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Blog 147, November 30. Markets moved sharply lower last Thursday night and Friday as a new COVID variant was discovered in Africa (Omicron). Traders don’t like surprises. Major averages were down about 2.3%. Fewer traders and very low volume exacerbated the extent of these losses. Algorithms also added to the sell-off since they are responsible for about 75% of all trading volume. Markets moved higher during yesterday’s trading.
I sold most of my long positions 7-10 days ago. Indicators and candle formations weakened and markets were struggling and beginning to “roll over.” While this current time period is usually part of the “Santa Claus Rally,” it is not always predictable. It seems that we might have had much of that rally earlier during mid-October through the first week of November. After this down move, markets still want to move higher through the end of the year but traders are nervous about what governments might do. Will there be new travel bans and/or restrictions? Will there be more attempts to implement lockdowns? What are the potential negative effects on economies around the world? It might take a week or two for clarity on these issues. In the meantime, you might consider trading Model 2 inside this volatility. For example, the NQ had a nice run yesterday on a 15-minute chart. Quarterly futures expiration occurs Friday morning, December 17. I’ll revisit that next week. One billion micro e-minis have been traded since they were introduced in May, 2019. Micros remain a good way to begin trading the e-minis. Blog 146, November 16. Last Wednesday it was reported that inflation from October, 2020 to October, 2021 was 6.2%, the highest in 30 years. Energy is up 40% in one year. The fact that both the ppi and cpi are higher supports the notion of “sticky inflation.” That is, most of the current inflation is not transitory. This will put pressure on stock profits and economic growth. Any more-recent salary and wage increases will end up being less than the increased cost of goods and services. The Biden administration appears to have no ideas about how to deal with this worsening inflation, even though their policies are responsible for most of it. The Federal Reserve is also limited in what it can do at this point. Readers have been writing to me with questions about trading and shorting. All of them have been addressed in the books, YouTube videos or these blogs, but I’ll go ahead and write briefly about some of them. As I’m sure you understand, it is not appropriate for me to tell you when I think you should buy or sell, especially with only weekly communication. I present the models and information, and tell you what I am doing, but we are different and need to decide for ourselves. Since I have accumulated a great deal of money through trading my models, I rarely short, use stops, or trade Model 2. I buy a long contract of an e-mini, with a daily chart, when the indicators are clearly supportive, then sell when I get a negative candlestick pattern or when I see the market weakening and beginning to “roll over.” After price moves sideways and/or lower, then gives another buy signal, I go long again. Do NOT use stops when trading Model 2 on a 15-minute chart; those trades need to be monitored. You can make 70% to 80% of trading returns by trading only long positions. I have often written about positive trading opportunities when using Model 2. Remember, you enter a trailing stop when you buy a long position, not later. And, you only buy when ALL indicators are clearly supportive. The NQ closed below the 9X on November 10, but then had successive positive candlesticks and remains positive. The ES and EMD remain in a positive trend. All three have continued to grow profits as they edge higher. Passage of the so-called infrastructure bill will push hundreds of millions of additional borrowed dollars into the economy. While this could provide jobs, it will create a great deal of additional inflationary pressures. I’m still holding long positions, on a daily chart, purchased October 14-15. Have a happy Thanksgiving, everyone! The next blog will be on November 30. Blog 145, November 9. Today, I’m writing again about trading Model 1 (Trending) on a daily chart. The past three weeks (since October 14) provide an excellent example of how we can profit from trading these models . The two best examples are the NQ and the ES. Look at the near-perfect profiles of these two e-minis, on a daily chart, since October 14. No candlestick closed below the 9X. For added support, the 20-day sma crossed over the 50-day sma on October 29 for the ES and November 2 for the NQ. These two “golden crosses,” which most traders follow, have strengthened support for this uptrend. I also trade the EMD. Its profile shows a one-day dip below the 9X on October 27, but the uptrend continued so there was no sell signal. The “golden cross” for the EMD occurred on October 22. Profits are available in different forms throughout the year, but it is these multi-week runs that provide the periods of greatest reward. I have made a very significant amount of profit riding this trend since October 14, and have written positively about the e-minis during that time period. Politics is still a quagmire. Some members of Congress are finally being reluctant to vote on bills of 2000 pages or more, which are constantly being changed overnight, that almost no one has read, the CBO has not scored as to what the actual cost is going to be (I hope none of you believed statements that these bills “wouldn’t cost taxpayers a cent” or “were paid for”) and there have been no open House or Senate hearings about these bills that have a cost of several trillion dollars and will fundamentally change America. The House Speaker once said that Congress would have to pass this (a major spending bill) to see what’s in it. Isn’t that the description of a stool sample? These bills are being pushed by only one political party. This is no way to run a government. Recent elections have at least encouraged a more measured evaluation of the political landscape. When will this ride end? Depends on how relevant issues develop, of course. Current evaluations support a favorable trend, perhaps with a dip or two, until the end of 2021. Then, it will be time for a fresh assessment. There are no guarantees, of course. We must stay alert. Blog 144, November 2. I had major back surgery a few days ago and am still clearing cobwebs, so I’ll just write a few notes about where we are as of the end of October. The S&P is up about 22% ytd. November is one of the strongest months of the year, so that adds to optimism. And, whereas October is known for its volatility, November is known for its consistency and lack of volatility. I wrote last week about cautionary concerns; they remain. The Fed meets today and tomorrow and their announcements and guidance are highly anticipated. They could move markets, though Fed Chair Powell has always been sensitive to market reactions. Government reports and important company earnings will be released throughout the week. I remain invested in long positions on daily charts. If there is something that affects the markets negatively, it doesn’t seem likely, at this point, that there would be a major drop in market prices. Stay the course, don’t get careless and maintain alertness. Blog 143, October 26. Earnings reports began about two weeks ago and have been very positive overall. Guidance has also been strong. Interest rates remain very low, and the Fed may start tapering this November or December. They are on a path where higher rates may be at least six months away. In spite of political upheavals and bumps in the economic road, great earnings and low interest rates will almost always produce higher stock prices. So, in the absence of some major economic or political shock, markets could grind higher into the end of the year. All five e-minis moved to a positive long profile about October 15 and continue to hold that feature. I am fully invested in the NQ, EMD and ES on daily charts. Remember that you can trade intraday with a 15-minute chart while also holding positions in the same e-mini on a daily chart. If the indicators are positive for trading with a daily chart, the likelihood of successful trades on a 15-minute chart increases. Old e-mini highs can become resistance but under these positive conditions, new highs can beget more new highs. So, this move higher could continue. There is always a “however” in these kinds of situations. The first issue is inflation. It could be stronger, higher and longer-lasting than the “experts” currently describe. This would put downward pressure on e-mini indexes. The second issue is Congress. If either or both of the major bills currently being negotiated pass, that is going to put us on a path to socialism from which we may never be able to change. It will waste hundreds of billions of dollars as it spends trillions more. These bills will destroy the economy, raise taxes dramatically, add national debt that we will never be able to repay and increase government power while destroying our individual rights and freedoms. Few people voted for a Cuban- or Venezuelan-style government but that is where this legislation would take us. Stock prices will eventually go down if these bills become a reality. The third issue is a continued deterioration in crime, education propaganda and separating families and social groups. Open borders are deliberate and intended to change society, add more dependents to our population and increase the number of democrats throughout the country, especially in the swing states. The democrats are working to make this a one-party nation where they have control over our voting, our lives and our rights. They want a breakdown in society so they will be able to take complete control over everything we do. This will bring on a recession and serious destruction of our society. Everything they have done over the past several years is right out of the Socialist and Marxist playbooks. For now, the e-minis remain tradable with Model 1 on daily charts. There are also many positive trading situations with Model 2. Stay alert and monitor your charts and the news. Blog 142, October 19. Last week I wrote about when to close both long and short e-mini positions. This decision to close a position is always part art and part science because there are so many variables that come into play. Remember to always check for confirmation of the stochastic as you make trading decisions. Let’s look at how and when you might use stops for long and short positions. I wrote about stops in several places in the book, especially pages 50 – 53. Stops allow us to minimize our losses; however, if the market makes a significant up or down move in the wrong direction, you can get stopped out, then often watch price continue to move in your desired direction with you now on the trading sideline. That is frustrating and can minimize your profits over time. Let’s think about “trailing stops.” We’ll use a long position for this example. A daily chart works best. We ONLY enter a trade when ALL the indicators (that includes the stochastic) are clearly lined up and supportive. So, we buy a long contract. I’ve always used the “Think or Swim” platform but others have similar layouts. You enter a “sell” position at your market price buy. Then enter “edit” on the first screen that comes up and you get a second screen. There you can make several adjustments to your “sell position.” You should get to a trailing stop alternative by clicking on the “limit” section of your choices. Then you click on trailing stop and enter the other information. There is too much to write about and explain; consult your platform help section or go to a site such as www.investing.com. When you set up your trailing stop, you indicate the number of points you want, in this case, below your market price. Those number of points will “trail” behind your buy position. As your position moves higher (with a long position), the number of points you selected will “trail” upwards behind your position, so the price number difference stays the same. If price moves lower when you have a long position, your trailing stop never moves lower, so you can get stopped out. The advantage is that your stop losses are reduced by the number of points your position rises. And of course, in a strong uptrend, you can continue to hold this position as long as closing candle prices stay above the 9X. (See last week’s blog; paragraph 5.) How do you know what your trailing stop number should be? I have found that by multiplying the current market value of the e-mini you are trading by .005 (half of one per cent) provides a useful and consistent number. As the price of each e-mini moves up (or down if you are selling short) over time, the “trailing stop value” retains the same relative difference. For example, when the ES was priced at 2800, the trailing stop would be 14 (2800 X .005). At today’s ES value of about 4450, the trailing stop would be 22, rounding down from 22.25. Higher e-mini prices lead to greater point-value volatility, so a higher trailing stop is necessary. This on-going stop price adjustment produces close to the same ratio that a percentage change would produce. So, you buy the ES at 4450 and enter a trailing stop of 4428 (4450 – 22). If it moves up to 4490 in price, your trailing stop would be 4468. Because your trailing stop will never move lower, you are now guaranteed a minimum profit of 18 points ($900), no matter what happens in the future. Price could move lower and stop you out. But, when you buy a contract with ALL confirming indicators with our model, you almost always get at least 2 – 3 positive candles, reducing your risk because the trailing stop moves up with you. And, if you get stopped out, but the indicators remain positive, you can buy another position and put in a new stop. Feel free to use higher or lower stop values to determine your stop loss. For example, a trailing stop of 40 for the ES would lessen the chances of being stopped out while the market moves higher over time, and you would be protected from a “market crash.” But regular volatility could stop you out and your losses would be greater ($2,000 instead of $1100). A smaller trailing stop number (less than .005) will stop you out more frequently and will need almost constant monitoring of your position. If you have been in a strong upward trend for some time and are reaching prior highs, you might want to tighten your stop or close the position and take your profits. This may be confusing for you. Read/watch other explanatory information, such as that found on YouTube. If you have questions or confusion, send me an email before next week’s blog and I will offer more detail from all questions received. Blog 141, October 12. Volatility continues in October. There were several places where Model 2 would have been productive this past week. According to the charts, it looks like a bottom was put in for the e-minis during September 29 through October 6. We’ll see if it holds. If the Democrats manage to pass their two multi-trillion dollar, multi thousand-page bills, all bets are off. We’ll be dealing with outrageous taxes and regulations with falling employment, high inflation and a weakened economy, linked to a developing Socialist society that will bankrupt this country and forever change America as we know it. The media is working overtime to keep these details from the public. Others don’t say anything about this legislation for fear of “being cancelled.” Since we’ve had this period of increased volatility, I’d like to briefly review how to make decisions regarding closing a long or short position. I have been working on a structured process to trade with trailing stops and might write more about that next week. All this information is in the book but it doesn’t hurt to review, especially with those of you who might be early in learning this trading. The rules for using Models 1 or 2 to enter a long or short trade position are clearly spelled out. I’d like to go over the guidelines for exiting a long or short trade. For a long trade, these guidelines apply to all time periods, and are most effective using Model 1. A daily chart will be more profitable and reliable. The market is in an uptrend. Model 1 or Model 2 conditions are closely followed. As long as each time-period candlestick closes above the 9X, you stay in the trade. During an uptrend, if a candlestick closes below the 9X, watch to see what the next candle does. If it closes above the 9X, stay in the trade. If the second candle closes below the 9X, close this position. If price has moved strongly higher, and candlesticks are closing well above the 9X, you might want to take profits there. If price does decline, you might be able to enter another long position later, likely at a lower price. In a strong uptrend, price might rise close to a recent high, then stall. If you then get one or two doji candlesticks at the top, price is likely going lower very soon. If, after one or two doji candles, price opens and begins moving lower, close this long position. If you see a “bearish engulfing” two-candle pattern, close the position as soon as the third candle opens. See the chapter about candlestick patterns. On a daily chart, there was a period from about July 27 to August 4 where, after rising to recent highs, prices stalled, then moved sideways to slightly lower on most of the e-minis. This indicates that the market is “getting tired,” and buyers are beginning to become exhausted. That usually means prices have peaked for now, as market support wanes and traders begin taking profits. It would have been prudent to save your profits by closing a long position early in August. Guidelines are the same for a short position, only reversed. (In the book, I addressed how to evaluate and close a short position in a dramatically rapid downturn in price.) At the bottom of a downturn, look for one or two “hanging man” candlesticks, where sellers drove the price down, but buyers bid it back up close to the opening price. After one or two of these hanging man candles, or dojis, price will usually move in the direction the next candlestick opens. In this situation, that usually means the market will move higher. If you are holding a short position, you want to consider taking profits and close this position when you see a hanging man candle (daily chart), a doji or you are approaching prior lows. After price begins moving higher, look for our positive indicator pattern to consider going long. You might also see a “bullish engulfing” two-candlestick pattern at the bottom of a daily chart. That is a pattern that suggests the market is going to move higher. More on this next week. Blog 140, October 5. We have begun the last quarter of this calendar year. This has historically been the best performing quarter; since 1950 the S&P 500 has averaged about 4% each year during the fourth quarter. In spite of October being a volatile, and sometimes weak month, the last quarter has finished positive about 80% of the time. The S&P 500 has not had one down day of 3% or more during all of 2021. But, the S&P 500 was down 4.7% in September. As for October, it has had some notable corrections, such as 1987, but has performed reasonably well in odd-numbered years; traders are less hesitant to buy stocks because there is no November election. September ended as the worst month for stocks in a year and worst month for the S&P since March, 2020. This week is important because Congress needs to do something constructive; or, maybe doing nothing is best. An important jobs report for September will be released Friday. Another important development has been achieved by Merck. They have created molipiravir, a drug that reduces the effects of any COVID virus strain. After taking this drug, Merck states that there is a 50% reduction of patients needing hospitalization or in the number of patients dying. This could be very positive for the economy and traders would likely be more strongly interested in buying risk assets (stocks). There are rising fears of stagflation as traders and investors sold off stocks in the major averages yesterday. Stagflation is a period when inflation remains stubbornly high and costs keep rising while unemployment escalates so that demand becomes stagnant and economic growth slumps. There has been tradable volatility the past week, especially the strong push higher last Friday, although some of that was probably short-covering. Continue to closely monitor political news and the markets’ reactions, and stay with Model 2. Blog 139, September 28. We are midway through the worst-performing consecutive two-month period for stocks. October’s volatility is 36% higher than the average of the other 11 months of the year; this could provide prosperous opportunities for trading Model 2. This is projected to be a rough week. Important governmental reports are being released this week. There remain concerns about the Chinese company, Evergrande. Supply chain disruptions and lack of workers are slowing cargo to the extent that it could negatively affect Christmas shopping. Traders are worried about the infrastructure bill and other massive spending legislation the Democrats are trying to pass. The debt ceiling must be raised again and there is threat of a governmental shutdown if agreements are not reached by Friday evening. Stock index investors look at 50-day and 200-day sma lines to assess market direction. Many stocks are trading below their 200-day sma’s, usually not a good sign in the near term. In spite of all these issues, major stock indexes are up between 13% and 18% year-to-date. There is still a lot of money waiting on the sidelines. And so, we watch and wait for opportunities. Traders are still buying the dips. Others are waiting on congress to see if there will be massive spending programs and much higher income taxes, and whether they will raise the debt limit in a timely manner. We will see where we are a week from now. Blog 138, September 21. The Federal Reserve meets this week and will release their statement on Wednesday. No policy change is expected; they will be very careful with their language. Housing starts and building permits will be out Tuesday morning. Jobless claims data will be released Thursday. There was more volatility last week and Friday was a good day for shorting. The NQ had an instructional 15-minute pattern Friday. Price moved lower at the 9:30 open. With a 15-minute chart, you could have put in a short at about 9:50 at 15,415. But, look at the stochastic turning lower on the 9:15 candle; this suggests an expected short opportunity. Remember, the stochastic usually gives an indication of probable market direction 1 – 3 candlesticks ahead of the models’ buy or short signals. If you move to a 5-minute candle at about 9:35, you will get a short signal at about 9:36 at around 15,435. These few minutes of an earlier trade will, in this case, earn you an extra 20 points (+ $400). The decision now is to determine at what price do you cover your short? Trading a 15-minute chart, you get a doji on the 11:45 candle, a reversal signal. Price, not surprisingly, moves higher on the 12:00 candle. You might want to cover your short and take profits at 12:05 at 15,318. That would be a profit of 117 points ($2,330 in about three hours). There were quite a few Model 2 15-minute trades on the e-minis the past week when the market was retreating gradually. However, the e-minis fell about 2% yesterday, 5.5% at their lows, and were down roughly 5% from the early September highs. The catalyst was China’s Evergrande company. It is the second largest property company, by sales, in China and is $300 billion in debt and on the verge of bankruptcy. Many large investment firms in the U.S. hold shares in that company, so their stocks went down strongly, setting off the downturn. We also have the debt ceiling coming up in the U.S. and the Fed meeting this week. Cryptocurrencies are also down more the 10%, indicating that they are not the “safe haven” many thought. Other important factors are the possible massive spending and tax bills being pushed by the Democrats. If passed, more spending of borrowed money would stimulate the economy for a short while but massive tax hikes would soon bring the economy to its knees. With the president’s position weakening, we’ll see how this goes. If you have strong feelings about these issues, call your senators and representatives. If you decided to put in a short trade or two, you would have made good profits yesterday. Overnight and this morning, prices recovered some of their losses. Fears lessened about China’s Evergrande company, and Fed governors in the U.S. and Europe spoke more passively about interest rates. August’s housing building permits, put out this morning, were also much stronger than anticipated. So, issues and volatility continue. Be cautious about getting into this market, long or short. Wait for very clear signals with our indicators and closely monitor any trades. Blog 137, September 14. Stock markets have begun “unravelling” a bit. They have recently been near all-time highs, supported by loose fiscal policies and good stock earnings. The next six weeks could be quite volatile and at least a 5% correction is still a possibility. Investing.com has put a good summary of issues ahead; the following narrative is taken from their latest market descriptions. This morning’s consumer price inflation numbers were better than expected and indexes are moving higher before the market opens. But, if rising inflation turns out to be persistent, this could lead the Fed to roll back emergency stimulus measures. The recent weak U.S. jobs numbers won’t necessarily deter the Fed from tapering treasuries, however. Inflation and interest rates are also being closely watched in Great Britain. There are obviously close relationships between the Brits and the U.S. that could affect market directions. On Wednesday, China will release data on industrial production, retail sales and fixed asset investment. This will show the economic affect of a widespread COVID outbreak in China in August. The Chinese economy is under pressure from several areas. Another word on Friday’s expiration of futures. If you don’t currently own a futures contract in an e-mini, e.g. the YM, you cannot get current quarterly futures prices for that YM e-mini. If you have two charts on your platform, and currently own a position in an e-mini, e.g. the NQ, you can switch between September and December prices to calculate the differences between the futures you want to continue to trade. For example, recent differences between the ES futures was 10 points lower for the same chart position for December futures compared to today’s prices. The NQ was 8 points lower for the same chart position for December futures compared to today’s prices. Yesterday, the YM maintained a positive point range but the other e-mini’s dropped on the open and struggled throughout the day. There still appear to be traders who are willing to “buy any dip.” We’ll see where we go from here. Blog 136, September 7. There are about five million more people without jobs than in January, 2020, even though the number of jobs available is about twice that number. Some are afraid of COVID, some businesses are reluctant to hire over fear of more government lock-downs, disruptions in supply lines are negatively affecting manufacturing and business inventories, and many people are choosing to stay home due to generous federal unemployment benefits. Many of those people make more money staying home than they would if working. The Federal Reserve is remaining accommodative, which is a positive for the economy. It remains unclear whether the approximately five trillion in spending as well as suffocating tax increases will be passed by the Democrats. There remain many positives and negatives and stocks continue to move up and down. I don’t have anything to add to what I have written the past few weeks. There has not been any event or news dramatic enough to move markets strongly one direction or another. The Afghanistan situation could devolve into a much more significant economic and geopolitical problem, especially if there are American hostages and/or fatalities. As you know, futures expiration occurs the third Friday at the end of every quarter. In this case, that date is Friday, September 17th. You will be able to buy December expiration futures beginning Monday, September 13th. Please see blogs #35 and #36 for ideas about getting out of existing futures contracts and getting into next quarter’s futures contracts. As I wrote earlier, markets might grind higher, but I am not long any Model 1 daily trades. I have been making profitable Model 2 trades while waiting for more economic and political clarity. Stay alert. Blog 135, August 31. It has been a volatile seven days with many opportunities for profits with Model 2. One example was the EMD. If you bought one contract right after the open on Friday, you had a profit of $4000 three hours later. If you bought the ES at 9:50 a.m. @4480, and sold @4504 at 12:40, that yielded a profit of $1200 in less than three hours. The RTY has recently been moving more strongly. Look at the perfect model profile for the RTY last Friday morning, on a 15-minute chart. You could buy @ 9:47 @ 2233 (or 2225 if you check a 5-minute chart to buy) and have a profit of $2000 about 2 ½ hours later. Then yesterday, the NQ produced a profit of about $2000 in one hour at the open. These are just four examples of the money to be made trading Model 2 on a 15-minute chart. As you see, all you have to do is follow the indicators and do what they show you. Potentially, a profit of $7200 could have been made in three hours Friday morning by just monitoring the e-minis on 15-minute charts. This isn’t a typical day, of course, but when these opportunities become available, we need to take advantage. Let’s take a moment and discuss where/how to buy when the indexes give you a buy signal. If the market begins to turn upward and gives a buy signal, how do you buy a long position at/near the price you want? One obvious way is to enter a “limit buy” at or just under the current price. Seems reasonable- - until price moves up a point or two as you were entering your trade information - - then it doesn’t move back and you watch it go up while your buy position becomes more and more lonely. So, then you might cancel this first buy order and try again at a higher price point. You may or may not get a successful buy on this second attempt. We always like to “squeeze” out a few points on the buy attempt to try for a bit more profit. I’d estimate that a buy order a few points below current price gets filled less than half the time, especially if there is strong buying interest on the current market move. I’ve been frustrated many times trying to get in “on the lower end” of a buying signal, then watching price move above me and not getting a fill on this buying attempt. If the market has good positive energy, it is most often better to put a “limit buy” order in one or a few points above current price. How many points depends on the index you are trading. The YM would be more points than the RTY, for example. If there is no news that would predict a turn lower in upward momentum, and trading energy seems steady and controlled, I’ve gone to just putting in a “market order” and calling it good. The SPY and ES are up about 20% this year without any pullback of 5% or more. This is unusual but these have been unusual times. The Fed and Congress have been pumping an extreme amount of money into the economy, providing liquidity that has fueled all this activity by consumers and the financial system. We obviously can’t “live on credit cards” forever, so sometime in the future, this financial irresponsibility will have to be paid for. When we get to that point, markets will likely suffer for years, especially if we have been turned into a Socialist nation. Since 1945, September and February are the only two months that have averaged losses in the S&P 500 in those months; we'll have to see if all the liquidity will keep prices up this September. So much of this obviously depends on what happens economically and politically. As always, stay informed and alert. Blog 134, August 24. On a daily chart, if you are trading the RTY, you would have sold on Friday, August 13. If you are trading short, you could have shorted the RTY on Monday, August 16. That short would have been covered on Friday, August 20. That short would have produced a profit of about $3500. The YM would have been sold late on the 17th or early on the 18th. You could have entered a short position on the 19th, but short-term charts were not supportive. That short would have been covered on the 20th for an outcome of break-even or a small loss. The ES held up the best. It would have been sold late on the 17th or early on the 18th. There would have been no short position last week. The ES could move back to a “buy” position on a daily chart, since volatility continues. The NQ would have been sold sometime on the 17th where there was a strong down-move all day and the 3X crossed under the 9X. The NQ profile was much like the ES profile, with the same considerations. Then, yesterday, the NQ rose on the open and could have been bought at 9:45 and earned over $2000 in two hours (using a 15-minute chart). If you held and monitored this trade, you could have sold about 1 p.m. instead for about a $3600 profit. The EMD would have been sold early on the 17th. A short could have been entered at about 2680 early on the 18th. That short would have been covered at about 2648 on the 19th for a profit of about $3200. If the e-minis close higher at the end of today, most will have moved into a “buy” situation on a daily chart. This volatility has also provided many profit opportunities trading Model 2. Sector rotation has provided some on-going energy for stocks. Traders are also “buying the dips” whenever stocks pull back in price. The e-minis continue to move between positive and negative profiles for buying on a daily chart. While they could continue to grind higher, I’m not going to chase at these levels, especially with all that could go wrong politically and economically. For me, the number of points these indexes could drop exceeds the number of points they might rise from here. Prices could finish higher at the end of the year but I don’t think it will be a smooth ride. I’m waiting for a meaningful (5% or more) pullback, followed by “buy” indicators, then I’ll probably buy fairly aggressively. There remain very good trades on a 15-minute chart while we wait for something more substantial. Stay alert. Blog 133, August 17. Last Thursday, CPI numbers were “not as bad as expected,” so buyers stayed in the market and new highs in the YM and ES were again achieved. Friday showed higher than expected import and export prices, supporting the notion of higher inflation, and consumer sentiment expectations were considerably lower than anticipated, yet the markets generally held up. A survey of small businesses found that only 39% felt confident that this recovery will continue. Their main concern was the Delta virus variant and the negative effects it could have on the economy. Then, over the weekend, Afghanistan fell. The YM and ES have shown the most ability to hold prices; the other e-minis have largely drifted sideways. Volatility has, as usual, presented opportunities to trade Model 2. Generally, the e-minis have marginally stayed positive on a daily chart but it would take very little for them to move into negative territory, triggering a sell signal. The positives and negatives about the value of stock markets continue to internally rotate and ebb and flow. Neither side has really asserted itself. Major averages are up about 14% to 17% ytd. Optimism has edged out pessimism for now and traders keep looking forward six to twelve months into the future. It still seems logical to expect a repricing of equities in the weeks ahead. There are still unknowns that have to be determined and their influences calculated. Stay focused on what is being reported in the financial and political news. Blog 132, August 10. Earnings season for stocks is soon coming to a close. For the most part, it has been very successful but that was expected and largely priced in. So, where do we go from here? Four of the best months for stocks are December, May, April and January. As I wrote in my book, “The period of late July to early October is the worst time for stocks. Since 1950, the ten-week period between July 17 and September 25 has produced an average return of -2.0 per cent. August and September is the worst consecutive two-month period.” (Page 9) Stocks could grind higher for a while, but weaknesses in the market are beginning to show. Declining stocks are increasing while rising stocks are decreasing. The broad market is being held up primarily by large tech and mega-cap stocks. The “golden cross” (usually used only with a daily chart) describes a situation where a shorter-term average crosses above a longer-term average, suggesting upward momentum. When the 50-day sma crosses above the 200-day sma, it is seen as a predictor for a longer-term uptrend in the market. When a 20-day sma crosses above the 50-day sma, that is seen as a predictor for an intermediate-term market uptrend. Of course, with our models, when the 3-period ema crosses above the 9-period ema, that is seen as an indicator of a shorter-term move upward. Obviously, when those relationships are reversed, that is viewed as a negative predictor of a market direction. The 20-day sma crossed under the 50-day sma on the RTY on July 22nd. Some of the other e-minis have been close but have not yet made any crossovers. There are several issues that could break this market rise; I discussed them in recent blogs. Inflation and Fed tapering of bond buying are probably most influential. There is also considerable concern over the spreading Delta virus. It is quite plausible that we could see a 7% to 14% market downtrend within the next three to 10 weeks; I closed all my EMD positions last Friday morning and reduced my NQ exposure late last week. Keep tracking the political and financial news. Important reports will be out later this week. That’s it for this week. Continue to watch the markets and your charts and be ready for whatever develops. Blog 131, August 3. Strong earnings supported markets the past week, yet in some cases traders were still not satisfied. Some took profits and others worried about China’s behavior, inflation, threats of another national lockdown, Congress and their spending and the virus. Strong earnings and recent all-time highs have left stock indexes seemingly fully valued. It would that seem that future increases in stock prices will be harder to attain in the near future. We’ll see if developments become more positive. There was a strong opening of the market last Friday, July 30. This is a candlestick pattern that happens when there is volatility, high expectations and a great deal of trader energy. I’ve written about this before but it bears reviewing again. Let’s use the NQ as an example with a 15-minute chart. Go to the market opening at 9:30 last Friday. Price rose strongly right at the open. The opening set-up candle rises about 43 points the first 15 minutes. If you wait for the next candle to open to see it you should buy, you’ve missed about $850 of profits. Market prices had been constrained for about six candles before the open. You could take a chance to get in early by waiting for price of the 9:30 candle to clear the highest candle body prices of the prior 5 candles. In this case, that would be about 14,877. You could enter a buy there but watch it closely. That would give you about 24 more points of profit ($480). The reason this often comes out profitably is that the energy at the open sends prices higher than the prior five time periods, suggesting that buyers are coming back in. The 3X has moved above the 9X and is moving sharply higher early in that opening 15-minute period. You would hold this trade until the market turns lower at 10:15. You would sell about 14,964. That would be a profit of about 87 points ($1730 net) in about 40 minutes. Under these conditions, you could instead switch to a 5-minute chart; this will often provide a lower price entry point. Close monitoring is important. Yesterday, the opening for the NQ was the opposite; a strong down move. Here you could have taken a chance to short the NQ once price moved below the lows of the prior 5 closed candlesticks, on a 15-minute chart. This would mean to short the NQ at about 15,015. Price bottomed and began moving upward on the 9:45 candle. You would have covered your short at about 9:50 at about 14,963. This was a profit of about $1030 net in about 20 minutes. Again, you could also switch to a 5-minute chart for a better entry point on this price drop. Last week’s volatility again provided several positive trading situations. We might be in a trading range for a while as markets wait for more information about issues mentioned above. The important jobs report will be out Friday morning, August 6. That could move markets. This could be a situation where good news is bad news. (More jobs are good but that means the Fed could become less accommodating earlier.) And, bad news could be seen as good news. (Fewer jobs mean economic growth and expansion are still having problems. This means the Fed will more likely continue their “easy money” policies for a longer time period.) Stay alert! Blog 130, July 27. E-Mini markets went down several days, then they begin rising on Tuesday, July 20. Prices continued to rise through last Friday, July 23 when all-time highs were made by the S & P, DOW and Nasdaq Composite. Then, new highs were made yesterday. Indicators provided several opportunities to make great profits late last week. Yesterday was also a consolidation day as traders waited for more important earnings announcements and reports from the Federal Reserve. Members meet today and tomorrow. Some of you have been trading for some time; others might be quite new. I have written about traits or characteristics of effective traders but never put them together in one discussion. In anything we want to do with a high level of success, there are at least several traits or characteristics that have to be present, each at a fairly high level, to be successful. Think of such activities as a pole vaulter, sprinter, painter, professor, doctor, welder, race car driver, etc. The grouping of traits is also necessary to be a successful e-mini trader using our models. These are discussed below, not in any particular order; all are important.
