own experience I can certainly tell you that the recession is going to last for a very long time and these short term incentives are nothing more than pain killers for many confused hedge fund managers who are young and in experienced and are looking to impress their boss's by calling the bottom .

Conclusion :--
Short term .,, next 1 -2 days we could have a swing of around 50- 80 points either way ( biased to upside) with a next leg down as early as Friday ..
Long term ,, next 3 month ,, Market needs to test the 11600 level ..I feel we need to sell off hugely in the form of capitulation before things getting any better

This is my view , I am not God I have been wrong many times in the past and might be wrong again , Please do your own research .

Iraj

Since your previous 2 webinars, the second of which I attended throughout, I have been trying to apply your strategies on my own accounts. I had dificulty to begin with partly to do with understanding what was required and how to apply it in practice, but I have re-listened to both seminars (thanks to the DVD from Paul) and also made notes. Each time I manage to clarify some point further that I missed on the first time around.

The market hasn't helped because I don't think it has been exhibiting anything like normal behaviour in the last couple of weeks.

However I am beginning to see an improvement in my own adherence/understanding of your strategies and this and/or more correlation in the market is improving my P&L.

I have faced timing issues mainly - sometimes I think I have jumped in too early when the INDU is just into overbought/oversold rather than waiting for a more definite turn-around prior to exiting from ob/os.

I have also found times when the INDU 10 min macci exits os/ob territory only to coast along more or less parallel to the horizontal - what is your advice there ? - close the position ?

However I have also noticed times, especially today, when the correlation between the INDU macci and the stock price has been so clear, that it really vindicates the strategy. In fact today I found that the 5 min macci was giving some very nice predictions, which allowed me to exit positions that I would not have achieved relying on just the 10 min, especially towards the end of the day.

I feel that in the short-term the leg down began late this afternoon, as the initial excitement over the cash injection into the market began to fade.

So I am having some real confidence in the coming success in applying what you have taught.

Hopefully you will move onto the next phase of showing us how to apply CAPM to valuation of assets for the longer-term and how to set profit targets.

Thanks

Charlton

Grey1 · Mar 12, 2008

Charlton said:
Iraj

Since your previous 2 webinars, the second of which I attended throughout, I have been trying to apply your strategies on my own accounts. I had dificulty to begin with partly to do with understanding what was required and how to apply it in practice, but I have re-listened to both seminars (thanks to the DVD from Paul) and also made notes. Each time I manage to clarify some point further that I missed on the first time around.

The market hasn't helped because I don't think it has been exhibiting anything like normal behaviour in the last couple of weeks.

However I am beginning to see an improvement in my own adherence/understanding of your strategies and this and/or more correlation in the market is improving my P&L.

I have faced timing issues mainly - sometimes I think I have jumped in too early when the INDU is just into overbought/oversold rather than waiting for a more definite turn-around prior to exiting from ob/os.

I have also found times when the INDU 10 min macci exits os/ob territory only to coast along more or less parallel to the horizontal - what is your advice there ? - close the position ?

However I have also noticed times, especially today, when the correlation between the INDU macci and the stock price has been so clear, that it really vindicates the strategy. In fact today I found that the 5 min macci was giving some very nice predictions, which allowed me to exit positions that I would not have achieved relying on just the 10 min, especially towards the end of the day.

I feel that in the short-term the leg down began late this afternoon, as the initial excitement over the cash injection into the market began to fade.

So I am having some real confidence in the coming success in applying what you have taught.

Hopefully you will move onto the next phase of showing us how to apply CAPM to valuation of assets for the longer-term and how to set profit targets.

Thanks

Charlton

I also received an email from Rajbe that he is doing well too and understands the strategy better.

Now lets go to timing ,,, the problem is market is not always technical and on a day like Monday you cannot apply any kind of technical indicators to the market and get a result simply because the market is driven by NEWS , Under such a circumstances you should sit back and just have a cup of tea and let NEWS traders trade the market.

on a technical day MACI 10 indu works wonders.

grey1

rajibde · Mar 13, 2008

Grey1 said:
I also received an email from Rajbe that he is doing well too and understands the strategy better.

