Clown's Weekly 34.

[The Dutch Clown]

Last week we watched this months interview on Finance Television with someone who translates the weekly updates made by R. Merriman. For a couple of years (it might very well be four years now –joke-) now this (too) blond woman is telling us that we should expect a market correction based on the 4 years cycle of more than 20% of the top. One thing I have to add, the company is called ”Market Timing” well what can I say, one should leave out the word Timing since it stinks from here to Tokyo. Last week I presented a Cycle scoop so you now know how to use Cycles like the 4 year cycle you hear so many analysts talking about. Realize that there is a curtain flexibility in the time aspect (more details in the week 33 weekly). So let us this week look at astronomy a bit closer.

One of the things that is very straight forward and easy to find is to look at the position of planets in the Houses. Let me cut a corner here by just referring to research that shows links between the number of planets in specific Houses, the economy cycles and stock-market cycles. The ones to look for are Virgo and Leo which correspond with low and high respectively when they appear in numbers. So is we cut an other corner and look for periods – once again simply eyeballing the AEX daily chart from January 1985 until last Friday- where they both appear in numbers and close to one another we should be in business. The first relevant hit is august 1987 with four Lions and five Virgins (sorry I could not help myself). Early September 1989 we have four Lions and four Virgins and the list is impressive but please bear in mind that it is not a thing that will pinpoint to the day or hour.

So we are now up to speed and ready for what’s coming when I tell you that we will have Five Lions end of August (in fact this Monday and Tuesday) and four Virgins early September. If we take a look at the present stock-market situation we can not overlook the fact that the market is “topping” rather than “bottoming”. To complete this angle it should be mentioned that in August 2007 we will find five Lions and five Virgins very close together. So according to a Clown’s methodology we are coming closer to a trading roadmap defining the outlines combining Cycle Analysis and Astronomy integrating this into the Elliott Wave Analysis.

Maybe I should add an other piece of relevance here in order to find your way through all this. Cycles come in all sorts and they are ordered hierarchy by the length of the cycle from long to short and the longer cycles are divided in sub-cycles. Now is the challenge that the sub-cycles vary in length to form (a number of sub-cycles together) a cycle of a longer period. And this last cycle is again one of the sub-cycles of a cycle with an even longer period and this continues for as long as we have relevant data. If you take a moment or so to realize the above basics you now understand why there are so many cyclists so totally differently forecasting stock-market cycles and when read one firstly understand what sort of cycles are involved anyway. If we now focus on what Astronomy really is and forget about the rest we must notice that planets travel in space according to a route which lasts a defined time period. And those can also be called cycles so here we are to take it just one step further for now. When planets travel in circles one can divide those circles in parts and define the different parts. And if a number of planets are in the same part/section at a certain point in time it is like cycles intersect, if you are still with me so far you now understand the relevance. There is a bit more to add but maybe an other time.

One of the most powerful tools Mr. W.D. Gann provided is the forecasting methodology by squaring price and time, without going into the details let’s leave it by stating that price and time targets can be calculated in the future. If we review the swing from 217,80 in the AEX we are entering the time cluster where a full 360 grade cycle is valid. Due to elapsed time and price, the definitions of Mr. Gann’s findings and the tolerances found applicable from numerous previous real-life similar situations it can not be pin-pointed to a single day or hour. The last comparable situation was May this year and I don’t have to explain what has happened there, well the one thing to be said right now is we will hitting a few points in time and price once more.

What we do have to improve accuracy is to use the Technical Analysis with a bunch of indicators and what we might call “the new way of working with old indicators”. The AEX RSI in the EOD chart is entering the upper side of the Range Rules leaving us with upside potential but not enough to travel towards the target of the at this forum presented Positive Reversal target, scoring in the meantime the target of a so called “hidden” reversal target. For the people familiar with the “dynamic” RSI the overbought value is 66,52 with a RSI value of 66,04 last Friday. For cross checking I use the DJIA and if we review the DJIA EOD chart we notice that (again in the dynamic RSI) the DJIA has become overbought last Friday. The DJIA scored the price target of a “hidden” reversal as well as the AEX, the target of the (still open not “hidden”) reversal signal however is extremely close so it’s going to be a close call whether or not it’s going to be met in this swing.

