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The Nightly Newsletter

 

 
 
 Our Strategic Plan

 

 

Our Strategic Plan is for investors interested in trading once in a while.

  • +29% YTD.
  • In cash most of the time.
  • Only begin trading 5 minutes after the open.
  • This Strategy trades around long term pivots only.
  • We do not fire alerts.  You need to know the rules.
  • We trade two ETFs: DDM and DXD
  • Risk controls are integral.
  • Designed for 1-3 month trades.
  • The graph below shows the growth of $100K in this strategy.

The Current Dow Parameters for the Strategic Plan are:

6485 - 9083 - 9904 - 10725 - 11724 

Our Strategic Plan averages a few trades per month.  This is a conversion strategy.  That means it is a proactive long/short strategy that will convert from short to long, or from long to short, based on tests or breaks of support or resistance levels.  Those are our risk controls, and they are integral.  Once the Market makes up its mind, we ride it in either direction to secure gains.  The end results show a few small stops associated with a much larger gain most of the time.  This strategy is based on the Dow Jones Industrial Average, and it trades DDM and DXD exclusively.  Although it can make money on the short side of the market, it is never short anything because DXD is a short ETF that we buy.  That opens it to qualified accounts. 

Based on a strict set of rules, this strategy has performed well over time. 

Past performance is no guarantee of future results.

Start here:

  1. Learn how to use the Strategic Plan
  2. Review our current strategic plan
  3. How the Strategic Plan works with the Investment Rate
  4. A Test to verify that you understand the Strategic Plan
  5. Review the performance of the plan since 8.07

How to use the Strategic plan:

The Strategic Plan is intended to be used in conjunction with our longer term analysis.  We use the Dow Jones Industrial Average for Market Timing signals.  With integrated risk controls, our Strategic Plan is a proactive alternative to buy and hold investments. 

The strategy involves two correlated ETFs.  We use DDM and DXD to take advantage of defined market cycles.

  • DDM is the double weighted long Proshare representing the Dow Jones Industrial Average.
  • DXD is the double weighted short Proshare representing the Dow Jones Industrial Average.

Our approach is refined to simplify the process.  When short signals surface, we buy DXD.  When long signals surface, we buy DDM.  We do not trade any other instruments, and we never actually short anything.  However, DXD is a built - in short, so we do take advantage of downward market moves when they occur.  With that, the Strategic Plan can also be used in IRAs.

There are two occasions in which short signals present themselves, and two for long signals as well:

  • We buy only when support is tested, or when resistance breaks higher. (buy DDM)
  • We short only when resistance is tested or when support breaks lower.  (buy DXD)

Entry levels are restricted.  The Dow must be within 25 points of a respective support or resistance level in order to trigger a new trade.  A wider spread offsets our risk controls, and makes them ineffective. 

Risk Controls are integral.  We use 0.5% stop losses in these positions.  If our entry level is within 25 points of the stated parameter, the 0.5% stop should only trigger when that respective parameter is breached.  The 0.5% stop was chosen because it correlates with our entry level restriction of 25 points.  They are interrelated, and should be used together.

Conversion Strategies are important to this model.  For example, assume support is tested and we buy DDM because the Market is within 25 points of support.  According to rule, we would set a 0.5% stop loss in DDM.  If support breaks and that DDM position is stopped out with a 0.5% loss, we revert immediately back to the rules.  Specifically, the 25 point rule should be observed.  If the Market is now under support but still within 25 points, we will buy DXD, set a 0.5% stop loss, and observe the same set of rules.  All we have done is convert from long to short.  We may convert back and forth a number of times before securing gains.  In certain situations, we may be stopped, and could re-enter the same position because the rules tell us to.  Therefore, conversion is not automatic, but instead based on the rules.

Exit Strategies are based on one of two criteria.  Either the targeted support or resistance level must be officially tested, or the gains from the ETF we have entered must be greater than or equal to 10%.

  • Tests of support or resistance require the market to be within 25 points of support or resistance.
  • 10% profits are based on a reversal strategy.  That means, we want to set a profit stop to secure 10% in profits when we are holding slightly more than 10%, and then let the position follow through to the next support or resistance level accordingly.  However, if at any time the Market reverses against us and the profit stop is triggered we should willing accept the 10% lock in, and wait for the next trading signal.

Early Exits occur when we lock in gains before the targeted support or resistance level is tested.  This would only occur when we secure 10% in gains.  However, this also requires an added degree of patience.  New trades are based on tests of support or resistance, so if we lock in gains early new trades may not happen for a while.  New trades must not be made in the middle of a channel.  If that rule can be respected, early exits can be rewarding because re-tests of parameters occur regularly.

Trading Parameters are focused on the Dow Jones Industrial Average, and they can be found either by reviewing the longer term chart of the Dow, or by reviewing our Strategic Plan page on a regular basis.  These are almost always part of our nightly emails as well.

The above rules should be used in conjunction with our ongoing Strategic Plan

Our Current Strategic Plan

After another stop, we ended in DDM again:

6/8/2010 DDM 39.62 39.42 6/9/2010 -0.2 -0.50%
6/9/2010 DXD 30.56 30.4 6/9/2010 -0.16 -0.52%
6/9/2010 DDM 39.66        

Updated 6.10.10

Set a profit stop in DDM if the Market moves higher.  Specifically, if DDM hits $43.5, set a profit stop at $43.25 and let it ride.  Additional instruction will be provided when it is required.

Updated 6.8.10:

We converted to DDM.

6/7/2010 DXD 30.62 30.46 6/8/2010 -0.16 -0.52%
$40,337 DDM 39.62        

Updated 6.7.10:

We ended the day in DXD.  We were stopped a number of times.  This phase of the Strategic Plan has turned out to be tough.  More than anything else, we were on the verge of securing gains just two days ago, that is the toughest part.  However, we have now transitioned lower, and if the Market declines we will make money again.  This has already happened once this year.  I mean, we have already had a challenging phase.  That was the second phase of the year.  Even with that, we are up nicely this year already.  I believe we will experience a similar result as that last challenging phase.  It requires a resolve, and adherence to discipline.

6/7/2010 DDM 39.84 39.64 6/7/2010 -0.2 -0.50%
6/7/2010 DDM 39.67 39.46 6/7/2010 -0.21 -0.53%
6/7/2010 DXD 30.6 30.44 6/7/2010 -0.16 -0.52%
6/7/2010 DDM 39.68 39.46 6/7/2010 -0.22 -0.55%
6/7/2010 DXD 30.64 30.46 6/7/2010 -0.18 -0.59%
6/7/2010 DDM 39.68 39.46 6/7/2010 -0.22 -0.55%
6/7/2010 DXD 30.62        

Updated 6.6.10:

We ended in cash.  I do not see how anyone could have re-entered DDM after the DXD stop.  There was less than 2 seconds left in the trading day after the stop occurred.  The stop should have been executed, but re-entering DDM was impossible.  When the 25 point rule is satisfied again we will take action according to rule.

5/25/2010 DDM 39.86 39.65 6/4/2010 -0.21 -0.53%
6/4/2010 DXD 30.4 30.24 6/4/2010 -0.16 -0.53%
6/4/2010 DDM 39.82 39.62 6/4/2010 -0.2 -0.50%
6/4/2010 DXD 30.43 30.27 6/4/2010 -0.16 -0.53%

Updated 5.27.10:

Set a profit stop in DDM if the Market moves higher.  Specifically, if DDM hits $43.8, set a profit stop at $43.51 and let it ride.  Additional instruction will be provided when it is required.

Updated 5.25.10:

After a few stops, we ended the day in DDM again:

5/21/2010 DDM 39.86 39.2 5/25/2010 -0.66 -1.66%
5/25/2010 DXD 30.92 30.76 5/25/2010 -0.16 -0.52%
5/25/2010 DXD 30.77 30.61 5/25/2010 -0.16 -0.52%
5/25/2010 DDM 39.86        

Updated 5.23.10

We entered DDM on Friday when the Market tested 9904.

If DDM gets to 43.8 set a profit stop at 43.7 and let it ride.

5/21/2010 DDM 39.86

Updated 5.20.10:

We secured 9.52% from DXD.  We are now in cash and waiting for a new trading signals according to the rules.  Review the Strategic Plan Parameters above and the Rules associated with them for entries.

5/18/2010 DXD 26.47 28.99 5/20/2010 2.52 9.52% $181,616

Updated 5.20.10:

If DXD gets to 29.1 set a profit stop at 28.99 and let it ride.

 

This will secure 10% and give us the opportunity for more if the Market continues to decline.

Updated 5.18.10:

We stopped DXD and re-entered it.  This is a REVERSION strategy, not a conversion strategy.  If we are stopped, we revert to the rules.  That means, we respect the 25 point rule.  This time, we were stopped, but the Market was still below 10725.  As a result, we immediately re-entered DXD.  This is NOT a conversions strategy, but instead it is a REVERSION streategy.

5/14/2010 DXD 26.6 26.46 5/18/2010 -0.14 -0.53%
5/18/2010 DXD 26.47        

Updated 5.14.10:

DDM was stopped and we converted to DXD.

5/10/2010 DDM 46.58 46.34 5/14/2010 -0.24 -0.52%
5/14/2010 DXD 26.6        

Updated 5.12.10:

If DDM hits $51.2 set a profit stop at $50.99 and let it ride.

Updated 5.9.10:

After a series of stops, we ended in DDM:

5/10/2010 DDM 46.87 46.62 5/10/2010 -0.25 -0.53%
5/10/2010 DDM 46.63 46.39 5/10/2010 -0.24 -0.51%
5/10/2010 dxd 26.65 26.51 5/10/2010 -0.14 -0.53%
5/10/2010 ddm 46.61 46.37 5/10/2010 -0.24 -0.51%
5/10/2010 dxd 26.67 26.53 5/10/2010 -0.14 -0.52%
5/10/2010 ddm 46.59 46.35 5/10/2010 -0.24 -0.52%
5/10/2010 dxd 26.7 26.56 5/10/2010 -0.14 -0.52%
5/10/2010 ddm 46.56 46.32 5/10/2010 -0.24 -0.52%
5/10/2010 dxd 26.68 26.53 5/10/2010 -0.15 -0.56%
5/10/2010 ddm 46.58        

Updated 5.6.10:

There were two trades today, resulting in gains of over 9%.  We started by buying DDM near 10725, we converted to DXD when it stopped, and we should have also entered DDM near 9904, but that position was impossible to fill.  In fact, the fill recorded for DXD is far off the level at which it should have been filled, because the fast market caused some of you to get very bad fills, and some of you got executions like this, instead of over $30.  Still, the returns were good. 

We should be in cash, waiting for another trigger.  Soon, the Strategic Plan parameters may change, but they remain as they are for now: 6485 - 9083 - 9904 - 10725 - 11724 

5/6/2010 DDM 46.85 46.6 5/6/2010 -0.25 -0.53% $153,610
5/6/2010 DXD 26.78 29.45 5/6/2010 2.67 9.97% $163,580

Updated 4.27.10:

DDM was closed near $50.66.  We secured approximately 8% and we are now in cash.  We should be waiting for the next test of either support or resistance to occur before we take action.  Use the rules and the associated parameters to identify trading signals.

Updated 4.26.10:

Sell DDM at market tomorrow after the Market opens.

DDM hit $51.32 on Monday.  The Market is very close to turning lower according to our analysis, and it could happen without the Dow testing longer term resistance.  This is because the Dow has been lagging behind the other Markets.  Therefore, the profit stop plan needs to be adjusted.

Instead of waiting for $51.45 exactly, we should be willing to sell now, just in case the Market turns down without the test of longer term resistance that would normally occur in the Dow too. 

Our revised plan is to sell @ Market on Tuesday morning, move to cash, and revert to the rules.  The parameters for the Strategic Plan are not changing.  Expect an exact price to be shown tomorrow, in tomorrow's update.

Updated 4.14.10:

If DDM gets to $51.45 set a profit stop at $51.35 and let it ride.

Updated 3.22.10:

We converted into DDM:

3/19/2010 DXD 27.14 27 3/22/2010 -0.14 -0.52%
3/22/2010 DDM 46.79        

Updated 3.19.10:

We converted into DXD:

3/18/2010 DDM 46.8 46.56 3/19/2010 -0.24 -0.51%
3/19/2010 DXD 27.15 27.01 3/19/2010 -0.14 -0.52%
3/19/2010 DDM 46.81 46.56 3/19/2010 -0.25 -0.53%
3/19/2010 DXD 27.14        

Updated 3.18.10:

We transitioned to DDM

3/17/2010 DXD 27.17 27.01 3/18/2010 -0.16 -0.59%
3/18/2010 DDM 46.8        

Updated 3.17.10

We ended the day long DXD.  Here are the series of trades:

3/17/2010 DXD 27.17 27.03 3/17/2010 -0.14 -0.52%
3/17/2010 DDM 46.79 46.55 3/17/2010 -0.24 -0.51%
3/17/2010 DXD 27.17        

Updated 3.16.10:

DDM was sold for a net gain of 9.34%.  We are now in cash and waiting for a new trading signal based on the established rules and related parameters.

2/16/2010 DDM 42.06 45.99 3/16/2010 3.93 9.34% $149,568

Updated 3.1.10:

The parameters for the strategic plan have been updated, and profit stop rules for the current DDM position have been offered in this update.

The new parameters for the Strategic Plan are:

6485 - 9083 - 9904 - 10725 - 11724 

We are currently holding DDM.  If you are not, and you want to participate in the next phase of the Strategic Plan, expect to do so at 10725.  Use the rules outlined above to guide your trades.

However, if you are holding DDM already, instead of initiating new trades around 10725, start by setting a profit stop in DDM if it breaks above $46 instead.  Specifically, if DDM breaks above $46.1 set a profit stop at $45.99 and let it ride from there.  Only if it stops, convert to the rules outlined above for new trades.

Updated 2.16.10.

We were stopped out of DXD, but the Market was still under 10200 when that happened.  That caused a re-trigger according to rule.  However, that stopped as well, and we transitioned to DDM.  We should be holding DDM as follows, with the risk controls outlined above in place:

2/4/2010 DXD 30.55 30.38 2/16/2010 -0.17
2/16/2010 DXD 30.4 30.24 2/16/2010 -0.16
2/16/2010 DDM 42.06      

Updated 2.4.10:

This phase of the Strategic Plan has been rough.  At least, it has thus far.  The trades are listed below.

We are currently holding DXD with about 3.5% in paper gains.  Because the Market is capable of declining aggressively, we need to develop an exit plan now.  This is based on our 10% lock rule. 

This is what we will do: 

If DXD gets to $33.55 we will place a profit stop at $33.4 and let that ride.  If it stops, we will secure gains and move to cash.  If the stock moves higher, we will adjust the profit stop higher according to updates offered in the nightly newsletter and on this page.

If the Market reverses higher before we secure gains, we will convert higher again by rule.