Blog 129, July 20. Last week, stocks were not impressed with Friday’s strong retail sales reports and declined through much of the day. Since consumer spending accounts for about 70% of the U.S. GDP, these reports should have been very good news. But, since the DOW, S&P and Nasdaq closed at all-time highs last week, this pull-back and consolidation was not unexpected. This was an opportunity to take profits and close positions before the weekend. Also, markets were reacting to inflation concerns and worries about the spread of the new Delta virus variant. Those concerns, as well as lower bond yields and more massive spending bills being promoted by the Democrats, sent the market lower still yesterday. Last week, I wrote a bit about the need for discipline when trading with our models. I’d like to write in more detail about entering and exiting a long position. There will be considerable detail but please follow along. I haven’t used the YM much as an example, so I found a chart from Thursday, July 15 that had related activity during normal trading hours. With a 15-minute chart, choose the YM on July 15, and look at 9:45. At the 9:30 open, price spiked higher and the candle closed well above the 9X. The 3X had also moved above the 9X, and the stochastic had moved from 25 up to near 80. If the next candle moves higher, this combination indicates a “buy” signal, so you would buy one contract at about 9:48 at about 34,695. The upward momentum continues; when do you sell? If you are holding a long position and it (the candlestick) closes below the 9X on two consecutive time periods, e.g., a 15-minute chart, close your position as the third candle opens. The market could reverse and move back up, but it is much more likely to continue downward. Take whatever profits you have accrued on that trade. This is the latest you should close a long position. Be alert to situations where the upward trend weakens and be ready to close your position and take whatever profits you have at that point. If price closes below the 9X but moves up and closes above the 9X on the following candle, you do not have to sell. Continue to monitor it and check to see if some report or news item could be responsible for this candle pattern. If a second positive candle closes, you can stay in the trade. Sometimes, in a fairly long upward pattern, price will close below the 9X on a single candle, then renew its upward move. On today’s example, price moves upward to about 34,862 at 11:30 a.m. At 11:45, price moves down to 34,812 but is still above the 9X. This is a potential profit loss of $250 but you can continue to hold this long position since price is still well above the 9X and the stochastic is still above 80. (Feel free to close your position at about 34, 805 as the market begins to move lower. This would be a profit of 57 points ($285)). At 12:30, price moves back up to 34,862. Price moves down to 34,843 on the 12:45 candle, and opens and moves lower on the 1:00 candle. Notice that the 3X and the stochastic are beginning to move lower at about a 45-degree angle on the 1:00 candle. It’s time to take profits at about 34, 838 or so. You entered this trade at 9:48 at 34,695. This trade produced a profit of 143 points ($715) in about three hours. If you have good profits, and the market and indicators look like they are turning against you, then sell; don’t wait for two candlesticks closing below the 9X. I hope this hasn’t been too confusing. You might want to print this blog and hold it next to your screen. Important earnings will be announced this week. So too will be this morning’s housing starts, then Thursday’s initial jobless claims and existing home sales. Manufacturing PMI and Services PMI will be released Friday morning. Traders are bidding prices slightly higher this morning after the latest sell-off. This current situation could take a while to play out. Stay alert. Blog 128, July 13. Earnings season has begun; it is expected to be phenomenal. Will these probable exceptional results promote more investments in stocks or will they be viewed as an opportunity to sell and take profits? How much of the expected good news is already built into these high stock market prices? And, what will the future guidance be from these companies? There remain competing analyses to these questions. Double-digit earnings growth and current very low interest rates seem supportive, for now. Last week’s volatility presented many positive trading opportunities with Model 2, especially with the ES and NQ. Several trades were available with profits of about $500 to $2000 each. Friday was an especially profitable trading day and the S&P 500, DOW and Nasdaq Composite set new record closing highs. Major indices are now up 14% to 16% ytd. Remember, if you are reluctant to short, you can make 70% to 80% of expected annual profits trading only long positions. To successfully and profitably trade e-minis with the models I am proposing, discipline and commitment to these models are primary. It helps to review the basic principles from time to time so we don’t stray from what we know works. On pages 83 – 85 I summarize when to buy an index contract, when to sell short an index contract, when to close a long position and when to close or cover a short position. Take a few minutes and review them to check if your trading is still on track. This will be especially useful if your trading profits seem to be less robust than in the past. If you are planning to trade Model 1 on a daily chart, you will need to accept broader market moves, so more capital is required. If you have minimal capital, e.g., $15,000 or less, you should be trading the micro e-minis or no more than one contract trading Model 2, “Index Bites” on a 15-minute chart, checking decisions with a 5-minute chart. Model 2 trades should always be monitored. When trading Model 2, you should have an idea as to how many points you are seeking with your trade. Recommended point goals for each e-mini are listed in Chapter 9. Current point goals were updated in Blog # 121 on May 15 of this year. Expect volatility the next few weeks of earnings reporting. Traders will react to every piece of news regarding the new coronavirus strain, inflation and signals from the Fed concerning their future behavior toward monetary tightening. As always, stay alert in your trading decisions. Blog 127, July 6. Markets continue to move sideways and higher without a significant correction. The S&P 500 has gone about 185 calendar days without at least a 5% correction, one of the longest periods since World War II. We have lesser corrections more often than that, of course. Again, as I suggested last week, according to history we are due for at least a 5% correction on the S&P (and, by implication, other indexes as well). The ES e-mini hasn’t had at least a 5% correction since October, 2020. We are still making annual earnings comparisons based on a very weak economy 12 months ago. Those annual comparisons will become diminished as the months go by. Traditionally August, September and October are among the weakest months of the year. A variant of the COVID virus is beginning to infect populations around the world, so that might become another problem. On a lighter note, we have just completed one of the highest first six months of any year in the increase of stock market prices. Indexes are already at, or near, estimated highs for the calendar year; major indexes are up about 14% ytd. How much higher can we expect the markets to move from here? At this point, no one has an answer to that question. For the past six months I have been identifying some of the profitable trades that could have been made in the e-mini indexes, following our models and indicators. So, I have been “talking the talk.” I thought I should indicate to you that I have also been “walking the walk.” I explained my earlier trading history on pages 94-95 in the book and in Blogs # 50 and # 101, so you know that I have taken some of my trading profits to build up five e-mini trading accounts with substantial amounts in each. I usually have between zero and 15 working positions at any one time. The first six months of this year I earned 62% on beginning total base equity as of January 1, 2021. This has resulted in trading profits averaging over $23,000 per week. There are negative breadth divergences with fewer stocks closing above their 30- and 50-day simple moving averages. Markets are led primarily by large growth stocks. It looks like second-quarter earnings will be quite good with a likely rocky third quarter. There will be many competing influences on the markets in the weeks and months ahead. Whatever time frame you are trading, always follow the indicators, and stay alert for headlines or changes that could affect trader sentiment and behavior. Blog 126, June 29. The NQ is staying above the 3X and 9X, with an elevated stochastic creating a positive profile on a daily chart. The YMD is up about 1150 points from its low of June 21. All e-minis are setting up to be positive for a buy on a daily chart, some barely qualifying. Two things are happening. “Retail” traders are now loosely described as those individuals who have recently got into the market, often through social media-type platforms, and have become aggressive in their stock market research and trading strategies with individual stocks. Secondly, they and other independent traders are also “buying the dips” more than ever. So, in a more positive trading environment, these traders will get in and buy stocks whenever they decline by a small percentage. This obviously supports market prices. The big trading and investment firms, and hedge funds, no longer are able to independently control the market, and tend to belittle retail and independent traders as “being in over their head,” or “not knowing what they are doing.” The trading playing field has been leveled a bit and the big players are not happy with less control over markets and their directions. That said, the Fed has reinforced their plans to remain easy with monetary policy; this has calmed the markets. For now, low interest rates and great stock earnings are pushing stocks higher more than inflation, growing debt and fears of higher rates are holding traders back from stocks. Indexes are at, or near, all-time highs but some traders see this as a positive situation and will buy and continue to push prices even higher. Quarterly earnings are coming out in a couple of weeks; we’ll see how traders react to those. There are also trillions of dollars held by Americans and floating through the economy courtesy of the Federal Reserve. Put the e-mini indexes you like to trade on a 15-minute chart and scroll back a few days. Look at all the places you could make about $250 to $1200. Usually, price movements are considerably more limited when the U.S. markets are closed. Recently, however, foreign bourses are more active with American stocks when they are open. There seems to be more interface with foreign bourses, especially those in Europe. That means there has more often been enough volume and volatility for profitable trades when the U.S. markets are closed. If markets continue higher, and the indicators grow more positive on a daily chart, you could enter long trades on a daily chart if you have the capital and courage to trade this way. Just closely monitor any trades you make on any time frame. Markets continue to be stretched and there is a sense of fear turning to greed. That often means we are getting close to a top that leads to a correction. We haven’t had a 10% to 15% correction yet this year; it could still happen the next few months. So, keep that in mind and don’t get careless. Blog 125, June 22. The Fed minutes last Wednesday were not well-received and markets turned lower. On Thursday, the NQ managed a gain but other e-mini indexes were lower. Then on Friday morning Jim Bullard, a member of the Fed board, made some fairly “hawkish” statements about when the Fed might raise rates. Those statements, combined with the quadruple expiration of futures, created significant volatility Friday and sent the market lower still. Year-to-date returns as of Friday’s close: S & P, 11%; Nasdaq, 9%; and Dow, 8.7%. The NQ is in the strongest position after the past week, but that could change. This volatility has presented many trading opportunities using Model 2, particularly those who are willing to short the e-minis. I’ve written before that the upward bias of stock indexes makes shorting more risky in most situations. Last year’s Covid-related free-fall in February and March was an exception. Most traders seem satisfied with a 2-1 or 3-1 win-loss ratio, even when their losses can be as large as their wins. My winning ratio is at least 80% (4-1), with wins averaging considerably more than the losses. Shorting can produce good wins but you have to more-closely watch a short trade because it can quickly turn against you. For example, you have to closely monitor any buy trade in a down market. In a declining market, the indicators can present a buy signal but it might not be valid for very long since the momentum at this time is in a downtrend. This is an example of where you might pick up some small losses. There are times when you might want to wait for another candle or two for more confirmation when buying in a down market. This often depends on what news or reports may have tipped the market higher, perhaps temporarily. And, be watchful of any reports that will be posted in the near future. The volatility continues. Yesterday, the NQ fell over 100 points the first 10 minutes after the open. Then, it rose over 100 points the next 20 minutes. Still no clarity as to which way stocks might move going forward. This continues to be a headline-driven market. Stay with Model 2 and carefully pick your spots and monitor them. Blog 124, June 15. The S & P 500 is up nearly 14% so far this year. That is on the threshold of what analysts predicted for all of calendar year 2021. The S & P keeps grinding toward a new top, at least for now. The ES e-mini is up about 16% ytd. Strong earnings growth, government money and continued low interest rates are the main drivers of this stock market. So far, traders are largely shrugging off the obvious continued increases in consumer prices and inflation. It is hard to judge when this market might “crack.” I have closed out all my positions and am now “flat.” Traders have been waiting for Wednesday’s report from the Federal Reserve; that should come out about 2:00 p.m. E.T. tomorrow. They will choose their wording carefully; they do not want to “spook” the markets. We’ll quickly see, through market volatility, how their notes are being interpreted. This is a personal story. A man I know contacted me this past weekend. He is in his upper 50’s and a respected company manager whose job was eliminated about eight months ago. He moved his family to a different city and is interviewing for another management position. In the interim, he bought the “e-mini and micro e-mini” book, read the book, watched the videos and read many of these blogs. He then transferred a sizable part of his investments to a trading account and began practice trading. About two months ago, he began trading real money. He trades one contract of the ES, NQ, RTY and YM, and is averaging $800 a day; 4,000 a week; $16,000 a month. This result is typical for serious newer traders. One contract for him would produce an average of $4,000 a month, an amount and situation I have written about on several occasions. He is a very intelligent and disciplined man who expects to increase his income as he gains more insight and experience. He indicated there is a good chance he will retire and not accept another position. His first love is writing. With trading, he expects to make a good income and still have considerable time to pursue his dream of being a writer. Back to the e-minis. During the past week, the RTY has been volatile, the NQ has risen as lower interest rates on the 10-year have made growth stocks more attractive again, and the ES, EMD, and YM have been relatively flat. We are experiencing a “tug of war” between traders who are optimistic and those who are pessimistic. This will have to sort itself out. Until there is more clarity, I suggest you carefully trade Model 2. And, stay informed about the latest headlines that could move markets, then position yourself to be ready to take advantage of that situation. Prosperous trading! Blog 123, June 8. We are now in the second month of the 6-month period of “Sell in May and walk away.” What kind of a month has June been and what can we expect in the future? Sam Stovall, CRFA Chief Investment Strategist, recently put out a research piece related to market trends. The following are excerpts from this article. Since WWII, the S&P has averaged 177 calendar days between declines of 5%-plus. The average (mean) gain between declines has been 22%. Seasonality plays a role; June has historically been a weaker month for the market. June is historically lackluster in both the levels of declines and advances. Only five times since WWII has June been the month where a 5%-plus correction has begun. By contrast, the average of all 12 months is 8 with 10 for both September and October. Only December has had fewer 5%-plus decline starts. CFRA currently predicts a 12-month return on the S&P of 10%, acknowledging that there will be volatility ahead. Last week I wrote about how our indicators and candlesticks represent the traders and what they are doing. When we follow our indicators, we are following behavior of the other traders. Think of each e-mini stock market index as “THEY,” not “IT.” The Federal Reserve meets June 15. If their meeting notes have more indications of possible tapering, markets could go down. Tapering refers to a reduction in the amount of treasuries bought each month. This reduces the amount of financial liquidity in the economy. On Friday morning, June 4, at 8:30 a.m. E.T., the important employment numbers were released. They were weaker than expected, which traders viewed as “good news” because it meant the Federal Reserve might take more time before they “taper.” Markets rose around the 8:30 release and through the morning. It was an excellent situation to use Model 2 trading. All five e-minis rose, producing profits of $500 to $4000 for the NQ before noon on Friday, trading one contract. The e-mini futures expire the morning of the third Friday of the month ending each quarter. This will be June 18 for this quarter. Please see blogs # 35 and # 37 for information about ways to close existing positions and open new positions. I will do the following during the week of June expiration. First, I’ll close all existing positions sometime between now and June 17 at the best prices I can get. If prices drop, and there are clear buy signals from Model 2 the week of expiration, I’ll enter some “buy” orders on September futures. If, however, the markets and indicators appear to be uncertain and uneasy, I’ll wait for the indicators to turn positive. Of course, should something very negative happen, and the indicators turn negative, that makes a more severe correction possible. Then, I’ll consider shorting, or wait for that correction to bottom, then buy after it turns back up and is supported by the indicators. Remember, the average (mean) gain between 5%-plus corrections for the S&P has been 22%. For the ES at current prices, a 5% drop puts the price for the ES at about 4020. A 22% increase from there has a trading dollar value of $3700 per contract. The Federal Reserve will put out its minutes the middle of next week. Traders study every word and compare this report to other recent reports. If there are comments that suggest tapering might start earlier than thought, or any mention of “tightening” (raising rates) whatsoever, markets will drop strongly. Be ready for the release of that report. It could create a strong response of market volatility. In the book, I wrote that you should follow these important reports and events on www.investing.com/economic-calendar/ Blog 122, June 1. I have received some questions about whether I include data such as volume or volatility in making trading decisions. This was one response I wrote: “I stay focused on the basic model indicators because they tell me what all the other traders are doing. Issues such as volatility, volume, government reports, Federal Reserve statements, behaviors of Congress, international events, etc. are always considered, but secondary for me. These are what the other traders keep their eyes on, and their trading behaviors reflect their collective judgements and decisions about all these issues.” To paraphrase what I wrote in the book, “It is very difficult to beat these traders and their institutions, so follow what they do, then move to get in before many of them and get out before (or as) they begin changing their positions.” There were several good intraday trades of the e-minis last week. I’d like to comment again on a candlestick pattern that occurs once in a while. Look at the ES from Thursday, May 27. (A “buy” trade could have been made about 6:30 a.m. E.T. but I selected this example trade because it was a bit later in the morning and illustrates the situation I want to discuss.) On a 15-minute chart, find the candlestick for 8:30 a.m. E.T. Note that the 7:45 candle had about a 6-point up move, crossing above the 9X and 3X. We know that a buy signal is given if the next candle (8:00) opens and moves higher. The 8:00 candle flashes higher, then closes lower. You could have bought on the flash up, and it would have worked out o.k., but the stochastic on a 15-minute chart was flat and trending lower and did not support a buy. It would be prudent to wait. The 8:15 candle has a limited range and closes a bit lower. It is important to note that we are about on the 3X and comfortably above the 9X at this point. No clear decision yet. The 8:30 candle opens slightly below the prior candle’s close, then begins moving higher. We are still in a positive situation for taking a long position, but when do we get in? In these situations, and this profile, it is usually profitable to buy this candle after it moves above the high of the last prior candle (in this example, the high of the 8:15 candle). This means, in this situation, you could enter a long position @ about 4190 @ about 8:35. You get a run up to about 4209 @10:45 when it begins moving lower. (Checking a 5-minute chart here will confirm that you should take profits.) If you sell @ 10:50 @ about 4206, you have a profit of about $900 in less than 3 hours, trading only one contract. This is what regularly occurs intraday on these e-mini indexes, trading a 15-minute chart. Our federal government is not being responsible and prudent with their decisions and how they are spending taxpayer money. Small businesses are being hurt by policy and regulations, and profligate spending is continuing to be proposed, running this year’s annual deficit up to about six trillion dollars. Proposed tax hikes to pay for only part of this debt will strangle the economy and the middle class, no matter what the politicians claim. We are no longer energy independent and gasoline is now the highest it has been since 2014. So much more could be written. Of course, when you add debt by handing out “free” money and programs, leading many to stay out of the work force, some people only think about the “free stuff.” So, with COVID infections slowing down and all the federal money being pumped into the economy, many people are now staying home, but going out and spending. As one analyst said, “Until the money runs out, America is currently on a ‘sugar high’; we’ll see how long it can last.” Few are asking, “Will our descendants ever be able to pay back this debt?” For now, we are ploughing ahead. As long as the Fed keeps rates low and inflation doesn’t become more obvious, we can continue for a while before reality sets in and another correction develops. Stay alert. Blog 121, May 25. As you know, I recommend freshly calculating “Index Points” every six months or so for each e-mini index. I put last fall’s calculations in a blog at that time. As a reminder, Model 2 seeks to catch short-term intraday trades for quick profits, usually with a 15-minute chart. I recently recorded daily ranges for 30 consecutive trading days (six weeks), then calculated the median and mean to get an average daily range score. From that, I took 20% of that range as your target on each trade. Sometimes you can extend the trade for more, sometimes something happens and you have to get out and settle for less, or even have a small loss. I frequently give examples of intraday trades in these blogs, following the buy and sell indicators. I don’t necessarily stop at 20% of the daily range on these trades; I prefer to take all I can from each trading opportunity. If price continues in your direction past your desired points, you could put a stop at the price where you have at least your “Index Bites” points, guaranteeing your desired profit, and let the trade run a bit. As the e-minis increase in price, daily ranges generally increase as well. However, the past 15 months or so have not been usual. Last Fall, prices were rising with more authority, especially for big tech and the NQ, as we were still coming out of a correction due to the Corona virus. More recently, prices have been consolidating, creating a more-narrow market profile. The following is a description of “Index Bites Points” for this Spring. I suggest you get the book out and pencil these numbers in those book charts in Chapter 9, including “May, 2021.” Current e-mini and micro e-mini Index point goals for Model 2: ES, 8 points; YM, 60 points; NQ, 44 points; EMD, 8 points; and RTY, 9 points. Those point goals translate into the following dollar goal outcomes: ES, $400; YM, $300; NQ, $880; EMD, $800; and RTY, $450. There hasn’t been much activity trading a daily chart for most of the month of May. A long position on a daily chart would have been sold sometime between May 3 and May 12, depending on the e-mini or micro e-mini index being traded. As I’ve suggested, Model 2 (Index Bites) has provided many positive trading situations during this month. Since the e-mini and micro e-mini book has sold in nine countries, trading differs as to time frames. Most of you traders live in the U.S., Canada, several European countries, Japan and Australia. So, depending on your location, there are opportunities nearly 24 hours a day somewhere around the world. Uncertainty and concerns about inflation have been keeping market prices subdued, though some positive headlines sent the indexes higher yesterday. On this week’s economic calendar, personal spending data will be released on Friday. This includes an important inflation reading which is closely followed by the Fed. Depending on what continues to come out of Washington, D.C., this drift and volatility in e-mini index prices could continue for a while. Cryptocurrency turbulence could also affect stocks, particularly those in the S&P, as there has been correlation between Bitcoin and that index. In the near term, markets could move higher. Keep trading Model 2 and grab opportunities when they become available. Blog 120, May 18. More volatility. Last Wednesday, May 12, the NQ dropped 183 points in 5 minutes at 8:30 a.m. ET when the CPI numbers were released. That was about a 1.4% drop ($3660 point value). The ES dropped 37 points ($1850 point value), about .9%. The YM dropped 170 points ($850 point value), about .5%. The RTY dropped 24 points ($1200 point value), about 1.1%. The EMD dropped 26 points ($2600 point value), about 1%. The indexes recovered differently; larger value companies, such as those in the YM recovered most of this drop within 30 minutes. Growth and tech stocks, more negatively affected by rising inflation, such as those in the NQ recovered much less. E-minis stayed weak all day, Wednesday. The reason for the drop was the Consumer Price Index (CPI) readings, indicators of inflation. The CPI was up 4.2%, well above the consensus of 3.6%. This level of inflation was the highest recorded in 13 years and “spooked” market algorithms and computers. The question is, “Is this inflation transitory, as the Federal Reserve states (based on pressures from re-opening the economy following the pandemic), or does it represent a consistent and growing threat to the economy that is longer lasting?” When the federal government pumps trillions of dollars into the economy, and increases regulations and costs, this artificially inflates the costs of goods and services for everyone, creating inflation. Inflationary costs, such as the strongly rising cost of gasoline, affect all Americans, and thus become hidden taxes and a hindrance to growth and prosperity. Back to the charts. The following comments have nothing to do with proper use of our trading models; I’m simply describing predictable behavior from computer-driven algorithms that can be exploited. I wrote in the book about market behavior when important reports are released, or when there are stresses on the market that are released when stock markets open. Often, computers overreact, tripping each other downward, so that the down spike is extreme and usually comes back up, at least part way, in 15 to 60 minutes. The EMD, for example, rose $3600 in value between its low spike and a more normal price in less than an hour. I don’t recommend this, but have successfully done it myself on several occasions. With current fears of inflation, and the influence of the CPI, you could put a limit buy below the price at 8:29 a.m. ET, right before the CPI report is released. If price spikes lower and trips your buy, put a limit sell order at a higher price in whatever index you are trading, that will produce about $700 to $1,000 dollars of profit, usually within 15 to 30 minutes. Pick a price just below the most recent low on a 15-minute chart. Then pick a lower price that has about a $1000 profit from that point (more like $700 for the YM and RTY). For example, say the recent low on the ES was about 4125. At 8:29 put in a limit buy at 4103. If that trips, immediately put in a limit sell at 4123 (20-point gain). That situation will usually produce a $1000 profit in about 15 – 30 minutes. (If your “buy” price doesn’t hit within 5 minutes, delete that limit buy.) Sometimes, the actual numbers on the report are not even that relevant. Some computers automatically “sell on the news” as soon as a report is released. Study all the indexes (with a 5- and 15-minute time chart) around the 8:30 a.m. ET period from May 12 to get a better feel for how each index reacts to this type of important news. I’ve written before that the NQ is most vulnerable to inflationary pressures, so wouldn’t recommend this technique on that index at this time. For now, I recommend continuing to trade Model 2. I’ll put out the latest Model 2 “Index Bites Point Chart” in next week’s blog. Blog 119, May 11. The micro e-minis were released two years ago. The first year, 214 million contracts were traded. Over the last 12 months, 527 million contracts were traded, a 146% increase over the first year. This has allowed traders to fine-tune their equity exposure and provide an entry-level way to begin trading the e-minis. Average daily volume, across four indices, was 2.3 million contracts. The greatest number of trades in one day was 5.1 million contracts on March 4th of last year. In descending order, the greatest total number of contracts traded were the MES, MNQ, MYM and M2K. Trades were submitted from at least 195 countries and 29% of total trading volume came from outside the United States. Last Friday, May 7, at 8:30 a.m. ET, the NQ moved up 162 points in 5 minutes. Nonfarm payrolls were about one-fourth the number predicted. This was another situation where “bad news” was “good news.” The weaker payroll numbers lowered inflation concerns and supported a belief that the Federal Reserve will remain accommodative. The ten-year treasury yield moved lower as a result. Federal stimulus payments are detrimental to employment. Expanded government checks provide more monthly income than working at a job for millions of Americans, so they sit at home rather than return to work. “Help Wanted” signs are everywhere. This hurts small businesses the most as they operate on very slim margins and cannot afford to increase their salaries to pay more than what the government provides. People are receiving about $823 a week to stay home. Some states are refusing the federal money so their citizens will be more interested in getting back to work. There are an estimated 9 million “unemployed” in America with about 7.3 million jobs that “can’t be filled.” Year-to-date returns, as of May 7, for the major averages: Russell - - 15.0%; DOW - - 13.6%; S&P - - 12.7%; and Nasdaq - - 6.7%. Obviously, these levels of returns cannot continue at this pace. The months ahead could be quite volatile. Yesterday, May 10 was a good example, as stock indexes continue to search for appropriate levels of evaluation. This makes trading intraday with Model 2 a useful way to profit from this current situation. Blog 118, May 4. In the book, I wrote about the expression, “Sell in May and go (walk) away.” According to CNBC, over the past 50 years the S&P 500 has averaged about 1.6% May – October and 6.93% November – April. May – October has been the worst consecutive 6-month period for stocks. However, when markets finish April near their highs, such as now, the next six months are up an average of about 5.0% and are higher about 80% of the time. These are different and difficult times these days. Stock indexes are up strongly and need to rest and consolidate for a while. I’m still concerned about where we will be in a few months. If Congress passes more expensive and questionable legislation, adding to the debt by at least six or seven trillion dollars, we will be digging a hole from which our descendants may never recover. Here are a couple of interesting factoids: Someone on television reported that the top 1% of earners make 21% of all income in this country and pay 38.5% of all income taxes. The bottom 50% of earners in the U.S. pay 3% of all income taxes, and many receive money from the government while paying no taxes. Markets are uncertain, primarily because of the growing awareness of building inflation and the rise in yield in the 10-year treasuries. This has affected growth companies the most. Stock prices have been somewhat flat lately, even though profits have exceeded expectations. We have had a strong run-up in stocks this year and might be in a trading range for a while. Stay vigilant. Blog 117, April 27. Midday, last Thursday, stock markets dropped as President Biden announced part of his proposed tax increases. He says only the richest taxpayers will pay up to 43.4% capital gains tax. This would produce only a fraction of the money he intends to spend. These types of taxes always work their way down to impact the lower middle class, basically all working people. If implemented, these taxes are viewed by many as a negative on stock prices and the economy. Of course, investors and traders would change how they manage their investments to avoid paying this tax, and there would be companies that would move their headquarters back overseas to avoid these taxes. The sharp downturn was influenced by algorithms programmed to sell on this type of news. Then the market rebounded Friday. Earnings continued to be very strong and traders reasoned that any tax proposal would likely be negotiated down to a more reasonable level. Behind the scenes, there is still a fairly strong “buy the dip” attitude. Friday’s strong rebound was not unexpected. All e-mini stock index futures rose on the open and moved higher much of last Friday. This was a great opportunity for intraday trading. I usually trade a daily chart but added several long contracts, following the indicators on a 15-minute chart, and had a very profitable day. This is a summary of Friday trades on a 15-minute chart, E.T. that were available for those of you able to take advantage. Prices and times are not precise but represent narrow ranges. Buy ES @ 9:50 @ 4140; sell about 4:00 @ 4170 (+ $1500). If you shift for confirmation to a 5-minute chart near the end of the day, you would sell about 3:50 @ 4178 (+ $1900). Buy NQ @ 9:50 @ 13,805. Sell near the close @ 13,925 (+ $2400). Again, checking on a 5-minute chart near the close, you would sell @ 3:50 @ 13,955 (+ $3000). NOTE: See the steep downward slope of the stochastic near the close that supports a sell at these times, on both 5- and 15-minute charts. This situation is present on all five stock-index e-minis. The upward slope of the stochastic is also present on all indexes around the market’s open, supporting a buy signal. Buy YM @ 10:05 @ 33,755. Sell near the close @ 33,945 (+ $950). With a 5-minute chart, sell @ 3:47 @ 33,990 (+ $1175). /// Buy EMD @ 9:50 @ 2716. Sell near the close @ 2742 (+ $2600). With a 5-minute chart, sell @ 3:50 @ 2748 (+ $3200). /// Buy RTY @ 9:50 @ 2250. Sell near the close @ 2270 (+ $1000). With a 5-minute chart, sell @ 3:47 @ 2275 (+ $1250). Last Wednesday, April 21, markets also rose from the open to the close; the NQ was less “clean,” but Model 2 rules were not violated. This was another day when the news and charts indicated a profitable day was likely and I got in with more long contracts. Value of all accounts increased about $24,000 April 19 – April 23. I usually don’t include short trades in these analyses and stay within the time period of about 7:00 a.m. to the 4:00 p.m. E.T. close. There are sometimes other trades that can be made that would include most, or all, of the 20% average daily range of Model 2 but they are less impactful and I don’t write about them. And, of course, there are times when something happens that turns a good trade into a bad trade and you have to exit for a small gain or loss. I’ve also written before that you should not enter a trade if either the 3X and/or 9X are presented as traveling through the bodies of the candles; there is no tradable trend at that time. Several influential large technology stocks report this week; market action will likely key off their results. Prosperous trading! Blog 116, April 20. Earnings take center stage this week. Several hundred companies will be reporting. Expectations by analysts are high. As I recently wrote, there could be increased volatility as some traders will be taking profits by “selling on the news.” Both regular and e-mini stock market indexes continue to reach new highs. The S&P 500 is up 11% year-to-date. We might be entering a period of consolidation and profit-taking, so stay alert. I continue to hold positions on a daily chart and have begun to take profits. Concerns about increasing inflation are beginning to put pressure on stock prices. By the way, the “true” national debt (commitments for social security, Medicare, etc.) is now estimated to be $123 trillion, according to Truth in Accounting (TIA), a Chicago-based nonprofit. What are the chances that is going to end well? About a month from now, I will report Spring calculations for Model 2 trading. As a reminder, daily ranges are taken over the past 30 days, then mean and medians are determined, then 20% of that average daily range is used as a trading goal for “Index Bites” intraday trades. As e-mini index prices continue to rise, so do the number of points for the average trading range, increasing profits on every trade as a result. That’s it for this week. Trade wisely! Blog 115, April 13. According to Bank of America, more money has gone into stock funds the past 5 months than in the prior 12 years. That is $569 billion in inflows since November, more than the $452 billion going back to the beginning of the 2009-2020 bull market run. A greater percentage of investors and traders think the markets will be higher over the next several months. That is often seen as a contrary indicator but, for now, there is a great deal of money looking for a home, and that is predominately the stock market. With all the money flooding into stocks, there is optimism that economic activity and increased earnings growth will be in its wake. So far, so good. This week will mark the beginning of key earnings reports, and inflation numbers will be posted. Earnings, inflation and yield on the 10-year treasuries will be influential in whether the rush to stocks will continue. Fears of massive federal spending programs, greater national debt, increased taxes and a reshaping of America was tempered a bit this week when Democratic Senator Manchin from West Virginia said he would not support eliminating the filibuster rule in the Senate. That means the Democrats would not be able to push through anything they want by simply the narrowest of majority party votes. They will need to negotiate and agree to compromise with Republicans. The NQ, ES and YM have seen solid rebounds the past two weeks, the RTY has been fairly flat and the EMD has edged slightly higher. There has been fairly modest volatility in the e-minis as the markets have rotated and consolidated, and profitable trades have continued to be available. As mentioned above, the market might grind higher for now, IF earnings and government reports remain positive. Price/earnings ratios are getting stretched. Stay alert for important government and stock market information as it is being made available, especially CPI and inflation data. Blog 114, April 6. Stock markets continue to be uncertain while drifting higher in hopes of strong economic growth. Trillions of dollars pumped into the economy should provide some support. Employment numbers have improved, even though small businesses are having difficulty hiring people because of stimulus checks being sent out. Many people need financial support but these checks can be a deterrent to seeking a job. In stock investing there is a saying, “Buy the rumor; sell the news.” This refers to expectations about sales and earnings from individual stocks. Analysts communicate with companies before earnings are released and glean as much as they can about expected sales and earnings. Their interpretations about what they can learn in that regard become “whisper numbers,” as to what they think sales and earnings numbers will be. If those estimates are positive, prices on those stocks will move higher before the “official” announcements are made. Once earnings are released, that becomes the “news.” Since prices have been bid up before these announcements, stocks are often sold “on the news.” Quarterly earnings will be picking up for the next few weeks. Expectations are high, so any stock that “underperforms” could be punished. Those stocks that issue very positive reports could temporarily be sold off as traders take profits. Expect more volatility ahead. There were more opportunities for short-term trades the past week. For example, there were good trades beginning near the open for the NQ (about $2800 to $4200, depending on point of entry) and the ES (about $1300) last Wednesday, March 31. From a longer perspective, there could be market weakness ahead as people focus more on massive spending plans, proposed tax increases, more regulations and restrictions, threats from China, chaos at the southern border bleeding into the states and challenges to our individual rights and liberties. Markets could top and turn lower by mid-summer. Trade defensively. Blog 113, March 30. Markets continue to be volatile as traders wait for first quarter earnings reports and money managers rebalance their portfolios at the end of the quarter. Democrats are talking about major tax increases but that will take a while to complete. For now, optimism is generally stronger than pessimism. Profits continue to be made on 15-minute charts. I’d like to spend a little time analyzing one trading situation that often comes up, so it’s useful to understand this as an example. The foundation for trading these e-mini models begins with a 15-minute chart. I don’t recommend regularly trading with a time period shorter than that because you often get whip-sawed in and out of trades with only bits of profits. However, the 5-minute chart is useful to pair with a 15-minute chart for confirmation of a trade, or as a more-aggressive way to enter a 15-minute trade a bit earlier, increasing your profits. Look at the NQ on a 15-minute chart from Friday morning, E.T., March 26 for a good example of this. There was a strong down move of about 43 points on the 8:00 candle. This was followed by an indecision doji at the 8:15 candle. This is important because, after a strong down move of 182 points from 2:30 a.m. to 8:30 a.m., ending with that 43-point down candle and a doji, price will likely continue for a while in the direction of the next candle (in this case, the 8:30 candle). That direction is usually higher in this situation because of the strong 182-point drop. As expected, the 8:30 candle opens and moves higher. If you follow the 15-minute candle, the indicators support an entry at about 12,762 @ about 9:20. That’s fine, but you miss out on profits that develop because the down move was so sudden and strong that price moved well below the 9X on a 15-minute candle chart. We know that a strong down move, followed by a doji, usually leads to an uptrend reversal. Sellers have temporarily