Although I have asked you to bar with me maybe a bit too much just a bit more since it is relevant as you might agree. Individual planets form cycles as you have seen, taking it a level beyond try to picture that planets to each other form again cycles and that’s what we call aspects. When the planets that run cycles of years and years like Saturn and Neptune form an aspect you have an event that does not happen that often. So if I tell you that Saturn and Neptune form an aspect end of August 2006 and twice in 2007 (February and May) lets have a look what happened at the stock-market in the previous similar situations. And there we are, it is so rare that it did not happen in 30 years of AEX data so I have to run it against the DJIA data file starting 1915 – see now why I keep such a huge data file-. Due to the character of this event – it happened only twice in the given period I review the trading set-up (explanation see earlier Weekly) over a period of a year so we end up with:

Long.
Rew OK 02-09-2005 SV 26-03-2007 100% (6om0 grootste win 74,38%)
Risk OK 31-08-2005 SV 16-07-2006 100% (6om0 grootste win 51,35%)
Short
Rew OV 27-03-2007 SK 31-08-2007 50% (3om3 grootste win 43,95% verlies 6,59%)
Risk is in the already in the past.

As usual I have given you the raw facts. It’s going to be exciting to see things evolving over the next couple of day’s and the intraday chart will help to find the trades to win again.

S6.

Disclaimer: this weekly is for educational purposes only.

 

[Pacito]

Clown,
I don't like to speak about the RSI being oversold or overbought. It was in bearish range till the end of July. It broke through the 65 and has not been under 40 since. So it is still in the bull range. For the moment it is rising at a moderate pace. If it would still be at the point from 5 trading days ago, we would have a bearish divergence. Since it rose about 7 points that sign didn't appear. There's no disproportion between RSI and prices. Conclusion: no negative signs at the moment.
Elliot: We could be in a fifth wave ( since feb 2003) If it turns out to be a normal fifth wave then it could reach 530 ( compared to wave 1) However, it could end being truncated. The bigger wave since 2000 is an A, B, C. I'm not sure if wave B ended already. If so, then the fifth wave ends truncated. If not, wave B could reach 510, which is a Fibonacci retracement.
Concluding for this part: there will be a contraction of the market, which could lead well beyond 200. But probably we are not over the hill yet. Top could be between 510 and 530. Normally we should reach that top in april/may next year. But according to GJ the top will be before the end of this year.
Putting the two together: I don't see a contraction short term, maybe a little correction, but not under 457.
Tantalizing odours are reaching my nostrils so I quit for the moment.
Good trade,
Pacito

 

[Ivowetters]

Pacito,

About your Elliott analysis, what If we are now in wave 4b? With an flat wave 4 we will have another decline before we hit the 510 in the mids of 2007. This wil also coincide with a 15 grade turn of uranus from march 2003 (februari 2003 was start Wave B).

 

[Pacito]

You are absolutly right. Comparing the wave 2 with wave 4 you can see a slow stretched wave 2. Normally wave 4 is a different corrective pattern. So it seems correct if you compare the two. There's always a possibilty that we are still in wave 4. This could end at about 390( the fourth of the subwave of 3).
However, that is not my preferred scenario.
Pacito

 

[The Dutch Clown]

Dear Pacito,

The last two weeks my objective was to provide some of the basics to be able to tackle the unfounded forecasts that are flying around with extreme price targets based on Cycle Analysis and Astrology. It has been a while so it needed some attention anyway and the many Analysts screaming outrageous targets was the final motivation to get the work done. Basically it supports the still valid preferred - meaning the highest score reference to the Elliott definitions including sub-wave-labeling - Elliott Wave pattern from 217,80 being a TripleZigZagC although I suspect the pattern to change from corrective to impulsive. It’s the more fundamental issue that supports that line of thinking while the implications of a corrective pattern seem a bit destructive for the economy we have grown to enjoy.

