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Long Term Equities Update
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Long Term Equities Update

by The MoleFebruary 27, 2015

It’s been a while since we’ve covered equities exclusively and as the month is coming to an end this is as good an opportunity to catch up. As you all know I have been dangling the ‘late stage bull market’ carrot for a few weeks now and quite frankly I don’t see any reason to change that outlook. I have been very adamant about expecting a final exhaustion spike higher and believe that is already in the works. Now before you start piling into puts be aware that we may be weeks, perhaps even months away from a downside event. So hold your horses and for now just enjoy the charts in preparation for where we heading most likely later this year. Enough weasel talk and disclaimers? Great – let’s get to the charts.

2015-02-27_zero

Actually it was the Zero chart that reminded me that a LT update may be in order. Over the past few sessions some of my subs and myself have been noticing strange signal patterns suggesting distribution. It’s very much possible but quite frankly I don’t see anything on the momo side that would suggest urgency. In short – nobody can predict when things will take a turn but we are a bit early in the game here still. So let’s review the evidence:

2015-02-27_SPX_LT

 

First the long term SPX with my trusted weekly stochastic. I almost never use this indicator – except on the weekly chart where it actually works pretty well! Right now we’re scraping 100 but in this bull market this means nothing. Most likely we’ll see an embedded signal (above the 80 mark) for a while before we head lower here. So no reason to be in a hurry – again we may be weeks or perhaps even months away.

2015-02-27_SPX_SPXA200R

SPX vs SPXA200R – the latter is the percentage of stocks in the SPX trading above their 200-day SMA. Now that one is looking bloody well divergent and eventually there will be a price to pay. But I don’t think that we’re due just yet (watch how the market will drop instantly after Mole’s statement).

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Bonus Chart!

022615pump

This one is courtesy of Chris Carolan over at spiralcalendar.com – one of the few other analysts I follow. Chris graciously permitted me to post this chart which I not only find absolutely compelling but also appears to be in line with what I’m presenting above. See the delay in the response on the S&P? Ponder on this one over the weekend.

Alright – I’m exhausted and am desperate for my Friday treat:

beer5

Not her you deviant! I’m talking about the Hefeweizen – which is waiting and that’s my cue. See you guys Monday!

Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Ronebadger

    Good stuff! Thanks Mole!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Check out this historic commentary.

    Mole was prophetic “quite some time” regarding SPXA200R

    http://evilspeculator.com/diminishing-effervescence/

    of course, I’m cherry picking. 😉

    -GG

  • mugabe

    The monthly MACD has been quite a good indicator of absolutely major tops. It’s just in the clear at the moment.
    http://scharts.co/1vH69US

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    uh, this looks like a Daily..

  • mugabe

    really? when I click on it it’s a 20-year monthly chart

  • wandering196

    I just clicked on it and I get the 20 month chart

  • wandering196

    Even though we aren’t in the prediction game, I do love these posts when you do them. Thanks. Skiing was great beautiful sunshine, good friends, it is a great day!!!

  • squirrelsome

    If you not paying subscriber to stockcharts you don’t get the monthly. Mugabe, attach the picture, please, not link to live site.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    “Live Long, and prosper

    http://s27.postimg.org/b21m9fbxv/April_06.png

  • http://evilspeculator.com molecool

    Damn that sucks – big trekkie here. Actually met the man over a decade ago at WF on Fairfax. And f…..ing Shattner outlives them all, which is why I perfected the art of the bastard.

  • mugabe

    This might work now:
    http://scharts.co/1zNHw59
    Don’t know how to upload from stockcharts as a pic – apologies.
    If not, you can create the same chart at yahoo Finance calling up SPY, but the link is too huge to post.

  • mugabe

    In terms of calculating R, what do you do if you don’t know what price you are going to enter at?
    e.g. you plan to take a position if the close of today is higher than the close of yesterday. So you won’t know what price you are going to buy at … even if you put a stop limit order (which you may not want to) , you only know your maximum risk and not your actual risk.

  • Careus

    you wait. You will know what price it will be when time has come, that means when daily bar is completed, if you look at daily bars. You know then also when you will place your stop, and then you calculate your R. Simple.