become exhausted and the doji indicates indecision by traders. So, when the 8:30 candle opens and moves higher, buyers are stepping back in. Check this situation on a 5-minute chart. Look at the chart at the 8:35 time period. The stochastic is moving strongly higher, the 8:30 candle has moved up and closed above the 9X, and the 8:35 candle has opened and moved higher. This creates a buying signal on a 5-minute chart. So, by switching to check on a 5-minute chart, you can go long a position at 8:37 at about 12,723. Once you enter this trade, return to a 15-minute chart to monitor it. This entry would have provided an increased profit of about $780 (39 points) more than an entry on a 15-minute chart. This particular trade continued for a profit of about $3,000 later in the morning, depending on when you decided to take profits. You would have earned about $1,500 per hour for your time, trading only one contract. For some of you, this might seem tedious and nonsensical. I assure you it is not. Just as Michael Jordan and Larry Bird practiced free throws throughout their basketball careers, this attention to detail will improve your trading. I continue to make great profits, so I keep getting confirmation that these e-mini models work. Serious study, practice and discipline can make each of you very successful. Blog 112, March 23. Last Wednesday, “the market” approved of what Fed Chairman Powell had to say about the markets, economy and interest rates, and stocks and e-minis rallied. Then, during the night, especially when the European Bourses opened, stocks began to fall after the 10-year Treasury moved up to 1.75%. The NQ dropped over 500 points Thursday (-3.76%). The ES fell about 2.0% and the YM fell about 1.2%. European stocks also fell as people continued to test positive for the Corona virus. Other markets were also lower, following the negative cues from U.S. markets. Friday was “quadruple witching day,” when derivatives of stock index futures, stock index options, stock options and single stock futures expired simultaneously. This usually creates high trading volume and high volatility. Over $57 billion moved into stock equities last week. There are traders who are “buying the dips” in stock prices, providing a general floor under the markets. All e-minis and micro e-minis have been volatile the past week with no strong trades on a daily chart. However, volatility has provided intraday opportunities for short-term trades using 15-minute charts as a base. Once again, the NQ had several moves that provided profits of about $1,000 to $2,000 during daytime trading hours. Yesterday morning, March 22, there was a long trade on the NQ about 9:50 a.m. @ about 12,965. Profits would have been taken around 12:50 to 1:10 at about 13,145. That would be a profit of 180 points ($3,600) in about 3 hours. Last Friday, March 19, a good long trade was available in the morning on the RTY. A contract could have been bought about 10:50 @ about 2265. Profits would have been taken about 1:05 @ about 2292 following a negative doji from the 12:45 candle. That would be a profit of about 27 points ($1,350). Yesterday morning, March 22, a nice long trade was available on the ES or MES. A contract could have been bought about 9:50 @ 3910. That would have been sold about 3:20 @ about 3940 following two negative dojis for a profit of about $1,500. These are a few examples of short-term trades that frequently occur on at least one of the e-minis. Today, Chairman Powell and Treasury Secretary Yellen speak; their talks will be closely monitored and could create volatility in today’s afternoon markets. Uncertainty remains; trade with care. Blog 111, March 16. The yield of 1.5% on the 10-year treasuries has been the “fulcrum” upon which stocks are bought or sold. If the rate is below 1.5%, stocks are bought; if above 1.5%, stocks are sold. There are steadier minds that have looked at history and decided that stocks might be able to thrive in an environment where rates are slightly higher. In our recent history of near-zero rates, some have forgotten how high interest rates have been in the past when the stock market continued to be strong. The 10-year closed Friday at 1.64%, a 13-month high. So, for the time being bonds and gold are being sold and stocks are being more strongly bought. Of course, signing of the nearly $2 trillion so-called “COVID relief bill” has been hailed by Wall Street as a great enhancement of the economy with expected increases in growth and productivity. For the moment, traders (and, of course, politicians) are not focusing on the massive debt increase this represents and the probable financial doom in the years ahead. The NQ has found mild support of late but it may take some time to approach prior highs of about 13,900. Volatility in this index will likely be with us for a while and it might be best to follow the indicators on short-term charts and make intraday trades for now. The NQ could still give us good profits with its daily volatility. As traders and investors move from growth and high-PE stocks to value and cyclical stocks that do well in an economic rebound, the YM and ES have found good support, closing at record highs last Friday. This preference could continue for a while. Whatever your trading decisions, follow the indicators and you will be doing what the majority of traders are doing. The June NQ futures are priced about 10 points below March NQ futures. One approach is to begin toward the middle of the recent trading range. Just as an example, if you are holding a long contract in the NQ, you could put a limit sell for March futures at about 13,110 matched with a limit buy of 12,900 with the June futures. If there is enough volatility, both trades could trip, giving you a profit of about $4,000 on the rollover difference from March to June futures. If this doesn’t happen, you pare down and take what you can get. This same approach can be used for any of the e-minis or micro e-minis. Caution: There is more risk to this trade and you have to have an exit plan, such as a stop, for your existing March futures contract if it doesn’t sell at the price you want. Of course, all this has to take place during the week of quarterly futures expiration. This is another reminder that the present March e-mini futures expire this Friday morning, March 19. That will probably be a volatile day. I wrote about ways to trade current futures to next-quarter futures in blogs 34 and 35. Don’t confuse March and June futures charts; they are described in the trading bar above your charts on most platforms. Double-check your buys and sells. The Federal Reserve will report its latest two-day meeting Wednesday afternoon. Traders will be watching and listening. Blog 110, March 9. E-minis fell further last week. Traders don’t like rising interest rates and didn’t find any solace in the comments by the Federal Reserve’s Jay Powell on Thursday. Powell is in a difficult spot; he doesn’t want to raise interest rates with high unemployment and a still-recovering economy. But, if he doesn’t talk more aggressively about avoiding too much inflation by beginning to raise rates, “the markets” become anxious about that. Traders fear that if the Fed takes too long to sound more concerned about rising inflation, they may not be able to restrain it once it takes hold. Some of you may be aware of the days when Paul Volker was head of the Fed. Inflation got away from the Federal Reserve during the mid-1980s and interest rates moved up well into double digits. Home mortgage rates were over 13%. Ten-year treasury rates of 1.5% aren’t much in comparison, but lack of planning and intervention can easily send them much higher. Home mortgage rates are only about 3% currently but society is used to very low rates at this time. Even a slight rise in home mortgage rates can greatly restrict home construction and sales, putting a damper on the economy in general. The NQ took the biggest hit last week, dropping to about 12% below its high. It was negative on the year with levels not seen since December 11. As I’ve written before, traders are taking profits in big tech and moving away from these “stay-at-home COVID stocks.” Large growth stocks are also the most negatively affected by rising interest rates, so traders have been moving more toward value stocks such as energy, cyclicals, banks and financials. At 8:30 a.m. E.T. Friday, payroll reports were released. They were strong, so what happened with that good news? Markets immediately moved lower. The NQ dropped 130 points ($2600) in 5 minutes. Why? Computer algorithms read reports and were programmed to sell on this good news because of the threats of a “hot” economy, greater inflation and higher interest rates. Then what happened? Computers bought on that downward spike and the NQ rose 150 points ($3000) the next 15 minutes. After all, this was good economic news and not to be ignored. And then, 30 minutes after that, prices had again moved down by 150 points. Then, after 11:30 price rose about 430 points into the close. This is volatility in its extreme. This strong intraday volatility provides an opportunity to explain another way to interpret the indicators. This explanation is for 15-minute charts and is important. With broad moves on a 15-minute chart, you can miss important profits if you wait for the strong move (signal) candlestick to complete and move on to the next candlestick (on which you might trade). For example, look at the ES on Friday afternoon, March 5. The 11:30 E.T. candle moved strongly higher. The 11:45 and 12:00 p.m. candles moved above and on the 9X and the stochastic was moving higher at a good angle. If you wait for the 12:15 “signal” candle to close before going long, you will miss out on a profit of about $900. When you have strong moves such as this, with good support from the stochastic, it is o.k. to buy after price moves above the prior two candles. In this case, you could buy about 12:20 @ about 3765. That trade runs to the close @ about 3840, a profit of 75 points ($3,750). This works the same opposite way when shorting a down move which is often quite strong. I suggest you make a note of this model expansion. The 1.9 trillion dollar “COVID relief” package of borrowed money passed on a party-line vote and will soon be signed into law. There will be so much money flooding the country, where many people have already been saving money due to COVID restrictions, that much of it might find its way into the stock market, providing support for stocks and the e-minis. Strange times indeed. Current quarterly futures expire Friday morning, March 19. June futures are available the week of March 19. See Blogs 35 and 36 for more information. Blog 109, March 2. Last week, the 10-year Treasury yield jumped to 1.61%, a new one-year high. This sent markets down, especially on Thursday. Rates retreated slightly after that, back to about 1.47%, bringing stocks back up a bit. Higher bond yields mean increased borrowing costs for companies and their stocks, especially growth stocks, lowering their values. Higher yields are usually a harbinger of higher inflation, adding downward pressure on stocks. Also, whenever bond yields exceed the earnings of the S&P 500 index, bonds become a more-attractive alternative to stocks. The NQ fell about 4% Thursday. Very little of the 1.9 trillion dollar “Covid relief bill” has anything to do with its label. Only 1% of this $1.9 trillion will go toward vaccines; only about 6% of the entire bill has anything to do with public health efforts related to the pandemic. Hundreds of billions are being spent for totally unrelated reasons. And, we have hundreds of billions assigned for virus relief earlier that haven’t yet been spent. As traders, we are more hesitant to trade short than long. We know the upward bias of stock indexes continues to have more of an effect than conditions that produce pull-backs in price. Markets fall faster than they rise, so “buy” trades stay active longer. If you become too anxious about shorting the e-minis, then don’t! If you look only for strong “buy” signals and trade long, you will make about 70% of what you make trading both long and short. This is especially true for those of you who prefer to trade on a daily chart. Look over the past year for different e-minis (or micro e-minis) and calculate where you would buy for your long trades, and where you would take profits, on a daily chart. (Remember, there is a difference between taking profits and entering a short trade.) Keep the chart to the far right of your screen so you can’t see what the price will be in the near future. This reduces the subconscious bias you will have in making trading decisions. Stay disciplined and follow the indicators (review Chapter 8, especially pages 83-85). In the current market environment, there are details that can be used to support both positive and negative views of stock markets over the next six months or so. DOW Theory was formed by Charles Dow years ago. This basically states that the DOW is a useful and broad index to evaluate market conditions using the DOW stocks. The DOW Transportation Index indicates how much of economic production is moving around the country, especially by rail and by trucks. Both indexes reached new highs last week, suggesting that the next six to nine months could be quite positive for stocks and the economy. Option expirations, especially during the periods of October 19-25 and February 19-25, usually produce underperformance from the S&P 500. This is also a frequently bearish time for the markets on an annual calendar. Yesterday, the 10-year treasury yield dropped to about 1.43%, offering more support for stocks. China stocks fell overnight due to fears of a housing bubble there; this was viewed as a negative. We’ll see if markets continue to recover this first week of March, traditionally a better week for stocks. Friday’s payrolls and unemployment reports will be closely followed by traders. Blog 108, February 23. Markets are stumbling along. Earnings season is winding down, so traders are now more attuned to political maneuvers and national and world affairs. There is better news about the COVID virus as hospitalizations and deaths are decreasing. Vaccine shots are increasing and we seem to be moving closer to “herd immunity.” The RTY and YM have held up fairly well, while the ES has been struggling a bit. The NQ has moved lower as traders have taken profits out of big tech. There has also been a rotation out of NQ stocks and into sectors such as energy, travel and consumer discretionary stocks. There seems to be an increase in savings and a greater restlessness as people want to return to a more normal lifestyle. If the country would open its businesses and let students back into the classroom, we could have a fairly strong second quarter this year. There almost seems to be a conspiracy against smaller, independent businesses who have no lobbying presence in Washington. Markets are consolidating and trying to determine where to go from here. Another massive stimulus package of approximately two trillion dollars could be passed fairly soon. This will be both positive (more money flooding into the economy) and negative (this makes inflation more likely to occur sooner, leading to higher interest rates). This also means more debt that is reaching staggering levels that will likely never be paid back. The worst system for practically and responsibly managing money is what we have in Washington - - politicians who control and abuse other people’s money, with “no skin in the game,” while many of them enrich themselves in the process and seek to use our money to help get re-elected. For them, “one billion dollars” is about the same as a regular person thinking of their “one hundred dollars.” In Blog 85 on September 8, I wrote about visually thinking of money in a different way. Place $100 bills flat in a stack. This latest stimulus package of borrowed money represents a stack of $100 bills that would be about 1,260 MILES high! The 10-year Treasuries hit 1.36% yesterday, putting another drag on stocks. The futures moved decidedly lower last night after the European Bourses opened; the NQ hit a decline of 6.9% from its high on February 16. Fed Chair Powell speaks twice before Congress this week. His comments will be closely followed and stock markets will respond to what he says. Markets continue to sort themselves out. If we soon get strong “buy” signals, it could be time to take a long position. Wait for clear supportive signals and positive narratives from analysts before getting in. Stay alert! Blog 107, February 16. I have written before about my preferences for which e-minis to trade but they might not be appropriate for beginning traders or those with limited resources. You have to determine what is best for you; I thought I’d just write a bit about the e-minis. My preferences, in rank order, are NQ, EMD, ES, YM and RTY. The RTY and ES both return $50 per point. Which is better? The RTY represents smaller companies, nearly all of which are in the U.S. It is understandably more volatile and usually performs well when the U.S. is coming out of a serious correction because of their smaller size and flexibilities, especially in managing personnel and benefits. But, when the U.S. economy weakens, they are more vulnerable and usually lead the markets lower. The ES consists of the S&P 500’s largest stocks, many of which have international exposure. The RTY has been outperforming of late but overall, has it made a greater profit than the ES? Let’s look at recent price comparisons for the ES and RTY earlier this month. The RTY was priced at 2220. If it increases in price by 5%, that is 111 points (a gain of $5550). The ES was priced at 3890 the same day. An increase of 5% would be 194.5 points (a gain of $9725). If the ES only increased by 3%, it would still outperform the RTY’s 5% gain (3% = 117 points; a gain of $5850). Because the ES is priced 75% higher, a smaller percentage increase provides greater profits over time. The RTY has done well the past 6 – 12 months but the ES has performed better over the past five years and longer. Using our models, trading the RTY has been profitable lately on a daily chart; keep following the indicators if you wish until they tell you differently. The e-minis keep setting record highs. When will the inevitable pull-back occur? If you want to go long this market, it would be prudent to trade a shorter time frame and closely monitor your trades. Unless there are other issues that come up, a mild correction will probably be a buying opportunity. If prices do fall, wait for the indicators to give you reversal and buy signals before entering long trades. Great profits can be made during market recoveries, but follow the indicators. Blog 106, February 9. Since about January 27, market volatility has presented outstanding opportunities for profit with the models we use. I traded infrequently the first ten trading days of January because of political uncertainty, and went “flat” (no open positions) the evening of February 4. Still, trading profits are $125,000, YTD. The volatility reflects markets that are anticipating a 1.9 TRILLION-dollar budget spread throughout the nation, including the states that are heavily in debt. This is all borrowed money, creating additional debt we likely won’t be able to pay back; politicians and traders live for the present. Vaccinations are continuing; this also leads to more expectation that the economy might soon open, so people and businesses that have survived can get back to work. As I wrote earlier, spend less than 1.9 trillion dollars (that would total about five trillion added to the debt the past year); open the economies instead, stimulating jobs and commerce, and let students go back to school so they can learn and many of their parents can go back to work. I am concerned that we are too extended right now, considering that new political policies and executive orders seem to be less supportive of the economy, too many states are keeping their economies restricted, and too many states are not opening their schools. With this backdrop, we might get a correction over the next couple of months before this uptrend can have a chance to continue. For now, stocks continue to make new highs. Whatever happens, consider using our models to participate and earn profits. In Blog 102 on January 12, I wrote about the “Santa Claus Rally,” “The First Five Days,” and “The January Barometer” related to the S&P 500. The S&P and all five e-minis were positive for the first two, but the S&P finished January with a slight - .8% decline. The DOW was unchanged, the NQ was up 3.5% and the Russell 2000 was up 6.7%. Considering the volatility and price deterioration toward the end of the month, the overall market fared fairly well. Point changes for the e-minis and micro e-minis for the month of January were: ES, minus 52 points; YM, minus 657 points; NQ, minus 12 points; RTY, plus 83 points; and EMD, plus 20 points. The unemployment rate dropped a bit in Friday’s report, but keep watch over the “participation rate.” This is important because many people, especially if they are older, have been dropped out of the job market and are no longer “officially” looking for work. 10-year treasuries have moved to 1.20%, an 11-month high. As I wrote a couple of weeks ago, if the 10-year reaches a yield of 1.5%, it will be a more-attractive alternative to stocks. Blog 105, February 2. On January 27, the NQ fell about 635 points between 6:00 a.m. and 4:00 p.m. E.T. The indicators were in a strong up-trend the five days prior. On a daily chart, profits on that one-day downtrend could have been missed by not shorting. In highly volatile times, such as what we are in now, it can be profitable to switch to a one-hour chart as an option to a daily or 15-minute chart. On a 1-hour chart on January 27, indicators supported a short trade about 7:00 a.m. E.T. at about 13,440, then it could have been covered at about 13,060 at the 4:00 p.m. close. (Price also pushed about 160 points lower during that last hour, providing considerably more profits if you were able to get part of that lower dip.) That was at least 380 points, $7600, in nine hours ($840 per hour) for one contract of the NQ. One of the headlines that spooked the markets was short squeezes individual investors had put on several large hedge funds. These funds produce no products and provide no services. They simply use borrowed money plus money from investors to manipulate the stock markets for outrageous profits, enriching themselves off the money of others. In spite of this, losses are mixed into performance and, as a group, hedge funds have underperformed the S&P 500 over the past 10 years. The funds that fail are closed and taken out of the averages for performance. One ploy they use is to find weak and vulnerable companies, then heavily short the stock, driving the price down. A troubled stock might be valued at $40 a share. By heavily shorting the stock, they can trip the algorithms of other hedge funds or brokerages, getting them to also sell or short the stock. When price gets down to, say, $10 a share, they buy back their shares from brokerages and pocket a profit of $30 a share. This can happen in only a few days. Hedge fund managers make millions of dollars on the shares of only one company. Of course, regular investors are stuck with the losses. Remember, trading is a “zero sum game.” There are groups of individual traders who organized and figured out how they can also play this game to profit from hedge funds who are abusing this process. Hedge funds had heavily shorted several stocks, including “GameStop,” a stock that is quite weak. The system even allowed them to short 140% of the available shares outstanding! Think about that. These large groups of individual traders got together and began aggressively buying “GameStop,” driving the price back up. This created massive “short squeezes” on these hedge funds, forcing them to buy back their shares to minimize their losses on a short trade that was moving in the wrong direction. When those hedge funds began buying, this drove the shares even higher. “GameStop” moved from about $30 a share to over $480 a share in a day or two. Between morning and noon on January 28, “GameStop’s” intraday price ranged from $112.25 to $483.00. Once the price had been driven up to these levels, the individual traders began selling, reaping huge profits and leaving several hedge funds with huge losses. It’s also likely that hedge funds had to sell other stocks to meet margin calls, putting added downward pressure on the stock markets. It is estimated that those hedge fund short sellers lost over two billion dollars in a week. Hedge fund managers obviously have considerable political influence and didn’t like being taken at their own game, so they are now trying to change the rules so only they can openly manipulate the stock markets. Facebook has cooperated by shutting the accounts of about 150,000 of these traders so they can’t communicate with each other. “Cancel culture” is alive and well. This is what some are now calling “casino trading” and is creating anxiety for many traders. This volatility, and influence of social media is far from over. (I don’t think big tech controls these blogs but if you don’t see a blog next week, you’ll know I’ve been “cancelled.”) Next week I’ll write about the January effect for the S&P 500 and all e-minis and micro e-minis. Blog 104, January 26. The MYM and YM have been marginally positive, but all other e-minis and micro e-minis have maintained a positive position, supporting a long trade. Valuations remain stretched while traders still hold the belief that low interest rates, massive amounts of money injected into the economy, increased vaccinations, and anticipated strengthening of the economy will continue. With all the changes in policy and executive orders, and the hundreds of billions of expected added liquidity, concerns about debt and inflation will grow. If the 10-year treasuries begin to approach 1.5% (currently, about 1.08%), money might begin moving from equities into bonds. There are many uncertainties over the next two or three months. On daily charts, the e-minis have been rising over the past 12 days or so. Even though daily charts have been positive, I’ve chosen not to chase this market. I’ve missed some good profits on these daily charts but prefer to “keep my powder dry” for now. It is reasonable to believe that we’ll see January 2 prices again in a few weeks or months. At current prices, that would be a pull-back of about 5%. Meanwhile, there are the usual profitable short-term trades available; I’ve made several of those. Trading 15-minute charts continues to be rewarding. The /VX (Volatility Index) is about 25, fairly moderate. Corrections might follow a VX of about 17-19, a level where there is greater complacency and less worry. Surveys currently report a great deal of optimism and bullishness about the market from traders and money managers. This is often a contrary indicator. Strong bullish sentiment means that many people have already invested in the market. If they start to sell, taking some profits, computer algorithms will trip and begin selling, triggering more selling, leading to some level of market correction. All it takes to start this cascading is an important major negative headline. One trigger could be the additional 1.9 TRILLION stimulus package. There is building resistance to the amount, relevance and necessity of this package. More support is growing to just open the economy and let businesses and people get back to work, maintaining all the practical protections against the virus. That would be an effective stimulus. While the number of covid deaths is disturbing, the virus is not “going away” anytime soon. More people are asking why we are still shut down and requiring vaccines as a prerequisite for doing almost anything, for a virus that has over a 99.5% survival rate with relatively few deaths connected to people with no serious preexisting conditions. Keep informed about these and other political issues in the days and weeks ahead as there could be significant volatility in the stock market. This volatility has recently begun as companies have been releasing their earnings. More important earnings will be released this week. Blog 103, January 19. Periodically, in response to readers, I pick a couple of short-term (15-minute) trades from the prior week and explain them in detail. As I've written, the NQ is my favorite because of its volatility and potential for profit. So here we go. I've written that good profits can be made beginning in the 1- to 2-hour periods before the markets open at 9:30 a.m. Eastern time. Put the NQ on your screen with a 15-minute time frame. Then go to 8:30 a.m. E.T. on Wednesday, January 13. First, if you happened to be awake (some of you don't live in the U.S or Canadian time zones), a good short trade presented itself at 5:33 a.m. at 12905. The 5:15 candlestick moved lower and closed below the 9X. Over half that candle was below the 9X; a good sign. The 3X had moved under the 9X, and the stochastic was moving downward at about a 45-degree angle. If the 5:30 candle opens lower, or opens the same and moves lower, you have a setting that invites a short trade. You could enter a short at about 5:33 because you should wait a few minutes to get confirmation from that "signal" candle that the current directional change has support. The candles continue moving lower, below the 9X, until you see a rather fat spinning top candle (indecision) at 8:00. The 8:15 candle opens where the 8:00 candle closed and moves higher. It looks like the downtrend is reversing. I would take profits somewhere between 12840 and 12845. Even if you get fooled and it turns lower again (less likely), you want to protect your profits of about $1260 (short @12905, cover @ 12842). That is 63 points, $1260 in 2 hours and 44 minutes; 5:33 to 8:17 a.m. That's about $458 an hour for chart monitoring. Now you can go long @ about 9:03 a.m. @ about 12870. Most of the body of the 8:45 candle is above the 9X and the 9:00 candle opens and moves higher. The 3X has moved up. The stochastic is also moving briskly higher at better than a 45-degree angle; time to buy. Now, carefully follow the candles through the rest of the day. Remember, you can always take profits if you are getting uncomfortable with the range you are now in; in this case, setting new highs nearly every day. But, you don't have to close your position until there are two consecutive candles that close below the 9X. This rule is the same for all time frames. The 9:30 candle closes below the 9X but the 9:45 candle moves higher, so you're still good. All candles stay above, and don't close below, the 9X until late in the afternoon. There is kind of a late "push up" with the 2:00 candle (this usually represents the last group of traders who finally decide to buy near the top), followed by a negative doji, then price begins to flatten and become negative. I would close my long position by the time the 3:00 candle closes (about 12980) if not a little earlier. The market looks tired, upward momentum has stalled and the stochastic is turning lower, moving under the 80-point line. If you check the 3:00 situation with a 5-minute candle chart, you will get confirmation to close this long position. You went long a contract at 9:03 at 12870. You closed about 3:15 at about 12980. You accrued 110 points @ $20 a point for a profit of $2200 over a period of about six hours ($366 per hour monitoring the chart). This is only one regular NQ e-mini contract. These types of 15-minute trades regularly appear for all five of the e-minis. I have made tremendous profits just trading the 15-minute charts. This is probably enough detail for today, so I'll stop until next week. Blog 102, January 12. We are moving through three stock market axioms: The Santa Claus Rally, The First Five Days and The January Effect. These have been popularized in the Stock Trader’s Almanac and reflect price changes of the S&P 500 Index. Sam Stovall, CFRA Chief Investment Strategist, recently published a description of these three axioms. The following is a summary of some of these explanations. The Santa Claus Rally: This is a seven-day combination of the last five trading days of a calendar year followed by the first two trading days of the next year. Whenever the S&P has risen those seven days, which has occurred every three out of four years, the S&P has gained an average of 9.7% at the end of that new year. The mean average gain for all years since 1945 is 9.0%. The years with no Rally had about a 4.7% gain and were at times consistent with the start of a bear market. The First Five Days: The S&P’s performance during the first five trading days of a calendar year has been looked upon as an early warning for the market’s performance for January as well as the rest of the year. The S&P has posted a first five-day advance in two-thirds of all years since 1945. These days correctly pointed to a full-year market advance 82% of the time with an annual average price gain of 12.5% during those years. However, when the first five days underperformed, the S&P 500 eked out an average annual increase of only 1.1%. January Barometer: “As goes January, so goes the year.” Since 1945, the S&P has risen in price during the month of January 63% of the time. When price rose in January, it finished higher at the end of the year 87% of the time, rising an average 15.9% during those years. However, when the market declined in price during January, it recorded an average decline of 2.2% and rose in price for the year only 52% of the time. How has the S&P 500 finished the year when all three of these barometers finished higher? This has happened in 44% of the years since 1945. Average price increase during those years has been 17.0%, nearly twice the mean average return for all those years. There were eight years that all three of these indicators gave the thumbs down. The annual price rose five of those years, yet the average annual loss for those eight years was 3.7%. The e-minis are different, of course. There is no comparable record for them. It appears that the first two axioms are barely positive for the e-minis; we’ll see where we are the end of January. A few quick notes about the year ahead: Low interest rates and vaccine availability are supporting the market. There is another axiom: “Don’t fight the Fed.” The Federal Reserve is intending to keep rates low. We keep hitting new all-time highs. How much longer can that go on? The current P/E is about 33 for the S&P 500; at least thirteen points above its long-term average. Will this economy be able to support those levels of expectation? It feels like much of our future economic success is being “pulled forward” with expectations that might not be fulfilled. Traders expect the Democrats to pass another massive stimulus plan of several trillion dollars, stimulating the economy but also adding to our massive debt, which now exceeds our annual GDP. No one can predict months ahead in this environment. It is possible that a correction of about 10% could occur in February or March. It depends on how quickly the Democrats begin implementing their tax increases, open the southern border, begin spending on “The New Green Deal,” etc. Annual returns for the indexes from last calendar year: Nasdaq, 43.6%, largest annual increase in more than a decade; Russell 2000, 18.4%; S&P 500, 16.3%; and Dow Jones, 7.3%. Blog 101, January 5, 2021. Welcome to the new year! Today is the Georgia senatorial election and tomorrow Congress meets to debate about the presidential electors. There will likely be continuing tumult about these elections. Some Wall Street firms are predicting a 6% to 10% stock market correction if Democrats win both senate seats in Georgia. That outcome may not be known for a couple of days. In January, 2020 (Blog #50) I reviewed the markets from 2019. I mentioned the possibility of a “black swan” type of event in 2020; the coronavirus certainly qualified. Markets (e-minis and micro e-minis) moved higher in January and early February as employment was at all-time highs, unemployment was at all-time lows, there were more jobs available than people to fill them and the economy was humming. Then the virus hit, sending markets sharply lower through February and March, producing great profits from short positions, bottoming on March 23. I suggested we should buy at that time as indicators supported this reversal. On June 2, (Blog #71) I wrote that two contracts of the NQ, bought in late March with Model 3, had grown to a current market value of over $82,000 during those ten weeks. Markets topped out early June and consolidated for a while. Then a new uptrend began about July 2, running for two months to early September, when it was time to again sell and take profits. Markets drifted lower into late September, then began another run into October. In Blog #90, October 13, I wrote that I had closed all my positions on October 12, with profits of about $543,000 “in the bank” year-to-date. I had planned to stop trading for the year but the indicators later showed strength and another nice run began about November 5th. I rode that trend into December. I began 2020 with $700,000 in four accounts, an average of $175,000 per account, and finished 2020 with a 97% net profit return on that beginning equity. This was an exceptional trending year to earn profits with these models. Next week I’ll respond to the election issues and have some thoughts about the year ahead. Blog 100, December 22. This is the last blog of 2020. The next blog will be on January 5, 2021. I wish you all a merry Christmas and a happy holiday season. Investors remain optimistic about a dovish federal reserve, positive attitudes about the release of virus vaccines and another stimulus bill. They are looking past current issues of a weakening economy, lockdowns and rising coronavirus cases. They expect economic conditions will improve next year and that interest rates will remain low for the foreseeable future. This leads to the belief that stock markets will be able to sustain elevated equity valuations going into 2021. However, there could be some profit-taking along the way, especially to the end of this month. If Joe Biden becomes president, he has promised to raise taxes, especially on investment profits. While it is customary to wait for January to take profits, so taxes are delayed one year, some traders and investors may want to get out with their profits before next year to avoid higher tax rates. January 5, 2021 is the Georgia vote for two senators and January 6 is the date Congress meets to pick electors. There could be important volatility around those two dates. I don’t plan to do any e-mini trading until the outcomes of these two dates are clear. Blog 99, December 15. There is currently an estimated $2 trillion more money “on the sidelines” than there was on the first of February this year. This is partly from stimulus funds released by the government and savings from those who have been very limited in their spending on activities such as shopping, travelling, and eating out. Much of this money is waiting to get into the stock market and those people might be buying at any meaningful pullback in prices. Stocks went down last week as negotiations over another stimulus bill continued to drag and become negative. Money also moved from “stay at home” stocks, such as technology, to broader market stocks in hopes of a better recovery with now-available COVID vaccines. The NQ was hardest hit. All five e-minis had an unbroken positive run, on a daily chart, between November 4-7 (depending on the index) and early December. Profits on these five e-minis ranged from about $13,000 on the RTY to $24,000 on the EMD, per contract, during that time period of about 20 to 23 trading days. This is another reminder that current quarterly futures need to be managed by the market close this Thursday, December 17. Also remember that Tesla will be added to the S&P 500 after the markets close on December 18. This could affect the ES and MES e-minis. There may be a few days of greater volatility the next week or so. Uncertainty, as well as positive and negative forces continue to move the e-minis. Markets are being supported by those who see a better economy six to twelve months in the future. Stay alert. Blog 98, December 8. Markets were supported last week by renewed hopes for at least a targeted stimulus plan and early release of virus vaccines. There were several opportunities for daily profits. Last week I discussed how current conditions with support from the daily 9X could be profitable. For example, on Friday, around the employment reports, the NQ again spiked about 30 points lower on the open, then began to recover. A one-contract buy there yielded a profit of more than $1,000 a half-hour later. All of Tesla’s stock will be added to the S&P 500 in a single step before the market opens December 21. Be watchful of increased volatility around that event. It’s $500 billion capitalization makes it the largest stock ever to be added to the S&P 500. It’s float-adjusted market value of $437 billion will lead to about $73 billion of required additional trades of stocks by managers of S&P index funds as they inculcate Tesla’s value as a proportionate addition to the index. Quarterly futures expiration is this month on Friday, December 18. Please see Blogs # 35 and # 36 for information and alternative ways to respond to this. Futures for the next quarter are made available the week of expiration; be sure to identify the correct futures as you move out of futures expiring this quarter and into futures for the next quarter. The e-mini indexes continue to grind higher, staying above the 9X on daily charts. December is historically the strongest month for U.S. stock market indexes, so there is that history. We’ll see how long this strength of support is maintained. Trading around quarterly expiration and Tesla’s move just before December 21 could be quite volatile; keep that in mind. Blog 97, December 1. End-of-year pension rebalancing will put some downward pressure on stock prices, as profitable stocks will be sold to buy bonds or alternative investments. Tesla is being added to the S&P 500 in December. Because of its large-cap value, it will have an effect on the other stocks in the index. Total equity issuance of IPO stock this quarter is running far ahead of prior fourth quarters and is also diluting the market somewhat. These issues shouldn’t have a major affect on stock prices but might limit the upside in the weeks ahead. Model 2 E-Miini Points for ‘Index Bites” It is time for the semi-annual calculations for index points with Model 2. I usually do these during Fall and Spring quarters. I’ve written about how much index volatility increases in price ranges as the index prices increase. In my book, “E-Mini and Micro E-Mini Trading” I used data from Spring, 2019. Index Bite ranges (20% of the average daily range over the past 30 trading days) have basically doubled or more, except for the RTY, over the past 18 months. These are the point ranges I recently calculated for the five e-minis. These would be the same for the four micro e-minis. ES - - Average daily range = 64 points. Goal is 13 Model 2 points. 13 ES points = $650. YM - - Average daily range = 540 points. Goal is 108 Model 2 points. 108 YM points = $540. NQ - - Average daily range = 240 points. Goal is 48 Model 2 points. 48 NQ points = $960. RTY - - Average daily range = 44 points. Goal is 9 Model 2 points. 9 RTY points = $450. EMD - - Average daily range = 46 points. Goal is 9 Model 2 points. 