Here are the trades from this phase thus far:

1/19/2010 DXD 27.74 30.5 1/22/2010 2.76 9.95% $150,215
1/22/2010 DDM 42.04 41.8 1/22/2010 -0.24 -0.57% $149,645
1/22/2010 DXD 30.66 30.28 1/25/2010 -0.38 -1.24% $148,405
1/25/2010 DDM 42.16 41.94 1/25/2010 -0.22 -0.52% $147,883
1/25/2010 DXD 30.57 30.41 1/25/2010 -0.16 -0.52% $147,360
1/25/2010 DDM 42.15 41.94 1/25/2010 -0.21 -0.50% $146,862
1/25/2010 DXD 30.55 30.39 1/26/2010 -0.16 -0.52% $146,338
1/26/2010 DDM 42.17 41.92 1/26/2010 -0.25 -0.59% $145,745
1/26/2010 DXD 30.56 30.4 1/27/2010 -0.16 -0.52% $145,222
1/27/2010 DDM 42.16 41.91 1/28/2010 -0.25 -0.59% $144,629
1/27/2010 DXD 30.55 30.38 1/27/2010 -0.17 -0.56% $144,072
1/27/2010 DDM 42.18 41.94 1/28/2010 -0.24 -0.57% $143,503
1/28/2010 DXD 30.56 30.39 1/28/2010 -0.17 -0.56% $142,947
1/28/2010 DDM 42.15 41.9 1/28/2010 -0.25 -0.59% $142,354
1/28/2010 DXD 30.54 30.38 2/1/2010 -0.16 -0.52% $141,830
2/1/2010 DDM 42.1 41.88 2/4/2010 -0.22 -0.52% $141,307
2/4/2010 DXD 30.55          

 

Updated 1.28.10:

We ended the session holding DXD:

1/27/2010 DDM 42.16 41.91 1/28/2010 -0.25 -0.59%
1/28/2010 DXD 30.55        

Updated 1.27.10:

We held a webinar today discussing the Strategic Plan.  The notion is, if we can remove the stupid human restrictions we impose on ourselves, this strategy can work for us over time.  It is simple, and maybe too simple.  We will have more losses than gains, but the gains outweigh the losses, and over time we have excelled.  This is a Tortoise vs Hare Strategy.  It has shattered Market performance in the past.  It works, but it requires users to follow the strategy appropriately, not selectively.

1/26/2010 DXD 30.56 30.4 1/27/2010 -0.16 -0.52%
1/27/2010 DDM 42.16        

We are holding DDM with strict risk controls in place.

Updated 1.26.10:

We had a couple stops.  We were holding nice intraday gains in DDM, but the late day reversal on Tuesday stopped us out of DDM, and we ended the day holding DXD again.

1/25/2010 DXD 30.55 30.39 1/26/2010 -0.16 -0.52%
1/26/2010 DDM 42.17 41.92 1/26/2010 -0.25 -0.59%
1/26/2010 DXD 30.56        

 

Updated 1.25.10:

We were stopped a few times, the first time for a larger than expected loss.  We ended the session holding DXD with strict risk controls in place.

1/22/2010 DXD 30.66 30.28 1/25/2010 -0.38 -1.24%
1/25/2010 DDM 42.16 41.94 1/25/2010 -0.22 -0.52%
1/25/2010 DXD 30.57 30.41 1/25/2010 -0.16 -0.52%
1/25/2010 DDM 42.15 41.94 1/25/2010 -0.21 -0.50%
1/25/2010 DXD 30.55        

 

Updated 1.24.10:

We secured 9.95% in DXD, then attempted to buy the test of 10200.  That failed, 10200 broke, and we converted back to DXD according to rule.  We are currently holding DXD with strict risk controls in place.

DXD 30.54 30.38 9-Dec -0.16 -0.52% $131,728
DDM 42.75 46.4 1/19/2010 3.65 8.54% $140,266
DXD 27.74 30.5 1/22/2010 2.76 9.95% $150,215
DDM 42.04 41.8 1/22/2010 -0.24 -0.57% $149,645
DXD 30.66          

The Dow Parameters for the Strategic Plan are:

5300 - 6485 - 9083 - 10200 - 10750 - 11724 

Updated 1.21.09:

We are holding DXD from 10750 (entry was near $27.74).
 
10200 is our support inflection parameter.  If 10200 is tested, take profits in DXD.  I estimate, we will secure gains at about $30.50 if 10200 is tested.  That will be very close to our usual 10% goal for securing gains in the Strategic Plan.  We will not use profit stops this time.  Instead, if/when 10200 is tested, we will take profits, and then we will start the next phase.
 
Ahead of the Curve:
 
In addition, if you are late, and getting excited about trading this market, realize something.  You cannot trade effectively behind the curve.  If you try, you will not be able to use risk controls effectively.  Being ahead of the curve is important.  The Market has already fallen hard from our entry.  New entries here are effectively behind the curve.

 

Updated 1.19.10

10750 was tested, we secured 8.54% in gains, we closed DDM, and we are now in DXD according to rule.

11/2/2009 DXD 34.87 34.69 2-Nov -0.18 -0.52% $139,122
11/11/2009 DXD 30.72 30.56 12-Nov -0.16 -0.52% $138,602
11/11/2009 DDM 42.77 42.55 11-Nov -0.22 -0.51% $138,087
11/11/2009 DXD 30.67 30.51 11-Nov -0.16 -0.52% $137,566
11/12/2009 DXD 30.71 30.46 19-Nov -0.25 -0.81% $136,752
11/12/2009 DDM 42.72 42.5 12-Nov -0.22 -0.51% $136,237
11/12/2009 DXD 30.71 30.55 12-Nov -0.16 -0.52% $135,716
11/12/2009 DDM 42.73 42.51 12-Nov -0.22 -0.51% $135,201
11/19/2009 DDM 42.66 42.32 27-Nov -0.34 -0.80% $134,404
11/19/2009 DXD 30.73 30.56 19-Nov -0.17 -0.55% $133,850
11/19/2009 DDM 42.72 42.5 19-Nov -0.22 -0.51% $133,335
11/27/2009 DDM 42.64 42.4 9-Dec -0.24 -0.56% $132,773
11/27/2009 DXD 30.72 30.56 27-Nov -0.16 -0.52% $132,252
12/9/2009 DXD 30.54 30.38 9-Dec -0.16 -0.52% $131,728
12/9/2009 DDM 42.75 46.4 1/19/2010 3.65 8.54% $140,266
1/19/2010 DXD 27.74          

 

Updated 12.7.09:

The Strategic Plan parameters have changed.  Find them below. 

If 10750 is tested, we should sell DDM.

5300 - 6485 - 9083 - 10290 - 10750 - 11724 

Updated 12.2.09:

We should be long DDM:

YTD Return: Strategic  Plan = 39.12%  
         
Enter date ETF Enter price Exit price Exit Date
         
         
         
27-Nov DDM 42.64    
27-Nov DXD 30.72 30.56 27-Nov
19-Nov DDM 42.66 42.32 27-Nov
19-Nov DXD 30.73 30.56 19-Nov
19-Nov DDM 42.72 42.5 19-Nov
12-Nov DXD 30.71 30.46 19-Nov
12-Nov DDM 42.72 42.5 12-Nov
12-Nov DXD 30.71 30.55 12-Nov
12-Nov DDM 42.73 42.51 12-Nov
11-Nov DXD 30.72 30.56 12-Nov
11-Nov DDM 42.77 42.55 11-Nov
11-Nov DXD 30.67 30.51 11-Nov

Updated 11.22.09:

We should be long DDM:

YTD Return: Strategic  Plan = 39.12%  
         
Enter date ETF Enter price Exit price Exit Date
         
         
         
19-Nov DDM 42.66    
19-Nov DXD 30.73 30.56  
19-Nov DDM 42.72 42.5  
12-Nov DXD 30.71 30.46  
12-Nov DDM 42.72 42.5  
12-Nov DXD 30.71 30.55  
12-Nov DDM 42.73 42.51  
11-Nov DXD 30.72 30.56  
11-Nov DDM 42.77 42.55  
11-Nov DXD 30.67 30.51  

 

Updated 11.16.09:

DXD stopped, but we did not have enough time to enter DDM.  We should be in cash and ready to trigger again upon the next test of support or resistance.

12-Nov DXD 30.71 30.46
12-Nov DDM 42.72 42.5
12-Nov DXD 30.71 30.55
12-Nov DDM 42.73 42.51
11-Nov DXD 30.72 30.56
11-Nov DDM 42.77 42.55
11-Nov DXD 30.67 30.51

Updated 11.12.09:

We should be holding DXD:

 

12-Nov DXD 30.71        
12-Nov DDM 42.72 42.5      
12-Nov DXD 30.71 30.55      
12-Nov DDM 42.73 42.51      
11-Nov DXD 30.72 30.56      
11-Nov DDM 42.77 42.55      
11-Nov DXD 30.67 30.51      

 

 

Updated 11.11.09:

We should currently be holding DXD.

5300 - 6524 - 8051 - 9683 - 10290 - 10745

If 10290 holds, expect 9683.  Otherwise, if 10290 breaks higher and we convert, expect 10745 instead.

 

YTD Return: Strategic  Plan = 39.12%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
11-Nov DXD 30.72        
11-Nov DDM 42.77 42.55      
11-Nov DXD 30.67 30.51      

 

Updated 11.11.09:

After the last series of stops, I expected this phase of the Strategic plan to have been a losing one.  However, we came out with only a few bruises.  We made less than 1% in the last phase.  We locked in 12% in gains, but we were carrying losses that offset the gains.  Those losses increased quite a bit in recent days, when the Market fell back to 9728.  That was not a good inflection parameter at the time, so I changed it, and saved us another round of stops.  If more stops happened, this may just have been a losing phase.

In any respect, to the most recent phase, I am glad to see you go.

With that said, if this is as hard as it gets, it really isn't that bad is it?  If you are comparing the results to the Market, you should not be doing that.  The results of one phase does not define this strategy.  If you choose to compare market returns, use 2008, and the complete year 2009.  Clearly, the Strategic Plan is far ahead of the Market.  The Strategic Plan is completely unrelated to market returns.  It works when the Market falls too.  That is why it is appropriate.

I do not consider this a bad phase of the Strategic Plan, but it did take more patience than we have been used to this year.  It actually worked well on the basis of wealth preservation, with opportunities coming second.  Still, over time, the result have been there.

Here are all the trades from the last round:

 

YTD Return: Strategic  Plan = 39.12%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
2-Nov DDM 37.81 42.6 11-Nov 4.79 12.67%
2-Nov DXD 34.87 34.69 2-Nov -0.18 -0.52%
30-Oct DDM 38.06 37.64 2-Nov -0.42 -1.10%
30-Oct DXD 34.66 34.48 30-Oct -0.18 -0.52%
30-Oct DDM 38.06 37.81 30-Oct -0.25 -0.66%
30-Oct DXD 34.69 34.51 30-Oct -0.18 -0.52%
30-Oct DDM 38.05 37.82 30-Oct -0.23 -0.60%
8-Oct DDM 38.25 38.06 30-Oct -0.19 -0.50%
7-Oct DXD 34.87 34.43 8-Oct -0.44 -1.26%
7-Oct DXD 35.05 34.85 7-Oct -0.2 -0.57%
6-Oct DDM 38.03 37.81 7-Oct -0.22 -0.58%
6-Oct DXD 35.05 34.87 6-Oct -0.18 -0.51%
6-Oct DDM 38.02 37.82 6-Oct -0.2 -0.53%
30-Sep DXD 35.07 34.89 6-Oct -0.18 -0.51%
30-Sep DDM 38.16 37.95 30-Sep -0.21 -0.55%
30-Sep DXD 34.87 34.67 30-Sep -0.2 -0.57%
28-Sep DDM 38.16 37.96 30-Sep -0.2 -0.52%
24-Sep DXD 35.08 34.9 28-Sep -0.18 -0.51%
16-Sep DDM 38.23 38.03 24-Sep -0.2 -0.52%
15-Sep DXD 35.26 35.08 16-Sep -0.18 -0.51%

 

Updated 11.09.09:

We are currently holding approximately 11% in gains from our November 2nd entry. 

Set a profit stop at $41.5.  If it hits, sell DDM and revert back to the rules.  Otherwise, sell at 10290.  10290 is the next inflection point.  If it is tested sell DDM, secure gains, and revert to the rules.

The only derivation to this would come if the Market opens above 10290 on Tuesday.  That does not appear likely to happen, but if it does 10290 would be our profit stop threshold.  IE, we would hold DDM unless it breaks.  More will be said on this subject if the Market seems to be starting with a gap higher Tuesday.

Here is the data array:

5300 - 6524 - 8051 - 9683 - 10290 - 10745

 

Updated 11.4.09:

In the last few days we have been stopped a few times in a row.  I adjusted the parameters so that 9683 is now the trigger point.  That reduced our entries a little bit.  My effort is to put a halt to the choppiness around 9728.  There was a number of stops on October 30th.  This adjustment should reconcile that.

I also realize we were holding approximately 7.5% in gains when i issued my Top of the Market report on October 22nd.  However, we never reached the 10% threshold.  The result was a stop.

Here are the trades:

 

YTD Return: Strategic  Plan = 38.03%      
      0      
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
             
             
2-Nov DDM 37.81        
2-Nov DXD 34.87 34.69 2-Nov    
30-Oct DDM 38.06 37.64 2-Nov    
30-Oct DXD 34.66 34.48 30-Oct    
30-Oct DDM 38.06 37.81 30-Oct    
30-Oct DXD 34.69 34.51 30-Oct    
30-Oct DDM 38.05 37.82 30-Oct    
8-Oct DDM 38.25 38.06 30-Oct    
7-Oct DXD 34.87 34.43 8-Oct    
7-Oct DXD 35.05 34.85 7-Oct    
6-Oct DDM 38.03 37.81 7-Oct    
6-Oct DXD 35.05 34.87 6-Oct    
6-Oct DDM 38.02 37.82 6-Oct    
30-Sep DXD 35.07 34.89 6-Oct    
30-Sep DDM 38.16 37.95 30-Sep    
30-Sep DXD 34.87 34.67 30-Sep    
28-Sep DDM 38.16 37.96 30-Sep    
24-Sep DXD 35.08 34.9 28-Sep    
16-Sep DDM 38.23 38.03 24-Sep    
15-Sep DXD 35.26 35.08 16-Sep    

 

 

Updated 10.31.09:

We were close to a 'lock' in the Strategic Plan, but the sudden reversal in the Market has caused us to be stopped again around 9728.  Although the Market seemed to respect it as a longer term inflection parameter before, and we almost secured 10%. we must reconsider it as an inflection parameter.  After doing so, I concluded that a slightly lower level is more appropriate as inflection at this time.  I have revised the parameters down accordingly.  Find the revised parameters below.

This is how we will handle 9728:  We should have DDM. This was based on 9728.  Because we lowered it to 9683, we need to widen the stop on this position slightly.  Because of this change, lower the stop on DDM to execute if the Dow hits 9680.  If it does, stop DDM and revert back to the rules.  If it does not get there, expect aggressively higher levels over time.