The same multi layer approach has to be taken when the RSI is concerned and the so called “dynamic” RSI is also a nice piece of work that complements the already quite equipped toolbox. Might I suggest you use the leveled line of thinking you are familiar with from Elliott Wave in the Technical Analysis as well. The Overbought and Oversold oscillator situations become totally different using a “dynamic” RSI which in fact could be considered a different indicator. If one uses Range Rules there are some striking similarities and if you like additional functionality found in the dynamic RSI.

 

[Pacito]

Dear Clown,
I havn't got the faintest idea what you mean by "dynamic RSI". I tried to search the internet about this, but I didn't find any satisfying answers. To me the RSI is a tool that loads the new up or down in points and rejects the one that is now 13 units old.(units can be minutes, days, weeks and so on). You can use the normal RSI or the exponential RSI. Thats about it. I'm aware of the different ways of calculating the RSI, but that can't be the answer. I hate things I don't understand, so please, be so kind and tell me what you call the dynamic RSI is.
Pacito

 

[The Dutch Clown]

Pacito,

Thought as much, you must have read over it the fist time I made a reference to it. The software both GJN and I use has a feature called "dynamic" RSI. When GJN presented the Range Rules some time ago I asked him if the dynamic RSI or the "optimized" RSI support the Range Rules... he told me no and also he does not use the optimizing functionality at all. Than I had some conversations with the owner of the software and he outlined the basics to me without going into too much detail since he owns the copyright. From what I understand he calculates deviations and averages and creates a moving OB and OS which helps me defining the ranges better acurately. So I started using the dynamic RSI to help defining the Ranges, like last Friday in the DJIA, see the attached chart for details.

Fun or what....

 

[Pacito]

Thanks Clown.
The dynamic RSI has some characteristics of the bollinger bands it seems to me. I hope its working for you. I will attach the same chart of the Dow, but with an extra indicator. Pay attention to the one under the RSI that says tov EMA5. Try to draw some lines between tops or between bottoms in the chart and in this indicator. I think its amazing how fast it indicates reversals and divergences even when the RSI doesn't. I use it in the same way Brown uses her composite index. Give it a go and let me know if you like it or not.
Pacito

 

[The Dutch Clown]

It is fun or what

Time and Price are fighting

 

[Pacito]

The best circumstances we gan get. Trading implies volatility. With this up and down scenario it hardly matters where you buy and where you sell. The postman always rings twice. Just wait until your favorite goal comes along. Don't panic. If time and price are fighting there will be a conquerer and and a loser. Time is steadily going on. Price is the one that has to fight. We've seen the fighters at every bottom. They will not give up. They have lost some battles, like today, but they will be back tomorrow. Its a bit like the middle-east. A cease-fire is not the end, its an opportunity to regroupe and repair the weapons. Will the AEX go down? Sure it wil, but not at the moment. There's still a goal to meet. It can be 475 or 512. Who knows. But after that there wil be plenty of room on the downside. Look at it if it were the crust of the earth. There's a lot of boiling underneath. But the crust is steady. At some points there are eruptions. They will change the crust. But stability remains. Untill there is a large eartquake or a vulcano that sets free the enormous pressure hidden in the interior. Then a change will take place. But the eruptions will go on. Untill the next big eruption or earthquake, and so on. What are the most spectaculair moments? Right, the changing ones. Can you foresee them? That's just what we are trying to do.
Pacito

 

[The Dutch Clown]

Dear Pacito,

Don’t tempt me, I have read some Cycle stuff and a combination with a peace of artificial Intelligence that forecasts earthquakes extraordinarily accurate but that’s a different ballgame. The chapter in the C. Brown book to read once again is the bit on what she calls reverse engineering but in the sense of thinking out of the box. The price targets you mention are already backed up by Reversal signals in different charts but now we have to start thinking again. Given the present value of our oscillator those targets are totally out of the question so I wondered if the phrase from my Math’s lessons – sorry in Dutch "de inverse bewering" – is true here as well. In my limited scope the approach to reversed engineering C. Brown took is too complex, simply working with the formula will do the trick as well. If I take a closer look at the intraday chart a very nice reversal signal is already in place and even a next one is a distinct possibility. If we take a closer look at the EOD chart there we find no reversal signal yet, other than the potential to create one in the near future.