9 EMD points = $900. During Spring, 2019 calculations were 5 points for the ES, 50 points for the YM, 16 points for the NQ, 9 points for the RTY and 5 points for the EMD. This illustrates how upward bias continues to provide greater profits for the same percentage of risk as time passes from one year to the next. The growth and volatility of especially big tech stocks have increased the Model 2 points for the NQ from 16 index points to 48 index points, an incredible difference. The NQ has been my favorite and most profitable e-mini the past year. This November was the best November on record for the S&P 500 and this was the best month of any month for the Dow Jones since 1987. The Dow Jones recently hit 30,000 for the first time. The increasing number of apparently effective virus vaccines are adding to the optimism. Still, the market is quite extended at these levels and might need to consolidate for a while. Blog 96, November 24. While the e-mini and micro-e-mini futures have been fairly flat the past 10 days on a daily chart, there has been considerable intra-day volatility. I want to focus a bit more today on one way to blend trading a daily and a 15-minute chart. Notice that the e-mini candlesticks have been recently staying above the 9X, and the 3X has been staying above the 9X on a daily chart. The stochastic has also remained high, in concert with a slowly advancing market. As you know, this is a positive grouping of indicators for maintaining a long trade. The NQ has gotten a bit tight with the 9X but hasn’t closed below the 9X. I have been trading a 15-minute chart the past few days, using this positive daily chart (staying above the 9X) as a line of support with 15-minute trades. With a positive-sloped daily chart you can be a bit looser with a 15-minute chart. Of course, all the other “gestalt” issues such as government reports, politics, headlines, COVID, etc. have to be continually monitored. For example, there are often spikes down early in the open. Traders have both buy and sell orders for the open. When an e-mini opens about 1% above the 9X on a daily chart and spikes down, say 20 to 40 points (more for the YM), but begins to recover, and turns positive on the next candle, you might want to go long there. That same point drop might happen anytime during the day. It flashes lower on a 15-minute chart, then begins to recover. In these cases, you have what appears to be an upward recovery but price may not yet be above the 9X on a 15-minute chart. You can make more profit by not waiting for the required indicators of the candle and 3X moving above the 9X and opening and moving higher on the next candle. For example, look at the NQ on a daily chart from last Friday, November 20. (As I mentioned last week this was likely going to be a more volatile day because of options expiration.) On a daily chart, the 9X was about 11890. The 9X had been serving as a line of support; the NQ had not closed below it for nearly three weeks. Now look at Friday with a 15-minute chart. The NQ was weak pre-market and spiked lower (about 31 points) on the open. Price dropped to about 11950, then rose back up as a hammer candlestick, suggesting support. The 9:45 candle formed a wide-ranging negative spinning top, suggesting indecision. Then, the 10:00 candle formed a positive spinning top, but continued indecision. With this pattern toward the lower end of the current trading range, price will likely move the direction the next (in this case, 10:15) candle opens and moves. The stochastic was also moving higher. The 10:15 candle opens and moves higher. You could buy there at about 11975. It continues higher from there. If you follow the regular rules, you would go long about 10:35 at about 11990. In this situation, you would have already earned about $300 more profit by getting in a bit earlier. You might want to use a moderate stop if you want to try trading this way. The NQ closed at 11885 Friday, then moved up to 11905 after hours Friday, continuing to stay just above the 9X. Yesterday, the NQ dropped about 150 points between 10:00 and 11:00 a.m. Some good profits were made after it began recovering. This support of the 9X on a daily chart continued yesterday after the bell. This might seem too confusing and not worth it. That’s o.k. I use this approach at times when I want to take the time to trade a bit differently. This just shows the benefits of carefully reading and interpreting charts and candlesticks. Stock markets are still vacillating between worries about a “third wave” of virus infections and more lockdowns vs. hopes for a vaccine soon and a positive recovery. We will probably grind along for a while, responding to headlines and issues regarding the presidential election. As always, in an environment like this, stay alert. Blog 95, November 17. With COVID cases rising, why are U.S. stock indexes rising? Vaccines and great earnings. Company earnings will be nearing an end this week with some large and important companies, such as Home Depot and Wal-Mart reporting. The NQ has recently been weak as traders moved out of tech, which represents “stay-at-home” stocks. Anticipation of vaccines to help control the virus means traders moved from stocks in the NQ to value and cyclical stocks, anticipating more broad market growth and activity. As support for stocks widened, and concerns of a second wave of the virus began rising, traders began moving back into stocks in the NQ. So, there has been a shift back and forth between growth and value stocks. The major concern now is how many states will return to a “lock-down” status. If they do that, the economy will suffer greatly and damage the possibilities for a successful recovery. There are still about 21 million people unemployed and many businesses destroyed by rioters or now permanently closed because of being shut down. Margins It is important to discuss margins at this time since they have risen dramatically with volatility and uncertainty, as well as rising values of the e-mini indexes. I’ve written how you should retain at least 10% of your annual earnings in your trading account. The “upward bias” of e-mini stock indexes means those price increases require larger margins for the brokerages to protect themselves from losing the money they loan traders for their trading. When I wrote my books on e-mini trading, margins were roughly $5,000 to $10,000 for the five regular e-minis. They have risen over the past few years and I thought it might be useful to describe them again at this time. Current initial margin requirements for one contract of the five regular e-minis are: NQ -- $17,600; ES -- $17,300; YM -- $14,500; RTY -- $7,150; and EMD -- $14,850. Margin amounts change frequently, so if this is important for you, check pricing before proceeding. Margins for one contract of the four micro e-minis are usually one-tenth the amount, consistent with their relative valuation: MNQ -- $1760; MES -- $1,730; MYM -- $1,450; and M2K -- $715. If you want to buy another contract, but get an alert that you have inadequate funds, margin requirements may have been raised. Monthly Options Expiration will be this Friday, November 20; that usually means increased volatility. Market makers will be settling up all the options calls and puts that expire on Friday. Weak retail sales numbers this morning might put downward pressure on market prices. Economic growth continues to be somewhat weaker than hoped for; part of this is the uncertainty consumers have about their futures. Blog 94, November 10. Corporate earnings have been strong. 86% of S&P stocks have exceeded earnings estimates. Yield on 10-year treasury bonds is only about ¾ of 1%, making stocks more attractive. Last week, the S&P 500, DOW and Nasdaq had their best week since the week ending April 9. The S&P had the best election week since 1932. There is a great deal of money on the sidelines and some traders have decided to get in since November and December are historically two of the best months for stocks. It looks like there will be a split house and senate. Traders are comfortable with a divided government since members of congress won’t be able to pass many laws. That is usually a positive. The Federal Reserve is staying committed to low interest rates; that buoyed the market. A smaller stimulus deal is still possible. And, traders are becoming more tolerant of the Chinese virus since it appears to be less deadly than previously promoted. Our medical responses have become much more effective. Americans are also tired of lockdowns, masks and excessive government controls and limitations. People want to go back to work, get their children back in school and have the type of life they had during late 2019 and the beginning of 2020. The virus is not going to be eliminated; at some point we have to learn to live with it. If litigation regarding voting “irregularities” is resolved soon, republicans hold the senate and the virus doesn’t strengthen significantly, the market could grind higher into January. The markets jumped about 3% to 5% higher in 15 minutes yesterday about 6:45 a.m. The DOW rose over 1500 points ($7500) in that time. One contract of the EMD rose $10,000. Pfizer announced they had a COVID vaccine that was 90% effective and would have it available for use in a few weeks. Those of you who held open long positions over night awoke to a nice profit. Those extreme spikes in pricing are driven by speculators and computer programs. The rally quickly pulled back as traders became aware of the hurdles that remained before any vaccine could be used for citizens around the country. Money can usually be made by shorting the top of those spikes because they will always retrace at least a third of their rapid rise under these circumstances. This notion is not part of any model; it’s just “common sense” when you see this type of price action. This is a similar interpretation of this gap I wrote about in the book. That is where price closes at least 4% away from the 9X. (See pages 87-89 in the e-mini and micro e-mini book.) Votes are still being counted and the election is not over. Lawsuits alleging Fraud are being filed in several states. There will be two important senate run-off races in Georgia in a few weeks. Republicans are favored but the opposition will use any “strategy” they can to win those elections and take control of the senate. That situation will probably become quite litigious. Stay alert for further headlines. Blog 93, November 3. Finally, “election day” is here. Reportedly, 230 lawsuits have already been prepared for filing over election results. Most polls have Biden winning, but there seems to be broad enthusiasm for Trump as many thousands attend every one of his rallies. Unless one of them wins by overwhelming numbers, we may be in for at least several weeks of lawsuits and conflict. Markets have shown weakness going in to the election; all indexes were down around 6% last week. Big tech earnings failed to impress market participants, and a possible “second wave” of the virus has dampened enthusiasm for stocks. The YM has bounced off its 200-day sma and has traded below September lows. On a daily chart, each e-mini and micro e-mini has been clearly in a downtrend shown by the indicators. And, there have usually been one or two times each day where several hundred dollars, or more, could have been made on most of the e-minis trading with a 15-minute chart. Markets rallied back yesterday afternoon and into the evening; we’ll see where they go the next few days. For those wanting to trade a daily chart, it is fine to wait for clear election results and more clarity about the severity of further virus cases. September lows could serve as a support zone while we wait and watch. Blog 92, October 27. Most stocks in the S&P 500 have been beating earnings estimates. This Thursday, October 29 will be a significant market day as several major tech and tech-related firms report earnings. Third quarter GDP will be known Thursday morning this week; traders will be closely watching that. Housing, employment and unemployment data will also be released this week. About 186 S&P stocks will be reporting earnings and revenues this week; expect volatile days through the election. On a daily chart, the NQ has had about seven consecutive days of a doji or a spinning top candlestick. Also, the 3X, 9X, 20-day sma and the 50-day sma are all together right on top of the candlesticks. This shows a several-day period of indecision. Usually, the longer this continued period is, the stronger will be the breakout, up or down. If this uncertainty continues through November 3, there is a likelihood of a strong move in all the e-minis once the presidential vote is finalized. There have been many opportunities for daily trades on a 15-minute chart over the past week. For example, last Friday, October 23 several e-minis clearly went down in the morning and/or moved higher in the afternoon. Tradable signals were given for most of them. As is the case these days, this was due to several headlines. Yesterday, Germany reduced its economic outlook, putting pressure on other European and global stocks. It was also reported that the U.S. recently reached a new high in cases due to infection by the China virus. Even though we do more testing, have many false positives, much better interventions and the virus appears to be weakening in its effects on younger populations, that is still bad news for traders. It also appears that there will be no stimulus deal until after the election, if at all. This just adds more uncertainty. Between the lack of a stimulus bill and increased virus cases, markets sold off yesterday. If earnings generally exceed estimates, markets might stay in a trading range, waiting for election results. Blog 91, October 20. Last Thursday a resurgence of the virus was reported in Europe; that raised concerns it might increase in the U.S. Higher unemployment claims were filed here. Regarding a stimulus plan, Nancy Pelosi said a decision must be made by tonight (Tuesday, October 20). EU nations are lining up against big tech stocks, seeking tax revenue from them. Small-cap stocks have outperformed lately; that is a positive. Monday, hedge funds were short-covering more than usual, providing support for stocks. Historical data and data analysis experts believe stocks will hit a new high during November and December. Other “experts” say the opposite; current conditions are too different. Stocks continue to respond to expectations for some stimulus package. Tech, particularly Twitter and Facebook are under pressure due to new senate subpoenas regarding their strict controls over the New York Post article about Hunter and Joe Biden and their censoring of conservative speech, including shutting down messages from the White House. New virus cases are continuing in the U.S., though hospitalizations and death rates are declining. Then, this morning it was reported that China is seriously talking about invading Taiwan, knowing that we are engaged in a national election and less likely to make a military response. Headlines keep driving the markets, one way or another. With the election two weeks away, that is likely to continue. Prices of the e-minis have generally drifted sideways and lower the past week. A positive outcome from stimulus negotiations would provide some support for the e-minis. Daily uncertainty will continue until we have confirmed election results. Blog 90, October 13. Uncertainty remains; however, markets rose the past week due to the president’s rapid recovery and optimism over virus treatments, on-going assumptions that a stimulus of some type will be passed, increased expectations about 3rd quarter earnings, a much-wider breadth of stocks participating in the market advance and a sense by many investors that the odds of the president being re-elected are increasing. Some also believe that further spending will increase next year, no matter who is president. In some ways, traders are like politicians who don’t worry about the national debt if they don’t need to. Traders trade in the “now” and the immediate future. There are high expectations for earnings and the economy for the third quarter of this year. LPL research has evaluated the performance of the S&P 500 Index, by quarter, since 1950 (69 years). Let’s take a look. Q1: Up 64.3% of the time; average gain = 2.4%. Q2: Up 61.4% of the time; average gain = 1.8%. Q3: Up 61.4% of the time; average gain = .6%. Q4: Up 78.6% of the time; average gain = 3.9%. We are now in the fourth quarter, of course, historically the best quarter for stocks. Although without a stimulus, this current quarter will likely be weaker than normal. The indicators are clearly positive on a daily chart for all e-minis and prices may well continue to rise, though there are important unanswered questions, and considerable anxiety is “in the air.” As you know, I trade four accounts and am well-capitalized. I have had a good year trading and decided to take profits yesterday after the market’s strong up move the past week or so. Profits “in the bank” are $543,000 as of October 12, an average of about $58,000 per month and about $14,600 per week so far this year. I am now “flat,” holding no open positions. I might get back in if the election is decided in November. And, it’s possible that the market will have a sharp correction around the election; that might be an opportunity to short, or buy the dip. Each of you will have to determine how you want to trade this market the rest of calendar year 2020. Blog 89, October 6. Headlines and volatility. Last Tuesday night, markets fell in reaction to a noisy and inconclusive presidential debate. Wednesday, markets rose in reaction to positive economic numbers and hopes for an agreement on another stimulus package. Those hopes were dashed and the market retreated again. On Thursday, markets rose again with good economic data and renewed hopes for an agreement over a stimulus package. That didn’t happen. Then, Thursday night markets fell after it was reported that President Trump and the first lady tested positive for the COVID-19 virus. The EMD and RTY rose on Friday on mixed economic numbers but the other e-minis finished lower, especially the NQ. Prices rose yesterday as President Trump was responding positively to treatment for COVID-19 and talks were still continuing regarding another stimulus package. Economic news was also positive. The markets want to move higher; all five e-minis are above their 50-day smas and markets just need a stimulus agreement and strong earnings reports. Earnings will soon begin to be released and are expected to be very positive. Markets could continue to grind higher for a while, but we need the certainty of the presidential election outcome. Blog 88, September 29. Markets have been weaker because of high valuations, uncertainties here and in Europe, some earlier profit-taking, and the need for capital to buy new company stocks (IPO’s). Congress is also pushing to remove legal protections from some large tech companies, putting pressure on the NQ. We are soon to be in October, historically the weakest month in an election year. In the past, whether or not in an election year, whenever markets began a correction in September, market bottoms were usually reached in October. Understandably, buyers have been reluctant to enter these e-mini markets. Elliot Wave theorists have studied the performance of the DOW in presidential reelection years, relative to the odds of winning the election. Of course, this type of research is correlational, not causal. Three years ago, the DOW was about 23,377. If, at election time, the DOW is at least 20% higher (28,005 at the time of this year’s election), the incumbent wins about 83% of the time. If the DOW is higher but less than 20%, the incumbent wins about 55% of the time. If the DOW is at least 5% below 23,377 (22,208 or lower for this year’s election), the challenger is more likely to win. I’m not a big fan of using history as a predictor of the future concerning elections because each presidential cycle is different, especially this year. This simply illustrates the importance of the economy in the minds of the electorate. Most analysts believe the stock market will be stronger with a Trump win because of policy differences between the candidates and the negative impact of socialist policies. Volatility continues to describe the e-mini stock index futures. Positive news will put more strength under the markets; negative news will lead to more downside pressure. There continues to be limited positive action by congress and most “news” is hostile and negative. Therefore, the e-minis have had difficulty finding and maintaining traction. However, markets rose last Friday when very strong housing numbers were released. Then, on Sunday, a judicial nominee was chosen to fill the Supreme Court vacancy, lessening the likelihood of an 8-member Court that could have a 4-4 vote if the presidential election finds its way there. On Monday, there was renewed optimism that some aid package might still be negotiated, and the market moved higher. While there has been a fair amount of volatility in daily charts of the e-minis, there were excellent opportunities to trade with Model 2 and a 15-minute chart this past Friday. On Friday, buy signals for Model 2 were produced in the morning. On the ES, for example, a “buy” could have been made about 10:35 ET @ about 3240. That trade could have been sold at the close @ 3287. That was a profit of about 47 points ($2340) in 5 ½ hours. The NQ could have been bought around 10:35 @ 10,938, and sold at the close @ 11,140. That was a gain of around 202 points for a profit of about $4030 in 5 ½ hours. The YM produced a profit of about $1740 over the same time period. After four weeks of market decline, the indexes turned higher this past Friday and Monday. Strong margin activity has contributed to the volatility as traders place option trades to protect against a contested election. The release of any “positive headlines” could produce more moves to the upside. It will be interesting to see if the first debate tonight will produce any outcomes that might move the markets. And, an important jobs report will be out this Friday, the last one before the election. The survival rate from COVID-19 is above 99% for every population group below age 70. Florida has fully opened its society and businesses, putting some pressure on other states to do the same. Airlines might get more financial support; that boosted those markets yesterday. There remains much uncertainty as to where the markets move from here. Be careful. Blog 87, September 22. Politics and headlines. In the current environment, economics and the products of capitalism are secondary to politics. The death of Justice Ginsburg has released threats by the Democrats, including another impeachment, if President Trump moves to nominate a replacement for Justice Ginsburg, even though that move is provided in the Constitution. This situation creates much more uncertainty in the governmental process, including the chaos that will likely occur from the election results. Lawsuits are already being written to contest the results from millions of ballots being mailed out to addresses around the country. Examples of the issue: Los Angeles County was recently sued and required to delete about 1.5 million “voters” from their list who were known to have moved away or died. One person moved out of California nearly 25 years ago and recently found out his old address is still receiving mailed ballots with his name on them. Who knows when we might determine who the next president will be. And, uncertainty of the virus, possible vaccines, and on-going lockdowns, in addition to no progress on an additional stimulus, continue to put pressure on markets and the economy. The political climate has become toxic and destructive, with little prospect for improvement. Uncertainty and hostility have never been higher. Stock indexes appear to be in a mostly technical correction and it is possible prices could recover somewhat. However, as of now, my suggestion is to only nibble with model 2 on a 15-minute chart. Some traders might be buying this dip but it is risky. Unless there are major developments that improve the prospects and certainty of market behavior, it seems prudent to stay on the sidelines until the election, and the results of the election, are behind us. A worst-case scenario: The Supreme Court stays at eight members with a 4-4 split on decisions. We get into January with still a contested election. Election results and the presidential decision end up at the Supreme Court. They vote 4-4 as to who is the president. Then what do we do? Does the Speaker of the House become president until another election can be held? The last thing this country needs is a constitutional crisis. Blog 86, September 15. Another reminder that current September futures positions should be closed or adjusted to December futures contracts by the end of trading on Thursday, September 17. Please see Blogs #35 and #36 for more information. The past week saw a great deal of volatility and there were several opportunities to make profits with Model 2 on a 15-minute chart. There were also trading opportunities using Model 1 on a daily chart. These trades were the same for e-minis and micro e-minis. I’m using December futures pricing for the descriptions below. If you don’t currently hold September futures positions, they will not likely be available on your platform. Although I usually don’t trade in even numbers, or those that end in zero, I’m using those numbers for these trade examples for clarity. Consider all numerical examples to be “approximate,” especially since these trades would have been made using pricing from September futures. NQ Short Sept. 4 @ 11,690. Cover Sept. 9 @ 11,070. Plus 620 points. Profit of $12,400. ES Short Sept. 4 @ 3440. Cover Sept. 9 @ 3335. Plus 105 points. Profit of $5,250. EMD Short Sept. 4 @ 1905. Cover Sept. 9 @ 1855. Plus 50 points. Profit of $5,000. YM Short Sept. 4 @ 28,250. Cover Sept. 9 @ 27,490. Plus 760 points. Profit of $3,800. RTY Short Sept. 4 @ 1545. Cover Sept 9 @ 1500. Plus 45 points. Profit of $2,250. December futures are priced several points lower than September futures. If you sell September and buy December futures, be sure to compare pricing and use that in your calculations. There was a pricing “melt-up” in August that led to excessively high valuations, especially in the tech sector and the NQ. When prices accelerate and overshoot, a sharp reversal corrects these prices and brings them back to be more in line with the longer-term trend. This is an example of the “market correction” we are currently experiencing. I’ve written in the past that there are usually several 5% to 10+% corrections each year. The good news is that, at least for now, this correction does not appear to be the result of major policy or economic problems. It is consistent with traders taking profits, making adjustments in their portfolios and repositioning in concert with changes in sentiment and political anxieties. Traders are concerned about high unemployment numbers, political games that cause little to be done for citizens and small businesses who need support now, the virus and when an effective vaccine will be available and, most importantly, the upcoming election. This is just not which party will be in control of the White House, Senate and House, but how much chaos and delay will there be before votes and outcomes will be agreed upon. Traders especially do not like uncertainty. While we may not fall much further in e-mini pricing, and we could be in a fairly wide trading range for a while, there will continue to be volatility. Currently, and since September 9, our indicators do not suggest any trade on a daily chart. Stay alert. Blog 85, September 8. Friday, September 18 is futures expiration. Any current positions will need to be closed or repositioned for December expiration. You can begin trading December futures during the week of September 18. Be sure not to confuse September and December contracts. Please see Blogs #35 and #36 for information about ways to reposition for the next quarterly futures. Last Thursday and Friday, the markets finally cracked. There was profit-taking, especially in technology, and rotation out of popular sectors. It was the worst week for the Nasdaq since March. It was also announced that the fiscal deficit for 2020 was expected to be about 3.3 trillion dollars. Politicians talk about 1, 2 or 3 trillion dollars like we might talk about 1, 2 or 3 hundred dollars. How much is a trillion dollars? Let’s use $100 bills. Lay $100 bills flat on top of each other in a stack. To reach a total of 1 trillion dollars, that stack of $100 bills would have to be more than 631 MILES tall. A stack of $100 bills adding up to our national debt of $25,000,000,000,000 would be about 16,000 MILES high! Anyone for a balanced budget amendment, an Article V convention or term limits for members of Congress? The other issue Thursday was an announcement by the Congressional Budget Office that our national debt is expected to exceed our annual Gross Domestic Product (GDP) in 2021. This hasn’t been that bad since the end of World War II. If we had anything higher than our near-zero interest rates, interest on our debt would likely be the largest part of our national budget. Debt is projected to reach 121% of GDP by 2030. This trajectory is unsustainable. Changes need to be made. A great deal of money flows into the treasury; the problem is too much spending. As of last Friday, all five e-minis closed above their 50-day sma’s, some on their 20-day sma’s and remain above critical support levels. They were all down about 5% to 11% from their highs at that time. Markets turned lower last night due to concerns that there might not be a Brexit deal with Great Britain, and concerns over China’s aggressive attitudes and talk of decoupling trade with China. There is still no deal on another stimulus bill in the U.S. Economic and employment numbers are improving but much uncertainty remains, especially concerning the virus and the upcoming election. Trade with care. Blog 84, September 1. Last Thursday, August 27, Jerome Powell announced that the Federal Reserve was changing its policy about inflation. Instead of trying to keep inflation at or near 2%, they are going to monitor inflation with the goal of a 2% average. Markets naturally moved higher on that announcement. The S&P 500 was up 7% last month, the best August performance since 1986. Most of this was due to the performance of the 100 largest of these 500 stocks. This index moved above 3500 for the first time ever. The ES/MES was also up 7% last month. The YM/MYM was up 8.6% in August. Still, we are now in September, one of the weakest months for stocks, including during a presidential election year. For those attracted to history, September is the only month where the S&P 500 has finished lower in price more often than higher in price, at the end of the month, over the past seven decades. September and October are usually quite volatile, but this year October could be relatively flat as traders pause while waiting for the election results. If it appears that President Trump will prevail, markets could begin moving higher before the election. There are signs that markets could weaken sometime over the next 2-3 weeks as valuations are becoming quite extended. Be aware of that. Watch for market reaction to the August Jobs Report to be released this Friday. The S&P 500 and Nasdaq have risen five straight weeks. If the markets do decline, it could be a buying opportunity. Follow the indicators. Blog 83, August 25. In six months, the S&P 500 and Nasdaq have completely recovered from the bear market triggered by the covid virus. This is the shortest recovery period from a bear market in history. The markets were at their strongest in history before the pandemic and trillions of dollars have been injected into the economy by the Federal Reserve and the Federal Government. Traders are optimistic that the country will eventually be able to return to the days of early 2020. However, last week the Federal Reserve meeting notes presented a more negative picture of the economy, and unemployment numbers came out worse than expected. This sent parts of the market down late last week. The number of stocks in the S&P 500 that are below their 50-day sma has been increasing. This illustrates the power of a small number of large-cap stocks that have been holding up the indexes and is somewhat negative in the short term. Today, I’d like to write a bit about numbers and how people perceive them. A new lawnmower might have a price of $399.99. What are you thinking? “Well, it costs less than $400; that’s a pretty good price.” You might see a new car marked as $29, 995. You might think, “That’s a nice car for less than $30,000.” Practically everything we buy is just slightly less than the next higher even number, especially a number that ends in zero. Traders think the same way. I’ve written that it is important to “be, or feel like other traders; to be ‘in’ the market.” Traders buy and sell not only based on trading range, areas of support or resistance, or sma’s but where price is within what I’ll call a “subscale.” Let’s use the ES or MES as an example. Let’s say you’re trading Model 2 and you initiate a “buy” order at 3388. Price moves favorably in your direction and looks like it could make it to 3400. Should you wait for that price to sell? Answer: NO. Remember, trading is a zero-sum game. When you want to sell, someone on the other side has to be willing to buy at your selling price. Will someone want to buy the ES at “100 points more?” He or she will be buying at 3400, not 33xx something. You are much more likely to find a buyer if you sell at a slightly lower price such as 3397. I seldom make any trade that ends in a zero. My trades usually end in 3,4,5,6 or 7. Numbers after the decimal are less important. In Blog #61 on March 24, I wrote that traders often use round numbers as support and resistance. I wrote that the bottom for the NQ and MNQ was probably a closing price of 7000. Traders were reluctant to sell below 7000; they saw that as the likely bottom of a support level. Indeed it was; the NQ rose almost without interruption to its current price of 11,600. At $20 a share, if only one contract was bought at 7000 and not sold, it would have a value increase of $92,000 in five months (over $18,000 per month). That is a pretty good return on capital. The extreme volatility so far this year has been a trader’s dream. Even though 300 of the 500 S&P stocks are down for the year, the S&P 500, as well as the Nasdaq have hit new all-time highs. Also, on Sunday night President Trump reported that the FDA has granted Emergency Use Authorization for use of blood plasma from recovered Covid-19 patients as a treatment for the corona virus. Shorting of U.S. stocks has reached a 15-year low. If there are no significant negative headlines, there are enough positive reasons for the e-minis to continue to grind higher. Blog 82, August 18. Earnings season is drawing to a close. When companies report sales and profits, they also provide forward guidance about what they see for their company in the future. That guidance is positive or negative. This period’s guidance set a record for a positive to negative ratio. More companies gave positive guidance than ever before. This would seem to bode well for this country’s economic future. There are statistics for everything. Last Friday marked the 100th day since the March 23 low. As of Friday, this was the best 100-day period in the stock market since 1933. Indexes are up about 50% to 60% over those 100 days. This is remarkable considering we were in the middle of the pandemic and terrible economic conditions. As we know, markets (traders and investors) always look to the future. Using our models, we simply followed the indicators and profited on the way down and the way back up. Hedge funds are betting against a vaccine for the virus. They have dramatically underperformed during the pandemic. They are wrong too often, and as a group have underperformed market indexes by 10% to 15% on an annual basis over the past 10 years. A trend seems to be developing. People are leaving the high taxes and violence and destruction in the big cities of states such as New York, Illinois and California, moving to safer and less crowded destinations. This has created a strong upward move in housing stocks. This is supported by extremely low interest rates for home buyers. When people buy houses, they buy furnishings and shop at places like Home Depot and Lowes to remodel; those stocks are rising. This bodes well for the stock market and e-mini futures. Strong housing numbers are the backbone of our economy. The ES has continued to edge higher toward its February high of 3397.5 The S&P is also just short of closing at its February high. Those highs are points of resistance; if prices close above those points these indexes could continue upward. Big tech and large growth stocks have found more buyers of late and the NQ continues to close near or at record highs. This stock market has the potential to move another leg higher. The economic data is strong and the pressure on individuals and stock funds to get into this market continues to increase. As always, stay alert for headlines. Blog 81, August 11. As we move along the trading road, we have decisions to make - - What do we buy, or short? When do we buy, or short? What do we sell, or short-cover? When do we sell, or cover our short? Over the past 10 days or so, the NQ was hitting all-time highs and becoming more overvalued. The ES was nearing all-time highs. There was beginning to be more rotation out of stocks in these indexes into small stocks, value stocks and more undervalued stocks, mostly because of their high valuations. Big Tech stocks now comprise nearly 25% of the total market cap of the S&P 500 stocks. I closed my contracts in these two indexes and locked in profits because of those high valuations. The NQ is stalling but the ES has continued rising toward its all-time high. I kept my long positions in the EMD and YM at the end of July because at that time they were both about 11% below their all-time highs and had greater potential to move higher. The YM began to separate above the 9X and move steadily higher on August 4. The EMD began a very positive profile above the 9X on July 15 and has continued to move higher, well above the 9X. My contracts in these two indexes have appreciated more than $35,000 between August 2 and August 10. I will let them run while monitoring closely. As prices continue to rise in all the indexes, the volatility point range will naturally increase. This makes it more favorable for you to get your “index points” with Model 2. The unknowns and headlines will continue to move these indexes, and Model 2 will, at least for the near-term, likely be the best choice for pulling profits out of these e-minis and micro e-minis. Remain watchful of headlines. Blog 80, August 4. Four major big tech stocks reported after the bell last Thursday, July 30. For the most part, revenues and profits beat estimates and that pushed the e-mini averages higher, especially the NQ and MNQ. This followed increased prices in most of the e-minis on Wednesday, July 29. Then, prices rose strongly late in the day on Friday, July 31. It might be useful to write a bit about my trading the first seven months of this year. To review, I trade four separate accounts and usually have an average of two contracts working in each account. There might be more, or fewer contracts at any time, depending on market conditions. I am also well-capitalized, which allows me to take advantage of special trading situations. I trade the NQ, EMD, ES and YM. The number of each varies according to market conditions and how each of them is performing. I’ve calculated, and written, that a trader can average about $4000 a month with only one contract, trading these e-minis with my models. If I trade an average of eight contracts, that would be an average of about $32,000 per month with regular market volatility. This is not always predictable, however. For example, since I usually trade with a daily chart, I made no trades during the month of August, 2019, because the e-minis were not trending. It is also less efficient and less profitable to trade eight contracts instead of one on a per contract basis. These seven months have not been “regular” in their stock market volatility. Indexes are obviously not all the same, but prices generally moved steadily higher in January, then sharply lower in February and March. Then the indexes hit bottom on March 23 and moved steadily higher into early June. This movement provided very profitable opportunities for trading all three of my models and I have regularly addressed them in these blogs. As a result of these market moves, I have averaged a net profit of $44,000 per month for the first seven months of this year. What I enjoy most working with these models is that it doesn’t matter if market conditions are highly supportive or very negative. We use the indicators as our guide and follow the e-mini indexes wherever they go, keeping aware of political and economic issues that can interrupt the normal flow of pricing. E-mini indexes do not trend about 30% of the time. So, if the e-minis move sideways in a trading range and are not trending, we can make regular profits trading Model 2. I closed most of my remaining contracts last Wednesday through Friday and will now watch for news headlines that might move the markets. An effective vaccine for the virus would be a very positive influence on these e-mini stock index futures. Under usual conditions, the months of August, September and October are historically among the weakest as far as the stock markets are concerned. I will be looking for opportunities for occasional trades, but generally plan to “keep most of my powder dry” and see how everything unfolds as we move closer to the election. We don’t have to be trading the e-minis every day. There will be constant headlines, and volatility will likely increase. These are unusual, unpredictable and very important times for our country. Blog 79, July 28. The indexes closed lower last Thursday and Friday. Profit-taking and possible antitrust lawsuits against big tech firms pushed the NQ lower. Also, many corporate executives are selling rather than buying their company’s stock as they did in March and April. Other negatives are increased tensions with China, the virus, continued rioting and destruction, and more spending proposals in Washington. Our national debt is becoming a very serious issue. This week, many major corporations are reporting earnings and profits. Big tech is among them, especially Thursday. These reports will be reflected in e-mini and micro e-mini price movements. Let’s review the standings of the e-minis on daily charts. The ES closed under the 9X on 7-24 but moved higher on 7-27, keeping it in a positive position. The YM closed under the 9X on 7-24 and closed on the 9X on July 27, holding a positive position. The RTY barely closed below the 9X on 7-24 but moved higher on 7-27; still positive. The EMD has stayed comfortably above the 9X since 7-15. All four of these e-minis still support holding a long position but continued vigilance is required. The NQ has been very uncertain the past 10 trading days, being on, slightly above or slightly below the 9X. Big tech had become expensive and profit-taking was expected. There has also been some rotation out of the NQ and into undervalued stocks in the RTY and many other “value” stocks. This has broadened support for all market indexes. You might have been stopped out of the NQ on July 22 or 23. That would have been an appropriate response to the volatility and price decline. If you stayed long, the NQ closed below the 9X on two consecutive days, July 23 and July 24. It could have been sold after the open on July 24. My take on this situation was to hold the NQ at least one more day because it has overall strength and holds those large, powerful tech stocks. If the NQ had opened lower and moved lower yesterday, July 27, it would have been appropriate to sell any long positions. It did not; it moved up about 215 points and closed slightly above the 9X. (On a 15-minute chart there was a good Model 2 trade from about 12:50 E.T. to the 4:00 close.) On a daily chart, I still hold most of my long e-mini positions but continue to closely monitor the markets and headlines. I am prepared to initiate changes at any time. If markets stay strong through this Friday, I might sell off most of my positions, booking some good profits through the first seven months of this year. Blog 78, July 21. Last week, traders took profits on the big tech growth stocks, pushing the NQ and MNQ lower. They have been in a positive “buy” mode, but have barely stayed above the 9X. Traders moved money into value stocks and other areas of the market that have not moved excessively higher. Examples would be the RTY (note the strong up move on Wednesday, July 15), and some of the DOW stocks. The ES and MES stay strong, and support for stocks in those indexes has broadened, which is an encouraging sign. More recent support for mid-cap stocks has raised the price of the EMD. Yesterday, the week opened with money moving back into stocks in the NQ. Many younger retail investors have decided to “ride the winning stocks,” no matter what their P/E ratio is. There was also more positive information concerning vaccine hopes. The NQ rose about 3% yesterday. If you are trading Model 2, you received a “buy” signal about 10:10 a.m. E.T., on July 20, @ about 10,690 (15-minute chart). Price closed @ 10,945 yesterday, a gain of 255 points, closing at another all-time high. That was a profit of $5100 in less than 6 hours trading one contract of the NQ. (The NQ is priced about 11,030 @ 7:00 a.m. this morning.) If you had bought the NQ @ about 10,170 on July 1, which I explained last week, and held that as a Model 1 trade, you would have a tentative profit of about $15,500 over the past three weeks (as of the close on July 20), trading only one contract. If you had bought the ES @ 3110 on July 2, which I also explained last week, you would have a tentative profit of $6750, trading only one contract. There is also a “Tug of War” in the market between those who are afraid of losing money and those who are afraid of missing out on profits if the markets continue to move higher. Pressure to get into the market is increasing for those still sitting on the sidelines. Over $5 trillion has been released into the economy through government legislation and the Federal Reserve. This provides a meaningful floor under the economy as we struggle to improve ourselves throughout the country. Reported earnings on many heavily traded stocks will be released this week. This will help set the current tone for the markets and could produce higher prices if those earnings