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Catflap's Cycle Views - A Rally into Q3. 2010

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Thank you, GTG! I have bookmarked his website and will have a thorough look once I have finished with Nison and Achelis books.

 

Your welcome, good luck with your studies.

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I am glad that you figured out how to evaluate your own edge that helped you to make a number of good calls and boosted your trading confidence. Surely, this gives you a great advantage. I remember a number of your posts related to K-wave theory and I will revisit and try to reanalyse them for myself.

 

Your right, it has boosted my confidence especially to go against what others are saying - I am contrarian in many respects anyway.

I think the K-wave theory will be pretty good for the long term trend and although it's as yet unproven if it works or not, it does kind of fit in with what Harry Dent predicts and says, namely:

 

'Humans do predictable things' - they work, get married, have children, buy houses, reach peak spending and retire at certain points in their life. I believe that the stockmarket action is understandable when you look at it through the 4 different seasons and see the points at which the baby boomers are at.

 

I understand and am trying to follow a similar path. I am not too keen on fractals as they do fail very often, so do patterns and the lagging indicators of course. I have to admit that I don't have much experience yet. However, I do have scientific and engineering background and, at present, I am trying to evaluate individual probabilities of various patterns and indicators in the markets that I am trading. The aim is to do a simple statistical analysis to evaluate an overall probability. Once a good pool of data has been sampled I will code it in to give a semi-automatic signal for placing the trade. This can be easily done for indicators and even candlestics. The problem with the fractals especially the 18-year cycle ones is in the accuracy of the data and the insufficient sampling.

 

As I mentioned before, I need to review your work posted on GEI before, in order to see how you've overcome the above limitation with the K-waves. I will probably ask a few more questions very soon, if you don't mind.

 

I think anyone from an engineering background has an advantage with solving puzzles - I studied mechanical engineering and believe there is logic to what happens in the markets. I've read Fred Harrison's books and articles and know there is an 18-year cycle in 'human activity' so when it reaches a peak in property speculation like in 1973, 1989 and 2007 then a recession follows. This produces stress in the financial system which causes currencies to become volatile as investors seek out the safest place for their money - this activity in my opinion is not random.

 

Because the dollar is the reserve currency there is first a flight to safety and then a flight back out as recovery looms and the recession eventually ends as growth goes positive again. This action IMO is what produces the fractal pattern, so it has to complete in the same way as the other two as people look to make money again and take on risk in the months ahead.

 

That's why I don't think you need lots of samples to prove that it works - human behaviour is predictable.

 

I'll be happy to try and answer other questions on my fractal theories.

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What was that black candle that you mentioned in another post. I understand the red and the white (or black and white), hanging man, hammers, dojis, but where the heck on earth the black one (in the context of red and whites) came from?

 

Many thanks.

 

Knew there was something I saw earlier but hadn't answered!

 

The long black candle was on the dollar index on February 19 - that's where the dollar peaked, very bearish at the end of an uptrend.

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MACD is a momentum oscillator that lags too much, even more so on a weekly chart. The long black candle and red hammer on the daily chart is NOT bullish!. The 'Catflap dollar fractal' says the next move is down and it should last 6 months - IMO this has simply been a multi-week advance for the dollar in a multi-month decline.

What sort of timeline are you most comfortable trading Cf? I think it helps to avoid confusion if a timeline is clarified. For myself, I'm not a short term trader, more medium/ long term, and accordingly I find the momentum indicators more useful [while also considering "fundamentals"]. I'm assuming you're more interested in the short/ medium term for trading, and accordingly find candlesticks of more use. A nice passage on candlesticks here with the time-line in mind:

 

In his book, Candlestick Charting Explained, Greg Morris notes that for a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullish reversals require a preceding downtrend and bearish reversals require a prior uptrend. The direction of the trend can be determined using trend lines, moving averages, peak/trough analysis or other aspects of technical analysis. A downtrend might exist as long as the security was trading below its down trend line, below its previous reaction high or below a specific moving average. The length and duration will depend on individual preferences. However, because candlesticks are short-term in nature, it is usually best to consider the last 1-4 weeks of price action.

