| The System remains short. I raised the stop/reversal level earlier today because the System typically sets a stop approximately 1% beyond a high/low with divergences. The 1% can be slightly adjusted based on local pivots, gaps, SMAs, trend lines and such, but I try to restrict that technical subjectivity to 0.2% (4-5 SPX points currently). The System uses candle stops/reversals rather than the 1% level once the trend moves away from the high/low pivot. There was a System decision point last week at SPX 2009+ where both positive and negative divergences existed, and I chose to stay short because that was the prevailing trade with recent indicator extremes and a bearish SMA setup. As I gain experience using the System, I will refine decision points like that, but my limited back-testing showed mixed results under those circumstances. So, it's not clear to me yet what the right decision was, but a trading plan was important either way. When the SPX high reached 2022/2024 with many negative divergences, I set the stop/reversal level at approximately 1% above at 2043 where there was also a gap and pivot. When SPX reached 2032 Wednesday with many negative divergences remaining, I bumped up the stop/reversal level slightly less than 1% above that to 2050 which is just above the 2044 gap, annual kickoff level and top of the OEW pivot range. I could have used 2053+ but am sticking with 2050. Back-testing shows 2-3%+ System drawdowns on occasion as SPX grinds further despite divergences, but at some point a reversal occurs OR the divergences are wiped away. Today, enough of the negative divergences were wiped away, and although those same indicators reached multi-month extremes, the System requires more indicator extremes than indicator divergences to justify a trade. So, the System is now prepared based on technical evidence to go long if 2050 is surpassed. If the System does go long, it is possible the System could go short again as soon as the next trading day, because more indicators will likely reach multi-month extremes in which case the stop/reversal level to re-short would be tightened. Then again, a grind higher above SPX 2050 rather than a sharp 1-2 day spike might not cause more indicators to hit multi-month extremes in which case the stop/reversal level would remain far below the long entry price. Key juncture for bears and bulls. OPEX tomorrow. Good fortune. |
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