are viewed as positive. Continued favorable news regarding possible vaccines will also provide support for the markets. Blog 77, July 14. The S&P 500 Index (not the e-mini index) formed a “golden cross” on Friday, July 10. That means the 50-day sma crossed above the 200-day sma. According to Bank of America’s Stephen Suttmeier, the S&P 500 rises 68% of the time in the 260 days after a golden cross with an average return of 9%. This is an interesting statistic but not particularly significant. The ES/MES and the NQ/MNQ have both been performing well since June 30. Large-cap stocks, especially large tech stocks have been finding a lot of support. On a daily chart of the ES, the stochastic was barely supportive but a buy signal was available on July 1 @ about 3090. Or, more conservatively, a buy could have been made on July 2 @ about 3110. On July 1, a buy signal for the NQ was given @ about 10,170. The stochastic was not as strong as it should be but the NQ had been in a gradual uptrend for several weeks. Unfortunately, yesterday’s headlines upset this upward momentum. This volatility has, however, created opportunities to make good profits trading Model 2. In last week’s blog of July 7, I mentioned that there had been a “buy” signal on some of the indexes. The indicators are seldom wrong but I was less enthusiastic on that date because there had already been an upward advance since June 30, including a string of new all-time highs on the NQ, and I wasn’t sure how long this uptrend might last. Yesterday, markets rose most of the day, then headlines turned negative and exposed the markets’ vulnerabilities. Apple announced that their employees would not return to their offices until next year. Then, California’s governor announced that he was going to shut down much of California again because of an increase in virus cases. This sent economic shock waves through the markets. The next few days are critical in terms of how traders evaluate these latest developments. Uncertainty remains but the markets are looking ahead by several months and some traders remain hopeful. There are also more encouraging signs of effective treatments for the virus. Earnings for the 2nd quarter are beginning to be released. They are expected to be very weak. Anything not as bad as expected might be viewed as “good.” Traders will focus on company commentaries and their views of the future. If analysts can find enough “positives” in the earnings statements, and there is only minimal fallout from yesterday’s negative developments, support for these e-mini indexes could continue. As of 5:30 a.m. E.T. this morning, markets are trending higher. If the ES had been bought on July 2, it would have a tentative profit of about $2500. The NQ, if bought July 1, would have a tentative profit of about $9500. I am posting this blog @ 5:45 a.m. E.T. Blog 76, July 7. Last week I wrote about how the indexes were bouncing off their 50-day simple moving averages. I failed to specify that the NQ/MNQ is a clear exception to that. Large-tech growth stocks continue to lead the NQ to new record highs. Many of them have profited from the limitations imposed on our society by the virus spread. Examples are Amazon, Netflix, Alphabet (Google), Microsoft and Facebook. Upward support from overseas markets and positive ISM numbers gave a boost to market prices yesterday morning. Then some traders took profits, bringing prices back down. For the year to date, the NQ is up about 21%. The ES is down about 2%, the YM down about 8%, the EMD down about 13% and the RTY is down about 14%. Core stocks and shifting core sectors continue to present a mixed picture for traders. Headlines continue to drive e-mini indexes, up or down. These are difficult times. There is a great deal of market negativity and an estimated $5 trillion is on the sidelines waiting to buy stocks. There are positive signs that the economy is coming back, yet riots continue across the country and virus cases keep turning up in threatening numbers, closing down segments of the economy. Several of the e-mini indexes have presented as meeting the minimum for a “buy” on a daily chart, yet there is a great deal of uncertainty in the air and a perception that markets are overpriced based on current data. (The JOLTS report will be out at 10:00 a.m. ET today.) If you are adventurous and optimistic, you could buy a long position or two on a daily chart with a protective stop. Otherwise, stay with Model 2, pick up daily profits and be watchful of headlines. We need more clarity and certainty. Blog 75, June 30. Since the last blog, all e-mini indexes came down to their 50-day sma and bounced higher off that. If you draw a line from there, under the lows of June 9-12 and continue, you have a short-term support range going back to late May. If the lows of June 29 hold, we could grind higher from here. Pending home sales were surprisingly strong yesterday, providing a temporary boost to the market. The markets will need more positive news, however, to pull above the recent consolidation range over the past 13 trading days. Readers of this blog continue to grow in number, so few of you have been along for the ride since the beginning. Traders who are buying my book are from around the globe, including the United States, Canada, Great Britain, Europe, Japan and Australia. For these reasons, I will revisit important points once in awhile to make sure we are communicating more effectively for everyone. There is useful information in prior blogs, so it might be helpful to read as many of those as you can. And, if you are very new, you might want to watch my YouTube videos. Since the markets have been on quite a run more recently, especially the NQ/MNQ, lets revisit the importance of “upward bias.” As you know, I recommend keeping at least 10% of your annual profits added to your account balance. This is to cover higher margin rates that are required as price, and therefore numerical volatility, increase. For example, the NQ was about 7000 three months ago; today it is about 10,000. Those 3000 points are a price appreciation of about 48%. If you were trading for a 2% profit when the NQ was 7000, you would be looking for 140 points. At $20 a point, that would be $2800. Today, however, a 2% profit goal would be 200 points. At $20 a point, that would be $4000. You are trading the same way, but more capital is required from you as the potential for profit, or loss, increases with the higher prices. As long as margin calculations and index pricing stay the same, we have an opportunity for increasingly greater profits as price continues to climb with these e-mini indexes. I individually answer many questions from you readers and don’t always include that information in a blog. One question that has come up several times is, “Should I use stops when trading Model 2?” Answer: NO, especially at the beginning of the trade. With the “Index Bites” Model 2 you are seeking a certain number of points (depending on the index you are trading) and are counting on short-term momentum volatility to collect them, then exit your position. You should be trading a 15- and possibly a 5-minute chart and need to monitor that position. I wrote about this in different places in the book. Of course, if you enter a Model 2 trade, and you catch the beginning of an extended trend, you can hold this position and continue it on a daily chart as a Model 1 “Follow the Money” trade. Obviously, if a Model 2 trade is enthusiastically continuing to move in your direction, there is no need to exit, whether you are long or short. In this case, continue with the guidelines for trading Model 1. At that point, you may want to use a stop to protect accumulated profits. Markets have recently come under more pressure as the number of virus cases increase and reports of economic and employment progress stay on the weak side. Continued rioting and destruction, without meaningful intervention by politicians or law enforcement is also an important negative. Something seriously positive needs to happen. Stay with Model 2 and keep track of headlines. Blog 74, June 23. Calendar year 2020 is nearly half over. Let’s review what we’ve experienced. January had a continuation of a great Model 1 run that began in early December, 2019. All five e-mini indexes were similar, but not identical in how they moved; I’ll use the ES or MES as a representative index. In late January, the uptrend finally stalled and consolidated, and it would have been a good time to take profits. For about seven trading days, profits could have been made trading Model 2 as daily price swings were quite large. New buy signals were given in early February and those positions would have been closed around February 21. Then the effects of the virus were becoming known and the markets entered a period of declining prices that continued through March 23. While these were anxious times, the indicators were clearly supporting short positions through most of that period. As Warren Buffet has said, “Be greedy when others are fearful, and be fearful when others are greedy.” The ES declined about 1100 points during that period of about one month. At $50 a point, one contract of the ES would have produced a profit of about $50,000 in around four weeks. **This is not something we see only after the fact; indicators were telling us what to do as the market moved along during that period. We just need to have the confidence to follow the directions we are given. In Blogs 61 and 62 I wrote about finding market bottoms and how this was a great opportunity to trade with Model 3, beginning on March 23. This turned into an on-going Model 1 trade, but Model 3 puts us in the market earlier, increasing profits. This long position after March 23 continued to be supported by the indicators until early June. In the June 9 blog I wrote that the indicators still supported a long position, but markets were increasingly struggling to maintain their lofty valuations and I decided to book profits during trading on June 8. As you look back at the two weeks prior, how much higher could the market push at that time before finally buckling? Prices rose about 7% to 10% in 10 trading days. What is the reward to risk ratio of continuing to hold these long positions at that time? These considerations are part of what I call the “Gestalt” of trading; what are all the influences that can come into play when pricing and trading these futures? Are you able to feel “being inside” the market; being one of the traders? You follow the indicators closely when you buy, but incorporate other variables when deciding to sell. Indexes began about a 6% decline June 9 and are now consolidating, with traders reacting to every headline. This is currently a market environment for Model 2. Pick your spots and watch out for headlines. Prosperous trading! Blog 73, June 16. Markets have been overbought for a while, and last week traders sold to take profits. We all know the market has been pushing the upper limits but now, being “good enough” for the market is not good enough. The recovery will take a long time, especially with renewed rioting around the country. Virus cases are still adding up. Time to consolidate, which isn’t a bad thing. Prices were getting a bit frothy. Not much else to add today. September futures are now available for trading. Refer to last week’s blog for reference of ideas to move into those new futures contracts, particularly if you currrently hold open positions. Blog 72, June 9. All major indexes are up at least 45% since the March 23 low. In percentage terms, this was the greatest 50-day rally in the history of the S&P 500 Index. To finish last week, higher jobs numbers sent the markets up strongly on Friday, and yesterday the S&P 500 reached a new high for 2020. What are some of the reasons this market has moved up so impressively, in such a short time, in the face of a pandemic and other world issues? Traders use an expression, T.I.N.A. (There Is No Alternative.) Bonds are less attractive and interest rates are near zero. Many financial institutions have not yet moved back into the stock market and an estimated four trillion dollars is sitting on the sideline. Some traders are being caught in a “short squeeze” where they have to cover short positions as the markets continue to climb. Many still believe this is only a “bear market rally.” But historically, whenever there has been a rally like we’re in, the S&P 500 was up an average of 10% six months later and up an average of 17% twelve months later. This data is of course descriptive, not predictive. Additionally, the number of publicly traded companies in the U.S. has been reduced by nearly 50% since the 1990’s, so fewer shares of stocks are available to buy or trade. Also, 20% of shares have been taken off the market through company buybacks. Hundreds of billions of dollars have been injected into the economy by the Federal Reserve, and there are billions more in retirement accounts and other investments not yet in the market. It’s like a class of “Economics 101”- - reduce supply, thereby increasing demand, increase outside capital and prices go up. As of Friday’s close, the NQ/MNQ had set a new all-time high and closed at 9807, up 221 points from last week’s close of 9586. The two NQ contracts I discussed last week, trading Model 3 from the March 23 bottom, were up over $91,200 at Friday’s close. Also, the EMD closed 59 points higher on Friday, the YM finished above 27,000, and the ES reached a high of 3231. It was a very strong week for all the e-mini indexes. This has become a “very hated” rally for those who have been on the sideline and are still pessimistic about the market’s potential coming out of the March correction. The doubters are beginning to get in and chase this rally; this provides some support for market prices. Employment numbers should continue to improve as states like New York, New Jersey, Virginia, Illinois, Michigan and California begin to loosen their tight restrictions and let people get back to work. Though evaluations are stretched, all five e-minis remain in a positive daily profile of indicators. Even so, the indexes are ripe for a break after their strong recovery run. Yesterday I closed a few contracts and booked profits since new quarterly market pricing will begin for these futures next week. Quarterly e-mini futures contracts expire Friday, June 20. You can begin trading September e-mini futures next week. Be sure to select the proper quarter as both June and September quarters will be listed next week. Please see blogs #35 and #36 for information and ways to close and open contract positions. Prosperous trading! Blog 71, June 2. Last week was eventful. The NQ/MNQ had been leading the market, but for a couple of days last week traders rotated out of the NQ and big tech into lagging areas of the market, such as the RTY/M2K. Indexes had a volatile finish to the week on Friday as the market faded, waiting for President Trump’s statement on China. When the Phase 1 trade deal was not mentioned and neither were additional tariffs, the market moved back higher through the close. I continue to hold several long positions acquired in late March. When the indexes corrected in March, and I wrote that they likely bottomed on March 23rd, especially the NQ, I discussed Model 3 as appropriate for an expected recovery from that correction. I wrote that a few of you were trading a Model 3 guideline of buying one contract after price rises 5% from the apparent bottom and a second contract after price rises 10% from that closing bottom. I don’t know how many of you still hold those positions, but the NQ has not given a sell signal on a daily chart since that low on March 23 (example of a sell signal: two consecutive days of the price closing below the 9X). Let’s review those trades and what profits could have been earned as of last Friday. The NQ declined to 6629 and closed near 7000 on March 23. That day was typical of a final “market flush” where sellers finally become exhausted and buyers step in and begin driving the indexes back up. The NQ had a trading range of about 700 points on March 23. Model 3 suggests that you buy a contract when price reaches 5% above that apparent low close; that would be 7350. You could have bought one contract @ 7350 on March 24. That trade could be placed as a “limit buy.” Then the guidelines suggest you buy another contract after price has risen 10% above the apparent low close; that would be 7700. You could have put a limit buy order in at that price; the market passed 7700 on March 25. This type of strong “snap back” in market prices reflects strong buying interest by traders, and supports the notions that the market was oversold and that a bottom had likely been reached. Also note the strong up move of the stochastic between March 24 and 26. There were concerns about the effects of the virus at that time and caution was warranted but an entry with a Model 3 trade would be an acceptable risk. Signals for a Model 1 trade wouldn’t appear until about 10 trading days later. There was no guarantee that volatility wouldn’t send prices back down after March 23, but the reward to risk ratio was quite positive and any downturn after March 23 would probably have recovered quickly. I often describe how I am trading and try to present a clear analysis of the market environment, but don’t make current specific trading recommendations for the days ahead. Those decisions should be made by you. Price of the NQ was 9586 @ last Friday’s close. That closing price is 2,236 points above the 5% buy-in @ 7350. At $20 a point, that is a current net profit of $44,700 on that first contract. Friday’s closing price is 1,886 points above the 10% buy-in price of 7700. At $20 a point, that is a current net profit of $37,700 on the second contract. If those two positions were not closed, total current profits on those two contracts of the NQ are $82,400 during the last 10 calendar weeks. That is a net profit of about $32,900 per month for just monitoring a chart of two contracts. The recent riots in larger American cities have produced property destruction, assaults, burglaries and arson that are decidedly destructive. This will cause more budget shortfalls, a delay in opening the cities for business and more fears of virus infections. More businesses are being closed forever. In spite of all these issues, stock market indexes have been climbing as traders continue to have a hopeful attitude that the economy will eventually recover. These higher prices are not supported by current data, so a pull-back is always possible. Stay attentive. Blog 70, May 26. This month was the one-year anniversary of the micro e-minis. Average daily volume was 865,000 contracts across the four indexes. Single-day record volume from all four micros was 3.9 million contracts on February 28. Total descending volume by index: MES, MNQ, MYM and M2K. 27% of total volume came from outside the U.S. Trades were submitted from 160 countries. This continues to be a headline-driven market with high volatility. Positive and hopeful headlines are balanced by negative headlines and opinions. This has kept us generally in a broad trading range that has slowly crept higher as states open their economies and let people get back to work. It will be some time before we know how many businesses and jobs will not be coming back. A few of you have written to me about the varieties of ways to trade Model 2 and I’d like to expand on the ideas I described. I was busy trading four accounts and mentioned that I got in a little early and “stretched” the trading rules a bit. That was too vague. Mostly, I was using the 5-minute chart to look for entry or exit support. For example, if you are looking to go long and some positive news is released, then a 15-minute chart begins to move higher, it might feel right to buy a contract but the indicators for a 15-minute chart have not yet lined up. Under those circumstances, the indicators for a 5-minute chart will usually support buying a long contract. Your reward to risk ratio is quite high under those conditions. If you buy on a 5-minute chart but that turns out to not be supported by a 15-minute chart, you can get out of the trade and could make a profit, break even or have a small loss. However, if your early entry with a 5-minute chart is correct, which it will be a high percentage of the time under these positive conditions, you will usually add several points of profit to your “15-minute” trade. As examples of regular 15-minute trades, let’s look at two trades that could have been made last week with the NQ. Tuesday, May 19: Buy @ 9:50 @ about 9355. Could have sold @ about 9388 @ about 10:17 (33 points). Or, since the 9X was not violated, you could have monitored that trade and closed it out @ about 9395 @ about 2:50 (40 points). Then, you could have shorted @ about 9368 @ about 3:35, exiting at the market 4:00 close of 9290 (78 points). That would be a net profit of at least $2,100 for two trades last Tuesday. When entering a long trade, and closing a long trade, you may not get in the first 30 seconds of the next 15-minute chart. If you’re not checking entries or exits with a 5-minute chart, you need to wait at least a couple of minutes after the next 15-minute chart opens to be sure the trend is continuing before you buy. You should also probably wait for a couple of minutes after the market has stalled or began to move lower before exiting a profitable 15-minute trade. That short wait confirms that the uptrend has likely stalled for now and you should take profits. Two themes to continue to monitor: elevated tensions in our relationship with China; and covid 19 virus concerns with states opening their economies. Consumer confidence and new home sales will be released at 10:00 a.m. E.T. today. Stay informed. Prosperous trading! Blog 69, May 19. This is a continuation of last week’s blog where I was discussing various ways to trade with Model 2. The current goal for “index bites points” is 6 points for the ES or MES, 24 points for the NQ or MNQ, 60 points for the YM or MYM, 5 points for the RTY or M2K, and 5 points for the EMD. Let’s first return to the EMD e-mini. I wrote about buying or shorting according to the indicators, then immediately placing a limit sell, or buy to cover, 3 points from your entry price. As always, this trade should be monitored and could earn more than 3 points, but there is no other calculation about what to do. The EMD is valued at $100 a point, so you must be comfortable with that level of risk and be adequately capitalized to trade at this level. Index Bites points are 5 for the EMD (average daily range is about 25 points), so looking for 3 points is only 60% of the desired index point goal and only 12% of the average daily range. That makes it easier to attain a positive trade ($300). Trying for only 60% of the other four e-minis leaves profit goals of 3.5 points for the ES ($175), 14 points for the NQ ($280), 36 points for the YM ($180), and 3 points for the RTY ($150). (I wrote in an earlier blog how inferior the reward to risk ratio is for the RTY and I rarely trade this e-mini.) A goal of only 60% of the index bites point goal is easier to obtain but only 60% as profitable. Since the probabilities for success are higher due to the lesser point goal, how about trading 2 contracts instead of one and making the point goal even less? Consider the following two-contract trades: 3.0 points for the ES ($300); 10 points for the NQ ($400); 30 points for the YM ($300); and 2.5 points for the RTY ($250). Last week I wrote about the “3-candle method,” describing how the momentum for short-term trades with our indicators usually continues for 2-3 candlesticks after entry. This increases the likelihood that reduced-point, 2-contract trades will be successful. I also described a total of 16 trades made during the mornings of May 7 and May 8. I used the 3-point goal for the EMD and traded 2 contracts with shorter point goals for the ES, NQ, and YM. Of course, there were times when my trades quickly made their lesser point goals but had continued momentum, so I let them run for more points. In this case, when trading two contracts, a few extra points adds significantly to your average trade profits. While one of the 16 trades lost $50, total net profits were still $6,455. That produced a net average of $403 per trade for all 16 trades. With shorter point goals, you might also accumulate a higher number of successful trades over the same time period. I need to add that monitoring four accounts made my trading those days a bit frantic and fluid and I didn’t always follow the models exactly. When a positive report came out and the market began to jump higher, I got in early on a long trade to pick up extra points. Around 11:00 on the 7th and the 8th, some good news came out and the markets began to move strongly higher. Again, I got in a bit early ahead of the rules. I’ve learned how to “stretch” the indicators a bit, but don’t encourage that for those of you who are newer to this type of trading. The NQ is my favorite e-mini to trade. It has a broader average daily range of about 120 points, is more volatile, and short-term trends are stronger and last a little longer than the other e-minis. (If you use the 2-contract model, 10 points is only 8.4% of the average daily range.) Many times, the NQ has risen 40 to 70 points after a “buy” signal was indicated. If you are trading two contracts, and monitoring the trade closely, you can get a profit of $1600 to $2800 in about one to two hours whenever this situation occurs. Put the NQ on a 15-minute chart and follow the daily volatility for the past week or two. You will see it is not unusual to pluck out 10-24 points (or more) at least once each day. At $20 a point, it has a favorably moderate price level that produces good reward to risk probabilities. Since our future will depend on technology, and big tech stocks have such an influence, the NQ will likely continue to be a strong driver in our economy, producing an on-going upward bias. Prosperous trading! Blog 68, May 12. The Nasdaq hit a new yearly high last week. The NQ e-mini is still about 500 points below its high of 9763 on February 20. Big tech stocks are still leading the way. Traders continue to support stocks due primarily to more states and counties opening up their businesses and their hopes for a strong economic recovery in the third and fourth quarters of this year. This week I want to dig a little deeper with ideas about trading Model 2, and detail how effective this approach can be. In my first book, “Trading E-Mini Stock Index Futures,” in 2017, I wrote about trading Model 2 in a non-volatile market. On pages 100-103 I illustrated how flat the markets were during the first half of 2015. Trading several contracts with four accounts, I had profits of $268,000 during the first six months of 2015 ($10,300 per week), trading mostly Model 2. I wrote earlier that I migrated to trading a daily chart, based on Model 1, through the years to lessen the time and intensity required to trade Model 2. Due to restlessness with the quarantine, I took some time to trade model 2 last week with slight variations (I’ll describe this next week). I paired one contract of the YM, ES, NQ and EMD to each of my four accounts. So, I constantly monitored all four e-minis and traded each one in a separate account. I was busy but thoroughly enjoyed it. Last Thursday I traded four hours in the morning, making 10 trades. I lost $50 on one trade, but all others were positive. By noon, total NET profits, after trading fees, were $3,655, an average of $365 per trade. On an hourly basis for my time, profits were $913 an hour. Last Friday, I decided to trade the same way for a while in the morning, expecting more volatility because of the employment and unemployment reports that were released. Between 9:40 and 11:10 I made six trades, all positive for profits of $2,815. That produced an average of $469 per trade and $1875 per hour for my time. On pages 98-100 in my revised book, “E-Mini and Micro E-Mini Trading,” I describe my “Three-candle method” and my “$300 limit trade” with the EMD. You should all know and understand the basics of the indicators for a positive trade, long or short. If you’re not sure, please review Chapter 8 in my second book, especially pages 80-85. With Model 2, we use a 15-minute chart. These trading discussions regarding Model 2 assume normal and routine stock market conditions. We have to adjust and react whenever a headline, tweet or news bulletin shows up unexpectedly and has an immediate effect on e-mini prices. We can’t predict or control when that happens but we can monitor and make adjustments when necessary. With the indicators lined up, let’s say for a long trade, a candle closes above the 9x (preferably at least half the candle above). If the next candle opens positively and begins to continue the upward trend, that is when I buy. That is the “buy” signal candle. For practice, find places on any e-mini 15-minute chart where all indicators line up, and it is clear you should enter a long or short trade. Look at the signal “buy” candle and the next two candles. Count the percentage of time price continues in trend through the close of the third candle. “Index Bites” is a form of a “rolling momentum” model and the trend most often holds through these three candles. It could be profitable if you have a “three-candle goal” as you are looking for the “index bites points” that go with each e-mini. If this momentum continues, you may want to stay in the trade. As it moves along, you might want to put a stop at the point where you would have exited the trade, guaranteeing yourself the same profit you set out to get. As I’ve indicated previously, I don’t use stops early on when trading Model 2; those trades should be actively monitored. And remember, as trend continues, you could change to Model 1 on a daily chart and let profits accumulate. Look at the months of December and January, 2020 as an example (about 28 continuous trending days of one Model 1 trade); great profits! Then you could have made tremendous profits on a daily chart by shorting during March, 2020. The $300 limit trade with the EMD. If you have the capital and are interested, put the EMD e-mini on your chart with a 15-minute time frame. Stay with normal trading hours so there is sufficient volume. Look for GOOD entry points, imagine what price your limit buy or short would be, then after you have bought your EMD contract, immediately put a limit close of three full points above (or below a short) your entry point. See how many times you would have routinely racked up at least $300. Unless something unexpected happens, this is usually a profitable trading routine. If this trade suddenly turns against trend, you should probably exit immediately; something unexpected has occurred. Look at the EMD on yesterday’s (May 11) 15-minute chart. The 11:00 and 11:15 candles were only marginally acceptable and the stochastic was rising, but unconvincingly. In this case, wait until the next candle (11:30) opens and moves above the prior two candles before buying. In this situation, the buy signal would be at about 1652. The stochastic is also near 80 at that point. You would be well-rewarded as price continues higher until about 1:50 where profits would likely be taken. I will get to my analysis of last Thursday and Friday’s trades on the next blog. Prosperous trading! Blog 67, May 5. Markets headed higher last Wednesday morning when Gilead Sciences revealed that their drug remdesiver was reported to shorten the length of the CCP virus illness and lessened its severity. The Federal Reserve also reported that it will keep interest rates near zero. High jobless claims (more than 30 million the past six weeks) and weak earnings brought the market back down Thursday morning. Markets have hit resistance at the 61.8% Fibonacci ratio level, and number of advancing stocks are decreasing while the number of stocks moving lower are increasing. There was talk of tariffs and a possible trade war with China because of the way they handled the CCP virus and allowed it to spread throughout the world. This put a chill in the markets. Warren Buffet sold his entire stake in the four major American Airline companies, helping to send that sector down about 10%. Tensions within several states grew worse as governors and mayors have become more arbitrary in their demands that people stay home and not go to work or even go outside. Historically, May is one of the weakest months for the stock market and the months of May - October are historically the weakest consecutive 6-month period for stocks. So, where are we now? We know we are in a recession but that is largely priced in. We know stock earnings and profits are going to continue to be very weak but that is largely priced in. We know unemployment numbers are going to be terrible. We will continue to have difficult relationships with China. There is a real threat that the number of CCP virus cases will increase as behavioral controls are lifted. What we don’t know is whether governmental agencies will allow the people of this country to break away from all this negativity and get back to work. On daily charts, the 3X, 9X and 20-day SMA are practically the same number for each of the five e-minis. This compression remains unresolved. I took profits by selling a couple of contracts last Thursday but still don’t see clear support for selling more just yet. Prices turned higher yesterday and this morning, so we haven’t yet had two consecutive days when prices closed below the 9X. Nor have we had two consecutive days where the 3X closed below the 9X. We continue “right on the edge.” I plan to wait and monitor the e-minis a day at a time, while watching the news feeds and headlines for information that will influence market directions. As I wrote earlier, each of you traders will have to make decisions depending on your tolerance for risk and your level of capitalization. Model 2 trading is still the best approach for plucking daily profits out of these uncertain markets. Stay aware and be reasoned in your decisions. Blog 66, April 28. Somewhat good news, somewhat bad news. Market indexes up a little, market indexes down a little. Oil down, markets down. Oil recovers a little, markets recover a little. Headline-driven markets. The NQ continues to lead since big tech stocks have been minimally affected by quarantines and governmental directives. Earnings reports will be important the next few weeks. Depending on the e-mini index, prices have stayed in a fairly narrow trading range for the past 9-12 trading days. Whenever this pattern occurs, there is a strong likelihood that the longer the market trades in this type of narrow range, the stronger will be the breakout, up or down. Every e-mini index has closed just above or on the 9X and 3X during these trading days. Several times, one or two of these EMAs have closed within the candlestick at the end of a daily 24-hour time period. There have not been two consecutive daily candlesticks which have closed below the 9X, but they have come close several times. If there are two consecutive days when price closes well below the 9X, that position should likely be closed. After that, look to see if the indicators are lining up for a short trade. All e-minis are barely holding above their 20-day SMA’s. This is a market that has recently struggled to stay on the positive side of trading. Then yesterday, and this morning, e-minis forged strongly higher. Traders are counting on a treatment for the virus and positive outcomes from the latest government stimulus. The other catalyst was announcements by several states that they are beginning to open their economies. This brought in buyers and forced other traders to begin covering their shorts, pushing prices higher. This could spark more states to remove restrictions on businesses and economic activities, leading to more market gains. Of course, there are many concerns remaining. What effect will lower oil prices ultimately have on jobs and the economy? Will there be a “second wave” of virus infections? If so, could we be forced to shut everything down a second time? How will weak economic conditions be able to support these rising stock prices and P/E ratios? What percentage of small businesses will be unable to reopen? How many lawsuits will we have if employees are brought back in to work, then they become seriously ill with the virus as a result? Will there be a way to protect smaller businesses from going bankrupt in this type of situation? At this point, we don’t have the necessary information to answer these types of questions. For those of you who are holding profitable long trades, you might want to take partial profits or have at least loose stops in place to protect some profits. Those who traded Model 3 and bought the NQ @ 7350 and 7700 about a month ago have tentative profits of about $55,000. I don’t have much to add to this on-going theme of uncertainty at this time. Markets remain very jittery. There continue to be trading opportunities on a 15-minute chart. If you want to wade in on a daily chart, include a stop in your trade to protect against a sudden downturn. As always, trade carefully and deliberately. Blog 65, April 21. Look at all five e-minis on a daily chart through Friday, April 17. The NQ and ES are now above their 50-day SMA; that is important to technical traders who might now see this as a possible level of support. The YM is close to the 50-day SMA and the EMD and RTY are moving up toward the 50-day SMA. Now look at each e-mini on a daily chart through April 17 and notice how they are all in a positive position concerning our indicators over the past 9-10 days or so. The 3X is above the 9X and there has been no occasion where a candle has closed below the 9X on two consecutive days; this is positive. All stochastics are at or above the 80-line and holding; this is consistent with a steadily advancing market. I have been recommending trading with Model 2, and have done some of that. However, as I wrote earlier, I prefer to trade a daily chart and have been holding several long positions, especially with the NQ and EMD, since the markets bottomed on March 23rd. This might be obvious to most of you, but thought I’d mention it anyway. Let’s say you have a profitable long position with an e-mini, maybe the ES as an example. Whether on a daily or 15-minute chart, something happens or is announced and the market turns and begins to move lower. You might decide to sell your position to protect profits from the latest move up. If you want to consider shorting, you have to wait for the indicators to line up and that might be at least a few points lower and sometime later. If you aren’t sure about what to do, here is an obvious option - - do NOTHING. You have sold, taken profits and are now “flat” (holding no position). Just wait for the price to stop falling and begin to move back up, then buy a long position again (preferably with our indicators being supportive). As the market moves back up, your profit will be the points between where you sold and where you bought back in. I mention this because a short trade creates more anxiety than a long trade (since stock indexes have an upward bias) and traders with less experience too often get in and out of short trades in ways that are not profitable. So, in the example above, you can watch the market without any open position, then get back in when it stalls and/or begins moving back up. This way, as long as you can catch at least a few points on this sell and buy back at a lower price, you will always make a profit because of the extreme likelihood that the market will (eventually, at least) always move higher. This type of trading is, of course, more productive if it occurs in the lower part of a trading range. Even if you sell a second time before price moves back up to your prior sell price, you will usually make at least a few points of profit. And, you will not have to worry about a short position. *** You can make good profits by only trading long positions with our indicators. After a “market crash,” traders often use “50% retracement” as a marker of support or resistance in market index recoveries. Example: high for the ES e-mini was 3397 on February 20; the low for the ES was 2174 on March 23. A 50% retracement is a recovery of half the points between the high and the low (3397 – 2174 = 1223 points. Half of 1223 is 612. 2174 low + 612 = 2386). So, a 50% retracement of the ES would be a price of 2386. The ES closed last week at 2869, surpassing the 50% retracement. The conclusion is that a 50% retracement was not a level of resistance for the ES; this is a bullish conclusion. The ES, NQ and YM are above a 50% retracement; the RTY and EMD are still below a 50% retracement. While that could be interpreted as a negative, it also means those two e-minis have a longer way to travel toward prior highs, giving them greater profit potential. However, that also means that they are less attractive to traders because of the types and names of stocks in those indexes. The VIX (Volatility Index) is currently still quite high at about 37. We are beginning to gradually open the economy but the concern is another wave of coronavirus infection. Another problem is the collapse in oil yesterday; that brought the stock market down and dimmed hopes of a strong stock rally. Stay informed, vigilant and careful. Blog 64, April 14. According to Ned Davis Research, 81% of financial advisors think the market has yet to hit bottom. More than half of these advisors think a lower bottom will be reached by May 31. 