If you were smart enough to close out the last position when I issued my Top of the Market report on 10.22.09, you should use 9683 as inflection, and a trigger point for the Strategic Plan.

Dow parameters for Strategic Plan:

5300 - 6524 - 8051 - 9683 - 10290 - 10745

Updated 10.22.09:

The top of the Market is near:

http://stocktradersdaily.com/top2/top2/top2.htm

Updated 10.19.09:

Three possible scenarios:

  • If DDM gets to $42.07 set a profit stop at $41.99 and let it ride.
  • If DDM breaks above $42.07 and the Market tests 10400 without DDM stopping, sell DDM when 10400 is tested and revert to the rules.
  • If the market breaks down instead, stop DDM according to stop loss rule that is in place now.

Updated 10.8.09

We experienced a larger than usual stop, and then re-entered DDM.

We should be holding DDM.

8-Oct DDM 38.25    
7-Oct DXD 34.87 34.43 8-Oct
7-Oct DXD 35.05 34.85 7-Oct
6-Oct DDM 38.03 37.81 7-Oct
6-Oct DXD 35.05 34.87 6-Oct
6-Oct DDM 38.02 37.82 6-Oct
30-Sep DXD 35.07 34.89 6-Oct
30-Sep DDM 38.16 37.95 30-Sep
30-Sep DXD 34.87 34.67 30-Sep
28-Sep DDM 38.16 37.96 30-Sep
24-Sep DXD 35.08 34.9 28-Sep
16-Sep DDM 38.23 38.03 24-Sep
15-Sep DXD 35.26 35.08 16-Sep

 

Updated 10.7.09:

A couple more stops occurred on Wednesday.  This was unusual though.  At 10:18 AM Et a stop occurred when we were in DXD, but the Market was still under 9728.  That meant we had to re-enter DXD again according to rule, and not convert to DDM.  That is why there are two DXD trades in a row.

We should be holding DXD.

7-Oct DXD 34.87    
7-Oct DXD 35.05 34.85 7-Oct
6-Oct DDM 38.03 37.81 7-Oct
6-Oct DXD 35.05 34.87 6-Oct
6-Oct DDM 38.02 37.82 6-Oct
30-Sep DXD 35.07 34.89 6-Oct
30-Sep DDM 38.16 37.95 30-Sep
30-Sep DXD 34.87 34.67 30-Sep
28-Sep DDM 38.16 37.96 30-Sep
24-Sep DXD 35.08 34.9 28-Sep
16-Sep DDM 38.23 38.03 24-Sep
15-Sep DXD 35.26 35.08 16-Sep

Updated 10.6.09:

The Market has increased aggressively recently, it has moved back above longer term resistance again, and we needed to take action.  We experienced a few stops, and ended the day in DDM.

6-Oct DDM 38.03    
6-Oct DXD 35.05 34.87 6-Oct
6-Oct DDM 38.02 37.82 6-Oct
30-Sep DXD 35.07 34.89 6-Oct
30-Sep DDM 38.16 37.95 30-Sep
30-Sep DXD 34.87 34.67 30-Sep
28-Sep DDM 38.16 37.96 30-Sep
24-Sep DXD 35.08 34.9 28-Sep
16-Sep DDM 38.23 38.03 24-Sep
15-Sep DXD 35.26 35.08 16-Sep

Updated 10.1.09:

The Market has begun to decline.  Our 10% profit stop threshold is 38.57.  If DXD increases to this level, set a profit stop at 38.49 and let the position ride.  If the position stops, revert to the existing parameters and our defined rule.  However, if the Market continues to fall instead, and if the Market tests 9040 and we are still holding DXD, sell DXD at that level instead, and then revert to the rules.  A test is 25 market points as usual.

Updated 9.30.09:

The strategic plan had a busy day today.  3 stops occurred.

We should be long DXD.

30-Sep DXD 35.07    
30-Sep DDM 38.16 37.95 30-Sep
30-Sep DXD 34.87 34.67 30-Sep
28-Sep DDM 38.16 37.96 30-Sep
24-Sep DXD 35.08 34.9 28-Sep
16-Sep DDM 38.23 38.03 24-Sep
15-Sep DXD 35.26 35.08 16-Sep

Updated 9.28.09

DXD stopped and we reverted back to DDM

28-Sep DDM 38.16    
24-Sep DXD 35.08 34.9 28-Sep
16-Sep DDM 38.23 38.03 24-Sep
15-Sep DXD 35.26 35.08 16-Sep

Updated 9.24.09:

DDM stopped and we converted to DXD.

24-Sep DXD 35.08        
16-Sep DDM 38.23 38.03 24-Sep    
15-Sep DXD 35.26 35.08 16-Sep    

Updated 9.16.09:

DXD stopped, and we converted to DDM.  We should be holding DDM according to rule.  We should have a 0.5% stop loss in place.

16-Sep DDM 38.23        
15-Sep DXD 35.26 35.08 16-Sep    

Updated 9.15.09:

The next phase of the Strategic Plan began when 9728 as tested in the Dow.  According to plan, DXD was triggered as a long position with a 0.5% stop loss and conversion strategy incorporated to control risk and transition with the Market if needed.  This is part of the underlying strategy.  If we are stopped, we should revert to the rules, and the qualifications associated with them.

Estimated entry level = $35.26.  Associated stop would be $35.08

 

Updated 9.10.09:

Strategic Plan.

Warning:  Do not trade the Strategic Plan until you have watched one phase from start to finish.

This year:

  • Return: +38%
  • Days in cash:  over 100
  • Number of trades: 45
  • Trades at major inflections points exclusively.
  • Long/Short Strategy
  • Designed as a Proactive Alternative to Buy and Hold
  • Trades long and short
  • Uses ETFs: DDM and DXD
  • Focuses on the Dow

This is an excellent strategy, and it works very well.  However, many people fail to use it properly if they fail to understand how to use it first.  Therefore, either wait, watch, and paper trade along with the rest of us, or take Boot Camp and learn how to do it before committing real money, or do both.

We are rapidly approaching 9728.  This will trigger the next phase of the Strategic Plan.  If you are trading, or paper trading along with us, please follow the rules outlined on the Strategic Plan page, under Strategies on the Beta Site.  A trigger will become official if the Market comes within 25 points of 9728, and then our conversion rules will fall into place.  If you are using real money, you should know these rules already. 

Updated 8.31.09:

We secured a gain in the most recent phase of our strategic plan today.  We locked in 9.43%, but our net was only about 2%.  This was the toughest phase of the Strategic Plan to date.  There were a series of stops before the Market moved.  Most of these happened in one day, when the Market floundered endlessly.  In any case, the Strategic Plan is now +38% YTD, we are in cash, and we are waiting for the next trigger.

 

YTD Return: Strategic  Plan = 38.03%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
29-Jul DDM 32.89 35.99 31-Aug 3.1 9.43%
29-Jul DXD 41.48 41.26 29-Jul -0.22 -0.53%
29-Jul DDM 32.86 32.7 29-Jul -0.16 -0.49%
29-Jul DXD 41.49 41.28 29-Jul -0.21 -0.51%
29-Jul DDM 32.87 32.69 29-Jul -0.18 -0.55%
29-Jul DXD 41.49 41.28 29-Jul -0.21 -0.51%
29-Jul DDM 32.89 32.7 29-Jul -0.19 -0.58%
29-Jul DXD 41.51 41.28 29-Jul -0.23 -0.55%
28-Jul DDM 32.86 32.69 29-Jul -0.17 -0.52%
28-Jul DXD 41.5 41.29 28-Jul -0.21 -0.51%
24-Jul DDM 32.87 32.69 28-Jul -0.18 -0.55%
24-Jul DXD 41.5 41.28 24-Jul -0.22 -0.53%
23-Jul DDM 32.85 32.66 24-Jul -0.19 -0.58%
23-Jul DXD 41.55 41.34 23-Jul -0.21 -0.51%
23-Jul DXD 41.74 41.53 23-Jul -0.21 -0.50%

 

Updated 8.21.09:

I have lowered the upside parameter slightly.  The new array is:

Dow parameters for Strategic Plan:  7191 - 8052 - 9040 - 9728 - 10745

I changed 9749 to 9728.  Otherwise the parameters are the same.

Given Friday's move, we have now initiated a profit stop in the Strategic Plan.  If we are stopped, we will secure gains of about 10%.  However, there is another possibility.  We have not had this happen before.  Therefore, what I say here sets precedence.  We have always taken profits before the Market moved from one parameter to another, so we never had a case where we were holding a position when a new parameter was tested.  Interestingly, that could happen in this phase of the Strategic Plan.

If the Market tests 9728 and we are still in DDM from when the Market was near 9040, we should sell DDM and revert back to the rules.  A test means that the Market is within 25 points of 9728.  Therefore, if the Market is between 9703 and 9728, and we are still in DDM, sell it, and if the Market is still within 25 points, buy DXD and revert back to the rules.  That would be about a 15% return from our entry, offset by our stops of course.

8.21.09

We now have a profit stop in DDM just under $36.  If DDM gets to $37.8 we will increase our profit stop to $37.6.  That is about 5%.  This falls in line with the 5% trailing profit stop rule.

 

8.3.09

We are very close to setting a profit stop in the Strategic Plan.  We will start to consider this when we are 10% in the Money.  Our DDM entry was 32.89.  10% equates to $36.17.  Therefore, if DDM equals $36.17 in the near future set a stop loss at $35.99 and let the position ride.  If it stops, close the position and revert back to the rules, and wait for a new trigger according to the rules.  However, if the Market and DDM move higher after our profit stop is implemented, we will adjust it up every 5%.  Therefore, at $37.8 we will adjust the profit stop higher, and continue to do so every 5% until the profit stop hits or until 9642 is tested.

 

8.16.09

Our Strategic Plan Parameters have changed.  They are now:

Dow parameters for Strategic Plan:  7191 - 8052 - 9040 - 9749 - 10745

Those should be used to guide trading decisions from here.  Unless they are changed, and those updates are listed, the data points above will act as trigger points.

 

 

7.29.09:

 

YTD Return: Strategic  Plan = 35.99%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
29-Jul DDM 32.89        
29-Jul DXD 41.48 41.26 29-Jul -0.22 -0.53%
29-Jul DDM 32.86 32.7 29-Jul -0.16 -0.49%
29-Jul DXD 41.49 41.28 29-Jul -0.21 -0.51%
29-Jul DDM 32.87 32.69 29-Jul -0.18 -0.55%
29-Jul DXD 41.49 41.28 29-Jul -0.21 -0.51%
29-Jul DDM 32.89 32.7 29-Jul -0.19 -0.58%
29-Jul DXD 41.51 41.28 29-Jul -0.23 -0.55%
28-Jul DDM 32.86 32.69 29-Jul -0.17 -0.52%
28-Jul DXD 41.5 41.29 28-Jul -0.21 -0.51%
24-Jul DDM 32.87 32.69 28-Jul -0.18 -0.55%
24-Jul DXD 41.5 41.28 24-Jul -0.22 -0.53%
23-Jul DDM 32.85 32.66 24-Jul -0.19 -0.58%
23-Jul DXD 41.55 41.34 23-Jul -0.21 -0.51%
23-Jul DXD 41.74 41.53 23-Jul -0.21 -0.50%
30-Mar DDM 22.51 25.99 2-Apr 3.48 15.46%

 

7.28.09

Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
28-Jul DDM 32.86  open      
28-Jul DXD 41.5 41.29 28-Jul -0.21 -0.51%
24-Jul DDM 32.87 32.69 28-Jul -0.18 -0.55%
24-Jul DXD 41.5 41.28 24-Jul -0.22 -0.53%
23-Jul DDM 32.85 32.66 24-Jul -0.19 -0.58%
23-Jul DXD 41.55 41.34 23-Jul -0.21 -0.51%
23-Jul DXD 41.74 41.53 23-Jul -0.21 -0.50%

7.26.09

Our current Strategic Plan has been traded as follows thus far:

24-Jul DDM 32.87        
24-Jul DXD 41.5 41.28 24-Jul -0.22 -0.53%
23-Jul DDM 32.85 32.66 24-Jul -0.19 -0.58%
23-Jul DXD 41.55 41.34 23-Jul -0.21 -0.51%
23-Jul DXD 41.74 41.53 23-Jul -0.21 -0.50%

 

7.26.09

Our Strategic plan Parameters have changed slightly.  They are now:

8077 - 9039 - 9642 - 10823

7.23.09:

The Strategic Plan is active.  We are in a position.  Here are the trades we have made YTD:

 

YTD Return: Strategic  Plan = 35.99%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
             
23-Jul DDM 32.85        
23-Jul DXD 41.55 41.34 23-Jul    
23-Jul DXD 41.74 41.53 23-Jul    
30-Mar DDM 22.51 25.99 2-Apr 3.48 15.46%
30-Mar DXD 65.69 65.35 30-Mar -0.34 -0.52%
30-Mar DDM 22.5 22.38 30-Mar -0.12 -0.53%
23-Mar DDM 22.68 24.98 26-Mar 2.3 10.14%
23-Mar DXD 67.59 67.23 23-Mar -0.36 -0.53%
23-Mar DDM 22.67 22.54 23-Mar -0.13 -0.57%
20-Mar DXD 67.63 67.16 23-Mar -0.47 -0.69%
20-Mar DDM 22.73 22.61 20-Mar -0.12 -0.53%
20-Mar DXD 67.56 67.2 20-Mar -0.36 -0.53%
19-Mar DXD 67.85 67.3 20-Mar -0.55 -0.81%
19-Mar DDM 22.68 22.52 19-Mar -0.16 -0.71%
19-Mar DXD 67.86 67.48 19-Mar -0.38 -0.56%
18-Mar DDM 22.66 22.54 19-Mar -0.12 -0.53%
18-Mar DXD 67.68 67.33 18-Mar -0.35 -0.52%
18-Mar DDM 22.79 22.67 18-Mar -0.12 -0.53%
18-Mar DXD 67.52 66.63 18-Mar -0.89 -1.32%
20-Feb DXD 70.6 77.65 27-Feb 7.05 9.99%
20-Feb DDM 22.95 22.8 20-Feb -0.15 -0.65%
20-Feb DXD 70.78 70.39 20-Feb -0.39 -0.55%
19-Feb DDM 23.05 22.22 20-Feb -0.83 -3.60%
6-Jan DXD 50.38 60.44 14-Jan 10.06 19.97%
6-Jan DDM 33.91 33.74 6-Jan -0.17 -0.50%
6-Jan DXD 50.4 50.1 6-Jan -0.3 -0.60%
6-Jan DDM 33.93 33.76 6-Jan -0.17 -0.50%
6-Jan DXD 50.44 50.16 6-Jan -0.28 -0.56%
6-Jan DDM 33.84 33.65 6-Jan -0.19 -0.56%
5-Jan DXD 50.55 50.23 6-Jan -0.32 -0.63%
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

 

 

7.23.09:

This is an easy to understand visual explanation:

http://www.stocktradersdaily.com/clubsite/Club/Strategic%20Plan/strategicplan721092/strategicplan721092.htm

 

7.21.09

Parameters:

Dow parameters for Strategic Plan:  6525 - 7191 - 8052 - 9039 - 9716

The Dow Jones industrial average is approaching longer-term resistance.  Recently, it came within 10 points of our defined longer-term support level.  Now, suddenly, a test a longer-term resistance lines looks imminent.  Longer-term resistance as defined in our strategic plan is 9039 for the Dow Jones industrial average.  The instructions below explain exactly how we should trade the strategic plan based on the expected test of 9039.  Use it to guide your trades.

