Sunday, March 22, 2020

The Only Thing We Have To Fear Is Fear Itself

SGS  Market Timer Status:  SHORT 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer


"The only thing we have to fear is fear itself". Those 10 words were uttered by one of our greatest presidents during one of the darkest periods of the world history. I can't think of anything that could ring more true now as we confront a virus. A virus that we know, where it came from, and how it spreads. In a few weeks, a therapeutic antiviral or antibody treatment will be become available to stop those infected, who have a compromised immune system or other illnesses, from dying. In the meantime, social distancing continues to dramatically reduce the spread of the virus.

Unfortunately, the federal leadership to confront the pandemic is just not there. The first and most important pillar of leadership is honesty. Instead we have a pathological lair at the helm. His non-stop lying forces other federal officials to lie to cover his lies. A viral pandemic cannot be stopped by lies.

Fortunately New York, California, and Washington State Governors are successfully leading their states, and the nation, to put in place measures to stop the exponential spread of the virus. In the meantime, the Federal Reserve has taken important steps to make sure that the US and global financial systems continue to function. Also, fiscal policies are coming to prop up individual households and businesses.

Economic and financial markets recovery will surely be slow and take time but predicting "the greatest depression ever ... tens of millions will die in the US ... Gilead is coming" is pure fear mongering by those who want to profit from their propaganda.

SGS declined more on Monday and Tuesday last week. On Wednesday, as indices hit their lows since their recent or all-time highs, SGS put in its lowest value since 1990.  On Thursday and Friday, however, SGS advanced higher as indices sold-off again on Friday and nearly matched Wednesday lows.  

The divergence by SGS and other indicators on Thursday and Friday is extremely bullish and signals that there is a high likelihood that selling was exhausted on Friday.  There is a good chance that a relief or short-covering rally is on its way.


Support and resistance levels for SPX for this week are shown above.  SPX, from its all-time high (3393) on February 19 to its recent low (2280) on March 19 corrected 32.8% in a month (21 trading days). The velocity of the sell-off is about -1.5% per trading day over the course of a month. That is simply insane and there is no parallel for it since the great stock market crash of 1929.

It's hard to say how far indices sell-off in the next three to six months, or however long it takes to recover from the pandemic. In the best case scenario, SPX could correct to around 2000 (another 13%).  In the worst case scenario, SPX could correct to around 1700 (another 26%).




My Plan

sgs-st is stilll neutral (over-sold triggered) but indices are extremely over-sold.  I expected a sizable bounce last Monday and Tuesday.  It didn't happened and indices sold-off more.  Needless to say that I jumped the gun before looking for a significant and meaningful bullish divergence.

A significant and meaningful bullish divergence was put in on Thursday, Friday and I did 50% of my last buy of three buys. I bought QQQ prior to close on Friday.  My plan is to close all long positions into the expected bounce.  My stop-loss is a lower (lower than last Wednesday's low) close for SPY sometime early next week.



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SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, March 15, 2020

The Fed Will Come In Again & Again

SGS  Market Timer Status:  SHORT 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer


The 2008 "Sub-Prime Crash" of equities is probably the closest parallel to what is happening now. Based on the level fear measured by SGS now and back in 2008, my guess is that March 2020 is October 2008. That means the sell-off likely continues for at least another 6 months. Last week, SPX tested its PUL-2 and then rallied on the back of the Fed $1.5 trillion intervention in the REPO and other treasury bonds related markets. The Fed will continue its intervention at an unprecedented level to shore up equities but monetary stimulus alone would not stop the decline. What's needed is a massive fiscal stimulus and that would not happen until sometime in 2021, very likely under a new administration and congress. At this point the likelihood of SPX testing its PUL-1 around 2500 is high. If PUL-1 is broken, then SPX would decline to find support around 2000 to 1800 by early 2021. Hopefully at that point, our equity markets start to recover on the back of "Infrastructure" spending.
SGS declined more last week and confirmed major indices selling off.  Last week on Thursday, SGS put in its 2nd lowest value since 1990.  That confirms that indices are at extreme over-sold levels and a sizable bounce in the next couple of days is very likely.


Support and resistance levels for SPX for this week are shown above.


My Plan

sgs-st is stilll neutral (over-sold triggered) but indices are extremely over-sold and a sizable bounce on Monday and Tuesday is very likely.  I opened two SPY positions last Thursday and Friday.  My plan is to close those positions into the expected bounce.