25% expect a lower bottom will be reached after May 31. There is still so much uncertainty about when/if the virus will be contained and what the ultimate damage will be to all the economies in the world and employment in the U.S. On the other hand, stock markets are forward-looking and have been rising due to short-covering, support from the Federal Reserve and Congress, and anticipation of better times in the months ahead. And, I have written several times about the natural “upward bias” of the U.S. stock markets. So, what should we do? I believe we should follow our indicators and selectively enter the market according to our level of capitalization and tolerance for risk. In Blog 61 on March 24, I wrote about my impression that the NQ e-mini may have bottomed around 7000. The originally named “FANG stocks” (Facebook, Amazon, Netflix and Google - - plus stocks like Apple) are large, solid companies which have a lot of “staying power,” and offer support for the NQ. They were swept up in the selling that culminated in a closing low of 6770 on the NQ on March 23. After an initial recovery, I wrote that traders seemed reluctant to sell the NQ under 7000. The NQ is a little above 8400 this morning. It could fall again but I doubt that it will close below 7000 in the months ahead. (Of course, with all the uncertainty out there, I could be wrong.) If prices should turn and move lower, we’ll close our long positions and follow the indicators to go short and make money on the way back down. After that settles and markets begin to move upward, we’ll follow the indicators and go long again. I was able to secure a limit buy @7100 with the NQ on March 24, so I’m in holding mode with that trade and have tentative profits of about $26,000 per contract. Some of you asked about trading Model 3 - - buying a contract when price rises 5% from the bottom, then buying another contract when price rises 10% from the bottom. A few of you have done that. You used limit buys to get a contract @ 7350 and a contract @ 7700. With price @ 8400, your current “on paper” profits are about $35,000 on these two contracts. I usually don’t comment on the EMD e-mini because it is riskier and requires large amounts of capital to trade. It also trades a bit differently because most traders are money management organizations rather than individual public traders. I regularly trade several contracts of the EMD because I hold high balances in all four of my accounts. Last Thursday morning, between 8:30 and 10:00 E.T., the EMD rose 93 points in 90 minutes. Sixty-five points were available for a trade, earning $6500 in about 75 minutes. Shorting the EMD on February 26 and covering that short on March 24 produced a profit of $72,000 in 20 days ($3600 per day) trading only one contract. There are likely traditional professional traders and marketers who don’t understand what we do and dismiss the likelihood anyone can make money doing what we do; don’t believe them. Let’s talk about psychology a bit. When the government tells us it’s now o.k. to go to work and go about our daily business, will we? Will you host a family gathering for your parents’ or grandparents’ 50th wedding anniversary at a Chinese restaurant? Will you take your family to a Disney park? Will you go to a baseball game with 40,000 other fans? Some will; some won’t. It will take time for this country to get back to some semblance of order, behaving in ways we did before the coronavirus. It is estimated that S&P 500 companies will buy back 50% less of their stock in 2020 than they have in years past. This will put a dampening effect on S&P 500 individual stock prices. Practice and get comfortable with the types of trades we make with these models, and pick your trading opportunities. With this volatility and wide price swings, I continue to recommend Model 2. Blog 63, April 7. The RTY small company e-mini has performed the worst so far in 2020 but had a nice gain yesterday. Small stocks weaken ahead of large company stocks because they are more vulnerable in a fading economy. We are likely going to stay in a recessionary environment for some time and the economy could continue to struggle. In a market recovery, the RTY should improve ahead of the other indexes. This is because small companies have more flexibility to control their manufacturing, personnel and sales. A seemingly small positive change can make an important difference to a small company. Financial organizations have been writing about “overhead resistance” that has inhibited upward movement in stock index prices. E-mini futures are not the same as regular stock indexes, so what analysts write about those doesn’t accurately apply to the e-minis. That’s why I settled on the set of indicators we use. For regular indexes, writers have commented on Fibonacci retracement ratios, 200-day SMA’s, Bollinger Bands, 10-week SMA’s, a 40-week line, a 14-day RSI line, a 14-week RSI line, and weekly MACD lines. Have you seen a stock or stock index listed with as many as nine separate charts laid out underneath? What are you supposed to do with that? As you know, I believe that the less clutter you have on a chart, the clearer is your information about what to do. The DOW 30 closed out its worst quarter ever, and March was the worst month for that index since October, 2008 during the financial crisis. More than $20 trillion in overall stock and bond value was wiped out in the downturn. Remember how the math works in a correction and recovery - - if a market index drops 50% in value, it has to earn 100% to return back up to its prior level. That is one of the reasons recoveries take so much longer than corrections. The coronavirus is still unsolved and spreading, although there are some signs that new infections may be decreasing. Markets are trying to rise and government intervention could help stabilize the downside. Big tech stocks are helping to support the NQ and MNQ e-minis. We had a nice rally yesterday with great trading opportunities, but problems remain. Important news from the oil industry may be released this week. Quarterly company stock earnings and profits will begin to be reported; results will not be pretty. It will take some time for the markets and the economy to fully recover. Blog 62, March 30. According to the American Association of Individual Investors (AAII), their calculations show that over the past 100 years, bear markets (prices dropping 20% or more) averaged 1.6 years in length. The mean average loss was -38.9%. Stock market bull runs (losses don’t reach -20% during the run) have averaged 5.2 years in length, with an average gain of +182.7%. Over the past six weeks, the ES dropped 36%, the YM dropped 39%, the NQ dropped 32% and the RTY dropped 45%. This appears to be the most rapid decline of this magnitude in the history of the stock market. The current difference is the global uncertainty of health and economic effects of this viral pandemic. Nothing is quantifiable or measurable. In earlier blogs this year, I wrote about the unbroken upward market trendline during the general period of October, 2019 to the end of January, 2020. To signal a possible sell trade in an advancing market on a daily chart, one or more of the following usually happens: price has moved to a new high or near the high of the current range, one or more doji candlesticks have formed near the top, price has stopped rising and may be flattening out, a bearish engulfing candlestick formation occurs, a hanging man candlestick may occur which could indicate a change to a downtrend, and candlesticks may be moving under the 9X. Economic news might also be turning negative. Of course, you can take profits earlier if conditions are changing. Price might recover or it might move lower to signal a time to short. Look at all four micro e-minis and all five regular e-minis on a daily chart from February 24, 25 or 26 on to present prices (about 5 weeks). On a daily chart, a clear signal was given to short on those February dates, depending on which index was chosen. This short signal was not violated during the past 19 or so trading days. To close this short position, you are likely in the lower part of the trading range and looking for an indecision candle and/or a bullish engulfing candle. Watch for reports and news headlines as they become more influential on trader sentiment. Also watch for a strong upward positive candle that can signal a directional change. Once again, you can cover your short earlier to lock in profits if conditions are changing. Let’s look at how trades could have been handled with the NQ, ES, and YM. ***Also note how the stochastic is moving downward at about a 45-degree angle just before and concurrent with the signal candlestick to sell short. The NQ would have been shorted February 24 @ about 9250. A spinning top indecision candlestick forms on March 23rd. As the market opens and moves higher on March 24, you should cover your short at about 7070. That is a gain of about 2180 points ($43,600). The ES would have been shorted February 26 @ about 3140. Price bottoms on March 20 and begins to move higher the next day, March24. Cover this short on the 24th at about 2320. That is a gain of about 820 points ($41,000). The YM would have been shorted February 25 @ about 27,600. Price bottomed with a gravestone doji on March 24 and began moving higher on March 25. Cover the short on March 25 at about 19,100. That is a gain of about 8500 points ($42,500). How would we know to cover the short at that point? Couldn’t it move up a day or two, then reverse and continue lower? It could, of course, but the force and depth of this downtrend was flushing out the market sellers, and news and sentiment was extremely negative at that point. The Volatility Index ($VIX) was over 80, an extreme that is supportive of at least a temporary bottom. I believe in capturing good profits when the opportunity presents itself. At the prices where we cover these shorts, there is a stronger likelihood that the market will flatten and begin recovering than is the likelihood that it will continue to fall further. Again, evaluate the “reward to risk” factor. Why be greedy and continue to believe the market will continue to fall? It could cost you a good deal of profits by staying in a short position. Certainly, price has to rise a good number of points to give a signal to buy. Also note that the stochastic has been at or under 20 for the last 10-11 trading days, supporting the notion that the market was oversold. Remember that there is a difference between closing a position and entering a trade in the opposite direction. In response to readers’ questions, I rarely use a stop trading model 2 on a 15- or 5-minute chart because I am monitoring the trade to maximize outcome. As to the best time of the day to trade, there are often market-moving reports that come out pre-market E.T. that can be tradable with Model 2. For those of you living in Europe, you have to pick your spots according to your own schedule. In the U.S. the best times are 7:30 to 11:00 a.m. E.T. (when the European markets close), then 2:00 to the 4:00 p.m. close. This market rebound doesn’t mean we will continue to move much higher; there have been many cases where markets have rebounded after a sharp sell-off only to retreat to test prior lows. It all comes down to how soon we are able to free ourselves from the virus threat. As testing increases, more cases of the virus will be reported, suggesting that the virus is still spreading and increasing. That is a market negative. The next two weeks will be very influential, and a supported “buy signal” could develop. Be careful and stay alert. Blog 61, March 24. Topics: Searching for, and trading, market bottoms. Also, how low can we go? Today, I’m going to write about some strategies and ideas that are more on the fringe of our trading models. They are appropriate in markets that have had a serious correction and are highly volatile. I’m discussing these because, after a serious market correction like we are in now, the reward to risk ratio becomes much more favorable if you can catch a greater percentage of an index’s recovery. With Model 3, you have the option of buying a contract 5% above the low of the correction, after that low has been established. Then, you can buy another contract after price has risen 10% from the low. With Model 1, on a daily chart, you have to wait until the market has risen to the point where all the indicators give you a “buy” signal. This is an appropriate and conservative way to get back in, but you may be some points up from the bottom before the indicators give you clearance to buy. ***However, if you begin with a 15-minute chart you can get in near the bottom or anytime. In situations like we are in now, especially the high volatility, I like to look for signs that a bottom might be in and buy very near the current low. If no seriously negative news comes out, I will buy a contract, wait for price to rise 1% or so, then put a stop in about $200 above my buy price (points obviously depend on which index I’m trading). Now, if price moves down and stops me out, I’m guaranteed a $200 profit near the bottom, and can look for another opportunity to buy in. But, if price continues to rise, fast or slow, and doesn’t return to my buy point, I can make maybe $25,000 to $60,000 on one contract (depending on which one I’m trading and how deep the correction is) when it moves back up to 5% below its most recent high. (Of course, if I buy and price immediately goes down, I have a choice of getting out with a loss of a few hundred dollars, or holding on to wait for the price to move back up.) This decision is largely based on headlines and news releases. I’ve found that, at least for the short term, when I carefully pick my spot, prices usually don’t retreat far below where I bought. Of course, if conditions worsen in the future and the market moves back down, I could only make $200 Let’s use the NQ as an example. Put the NQ on your screen with a daily chart. Look at the low closing or opening prices. March 12 was about 7150, March 13 was about 7075, March 16 was about 7050, and March 17 was about 7040. On some of those days, price dipped below these levels. Focus on opening and closing prices. It looked like the low could turn out to be about 7000. Traders often see round numbers as support or resistance. In this case, it was looking like they didn’t want to sell the NQ below 7000. In the morning of March 17, I decided to buy a contract at 7010 and waited. Price wandered a bit above and below 7000, then began to rise. After it rose to 7090, I put in a sell stop at 7020, guaranteeing a minimum of a $200 profit. I am now risking nothing by buying at what could be near the bottom. The NQ sold off later on March 17 and I was stopped out with a $200 profit. I later bought another contract @7015 after price came back above 7000 and put a stop @2025. I was stopped out again for a $200 gain. Then, on Friday, several states announced they would effectively put a quarantine on the entire states. Markets dropped to nearly new lows on that news. The NQ was developing a trading range of about 7000 to 7400, but it closed Friday @6910. It closed yesterday @6965. There is currently too much uncertainty and volatility to support a sustained rise in prices. It is not a good idea to automatically think the market will soon return to the most recent high, or above, especially since the market was so highly valued just before the correction 4-5 weeks ago. I use the goal of 5% within the top when I might take profits. If conditions are positive, I might put a fairly close stop under that price and let it run. High for the NQ was 9763 on February 20. Price 5% below that is 9275. If I would not have been stopped out and collected $200, there was a possibility that I’d have eventually made about $45,000. (7010 to 9275 equals 2265 points. 2265 points X $20 per point = $45,300.) Since I was stopped out and bought back in a few times, the numbers are slightly different. If you are able to get the buy and stop in, your risks are zero. In this case you are guaranteed to make $200 and possibly about $43,000 eventually. Unfortunately, these are such unique and unpredictable times, “sensible” expectations might go unfulfilled. Hope this has been more intriguing than confusing. By the way, margins for the NQ, ES and YM have been raised to about $10,000 to $12,000 per contract because of the greatly increased volatility. The micros are + or - $1000. Yesterday morning, the YM went up 1300 points in 30 minutes, then down 1300 points the next 70 minutes. (Great opportunity for some nice short-term profits.) Probably traders covering their shorts, driving the markets up, then a shortage of buyers as price moved back down. These were about 3% price swings each way. ***With fast-moving markets, trading a 5-minute chart can be quite profitable; just follow the same indicators. Unbelievable volatility. Until we get a clear and effective approach for combating and conquering the virus, e-mini indexes will likely stay in this negative range. Passage of the large virus recovery bill in congress would be a big help. The market is up this morning, so we could get a bounce in anticipation of a deal. Blog 60, March 17, 2020. Another volatile, unpredictable, headline-driven week. During last week the NQ dropped to 29% below its high in February. The ES was down 30% from its high and the YM hit a little over a 31% drop from its February high. The long-running bull market is officially over. There was about a 9% rise in the indexes during the last 30 minutes of trading Friday after President Trump, among other things, declared a “state of emergency” for the country, freeing another possible $50 billion dollars to put into play to combat the coronavirus outbreak. To support the oil industry and work against price destruction by Russia and Saudi Arabia, the President is going to fill the national Strategic Petroleum Reserve. What do we do now? Stock market direction is uncertain until the virus peaks and begins to show a reduction in the number of new infections. Practically every component of our economy and society is shutting down to stop the spread of the virus. We are in the process of testing prior lows and could move lower still before we find the bottom in this market. The next few weeks will be critical. Trading Model 2 is still recommended for those of you willing to participate in this unpredictable market. With the YM sometimes moving over 1,200 points a day, it’s not too difficult to grab the minimum of 60 points recommended with Model 2. Daily trading ranges for all e-minis are being stretched multiple times wider than their averages. For example, the YM has an average daily range of 300 points. *** If you buy any contracts in the e-minis or micro e-minis the rest of this week, be sure they are described as the June (JUN 20) quarterly listing. Current futures expire this Friday. (Again, please see Blogs 35 and 36 for information about quarterly expirations.) These are unusual and trying times. After the 30-minute 9% run-up at the close Friday, I didn’t believe that price would hold; there were still too many unknown negatives. So, at 4:00 Friday I took a chance and shorted one contract of the NQ and one contract of the EMD, with stops. These trades seemed to have a good profit to risk ratio. All indexes went down so sharply at the 6:00 p.m. E.T. Sunday open that there was no trading until 9:30 E.T. Monday morning (sellers couldn’t find any buyers). Released selling pressure drove the markets to halt again after being open only 30 seconds. Markets opened a second time at 9:46. By 10:00, the NQ short produced profits of about $13,000 and the EMD short produced profits of about $14,000. I covered those two shorts yesterday at about 10:10 a.m. Algorithms and computers create tremendous volatility under these conditions and I always look to exploit those opportunities. With this market volatility, it is even more imperative that your decisions be carefully considered. Next week, we’ll see where the virus and the markets have taken us. There could be broader shutdowns in the country to control spread of the virus; that would be a negative. Stay healthy, everyone. Blog 59, March 10. Remember that quarterly futures expiration is the third Friday of each quarter. In this case, expiration is March 20. Please read Blogs 35 and 36 for information about how to change your trades from one quarter to the next. Model #2, “Index Bites,” is explained in Chapter 9. I described how to calculate ranges for each index, recommending that they be updated twice a year. See calculations from a year ago on pages 101 – 105. I recently completed those calculations for this Spring and used data prior to the extreme moves beginning February 20, thereby reducing the spurious influences of these unusually wide price moves. These point ranges represent 20% of the average daily range, going back 30 trading days, for each of the five stock index e-minis and four micro e-minis. *** Current point range recommendations for Model 2 trading are: 6 points for the ES; 24 points for the NQ; 60 points for the YM; 5 points for the RTY; and 5 points for the EMD. There is worsening supply destruction (can’t get needed parts and materials) and demand destruction (people and businesses not buying or spending as much). Purchases might be made up but activities like dining out or a sports event won’t be made up. The 10-yr treasury bond is currently yielding under 1%, an all-time low (traders have been moving out of stocks and into bonds for safety). For bonds, as price moves up, yield moves down. Volatility has increased greatly and stock prices have continued to drop in search of lower lows. Prices gapped significantly lower Sunday night as Russia and Saudi Arabia are now in a price war over oil. Oil has dropped 50% in price over the past month, taking stocks down with it, and is back to 1991 price levels. The Sunday evening drop was so sudden and severe that trading curbs kicked in, stopping trading. ***On a daily basis, if price for the S &P drops 7%, trading halts 15 minutes; if price drops 13%, trading halts 15 minutes; if price drops 20% or more, markets close for the remainder of the day. If you choose to trade, focus on a 15-minute chart and trade Model 2. This is an extremely volatile market with a very uncertain worldwide economic future. This could be setting up for a buying opportunity of the decade, but not yet! Many more people could be identified as being affected by the virus and prices could fall further. Be VERY careful! Follow trends and our indicators and don’t guess the bottom or second-guess what the charts are telling you. The president made some supportive statements late yesterday, suggesting that the administration will try to help those who have lost income due to the virus. That set prices higher overnight into this morning. Prices will continue to move up and down, depending on any headline. Maybe by March 20, when quarterly futures expire, we might be having some market stability. It all depends on the virus and oil prices. Our basic economy is so far holding up well. Stay calm. If you are also trading individual stocks, this might soon be the time to go “bottom fishing” for specific company values. Blog 58, March 3. For at least the past year, people have been saying, “This bull market has been going up for 10-11 years, the longest run in history. What’s going to bring it to a stop?” We now have an answer—coronavirus pandemic. (A bull market is variously defined but is generally considered as an extended upward trend in prices without a 20% or greater pullback from a recent high.) The DOW lost over 3500 points last week and all indexes dropped about 12%. Total losses are about 16% from recent highs. Index prices were recently back to where they were October, 2019. It was expected that the markets would sell off into the close on Friday, since traders don’t want to be long over the weekend with the unpredictable spreading of the virus. But Fed Chair Jerome Powell made positive comments late in the day about possibly lowering interest rates if the global economic situation worsens, and pension funds were rebalancing, so the markets rose into the close. Monday’s rally was linked to increased expectations of a half-percentage rate cut by the Federal Reserve this month. That might help, but the world needs a vaccine for the coronavirus. With the DOW moving 1000 points or more in a day, and the other four indexes being equally volatile on a percentage basis, this past week presented great intraday trading opportunities with Model 2. Trading Model 1 with a daily chart would also have been profitable; clear shorting signals were given on daily charts on February 24 and 25. Very specific and definite shorting signals were shown for all 5 indexes. Profits of $15,000 to $19,000 could have been made in four days on the NQ, ES, or YM, trading one contract. When markets dive like they have recently, algorithms and computers will continue to drive the collapse. Take advantage. Sometimes the hardest thing for a trader to do is “pull the trigger” for a trade. I continue to stress that these signals, as a package, are rarely wrong once they all line up. If you are still reluctant, make your trade then put a reasonable stop on the other side. I recently wrote that the high reward to risk ratio for trades with these models is very favorable. The indexes could drop again as fallout from the virus begins to express itself more in the economic data. ****The last two days could be part of a near-term bounce followed by a retest of recent lows as effects of the virus on the global economy and corporate profits are calculated. According to Fred Imbert of CNBC, the S&P 500 has had 26 market corrections, not counting the current situation, since World War II. The S&P 500 has declined by an average of 13.7% during those corrective periods and has taken about four months to recover (if they don’t turn into bear markets.) NOTE: A correction is defined as a drop of at least 10% in a major index from its most recent high. A bear market is defined as a drop of at least 20% in a major index from its most recent high. The question is, “When do I get back in this market?” I would suggest trading Model 2, “Index Bites,” while the market finds its bottom. That way you will be following the market direction, whether up or down. As we move along, you could also consider trading a form of Model 3. In this case, when an index increases at least 5% from the bottom and seems to stabilize, buy a contract, with a stop, and ride it up as it slowly recovers from the virus problem. For example, the recent low for the ES is 2857. An increase of 5% puts the price at 3000. (If price moves higher and stabilizes, it is fine to enter at that point.) That is about 400 points below its high of February 20. At $50 per point, that is a potential eventual profit of $20,000 on just one contract of that index. (Remember though, there is no guarantee that this will be a smooth ride back to the top.) You could risk something like $500 with a stop, but could profit by $20,000 on the uptrend. That is a reward to risk ratio of 40-1. I will write more about this in the weeks ahead as the world deals with this virus and its economic impacts. I had planned to write more specifically about the prior week of practice trading. Some related thoughts are included in the above narrative. I received a few responses to the trading exercise. Hopefully, this activity was useful. While our trading guidelines are specific, the use of these models certainly doesn’t rule out individual decisions about entry and exit alternatives. Each of has to trade according to our asset base, personality and capacity to tolerate risk. The important point is to understand the process and reasons for making the decisions we make, knowing that the market can always throw an unexpected “curve ball” our way due to some tweet or announcement. Blog 57, February 25. All e-minis had a significant gap down at the open Sunday night; a bad sign for what was to come. The virus continues to spread and traders couldn’t ignore it any longer, so the markets began to sell off. On Monday morning, the NQ opened -387 lower (- 683 points from its Febr. 20 high), a drop of 7%. The DOW is down 1533 points (-5.2% ) from its recent high. As I’ve written before, markets fall much faster than they rise. The global effects of the virus are still unknown; markets don’t like uncertainty. Following last week’s blog, I’m going into trading summaries over the past week for the ES, NQ, and YM. All times are Eastern Times – Markets open at 9:30 a.m. I’m including practically every possible trade and adding descriptive explanations. ES – Tuesday. Febr. 18. The ES went positive @ 8:15 and should be bought @9:35 @about 3370. A hanging man candlestick formed at 10:00; prices often move the direction of the next candlestick. At 10:15 the homebuilder’s survey was reported to be slightly lower than expected and jittery traders sold off all the indexes. Stochastics turned lower. Don’t fight this; sell about where you bought @ about 3370. 0 points. The stochastic moved lower @ 45-degree angle from 10:00 to 10:45. A candlestick moves lower @ 11:05. To look for an early entry, switch to a 5-minute chart. Short @ 11:05 and cover @ 12:05. Gain of about 10 points. Buy 3364 @12:45, sell 3367 @1:30. 3 points. Total of 13 pts. NET = $650. ES – Wed. Strong housing reports @ 8:30. Markets at or near all-time highs. Time to look for minimum trade points; 5 points for the ES. Buy 3381 @ 9:35. Limit sell 3386 @ about 9:50 (+5 pts). Buy 3385 @ 10:35; put SL @ 3382. Sell 3390 @ about 11:10 (+5 pts). Total of 10 pts. NET = $500. ES – Thurs. Short 3375 @ 11:20. Cover 3355 @ 11:50. (Make more if you enter earlier and if you could catch the down spike @ 11:30.) Total of 20 pts. NET = $1000. ES – Friday. Markets near all-time highs. 20-yr treasury bonds (TLT) at all-time high. Gold @ 7-yr. high. Fears of virus pandemic increasing. Futures indicate markets will move lower at the open. Traders reluctant to be long over the weekend, some taking profits, others staying on the sideline. Stochastics moving lower from 8:00 to 8:45. Likely moving lower @ the open. (Conservative trade would be to wait till 9:48 and short @ 3347. A more aggressive approach is to short about 9:32 @ 3356 and put in a 4-point SL.) Short 3356 @ about 9:32. Cover @ 10:50 at about 3337. 19 pts. $950. Short 1:05 @ about 3340. Cover 2:15 @ 3334. 6 pts. $300. Total of 25 pts. NET = $1250. ES – Monday. NO TRADES ON ANY OF THE THREE E-MINIS. Gradual movement with 3X and/or 9x averages very near or through every 15-minute candlestick. NQ – Tuesday, Febr. 18. The indicators went positive at 5:30 a.m., and were still positive at the 9:30 open. So, you should buy @9.35 about 9588. At 10:15 the market turns sharply lower. You have an opportunity to pocked 30 points, so sell about 9618. Chip stocks are being sold off due to the virus and broken supply chains. Short 9590 @ 11:35. Cover 9580 @11:50. 10 points. Buy 9600 @12:35. Sell 9650 @3:20. 50 points. Total of 90 points. NET = $1800. NQ – Wed. Buy 9692 @ 9:33. Limit sell 9712 @ about 9:55. (+20 pts) Buy 9716 @ 10:35. SL @ 9712. Sell 9736 @ 11:36. (+20 pts). Total of 40 pts. NET = $800. NQ – Thurs. Short 9660 @11:20. Cover 9580 @ 11:50. (Make more if you short @ 11:05, and/or you catch the down spike @ 11:30.) 80 pts. NET = $1600. NQ – Friday. Same situation as ES. Short @ 9:35 @ about 9577. Cover 10:20 @ 9500. 77 pts. Short 12:50 @ about 9453. Cover 2:35 @ 9435. 18 pts. Total of 95 pts. NET = $1900. NQ – Monday. NO TRADES YM – Tuesday, Febr. 18. Apple was a downward force on the YM early on. The stochastic moved up 8:00 to 8:30, but prices hovered on or just above the 9X line. It opened strongly on the open and the 9:45 candle was positive for a buy, but I’d wait for the next candle. There was a lot of negative news about several DOW stocks, and I’d wait a bit for confirmation, especially since the stochastic was turning down, the 5-minute chart wasn’t supportive, and there was a slight downturn for the last three days on a daily chart. Then short @ 11:05 @ 29,200. Cover 29,110 @12:05. 90 points. NET = $450. YM – Wed. Buy 29303 @ about 10:47. Sell 29353 @ about 11:13. 50 pts. NET = $250. YM – Thurs. Short 29205 @ 11:05. Cover 29055 @ 11:45. (Could make more if you enter earlier and if you catch the down spike @ 11:30.) 150 pts. NET = $750. YM – Friday. Same situation as ES. Short 9:35 @ about 29050. Cover 28920 @ 10:50. 130 pts. Short 28970 @ 1:17. Cover 28945 @ 2:20. 25 pts. Total = 155 pts. NET = $775. YM – Monday. NO TRADES Five-day Summary of Three E-Minis ES: Three trades, 13 pts., $ 650 Two trades, 10 pts., $ 500 One trade, 20 pts., $1000 Two trades, 19 pts., $1250 No trades NQ: Three trades, 90 pts., $1800 Two trades, 40 pts., $ 800 One trade, 80 pts., $1600 Two trades, 95 pts., $1900 No trades. YM: One trade, 90 pts., $ 950 One trade, 50 pts., $ 250 One trade, 150 pts., $ 750 Two trades, 155 pts., $ 775 No trades. Summaries for all three e-minis over 5 days: 21 Trades, total profits of $12,225. Mean average of all trades = $582 per trade ($1220 per day for 5 days with NQ.) Daily average over five days (all three e-minis): $2,445 per day. Always one contract. This blog is plenty long. Write to me with questions or comments. I’ll cover this past week with more descriptions next week. Blog 56, February 18. Nothing much has changed. The virus continues to spread and the market continues to ignore it. Good economic news is still propelling the markets to new highs but that, combined with a worsening virus, could eventually lead to a greater pullback. Today, February 18, is beginning as a down day. I recommend more day trading on a 15-minute chart and less trading on a daily chart, even though the markets have been grinding higher. Monitor closely and/or keep stops in place. It remains a volatile and headline-driven market. I’ve been asked to clarify when the e-mini futures market is open and when is the best time to trade. (All times are Eastern.) The e-minis are open for trading from 6:00 p.m. to 4:15 p.m. the next day. (The markets close at 4:00 p.m. but remain open another 15 minutes to clear trades that have been made but not processed.) They are then closed from 4:15 to 4:30. Markets open again from 4:30 to 5:00. Then they are closed for the hour between 5:00 and 6:00. This is confusing but these times are used to clear trades, conduct maintenance, prepare for the next trading “day,” etc. I don’t recommend trading between 4:00 p.m. and 6:00 a.m. (after the European bourses open). Volume is very low and you have trouble getting a trade filled. There is unpredictable volatility due to the low volume. This also leads to more “slippage” (not getting the trade values you want or deserve). (Example: You may want to sell at a certain price, but no one on the other side wants to buy at your sell price.) O.K., THIS IS AN ANNOUNCEMENT! This involves practice trading of the NQ, ES, and YM. For today and the next four trading days, I’d like all of you readers to use a 15-minute chart and write down the time and value when a Model 2 trade could be made. Let’s limit this to normal trading hours only (9:30 – 4:00 Eastern Time). These trades can be long or short, and must follow the guidelines as I summarized in the book and two weeks ago in Blog 54. I didn’t calculate ranges last fall, but they probably have expanded. For this exercise, let’s use more conservative numbers which will produce smaller profits. You will be trying to get at least 20 points on the NQ, 5 points on the ES, and 50 points on the YM (There could be times when you decide to take a profit at less than those values; that is perfectly fine to do. It is also fine to let a profitable trade run a little longer IF you can monitor it). Follow all three of these e-minis on 15-minute daily charts. Mark the entry time and price AND the exit time and price. Then write down your hypothetical gross profit (or loss) on each trade. ***I recognize that all of you can’t monitor three e-mini indexes all day long, so just look at them later and calculate what you would have done, or what you see should have been done. *** I will do the same, then report what I did on next week’s blog. Hopefully, our summary reports will be quite similar. You learn by doing, so let’s all do this together for next week. If you aren’t sure about a particular trade, make a note of what concerned you, let me know, and we can discuss those situations in future blogs. I will also comment on any unclear trade situations as we review the week’s trades. ***Also, remember to move from a 15-minute to 5-minute time frame to get clarity as to whether you should close a position. If you are long and the 15-minute time frame is flattening, but the 5-minute chart is turning down, you might want to sell if the 5-minute chart indicators support that. Although we are using smaller range numbers for this practice exercise, you can still earn great profits trading Model 2. If you trade the ES for just 5 points, and do that only a net of 6 times a week (30 points net), that is $1500 a week and $75,000 a year, trading one contract. For the NQ, 6 net positive trades a week @20 points per trade yields 120 points net; $2400 a week and $120,000 a year trading one contract. I want all readers to thoroughly understand this and get comfortable trading. There is much money to be made! Since I trade several contracts, I have an advantage. After 6 weeks (to February 14), my profits are $85,000. $49,000 of that is liquidated profits and $36,000 is unrealized capital gains. I want all of you to be successful, so let’s work together on this practice trading exercise. Blog 55, February 11. Traders let strong economic and jobs data and corporate earnings override virus fears the first four days last week, setting all-time highs for the three major indexes on Thursday. Then Friday was a down day. There was profit-taking and continuing fears about the spreading virus and the deleterious effects it is having on the Chinese economy. Traders were also reluctant to remain long over the weekend in case negative headlines would be released. For Monday, February 10, look at the e-mini charts on a 15-minute time frame. How much would you have made between 9:50 and 10:30 (or 10:45) trading only one contract on the NQ, ES, and YM? Answer: about $600, $500, and $470 in one hour or less. During Monday afternoon, about 2:35, you would buy the NQ @ 9480 and the ES @3338. Then buy the YM at 2:50 @29138 after price moves above the high of the previous negative candle. All three of these hit their Model 2 goals of 20, 5, and 50 points ($400, $250 and $250). Or, since the 9X was not violated, you could have monitored them and taken profits a bit higher around 3:35 when prices began to stall. Even still, the markets had a bit of a higher surge into the close that you could have captured as well. In response to correspondence with some of you traders, I’d like to offer a couple of ideas about short-term trades using Model 2, “Index Bites.” Most of the trading “talking heads” describe a successful trading strategy as making two to three times the amount of your losses. In other words, they believe that a good trading model is to lose $500 for every $1,000 or $1500 you earn. I see that as a 50% to 33% losing model. That is not how we do it. Let’s use the NQ as an example. Our trading goal using Model 2 is to make a minimum 20% of a recent 30-day average trading range on each trade. The NQ is very volatile, and the trading range increases as the index value increases. Let’s use 20 index points as 20% of the average range for now. Last week I reviewed how to enter trades carefully following the indicators of Model 2. So, we look for at least 20 points; we often can stay in the trade and get more than 20 points. (In last week’s example, you would have been in the short trade from 10:05 to 4:00 p.m. E.T. You would have earned 120 points - $2400 - in six hours, trading one contract. This trade turned out to have a profit to loss ratio of 30 to 1 if you had a 4-point stop loss.) If you are anxious, you can put in something like a 4-point stop loss for protection. You are therefore looking to make at least 20 points, risking 4 points; a profit to loss ratio of at least 5-1. Importantly, these are not “average” risks; these trades have a much higher probability of success. My trades, using Model 2, have a success rate of at least 80%. If you carefully follow the indicators, you should have at least a 70% chance of making a profit with at least 5-1 odds in your favor. There may be times when an unexpected headline comes out and you have to close your position before making 20 points. But you will very likely make some profit. If you combine the 70% chance of making a profit, and that profit will have a high probability of producing at least 5-1 odds in your favor, you end up with a very high likelihood of making some profit on every trade you enter with the indicators lined up properly. The NQ, ES, and YM are the best indexes to trade. When the indicators line up on a 15-minute chart, you’re looking for 20 points on the NQ, 5 points on the ES and 50 points on the YM. Those profits are $400, $250, and $250. *** Look at the charts during normal trading hours and see how many times you can follow the indicators, as I summarized last week, and meet the above goals on those three charts. Periodically, I randomly pick a day or two from the prior week and illustrate all the daily opportunities there were to make money with only one contract. For examples, I refer you to Blogs 41 and 42. Additionally, I have blogs where I demonstrated periodic times of several days or weeks where very profitable trades could have been made on a daily chart using trending Model 1 with one contract. ***While prices could continue to move higher, this is still a volatile, headline-driven market. Trade accordingly. Blog 54, February 4. The “January Effect” states that “As goes the stock market in January, so goes the year.” It has also been stated that market return over the first five trading days of the year is often a predictor of the market for the year. Since 1950, when the market was positive in January, 86% of the time it finished positive for the year, according to The Stock Trader’s Almanac. When the S&P 500 is up in January of an election year, 100% of the time it finished higher for the year with an average return of 16.6%, according to the Bank of America. We were on a positive track until the coronavirus hit in China. Does that change the calculus for this year or is this just a “one off” event? We obviously don’t yet know. I have been asked to provide more examples of how to trade a 15-minute chart. I’ve covered this in earlier blogs, and this is described in the book, but will discuss a bit more today. Your best bet for success is to be sure of the following: no important headlines or government report announcements are going to be made over the next several hours; if going long, be sure the 3X is above the 9X; the prior candlestick has clearly closed above the 9X at the end of the prior 15-minute period; the next candlestick opens and moves higher; the faster stochastic is moving higher, or moved higher the past candlestick or two. This package of indicators shows current momentum and is usually good for at least two or three more time periods. Of course, this structure is reversed if you are shorting an index. I’ll stay within normal trading hours. For example, put the NQ on your screen for last Friday, January 31. There was a strong negative reaction to the coronavirus and the market began a sharp downtrend at the 9:30 E.T. open. (In this case, knowing there was strong negative sentiment due to the virus, you could have shorted right after the open with a stop a few points above your short entry price.) Staying clearly within the models, you would have shorted about 10:05 @ about 9120. That’s what I did. The price went fairly flat at the close and I decided to cover those shorts. Markets recovered some Sunday evening and Monday. A similar pattern can be found on all the other e-mini indexes. From December 13 to January 24 we were able to ride a pretty steady uptrend for great profits! Now we are experiencing how to make money on the short and long side and with shorter time periods. Just follow the indicators for the 15-minute chart. On a daily chart, there has been volatility the past week and no clear trading pattern is strong enough to trade. As I wrote in the book, don’t trade a daily chart if the 3X and/or 9X lines are moving through the candlesticks. That means there is no trend. Again, depending on the virus headlines, this market could go either direction. For the time being I would NOT recommend trading a daily chart. (This is another example of the market not trending 30% of the time.) The markets moved upward Monday night into this morning. Traders apparently feel that the U.S. has a good plan in place to control the virus in this country. And, economic news remains positive. Nevertheless, this virus will have a negative effect on economies around the world, including the U.S., and could continue being a problem for the next 2 - 3 months. Trade carefully and stay with shorter time frames for now. Blog 53, January 28. Markets came under pressure last Tuesday after Boeing’s problems worsened and another coronavirus spread farther from China. This, like the Sars virus, can affect travel, shopping, dining and other important aspects of the economy. Markets recovered a bit after officials explained that plans were in place to protect America from the virus spreading here. Then, on Friday, a combination of profit-taking and increased fears about the virus sent the markets lower. So far, company earnings remain strong. Fears of the virus worsened over the weekend, and markets continued to fall. This is the kind of “Black Swan” situation that can develop overnight. At this point, the sell-off could be in the 3% to 5% range. If the virus can be contained, the markets will recover in good time. If conditions worsen, the markets will move lower. I sold most of my positions after the markets dropped about 2%, but didn’t short because it has not been clear what the effects of this virus will be. I’m now waiting for more clarity about the virus effects, and waiting for the market to stabilize and begin moving higher. Once traders feel confidence in the markets again, they will begin buying. Since new traders are joining this blog on a regular basis, I thought it would be useful to periodically review trading basics. I’ve explained this maybe 35 blogs ago, but understand that everyone is not going to read all the bogs (even though that would be a good idea). Think of these blogs as a “supplemental manual” to the book. Stochastics have not always been systematic and consistent, but today’s platforms appear to have accepted commonalities. It is usually o.k. to use the platform’s default for the “slow stochastic.” This is found under “momentum studies.” The slow stochastic also includes a faster stochastic; that is the one we focus on when we look for a 45-degree angle as confirmation of a trend. The fast stochastic is more sensitive to price movement, so it will cross over the slow stochastic and, in certain patterns predict price movement one or two candlesticks ahead of the other indicators. Don’t trade off the stochastics; use them for confirmation of a trading decision made on the basis of the 3-period and 9-period exponential moving averages and candlestick formations. I will describe the NQ as an example of what your charts should look like; I want to be sure your charts match my charts as I describe them. Set the NQ up on a DAILY chart and go back to December 12. The fast stochastic had moved up, crossed the slow stochastic and reached the “80 oversold line” on December 12. The slow stochastic reached the 80-point line on December 19. Remember that stochastics can stay above the 80-point line indefinitely in an advancing market. The fast stochastic dipped below the 80-point line briefly on December 31 and January 7. Other than that, both stochastics stayed above the 80-point line from December 12 through January 23, indicating support for a steadily advancing market. On December 11 the 3X barely crossed above the 9X. On December 12, price opened on the 9X and moved higher, closing near the high of the day. If price opens and moves higher the next day, that is a buy signal. You would go long one contract on December 13 at about 8500. You hold this position until price closes below the 9X and opens and moves lower the next day. Then, you might sell if conditions and expectations are negative. If that negativity continues for another day or two (depending on external variables, indicators and the strength of the decline) you might then go short one contract to pick up the developing downtrend. Observe that on no day does price close below the 9X between December 13 and January 23. Also notice that the 3X does not move below the 9X over that same period. These indicators for this trend remain