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What sort of timeline are you most comfortable trading Cf? I think it helps to avoid confusion if a timeline is clarified. For myself, I'm not a short term trader, more medium/ long term, and accordingly I find the momentum indicators more useful [while also considering "fundamentals"]. I'm assuming you're more interested in the short/ medium term for trading, and accordingly find candlesticks of more use. A nice passage on candlesticks here with the time-line in mind:

 

Because I'm self-employed and not usually at a computer during the day then I prefer swing trading periods of around 2/3 months between market cycles. I've been keeping a core position on corrections as I know it's a cyclical bull market that still has another 6 months to run. If I get things wrong and the market quickly moves against me then I've still got my core position - in a way these are short-term buy and holds which I'll review nearer the time.

 

I originally wanted to adopt the value based investing approach of Benjamin Graham but hated losing money by holding and seeing big swings down. So I've become more a trader but I prefer a mixed approach to trading and investing but it depends on what I thinks going to happen in the future - I think I'll be out of most equities in 6 months time ready to play the next bear market.

 

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Because I'm self-employed and not usually at a computer during the day then I prefer swing trading periods of around 2/3 months between market cycles. I've been keeping a core position on corrections as I know it's a cyclical bull market that still has another 6 months to run. If I get things wrong and the market quickly moves against me then I've still got my core position - in a way these are short-term buy and holds which I'll review nearer the time.

 

I originally wanted to adopt the value based investing approach of Benjamin Graham but hated losing money by holding and seeing big swings down. So I've become more a trader but I prefer a mixed approach to trading and investing but it depends on what I thinks going to happen in the future - I think I'll be out of most equities in 6 months time ready to play the next bear market.

I think my approach is quite similiar in some ways, though I prefer the even longer term position trading to swing trading. That said, I am swing trading silver/dollar. I find this easier to do as am confident about both these currencies. Silver is rising nicely here, and will look to jump to dollars at around 18.50. I think there is a fair chance that silver will become even more volatile in the future... and it is volatility I'm looking to trade.

 

As far as a core position goes, I consider myself a "divestor".... as opposed to an investor. In the sense that I like my core position to be one of liquidity in the strongest currencies.

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I piled All-In on the FTSE100 at 5280. I've got my head above water now.

 

6% isn't bad for just one week - you wouldn't get that holding cash on deposit for a whole year!. Must admit, I was surprised by the strength but think it's explained by the falling pound.

 

So Catflap gets his hatrick against Prechter, Neeley and other EW forecasters calling for the start of a new bear market <_<

 

I spy with my little eye.... a head and shoulders on the dollar weekly?

 

- MACD histograms are contracting

 

 

 

 

Catflap's dollar fractal now sits on the 3-year EMA, just like March 1992 exactly 18 years ago to the month (remember Fred Harrison's 18-year cycle)

 

 

 

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6% isn't bad for just one week

...

I've used a little leverage. I'm looking at closer to 600% in a week :lol:

 

I'm feeling a little uncomfortable at 5,600.

 

Hopefully the coming week will be a strong one as people look back on the previous year and reflect upon an opportunity missed.

 

 

 

 

 

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Thanks to RH for posting this - Adam Hamilton is one of the few people I follow closely although I often forget to read his articles:

 

http://www.marketoracle.co.uk/Article17209.html

 

Backs up my argument and like Hamilton I also went in long on a gold fund as well as individual gold, silver and platinum shares.

 

 

This next leg in equities should be similar in time to the leg that went from July 10, 2009 to October 19, 2009 - that was a 28% rise on the FTSE 100 so a similar rise from the February lows would take us to 6478 before a much bigger correction. Looking at the 2007 double top then it seems likely this correction could be VERY big - 800 to 900 points on the FTSE.