Now lets go to timing ,,, the problem is market is not always technical and on a day like Monday you cannot apply any kind of technical indicators to the market and get a result simply because the market is driven by NEWS , Under such a circumstances you should sit back and just have a cup of tea and let NEWS traders trade the market.

on a technical day MACI 10 indu works wonders.

grey1

Hi Charlton,

For the strong trend (spike) up day, for the first hour and a half (almost till lunch), the MACCI 10 min and 5 min combination was quite good to make the entries (both long and short)but post lunch, it was not- so I decreased the macci to 1 min and then found the entries (very few post lunch).
As the macci was highly ob daybefore yesterday by the close of play in TFs upto 60 min, I made some $$$ on short entries right at the market open yesterday (based on something which Iraj has mentioned in the past).

I must say the seminar has given my intraday confidence a big boost (only time will tell if I can make $$$ in the long run consistently in intraday or not...

)

One thing which I need to work upon now is to correctly identify the capitulation-the correct spotting of this, I find (as Iraj has said) greatly increases the amount of $$$ earned.

Best wishes.

Raj

Grey1 · Mar 13, 2008

Grey1 said:
After the huge SPIKE yesterday I thought it would be a good idea to express my views for those of you who are still short .

One of the characteristics of a bear market is the number of unexpected and large spikes up on the way down ,,, SPIKES are not TRENDS or change in the trend and they often extend to a maximum of 3 days. SPIKES often occur if the market is OS/OB . Massive spikes can be fuelled by a catalysts such as the one yesterday
I have two views here ..

1) Technical ,, Any trader with a few year s of experience knows the difference between a tend and spike,, spikes are ripples in an ocean and not a WAVE ,, SPIKES don't last long however WAVES do last much longer before they calm down ,, The down ward wave/ trend is always much stronger than any weak ripples . Ripples cannot stop the direction of a wave . As a result I feel yesterday's huge spike will probably have a ripple effect with financial stocks gaining momentum pushing the market to above probably for another 1-2 days ( I am being generous here,,) but wont change the down ward trend.
2) Fundamental
We had a shower of 230Biilion which in fairness is what market wanted and been asking for last past few month but IMHO this is an inflationary move and does not solve the underlying issues .
The problem with the economy is all over the internet and it is no point for me to repeat them but from my own experience I can certainly tell you that the recession is going to last for a very long time and these short term incentives are nothing more than pain killers for many confused hedge fund managers who are young and in experienced and are looking to impress their boss's by calling the bottom .

Conclusion :--
Short term .,, next 1 -2 days we could have a swing of around 50- 80 points either way ( biased to upside) with a next leg down as early as Friday ..
Long term ,, next 3 month ,, Market needs to test the 11600 level ..I feel we need to sell off hugely in the form of capitulation before things getting any better

This is my view , I am not God I have been wrong many times in the past and might be wrong again , Please do your own research .

Futures down by 159 points as I am writing this ,, Well,, I remember only on Monday that momentum analysts were ALL calling MONDAY as the bottom, Crammer claimed that he had a NEW oscillator which has been accurate for last past few years and called Monday as the bottom .

Hmmm. Good job crammer is not a day trader

Grey1

jdbzero · Mar 13, 2008

Grey1 said:
Futures down by 159 points as I am writing this ,, Well,, I remember only on Monday that momentum analysts were ALL calling MONDAY as the bottom, Crammer claimed that he had a NEW oscillator which has been accurate for last past few years and called Monday as the bottom .

Hmmm. Good job crammer is not a day trader

Grey1

I think I know that oscillator:
+100 you BUY the market
-100 you BUY the market
worked a treat for the past 5 years
:cheesy:

Grey1 · Mar 14, 2008

Grey1 said:
Conclusion :--
Short term .,, next 1 -2 days we could have a swing of around 50- 80 points either way ( biased to upside) with a next leg down as early as Friday

I have now been watching CNBC and still donot understand why people are so amazed of market sell off to day ,,,
Why would fed want to bail out BEAR ? I know why but does it not further confirm the major underlying problems ?

The bottom line is this ,,THIS MARKET NEEDS TO CORRECT by a MAJOR down leg in the form of CAPITULATION before getting any better
THIS IS A TECHNICAL SCENARIO.

As far as fundamental scenario is concerned I HAVE NO IDEA how long it might take to flush the PROBLEMS out but I am sure it is not going to be within next few days,,( 70% of economists agree on 6 month )

Either way ,, I remain short till further notice and wont under any circumstances jump in and out of market if a BULLISH news hit the market ,,, NO WAY

Grey1

Charlton · Mar 14, 2008

Grey1 said:
I have now been watching CNBC and still donot understand why people are so amazed of market sell off to day ,,,
Why would fed want to bail out BEAR ? I know why but does it not further confirm the major underlying problems ?