positive during this entire period, so you should remain in a long trade. The 3X and 9X, combined with the reading of candlesticks are effective because they show the momentum strength within the next 3 – 9 time periods, and the candlesticks show momentum and describe what other traders are doing (which also reflects how they are feeling about the markets). That is why we should stay in them as long as these indicators remain supportive. Unfortunately, the indicators over this past weekend also demonstrate when we should exit the markets. If you have exited, you will likely be able to get back in at lower prices, perhaps soon. Follow the virus headlines the next seven days. Blog 52, January 21. Indexes moved higher after the China and USMCA trade deals were signed last week, but then flattened out a bit as Mideastern tensions increased and oil prices rose. At current levels, the price/earnings ratio is very high and stocks are highly valued. Traders and investors are counting on these trade agreements to raise Gross Domestic Product (GDP) as much as a half a percentage point this year and into the future, so the high P/E is being tolerated for now. Good quarterly earnings are also necessary to support the market at these levels. It wouldn’t take much in the way of “bad” news to send the market down a few percentage points. If that happens, the rebound would likely happen fairly quickly. There are still investors and hedge fund managers who have not moved into the markets, and a price dip would be seen as an opportunity to buy. The underlying economy and jobs remain very strong. Look at the indexes, especially the ES, on a daily chart going back to around December 9 – 13 when the indicators gave a “buy” signal. The ES has a near perfect profile from December 12 to January 17, about five weeks. The ES has had a steady uptrend of about 175 points ($8,750) in about 24 days. That is a profit of about $360 a day, trading one contract, doing nothing but checking your chart. From December 13, one contract of the NQ would have produced a profit of more than $14,000, about $560 per day. It also has a near-perfect profile. Since the market trends about 70% of the time, these longer trends provide great opportunities for profits. As long as there are no dark clouds hanging over the market, and the indicators stay in a positive profile, remain in the trade, long or short. My book, “Psychologist Behind Bars” is now available on Amazon in paperback and e-book. It describes prisons and inmates and my 26 years of experiences with them. It is informative, interesting and entertaining. If you have any interest in this subject matter, I think you would enjoy reading this book. Profitable trading! Blog #51, January 14, 2020. Conflict with Iran has created volatility over the past eight trading days (1-2 to 1-13). The RTY and EMD closed under the 9X on 1-3, 1-7, and 1-10. The YM closed under the 9X on 1-7. The ES and NQ have not closed below the 9X during this time period. Since no index has closed below the 9X AND opened and moved lower a second consecutive day, a sell signal has not been indicated. I remain long eight contracts and “on paper,” am up about $28,000 so far this year. The market continues to be fully valued, but wants to move higher. The price of oil has come back down; that is a positive. A bear market or major correction is unlikely with U.S. unemployment at a record low of 3.5%. In the 16 years since 1950, when the unemployment rate was below 4.5% going into year end, the average S&P return the next year was 9.9%. History doesn’t foretell the future but there are patterns that tend to persist. An interesting one involves the S&P 500 index (ES in the e-minis). Whenever the S&P is up 20% or more in a calendar year, there is an 83% likelihood it will finish higher the next calendar year. The average (mean) increase in those positive years is 11%. The S&P was up 29% in 2019. Iran has initiated numerous cyberattacks. They might be thinking that as long as they don’t kill any Americans, we won’t carry out any counterattacks. The state of Texas reported that one day they were receiving 10,000 “pings” an hour, most likely from Iran, attempting to get into their computer systems. As long as Iran doesn’t instigate any substantive physical attacks, the markets have a good chance to stay relatively stable. Be alert to headlines. While there have been index trades lately using Model 1 on a daily chart, this volatility has provided many opportunities to profit from trading Model 2, “Index Bites” on a 15-minute chart. As I mentioned in last week’s blog, I have made a great deal of money trading Model 2 in the past. You need to spend more time regularly monitoring the market but can routinely make several hundred dollars, two or more times each day, with only one contract following our indicators. Remember, as the market moves higher, the daily trading range expands. That means that 20% of the average daily trading range gradually expands as well. So, each Model 2 trade will slowly increase in value. In early March, I will recalculate the points for each index using Model 2. The DOW first hit 29,000 on 1-10. It hit 28,000 just 37 trading days earlier. Apple was responsible for one-third of those 1,000 points. Boeing, with its problems, has taken 240 points off the DOW during that time. Of course, as the market moves higher, 1,000 points becomes a smaller percentage of the prior thousand-point level. Traders are also watching and waiting for confirmation of the trade deal with China and the USMCA trade agreement. While they are largely priced into the market, confirmation and descriptions of those agreements will probably give a boost to the market. Earnings reports begin this week. It is important to traders that these earnings don’t disappoint. Prosperous trading! Blog #50, January 7, 2020. Welcome to 2020! Before I write about trading in 2019, I’m going to briefly discuss a short history and lay some background about this type of trading. I spent several years developing and testing different models related to the e-minis, then practice-traded and fine-tuned trading methodologies. In 2012 I set up a live trading account with $30,000. I made $5,000 in the later months of 2012, then carefully traded and adjusted my models in 2013, making $38,000 (108% annual return). I began 2014 with $73,000 in my trading account and began to trade with more confidence. I netted about $143,000 in 2014 (a 195% annual return) primarily using the “Index Bites” methodology (Model 2). I spent a lot of time regularly monitoring the market; I later went to a daily chart to tune down the trading time and intensity. I was spending too much time staring at the computer screen and wanted to do other things, such as write books. From there I have accumulated significant profits every year, spreading them around into four trading accounts. Over the past three years I’ve mainly traded Model 1 (Trending Model) on a daily chart. Profits have continued to accumulate to where I’ve annually invested money in Vanguard ETF’s to keep my four accounts under $100,000 each at the beginning of every calendar year. I haven’t totaled these past eight+ years but I have probably passed a million dollars of trading profits. I usually hold eight working contracts, spread among the four accounts. In 2019 I wrote the revised book, “E-Mini and Micro E-Mini Trading,” and wrote a third book about my experiences as a forensic psychologist working with prison inmates and staff. I made no trades during the month of August, 2019, as the e-minis were not trending on a daily chart. I began the year 2019 with $352,000 total in the four accounts, an average of $88,000 each. I ended 2019 with a net (after fees, before taxes) total of $645,000. That is a profit of $293,000 on $352,000 of beginning equity, earning a return of 83% for calendar year 2019. I offer this information as encouragement. If you maintain discipline and focus, you can take a smaller amount and have it grow into a profitable hobby. The larger your asset base, the more productive your trading can become. As the old saying goes, “It takes money to make money.” In Chapter 10, pages 131-133 I offer some progressive money-management strategies to help build your account. Since the last blog of December 17, 2019, only the EMD and RTY closed below the 9X, but they did not open and move lower a second consecutive day. That was Friday, January 3 after the Iran terrorist was killed. The EMD and RTY have been struggling to close above the 9X, but other averages are still trending higher. Unless Iran responds aggressively, this “situational dip” will probably recover. There was a strong market rebound yesterday, January 6 so I’m watching and still long several positions. The market is fully valued and struggling to move higher. Middle East tensions have pushed up the price of oil and made traders reluctant to put money in the market. We are now waiting to see what, if any, response the Iranians might make. Algos are also watching. There could be a cyber attack from Iran. There was increased household formation by millennials in 2019. Housing permits hit their highest level since 2007. The number of single family homes was up 16% last year. Seven million people are now off food stamps and working. There are still 7 million jobs unfilled in the U.S; that is more than the number of people unemployed. For 2019, the Nasdaq was up about 35%, the S&P was up about 29%, the Russell 2000 was up about 24% and the DOW up about 22%. For this past decade, the Nasdaq was up about 294%, the S&P 500 was up about 189% (total return up 255%) and the DOW was up about 173%. This supports the notion that stock indexes have a predictable upward bias over time. Volatility possibilities that might affect the market in 2020: January – Brexit, clean or complicated break? March – Super Tuesday election primaries. July – Democratic convention – brokered convention? Federal Reserve likely on hold and will not raise interest rates – good sign. Traders hope for Clinton-type impeachment rebound. National election in November. It wouldn’t be at all surprising if a “Black Swan” type of event sends the market down 5% to 10%, possibly more, sometime this year. The market normally has 5% to 10% pullbacks several times each year. If that happens, we will be stopped out, or we’ll follow the indicators to exit and look to make money on the short side. Happy Trading! Blog 49, December 17. Thursday, December 12 was a big day. A presidential tweet came out shortly after the open that was very positive about a phase 1 trade deal with China. Since computers are reading everything that comes into the public domain, algos triggered buy signals and markets spiked. I had entered limit sell orders for all my long contracts near prior highs on four of the e-minis. By 10:00 a.m. all my positions were filled. New all-time highs were set for the ES, YM, EMD and NQ. Markets continued even higher for a while, then settled back where they were about 10:00 a.m. I am now flat (no open positions) since 10:00 a.m. December 12, and am probably done trading for 2019. Remember, quarterly expiration is this Friday, December 20. If you need to review your alternatives with this expiration, please see Blogs #35 and #36. Negotiators are keeping details of the China trade agreement private for now. Politically, they need to have this signed and official before exposing it to the public. Early exposure can lead to criticisms by opposing politicians, especially in China, and jeopardize everything. Since all details are not known, traders are appropriately hesitant to be too enthusiastic about the deal. Of course, some American politicians are prematurely critical based only on limited information. This agreement is apparently very positive and has the potential to shape trade with China into the future. The completed USMCA agreement is more important in terms of the amount and integration of trade between these three countries. Then we had a very strong election win for the conservatives in Great Britain which will take them out of the European Union (Brexit) and increase their strength and independence, including important bilateral trade agreements with the U.S. The future looks very bright for our country. We have had tremendous market gains for several years and, of course, this cannot continue indefinitely. Presidential election years are usually fairly strong historically, with the S&P gaining an average of about 12% each of those years. Current estimates are for the S&P to increase 8% to 10% in 2020. I prefer to not have open positions during the transition market between calendar years, and will be travelling and enjoying the holidays, so my trading is finished for 2019. I’m also working to complete the writing of my third book. The markets are fully valued at this time and have largely priced in both China and USMCA trade agreements. However, as these trade deals become organized and settle in, and Brexit is completed next month, GDP estimations might rise for 2020. Therefore, markets could continue to grind higher into January. The next two Tuesdays are Christmas Eve and New Years Eve. I will be celebrating these holidays with family and friends and will not put out a blog those two weeks. The next blog will be Tuesday, January 7. I’ll summarize my trading during 2019 and what my expectations are for 2020. I hope you all have a wonderful holiday season! Blog 48, December 10. Nearly every economic, employment and unemployment data set are now at least at 50-year highs. This includes about 350,000 new people now employed who had given up on work and were sitting on the sideline receiving some kind of benefits. They are now becoming independent working citizens instead of dependent citizens drawing money from the government. Jobs are available throughout all levels of the economy. The lowest-paid 10% of workers are receiving the largest percentage pay increases. The past week represents an opportunity to write about the “Gestalt” of trading, or the integration of many factors other than just the market charts themselves. Remember, I wrote in my book that this trading is part art and part science. The Fed is maintaining a low-interest rate policy which is very positive for the markets. Consumers are 70% of the U.S. economy and they are productive and profitable. Markets are at all-time highs. And, this is historically the best time of the year for the stock market and the economy. So, what can go wrong? Headlines! In the last blog I wrote about the two down days of Nov 29 and Dec 2 (which closed below the 9X). The rules say that if the market opens and moves lower the next day, we should probably sell and/or go short. This is a situation where we first think about where we are and what is likely to happen. I sent the blog out about 8:20 a.m. Tues, Dec 3. I immediately checked 15-min charts on the futures and saw that they were steadily descending in regular stairsteps. The indicators were lined up for a down market so I sold four contracts about 8:30. I did not short because I didn’t expect the markets to fall more than 2% to 3% under these circumstances, and much of the downdraft occurred very early in the morning. As I wrote earlier, many people have stayed out of the market the past six months because they have bought into the nonsense that a recession is “just around the corner.” “Experts” have continually talked negatively about the economy as if they are hoping stock markets will go down and people will lose money. The markets stabilized about 11:30 a.m. Dec. 3 and buyers began nibbling. The indexes were all down about 2½% to 3%. I bought my four contracts back, saving about $3000 of reduced profits on the way down, between where I sold and where I bought back at lower prices three hours later. By the end of the day, all indexes had recovered about half their losses that day. This formed a shortened negative “hammer” candle. When that hammer candle appears at the apparent bottom of any downtrend, and the market opens and moves higher the next day, that is a time to go long (See Chapter 7, esp. pp. 72-73). Sellers drove down the price pretty hard, then buyers stepped in and brought the price at least half the way back up. This represents a positive turn in trader sentiment. The last three days of last week were then all higher and the indexes finished about even for the week. A few of you have written and asked about how I know some of this information. The first answer is a lot of reading, practice and trading experience over the past 8 years or so. I also follow news and data on Fox Business News between 8:00 and noon, E.T. I keep close track of the “economic calendar” site. I have a steady stream of current financial and news feeds on my TDAmeritrade platform. And I am on several free internet feeds of economic, news, and financial services. ****A reminder - - 4th quarter futures expiration occurs Friday, December 20. Please refer to Blogs #35 and #36 where I explain futures expiration. If the China deal is not completed, and tariffs are raised Dec. 15, the market will likely have a negative reaction to that news headline. You need to decide whether you want to liquidate your positions before that is announced or maybe move your stops a little tighter (This relates to the need to close your positions before Dec. 20 expiration). I doubt there will be a deal. The question will likely be whether tariffs might be delayed. A delay would be less significant since the negotiations would technically still be in process. Blog #47, December 3. Markets dipped on Friday, November 29. President Trump signed legislation supporting the Hong Kong people (Hong Kong Human Rights and Democracy Bill) and the Chinese government was not pleased. The Chinese may be waiting to see if President Trump will be impeached, and no agreement will likely be reached this year. It was also a shortened trading day with light volume. There is no progress on the USMCA trade agreement that needs to be signed. Then on Monday, December 2, the markets went down again. ISM manufacturing data were weaker than expected, and traders cashed in profits made in the tech sector. That selling drove down the NQ e-mini. The Information Technology Sector had appreciated 41% so far this year. On the positive side, Adobe Analytics reported some stabilization in world economies. An estimated 4.2 billion dollars were spent on online shopping on Thanksgiving Day and 7.4 billion spent online on Black Friday, both records. Yesterday, December 2, “cyber Monday” sales were estimated to be 9.4 billion dollars, a record high by 19%. It is not yet clear as to how much these sales might be cannibalizing sales at physical stores. U.S. stock markets have continued to hit all-time highs. The DOW and the S&P 500 have each hit more than 100 new all-time highs the past three years. The Russell 2000 (RTY e-mini) has lately been catching up with the other indices. This is a positive as small company stocks need to participate if this economic expansion is going to continue. ISM non-manufacturing data will be out Wednesday morning, and important payroll and unemployment data will be out this Friday morning, December 6. Markets are fully valued but could continue edging higher due to strong economic numbers and anticipation of one or two signed trade agreements. As time goes on, the completion of these two trade agreements becomes more priced into the market, reducing the expected positive response from their finished negotiations. I remain long the same 8 contracts, but will be watching today’s action and today’s close. If the indexes close below the 9X a second straight day, I might sell. Traders have been buying market dips, so the indexes could move back up to close on or above the 9X. We’ll know more later today. Blog 46, November 26. The e-mini and micro e-mini indexes continue to move higher. They are helped by on-going predictions of a recession by some “analysts.” There is currently no reason to be writing about recession possibilities over at least the next six months. But this negativity is positive since it makes some buyers uneasy. This means money is entering the market at a slower, controlled pace. Also, the higher it moves, the more anxiety it creates for fund managers and other investors who have not been enjoying the profits that others have been making. They are being forced to move money into the market. Consumer confidence is very high, and retail sales are strong. More people are working than ever in the history of our country, and their incomes are greater. Strong holiday travel and shopping are expected, and it is likely the markets will grind higher over the next seven weeks or so. It now appears that the House of Representatives is going to stall the USMCA trade agreement into next year. House members have been sitting on this trade law for over nine months. This is unnecessary and harmful to American businesses and citizens. Should that be signed, it would be a strong positive for the market since many thousands of American jobs will be created and the economy will become even stronger. Hong Kong voters overwhelmingly voted for democracy in their recent elections, putting more pressure on Chinese leaders to have a fairer and more supportive plan for easing tensions. The demonstrators and people of Hong Kong would feel much better if the Chinese government would just honor the treaty agreement they signed when the British turned over Hong Kong to the Chinese government in 1984. This was a 50-year agreement that there would be a “one country, two systems” policy. If the “Phase 1” trade agreement can be made with Chinese leaders, that will be another strong stimulus for the indexes. My only comment on trading this week is, “steady as she goes.” I remain long the same eight contracts. Hope all of you have a wonderful Thanksgiving! Blog 45, November 19. It’s time to take a step back and evaluate how Trending Model 1 has been performing with the e-mini’s over the past five weeks through November 15. I’m going to give you specific information about how I have been trading these indexes on a daily chart with Model 1, including the RTY which I did not trade. Please take the time to follow and evaluate decisions and process to make these trades. I explain everything you need to know to make trading decisions. These models are very profitable. It might be helpful to print this blog and refer to it as you review your charts. /ES - - I bought contracts @2950 on October 11. An upward “signal” candle closed above the 9X on Oct. 10, and the 3X moved above the 9X on Oct. 10. On Oct. 11 I bought just above the close of Oct. 10 after price had moved above the “signal” candle closing price. Notice the stochastic also moving upward at about a 45-degree angle. Both the slow and fast stochastic have stayed above 80 since October 24. This is the profile of a steadily advancing market. Note the perfect profile of moving averages on a daily chart of the /ES the past five weeks. On page 139 in the book I show a graphic representation of the comparative slopes of the averages in an uptrend. The slope becomes steeper as time averages become shorter, representing a gradual uptrend. The profit summaries I show with each of these five eminis represent “unrealized capital gains,” (on paper profits) meaning the position is still open. Once the position is closed out, you then have “realized capital gains.” BUY 1 ES Oct. 11 @2950. PRICE VALUE Nov.15 @3119. Points gained = 169. 169 X $50 = $8450 current profit per contract. /NQ - - The positive “signal” candle was on Oct. 10. It closed above the 9X, the 3X crossed above the 9X, and the stochastic was moving upward about a 45-degree angle. I bought contracts on Oct.11 @7787, just above the close on Oct. 10. Price closed below the 9X on Oct. 22. If price had opened and moved lower the following day, I might have sold, depending on what the news was that was sending the market lower a second day. However, the market opened and moved higher on October 23, so I stayed in the trade. BUY 1 NQ Oct. 11 @7787. PRICE VALUE Nov. 15 @8323. Points gained = 536. 536 X $20 = $10,720 current profit per contract. /YM - - The “signal” candle was on Oct. 10. That day’s candle closed above the 9X and the 3X moved above the 9X. This profile appeared to be a bit weak in how far the candle had moved up, and the stochastic was weak, so I waited for the price to move above the close of October 10, and seek stronger confirmation from the stochastic. I then bought a contract @26,640 on Oct. 11. There were indecision candles on Oct. 21, 22, 23, and 24 (plus, minus, plus, minus) that I watched closely, but there were no occasions where price closed below the 9X and moved lower away from the 9X a second consecutive day. If that had happened, I might have sold. Price closed on the 9X on Oct. 31, but the trend continued, and I stayed in the trade. BUY 1 YM Oct. 11 @26,640. PRICE VALUE Nov. 15 @27,960. Points gained = 1320. 1320 X $5 = $6600 current profit per contract. /EMD - - The “signal” candle was on Oct. 11; however, price opened and moved lower Oct. 14, the next trading day, so I waited to buy. Price moved up on Oct. 15, and the stochastic was moving up nicely, so I bought @1914 on Oct. 15. Price closed below the 9X on Oct. 31, but moved higher the next day so I stayed in the trade. Price range was very tight for nine days up to Nov. 14 as the market was consolidating, and closing prices barely stayed above the 9X. BUY 1 EMD Oct. 15 @1914. PRICE VALUE Nov. 15 @2001. Points gained = 87. 87 X $100 = $8700 current profit per contract. /RTY - - The “signal” candle was on Oct. 11. It was a strong move up in price above the 9X and the 3X had crossed above the 9X. However, the stochastic was not yet convincing, and you need to wait to see what happens on Oct. 12. On the 12th, price moved lower and closed as a “negative indecision spinning top candle.” Have to wait another day to see what happens. Market moved up on Oct. 15. Stochastic now looks good, so you would buy after price moves above the open of October 14. You would buy a contract at about 1513 on Oct. 15. BUY 1 RTY Oct. 15 @ 1513. PRICE VALUE Nov. 15 @1597. Points gained = 84. 84 X $50 = $4200 current profit per contract. I have four accounts, and usually trade two contracts in each account for a total of 8 contracts. I bought the following 8 contracts October 11 - 15 when the indicators turned positive: 3NQ, 2ES, 2EMD, 1YM. During the current 5-week period up to last Friday, November 15, these 8 contracts have appreciated by a total of $73,000, or about $14,600 per week trading Model 1. One contract would have appreciated by an average of $9125 over the past five weeks, or $1825 each week. I continue to hold these 8 open positions. Blog 44, November 12. The CME Group reported that 72 million contracts of the four Micro E-Mini Stock Index Futures were traded the first six months since they were introduced May 6 of this year. Average volume was over 560 thousand contracts per day across the four indexes. Twenty-six percent of trade volume was from 160 countries outside the U.S. Demand for these micro e-minis remains strong and consistent. More index records were set last week, and upward momentum is continuing. This is another example of the stock markets “climbing a wall of worry.” There is also a great deal of money on the sideline as many investors have been reluctant to get in the market. There has been some consolidation, which is appropriate, and there is hesitation about the China “phase 1” agreement since it is not clear what the schedule and conditions are for completion of negotiations. Yesterday, November 11, markets struggled a bit, primarily due to profit taking and increased violence in Hong Kong, the 5th largest stock market center in the world. Nonetheless, conditions and charts remain positive, and I am still long the market on daily charts. For calendar year 2019 so far, the Nasdaq is up 27.6%, the S&P 500 is up 23.1%, the DOW is up 18.7%, and the Russell 2000 is up 18.2%. Happy trading! Blog 43, November 5. Had new all-time highs in the S&P 500 and the Nasdaq last week after a very strong jobs report which also included surprisingly high upward revisions to prior months. (Then those two plus the DOW hit new highs yesterday, November 4.) The Fed lowered interest rates one-quarter point which pleased the market. Jay Powell’s follow-up comments were also measured as to the future. This also pleased traders. Positive statements were also made by White House officials regarding trade negotiations with China. November is the third-highest month for stocks, by history. December is the highest month for stocks, averaging 1.7%. The best three-month period for stocks, by history, is November – January, averaging 4.2% during that period. So, if there are no major damaging headlines the next three months, the market could continue higher. We should have a very strong economic holiday season since nearly all Americans currently have more income. The Fed has now lowered rates one-quarter point three times in succession, and intends to remain on hold for the foreseeable future. In the past, after the Fed has lowered rates three times and paused, the S&P 500 was up about 10% six months later and up about 20% 12 months later. This is a good background, but markets could struggle the next year since the first year of a presidential election cycle (in this case 2021) has not been good for stocks. This is because a new administration wants to make any major policy and economic moves early in the term so the end of the term can be stronger for the next election. A daily trading example for this week is the ES and MES. Bring the ES up on a daily chart on your platform. Notice the “buy” signal @2950 on October 11. At the time of this writing on Monday, the ES is priced @3080. That is a gain of 130 points ($6,500) in 16 trading days ($406 per day) trading only one contract of the ES ($40 per day with one MES contract). Another example is the NQ on a daily chart. A “buy” signal was given @7787 on October 11. As of this writing on Monday morning it is priced @8215. That is a gain of 428 points ($8,560) in 16 trading days ($535 per day) trading one contract of the NQ ($53 per day with one MNQ). The daily candlestick closed below the 9X on October 22, but closed higher the next day and continued moving higher the following days, so the 9X was not violated. The indexes still have upward momentum and could continue higher from here. I am holding several open long positions on a daily chart. Since November 8, 2016, the S&P 500 is up about 43%, the DOW is up about 49% and the Nasdaq is up about 61%. As I wrote on my Amazon book page, “Stock Indexes are the only asset class that have a predictably upward bias over time, making them favorable trading vehicles.” Markets will correct, but have always come back and moved higher over time. Trading these e-mini stock index futures with my models should continue to be profitable. The total value of stocks in the United States has increased 10.6 trillion dollars since November 8, 2016. Happy trading! Blog 42, October 29. I’ve been receiving emails from many of you and it seems that you are missing some information. Maybe some of you read my first book, but not the second. Some were just learning about these blogs. Some may have read the second book too quickly, and didn’t make notes or take the time to fully absorb and understand the material. Several didn’t know about my six videos on YouTube. In any event, I thought I’d begin a basic review and cite references in the second book. It would be useful to think of learning how to profitably trade these e-minis as essentially an “on-line master class” that requires time for learning and practicing. If this were simple, everyone would be a millionaire. Once you get the hang of this, you will see that it was well worth your time and energy, and you can be a profitable, independent trader for many years into the future. Let’s review the basic trade setup. All page references are for my second book, “E-Mini and Micro E-Mini Trading.” Chapter 8, especially pages 83 – 85, explains how to set up and close long and short trades. The 9X is the 9-period exponential moving average. The 3X is the 3-period exponential moving average. When you are looking to buy for a long trade, the 9X will usually be flat or slightly moving upward. In an upward-trending market, the 3X will move above the 9X, showing the increasing upward short-term momentum of prices. To buy, four conditions should be met. 1.) The 3X moves across and above the 9X. 2.) The stochastics should be moving upward at about a 45-degree angle, and between the 20- and 80-line markings. This is confirmation of the upward move in prices. 3.) An upward-forming candlestick has to close ABOVE the 9X. If half or more of the candlestick is above the 9X, that is a stronger and more positive move. 4.) The next candlestick opens and begins to move higher than that prior candlestick. At that point, you should buy, or go long. To short a trade, you do the same as above, but everything is REVERSED. (See pages 83 – 85.) It is NOT a good idea to trade right before a major government report or announcement, or quarterly announcements and projections from major corporations (Ex: Apple, Microsoft, Amazon, Ford, Alphabet, Caterpillar, P&G). Computers read newspapers and news feeds, and the price could go anywhere right after the information release. If your trade unexpectedly turns against you, some event or report has disturbed the natural order. You can track government information by having this website in your bar at the top of your computer: https://www.investing.com.economic-calendar/. You should check this every morning before you trade. Your platform will also likely have an up-to-the-minute news feed you can monitor when you are looking to trade. Prior blogs usually have information specific to each week, and older chart information is not retrievable. Nevertheless, there is a lot of generally useful information in these blogs, especially the first 20 blogs. It could be somewhat tedious, but you might want to sit down with a cup of coffee and begin reading at Blog #1. Think about, and be sure you understand, everything you read in all these blogs and in the book. Between the book, these blogs and the six videos, I have explained about everything I know in how to understand and profitably trade these e-minis and micro e-minis. *****5 PERFECT TRADE SETUPS FRIDAY MORNING, OCTOBER 25 The market moved higher on the open and continued for at least two hours. Every index was profitable. Here is a summary of 15-minute trades; take a look at your charts. Buy 1 NQ 9:38 @ 7953. Sell 11:38 @ 8032. 79 points. $1580 in two hours Buy 1 ES 9:38 @ 3006. Sell 11:48 @ 3924. 18 points. $ 900 in two hours Buy 1 YM 10:05 @ 26,815. Sell 12:05 @ 26,954. 139 points. $ 690 in two hours Buy 1 EMD 10:05 @ 1952. Sell 11:50 @ 1963. 11 points. $1100 in 105 minutes Buy 1 RTY 9:50 @ 1550. Sell 11:35 @ 1563. 13 points. $ 650 in 105 minutes. On Monday, October 28, new highs were reached on the ES, NQ, and EMD. The Fed is expected to lower interest rates one-quarter point Wednesday. Friday’s jobs report could be a bit weak, but this is influenced by the workers’ strike at GM. There will apparently be some type of impeachment inquiry vote Thursday. Could be a volatile week. Happy Trading! Blog 41, October 22. Last Friday, October 18, had several trades on a 15-minute chart, if you are able to monitor the market all day. I’ll summarize seven examples: NQ Short 10:17 @ 7933; cover 12:35 @ 7847. 86 points. + $1720 in about 135 minutes NQ Buy 1:47 @ 7886; close 3:17 @ 7907. 21 pts. + $420 in 1 ½ hours YM Short 9:05 @ 26,970; close 9:35 @ 26,924. 46 points. + $230 in 30 minutes YM Short 11:35 @ 26,914; close 12:35 @ 26,783. 131 points. +$655 in 1 hour (You could short 9:05 @ 26,970 and let it run to 12:35, closing at the same 26,783. The 9X is not violated. That would be 187 points; + $ 935 in one trade; 3 ½ hours. The safer method is to make separate trades.) ES Short @ 9:05 @ 2995; close @ 9:35 @ 2992. 3 points. + $150 in 30 minutes ES Short @ 10:17 @ 2993; close @ 10:47 @ 2988. 5 points. + $250 in 30 minutes ES Short @ 11:50 @ 2990; close 12:35 @ 2980. 10 points. + $500 in 90 minutes The above 7 trades would keep you busy, but you would make about $3900 between 9:00 a.m. and 3:15 p.m.; 6 + hours ($620 per hour). If you were trading the regular e-minis you would, of course, have to be adequately capitalized. You would make about $390 with the micro e-minis, needing about $2500 to $3000 in your account for these trades. Trading only one contract of the NQ would produce a profit of $2140 in 6+ hours. The rank-ordered (best to worst) return per capital required is: EMD, NQ, ES or YM (very similar in annual returns), and RTY. This week, 120 (about 24%) of the companies in the ES will announce quarterly earnings and projections for the 4th quarter. If those continue to be strong, we could see new highs on the futures indices within 10 days. We have been within 1% and 2% of all-time highs the past six weeks or so (closer to 3% with the RTY), but have not been able to break through. Those highs have been the levels for upside resistance. Traders have been positive on the economy and the stock market, but political and trade issues have held the market back. As of last Friday, 14% of S & P companies have reported and 81% posted earnings that beat analysts’ expectations. Admittedly, the bar for earnings has been set very low for companies, making it much easier to beat estimates. There are still negatives throughout the world, so the American consumer will need to keep buying and spending to push the market higher. Blog 40, October 15. ***(Please read to the end.) Good morning, traders. I’m beginning today’s blog with a couple of messages to all of you. I have a request for those who have read my second book, “E-Mini and Micro E-Mini Trading” and are on board with what we are doing here. Would you please submit an evaluation of the book to Amazon? It is important that other possible readers have more information available from those who have preceded them. I have been very successful trading e-minis with my models and would like to spread the word to others who want to take control over part of their investments. Thank you. Secondly, I receive questions from readers that probably aren’t unique to them. There are questions that go beyond trading e-minis. I have spent many decades studying trading, investments, financial planning, retirement planning, creating balanced portfolios, and other information about how to responsibly and profitably manage your money as you go through life. And, as a psychologist and retired professor, I believe in sharing what I know if it will help others. So, if you have questions, please feel free to write to me (andersonemini@gmail.com). I would also like to get feedback from those of you who are successfully trading and profiting from using these models. My plan is to include those questions, with my responses, in what I’ll call “TIP OF THE WEEK.” If it is a slow and uneventful week, I’ll add this to the end of a weekly blog. There is a 10-minute summary of the new book on YouTube. The first half of the video is a verbal summary of micro e-minis. In the second five minutes I summarize how you would profitably trade the recent e-minis showing a candlestick trading chart and indicating where you would enter and exit trades, using our indicators. This past week was volatile and prices rose as anticipation of a Chinese “trade deal” continued to grow. Agreement on “Phase 1” was announced Friday afternoon. We were disappointed last May when a broad agreement was not accepted, and it will probably take 3-4 weeks to get this Phase 1 on paper. The problem has always been enforcement of any agreement. And, everyone needs to agree on what was written following verbal agreements and understandings. There is a phrase among traders, “Buy the rumor, sell the news.” Traders drove prices higher October 9 – 11 in anticipation of “a deal,” then prices began to sag late Friday as details were released and uncertainty about the eventual outcome began to grow. Some traders took profits. After further analysis, traders began to believe this was more of a “pause” with China than an expected “trade breakthrough.” Skepticism about a meaningful trade deal continued yesterday (October 14) as the market drifted. There are possibly three “phases” to the trade deal, and now the Chinese want another round of talks before they think about signing phase 1. The sense is growing that they might just be stalling to avoid more tariffs scheduled for this month and December. They might also believe that the longer they drag this out, the more we will begin fighting among ourselves. I wrote earlier that China likes to “play the long game.” Earnings will be very important, beginning today. Continued conflicts in the Middle East, especially Turkey’s attack on the Kurds, has also put downward pressure on market prices. ****ADDENDUM – I’ve decided to occasionally pinpoint short-term trades that clearly illustrate the trading models. Some of you are not clear how this presents on a chart. Pull up the NQ from yesterday, October 14. Put it on a 15-minute chart. At 6:45 a.m. Eastern time the candlestick closes above the 9X line. At 7:00 the 3X moves above the 9X showing increasing short-term upward momentum. The 7:00 to 7:15 candle closes above the 9X. The stochastic is moving upward at about a 45-degree angle. The rule is, if the next candle opens and moves higher, that is a buy signal. The 7:15 to 7:30 candle does open and move higher, so you BUY at about 7832. When you are in a momentum trade, you can continue to hold it as long as a candlestick does NOT close below the 9X AND the next candlestick opens and moves lower still. You need to sell if that happens. The uptrend continues unbroken until 11:00. Notice that the 11:00 to 11:15 candle is a BEARISH ENGULFING candle at the top of a current uptrend. That means you should SELL as this is a predictor of near-term downward momentum. You don’t need to wait for the indicators of a short trade to present themselves. SELL there and take your profits. In summary, you enter the trade @ about 7832 at about 7:20 a.m. You SELL your long position after the bearish engulfing candle at about 7868 around 11:17. That is a gain of 36 points and $720 gross in four hours. Notice that the stochastic peaks above 80 @ 11:00 and begins moving lower when the bearish engulfing candle indicates a change to a downtrend. Just follow the indicators. If you were doing Model 2, you buy the same @ 7832 about 7:20 and sell @ 7848 a little after 8:00. (Your short-term goal with model 2 and the NQ is 16 points.) That is a gross profit of $320 in about 45 minutes. If you want to only look for the minimum, set a limit sell order 16 points above your buy price, in this case @ 7848. Blog 39, October 8. Last week, lower than expected PMI numbers and increasing weakness in European economies sent the DOW down 1000 points from Tuesday morning to Thursday morning. Algorithms (algos) kicked in and indexes lost all the gains from the month of September. Most indexes had traded in a narrow range for at least three weeks. Usually, the longer and narrower the streak of indecision, the greater and faster is the move away from that range, up or down. Market drops on Tuesday and Wednesday were so abrupt and extreme there was very little opportunity to trade them, unless you had a short trade already working. Markets recovered some Thursday and Friday when algos stopped selling, some algos began buying, and traders who were short the market began covering their shorts and looking for buying opportunities. Other factoids to consider: Gains in earnings for all hourly workers means more spendable income for the economy. The /MYM, /MNQ, and /MES are up about 14% - 18% year-to-date. The /M2K (RTY) is up about 10% for the year. October is historically a very volatile month. China trade talks are scheduled for Oct. 10-12. Third quarter earnings reports will begin to pick up this week. Earnings might be lower due to trade issues and weakness abroad; traders will be watching for earnings forecasts for fourth quarter. As of now, strong consumer spending is expected over the holidays. Unemployment is down to 3.5%, the lowest in 50 years. Black, Hispanic and female unemployment are at new record lows. Seven million American jobs remain unfilled. Wages are rising about 3% for lower income groups. Unemployment for workers without a high school diploma is down to 4.8%, a record low. Special training is now being developed to train workers for IT jobs that are available. Under current conditions, despite these gains, it will be difficult to hit new index futures highs. Current highs are about 3029 in the S&P, 27,400 in the DOW, 8071 in the Nasdaq, 1979 in the Midcap 400 (EMD) and 1620 in the Russell. The China trade talks may disappoint as the Chinese want to focus on only areas the two sides agree on, not the important issues of theft of intellectual property, etc. If we can get through politics, and if congress decides to do some work for the American people, we have a strong economy that can still produce more market gains. Stay alert for headlines and algo reactions. Blog 38, October 1. We have had no signals to trade with a daily chart for 17 days