 

So I aim to be out of ALL equities by early May as it could get very nasty and place a big short position there - this is just my thoughts for now, but I'll be keeping an eye on what Prechter says and recommends at that time. His points are right for shorting but his calls for the start of the next bear market have been way too early.

 

If the bears take the FTSE 100 down 800 to 900 points and I know another low is in then I'll be looking to get long one more time into Q3.

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I've used a little leverage. I'm looking at closer to 600% in a week :lol:

 

I'm feeling a little uncomfortable at 5,600.

 

Hopefully the coming week will be a strong one as people look back on the previous year and reflect upon an opportunity missed.

 

Well the FTSE isn't falling apart today - now climbing that wall of worry to higher prices if you ask me. The other thing to remember is that the FTSE 100 has very little to do with the UK economy!. Around 73% of company earnings now come from oversees and one look at the index constituents reveals it's packed with commodity stocks (or anti-dollar plays).

 

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Well the FTSE isn't falling apart today - now climbing that wall of worry to higher prices if you ask me. The other thing to remember is that the FTSE 100 has very little to do with the UK economy!. Around 73% of company earnings now come from oversees and one look at the index constituents reveals it's packed with commodity stocks (or anti-dollar plays).

I'm holding firm right now. Futures just about clinging on 5,600 today.

 

I'll feel loads better once we get above 5,680.

 

I might take my money and run if we drop back to 5,500 :unsure:

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I'm taking a little money off the table.

 

I've made some money off this baby whatever happens next :)

 

I might take a little more at 5,680 and then hold for 6,000

 

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I'm taking a little money off the table.

 

I've made some money off this baby whatever happens next :)

 

I might take a little more at 5,680 and then hold for 6,000

 

I don't blame you - I got out of my 2x leveraged ETF late on Monday at 5200. I don't like it when volatility gets this low as it usually means a spike up is coming and we've had black candlesticks on the VIX for Monday and Tuesday.

 

Apart from that, I'm still long everything else and am looking to buy LUK2 again on a pull-back on or near to the 20-day EMA - hopefully 5500 or a bit less. Expecting the dollar to let go soon - with record short positions on the euro and everyone long the dollar, the contrarian trade is the opposite.

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A look at technicals on the FTSE 100 using monthly charts.

 

- price is now above the 1-year, 2.5-year and 5-year EMA's

 

- momentum is turned up on these EMA's

 

- MACD is now close to going positive

 

- slow stochastics starting to lock-in above 80

 

- RSI still neutral at 58.74

 

 

 

 

 

All very strong action with more upside to come - nothing to say the market is over-bought, weakening or that the cyclical bull market is over.

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A look at technicals on the FTSE 100 using monthly charts.

 

- price is now above the 1-year, 2.5-year and 5-year EMA's

 

- momentum is turned up on these EMA's

 

- MACD is now close to going positive

 

- slow stochastics starting to lock-in above 80

 

- RSI still neutral at 58.74

 

 

 

 

All very strong action with more upside to come - nothing to say the market is over-bought, weakening or that the cyclical bull market is over.

This is probably a dumb question..... but how come the technicals look different on the daily chart?

 

RSI is about as high as it's ever been, MACD is positive.

 

tempr.png

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This is probably a dumb question..... but how come the technicals look different on the daily chart?

 

RSI is about as high as it's ever been, MACD is positive.

 

I suppose because the sampling rate is smaller. The monthly chart ultimately trumps the weekly and daily charts for knowing the general direction of the market, which is one of the reasons I subscribe to Stockcharts.

 

If you really want to learn more about using daily, weekly and monthly charts together then I recommend a guy called Hans Wagner - he explains it all really well:

 

http://www.marketoracle.co.uk/Article16253.html

 

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I've bottled it Catflap.

 

I took most of my Long FTSE cash of the table and went long USD vs GBP this morning.

 

Are you still in?

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I've bottled it Catflap.