  • mugabe

    Good answer. Presupposes bring connected and available to do it all in a very small time frame but what you say is the only way.

  • Scott Phillips

    Entering at the actual close is mostly a bad idea, as liquidity dies, and you get random “capitulation” in both directions entries. Pit traders in futures watch very closely (and sometimes try and fuck with) the last 5 mins of trading to change the shape of the candle.

    A good workaround is to enter 5 mins before close (or even 10), at 10 minutes to close you do your R calculation based on current bid/offer price and then use that as the position size.

    This won’t match up exactly when you exit with R, so a 1R loss might be -.098R or -1.02R loss.

    This is how I do it :-)

  • Scott Phillips

    This is fine for continuously traded instruments. If you do it for stocks you expose yourself to gap risk.

    That risk is fine, if your ruleset accommodates it

  • Scott Phillips

    Has it? Count them and see. Never trust your eyes! Then do some research in statistics (any statistics textbook will tell you) how many instances you need to have confidence in a result.

    Neiderhoffer’s book has some useful info on this – his main game is measuring correlations between things. Given he also refuses to trade without stops, you might find his methods a good fit for you :-)

    http://www.amazon.com/Practical-Speculation-Victor-Niederhoffer/dp/0471677744

  • http://www.ProfitFromPatterns.com/ Ivan K

    Acting on the Open or the Close has never been a wise concept … especially in the futures market … for the last 30 + years.

  • Scott Phillips

    Agree 100% – Old dictum, amateurs control the open, professionals the close.

    Amateurs get carried away at the open, and professionals manipulate the close.

  • mugabe

    great stuff- thanks

  • http://www.ProfitFromPatterns.com/ Ivan K

    I suggest you print off the same chart using 50 bars per page and do a critical assessment … complete with a written working hypothesis … entry and exit rules defined … and produce an Equity Chart … work … yes … invaluable … for sure and certain.

  • mugabe

    yes I know – it’s shown 7 of the last 3 tops, or whatever. even so, it happens so rarely that it’s worth taking note of, imo, as a sign of potential market weakness.e.g. you could have a rule set not to go long when the completed monthly MACD is negative.
    See you couldn’t resist the old stops thing again :) You have a convert here

  • mugabe

    As it only happens once every few years, the work involved (and the sample) would be minimal. I’m not advocating a trading system based on this. It’s purely in the spirit of mole’s long term where are we at? post.

  • Scott Phillips

    Actually the opposite. The more it happens the more confidence you have in it. If it happens rarely it is not (as would seem at first glance) a “rare and powerful setup” but instead a random data glitch with no correlation

  • squirrelsome

    No, don’t apologize, there’s no reason… i was trying to be helpful… There might be more ways but this is how I do it: right click the chart, save it as a file, click the little left-bottom icon under your message box in diqus, choose the saved file to attach to the post. oh, don’t have “Inspect” checked in stockcharts, it saves some dubious flash artifact as an image.

  • squirrelsome

    Hehe, presentation effect… was trying to do it and it didn’t work… disqus… Maybe this one, below.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Systemising the MACD (or any indicator) can be both fun and profitable … in more ways than the obvious … re MACD … as opposed to using Gerard Appel’s original idea way back in the 1970’s when he came out with the MACDTM … why not look to use the slower of the 2 lines to define the direction (longs vs shorts) … and then use the faster of the 2 lines as a signal to act.

    The chart below illustrates this concept.

  • mugabe

    statistically I take your point. and I’m not calling it a set-up. however, I don’t think the monthly macd is guilty of the charge of random noise precisely because it happens rarely and major tops are often accompanied by a switch to the negative. it nailed the top in gold pretty well, too, for example. also, you don’t want it to happen a lot if you’re looking for a sign of a major top.

  • mugabe

    interesting, thanks

  • mugabe

    thanks. have saved your instruction! looking at that chart again, monthly MACD has been pretty awesome from a very long term trend trading point of view.

  • http://www.ProfitFromPatterns.com/ Ivan K

    By definition … and depending on your application and use of the MACD ,,, signals of a major turn do not and cannot happen often.