If I take the Elliott Wave Analysis in account the preferred scenario is a wave 2 and yes you are right wave 1 is not the absolute high that’s one of the sub-waves of that second wave. The negative divergence in the oscillator – although the literature refers to the Elliott Oscillator -typically occurs in a wave five and continues in the corrective wave that follows the impulsive wave continuing the divergence as shown.

The DJIA has similar characteristics and today is lacking to use the support Gann line from the 10683 Fan and the next support area will be found in the 11200 region. Our oscillator is building upside potential so it seems that all pieces of the puzzle are in sight to become the whole picture..

 

[Qwerty321]

Clown,

Do you consider
"The W.D. Gann Method of Trading, a Simplified, clear approach" by Gerald Marisch, at good book to start with Gann techniques? I saw it and I couldn't just let it lay there..

 

[Pacito]

Dear clown,
the AEX seems to hesitate. According to me there are six lows in the RSI that form a positive reversal.
1 7/25/06 - 9/7/06 RSI 59,3434-52,6796
2 8/1/06 - 9/7/06 RSI 63,3536-52,6796
3 8/3/06 - 9/7/06 RSI 57,4545-52,6796
4 8/8/06 - 9/7/06 RSI 56,3111-52,6796
5 8/10/06 - 9/7/06 RSI 56,0088-52,6796
6 8/23/06 - 9/7/06 RSI 60,6736-52,6796
The WXY rule becomes somewhat confusing. Y=473,58 X=463,46 but W ranges from 444,05 to 461,05, so the targetrange is 475,99 to 490,99. That's a wide range.
The signal will lose some of its value under 449,96 and all value below 444,05.
Stochastics the same but from 7/17/06-9/7/06
Cardwell positive.
Gann grid degree 0,3750 from 6/14/06 runs now at 462,176 and should bring us at 478,x in 21 days, sept 27, which is a square with 6/14/06 and 478,x.
In Elliot after the 1,2,3,4,5 een a(463,46) nu evt b(up).
Now that everyone is negative, including JM and the kkk-indicator, I would like to ask you if you see support for my vieuw or did I miss something.
Pacito

 

[The Dutch Clown]

bulls or bears...or just making money.

Pacito,

Over the years I have learned my lessons the hard way losing money by allowing my trading decisions getting influenced too much by Analysts without fully understand where they are coming from. So I made this rule which is not flexible, I must understand the facts and techniques the conclusions are based upon, if in doubt stay out applies here as well.
The two analysts both claim that they use the same techniques but their conclusions lead in opposite directions. The first Analyst has introduced and shared the techniques and referred to the source so in my humble opinion I need to review the source for answers. I do not want to get into a debate about who is right and who is wrong let’s look at the facts and how the source of the techniques instruct usage.

In the previous weeks I have spend some time capturing the long term issues from different angles like General Technical Analysis, Elliott Wave, Cycle Analysis, Gann and Astronomy. You may find a conclusion might very well be that September 2006 has indications for playing the downside but there are other time periods with more indications. This of course from a long term perspective.
If you look closer to your presented Reversals and take the exit definitions in account you will obtain a picture that’s a bit les confusing. Bare in mind that the Range Rules also help you to get a better perspective on where the AEX is and what route is more realistic. Than take a minute and think about where the bearish outlook from Analyst two is coming from and notice that even if he is right you still will be making money trading according to your winning trading rules.

Once again I would like to mention the DJIA charts which I use for reference purposes and the charts show striking resemblances to the AEX charts, do your Reversal exercises you did on the AEX on the DJIA. Just to get a more up to date feel for it, I did a quick and dirty EWA on the DJIA and where it a while ago showed signs that the absolute high would not be met soon, it now indicates that that scenario is less certain.
In my trading book I prefer to buy low and sell high and when I enter the stop-loss should be close so I will know soon rather than late that I am wrong. And if I use a stop-loss that moves in the direction of my trading direction I can even do better. So if you like let’s turn it around and make the bear scenario the preferred scenario forget about the Positive Reversal’s where should we place our exits?

