LunaticTrader

Investing with the Moon

Realistic expectations

Posted by Danny on February 16, 2016

US stock markets came under pressure again last week, but we didn’t quite get the breakdown that some participants seemed to expect and stocks rebounded by the end of the week. The successful retest of the January 20th low in the S&P 500 and the quick bounce off that level suggests that the path of least resistance may have turned up. Here is the current chart:

^SP500 (Daily)  6_23_2014 - 2_12_2016

The support line just above 1800 is now even more important, and I wouldn’t like to see it revisited if this market is to continue to the upside. Yet another test of the 1800 level would very likely result in a serious selloff. A climb above 1890-1900 would tell us that the new year slide is over and then we can set sights on 1950-2000 again.
Technically the slower Earl2 (orange line) keeps going up, while the Earl (blue line) and MoM indicators are about to print bullish divergences if they turn up from higher lows (compared to the January bottom). That would be a very attractive setup with good potential for a +100 point rally in the S&P.

Last week a few readers chimed in to let me know how terribly bad my LT wave for February is doing. Never mind that the LT wave called for weakness in the first half of the month, which is what we got. But some readers seem to expect that the LT wave will mark the exact low day of the month without fail. That’s not going to happen with any method. I understand that some people keep hoping to find a perfect method that lets them rake in easy stock market profits. But in real trading one should be happy to find something that works 60% of the time, and even that is not easy.
Keeping with realistic expectations can put a trader a step ahead of most other investors already. If we expect to be wrong 40% of the time then we will be better prepared for losses. And if we are prepared for losses then we are also ready for gains.

5 Responses to “Realistic expectations”

  1. Reblogged this on thedarklordblog.

  2. Personally, the accuracy of the Feb LT Wave blew my socks off. Unfortunately, I thought I knew better; that will never have again. Combined with overbought and oversold indicators and seasonality, I expect to make a bunch of moola forthwith, and I will definitely be throwing you a piece of the action after that happens. Bless you, boy (et.al?) PS. I’ve been into astrology even longer than I’ve been trading, although just getting back to both after many year hiatus. More about both later. Called the crash on 6-3-08, the top on oil at $147 (actually what I said was “oil will see $20 before it sees $200”), and was on the Gen election ballot for Congress in 2010. I have a plan that fixes everything detailed on a go fund me page. Thanks again, AL-J

  3. J said

    Hi Danny,

    I wonder whether the buy signal for oil jumping to about 33$ is not actually due to a technicality which is the switch from the March to April futures contract Thursday midnight Europe time and not a real breakout above reversal levels. If you look at USO the closely correlated ETF to oil it does not show such a jump/breakout.

    Regards Jean

    • Danny said

      Hi Jean,

      You are probably referring to this tweet: https://twitter.com/lunatictrader1/status/700583264143020032

      You make a correct observation. The table shows crude oil on a nearest futures basis (same for Wheat #ZW) and sometimes the change to a new front month will cause a bit of a jump (which may trigger a buy or sell signal). There are other ways to create a “continuous contract” by averaging out the two nearest futures contracts in the final week, but each approach has its pros and its cons and neither method creates much better trading results than the other.

      In this case MoM had already turned up for Oil several days ago, on the 17th: http://www.reversallevels.com/2016/02/rl-for-feb-17.html so to get a buy signal 3 days later is not out of the ordinary.

      USO has not given a buy signal yet, and if you are trading Oil through the USO etf then it is usually better to go with the reversal level signal for USO. Other oil related etf like UCO or UWTI will also not always give buy and sell signals on exactly the same days as #CL futures or USO do. Usually when they differ they will get back in line with each other pretty soon. That means that either USO will give a buy signal too, or #CL will have a failed rally and return to bearish mode with a sell signal. Time will tell.

      Danny

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