    EDIT: Again depending on the definition of ‘a lot’ or ‘often’ … sadly both terms tend to be used in many vague senses.

  • mugabe

    sell that to an abstract art gallery – they’ll pay a fortune :)

  • http://www.ProfitFromPatterns.com/ Ivan K

    My rationale regarding not acting on the Open is based on the ‘rotational’ market opening process … having learned that lesson way back in the 1980’s in the Coffee market.

  • BobbyLow

    Might be going against the grain here but on products related to /CL on a Daily Chart as in UCO/SCO, I believe Market on Close is the best way to go. The 2:30 OOC on /CL screws with the chart as price keeps moving in AH and then is out of sync with the the ETF close at 4PM EDT.

    I agree that MOC on Futures and Forex is a bad idea because as Scott said “reduced liquidity” etc.

  • Scott Phillips

    Crude is an unusual case in that the “closing price” is a custom VWAP of the last 5 mins of pit trading. This is heavily watched and still highly liquid, so you are probably right for crude

  • Scott Phillips

    Ahhh good point

  • http://www.ProfitFromPatterns.com/ Ivan K

    The ‘real’ reason why a MOC order to exit is / can be dynamite … is that a futures market may be at Limit Up or Limit Down by the Close … and hence your MOC order cannot be filled … risk management has just gone out the window.

    The same actually applies to a MOC entry order … although less damaging.

  • Scott Phillips

    You are falling into the Gerb trap. Either some data point has meaning, or it has no meaning. Taking something that has no meaning at all and labelling it “interesting, something to keep in mind” is stupid. Putting a random indicator on one single chart and pointing to it meaning anything without a serious backtest is stupid. And that applied to me, Mole, Ivan, everyone.

    Our brains are hardwired to see patterns. When you see your wife in a crowd you don’t scan through a database of every person you see, you recognize a way she stands, the shape of her hair, etc, and your brain fills in the gaps. It “seems like” you scan through a database of pictures, but in reality your brain paints the image on to your visual cortex. This is the basis of street magic, pickpockets, and chart reading.

    One of the fundamental reasons trading is so difficult is that we evolved a long time ago, and what is useful as a survival trait is very harmful in the markets. Think about it. Caveman Mugabe is thirsty and about to take a drink from a stream, but something doesn’t smell right. It’s below the conscious threshold of what you can perceive, but a dead carcass has poisoned the water and you are going to get dysentery and die if you drink. Over a million years we have bred for certain behaviors which just don’t help us trade.

    Understanding how our monkey brains process data will help you understand when you are seeing stuff that isn’t real, or doesn’t have significance, or drawing conclusions that are not warranted by the data.

  • Scott Phillips

    “It nailed the top in gold pretty well” implies that it has a better than random chance of nailing the next top.

    Actually the opposite is the case.

  • Scott Phillips

    A lack of precision makes hulk sad 😉

  • Scott Phillips

    Again a fallacy. I’m not saying that MACD is useless, simply that it is an indicator, which by definition is lagging.

    Putting a lagging indicator on a monthly chart in a period of multi year trends is going to look excellent at a glance.

    Putting the same indicator on a chart without multi year trends is going to suck.

    So what you are saying is “trading in the direction of the trend is easy when trends last for many years” – that statement is definitively true

  • mugabe

    ‘Putting a random indicator on one single chart and pointing to it meaning anything without a serious backtest is stupid’
    This is true. You’d need to backtest it in hundreds of markets first.

  • Scott Phillips

    Which raises the interesting question of how much confidence you get from a certain number of instances, and the rabbit hole of data fallacies

  • http://www.ProfitFromPatterns.com/ Ivan K

    What is ‘stupid’ to one may be ‘insightful’ to another … everything has value.

  • mugabe

    point taken. what monthly macd is good at doing is keeping you in the trend

  • Scott Phillips

    I speak in absolutes here, for clarity:

    “Drawing a conclusion where statistics, science and logic do not support that conclusion is stupid”

  • Scott Phillips

    Absolutely it is :-)

  • mugabe

    I think you’d need to backtest it in objectively different conditions – which goes back to the discussion on Thor 0.

