Weekend Update: One Shoe To Go


So far no market moving news from the G20 meeting, but next week on Wednesday Federal Reserve Chairman Jerome Powell gives his annual address to Congress. Expect the talking heads and maybe the market itself to do pirouettes on his every word and nuance. 

System Trades

In the Premium service we have started adding price thresholds that have to be met to trigger trades. These are prices that if seen will provide compelling evidence that the next leg of the bigger trend is beginning. For Monday we have three such signals, all of which will be confirmed upon reaching the indicated price levels:

VXX ($34.49):  Buy Signal on close above $37.00 -> Dec 21st $36 Call. 
IBM ($124.27): Sell Signal on close below $120.90 -> Jan 18th $120 Put. 
LVS ($54.94):  Sell Signal on close below $52.50  -> Jan 18th $52.50 Put. 


Those price thresholds may seem far away from the current stock prices, but if the market starts heading south in a big way, they will fall quickly. If the stock is below those levels heading into the close, take the trade. Remember: A trend in place tends to stay in place...until I say otherwise. 


What stands out from the open trades (meaning Dec/Jan expirations) is how most of the best performance, the highest returns, were seen in the first two weeks of the trade. Pattern recognition analysis (see chart below) still supports the case that the market will incur a steep drop in the near future, so with three full weeks of trading still to go until December expiration and seven weeks until January expiration, the highest returns may still be ahead. These early returns lend further support to the idea of taking profits when they are there while leaving a small part of the position on for further gains. If you have to decide between "all or none" the prudent choice is to take it all off the table and wait for the next trade. 


This remains the operative chart for identification of the dominant trend. Day-to-day gyrations have not even threatened this bearish pattern and makes the next leg down even more eagerly anticipated. Seeing option premiums erode waiting for that shoe to drop is not fun. But when it falls, we sure as hell want to be holding those puts. Elliott Wave theory says the next leg down counts as 3 of 3 and we don't want to miss it. 

I have a few managed accounts that I have had since well before I started this service. There are only two stocks I am willing to hold in this environment, TSLA is one of them. Note how different this chart is than that of the S&P above. That's because Tesla is a different kind of stock, much like Apple and Amazon were in the 1990's. 

[Before I get deluged with requests, no, I am not taking managed accounts anymore, but do manage a small hedge fund. Neither are part of AllanTrends or Blue Line Trading. Direct questions to me directly: apharris@mac.com.