Instructions:

  1. As soon as the Market falls between 9014 and 9039 buy DXD.

  2. Do not wait, use market orders, and do not second guess your decision.

  3. Immediately set a 0.5% stop loss based on your fill, not on market levels.

  4. If you are stopped, see where the Market is and use the rules.

  5. If the Market is within 25 points of 9039 again, buy either DDM or DXD

  6. DDM will be bought if the Market is > 9039 and < 9064

  7. DXD will be bought if the Market is > 9014 and < 9039

  8. If a stop and second buy occurs, use a 0.5% stop again and repeat.

  9. If another stop occurs, start at rule #5 and work forward.

  10. Continue to convert until the Market makes up its mind on direction.

  11. This may take a few days.  We may incur multiple stops.

  12. Once the Market begins to move, look to secure gains.

  13. When your position is in the money by 10% set a profit stop.

  14. Additional guidelines will be provided when that happens.

  15. DO NOT use too much money.  DO NOT have expectations.

  16. You must pay attention for a few days.

  17. After we secure gains we will revert to cash again.

7.7.09:

With a test of 8052 coming, we should be ready to engage the next phase of the Strategic Plan.  Consider these both instructions and warnings.  First, do not think the Strategic Plan is easy to follow.  +36% YTD on 29 trades, and in cash for over 90 days sounds great, but the Strategy is not easy to follow unless you are disciplined.  Stops will occur, small losses will need to be realized, and the plan should be followed precisely, otherwise it will not be effective.  If it is followed, the plan will work like it has in the past.

Instructions:

  1. As soon as the Market falls between 8052 and 8077 buy DDM.

  2. Do not wait, use market orders, and do not second guess your decision.

  3. Immediately set a 0.5% stop loss based on your fill, not on market levels.

  4. If you are stopped, see where the Market is and use the rules.

  5. If the Market is within 25 points of 8052 again, buy either DDM or DXD

  6. DDM will be bought if the Market is > 8052 and < 8077

  7. DXD will be bought if the Market is > 8027 and < 8052

  8. If a stop and second buy occurs, use a 0.5% stop again and repeat.

  9. If another stop occurs, start at rule #5 and work forward.

  10. Continue to convert until the Market makes up its mind on direction.

  11. This may take a few days.  We may incur multiple stops.

  12. Once the Market begins to move, look to secure gains.

  13. When your position is in the money by 10% set a profit stop.

  14. Additional guidelines will be provided when that happens.

  15. DO NOT use too much money.  DO NOT have expectations.

  16. You must pay attention for a few days.

  17. After we secure gains we will revert to cash again.

6.9.09

Our Economic analysis has been updated, and it now extends beyond 2010 with this current report.  It is titled: The Grimm Reaper is Knocking.  It uses the Investment Rate to compare current demand ratios to normalized demand ratios to gauge future economic activity.  This was the same basis used in the Return to Parity Analysis issued in December, 2008.  It also references the PST and TBT positions that were recommended in December, and the UYG and URE positions that were recommended the day after the Market bottomed in March.  This is a must read for everyone because it sets the tone for the next six months.

The Grimm Reaper is Knocking

 

Updated 5.3.09

our combined longer-term analysis has been updated and the signals stemming from our revised analysis will act as the trigger points for our strategic plan going forward.  All charts, The longer term charts of the Dow, the S&P 500, and the NASDAQ are congruent.  They show the same general patterns and together they provide an outline for market direction throughout 2009.  This analysis should be used in conjunction with my return to parity analysis.  This is important because it lays the groundwork for our decisions going forward.

I have prepared a presentation explains my outlook for the remainder of 2009.  Please take the time to review this presentation.  It will only take a few minutes.

http://www.stocktradersdaily.com/2009Strategy/player.html

Strategic Plan:

Dow parameters for Strategic Plan:  6525 - 7191 - 8052 - 9039 - 9716

 

Updated 4.7.09:

our combined longer-term analysis tells us that the market may decline and the Dow Jones industrial average may re test converted longer-term support levels.  Watch 7441 closely.  Our strategic plan is currently in cash, but if 7441 is tested we should engage the strategy again.  Use the following plan to guide the trades in the strategic plan if 7441 is tested again:

Dow parameters for Strategic Plan:  6385 - 7441 - 9054 - 10800

Strategic Plan:

  1. If The Market comes within 25 points of 7441 buy DDM (7441 - 7466)

  2. Set a 0.5% stop loss.  This will stop below 7441 if rule #1 is followed.

  3. If a stop occurs convert to DXD with the same 0.5% stop loss.

  4. If another stop occurs convert back to DDM.

  5. Repeat this process as many times as needed.

  6. Expect a few stops, but the losses are small.

  7. After a few times, expect the Market to follow through.

  8. We do not know the direction it will go.

  9. When 10% in gains are realized set a trailing profit stop.

  10. Review the Strategic Plan link for examples of past trades

Updated 4.2.09

Dow parameters for Strategic Plan:  6385 - 7441 - 9054 - 10800

Strategic Plan:

We locked in 15.46% today.  Great Job!

 

YTD Return: Strategic  Plan = 35.99%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
30-Mar DDM 22.51 25.99 2-Apr 3.48 15.46%
30-Mar DXD 65.69 65.35 30-Mar -0.34 -0.52%
30-Mar DDM 22.5 22.38 30-Mar -0.12 -0.53%

 

Updated 4.1.09

The Strategic Plan is approaching our lock - in of 10%.  We must now incorporate the Profit Stop Rule.  Here is a plan to initiate profit stops in the strategic plan:

  1. If DDM gets to 25.1 set a stop at 24.99 and leave it there.  Do not trail.  If it dips the profit stop will trigger.
  2. If DDM gets to 26.1 move the stop up to 25.99 and leave it there
  3. If DDM gets to 27.1, repeat.
  4. Continue to do this until the profit stop hit

Longer term support in the Dow Jones industrial average was tested again and new triggers occurred for the strategic plan.  Our combined longer-term analysis continues to tell us that higher levels of lie ahead so long as 7441 remains in tact as support in the Dow.  Treat that as a key level of inflection.  If this support level remains intact all three markets are likely to trend higher quite aggressively over time.  This is an inflection level for longer term positions, and the test that occurred on Monday began the next phase of our strategic plan.  Currently, we should have a long bias with an upside target of 9054.  This will hold unless 7441 breaks lower.  The strategic plan is a well defined risk controlled strategy using market-based ETFs.  The trades that have occurred as far, since Monday, are listed below.  The details regarding the strategy are found in the Strategic Plan page in the main menu of our website.

Dow parameters for Strategic Plan:  6385 - 7441 - 9054 - 10800

 

YTD Return: Strategic  Plan = 21.58%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
30-Mar DDM 22.51 open      
30-Mar DXD 65.69 65.35 30-Mar -0.34 -0.52%
30-Mar DDM 22.5 22.38 30-Mar -0.12 -0.53%

 

Updated 3.26.09

Our combined longer term analysis tells us that the market has broken above longer term resistance and is poised to accelerate over time until it tests secondary resistance levels.  The resistance levels which were recently broken have now been converted into support and they still are considered inflection parameters.  Our current analysis tells us to expect the market to trend higher, but it may not trend higher with out backing and filling along the way.  In fact, a retest of recently broken resistance, which is now converted support, may even occur before an official test of secondary resistance levels happen.

STRATEGIC PLAN: 

The most recent phase of our recent strategic plan was closed with a modest gain.  All strategic plan participants should now be in cash.  We will not trade again until such time as one of our established parameters are tested.  These are subject to change, but the parameters are listed below.  For those persons following the strategic plan, we should appreciate the cash position.  The strategic plan is currently up more than 21% YTD, and we have been in cash most of the time.  Best of all, we have been able to make money regardless of market direction, and we have always remained in control of our risk.  This will not change, and this is why we have performed well this year.  It is why we perform well every year.  Do not become overwhelmed with current market conditions.  It does not matter to you.  The strategic plan is one of the best ways of making money in any market environment, and all it takes is a little focus.  Do not cave to emotions and risk!  If 7440 is tested again in the Dow we will re-engage the strategy.  otherwise, we wait for 9054.

Dow parameters for Strategic Plan:  6385 - 7440 - 9054 - 10800

 

YTD Return: Strategic  Plan = 21.58%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
23-Mar DDM 22.68 24.98 26-Mar 2.3 10.14%
23-Mar DXD 67.59 67.23 23-Mar -0.36 -0.53%
23-Mar DDM 22.67 22.54 23-Mar -0.13 -0.57%
20-Mar DXD 67.63 67.16 23-Mar -0.47 -0.69%
20-Mar DDM 22.73 22.61 20-Mar -0.12 -0.53%
20-Mar DXD 67.56 67.2 20-Mar -0.36 -0.53%
19-Mar DXD 67.85 67.3 20-Mar -0.55 -0.81%
19-Mar DDM 22.68 22.52 19-Mar -0.16 -0.71%
19-Mar DXD 67.86 67.48 19-Mar -0.38 -0.56%
18-Mar DDM 22.66 22.54 19-Mar -0.12 -0.53%
18-Mar DXD 67.68 67.33 18-Mar -0.35 -0.52%
18-Mar DDM 22.79 22.67 18-Mar -0.12 -0.53%
18-Mar DXD 67.52 66.63 18-Mar -0.89 -1.32%

 

Updated 3.23.09:

Our combined longer term analysis shows us that there has broken out to the upside.  7440 has been broken and the Market seems to be accelerating higher.  9054 is our upside target if 7440 remains in tact as converted longer term support.  In addition, the Market has moved enough to warrant a discussion of profit stops in the strategic plan.

By rule, we want to set a profit stop to secure 10% in gains.  reasonably, there have been a series of stops this time, so I expect our profit margin to be smaller for this phase of the strategic plan.  In any case, we are holding about 8% in paper gains according to strategy.  This is offset largely by the stops.

A 10% profit from our entry in DDM would be just under $25.  Specifically, $24.948.  With that understood, this is the rule I want to use for this profit stop:  If DDM gets to $25.1 or higher set a profit stop just under $25 ($24.99) and let that position ride.  Do not trial the profit stop.  Instead, if the position gets into the money by another 5% we will move the profit stop up by that margin at that time and continue to follow it in 5% increments.  We can use 1 point as a rule.  So if DDM gets to 26.1 set the stop just under 26.  Then 27.1 under 27, etc.

 

YTD Return: Strategic  Plan = 19.26%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
             
23-Mar DDM 22.68        
23-Mar DXD 67.59 67.23 23-Mar -0.36 -0.53%
23-Mar DDM 22.67 22.54 23-Mar -0.13 -0.57%
20-Mar DXD 67.63 67.16 23-Mar -0.47 -0.69%
20-Mar DDM 22.73 22.61 20-Mar -0.12 -0.53%
20-Mar DXD 67.56 67.2 20-Mar -0.36 -0.53%
19-Mar DXD 67.85 67.3 20-Mar -0.55 -0.81%
19-Mar DDM 22.68 22.52 19-Mar -0.16 -0.71%
19-Mar DXD 67.86 67.48 19-Mar -0.38 -0.56%
18-Mar DDM 22.66 22.54 19-Mar -0.12 -0.53%
18-Mar DXD 67.68 67.33 18-Mar -0.35 -0.52%
18-Mar DDM 22.79 22.67 18-Mar -0.12 -0.53%
18-Mar DXD 67.52 66.63 18-Mar -0.89 -1.32%

 

Updated 3.12.09

Our combined longer term analysis shows us that longer term support levels have held.  Official tests occurred in the S&P and NASDAQ, and the Dow came very close to an official test as well.  From here, a test of resistance is likely to occur in the Dow as it moves higher.  Support held, and appropriately resistance is poised to be tested now.  Longer term converted resistance is 7440.  Treat it as the next level of longer term inflection and the catalyst for the next leg of the strategic plan.  By rule, a test of resistance is a short signal, but if it breaks we will convert to long too.  Do not be one - sided.

  1. If The Market comes within 25 points of 7440 buy DXD (7415 - 7440)

  2. Set a 0.5% stop loss.  This will stop above 7440 if rule #1 is followed.

  3. If a stop occurs convert to DDM with the same 0.5% stop loss.

  4. If a stop occurs convert back to DXD.

  5. Repeat this process as many times as needed.

  6. Expect a few stops, but the losses are small.

  7. After a few times, expect the Market to follow through.

  8. We do not know the direction it will go.

  9. When 10% in gains are realized set a trailing profit stop.

  10. Review the Strategic Plan link for examples of past trades

Updated 3.12.09:

If this breakout is for real I am a huge fan of both UYG and URE.

I think these can easily double or triple over the next 3 months...

Mid term resistance needs to stay broken.  It is now converted support.  If it stays broken I expect the surge to hold too.  Treat that as a stop loss if you decide on UYG and URE.  In other words, if mid term converted support starts to break lower again go to cash again with those and covert as needed from there (same as strategic plan).   

However, if it holds, these are going to do extremely well in my opinion.  This has direct ties tot he return to parity analysis I have provided. 

I am turning bullish and will stay that way if this continues...

Updated 3.1.09

In my circle, it is almost eerily quiet.  No one seems anxious, even though the Market closed at 12-year lows.  I expected some resistance and apprehension at least.  Although I see none now, that could change. 

Instead, I am hearing terms like ‘whatever’ or ‘I’m not even looking at it.’  This is bad.  Capitulatory cycles start with controlled declines, like the ones we have seen recently.  Then a denial phase overcomes investors for a while as they sit and hope for the best.  Finally, when the Market really starts to get ugly, they start to pay attention again.  When they do, they also start to panic.  We just went through this a few months ago.  Is everyone that shortsighted 

With panic comes opportunity, and that is what we are looking to capture. 

Before I continue, my references here suggest capitulation at some point soon.  This can be thwarted, so I want to address this possibility before I move forward with discussion.  If the Market turns higher and breaks above 7441 in the Dow, a bullish sign will come.  This is our actionable reversal signal for the Strategic Plan.  We will not sit in a bearish posture if the Market reverses.  After all, I expect 2009 to end on a strongly positive note.

However, the immediate move in the Market seems to be down.  If that continues, it is likely to get ugly at the same time.  Our combined longer-term analysis, evidenced in the analysis – charts section of our beta site, tells us that a decline to 6384 is likely to occur soon.  That equates to an additional 10% decline from current levels, and a net 27% decline in the Dow YTD. 

Using my Fibonacci Calculations, we also find a confirmation at 6641.  First, I will explain how I found this data, and then I will conceptualize the developing strategy.