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SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Saturday, March 7, 2020

The Addict Wants His Fix Or Else

SGS  Market Timer Status:  SHORT 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer


As shown on the above busy chart, SPX is now trading below its M-DTL (Monthly Dynamic Trend Line, aka Monthly 13 EMA).

Since 1990, there have been eight instances, including the current one, that SPX has broken through its M-DTL and started to trade below it (shown by blue arrows on the chart above). In six out of those eight, the Fed intervened with a massive monetary stimulus package, stopped the decline, and shored up indices. In the remaining two instances (Oct 2000 and Jan 2008), however, there was no fiscal or monetary intervention. In 2000, SPX continued its decline for another 42% and bottomed in October 2002 when Iraq War fiscal spending started. In 2008, SPX continued its decline for another 52% and bottomed in March 2009 when the Fed started to massively buy mortgage backed securities via QE in order to stimulate the housing market.

Once again, SPX is trading below its M-DTL and the addict is demanding his fix or he would burn the house down as he did in 2000 and 2008. What is needed now is a fiscal stimulus package but in the current political environment it would not pass in the Senate. So the Fed has to step in and do something to pump more money into the market. I'm watching the 20% marker on the sell-off scale. Once SPX correction gets close to 20% (around 2750, 19% drop for the all-time high), the Fed very likely would rush in.

If the Fed does not act or whatever they do is not what the market is demanding, selling would continue until the Congress passes a massive fiscal spending sometime in 2021.
SGS declined more last week and confirmed major indices selling off.


Support and resistance levels for SPX for this week are shown above.


My Plan

sgs-st is stilll neutral and 
I'm in cash and waiting for the next sgs-st signal.


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SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, March 1, 2020

Selling Is Done, A Sizable Bounce Is Likely

SGS  Market Timer Status:  SHORT 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer


In the last 20 years, there have been only 6 instances, including last week, that SPX had dropped more than 10% in a given week (low of the week compared to the close of the previous week). Also, on the average, SPX had rallied 7.6% (close of the week compared to the high of the following week) in the week immediately following the sell-off. There is a good chance that SPX rallies around 7% to 8% from its Friday's close. A 7.5% rally for SPX, gives 3175 as a target for this week's probable high which is also near the 61.8% Fibonacci retracement level of the sell-off from 3393 to 2855.
SGS declined substantially last week and confirmed major indices selling off.  On Friday, the value of SGS dropped to -359 and SGS changed its status from LONG to SHORT.  Longer-term, that is bearish.


Support and resistance levels for SPX for this week are shown above.


My Plan

sgs-st is stilll neutral and 
I'm in cash and waiting for the next sgs-st signal.


Current Long-Term Portfolio

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opader@gmail.com


SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, February 23, 2020

As Market Worries Indices Suffer

SGS  Market Timer Status:  LONG 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 short 

sgs-st is a Short-Term (hours to days) Timer

Market hates nothing more than uncertainties.  Besides the uncertainties associated with the coronavirus and how it's affecting the global economy, now with Sander's big win in Nevada, Market must worry about Sanders winning the presidential election in November.  There is an excellent chance (> 80% in my estimation) that Bernie becomes POTUS #46 in a historic landslide this November.  That is quite bearish.

The sell-off that started last week very likely accelerates on Monday.  Internal data on Monday will be telling as far as how serious and deep of a correction is coming our way.

SGS declined last week and didn't confirm major indices new all-time highs on Wednesday.  SGS value is still hovering around overbought levels and the recent divergence by SGS as indices pushed higher is bearish.


Support and resistance levels for SPX for this week are shown above.

My Plan

sgs-st turned from neutral to short  on Friday and I opened one position long (33.3% of total capital) in SPXU.


Current Long-Term Portfolio

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SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Monday, February 17, 2020

Measuring Fear And Complacency

SGS  Market Timer Status:  LONG 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer

Similar to VIX, SGS market timer is a good yard stick to gauge how fearful or compliant market participants are, and when plotted over time,  SGS  shows how their fear or complacency is changing.  The value of SGS and its trend is also a good predictor of the future direction of major indices.

SGS advanced last week and confirmed major indices rallying higher.  