 

I took most of my Long FTSE cash of the table and went long USD vs GBP this morning.

 

Are you still in?

 

I'm still long around 90% of my portfolio and waiting for a small pull-back to the 20-day EMA to go back in on LUK2.

 

You know my work on the dollar - IMO it's topped and has now completed a bearish head and shoulders chart pattern. Against the dollar, sterling appears to be making a pattern of higher highs and higher lows and recently there has been a MACD crossover, so this doesn't look bearish anymore.

 

http://stockcharts.com/h-sc/ui?s=$XBP...amp;a=193320595

 

I posted this on HPC the other day:

 

UUP looks great - I wouldn't want to be long the dollar with such an obvious head & shoulders formation and a record short position on the euro. Happy to be long here with around 90% of my portfolio - I'm generally not at a computer during the day and wouldn't want to be panic buying as the market roared off again!. But when the dollar starts to finally let go then FTSE 6000 will come in no time.....

 

Seeing sterling starting to strengthen made me think the FTSE would run out of gas at 5600 having already retraced back to the January highs ahead of the S&P, whilst the strong market internals would also eventually power the S&P back to it's January highs as well.

 

I remember seeing this guy from M&G Capital saying last year that the currency most under pressure usually comes from nowhere in the lead up to an election (just like the dollar did in 2008) and that sterling would rally into the election. He said don't short it going into an election, short it something like 3-5 weeks after the election where it would once again become the 'howling dog' of currencies eventually going to near parity with the dollar.

 

Even though $XBP has had the death cross of a 50/200-day EMA, the monthly MACD still has the black line above the red line although in -ve territory.

 

This is just how I see it and it could be wrong.

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Another look at the Baltic Dry Index - have I found something that can predict where the next low on the S&P is going to come, to within 1 day?

 

 

An observation I've made on the last 2 cycles - a BDI peak to the S&P market breadth peak is equal to the BDI bottom to the S&P market breadth bottom. I'll explain:

 

BDI peak March 9, 2009 to S&P peak June 12, 2009 = 3 months and 3 days

 

BDI bottom April 8, 2009 to S&P bottom July 10, 2009 = 3 months and 2 days

 

 

BDI peak June 3, 2009 to S&P peak October 19, 2009 = 4 months and 16 days

 

BDI bottom September 24, 2009 bottom to S&P bottom February 8, 2010 = 4 months and 15 days

 

 

An incredible coincidence?.....

 

 

BDI peak November 19, 2009 to S&P peak January 19, 2010 = 61 days or 2 months exactly

 

'If' the patten repeats then:

 

BDI bottom February 15, 2010 plus 61 days = S&P bottom April 16, 2010

 

 

I am a little confused with the date of April 16, 2010 as it conflicts with my other work - it might just be a coincidence that the time spans have been matching. Still, I need to be aware of an interim high coming at the end of March which might give a correction into mid April before my projected peak of May 6/7, 2010 as another peak in equities.

 

The USD 4 year cycle does show a peak one week into April where you expect to see a commensurate fall in the S&P. April 15, 2002 was a low point (but in a bear market) as was April 17, 2006 so there might be some relevance in this April 16, 2010 date I have.

 

I am also expecting equities to be strong until around March 26, so there could be a double VIX spike in early April and mid April.

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Back to the dollar index again - specifically The US Dollar Index Election Cycle which shows we are in the midterm period where the dollar is usually it's weakest. This is how I can possibly see equities and gold playing out into 2012.

 

 

 

The big correction we saw in the mid-70's that ended in August 1976 came on a huge strengthening in the dollar just like we saw in 2008 - they were both election years.

 

Jimmy carter was elected in November 2, 1976 and became the 39th president on January 20, 1977

 

Barack Obama was elected in November 5, 2008 and became the 44th president on January 20, 2009

 

 

http://www.seasonalcharts.com/zyklen_wahl_usdx4j.html

 

 

The next election year is in 2012 and this will be 36 years (2x 18-year business cycles) from the one in 1976. Both of these come after Catflap's dollar fractal pattern that I've previously discussed. Election Day in the US is the Tuesday following the first Monday in November. It can fall on or between November 2 and November 8.