Recent highs in the Dow were 9054.  Because I am referencing longer-term strategies in this email, I am using the Dow to manage strategy.  If I were using the day or swing trading strategies, I would use the NASDAQ of course.  In any case, by navigating to the beta site – strategies – Fibonacci Calculator, I am able to find these natural regression statistics.  Using that calculator, I type 9054 in the High Box and click calculate.  The data on the left shows a series of data derived from the Golden Sequence. 

For those persons not familiar with this, the application may be easier than the derivation.  The calculator is simple, and very easy to use.  For now, keep it that way. 

Importantly, our objective is to correlate the longer-term support level in the Dow (6384) that was derived using technical analysis, to one of the data points in the Fibonacci Calculator derived using the natural sequence.  If you are following along using the Calculator in the Beta Site, look at the T4 value on the left side.  That value is 6681 

For anyone familiar with this application, you already know that we look for breaks of Fibonacci data, and then reversal higher to confirm.  Our multi-year applications of the Strategic Plan have always used this strategy.  However, with 1000 point intraday swings, we had to modify it with the volatile conditions in 2008.  That is where the DDM – DXD strategies came from.  Review the Strategic Plan link in the Beta Site for details.

Reasonably, we have two corresponding data points.  6681 – 6384.  We always expect technically derived support data to be lower than Fibonacci support levels, so this situation fits perfectly.  Our immediate strategy suggests that a decline to 6384 should take place.  That means a break below 6681 should happen too. 

Assuming a test of technically derived support occurs, if support holds, and if the Market turns higher from 6384, it will also break back above 6681 too.  If it happens according to plan, 6681 will also be confirmation.  This will tell us that the Market is likely to move higher aggressively afterwards.

Therefore, we have defined strategy:

  1. Expect lower levels unless the Dow reverses above 7441

  2. If the Dow tests 7441 again, engage the DDM – DXD strategy.

  3. Target 6385 if the declines continue, and consider it support

  4. Engage the DDM – DXD strategy around 6384 again

  5. If the Market reverses higher from 6385, consider 6681 as a confirmation level suggesting higher levels.  This should increase confidence levels and could compel both positions trades and institutional buy programs accordingly.

5.    If the Market reverses higher from 6385, consider 6681 as a confirmation level suggesting higher levels.  This should increase confidence levels and could compel both positions trades and institutional buy programs accordingly.

I will turn bullish again either if 6385 is tested, or if the Dow breaks back above 7441.  For our strategic plan followers, we should be in cash with about 20% in gains for the year.  If the turmoil I foresee takes shape, cash may be the best place for your longer term assets.  The Strategic Plan, after all, is a proactive strategy and an alternative to longer-term buy and hold traditions.

Updated 2.27.09

According to rule, we should have  locked in 10% in gains from the recent trades in the strategic plan.  Review the table below for details.  We should now be in cash and waiting for the next test of support or resistance.  The market was near 7100 when this was written, so it falls between 8384 (support) and 7441 (resistance).

Here is the current array:

6385 - 7441 - 9054 - 11776

 

YTD Return: Strategic  Plan = 19.26%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
20-Feb DXD 70.6 77.65 27-Feb 7.05 9.99%
20-Feb DDM 22.95 22.8 20-Feb -0.15 -0.65%
20-Feb DXD 70.78 70.39 20-Feb -0.39 -0.55%
19-Feb DDM 23.05 22.22 20-Feb -0.83 -3.60%
6-Jan DXD 50.38 60.44 14-Jan 10.06 19.97%
6-Jan DDM 33.91 33.74 6-Jan -0.17 -0.50%
6-Jan DXD 50.4 50.1 6-Jan -0.3 -0.60%
6-Jan DDM 33.93 33.76 6-Jan -0.17 -0.50%
6-Jan DXD 50.44 50.16 6-Jan -0.28 -0.56%
6-Jan DDM 33.84 33.65 6-Jan -0.19 -0.56%
5-Jan DXD 50.55 50.23 6-Jan -0.32 -0.63%
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

 

Updated 2.22.09

We experienced a greater than anticipated stop on Friday.  Afterwards we should have converted to DXD.  Initially, we were well in the money until political banter changed the dynamics, and we were stopped once in DXD and had to converted and revert.  This second trade was much more frustrating to me than the initial stop.  In any case, according to plan, we should be holding a loss from the recent trades, and DXD according tot he summary table below.  The are approximate entry and exit levels:

 

YTD Return: Strategic  Plan = 9.28%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
20-Feb DXD 70.6        
20-Feb DDM 22.95 22.8 20-Feb -0.15 -0.65%
20-Feb DXD 70.78 70.39 20-Feb -0.39 -0.55%
19-Feb DDM 23.05 22.22 20-Feb -0.83 -3.60%
6-Jan DXD 50.38 60.44 14-Jan 10.06 19.97%
6-Jan DDM 33.91 33.74 6-Jan -0.17 -0.50%
6-Jan DXD 50.4 50.1 6-Jan -0.3 -0.60%
6-Jan DDM 33.93 33.76 6-Jan -0.17 -0.50%
6-Jan DXD 50.44 50.16 6-Jan -0.28 -0.56%
6-Jan DDM 33.84 33.65 6-Jan -0.19 -0.56%
5-Jan DXD 50.55 50.23 6-Jan -0.32 -0.63%
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

 

Updated 2.17.09

Our combined longer term analysis tells us that the Market is within striking distance of 7441 in the Dow.  A test of 7441 would be a buy signal.  However, conversion strategies are recommended, and we should be willing to turn short if support breaks too.  Our stop losses are tight, entry levels are restricted, and re-entry levels are defined.  These can all be found in the Strategic Plan page as well, but they are also listed below.  First, here are the parameters:

7441 - 9054 - 11776

Here is the Strategy:

  1. If the Market is between 7441 and 7466 buy DDM and set a 0.5% stop.

  2. If DDM is stopped buy DXD only if the Market is between 7416 and 7441 and set a 0.5% stop.

  3. The 0.5% stop equates to a little more than 25 Dow Points.

  4. Be willing to repeat this trade as many times as needed.  IE, stop DXD and buy DDM again if the Market reverses again too, and start over.

  5. If the Market opens below 7441 start with DXD instead, so long as the conditions above are satisfied, and follow the same steps.

  6. Expect this strategy to stop a few times.

  7. This will be a busy strategy for 1-2 days most likely.

  8. 10% profit stops will be advised if the position gets in the money.

  9. After we close the position expect to be in cash for a while.

  10. The table below is an excellent example of this strategy and it should help manage expectations.

Updated 2.3.09

We should have added four stocks to the position trades.  For anyone who does not want to follow the disciplined strategy outlined above, these positions trades were recommended on 2.3.09.  They are not meant to replace the strategic plan.  However, they satisfy the desire of some people to position trade. 

These entry prices were the median price of each stock this day:

  • MSFT: 18.10

  • GE:  11.60

  • URE:  4.26

  • UYG:  3.19

In addition, we should be holding PST from December

  • PST: 52

Updated 1.19.09

I have updated the parameters for our strategic plan.  From this point forward, and unless adjusted beforehand, we should use the following array to guide our decisions in the strategic plan:

7441 - 9054 - 11776

7440 is the first level of support, and 9054 is the first level of resistance.  We should currently be in cash, and we should be positioned to buy QID or QLD according to the rules associated with out strategic plan.  We may be in cash for a while, but we are also holding nice gains for the year.  Cash should be appreciated.  We do not need to trade all the time to take advantage of these excellent opportunities.  I expect another trading signal to surface within the next couple weeks.  Until then, sit tight.

Here is the chart pattern which produces these data points:

 

Updated 1.14.09

It is official.

We should have locked in about 20% in gains from the strategic plan, and we should now be in cash.  From here, a new trigger will occur either when 7400 is tested or if 9029 is tested again instead.  If you are following the strategic plan, until that time we remain in cash 

Also, please do the following.  You deserve it.

  • Stand up immediately.
  • Put your hands in the air over your head.
  • Then rip then down to your waist
  • Yell: CHA CHING while you do it
  • Repeat this process three times in a row.
  • Don't worry about your coworkers
  • Then go buy yourself a nice lunch.
  • You deserve it

Also, don't forget to give someone else some of your positive energy too.  Many people out there would appreciate a smile if you have one to give.

 

YTD Return: Strategic  Plan = 14.08%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
6-Jan DXD 50.38 60.44 14-Jan 10.06 19.97%
6-Jan DDM 33.91 33.74 6-Jan -0.17 -0.50%
6-Jan DXD 50.4 50.1 6-Jan -0.3 -0.60%
6-Jan DDM 33.93 33.76 6-Jan -0.17 -0.50%
6-Jan DXD 50.44 50.16 6-Jan -0.28 -0.56%
6-Jan DDM 33.84 33.65 6-Jan -0.19 -0.56%
5-Jan DXD 50.55 50.23 6-Jan -0.32 -0.63%
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

Updated 1.13.09

We should currently have a 10% profit stop in place, but we should increase that if our gains increase beyond 20%.  Please recognize the following guide: if the Market continues to decline, and our gains increase beyond 20%, set a profit stop at 20% and let that position ride.  In essence, we would increase the profit stop by 10% using this process.  The exact DXD level, according to our strategic plan entry table, would be $60.44.  If DXD increases beyond $60.44 we should increase our current profit stop from $55.41 to $60.44 accordingly.

From here, one of two things is going to happen:  Either we are going to get stopped out with about a 10% gain, or we are going to stair step our profit stop higher if the Market declines some more.  In any case, this is a relatively good place to be for the time being. 

Clearly, the road was a little bumpy at first, but that’s part of the process.  It starts busy, and then slows down fast.  So far this has been decent, but the trade is not complete, and the fat lady has not sung.  Only after the trade is closed will we be allowed to evaluate the conditions we set for this phase of the strategic plan.  until then, we sit tight.

 

YTD Return: Strategic  Plan = -5.88%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
6-Jan DXD 50.38 open   #VALUE! #VALUE!
6-Jan DDM 33.91 33.74 6-Jan -0.17 -0.50%
6-Jan DXD 50.4 50.1 6-Jan -0.3 -0.60%
6-Jan DDM 33.93 33.76 6-Jan -0.17 -0.50%
6-Jan DXD 50.44 50.16 6-Jan -0.28 -0.56%
6-Jan DDM 33.84 33.65 6-Jan -0.19 -0.56%
5-Jan DXD 50.55 50.23 6-Jan -0.32 -0.63%
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

 

 

Updated 1.5.09

On Monday there were a series of trades in the Strategic Plan.  We should be holding a slight loss as a result.

 

YTD Return: Strategic  Plan = -2.54%      
             
Enter date ETF Enter price Exit price Exit Date Difference % return
5-Jan DXD 50.55 open   #VALUE! #VALUE!
5-Jan DDM 33.84 33.64 5-Jan -0.2 -0.59%
5-Jan DXD 50.55 50.24 5-Jan -0.31 -0.61%
2-Jan DDM 33.78 33.33 5-Jan -0.45 -1.33%

 

Dow inflection parameters:

7400 - 9029 - 9707 - 10800

 

 

Updated 1.3.09:

We should have converted from short to long.

The Dow has broken above 9029, our predefined inflection point.  Because this resistance level has broken higher we should have converted from DXD to DDM in the strategic plan, and we should now be net long the Market.  If this strategy was followed precisely, we probably had a slight gain from this strategy.  Although DXD was stopped, we also had a distribution that sold 25% of the position at much lower market levels.  that translated into higher share prices for this double weighted short ETF.  In essence, that surprise distribution may have turned out to be a good thing because we locked in gains early.

In any case, we should now be long DDM, and we should expect the Market to move higher so long as 9029 remains in tact as converted support.  Our upside target for the Dow is currently 9707.  Here is a rundown of our current parameters, and the guidelines that we will use for the strategic plan going forward.

Dow inflection parameters:

7400 - 9029 - 9707 - 10800

Therefore, if 9029 holds as converted support we should expect 9707.  However, if 9029 breaks lower again we should expect 7400 instead.  That means 9029 is a conversion parameter accordingly.  I have already outlined this process, and the simple re-entry guidelines in the December 9th summary below.  Please review them for risk assessment and strategy details.

Officially, a conversion has taken place, and unless the Market reverses back below 9029 we are in a bullish position.  So long as the entry levels for these positions was within 25 points of 9029, continued to use a 0.05% stop loss and reversal trigger as well.

 

Updated 12.12.08

We should be short from 9029.

The current direction of our strategic plan is to short the market when the Dow Jones industrial average test 9029.  We do this using market-based ETFs.  In fact, this recommendation has already been established.  When the market tested 9029 on December 8th we initiated a position in DXD  This is the double weighted short Dow ETF.  Some of us have already chosen to take profits when 10% was achievable, and that's great.  For those who did scalp the position a reentry is okay if the market comes within 25 points of 9029 again.  When the official test occurred in early December the market came within four points of this resistance level and then turned down.  Not only does that prove that this is an important resistance level, but it tells us to repeat the process again if resistance is tested.

However, we cannot be one-sided.  In addition, we cannot establish a position like this and forgo protectionists stop losses.  My recommendation stands.  We should use one half of 1% stop loss for any position established within 25 points of 9029.  Then, we should be willing to convert from short to long if the market breaks above resistance.  For example, if the market tests 9029 we should buy DXD and set a one half of 1% stop loss in the position.  Then, if the market breaks above 9029 we should not only stop out of that double weighted short position, but we should also enter the double weighted long.  The symbol for this is DDM.  The same one half of 1% stop loss ratio should be included for that trade too.  From there, a conversion technique will take over.  If the market reverses the lower again we will need to stop out of the long position too and reenter the short.  This transition will happen over and over again as needed until such time as the Market makes up its mind on direction.

Understandably, some of us may not want to convert back and forth.  Some of us may instead want to trade in one direction only.  For those that choose this route I continue to recommend the long side.  For those people who want to trade one direction only and who recognize time constraints which would prevent them from using conversion techniques, simply engage a reentry strategy instead.  The re-entry strategy works as follows  If the market breaks above 9029 and is within 25 points of 9029 then establish a long opposition in DDM.  From there set a one half of 1% stop loss and direct that trade to repeat automatically if it is stopped.  You should be able to do this at Fidelity and a few other brokerage firms out there.  Soon we will also offer an automated system which will do this for you.  In any case, that trade may be stopped once or twice, but eventually the market will make up its mind on direction.  If the market moves higher, which is capable of doing, this trade should not only protect your investment but also allow you to ride the wave higher too.  This can be executed manually, or automatically of course.