on most of the indexes. This is beginning to look much like the August pattern where there were very few opportunities to trade on a daily chart with our signals. This is a headline-driven market, but sometimes there are not enough of the right headlines to begin and sustain a trend. As I wrote earlier, this is the other 30% where the market has daily volatility and does not trend. While there have been fewer opportunities to trade Model 1, there have been many opportunities for intraday trades with Model 2 on a 15-minute chart using our same trading indicators. Whenever there is a wide daily range, there are opportunities to make good profits. For recent examples, look at the NQ on September 20, 24 and 25. Point ranges those three days were about 137, 200 and 170 points. Our Model 2 single-trade goal, for 20% of the average daily range with the NQ, is only 16 points. On Sept 20, from 10:30 to 2:15, the trade would have been to short @ about 7925 and close about 7845. That is 80 points ($1600). On Sept. 24 a good trade was to be made from 10:15 to 1:30. Short @ about 7865 and cover @ about 7720. That is 145 points ($2900). On Sept 25 there was a nice trending trade from about 10:45 to the 4:00 close. That was to buy about 7725 and sell the close @ about 7820. That is 95 points ($1900). I chose only trades during normal trading hours. There were a few other possible trades on those days that would have been short-term; some were modest gainers, others were modest losers. This example is only for the NQ. There were similar profitable trades to be had on those days using the other indexes. As I’ve written, when trading a 15-minute chart during only normal trading hours, there are always good trades to be found on at least one of the indexes. It was recently reported that the median U.S. household income has now risen to more than $65,000. This is an all-time high and an increase of $4,000 the past two years. Household income had increased $2,000 during the prior eight years (2009 – 2016). Notice that the government appropriately uses “median” as the measure of central tendency, not “mean.” The S&P 500 just booked its best “first three quarters of a year” since 1997. Today marks Communist China’s 70th Anniversary celebrating formation of “The People’s Republic of China.” Large protests are planned in Hong Kong. Blog 37, September 24. Last week I described alternative ways to close current quarterly futures contracts and open the next quarterly futures contract(s). I didn’t mention the obvious default method - - let current contracts expire and convert to cash. If you do nothing, your contract(s) will be redeemed and sent to cash at whatever the current market value is during the morning on expiration Friday. Markets were holding on after the Fed lowered rates a quarter of a point, but some traders were disappointed that it wasn’t a larger cut. Then, about 1:00 p.m. E.T. on Friday, markets dropped after the Chinese trade delegation decided to return early to China. The U.S., Saudi Arabia and their allies are still determining how to respond to Iran’s attack on Saudi oil installations. The U.S. quickly added restrictions on Iran’s main bank, making it difficult for them to conduct business. A military response of some type is still being considered. Depending on what that might be, the markets will likely respond negatively. The U.S. economy is still strong. Some exceptions have been made in tariffs on both sides, so the trading stalemate with China could last for some time. These tariffs create problems for both sides, but China appears to be harmed more. As I wrote before, China plays the “long game,” and may wait this out until the 2020 election in hopes for a democrat president with whom they expect to get a much more favorable trading deal. We have strong U.S. economic strength, pending trade deals with Japan and Great Britain, and the USMCA trade agreement that could finally be signed in a few weeks. This is counterbalanced by concerns over issues such as China trade, Hong Kong protests, Iran aggression, and weak European economic data. We may be in a trading range for the time being. The /ES, for example, could trade between 2820 and 3020 for a while. Blog 36, September 17. The RTY had a good recovery week as some investors moved into undervalued areas of the market, but I still don’t recommend it. How RTY performs is an overall indicator of investors’ enthusiasm for stocks, but it has the lowest return on a reward to risk ratio. Let’s do some math. I’ll price the ES at 2980 and the RTY at 1550, which were the prices a few days ago. Both of these regular e-mini contracts are valued at $50 a point. Since the ES is priced at nearly twice that of the RTY, you can see where I’m going with this. An upward move of 2% on the RTY is 31 points. An upward move of 2% on the ES is 59.6 points. At $50 per point, the RTY increases by $1550. At $50 per point, the ES increases by $2980. That means the same percentage of market movement produces 92% more profit trading the ES instead of the RTY (an extra profit of $1430 for the same percentage gain with the same price per point basis). Of course, you would lose less if the RTY declined 2%, but that is something we will usually avoid. The RTY has higher volatility, so it can move faster and broader than the ES. Take a look at these two e-minis on a daily chart and you’ll see the difference in potential profit for essentially the same cost and risk, although the RTY has a slightly higher risk due to its greater volatility. The indexes had a profitable move from September 5 into the 13th, then congress started talking tough about big tech companies and the NQ slumped. I had a few sell stops that tripped near the highs Thursday and Friday and continue to closely watch index prices. The weekend attacks on the Saudi oil facilities pushed oil up about 14%, the highest daily percentage gain since 2008, and means there will be a military counter attack of some kind which will roil the markets. We’ll see what the Fed does with interest rates tomorrow. If their decision is to not cut at least a quarter-point, the markets will react negatively. December index options are now available. If you don’t own an index contract currently, you might not be able to see September futures in that index; you will likely see only December futures. I’m looking for openings to sell September and buy December, but also keeping alert to what is happening in the Middle East. A significant strike against Iran or their proxies in Iraq will likely trip stock sell orders by the computers. Stay alert. Blog 35, September 10. E-mini futures expire the third Friday of the third month of each quarter. That means third quarter futures will expire September 20. Fourth quarter futures will be available to trade about one week before that expiration Friday. You can create a “rolling order” which will close your current position and open it at the same relative price for the next quarter. You will pay the usual trade fees for both sides of that trade. It has about the same number of steps as a simple close and open of a new order, and you have a continuation of comparable price. I have been asked about this by other traders. This is a direct way to have exactly the same position and pricing, and there is nothing wrong with this. I have found, however, that I may close a position in one index, but another index may currently have more favorable pricing. For example, I have a long contract in the NQ or MNQ and it has risen nicely near old highs. Meanwhile, a couple of DOW stocks have been trading lower due to some negative headlines related to current trade issues. If that is the case, I may close the NQ or MNQ, then buy a contract in the YM or MYM since its price is currently depressed and looks to have better future value. If I want to hold the same exact position(s) for the next quarter, I like to trade that quarterly exchange sometime during expiration week. Using principles of Model 2, if I want to stay long one position in the same index, I determine comparable pricing between the expiring quarter and the new quarter. Then I watch for a “bump up” in price (maybe an intraday buy signal that moves higher) to sell the current position. Then I wait for the price to dip a bit (or turn into an intraday short signal) and buy a long position for the new quarter at a lower price (where the intraday short might be covered). Because of price spread in the average daily range, this almost always provides an average net profit of at least $100 on this exchange of one regular e-mini contract. I’ve written about the value of having “extra” money in your trading account so you can take advantage of opportunities. Another example of trading the week of expiration: You are long an index and want to continue that position the following quarter. Only now, instead of rising, your index has a major decline driven down by algorithms in reaction to a tweet or headline. This was clearly an exaggerated move, and price begins to recover. NOW is the time to buy your long position for the next quarter. Then you wait a few days as you move toward Friday expiration and sell your original position after the market has recovered. Your “paper profit” so far will now be the difference between your lower buy price for the new quarter followed by your higher sell price for the old quarter. Always be careful not to confuse expiring and new quarter trades. There are many profitable ways to trade these e-minis. I don’t recommend trading the RTY, at least not at this time. It continues to lag. The EMD and the other three e-minis have closed above their 50-day SMA. All indexes moved into a positive trading position on a daily chart on Thursday, Sept. 5. The A-D (Advance-Decline) line hit an all-time high late last week. There are many positive indicators for a higher market; however, support is based on expected lower interest rates by the Fed and new hopes for progress in more Chinese trade talks (we have had disappointing trade talks before). So, while indicators are currently positive for buying on a daily chart, any trades should be made cautiously and be closely monitored with stops included. I added long positions last Thursday. At the time of this writing, the four regular e-minis are up about $1400 to $3600 each from Thursday’s buy signal. But this is still a volatile and headline-driven market. Blog 34, Sept. 3. Unresolved China trade negotiations, weak European economies, negative interest rates, USMCA being stalled in the House, uncertainty about the Fed and interest rates, Hong Kong protests, August and September being the worst pair of months for stocks, hurricane Dorian, etc. The list of uncertainties continues to affect market volume and price action. The American consumer is about 70% of the economy. Fortunately, we continue to be very strong in consumer spending, jobs and low unemployment. There are several million job openings that cannot be filled because of skill deficiencies and the fact that there are more jobs available than there are people to fill them. So, the market stumbles along with the index futures trading in a broad range. The ES and MES has been finding support about 2840 and resistance at about 2930. There has been no Model 1 trend trading indicated on a daily chart for about a month. As I’ve written before, there continue to be intraday trades available using Model 2. It appears that China may be waiting and hoping for a Trump defeat in next year’s election. It seems prudent to anticipate the next 14 months or so as unchanging as far as our relationship with trade and China. The Chinese are unwilling to commit to enforcement regarding their questionable trade behaviors, and seem to be taking the long view and hoping for a Democratic president. The Fed doesn’t meet until the middle of this month. There will be speeches by Fed members, and some government reports may be influential. An expected quarter point rate cut in September is largely priced into the market. But, until something major happens, we’ll likely continue to trade in this current range. Patience and careful short-term trading seem to be the best approach for now. Blog 33, August 27. On Monday, August 19, the micro or regular e-minis I recommend for trading (ES, MES, YM, MYM, NQ, MNQ and EMD) all closed with a positive candle that was on the 9X. The 3X was on the 9X, and the stochastics were beginning to trend higher at about a 45-degree angle. Not considering international issues, the rule is that if the market opens higher, and moves higher after the open the next day, this represents a “buy” signal on a daily chart on any of these indexes. Last Tuesday morning as I was writing this blog, the indexes were holding a positive profile but began falling at the open. They moved lower throughout the day, negating a buying opportunity on a daily chart. Then they rose on Wednesday, but opened and moved lower on Thursday. Another two days with no trades on a daily chart. On Friday, August 23, headlines and algorithms drove the market down hard. But then it again reversed and moved higher yesterday. No daily trade. As I wrote in this blog two weeks ago, we are in a non-trending environment for those trading a daily chart. On the other hand, Model 2, “Index Bites,” was a very profitable way to trade on a 15-minute chart the past week. For example, the ES or MES had daily ranges of 22 to 90 points. With Model 2 you are looking for only 5 points at a time. All indexes had periods where many more points than the “20% of the average daily range” could have been collected throughout the day. For example, using the 15-minute chart, the ES or MES had a 30-point unbroken downtrend run Friday between 11:15 and 4:00. Simply follow the indicators. That was a profit of $1500 on the ES and $150 on the MES trading one contract. Last Tuesday, the NQ or MNQ gave a sell signal at 1:30 p.m. and had an unbroken run of 50 points by the 4:00 close. That was a profit of $1000 or $100 over 2 1/2 hours. The market continues to be volatile, trading in broad price ranges. If you are able to monitor the markets, opportunities for profits are numerous if you can trade a 15-minute chart during the day. When a tweet or headline comes out, the market reaction is usually strong enough to collect nice short-term profits. The general global environment continues to be much the same. Blog 32, August 20. More volatility last week, especially the DOW falling 800 points on Wednesday. Most of the blame goes to China trade, Hong Kong protests and an inverted yield curve (when 2-yr rates are higher than 10-yr rates). This ties into what I wrote about last week concerning negative government yields and debt problems around the world. An inverted yield curve is often an eventual predictor (about 8 to 18 months or so) of a recession. A problem is that banks can’t borrow money and lend with any kind of “spread,” making it very difficult to make a profit. So they don’t lend, others can’t borrow, and economies begin to shrink. Fortunately, there is still a healthy spread between 10-yr and 30-yr bonds which is positive for a cyclical boost in the months ahead. The inverted yield curve may only be transitory. And, as has been said by others, “The inverted yield curve has predicted 7 of the last 2 recessions.” I’ve written extensively about how traders use simple moving averages (SMA’s) in making trading decisions. In declining markets such as we have had recently, the 200-day SMA comes into play as a “last defense” against further market declines. Since e-mini indexes are reset quarterly, some 200-day charts are not dependable. If you want to check, look up the regular S&P 500 and DOW charts and see where we are. The current 200-day SMA for the S&P is 2795. If we break below that level in the coming weeks and it holds, we could see more downside. I wrote earlier that a 10% correction on the S&P is 2730. Watch these numbers if the indexes weaken. Stocks in the S&P (ES or MES for e-minis) have international exposure so they will be held back if the economies in other countries continue to weaken. With the extreme volatility last week, I began trading a 15-minute chart on Tuesday and Wednesday, the 13th and 14th. Good profits were made from intraday trend trading. Even though we’ve had some price gains the past three days, it remains a very headline-driven market. Be careful. Blog 31, August 13. Concerns about slowing global economic growth and the trade impasse with China continue to weigh on traders’ minds. Protestors are still active in Hong Cong and have largely shut down the Hong Kong airport. China has apparently sent criminals and military personnel into Hong Cong as infiltrators, mixing with Hong Kong security forces. This situation could worsen in the days ahead. Many protestors are students and the hope is that they will return to school in the near future. After three days of recovery, stock markets faded and may be moving lower again. I’m waiting to see if traders will push prices down to a 10% correction, especially with the S&P and the DOW. If so, and that holds, prices could edge higher from there, although unsure trade issues, global financial problems, and growing fears of a global recession will continue to suppress market prices. There is apparently more than $17 trillion in global debt that has a negative interest rate; you get back less value from the bank than what you “loan” to them. This has resulted in greater demand for U.S. government bonds, raising bond prices and lowering bond yields. The financial world is moving to an interest rate situation that has never happened before on such a scale. Where we go from here is uncertain. The CME reported that more than 32 million micro e-mini contracts were traded the first three months (May 6 – August 5). Average daily volume was more than 500,000 contracts traded. 26% of trading volume came from outside the U.S. and more than 130 countries participated. Micros continue to receive strong support with good trading volume. I am “flat the market” (holding no long or short positions). Remember that market indexes trend about 70% of the time on a daily basis. We are currently in the other 30%. We don’t need to be in the markets every day. You could trade model 2 intraday, but watch your positions and use stops. These are very unpredictable times and could quickly change with a tweet or a headline. Blog 30, August 6. Last Wednesday the Fed dropped interest rates by a quarter of 1% as expected, producing a limited market reaction. Then Chairman Powell began talking. He didn’t confirm that additional rate cuts would likely happen any time soon, so the market dropped. Then, the market rose Thursday morning as traders reconsidered. Then at 1:15 Thursday afternoon, the president announced that he would add 10% tariffs on China September 1. The DOW immediately had about a 600-point reversal to the downside. A broad free-fall in prices continued Friday and yesterday as China devalued their currency and announced that they would not buy certain agricultural products from the U.S. We now have an even more volatile and unpredictable trading environment. I was stopped out early on, resulting in a reduction of projected profits. That’s what happens when a headline-driven market makes a sudden downturn. I have not shorted because we could be one tweet away from a 2% to 4% immediate turnaround to the upside. I believe we need to wait until the market settles and we get clear buy signals. Our indicators have been very accurate all along. If you are going to do intraday trading, don’t stray too far from your computer, and use stops. The algorithms heavily control all stock market indices. China has now become more aggressive in trade and policy issues which causes even more uncertainty. The trade war could last much longer than we hoped. We could have further moves to the downside, giving us about a 10% “correction” which might satisfy some traders and perhaps give the “bulls” some interest. Major indices are now below their 50-day simple moving averages. An S&P of 2730 would be about a 10% correction. If that holds, the bulls might step in. After the big run-up we have had in the market since early January, a market drop like we are experiencing is not unexpected. And, August is historically the worst trading month of the year for stocks. Be prepared for extreme volatility if Chinese troops move into Hong Kong. Blog 29, July 30. (My apologies for not getting this blog out on time. There was a power outage at 8:00 this morning and my modem went down. They are coming out this afternoon to fix it. My neighbor graciously allowed me to use his system to get this blog out later today.) More volatility this past week, especially with the NQ or MNQ. There have been many opportunities for intraday trading. New index highs were reached last week. Look at a daily chart on the four main e-minis from June 5-6 to last Friday. There have been times when the 3X was the same as the 9X but never went significantly below the 9X. Candlesticks have closed on or below the 9X but there was no negative follow-through. Also notice that all indexes found support at the 20-day SMA. There have been no clear sell signals on a daily chart. And, of course, there have been no signals to go short on a daily chart. This has been a very profitable momentum run over the past 7-8 weeks. This is the kind of opportunity we look for. I remain long 8 positions and continue to trade on a daily chart. About 150 companies in the S&P Index have so far reported earnings that are averaging 6% more than expected. The Federal Reserve meets today and tomorrow and will issue their report Wednesday afternoon. They are expected to lower rates by a quarter of one percent. By now, this is largely priced into the market. An important jobs report will be released on Friday. It will most likely support the notion that our economy is strong with very low unemployment and high employment. There may be a record number of people working in the U.S. These numbers are often heavily revised the next month or two, so initial market response to this data is sometimes muted. On the other hand, Jerome Powell’s commentary after the Fed meeting is tracked by algorithms which could create volatility. Prosperous trading! Blog 28, July 23. Last week’s 15-minute chart looks like a roller coaster; great for intraday trading. Microsoft announced better-than-expected revenue and earnings after the bell Thursday, July 18. That gave a boost to the indexes, especially the tech-heavy NQ. Late Friday the algos dropped the market after Iran took over two oil tankers. Then Fed members made statements that suggested the Fed was going to lower interest rates “only” 25 basis points. A couple days earlier traders were finding comfort in the news that there was most likely going to be a 25 basis point cut at the end of July. Then they talked themselves into expecting a 50 basis point cut, so they were disappointed. Friday was also options expiration which contributed to the volatility. Emotions and computers drive too much of the market these days. This week is “tech week.” Many of the big tech stocks are releasing earnings. As a group they could have a strong influence on volatility this week, especially on the NQ. Thought I’d share my thinking and trades from last week. I was holding eight positions that I had bought in early June. There are many positives concerning the market, but many ways prices could temporarily drop with headlines. So, I was holding stops of about 2%. The market was looking a little “tired” (the EMD had been trading in a narrow range for 10 days, and the NQ had been in a gradual uptrend but was now drifting sideways and lower), so on Monday morning, July 15, I sold two EMD contracts @1969.3, and sold one contract of the NQ @7978. I mentioned last week that I would be watching for an entry point to buy back these three contracts at lower prices. Meanwhile, I was locking up substantial profits on these positions. Check the index prices from June 3 to June 6 up to July 15. (I usually only trade the ES, EMD, NQ, and YM.) Around 11:00 to 1:00 on Thursday, July 18 I bought back two contracts of the EMD @1938.8 which was 30.5 points lower than where they were sold at a nice profit, and one contract of the NQ @ 7852 which was 126 points lower than where it was sold at a nice profit. These trades have moved higher “on paper” since then, but I won’t have a profit or a loss until those positions are sold. If/when price on these three trades rises to where I sold them on Monday, July 15, that would/will be a net profit of about $8600 on three contracts over those three days. You might find it helpful to review, “Money Management Plan for Beginning Traders” on pages 131-133 in Chapter 10 of my book. Happy trading! Blog 27, July 16. More index record highs were set last week. The U.S. stock market has apparently increased in value by $10 to $12 trillion the past two and one-half years or so. There is a stronger belief that the Fed will lower interest rates by a quarter point the end of this month. The number of stocks trading above their 200-day sma is at 66%. That is the highest closing level since January, 2018. Breadth continues to improve with the NYSE Advance-Decline line closing at another all-time high. For now, money continues to move into the U.S. stock market. There was a good deal of volatility last week. This created several opportunities for short-term intraday trades, using the models. I trade a daily chart and remain long several contracts of the ES, NQ, YM and EMD. I closed three positions at 9:05 a.m. yesterday (Monday) and am watching for an opening to get back in at a lower level. In my latest book I have added a chapter describing micro e-minis, including advantages of trading micros, practical uses of micros, and ways to incorporate micros into your portfolio. There are more descriptions of stops and how to use them, the “Three Candle” and $300 method, more specifics about when to buy and close, and when to short and close. There is also a money management plan for less experienced traders. All charts have been updated as of Spring, 2019. The market is up about 50% since I wrote the first book three years ago and regular e-minis have become more expensive to trade. The micro e-minis are a good way to trade this market with much less exposure. Stock earnings reports for the second quarter begin this week. They may be less strong than previous quarters, largely due to economic weakness around the globe. However, companies have reduced expectations (lowered the bar) to the extent that their earnings reports may be interpreted positively. Profitable trading! Blog 27, July 9. The DOW, S & P 500 and Nasdaq all hit record highs last week, and 90% of stocks in the S & P are above their 20-day EMA. Job reports were generally quite positive on Friday and the market fell in the morning; “good news” was seen as “bad news.” Then there became more support for the notion that the Federal Reserve had signaled that they would probably lower rates in July, so they may have painted themselves in a corner. The thinking changed to a belief that a half-point rate reduction may have been taken off the table, but there is at least a 50-50 chance of a quarter-point reduction by the end of this month. So, the market began turning back up about 10:30. By 3:00 traders began taking profits and closing positions before the weekend. Put all the indicators on a 15-minute chart for Friday with the YM, EMD, NQ, or ES. (I wrote earlier that I seldom trade the RTY or M2K as they produce the lowest profit to risk ratio of the five e-minis.) They all turned sharply lower right after the positive employment report at 8:30. They bottomed about 10:30 and turned back up. They maxed out about 3:00 and began moving lower again. That would be a place to sell your long positions. Going short about 8:45, covering your short about 10:30 and going long from noon to about 3:00 would have produced around a $1100 to $2600 profit, depending on the index ($110 to $190 profit with one contract of the micro e-mini). If you are able to monitor the market on major announcement days like Friday, you can often make very nice profits making two or three intraday trades following the indicators on a 15-minute chart. Short-term unpredictable modest to moderate volatility is common in this age of algorithms and instant communication. I trade a daily chart and remain long several positions. If you are unsure of your liquidity and anxious about market moves on a daily chart, trade a 15-minute chart intraday. Daily intraday volatility can be quite profitable if you are able to monitor your trades. Fed chair Powell speaks to congressional committees Wednesday and Thursday a.m. at 10:00. There will be market volatility around both of these testimonies and the question and answer periods that follow. Will California have more severe earthquakes? I will write a bit about the book next week. Blog 26, July 2. My book, “E-Mini and Micro E-Mini Trading” was released last Wednesday, but has a couple of issues with format, so I’m working to get those corrected. I’ll add a bit more about the book next time. I have added another video on YouTube. It is about 10 minutes long. The first half is narrative and focuses on micro e-minis, and in the last five minutes I describe the past seven months’ pattern of the ES, showing a trading chart, and indicate how many thousands of dollars could have been made trading the regular e-minis with Model 1. The interface between messages on the blog and my e-mail is not clean, so I’m asking you to email me directly at andersonemini@gmail.com. Thanks. The early part of last week saw two or three down days, especially Tuesday, which provided an opportunity to short with Model 2 and a 15-minute chart on an intraday basis. Profits of about $650 to $2000 were available with the regular e-minis on Tuesday, depending on the index. I trade a daily chart and continue to hold several long positions. Markets recovered on Thursday and Friday. The Russell 2000 and the RTY had been lagging, not a good sign for the overall market. But the RTY rose 3.4% those two days and is now above its 20-, 50-, and 200-day SMA, a positive sign. A weak Russell 2000 makes it difficult for the overall market to move higher. The RTY (M2K) is currently about 10% below its all-time high set in September last year. This June had the highest monthly June gain in the DOW since 1938, and this was the highest monthly gain for June in the S & P 500 since 1955. We are now in the longest economic expansion in U.S. history without a recession. When will this end? There are weaknesses in the economies of several countries, especially in Europe, and the U.S. has not resolved problems with the border and illegal immigration. And congress still has not approved the trade deal with Canada and Mexico. There has been no meaningful progress with China and trade, nor with North Korea or Iran. At least these situations don’t appear to be going backwards. If the Federal Reserve cuts rates this month, the markets will likely continue to “climb a wall of worry” since economic fundamentals in the U.S. are strong. If these other situations improve, the markets still have the potential to move higher. The NYSE Advance-Decline Line is now at an all-time high, a bullish indicator overall. The important payroll reports will be out this Friday at 8:30 Eastern Time. Weaker reports could actually be good news as that would increase the likelihood that the Federal Reserve will lower interest rates later this month. Sometimes “bad news” is “good news.” When a major holiday such as July 4th occurs midweek, traders are usually not very active and volume is low. Have a great holiday week! Blog 25, June 25. The market continues on a generally positive uptrend fueled by dovish statements from the Federal Reserve, and hopes for some kind of progress on trade from meetings between President Trump and Premier Chi at the G20, beginning this Friday. The S & P 500 hit a new all-time high this past week. It remains a very headline-driven market, with the Iran issue in the immediate background. I am following the indicators and remain long several positions. I’m working to get my new book published this week: E-MINI AND MICRO E-MINI TRADING. I’ll write a bit more about it after everything is “up and running.” I have a separate chapter on the new Micro E-minis and how to trade them, and regularly include micros in guidelines throughout the book. How many times have you heard the phrase, “Nobody can time the market.” I’m not opposed to buy and hold concerning good quality stocks, ETF’s or mutual funds, but the notion that we cannot time the market is pure nonsense; that is exactly what we do with my models and they have proven to regularly produce significant profits. The trending model, “Follow the Money,” signals to buy when the market begins rising, and tells us to short when the indicators show us that the market is beginning a decline. In my new book I write in more detail about the indicators and conditions where you buy, sell a long position, sell short a position, and close a short position. We are simply following what other traders are doing. If the majority of traders are buying, so will we. If the majority of traders are selling or shorting the market, so will we. More next week. Happy trading! Blog 24, June 18. This week is quarterly expiration. E-mini stock index futures contracts expire the third Friday of each quarter. June quarter expires Friday, June 21. You can use a “calendar spread,” and continue your position into the next quarter or two, but the most straightforward way is to sell this quarter’s contract and buy next quarter’s contract at a comparable price.
The simplest and most conservative way is to close your contracts sometime between Tuesday and Thursday of quarterly expiration week (in this case, that means this week). Compare prices between June expiration and September expiration. As I write this on Monday, the EMD, NQ, ES, and YM have higher prices for September than for June. Most often, the following quarter prices are lower since you are taking a three-month pricing risk as opposed to a several-day pricing risk. This could reflect, in this case, that traders are anticipating both a rate cut by the Fed and a China trade deal by September of this year. If you don’t currently own a June expiration contract, you likely won’t see pricing for a June contract; you will only see September pricing on that e-mini index. If you own a June contract that you want to “roll over” (sell June and buy September), you might want to use a version of “index bites.” Wait for a boost up in price, then sell. Then wait for the price to pull back a bit and buy a September contract. Example: June ES is priced @ 2896; September ES is priced at 2899. You sell June @ 2900, then buy September @2897. You would make six points difference ($300) on this sell and buy. I have written a second edition of my book. The title is “E-Mini and Micro E-Mini Trading.” It should be available on Amazon in a week or two. It has a gold and green cover. The market is up about 30% since I wrote the first book on e-minis, so the tables needed updating. I took out some material and added new information with more detail. Micro e-minis are an important component, and I have a trading plan for the new trader whereby they can use these micros as a “stepping stone,” beginning with only $1500 to $2000. Markets have remained in a fairly narrow trading pattern since last week; some traders have been taking profits after the recent run-up in price. If there are no major headlines this could be an opportunity to trade this range with the “Index Bites” model (buy in the lower part of the range; sell, then short at the upper part of the trading range; cover your short near the bottom of the range and repeat). Identify the trading range on a daily chart, then monitor your trade on a 15-minute chart and follow the indicators; as they turn, so should you. The markets are moving higher this Tuesday morning, but that could change. The Fed meets Tuesday and Wednesday this week. If you are in the market, pay attention to what they say and do Wednesday afternoon at the 2:00 announcement; it’s usually not a good idea to trade before news such as this. The algorithms could take off. Also watch the placement of 20- and 50-day averages on the indexes. They often represent areas of support and/or resistance. Stay alert! Blog 23, June 11. The market turned higher last Tuesday after I wrote the blog. This illustrates how the market can turn on a news headline and why we need to keep track of what is going on in the U.S. and around the world. I believe the turnaround gained momentum from “short squeezes” (traders holding short positions that needed to be covered). Buying back short contracts created a momentum that the robots reacted to, sending out buy signals.
There has been accumulating economic weakness in the U.S. and other countries, partly because of issues related to tariffs. Fed Chairman Powell made a statement that was supportive of doing whatever is necessary to keep the U.S. economy on healthy footing. To traders and investors this meant the Fed would likely lower rates at least once, probably twice, this calendar year. Many thought their raising of rates at the end of 2018 was uncalled for and premature. That may have been an accurate assessment. So, we went from possible rate hikes this year to probable rate cuts. That was all traders needed to hear to get back in the market. Remember the phrase, “Don’t fight the Fed.” Apparently, we also have an agreement with Mexico where they will begin enforcing their southern border and their own immigration laws. There is hope that a deal could be reached with China at the G20 meetings the end of this month, but there is no known preparation at this point that would support that hope. The /NQ has had a nice push up and into tradable conditions, and the /ES, /EMD, and /YM are in positive trading territory. I bought a few positions last Wednesday, but remain cautious and have fairly tight stops. The gap up open for Monday’s market was a positive sign. Congress is putting pressure on the “FANG” stocks (Facebook, Amazon, Netflix, and Alphabet, aka Google) by threatening to regulate them. As a side note, the CME reported that 11.25 million contracts of Micro E-minis were traded in the first month, an average of 511,000 contracts a day. Trading participants came from 130 countries. Contracts traded: 5.8 million contracts of MES; 3.65 million of MNQ; 1.1 million of MYM; and 640,000 contracts traded in the M2K. This is good news as it indicates widespread acceptance of this new trading vehicle and supportive trading volume which creates good liquidity. The market is moving up on hopes of rate cuts, but it’s not clear how much upside there is until/unless the Fed cuts rates and/or a trade deal with China is consummated. Stay tuned! Blog 22, June 4. The tweets and headlines just keep coming, and the reading algos go crazy. Not much in the way of international positive news and as we know, “markets” (read: market traders) hate uncertainty. The Russell 2000 is leading the market lower; this is a bearish signal. Several indexes are now below their 200-day SMA, a bearish indicator. This was the first negative month of May since 2012. A reported $22 billion came out of equities just the last week of May.
Congress continues to stall on the trade deal with Canada and Mexico and there will probably not be any legislation to solve the border problem. The U.S. and China seem no closer to any agreement. Many world economies are slowing down. Some have inverted yield curves, and some have negative interest rates where you pay the bank to hold your money. There is not much to be positive about at this time, but we can use our e-mini trading models to accumulate wealth while waiting for a market reversal and buy signals. On our charts the 3X and 9X provide continuous 3-period and 9-period “rolling” averages, moving forward one candlestick at a time, always giving us indications of momentum direction ahead of those rolling exponential moving averages. With computers jerking the intraday market movements around, daily time periods are more stable. Although you can still trade short reactionary movements with a 15-minute chart. Let’s evaluate the kind of profits that could have been made in each e-mini by trading the month of May on a daily chart. For the /EMD and all the rest there were no trades the first four trading days of the month (May 1 – May 6) as the candlesticks moved above and below the 3X and 9X, crossing those lines several times; no trend. On May 7 prices moved sharply lower on the /EMD and opened and moved lower on May 8. This was a clear signal to sell short a contract on May 8 at about 1942. No candlestick closed above the 9X the rest of the month, so there was no indication of closing this position. On May 31, the /EMD closed at 1809, a loss of 133 points. That would be a profit of $13,300 in 17 days; $782 a day for doing nothing. The /NQ produced a sell signal on May 7 at about 7720. Price moved above the 9X on May 16 but continued lower the next day and never touched the 9X again; short position stayed intact. On May 31 the /NQ closed at 7137, a loss of 583 points. Profit for May: $11,600 in 18 days; $644 a day for doing nothing. The/ES gave a sell short signal on May 7 at about 2910. Price moved above the 9X on May 16, then retreated the next day. Price touched the 9X on May 21 then retreated. Sell short signal was not violated and price never touched the 9X again. Price closed at 2752, a loss of 158 points. Profit: $7900 in 18 days; $438 a day for doing nothing. The /YM produced a sell short signal on May 7 at about 26,195. Price closed just above the 9X on May 16 and May 21 but retreated each time, keeping the short signal intact. The /YM closed at 24805 on May 31 for a monthly loss of 1390 points. This produced a profit of $6950 in 18 days; about $386 a day for doing nothing. Finally, the /RTY gave a sell short signal on May 9 at about 1580. There were three days when price barely crossed the 9X but retreated each time, keeping the sell short signal in place. It closed on May 31 at 1466, a loss of 114 points. That produced a profit of $5700 in 16 days; $356 a day for doing nothing. Total profits for all five e-minis were $45,400 for the month of May. The indexes could continue lower and these profit totals could continue to grow. It will take major positive headlines to turn this market around. Clearly, this indicator package works and would have produced great profits this month. I wrote earlier that a reasonable profit goal is to average at least $4000 a month with the e-minis and $400 a month with the micro e-minis. The month of May helped hold up that profit average as the mean for one contract of any of the five indexes was a profit of $9080 for May. This was clearly a month to “walk away in May,” but in this case for us it was a month to follow the trading models and “sell short in May.” Happy Trading! Blog 21. May 28. More of the same this past week. As documents about what led up to the “activities” of the 2016 election and its aftereffects become released, there is a likelihood that more volatility will result. We remain in a headline-driven market. Nevertheless, on a daily chart the indicators have supported a downtrend on all five e-minis since May 8 or May 9 short signals; take a look. A continuing short position has been indicated every day since then. There were a couple of times a candlestick closed above the 9X but there was no supportive follow-through; the next candlestick moved lower. The indicators seem to know more about what we should do than we do. Monitor your positions carefully, whether short-term or long-term.
Small-cap stocks are now off 13% from all-time highs in August, 2018. They have declined nearly 7% since reaching their intermediate high in early May. I mentioned before that we need the small caps to participate if this market is going to continue to thrive. Right now they are in a bearish profile. Volatility Index ($VIX). This is the CBOE’s explanation of the VIX and how it’s calculated: “The VIX Index is a financial benchmark designed to be an up-to-the-minute market estimate of volatility of the S&P index, and is calculated by using the midpoint of real-time S&P index option bid/ask quotes. More specifically, the VIX index is intended to provide an instantaneous measure of how much the market thinks the S&P 500 index will fluctuate in the 30 days from the time of each tick of the VIX Index.” An elevated VIX reading is usually associated with lower stock prices. Early rising readings are usually associated with rising prices in the S&P 500 index and heightened investor anxiety (“climbing a wall of worry”). So, as the market moves up to the higher reaches of its recent range, take a look at the VIX. If it is also moving higher, consider pulling your stops up a little tighter or taking at least some of your profits off the table. A level above 20 suggests a growing level of fear. This is the level where you should consider your situation. The market will likely move lower as the VIX continues to move higher. Follow the indicators. In situations where the VIX is moving higher, watch for sell signals and be ready to enter a short position. |
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