The bottom line is this ,,THIS MARKET NEEDS TO CORRECT by a MAJOR down leg in the form of CAPITULATION before getting any better
THIS IS A TECHNICAL SCENARIO.

As far as fundamental scenario is concerned I HAVE NO IDEA how long it might take to flush the PROBLEMS out but I am sure it is not going to be within next few days,,( 70% of economists agree on 6 month )

Either way ,, I remain short till further notice and wont under any circumstances jump in and out of market if a BULLISH news hit the market ,,, NO WAY

Grey1

I had a salesman from an advisory broker call me yesterday trying to sell their service (UK shares). I told him I had a couple of execution only accounts and I was trading US. He then asked me how I chose the equities - was it the dartboard method

I didn't quite hear him and he thought I was upset at the insinuation. I told him a mix of TA and FA, at which point he started to quiz me on where I thought the markets would be heading

I told him bearish.

That's an advisory broker for you ( :idea

erhaps I should have charged him for my advice)

Charlton

rajibde · Mar 14, 2008

Grey1 said:
I have now been watching CNBC and still donot understand why people are so amazed of market sell off to day ,,,
Why would fed want to bail out BEAR ? I know why but does it not further confirm the major underlying problems ?

The bottom line is this ,,THIS MARKET NEEDS TO CORRECT by a MAJOR down leg in the form of CAPITULATION before getting any better
THIS IS A TECHNICAL SCENARIO.

As far as fundamental scenario is concerned I HAVE NO IDEA how long it might take to flush the PROBLEMS out but I am sure it is not going to be within next few days,,( 70% of economists agree on 6 month )

Either way ,, I remain short till further notice and wont under any circumstances jump in and out of market if a BULLISH news hit the market ,,, NO WAY

Grey1

Hi Iraj,

CNBC says that often the market tends to buy stocks before the actual recovery starts (i.e. price rise preceeds shortly before the market actually turns)- keeping this in view- what fundamentals should one look out for to understand that market might improve?

Should it be stuff like the housing price improvement ...?.

Raj

Grey1 · Mar 14, 2008

Charlton said:
I had a salesman from an advisory broker call me yesterday trying to sell their service (UK shares). I told him I had a couple of execution only accounts and I was trading US. He then asked me how I chose the equities - was it the dartboard method I didn't quite hear him and he thought I was upset at the insinuation. I told him a mix of TA and FA, at which point he started to quiz me on where I thought the markets would be heading

I told him bearish.

That's an advisory broker for you ( :ideaerhaps I should have charged him for my advice)

Charlton

ADVISORY rofl

Grey1

Charlton · Mar 14, 2008

rajibde said:
Hi Charlton,

For the strong trend (spike) up day, for the first hour and a half (almost till lunch), the MACCI 10 min and 5 min combination was quite good to make the entries (both long and short)but post lunch, it was not- so I decreased the macci to 1 min and then found the entries (very few post lunch).
As the macci was highly ob daybefore yesterday by the close of play in TFs upto 60 min, I made some $$$ on short entries right at the market open yesterday (based on something which Iraj has mentioned in the past).

I must say the seminar has given my intraday confidence a big boost (only time will tell if I can make $$$ in the long run consistently in intraday or not... )

One thing which I need to work upon now is to correctly identify the capitulation-the correct spotting of this, I find (as Iraj has said) greatly increases the amount of $$$ earned.

Best wishes.

Raj

Raj

I have also been using the macci 5 min more, but never the 1 min. It has made increased the number of setups, because I have found the 10 min macci to be very sluggish at times. It also doesn't seem to complete the transition from ob/os or vice versa. In fact I found that I had to close my position setup using 10 min because 5 min turned and pulled the other way.

I dare say Iraj would not approve of this tactic as it must be increasing risk, but I have tried to compensate by lowering position size.

Have you any tips/ideas you are following to correctly identify capitulation ?

Charlton

Grey1 · Mar 14, 2008

Charlton said:
I dare say Iraj would not approve of this tactic as it must be increasing risk, but I have tried to compensate by lowering position size.

Charlton

you must stick to 10 min even if it does not give you many set ups ,, the dominant cycle for INDU is 10 and not 5 hence if you donot not use 10 min the odds are against you

Grey1

rajibde · Mar 14, 2008

Charlton said:
Raj

I have also been using the macci 5 min more, but never the 1 min. It has made increased the number of setups, because I have found the 10 min macci to be very sluggish at times. It also doesn't seem to complete the transition from ob/os or vice versa. In fact I found that I had to close my position setup using 10 min because 5 min turned and pulled the other way.