 

Updated 12.7.08:

This is an update to our strategic plan.  This update was made on December 7, 2008.  Our current position should be 100% cash.  This entry supersedes all other entries.  Please disregard any recommendations that were made prior to this.  We have two important inflection points which are acting as chaos like boundaries to our trading decisions within this strategic plan.  The first, our support level, is 7400.  The second, our resistance level, is 9029.  Evidenced by recent market action, we need to prepare for a test of 9029 just in case.  Prior analysis suggested short positions if resistance was tested.  The same will hold true here, but we will restrict the trading position to one market-based ETF instead.  We will use a conversion strategy which will allow us to take advantage of either a reversal lower from 9029, or a great above it too.  If 9029 is tested, buy DXD with a tight associated stoploss.  I consider a test to the official when the market comes within 25 points out our inflection parameter.  Accordingly, if the market tests 9029 and DXD is triggered set a one half percent (0.5%) stop loss in the position to project your assets.  If that position is stopped convert immediately to DDM,  the long side of the market, and implement the conversion strategy with the same associated percentage stoploss.  Convert back and forth until such time as the Market makes up its mind on direction.

Alternatively, for those unable or un-interested in using the conversion technique, a reentry strategy can be used instead.  This time, however, I would not begin the strategy unless 9029 breaks higher.  I have already explained my mid term bullish nature, I have already demonstrated the return to parity that I expect to prevail in the next six to 12 months.  With that, I believe the market will increase accordingly and eventually.  Therefore, I would rather limit this reentry strategy to the longside.  Otherwise, if a reentry strategy is focused on the short side instead, and if the market indeed breaks out and accelerates higher in line with my return to parity analysis, the upside potential that I foresee eventually may be lost.  Therefore, for those investors who choose not to engage the conversion strategy mentioned in the paragraph above, engage a reentry strategy exclusive to DDM instead.  If the market breaks above 9029, buy DDM and use a one half percent (0.5%) stop loss to protect the position. Set your trade to reenter automatically if it is stopped, if you can.  This should allow you to take advantage of the upside that I foresee if indeed the market breaks out.

Do not misconstrue this recommendation for a suggestion that a breakout will indeed occur imminently.  It may not.  If the market instead begins to turn lower again we will need to address 7400 accordingly.  My prior recommendations associated with 7400 will then take precedence.  Please review the strategic plan in detail and focus on the last few entries.  The entry associated with 7400 offers a strategy that is divided into two parts.  If instead of moving higher towards 9029 the market moves lower to 7400 again, that two-part strategy should be used instead.

 

Updated 11:30.08

The Market came very close to 7400, which was our buy signal in the last installation of the strategic plan.  However, it did not test officially, and a re-test seems probable.  With that, the following intermediate recommendation has been made:

Consider this an official recommendation in relation to the strategic plan:

Allocation:  30% of the portfolio

Cash:  70% of the portfolio

Risk Controls:  This is NOT a position trade.  There are strict risk controls associated with this recommendation and they need to be adhered to.  Failure to do so could result in substantial losses.   Also, an equal dollar amount in each position is recommended to balance risk.

Recommendation:  If the Dow tests 9075 buy the following three ETFs with an equal weighting and strict risk controls. 

  • SRS
  • SKF
  • DUG

Stops:  In each position set a stop and re-entry as a condition trade.  A 0.5% stop is fine.

The process:  Wait for the Market to get near 9075.  I consider between 9050 - 9075 to be near, conditionally.  When the Market gets in that range allocate an equal dollar amount to SRS, SKF, and DUG.  For each, set a stop loss at 0.5% immediately, and set the trade up to repeat if it is stopped.  You may have to manually repeat this trade if your broker does not allow repeat trades.

For example, if you enter DUG near $29 because it happens to be near $29 when the Market tests 9075, set a stop at 28.85 and if DUG stops do NOT re-enter it unless it moves back above $29 again.  This would require a repeat of that conditional trade.  If DUG keeps falling instead, do not chase it

 

Updated 11.20.08

The apparent imminent test of 7400 in the Dow Jones industrial average will be a trading signal for our strategic plan and we need to be prepared.  When 7400 is tested a buy signal will present itself.  This time, I have separated the trades for this phase of the strategic plan into two parts.

The first part is a pre-diversified position trading strategy using sector specific ETFs.  This should be considered extremely aggressive because we will not incorporate risk controls into this phase of the 2-part strategy.  I recommend limiting the exposure to 10 or 15% of the portfolio as a result.  For some, this position trading strategy will not be of interest, for others the associated risk of a position trade will dispel the integration, but for those who engage in this position trade on the heels of a test of 7400, I believe you will be handsomely rewarded in 6 to 12 months.  This could even happen sooner depending on Market conditions and sentiment shifts.  The specific strategy is to buy an equal dollar amount of the following three ETFs when the Market is within at least 25 points of 7400: 

·         URE – Real Estate

·         UYG – Financials

·         DIG – Oil

The second part of this strategy involves the use of DDM or DXD.  I will not comingle NASDAQ Pro shares with Dow Pro shares this time. If 7400 is tested, buy DDM with the expectation of higher market levels over the course of the next one to three months.  If, however, 7400 breaks lower two things should happen.  First, for all investors, if 7400 breaks even slightly lower a stop should trigger and DDM should be liquidated immediately.  The objective here is to protect risk because substantial declines are likely if 7400 breaks too.

However, this also requires the stop to be marginal in nature.  Therefore, the initial trade must also correlate with an official test of 7400.  Most of the time, I equate that to within 25 points.  So, when the market is at 7425, begin to consider taking initial action.

 As indicated above, an associated stop will not likely result in a meaningful loss if the entry point is close to 7400, but it could given a divergence from this plan.  If you engage in the initial position further away than the 25 points I have recommended, the potential for accelerated losses increase.  My objective in recommending a trade exclusive to near 7400 is both to realize the reward from the potential reversal, but also to manage risk in a controlled manner.  From there, if you are stopped, you should also be prepared to re-enter if 7400 breaks higher again, and then repeat the risk control and re-entry process if needed, manually, as many times as required and until the Market determines direction.  7400 has been carefully analyzed as an important level of support, and therefore as a key level of longer term inflection.

 A break will not only cause a stop in all portfolios, but it will also trigger a conversion to the short ETF, DXD in more nimble portfolios.  If 7400 breaks lower, for those nimble enough to take action, convert from DDM to DXD and prepare to make money on the downside if the market begins to crash even further.  Expect to scalp with a 10% gain from that double weighted proshare if the Market continues down.  10% is a good scalp ratio for this purpose, but it should only be used on the downside.  Hold DDM for much more on the upside.  This conversion technique will also require a reversion back to DDM if the market reverses back above the 7400 again after breaking down, and continued repetition back and forth is required as many times as necessary.  Therefore, 7400 in this instance requires attention and only more nimble traders should engage this conversion technique.

However, an alternative exists for those persons not capable of giving that much attention to this strategy.  This in an automatic re-entry alternative.

A slight difference exists in that this alternative will not act as a conversion technique, but rather as a technique that will allow you to automatically re-trigger your trade if it is stopped, and then the Market reverses higher again.  For example, if the Market tests 7400 (under 7425) and DDM is triggered, you can reasonably expect the position to be stopped with a 0.5% loss if the market breaks below 7400.  Do the math after the initial trade is executed, determine your stoploss using 0.5%, and set your stoploss in your trading platform so it triggers automatically.  If you enter DDM when the Dow is greater than 25 points from 7400 you will need to adjust this ratio.  Then, set your program up to repeat that trade again automatically at the same entry point.  The relationship between DDM and the level of the Dow should make the re-entry level correspond to above 7400 as well, so the mechanical operation should control your risk, and allow automatic re-entry until or unless the Market begins to move higher.  Most brokers will allow you to set repeat trades like this. 

Unfortunately, using this alternative will prevent you from taking advantage of the conversion to the downside, but the re-entry will allow you to participate on the upside, and the stop will protect your risk.   I cannot help you negotiate your trading platform to set it up for this particular type of trade.  However, tomorrow morning a call to your broker would be advisable.  Pick up the phone, ask them if they allow repeat trades like the one described above, and learn how to set them up immediately.   Then, watch the Market, wait for a test of 7400, and start the process with your initial trade and your initial stop loss.  You probably will not be able to set your system up to buy at 7400, so expect to monitor the Market for a test to initiate the process.  The first phase of this process must be done by you.

In any case, if the Market tests 7400 and then reverses higher and back above 7625, I will become extremely bullish.  Although I don’t expect it, a break below 7400 would be extremely serious.  For now, 7400 is intriguing enough for me to offer a suggestion of position trades for a selected portion of our portfolios. Those position trades should be limited to 15% because they will not include stops.  Although I expect them to work, we must maintain comprehensive risk control on the majority of our assets.  The other 85% of our portfolios which have been earmarked for the strategic plan should refocus on DDM, and the conversion technique or auto-repeat technique offered above.  These include risk controls appropriately.

 

Updated 11.16.08

We should be in cash and waiting for a test of 7400 or 9775.

Our new parameters are:  7400, 9775, 10800.

 

Updated 11.12.08

We should be in cash and waiting for a test of 7400.

I have removed 8825 from the inflection data in the strategic plan.  The last cycle pushed that effort over the top, and although we had 10 - 20% scalping opportunities regularly, position trading was difficult.  From here, extended gains can be realized with a slight modification of our parameters.  Our stratgic plan positions should be relatively flat over the past week, after the recent 10% gain in DXD and the slight losses beforehand.  From here the objective is to wait for a test of one of the revised parameters before we take additional action.  Current momentum is down, and therefore 7400 seems to be next in line.  If indeed a test occurs we should be buyers.  This time I will not recommend a concession between Dow and NASDAQ ETFs though.  Instead, just stick to the Dow.  Let's stop being cute.  This will be cut and dry.  If 7400 is tested, buy DDM.  If 7400 breaks convert to DXD and reengage the conversion policy back to DDM again if 7400 breaks higher afterwards too.  Be willing to repeat this process as many times as needed until direction is established.  If 7400 breaks lower...well...let's just say watch out below. 

Our effort at recalculating support is intended to identify an easy to manage longer term position trade opportunity.  Something that we do not need to repeat too often, like we have had to recently with 8825.

Our new parameters are:  7400, 9200, 10800.

 

Updated 11.11.08

We should be holding DXD from near $77

In my November 10 update I notified everyone that a global change would take place to our established trading parameters as they relate to the strategic plan.  8825, though an excellent pivot point for scalping, was an ineffective reversal trigger for position trading.  Scalping opportunities of 10-20% have been readily available time and time again, based on the 8825 inflection, but position trading has been difficult.  Based on market fluctuations, our strategic plan is probably down by approximately 6% in recent days, and that is unacceptable.  Our objective from this point will be to scalp our current position, revert to cash, and wait for one of our new parameters to be tested.  Our new parameters still are based on the Dow Jones industrial average.  They are: 7400, 9200, and 10,800.

Our current conversion parameter, the one from which we established our position in DXD, was 8825.  We cannot relinquish that parameter until we have a gain of 8 to 10%.  We are currently holding gains of 2.5%.  This does not mean that we need to sit on our hands while we wait for the price of the DXD to increase.  In fact, exactly the opposite.  Instead, we need to use our conversion rules as they relate to 8825, just in case another  break higher occurs.  If it does, we should convert to QLD just like we have been doing in the recent past and ride the upside instead.  So long as we continue to convert, eventually we will get an 8 to 10% increase in either the long or short position and when we do we will exit this phase of the strategy and wait until one of our new reversal triggers are tested.  This move should take us back to relative parity and position us to take advantage of the new stated reversal triggers.

 

Updated 10.31.08

We should be long QLD from near $31.  Please review the 10.22.08 update below.  We are also 'borderline' aggressively bullish.

 

Updated 10.30.08

Because The Investment Rate measures normalized demand we can rationalize ebbs and flows in demand which are driven by non centralized variables.  Recently dissolved external variables fostered, for example, the ‘cheap money’ conditions of recent past, and increased demand ratios beyond their norm.  When the current level of demand exceeds normalized demand we can rationally assume that overall demand for investments in our economy will wane at some point, and come back into parity with The Investment Rate.  An unusual increase in demand is indeed what took place in recent years, and the predictable parity oscillation lower, to The Investment Rate, has already come full circle.

On the other side of the coin, if a void in demand is present we can rationally assume that demand will eventually improve until such time as it comes into parity with the Investment Rate as well.  Coincidentally this is the unique condition that faces our economy today. 

In simple terms, the correction to parity has been overshot. 

The Investment Rate tells us that demand levels wane gradually until about 2010, and then the declines get serious.  Yes, 2007 was defined as a peak in demand, but the major declines don’t start immediately.

The incentivized cheap money conditions have created a void in demand today, and therefore an anomaly in The Investment Rate.

Reasonably, investment demand that would otherwise have been slated for 2008 or 2009 was incentivized by cheap money to find a ‘home’ in 2005, or 2006, for example.  Now, much of the demand that would have otherwise existed in today’s Market is absent. 

This void is causing serious immediate concerns, but it is not likely to last long. 

Eventually the current level of demand which is ‘void’ will return to parity with The Investment Rate.  Translated, in the next year or so demand will appear robust compared to today’s levels.  Quarterly comparisons by Market Analysts are likely to draw conclusions of future prosperity as well. 

Not so fast!

The reversal to parity might seem compelling at first glance, and that is likely to be opportunistic from this point in time given the current levels of the Market, but the amount of new money available for investment into our economy declines for the next 16 years, so follow through is unlikely.  A return to parity is not a return to prosperity.  Therefore, don’t be fooled by the headfake that lies ahead, but expect one to come.  

 

Updated 10.22.08

our combined longer-term analysis tells us that the market has broken below neutral support.  This has occurred in all markets.  Our strategic plan is used as a trading tool referencing our longer-term analysis and therefore this discussion of our combined longer-term analysis focuses on trading strategies and the strategic plan.  We focus on one market when referencing longer-term trades and that market is the Dow Jones industrial average.  Typically, all markets move in relative tandem.  That means, specifically, the Dow, the NASDAQ, and the S&P 500 trend in line with each other almost always.  With that understood, our strategic plan referencing the Dow Jones industrial average can be applied and should be applied to all markets.  The focal point of our strategic plan was recently support at 8825 and the Dow.  On Wednesday 8825 broke lower and our strategic plan suggested that we sell everything, 100% of longer-term assets be liquidated, and short positions be taken.  For those persons following the strategic plan, that meant selling QLD when 8825 broke lower, and immediately buying DXD in expectation of lower levels.  These two instruments represent our suggested long and short plays respectively.  You should have bought DXD under $84 and you should be holding with a downside target of 7595 in the Dow.  If that is tested you will sell DXD and buy QLD, and repeat the same process again.  This plan is extremely simple and straightforward.  However, it requires you to be nimble.  If you are trying to follow these trades with a mutual fund instead of an ETF, think again.  Mutual funds are NOT the right tools for this.  We require you to be nimble.  Don't use stocks either, unless you like the uncertainty surrounding them.  Instead, use these simple, correlated ETFs in reference to our market timing signals.  They are, after all, already positioned to move twice as fast as the Market.  Stay nimble and focus.  For now direction is seems down and 7595 is our downside target.