Reviewing values of SGS since 1980, I found its record low and when that record low occurred highly significant.  SGS put in its lowest value (-1965) on October 10, 2008 which was one of the most fearful days, if not the most fearful day, in financial markets since 1929. Interestingly, the second lowest value of SGS (-1741) happened on December 26, 2018.  I believe had not been for the intervention of the Fed on that day (which was later acknowledged in the unrepresented news conference given by Powell and his immediate predecessor Yellen, and Bernanke on January 4, 2019) financial markets worldwide would have crashed and SGS would have put in a new all-time record low.  On January 4, 2019, the Fed unequally said that the Fed had subscribed to the Modern Monitory Theory and "the Fed put" for the US financial markets was in and would remain in for the foreseeable future.  So long as that policy remains the law of the financial land, indices have no place to go but higher.

From 2015 to 2017, I dived deeply in the Elliot Wave (EW) analysis in search of a leading market timer.  I paid the price for relying on EW, getting ahead of the market, and going too deep into the weeds with Elliot Wave for my trading.  
I realized later that EW is useless and could to lead to substantial losses when used for trading.  EW, however, is insightful when it is viewed from "30,000 feet", i.e on monthly and weekly charts.


Many EW true believers are now looking for a 40% to 60% correction.  They are looking for  what they call "Cycle 2 of Super Cycle 3".  I believe, as shown on the SPX monthly chart above, the Cycle 2 correction they're waiting for, occurred in late 2018 when SPX corrected 23% and SGS put in its second lowest value of the last 40 years.  That correction would had been much deeper had not been for the Fed intervention.


Support and resistance levels for SPX for this week are shown above.
My Plan

sgs-st is stilll neutral and
I'm in cash and waiting for the next sgs-st signal.


Current Long-Term Portfolio

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opader@gmail.com


SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, February 9, 2020

Answers to Frequently Asked Questions (2020 Update)

What is Balance Trading Blog?

Balance Trading Blog is my trading notebook. It's a place for me to record my thoughts, ideas, and long-term (weeks to months) trades.  I'm sharing it with anyone who cares to read it.  Please kindly note that my notes, thoughts, and ideas are not trading recommendations or investment advice. They are simply notes, thoughts, and observations of an x-aerospace engineer who changed his career in 1997 and became a full-time trader who trades for a living.

What is SGS?

SGS is a proprietary mathematical long-term (weeks to months) trend following market timer.  SGS is not a price-based timer.  It is  a smoothed and normalized aggregate of the number of new highs minus the number of new lows of a pool of around 4000 liquid stocks and ETF's (traded on NYSE and NASDAQ) for five discrete time periods (daily, weekly, monthly, quarterly, and yearly). 

Everyday shortly after close, a new value for SGS is calculated.  In order to reduce whipsaws, only the value of SGS calculated on a Friday is used to determine the status of SGS.  If the Friday value of SGS is greater than +50, then the status of SGS is LONG. If less -50, then the status of SGS is SHORT.  For any SGS value between +50 and -50, the status of SGS is NEUTRAL.

What is sgs-st (short-term)?

sgs-st is a proprietary mathematical short-term (hours to days) trend following market timer.  Similar to SGS, sgs-st status can be long, short, or neutral.  Additionally, sgs-st could change its status from long to neutral if an overbought condition is triggered or change its status from short to neutral if an oversold condition is triggered.

The status of sgs-st is determined by (1) the size of the total area between between 13 and 39 hourly EMA's of SPX measured in price-time; and (2) by the growth rate of that area measured in price-time per hour.  The value of sgs-st is calculated every trading hour during the regular session (9:30 AM to 4:00 PM). The status of sgs-st is determined by its hourly calculated value.

How SGS and sgs-st are used for trading?

Since October 22, 2019, I've been tradeing SPXL and SPXU using the status of SGS and sgs-st as summarized in the table below:



Sunday Feb 9, 2020

SGS  Market Timer Status:  LONG 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status: 
 neutral 

sgs-st is a Short-Term (hours to days) Timer

SGS advanced last week and confirmed major indices rallying higher.


Support and resistance levels for SPX for this week are shown above. 

My Plan

Last Monday morning at 10 AM sgs-st status turned from short to neutral and I closed my SPXU position (33.3% of capital) with a loss.  Then at 2 PM sgs-st changed its from neutral to long and I opened a SPXL position (100% of capital).  On Tuesday sgs-st triggered an overbought signal and changed its status from long to neutral.  I closed my SPXL position.  


I'm in cash and waiting for the next sgs-st signal.

Current Long-Term Portfolio
Past Long-Term Portfolios

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opader@gmail.com


SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.