I dare say Iraj would not approve of this tactic as it must be increasing risk, but I have tried to compensate by lowering position size.

Have you any tips/ideas you are following to correctly identify capitulation ?

Charlton

Hi Charlton,

The one min was an exception which I used that day -the reason being I could not find any systematic OB/OS indication for the 10 or the 5 when the market started to strongly trend up-so I kept on decreasing the TF and the 1 min ON THAT DAY (second half) the curves fitted much better for entries- but for that reason I almost had to scalp (so very few trades for me in the second half).

I've yet to feel confident about the capitulation- most of the time I find the strong/weak stock capitulates before the Macci (10min) reaches ob/os-it is a skill which needs to be developed (I think)- I'd love if we could have a few more seminars as this forms an important part of the strategy....(it is I believe, three 1min bars of the stock in a quick/rapid succession-it is easy to spot that when I am not prepared ....)

Raj

EDIT-after reading Iraj's reply above-I guess I need to work on my discipline in trading...

Charlton · Mar 14, 2008

Discipline

Grey1 said:
you must stick to 10 min even if it does not give you many set ups ,, the dominant cycle for INDU is 10 and not 5 hence if you donot not use 10 min the odds are against you

Grey1

I suspected that you would say that and I will follow your advice. A golden rule should be to let the setups come to you and not to chase them.

Thanks

Charlton

Trader333 · Mar 14, 2008

EDIT-after reading Iraj's reply above-I guess I need to work on my discipline in trading...

I would agree with this. If a setup does not occur it will ultimately be disastrous in my view to then deliberately try and find one just to place a trade.

Paul

Grey1 · Mar 14, 2008

Trader333 said:
I would agree with this. If a setup does not occur it will ultimately be disastrous in my view to then deliberately try and find one just to place a trade.

Paul

This is called FORCE TRADING ,, really bad habit and is like a cancer to the portfolio ,,

Grey1 :-0

Glenn · Mar 14, 2008

rajibde said:
Hi Iraj,

CNBC says that often the market tends to buy stocks before the actual recovery starts (i.e. price rise preceeds shortly before the market actually turns)- keeping this in view- what fundamentals should one look out for to understand that market might improve?

Should it be stuff like the housing price improvement ...?.

Raj

What they mean by this is that the market will start to rally before the economy starts to recover.
The market looks ahead so it is first to show the change in sentiment, before other signs such as house prices kick in.
The easiest sign of market recovery is a big sell-off (Capitulation) as Grey1 says, which flushes out all the people who sell at bottoms, followed by a swift rally. It is unusual for the market to stay long at the final bottom or any capitulation low.

If to was easy for people to identify when the market will turn, the market would not exist.
But you have the one thing which makes the difference.
Don't be someones lacky - learn to use the Macci

Glenn

rajibde · Mar 14, 2008

Glenn said:
What they mean by this is that the market will start to rally before the economy starts to recover.
The market looks ahead so it is first to show the change in sentiment, before other signs such as house prices kick in.
The easiest sign of market recovery is a big sell-off (Capitulation) as Grey1 says, which flushes out all the people who sell at bottoms, followed by a swift rally. It is unusual for the market to stay long at the final bottom or any capitulation low.

If to was easy for people to identify when the market will turn, the market would not exist.
But you have the one thing which makes the difference.
Don't be someones lacky - learn to use the Macci

Glenn

Thanks Glenn - actually my question was directed more towards the fundamental 'signs' (tell tale signs..)in the economy to be able to understand the FUNDAMENTAL side of indication that the market is improving- capitulation is the technical aspect I presume in the market understanding (??)...

Just to rephrase my question-How would an analyst (a proper one-not the regular ones in CNBC who change their opinion at the drop of a hat) change his/her stance from being a bear to a bull (looking at the fundamental aspect of economic changes) (when you say- 'economy starts to recover' what will be the tell tale signs you would like to base your judgement -not getting distracted from the market noise)

The idea is not to guess the market bottom (which can be a 50/50 probability game for a gambler)- but to improve a 'fundamental' analysis understanding for the market.

any inputs will be most welcome and appreciated.

Raj

rajibde · Mar 14, 2008

Grey1 said:
This is called FORCE TRADING ,, really bad habit and is like a cancer to the portfolio ,,

Grey1 :-0

Slap on my wrist.... (maybe twice, each time I break the rules again...)

A nice day today....Thanks to MACCI

Where is market heading ? Short , Medium Term Grey's analysis

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