  • Scott Phillips

    When the trend is long running.

    Question: What sort of trends are long running?
    Answer: Low volatility trends

    Follow up question:
    Question: What signifies potential change of trend of a low volatility trend
    Answer: Either unsustainably low volatility or a blow off top (spike in volatility)

    See how you could use MACD in conjunction with demonstrably provable properties of markets to develop a system around it?

  • Scott Phillips

    Exactly so :-)

  • mugabe

    no problem from my side … I understood what you were saying

  • http://www.ProfitFromPatterns.com/ Ivan K

    Does not every discovery / breakthrough defy ‘conventional’ wisdom ? The real danger is not the actual conclusion … rather how one acts based on that conclusion … sans validation.

  • mugabe

    interesting – although sometimes volatility can remain low longer than you can remain solvent, as it were . eg 2003 -2007

  • Scott Phillips

    I conclude based on a hot day that global warming is real – stupid

    I conclude based on a serious scientific study that global warming is real – not stupid, even though this defies conventional wisdom.

  • Scott Phillips

    The first uptick after long periods of extreme low volatility is the signal to get out

  • http://www.ambgtrading.com/ amgrant

    Perhaps I’m jumping in mid-way conversation, but I have traded the open/close of various markets. The whole point of the opening rotation is to match the most orders at the best possible price, hence most liquid price. Unless you guys are talking about something else, the open/close at a GREAT time to trade. It’s where most of the volatility/volume occurs.

    Some traders have made a career only trading the open on some markets.

  • Scott Phillips

    We should have clarified this is not for intraday trading but for swing trading :) You are correct if you are talking about intraday trading on 3 or 5 min charts :)

  • squirrelsome

    Well, just came back from a children’s birthday party, where children get bored to death and who the fuck knows what they do while the parents get drunk and vent their problems at each other, so please excuse me if im off topic.
    My impression of being ON topic is that we are dealing with a different level of consciousness, the Market. This will seem as mental masturbation, Master Mole (MM), but here it is. Think ant talking to anthropologist, or whatever. The ant is the trader. He makes the market but he cannot possibly “understand” it… that is the ant nest. We, ants., are made to forage, build, kill, carry, feed the babies, care for the queen. But the biggest mistake of the ant is to try and understand the Nest. NO-NO. The only way is the Ivan way. Investigate, test. Well, watch, research, test, act, in his words, L.I.V.E.. Because the “intuition” is going to fail us. we know how to forage, build, carry, feed, fight… but we don;t possibly have any idea where the next queen will land and make a nest, we can’t possibly have any idea of when enough population is enough, and so on… That’s why approaching the market with “gut feelings” and intuition is sure ruin. It has to be approached scientifically, through experiment and reason, just because it’s at a different conscious level, beyond our intuition.

  • squirrelsome

    All back testing is based on some sort and degree of recency bias. But… what else can you do, but to bet on some sort of continuity?

  • squirrelsome

    While MM (Master Mole) might be deep in his weekend work, I will venture in some more mental masturbation (also MM? … remember i’m drunk).

    When you set on a system, how long do you think it will last? Courtesy of our elephant in the room, ZE, http://www.zerohedge.com/news/2015-02-27/self-aware-worlds-largest-hedge-fund-shifts-strategy-artificial-intelligence

    Life is always evolving. The more experienced here, Ivan maybe, how long a system or set of setups have lasted? Life is always evolving. Do not hang up your tools. You will always need them. Making up a new system is the life of a permanent trader. Setting in a performing one is just a death wish. Just saying…

  • squirrelsome

    I actually like Shattner too, in a weird way.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Intuition comes in two flavours – endogenous (internal ie from experience perhaps) and exogenous (outside of oneself) … intuition, in its purest sense, is extremely powerful … and whilst attaining that is possible (rarely) … maintaining that state is virtually impossible … hence L.I.V.E. is my chosen way to live.

  • mugabe

    I asked Ivan that question a while back and he said his original set ups and CM still work (he will doubtless now correct this!). Bear in mind he uses a combination of different set ups (trend, range, etc.) so not all systems need to be in sync all the time.