 

Updated 10.13.08

Continue to focus on the Dow for Longer Term analysis.  All markets have similar patterns.  Our combined longer term analysis tells us that the Market has reversed above 8825 and it suggests that the Market is now on its way to 10800 again.  This assumes that 8825 holds as converted support.  Trades in the Strategic Plan are coming fast in this volatile Market, but so are profits.  We should have been short from 10,000 - 8825 and then long from 8825 -holding.  We have locked in about 11.75% x 2 (proshares are 2 x market levels) = 23.5% thus far since last Monday.  We should also be sitting on gains of 6.4% x 2 = 12.8% from the longs when 8825 broke higher.  The fat lady has hardly sung though.  Do not get excited, simply continue to react.  Check your emotions at the door.  Our combined longer term analysis tells us to expect higher levels, but only if 8825 holds.  If it breaks lower again the Market will collapse instead.  respect the position, but more importantly respect the placement of these parameters.  By trading at defined support and resistance levels we usually are able to avoid excessive whipsawing.  The decline below 10,000 last week was a great example, and now 8825 was another great example.  Also, stick to your plan.  our longer term analysis tells us that the plan should target 10800 for now.  This is subject to change, but changes will only take place via the nightly newsletters so continue to monitor those regularly.

 

Updated 10.12.08

I have now extended the longer term charts to 20 years.  I have some good news and some bad news.  The good news is...the support levels represented in the charts of the S&P and the Dow, and the secondary support level of the NASDAQ, are the last levels of support evidenced by these 20 year charts, so if support holds the market should turn up aggressively.  The bad news is...THESE ARE THE LAST LEVELS OF SUPPORT!!!!!!  For example, if the Dow breaks below 7595 and fails to reverse higher the declines would be unfathomable.  These words are not coming lightly.  However, I do not want to caution you without offering positive alternatives.  There are reversal triggers in place, and you need to respect those.  Pay attention to the Dow.  There are 2 important reversal triggers here: reversal based resistance is 8825, and reversal based support is 7595.  If the Dow moves above 8825 short positions should be covered and long positions should be implemented.  This reversal from short to long should also be met with a reversal from long to short again if 8825 breaks lower again.  This is the definition of a reversal trigger, it requires flexibility, and it should be repeated as many times as needed.  The Market based ETFs I hav already pinpointed provide that flexibility with excellent liquidity.  I have references 2 long ETFs and 2 short ETFs and I want you to focus on 1 long and 1 short respectively.  The shorts are: DXD (Dow) and QID (NASDAQ).  The longs are: DDM (Dow) and QLD (NASDAQ).  For shorts I would focus on DXD.  For longs I would focus on QLD.  These are pre-diversified, so you don't need to use anything else!!!  So in this example we should be long DXD near 8825 with 7595 used as the next downside reversal trigger.  However, if 8825 breaks higher we should sell 100% of the DXD and use all the funds to buy QLD with an upside reversal trigger of 10800. 

The support based reversal trigger at 7595 acts in the exact same way.  If the market breaks below 7595 treat it as a reversal trigger.  Let me know if you have questions by sending an email to support@stocktradersdaily.com

 

Updated 10.5.08.

Longer term support has been broken.  below you will find our longer term analysis and a graph representing the break and current support and resistance levels.  This is a bearish sign.

A line in the sand has been drawn at 10,000.  If that psychological level breaks a test of 8825 is probable.  A reversal back above 10,800 would be bullish. 

Longer term analysis:

Substantial changes have been made to our longer-term analysis.  Given the recent break below our longer-term support levels we were forced to extend the longer-term charts by a handful of years.  We did this in order to identify support levels because former support levels had been broken.  Our longer-term charts now span nine years.  The recent break of longer-term support was significant.  Our longer-term chart analysis now tells us that the market could decline considerably even after the recent declines have taken place.  The patterns in our longer-term chart analysis initially suggested that a reversal could occur.  Normally breaks and immediate reversals take place when longer-term support levels are tested.  This process began, but that reversal didn't last for long.  The break of longer-term support which occurred on Thursday and which was confirmed on Friday was extremely bearish.  This confirmed the temporary break that occurred the week before.  Unless the market manages to reverse above converted longer-term resistance, which is defined by the neutral resistance line in our longer term charts and which was support prior to the break, substantial declines lie ahead.  The potential declines would take the market to levels not seen since late 2002.  Our longer-term analysis turned bearish officially on Thursday and it was confirmed on Friday after the late day decline.  Unless the market reverses back into the longer-term channel immediately, unless it breaks above converted resistance immediately, the declines that lie ahead will be significant.  Immediately spans the course of eight few trading sessions so this does not need to happen on Monday, but it does need to happen soon to thwart a potential collapse.  A picture speaks a thousand words, and our longer-term charts explain exactly how serious these declines could be.  Make sure you review them closely.

 

Updated 9.21.08

I have prepared a graphical explanation of what took place in the strategic plan since we began the long positions  in the middle of July.  First, we hit the reversal trigger well in July, the Market began to increase nicely, and we expected to see follow through to our resistance targets.  Given our anticipated oscillation channels, we expected a longer term down channel to develop, and we expected the forthcoming test of resistance to be lower than the previous level of resistance.  This typically happens when down channels develop, and we were expecting a down channel to solidify. A series of lower highs and lower lows define down channels.  In this instance we expected the market to continue to increase until such time as a lower high was established in accordance with this developing down channel.  Prior to the recent debacle, a longer-term down channel was not officially in place.

Then, prior to the Labor Day holiday, volume dried up as most large institutional managers went away on vacations, like they usually do just before and right after the Labor Day holiday.  Normally this causes volatility, but the market rarely trends in one direction.  This time, with naked short selling  an integral factor, all hell broke loose.  Mid tier hedge funds took advantage of the low volume, lack of leadership, underlying fears, and their ability to short aggressively without borrowing stock (naked), and they beat this market back when the leaders were away.  They took advantage of the fears on the street, to say it mildly.

Instead of increasing to lower highs, the market instead declined to lower lows.

Nonetheless, the longer-term down channel that we anticipated has still been established.  Instead of making a lower high though, the Market made a surprise lower low.  This was not how we expected it to be established, but the down channel is now in place nonetheless, and continued evaluation is necessary.  At this time the support level of this longer term down channel has been solidified, a lower low has been established, and now a lower high should be expected.

Interestingly, the evaluations that we made in the early part of September and the targets that we offered for resistance at that time are still valid.

Please read the chart below and realize that the out of sequence declines that took place in September were rationally due to naked short selling that began when institutional managers were away, when volume dried up, and when mid tier hedge funds took advantage of naked short selling opportunities and the fears imposed on the market during the Labor Day holiday season.

We currently find ourselves under water, but the upside potential still looks good until resistance is tested.  This tells us that we should expect to recover any current losses that might be held on paper, and then some.

QLD is still favored.  Find more details by reviewing the analysis that we provided in the beginning of September (link below).  In summary, our upside target is 12,500 for the Dow.  This is the same as it was in that review. 

Review the chart below first, and then the link.

Upside target analysis from 9.4.08:

http://www.stocktradersdaily.com/clubsite/Club/Strategic%20Plan/september08/player.html

Graphical illustration of the recent debacle:

Updated 9.16.08

Finally, we have seen everything that we need to see to call a near-term bottom.  The next question is, will it hold?  My first guess is, yes.

With that, you have my blessing to step in and buy top tier names like JPM, HPQ, MCD and other similar companies in expectations of higher levels.  I also think CAT, COF, and KLAC look interesting.  In addition, i will soon call a bottom in Oil, but not quite yet.  We are likely to see some more fallout from Pension funds and other unwinding of positions as firms transition back into stocks during this next up cycle.

The S&P 500 has successfully tested longer-term down channel support lines.  Officially, longer-term down channels are now in place and from here we should expect a series of lower highs and lower lows until such time as this trend breaks.  Mentally prepare for 2430 in the NASDAQ.   That’s roughly a 10% recovery from current levels.  This gives us some insight to QLD in the strategic plan.  This is a rough estimate and it is not official 

First, here's some other corroborating evidence, the VIX has reached capitulatory levels and major firms are being thrown out with the bathwater.  Bailouts, bankruptcies, and financial turbulence that we could never otherwise imagine has taken the market down to recent lows, and probably to a near term bottoms.  These support the test of longer term support in the S&P.  

But the AIG bailout has calmed the street.  And this might be the ultimate turn of events that was needed to call a bottom.

From here I expect the market to head up aggressively.  Expect aggressive short covering and expect a surge from the market so long as there are no additional news events to thwart the beginning of this next Bear market Rally.

We should be long QLD from $62 after some back and forth efforts.  This is based on our strategic plan.  I expect QLD to oscillate higher along with the Market.  However, I do not expect QLD to get back to the highs seen during the last rally.  We may only see $76 from QLD this time.  Everything considered, that is acceptable.  This is not set in stone, but for now that is my upside target.

 

 

Updated 9.10.08

Everyone needs to understand my downside risk analysis and we need to have a game plan going into the next phase of the strategic plan.

One of two scenarios is going to play out:  Either the market will hold 2200, or it won’t.  

First, we are net short from the break below 2240.  We reverted from net long to net short because of the Market weakness and to protect our positions from a potential Market collapse.  Now, we should be long QID from near $48.  This took place on Tuesday and a second entry opportunity occurred on Wednesday.  This position may be held, or transferred depending on the following scenarios…

If 2200 indeed holds as neutral longer-term support in the NASDAQ then the market will reverse higher and test 2450 again overtime, most likely. 

If this scenario pans out we have a reversal trigger in place which tells us to switch from QID to QLD.   The reversal signal tells us to revert from QID to QLD if QID breaks below $48, which was our entry and which should seamlessly transfer to net long.  Until, or unless that happens we should remain in QID until a sell signal presents itself. 

If the Market continues to decline and 2200 breaks lower a longer term down channel will form and a revised support level will need to be observed.  This will act as our downside risk assessment.  If 2200 breaks lower I expect a test of 2125.  I also expect the decline to be swift.  That means another 100 points down from current levels, or approximately 4.5%.  That translates into a 9% gain in QID from current levels if the Market declines as expected, and a 9% decline in QLD accordingly.

If 2200 breaks, the downside risk in QLD will be 9%.  That puts QLD in the mid – upper 50s.  At the same time that puts QID near $55.

Our objective, if 2200 breaks lower, will be to ride the wave down to 2125, then revert to QLD for the reversal higher.  2400 may be a reasonable target from there, so we should get back to current levels in QLD and then some in my opinion.

Gameplan:

Hold QID and expect near $55, unless a reversal signal presents itself.

 

 

Updated 9.10.08

I understand than some people did not convert to QID as indicated in Friday's email and therefore they have ongoing concerns about QLD.  I nipped the bud early by recommending a conversion to QID upon a break of 2240 and setting reversal requirements.  This was intended to be a proactive move based on breakdowns that were taking place.  Thus far we should have QID from near $48 and we have new reversal restrictions in place.

However, for those still in QLD, you may have work to do soon.

  • $62 is long term support for QLD.
  • 2200 is longer term support for the NASDA

If you are in QLD seriously consider switching to QID if support breaks lower.  Pick your poison, but 2200 is more obvious to Wall Street and therefore will be more significant.

If 2200 holds, you have nothing to do.  If 2200 breaks you need to protect yourself and convert to QID with reversal requirements similar to the ones we have in place for QID from 2240.

This Market continues to look weak and downside momentum could increase immensely if 2200 breaks lower.

That's the major catalyst

 

 

Updated 9.9.08

Strategic Plan comments. 

First, I know it doesn't feel good when gains turn into losses.  With that, we need to focus on forward looking strategy.

We entered QLD in the low 70s and we held nice gains.  Now the stock is threatening to break longer term support along with the NASDAQ.  If this longer term support level breaks aggressive declines are likely to follow.  Respect $62 as longer term support.  If it holds the stock should fluctuate back to $80.  However, if $62 breaks lower a decline to $37 is likely instead.  Risk control is obviously required around $62.

We took steps to control our risk early by converting QLD to QID upon the break below 2240 in the NASDAQ.  We should now have QID with a full position.  However if the Market reverses back over 2250 we have instructions to revert back to QLD.  I am going to modify those instructions and the associated risk controls.

The charts below shows both QID and QLD analysis.

As QID moved above $48 a buy signal appeared.  This corresponded with 2240 NASDAQ.  Sell signals also appeared in QLD.  We should be in QID from near $48 accordingly.  However, the TXN and FDX news after hours make that a nervous position reasonably.

Therefore, we will use $48 for the risk control in QID and become much more diligent.  If QID moves below $48 convert to QLD once more, but this time don't move back to QID unless QLD breaks below $62.  In other words, if we indeed revert back to QLD on Wednesday do NOT plan on reversing back again unless longer term neutral support is broken.

The Market is flirting with longer term support levels.  If it holds a reversal higher should occur again.  We are positioned for a break lower right now with the QID position, but that will need to change if support holds.  Watch 2200 in the NASDAQ.  If it breaks a dip below 2000 is likely at some point.

So....

Hold QID if it stays over $48. 

If QID reverses below $48 buy QLD and use $62 as a conversion level.

 

 

 

Updated 9.4.08

Risk controls are required for the strategic plan.

I developed the strategic plan so that we would not have to actively trade these assets.  We use a 3-position strategy so that we can average into positions.  This strategy prevents us from needing to use stops, and other risk controls, and it makes trading relatively easy.  Until now, that's been true.  However, this time it might not be that easy.  In this case, we are already fully invested so there will not be any averaging from here.  We started the last strategic plan cycle, the up-cycle, near current levels and we already assumed all 3 positions.  We are now back to these levels and the risk appears higher than it was before. 

Thursday's decline was aggressive.

I am somewhat hesitant due to the lack of current leadership that I suspect.  However, that all changes on Monday anyway, and if the leaders want to take this Market down more, they could destroy it next week.  Give or take, we need to respect the indicators....

My words should not be taken lightly.  I expect a very severe decline at some point, I just don't expect it now.  Regardless, my expectations cannot sway the technical indicators, and they tell us that risk controls are required.

Given the aggressive nature of Thursday's action risk controls are required sooner than later too.  Therefore, although 2200 is clearly longer term support in the NASDAQ, evidenced in our charts, we won't wait for that to break in order to protect our position. 

My recommendation requires you to pay attention and it requires you to be ready to make adjustments for at least the next few trading sessions, so don't be passive here.  There will also be a spread risk in this recommendation, so we could be stopped out and re-triggered a few times.  The Market reversal back to near recent lows requires you to be attentive.  Pay attention to inflection...

The inflection level that I want you to pay attention to is 2240.  We will use this to signal that a transition is needed.

The risk controls:

  • If the Market holds 2240, do absolutely nothing.  Just keep holding QLD and expect the Market to move higher. 
  • However, if the Market breaks below 2240 I want you to begin a protectionist cycle as follows:

If 2240 breaks lower I want you to sell all QLD and convert 100% to QID.  There will be no 3-position strategy here.  Instead 100% of what was in QLD moves into QID.  That leaves us with another risk-scenario.  If the Market then reverses higher again we need to protect ourselves too, because QID is net short.  Therefore, we will use 2250 as our upside protection if we convert to QID under 2240, and create a 10 point spread between 2240-2250.  In other words, IF we convert to QID because the market breaks below 2240, we should be willing to convert back to QLD again if the Market reverses back above 2250.  From there 2240 becomes our risk control pivot again and the process converts again with 2240 as the risk control.  This process should be repeated as many times as necessary.