 

So the election cycle and history suggests that major dollar strength will happen in 2012 which will be very bad for everything in a Kondratieff winter. Looking at the other cycles then it's reasonable to suggest that gold should bottom in it's weakest part of the year or a little later, so I would be looking for major buying opportunity in July, August and September of 2012 by averaging in.

 

Working back 18-months from there means a prior seasonal peak in say January, February or March 2011......

 

This is where it gets interesting!

 

Stock markets topped around mid-October 2007 but gold made it's top 5 months later around mid- March 2008. So the projected peak in equities for late August/early September 2010 could be followed by a peak in gold 5 or 6 months later at a seasonally very strong time of year, in January or February, possibly March 2011.

 

That all fits rather neatly I must say :rolleyes:

 

 

Here's one of my thoughts....

 

'In an inflationary Kondratieff summer phase (1966 to 1982) investors switch between assets more to preserve wealth rather than holding cash, so gold usually moves opposite to equities but gold tends to retain an inverse relationship to the dollar'.

 

- is that largely true?

 

Well equities back then moved with a strengthening dollar and opposite to gold. From December 1974 to August 1976 gold corrected by 40% in a cyclical bear market and that was a nominal correction in a perioid of high inflation!

 

Now what about that mantra "Don't trade gold otherwise....."?. There's a time and a place for everything, especially at the start of election years like 1980 and 2008 for example, but maybe a full year earlier than this with election cycles that fall on the 36-year global cycle. 1976 and 2012 are these periods and they come after severe recession and financial turmoil where another episode of dollar strengthening can be expected, but over a longer period.

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Another look at the Baltic Dry Index - have I found something that can predict where the next low on the S&P is going to come, to within 1 day?

 

An incredible coincidence?.....

BDI peak November 19, 2009 to S&P peak January 19, 2010 = 61 days or 2 months exactly

'If' the patten repeats then:

 

BDI bottom February 15, 2010 plus 61 days = S&P bottom April 16, 2010

 

 

I am a little confused with the date of April 16, 2010 as it conflicts with my other work - it might just be a coincidence that the time spans have been matching. Still, I need to be aware of an interim high coming at the end of March which might give a correction into mid April before my projected peak of May 6/7, 2010 as another peak in equities.

 

The USD 4 year cycle does show a peak one week into April where you expect to see a commensurate fall in the S&P. April 15, 2002 was a low point (but in a bear market) as was April 17, 2006 so there might be some relevance in this April 16, 2010 date I have.

 

I am also expecting equities to be strong until around March 26, so there could be a double VIX spike in early April and mid April.

 

Interesting work, CF. Keep the research coming.

 

I am sure you know these patterns can show up for many times, and then disappear.

But it is an interesting exercise to examine their predictive power

 

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Interesting work, CF. Keep the research coming.

 

I am sure you know these patterns can show up for many times, and then disappear.

But it is an interesting exercise to examine their predictive power

 

Thanks - yes, patterns can also dissappear when too many people know about them as well. I've done a lot of work looking at this date of April 16 and it seems to be seasonal to get a correction or low around that time. Interestingly, the early 90's 'dollar fractal' that I've identified had a peak on the dollar index on that same date (April 16, 1992) as it moved from a low of 89.35 (April 9) back to 91.53 (April 16).

 

I'm now looking for the dollar to fall back down to the 100-day EMA where a correction begins - that's currently at 78.88. So I still see stocks moving higher this week although there could be some resistance at the 50-day EMA first.

 

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...

This is just how I see it and it could be wrong.

Good call so far.

 

I'm going to hang on to my GBPUSD short for now. I'm planning to hold through the election. Labour will probably win and drop Sterling down to 1.30.

 

I'll be gutted if we get to 1.60.

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