  • mugabe

    reminds me of that great Ed Seykota quote, ‘some people would rather understand the market than make money.’
    If you’ve never read it, the interview with him in Market Wizards is absolutely priceless. Best thing on trading I’ve ever read. You’ll probably find it online on a web search.
    Also, if you haven’t read them (not sure how long you’ve been here!), Scott’s posts a good while back on building a system are also priceless.

  • mugabe

    a fitting tribute to Spock

  • mugabe

    Actually,
    the nature of monthly MACD (ie its construction) is that it will be good at
    identifying long terms tops at the end of a long trend, although probably a month
    late (which is no big deal if you’ve been riding the whole trend). While in a
    range environment (as you said below) it will be useless. This is not to say
    that it won’t give the odd false signal in a sustained uptrend.

    So I think,
    if you want to take a long term look at The market, it is worth looking at IF
    you’ve had a major up or down trend –which is the case now- perhaps combined
    with volatility (as you said below) as a gauge of market condition.

  • BobbyLow

    You guys have had some great commentary over this weekend.

    Some of your comments reminded me of the numerous methods that I’ve created over the years. Looking back at my previous methods, the pattern was that I would back test – think the results were great – trade it live for awhile – enter a draw down – throw it away – check back on the same method 3 to 6 months after abandonment – kick myself for not sticking with what I started with in the first place. :)

  • http://www.ProfitFromPatterns.com/ Ivan K

    S’some … concepts and setups that are based on human behaviour and actions are lasting … concepts and setups based purely on number crunching tend to have a ‘use by’ date.

  • mugabe

    so it all depends on the basic premise?

  • http://www.ProfitFromPatterns.com/ Ivan K

    B’Low … write out by hand your commitment to do something for xyz period … sign it and date it … and display it proudly next to your monitor … the subC can be harnessed to assist.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Premise or observation …. same idea … human nature / behaviour is the constant factor … hence longevity.

  • BobbyLow

    Excellent idea Ivan. I’ve already begun detaching myself from the outcome and must continuously work on understanding and controlling these types of issues.

  • Scott Phillips

    Agree

  • Scott Phillips

    Intuition is very different to bias. Intuition can be very powerful, the result of years of chart reading experience.

    Depends if you see what you believe or believe what you see :-)

  • Scott Phillips

    It is a question which is capable of being objectively answered in a statistical sense.

    How many instances do I need of a given thing before I have tradeable confidence in it?
    How does confidence increase as sample size changes?

    These are concepts covered in any first year statistics course. Saying “oh its hard, I’ll just draw invalid conclusions based on meaningless data” isn’t the smartest idea.

    If you don’t know – LEARN!

  • http://www.ProfitFromPatterns.com/ Ivan K

    B’Low … part of my personal brief when I take on board a student is to do daily debriefs via SkyPe when the student goes live … the handling of emotions plays a large role in the outcome of ‘valid’ RBT.

    Discipline Discipline Disciple … Commitment Commitment Commitment … Belief Belief Believe … mega significant in ALL aspects of life … let alone in active risk-taking!

  • BobbyLow

    Agreed. I already had the written signs of Patience and Discipline taped to a shelf directly above my Monitor. :)

    I also have a 15 Point Daily Checklist that I read every morning. On the rare occasion that I fail to go over my check list, it just doesn’t feel right. I have what I call my “built in forgettor” that is waiting and lurking if I don’t do what is necessary.

  • http://www.ProfitFromPatterns.com/ Ivan K

    ‘Belief’ is really a big factor … belief in your back-app being accurate … belief in your choice of sample /s … belief in the underlying aspects of your RBT … belief in your abilities … belief in being able to deal with the unknown … and I am just skimming the surface of the “belief quotient’.

  • captainboom

    New Post

  • PipCyp

    B’low – have a checklist I run through every day as well. Would be interested to swap lists – can you PM me if you’re interested?

  • squirrelsome

    Agree, Ivan, under the premise the human behaviour dominates the market. Since preponderant weight is moving into AI decision (the news i was pointing at), i was thinking the behaviour would be seen changing…