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Monday, April 17, 2017


“A universal truth in a very cold & cruel universe!”

“And you got on that plane to get back to … this? Besides being officially ‘Easter Monday’, where give credit to the British; while they can’t run a country or an empire for bat crap, they sure know how to pack more days into a Holiday! And … are you ready for this? … In Buffalo, NY it’s DYNGUS DAY! … Yup, a day of rejoicing the end of Lent and the glorious celebration of Polish culture! … thanks, I’ll stay in the Caribbean.

Two items on the blog plate today; 1) version 3.2 volatility algorithm for U.S. stock indices released last night, and 2) the way the trading universe treats the stock indices. First, though, the release of the stock indices algorithm; if you haven’t already read it, I encourage you to do so because there is new material I’ve never talked about before either in other publication releases or in the blog posts. There are some new candlestick formations that represent “code” quite effectively, that in the past have been represented by mathematical code when I traded futures. While to some it may seen like a “lot to know” when you’re trading the indices, in practice it’s quite easy to spot the 11 formations [6 bullish reversals (bottoms) and 5 bearish reversals (tops) that make up the signals portion of the algorithm.

I would be borderline negligent if I didn’t specifically mention the invaluable and outstanding research work Thomas Bulkowski published in 2007 with his, “Encyclopedia of Candlestick Charts”, which aided greatly my efforts in changing mathematical code into candlestick chart patterns “that matter” and have the greatest statistical significance when seen on charts. His work on 103 candlestick formations, with over 4 million candles in his data set, covering stocks, futures, commodities, and ETF’s from 1997 – 2007 saved me more time than I can calculate. Hats off to Mr. Bulkowski and his research!!

For the vast majority of my floor trading career, Japanese Candlesticks were unknown to the western world; they were first introduced to the trading public via Futures Magazine in the December 1989 issue by a research analyst at Merrill Lynch named Steve Nison; up to that point nobody I knew had ever heard of them. In my formative “gopher years” as I learned the biz from my mentor Bert, he never mentioned anything even remotely close, so I know he didn’t know of them either.

Which, as a side note, brings me to an important lesson I learned long ago from my maternal grandmother Dorothy; before WWII, she was a school teacher in rural Illinois, teaching grade school, junior high school, and high school from a one room school house. As I grew up, and spent summers on the farm not far from where she taught school, she always pushed me to learn, learn, and learn some more; “you are never too old or too young to learn anything; if you think that you are, time to go lie down and just die already”!

So, just like computers, the Windows operating systems, computer programming and learning Java, Python, etc. to name just a couple, the MT4 trading platform, smart phones, and everything else in the last 20 years … so be it for me to “dive in” and reacquaint myself with candlesticks [and the philosophy & coding information it contains] when Assets FX first came onto the scene a couple of years ago [however briefly cuz it only lasted a short 2 weeks before they pulled the plug].

I touched on this in the manual, but many of the conclusions and trading mechanics that Gann used in stocks [no indices trading at that time obviously] are eerily similar to Sokyu Honma’s techniques used 2 centuries earlier in early 18th century Tokyo, trading rice coupons [one of the first true modern day equivalent futures market.] for which he became a true financial celebrity at the time in Japan. Are Gann’s “conclusions” a coincidence, or is there more to it, cuz from 1909 -1919 he traveled extensively in the far east? Don’t know, but it sure is interesting.

Stocks, and by default stock indices, have different and unique characteristics that are not transferable to other markets; in the manual I go over some of these, but my second point today is one that repeatedly shows up in stock indices trading.

One of the legendary sayings on the floor in the SP500 pit used to be, “I bought the first break, I bought the second break, and I was the third break”! You simply have no idea how true this is; after doubling up, and trying mightily to keep the market from exhausting to its ultimate bottom, newer traders in the pit especially would “puke” their long positions and become their own worst enemy by actually becoming the “third break”. And when they were done selling to the institutions [JPM, Squid, the usual suspects], the institutions would then begin to bid it higher, where some time later the panic would shift to the upside and shorts would get clobbered.

And after a while, seeing most Newbies to the floor either get clobbered with 3 waves down and sell at the bottom, or 3 waves up and buy at the top, you can’t help but be left with a feeling deep in your guts and soul that most humans & stock indices mix together as well as trailer parks & tornados; somebody is gonna get hurt here, and it ain’t gonna be the tornado.