The purpose of this strategy is to transition with the Market from here if indeed the Market breaks down, but to participate if it moves higher instead too.

We started the strategy near these levels, and I know that we have left a good gain on the table, but let's not look backwards.

Being proactive is critical.

  • If 2240 breaks lower convert to QID and if the market continues down we will be positioned for it.

  • If then 2250 breaks higher though convert back to QLD and use 2240 as the downside risk parameter again.

  • Repeat the process as needed and accept the 10 point spread as risk control.

If you are NOT in QLD and 2240 holds, consider buying it using this same risk protection recommendation.  On that same note, if 2240 breaks lower consider QID according to the same.

 

Updated 9.4.08:

Tech has relinquished leadership to Dow components and investors in tech seem worried.  We find value in QLD again as a result.  QLD looks excellent from near $70 based on a combination of factors.  The most important factor is our upside market target.  Summarized, we expect NASDAQ 2545.

We issued our detailed upside Market target through this combined strategic plan analysis:

http://www.stocktradersdaily.com/clubsite/Club/Strategic%20Plan/september08/player.html

We expect to sell - short again when resistance is tested.

Unless there are major technical indicators which suggest otherwise, we should be net long the Market at this time.  Once resistance is tested that will change.

Good Trading.

THK.

 

Updated 8.8.08:

The market continues to react to declines in Oil prices, and it will almost surely continue to do that until such time as OIL seems to be a non-issue again.  This will only happen when Oil dips below a level perceived by the market as 'economically neutral.'  That level, in my opinion, is $100 

My downside target for Oil has been and continues to be slightly below $100.

The buy I recommended in DUG, and the Outright shorts that I suggested for Oil itself both had that target, as did prior USO recommendations.

Review my commentary on the Money Show if you are interested in verbage specific to XLE, DUG, USO, and Oil:

http://www.moneyshow.com/video/video.asp?wid=2229&t=3

With that understood, I expect the Market to continue to react positively as Oil prices decline.  Once Oil dips below $100 I expect the Market and Oil prices to diverge from their inverse relationship again, at least for a short while as well. 

In fact, given the corresponding increases in the market that I expect in relation tot he decline in Oil prices, I also expect greed to come into the market again at that time and I expect that tailwind to propel the market into overbought conditions.

This will be another prime shorting opportunity in my opinion.  The down-leg that comes into the Market next time will be extremely painful and Buy and Hold investors will have their heads handed to them.  Proactive trading strategies are the only way to make money in today's market environment. 

I expect the decline in oil, the increase in the market, and the divergence referenced above to come to fruition by late August - Mid September.  Short opportunities should present themselves at that time too 

Good Trading.

Sincerely,

Thomas H. Kee Jr.

President and CEO,

Stock Traders Daily.

Updated 7.20.08

The Market seems to have bottomed according to our combined analysis.  Please refer to the presentation that we provided to you 2 weeks ago:

http://www.stocktradersdaily.com/clubsite/Club/Strategic Plan/julylow/player.html

Officially, we should be ALL IN.  In other words, we should be long the Market with our investable assets and we should expect an acceleration to resistance levels over the next 1-3 months.  We have not identified resistance yet, but we expect resistance to be lower this time versus the last established resistance level.  A longer term down channel is developing according to our combined analysis and that means a series of lower lows and lower highs lie ahead.  The next down leg should be much more aggressive.

For now the oscillation from support to resistance seems to have begun.

Individual stocks are much more risky than Market based instruments.  If you are interested in more aggressive returns, consider QLD as a double weighted Market Based ETF for the NADSDAQ.

 

Updated 6.23.08

Watch for a reversal trigger this week.  I am specifically watching the Dow Jones industrial average and 11,800.  I expect a break below 11800 and then a reversal higher.  The reversal above 11,800 will be a buy signal for longer-term accounts.

If you are holding cash in your 401(k) or your IRAs, or if you have longer-term assets that are being held short or in cash, 11,800 should be used as a cover and a buy signal.

The process is as follows: first wait for a break below 11,800.  This could reasonably take place on Monday.  Once this happens wait for the market to reverse back above 11,800 and then put your money to work.

If your longer-term assets are being held in an IRA, or in another account that is not a 401(k), the best bet may be to use market-based ETFs as opposed to mutual funds or stocks.  The reasons vary, but with market-based ETF you can enter those immediately whereas mutual funds limit the entry point to the end of day values of those funds.

Conservative investors who are using this reversal trigger to enter new long positions should consider a market based ETF that is a single weighted.  This means if the market moves up 1% the single weighted ETF will move up by 1% as well.  Consider DDM for this position.

More aggressive investors should consider a double weighted market based ETF instead.  A double weighted market based ETF will move twice as much as the market.  For example, if the market moves up by 1% a double weighted ETF will move up by 2%.  QID. should be considered for this position 

I am expecting this reversal trigger to take place in the next couple of days.

In addition to this reversal trigger I want to offer some commentary on the last move lower.  This move began before sell signals took place within our model.  The market began to move down immediately as oil prices began to surge.  This correlation, or better said inverse correlation between oil prices and the level of the market created an abnormal decline within a longer-term oscillation channel.

Hindsight is obviously 2020, but we are back near our original entry levels.  We lightened up on 20% of our holdings near the top, and we should reenter the market with a that position when this reversal trigger occurs.  This is the strategy for people currently engaged in our strategic plan.

For those of you just getting started with the strategic plan the buy signals that exist upon the reversal trigger when the market breaks below and then reverses back above 11,800 should be considered for investments that span one to three months 

The next time resistance levels are tested we expected the declines that follow to be much more aggressive than the declines witnessed here.

The increases we expect after this reversal trigger signals, therefore, will only be temporary.  However, the opportunity to make money on the up side should be taken.  So long as your mindset continues to be proactive and so long as you enter these positions with the intention of selling them when resistance levels are tested officially, engaging in long positions on the heels of this reversal trigger is supported.

 

Updated 6.7.08

We continue to believe that the market will trade within a sideways pattern until the 4th quarter, and then aggressive declines will take hold.

The aggressive decline in the Dow and NASDAQ on Friday is concerning.  Driven largely by Oil speculation and Fear, the declines should not be dismissed.  High Oil Prices are a concern, and although Oil prices are at lofty current levels solely based on speculation and new entrants to the commodity, high energy prices will hurt the economy and corporate earnings over time.  We know this and we need to accept this as fact.

This does not change our strategic plan though.  Remember, our strategic plan spans the course of months, and during those months we must accept volatility.  Sometimes, even, we'll see gains turn into loses while the volatility of the Market swings our investment choices back and forth.

If you are not comfortable with these volatility levels, or if you feel like you could be making more money if you were more proactive, then stop following the strategic plan strategy now.  This is designed for patient investors who can wait for a few months in order to let the Market Transition to our stated inflection levels.

If you want to be more proactive, our swing trading strategy or stock of the week should be followed instead, or maybe even one of the day trading options.  These will be much more proactive to market based oscillation cycles than span much shorter durations, and they may make you much more comfortable int he face of the recent volatility. 

Review them by clicking on the Trading Tab above.

Updated 5.21.08:

Many of you are concerned with the level of the Dow.  The downside indicator that I issued for the Dow in the strategic plan has changed slightly because the Dow is weaker than the associated markets.  The Strategic Plan is a combined analysis, although we tend to focus on the Dow.  Currently the S&P and the NASDAQ have not offered the same bearish signals,  but that doesn't mean that they won't.  I am watching 1380 in the S&P closely because a break of this support level would indeed offer bearish signals too and corroborate the Dow.  In essence, the broader Markets are more resilient than the Dow, and therefore I am allowing sway while I wait to see if the S&P breaks too.  I am not blind to the downside risk though, and I have no problem turning 180 degrees and becoming aggressive on the short side if needed.  However, most of you know that I was willing to buy the last dip, and because this in essence is the second dip, I am still willing to buy it.  Therefore, the NYX and DDM option were called based ont he test of support that is likely to occur in the S&P very soon (1380).  If you are following the Strategic Plan you need to stay on your toes because major events could take place.  There could be major adjustments if 1380 breaks in the S&P.  Watch your email  closely.

Buy the following with the upside target of 13460 in the Dow:

1.  NYX (Long) Resistance Plan: Buy over 65.87, target 70.58 (or higher), Stop Loss @ 65.61 - reversal trigger

 If 65.87 begins to break higher, the technical summary data tells us to buy NYX just over 65.87, with an upside target of 70.58. The data also tells us to set a stop loss @ 65.61 in case the stock turns against the trade. 65.87 is the first level of resistance above 65.54 , and by rule, any break above resistance is a buy signal. In this case, 65.87, initial resistance, would be breaking higher, so a buy signal would exist. Because this plan is based on a break of resistance, it is referred to as a Long Resistance Plan. 

2.  DDMJX.X - This is a Oct '08 76 call option on DDM.  Your should be able to get it near $6.7 Only use a small % of the strategic plan portfolio.  No more than 5%.  This should be the same $$$ that was used to buy BSC at $3.

Updated 4.30.08:

The Market tested 13000 perfectly and it has begun to retreat slightly.  13000 could turn out to be the resistance level we are looking, but we will need confirmation of this resistance level before we act.  Our upside target, for now, continues to be 13460 from our 3.27.08 update, but we will not look resistance in the face.

Instead, we have identified confirmation at 12660.  If this level breaks lower we will consider it a signal that the Market will continue to decline from longer term resistance and test longer term support levels again.  A 1000 point slide is reasonable if 12660 breaks lower.  This will, in essence, confirm 13000 as longer term resistance.

A break below 12660 is not what we are expecting, but instead it is a confirmation signal that will tell us that our current target of 13460 may not be tested.

Right now our upside target of 13460 remains in place.  We expect the market to increase beyond 13000 soon, without breaching 12660.  If that happens a surge towards 13460 could come quickly. 

If 12660 breaks though we will sell all long positions and adopt a short bias.

 

The information below is an update from 3.27.08:

We are expecting the Market to trend higher from current levels and test 13460 or so. 

Here is an overview of my expectations for 2008 including my upside target for the current up-cycle in our Strategic Plan:

  1. I expect the Market to trade sideways until, about, October. 
  2. In the 4th Quarter of 2008 I expect the Market to experience serious declines.
  3. In fact, signs of serious weakness may begin to surface in September.
  4. Until then the Market will be in a wide trading channel.
  5. Support seems to have been identified near 11700, Dow.
  6. We will leave our 11996 reversal trigger in place to mark support for now
  7. Adjustments will be made if needed during the next down cycle.
  8. We are currently in an up-cycle; the market is trending higher from support - resistance
  9. Our job now is to identify resistance.

Resistance Identified:

 

I have incorporated tools from the Investment Rate, Technical Analysis, and Fibonacci Calculations to determine the next resistance level in our ongoing Strategic Trading Plan.  Without including unrealized returns from the last test of support through current levels, the Strategic Plan is up about 39% based on Market levels alone since inception in August of last year.  Keep in mind that past results are no guarantee of future results.

I am measuring resistance in the Dow but that should be construed to include other US Equity Markets; over time the Markets trend in the same direction.  IE when the Dow tests resistance I expect the NASDAQ and S&P to do the same at about the same time.

There is an important resistance level in the Dow that needs to break higher in order for my upside target to be tested; 12795 must break higher or the Dow will fall back to 11700 or so again quickly.  I am expecting a test of 11795 at least during this upward cycle in the Strategic Plan, but more so I also expect that resistance level to break higher.

My upside target for the Dow is near 13460.

I have not included this in our graphic because we may need to adjust it to 12795.  However, I think the bottoming process of this most recent test of support is well grounded and therefore I think 12795 will break higher this time.

 

The Market seems to have bottomed because:

  • Retail contrarian sentiment indicators derived from our internal analysis suggests that retail investors are scared out of the market.  The reports which we sell through Reuters, and other integral partners of the same caliber, usually have a 70% - 30% retail - institutional mix.  In March retail sales dropped from 70% to 2 %.  Retail traders stopped buying, they usually do this at bottoms.
  • Our reversal trigger has been confirmed
  • BSC was executed, and that supports a reversal.
  • Technical Analysis tells us we are trending higher from support

Takeaways:

  1. Expect the market to trend higher and test 12795 at least
  2. Expect the Market to stall there
  3. I expect the Market to break higher
  4. If it does expect 13460.
  5. If it doesn't expect a reversal to 11700 or so.
  6. Either way we are looking for a wide trading channel to develop until the 4th quarter.
  7. During the 4th quarter I expect another wave of aggressive Market declines according to the Investment Rate.

Current Upside Target:

 

Dow:  13460

 

 

 

 

 

Disclaimer:  You can lose money by investing in stocks.  Past performance also does not guarantee future results.  Do not attempt to invest in any trading strategy without first consulting with your trusted investment advisors.  The type of trades made in this strategy should be deemed to be aggressive in nature and they are intended to be used by persons who believe that aggressive trading suits their personal risk profiles only

 

The Performance of the Plan since inception:

We've included a graphic below to help better demonstrate the performance of our strategic plan.  However, before we begin, please recognize the following important statement (most offer this in fine print, but we prefer to make it as clear as possible):

PAST PERFORMANCE IS ABSOLUTELY NO GUARANTEE OF FUTURE RESULTS. 

Do not expect us to perform like we have in the past.  Our returns will NEVER be exactly the same.  Sometimes they may be lower, sometimes they will be higher, and sometimes they will be negative.  Do not base your decisions to follow this strategic plan on past performance.  Use the tools that we offer to formulate your own decisions, and use the plan to help you understand what we think.  Do not follow the plan blindly.  Consult your advisors before you make any decisions.  We are NOT Financial Advisors, we do NOT know your risk tolerance and we do NOT tailor our opinions to you or your objectives.

Here's the performance:

The strategic plan began in August 2007 after the anomaly in the Investment Rate Model (to read about the anomaly click the Investment Rate link above):

Inception = 8.8.07

  • From 13700 – 12800 = +6.6%   duration = 10 days
  • From 12800 -  14120 = +10.3%  duration = About 2 months
  • From 14120 – 13000 = +7.9% duration = Just over 1 month
  • From 13000 – 13500 = +3.8% duration = about 2 weeks
  • From 13500 – 12180 = +9.7%  duration = about 3 months
  • From 12180 – ? = ?  duration = ?

Total = 38.2%

Market Returns = -8% as of 4.9.08

Outpacing the market by 477.5% as of 4.9.08

NOTE:  We offer specific stock trading ideas in association with this plan too.  Check our blogs in the trading section for our current recommendations.  Here's the blog: BLOG

The graphic below has not been updated to reflect the recent bottom at 12180, but it offers a good illustration of our ability to pick strategic turning points in the market:

 

 

 

 

 

 

 

 
 
 
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