So enjoy the forecasted day’s of Indian Summer weather and make some money.

 

[Pacito]

Dear Clown,
I'm not considering myself an expert, but my posting dd 09/08/06 seems to point in the right direction. I know that one positive day is not enough but there seems to be a change upwards. Don't you agree?
Pacito

 

[The Dutch Clown]

Pacito,

Forget about the expert bit just look at the facts and get into how the different techniques work as you did with the Reversal Signals. Think Elliott for a minute and translate that layered approach as well.

The Short Term outlook has changed from mixed into + mind you we are looking down to pick up a ST long when confirming the + trending.... or a scalp short. The Long and Medium Term outlook were + all the way so.... well what can I say.

Have fun and remember to trade to win.

EDIT:
You might have a look at the TriangleContrC pattern starting at 474,40 and see where it will get you for future directions and volatility.

EDIT2:
Picture this....

 

[The Dutch Clown]

Goooooooooooooooood Morning…

One of the things I definitely hate the up most is an Analyst that tells you just part of the story in order to back-up his limited view on a market. For the people who are confused just look at the attached picture and notice the difference. What can I say just look at the market and you will know. Mind you that the short term outlook needs a cooling down and momentarily shows Negative Divergence which adds up to the topping process. Remember the Range Rules and keep in mind that tomorrow we will have this months expiration.

Have fun.


EDIT:
The Negative Divergence this morning was immediately followed by a higher oscillator and price value once again the divergence has proven to be not such a strong signal. To capture the level of movement downwards I added a Gann Fan so you will see the change in trend soon enough to match it with the Range Rules when applicable. Since both LT and MT trending is positive I prefer a long ST entry but the Risk/Reward at this point in time is not up to a comfortable level.

EDIT:
picture this ... I just love Range Rules.....

EDIT:
Intraday trend change from – into + and see what happened in our chart. Now we will close 17.30u local time which is within a half hour so we will have to anticipate what the Yanks are going to do with their chart situation which is roughly the same. And since my guess is as good as yours and given tomorrows expiration I will wait until confirmation.

Have a good one I know I will.

 

[The Dutch Clown]

vrijdag 15 september 2006.

Expiratie vandaag.

Nothing exciting happened in Yank’s land while we were closed so the AEX is free to do its thing today. Yesterday shortly before close the intraday trending changed from – into + and the opening confirmed the + (intraday) trending so I scaled a new Gann Fan to capture this movement. Guess what the intraday trending changed just now from + into – trending, mind you the intraday trending status is extremely sensitive as it should be so lets see if its going to be confirmed and reroute once more.

EDIT:attachment2
What can I say, intraday trend is still negative and the appropriate Gann Fan has been placed, so you will see exactly where the AEX is in the trending phase. The LT,MT and ST trending are all still positive nothing has changed there just the intraday picture.

EDIT:attachment3
Let’s wrap-up the day and week with the RSI full blown because it’s showing Negative Divergence. The first occurrence (ND1) was blown out of the water but I have left it in the chart and put the second (ND2) one in as well. It’s not a signal to full blown short on more something like a warning signal which can be repetitive for a while. The present price level is however a concern and will have me study my MT outlook a bit more careful at least the accumulated MT longs in the 462 area.

Have a nice weekend.
Cheers.

 

[Pacito]

Also on the longer term there seems to form a bearish divergence. There is no top yet to be sure, but when this will be the case monday or tuesday the ND is set. If the pattern is false, that should be the case if the RSI rises above 71,x, then this ND does not exist. The crucial day seems to be next wednesday. If the ND develops then the target will be 461,x.
Have a nice weekend,
Pacito

 

[albee]

Yes, I agree.
Look also to the S&P and the DJI indices. Its the same picture.
kindly regards,