The DOW30, the SP500, and the NDX100 go down in waves of three; triple bottoms with both Sokyu Honma & Gann were considered extremely bullish, especially when confirmed with a “thrust” off of the third bottom going higher. Both considered this one of the most reliable and bullish buy signals you could get [and in reverse, triple top and then thrust down for a bearish sell]. In the manual I show the triple tops and triple bottoms with confirmation signals.

But it is the “3 waves down” that I want to focus today; when the DOW30 price is below the open bid price [aqua line], it is the third wave down you want to buy, not the first or the second. The first 2 will most likely be shallow rally recoveries that don’t go very far; the third, though, is the one we are looking for a candlestick signal, and the one I want to get long. Directly below 2 examples from early April.

Taking the third bottom [white arrow 3 from above] and expanding the chart, we get the chart below.

When the DOW30 price is above the open bid price [aqua line], we may or may not get the chance for 3 waves down before we get a buy signal for a resumption of the up trend. But if we do see it come about, it is the third wave down you want to buy, not the first or the second, although you could scalp 1 & 2 if you get a signal, knowing the likelihood is that there will be 3. Again, the first 2 will most likely be very shallow rally recoveries that don’t go very far; the third, though, is the one we are looking for a candlestick signal, and the one I want to get long. The chart below gives us an example.

Turning to today’s trading … I guess since WWIII didn’t start last night with N. Korea, and world traders were betting on Armageddon somehow, that’s the reason the DOW30 is up 90 points? … Europe is closed for “Dyngus Day”,so no help there … how disappointing it must be to wake up and see the world in one piece and then have to cover your shorts at a loss? “Life certainly can be a B. I. Itch sometimes”.

I’m sitting here trying to make sense of this, knowing full well 99% of Wall Street trading desk personnel is on a plane somewhere as I write headed back to kitty litter boxes Chicago and/or New York; “it was a very short 12 days wasn’t it guys? You traders heading back to Chicago didn’t miss much; 29 people shot in 18 hours over Easter, so it was basically a normal weekend in Libtard Utopia, Illinois. I’m guessing the guy who killed 15 people in Cleveland figured he couldn’t get noticed in Chicago, so he got in a car and went to Cleveland instead. And New York? Well, welcome back to DeBlasio’s socialist paradise on the Hudson, where I read this morning in the paper of record, the ‘NY Post’, that there is a sterilization program about to start to rid the city of rats”.

“Ok, but who’s gonna run the graft, corruption, & bribery in this cesspool if you kill all of the politicians”?

An hour and a half into this “we’re kinda open but not really” trading day, and it looks and feels like the shorts are trapped from last week; there really isn’t any flow to the trade today in the DOW30, more of simply a “drift” higher on chop. Outside of the opening 15 minutes or so, we haven’t seen any corrections or retracements of any significance that would make you want to take any kind of signal even if we could get one.

Like pretty much all “Dyngus Days”, this one fits right into the pattern of useless trading days; here in mid afternoon New York the market is in complete drift mode, with the shorts from last week getting crushed pre open in the hour or two before New York opened and continuing to get squeezed as the day progresses into the close. All in all, a day to forget and shouldn’t even have been open to begin with … “I mean, how do you expect me to work on ‘Dyngus Day’ for heavens sake”?

Ninety minutes to the close and I’m shutting this puppy down … although, I’m a little surprised we got the range we did today, and considering half the world is dead today still celebrating something, I’m impressed with the level of intraday volatility we’ve seen today in the DOW30; this portends good levels going forward. Tomorrow sees the indices return to normal trading, and with that my trading as well. It should be an interesting 4 day week ahead.

PAMM/MAM spreadsheet directly below.

Now that Easter is over and the visiting interlopers have fled, the beach is all mine! … Ohhhh yes, it’s glorious baby… it’s like I’m Robinson Crusoe and my ship has just wrecked and left me here … what do I do? … EASY PEEZEE: give the dog a beggin’ strip and take in some vitamin C therapy with a cold Corona & lime and enjoy paradise! … I’m outta here … until tomorrow.

Have a great day everybody!

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