When I posted the comments below regarding the context of the market on March 15, 2008 in response to another poster who insisted that the March, 2008 IT low would be "like all of the other IT lows in 2005, 2006 and 2007" - just respites on the way to new all time highs ahead - SPX was at about 1300. My post at that time made the very strong point that the context of the market had recently changed from the Primary Bull Market of 2003-2007 to Primary Bear Market . Understanding that difference in context would make all the difference to trading results ahead. Less than one year later SPX hit 666. Traders (including day traders) who understood the context in 2008 and went with it instead of fighting it were trading with the wind at their back....... and had a phenomenal year. The vast majority who failed to "get this" were fighting over crumbs as the few who understood were enjoying the feast of a lifetime. Context.
Why? Because if your trades, even day trades, are in harmony with the larger trends, they will be profitable FAR more often when supported by the trend than if they are constantly bucking the trend. There is simply NO room for error when your trades are counter to the prevailing trend. Badly planned or executed counter-trend trades are doomed from the first second, with no hope of relief. Even your "good trades" can turn against you very quickly when trying to counter trend trade. Conversely even some of your "bad trades" {yes we ALL have some of those} that are in sync with the trend turn profitable, and the good ones makes a whole lot more than they would in a counter trend environment. Bottom line, when you trade in harmony with market context, losing trades will lose less and winning trades will make more. Context.
First the post from early 2008.....then we'll examine August 2011 using these same market indicators...
So now where are those same indicators after the 29 months that have transpired since the March 2009 low which started the most recent Primary Bull Market? {Just in case the above chart morphs again mysteriously from the monthly chart to a daily chart, here is a new one, below}That the odds are low that this market is different than it was at IT lows in 2005 and 2006, I respectfully disagree, and do so vehemently. And I mean both parts- "respectfully" and "vehemently". After all, if we agreed on everything, one of us would be unnesessary, right? It's late, so I can't go into all the reasons for my belief that we are solidly and squarely engaged in a true bear market....but I will, for now, just offer the following- the SPX chart for the last 18 years, with comments below:Folks, I have seen this before. It happened at several IT bottoms during the bull... Summer of 2006 or late April 2005... Check the archives, they are quite educational...
I am not saying that this will end the exact same way but odds favor it will. This may be different but chances are low.
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Have a system, execute it and let the market prove whether you are right or wrong.
http://stockcharts.com/c-sc/sc?s=$SPX&p=M&st=1990-11-02&i=p30339765848&a=121323923&r=8009.png
Several brief points:
1. The 4 year cycle is hard to see during the period of the 90's because this decade capped a powerful super-cycle secular bull market that started in 1982 and culminated in the final 2000 peak. But a close look shows the relatively anemic cyclical declines penetrating the 13 month MA in 1990, 1994, 1998, then the big cyclical bear market of 2000-2003, and that we are now below the 13 month MA again. We've traded below the 13 Month MA just 5 times in that 18-year period.
2. The strength of this cyclical bear market decline is evidenced by the downturn in the direction of that 13 month MA for only the second time (the last time being the 2000-2003 bear market) in 18 years--indicating that we are engaged in a very real cyclical bear market- and that this bear market is more important than any in the 90's.
3. This is confirmed by the monthly MACD, which is showing not only a clear downtrend, but the strongest downside momentum (as evidenced by the histogram) of any period since the 2000-2003 bear market, and it's still accelerating downward.
4. The Monthly CCI has dropped below -100, indicating strong downward trend. The only other time it did so was during the 2000-2003 bear market. It is telling us that (like 2000-2003) we are in a strong cyclical bear market.
5. These are just a few reasons why I read the current environment as very different from the IT bottoms in 2005 and 2006, and why I believe that the outcome willl be very different as well.
With regard to you final statement "Have a system, execute it and let the market prove whether you are right or wrong.", I couldn't agree more. In the end it matters not a wit whether others agree or disagree with our methodology or conclusions. The only thing that really matters is our trading result over time.
Please accept this post in the spirit which I intended- as respectful disagreement between reasonable analysts/traders. Very Best, D
http://stockcharts.com/c-sc/sc?s=$SPX&p=M&st=1996-01-28&en=(today)&i=p57004796817&a=181755078&r=307.png
1.Just in the last few days, the 13 month EMA of SPX has turned down again. So we have now for only the fourth time since 1990, SPX below a falling 13 month EMA. That's an indication that we've entered a Primary Bear Market (PBrM). {The 13 month EMA of SPX actually turned down temporarily in the Summer of 2010, then turned back up as markets marched up to the recent "Osama is dead" peak of 1370.}
2. MACD has NOT confirmed at this point and is still on Primary Bull Market (PBlM) mode as triggered in July 2009. Notice however that this indicator lags, as it did when it confirmed PBlM in July 2009, 4 months after the bottom -and that it is VERY close now to sell at just +7.754. Nevertheless MACD is on PBlM (Primary Bull Market) mode currently.
3. CCI has dropped now to +19.09, both well below the +100 area which confirms the PBM is still in control, and additionally, that takes it to a new low for the PBlM period, well below the Summer 2010 lows. While this is NOT a PBrM (Primary Bear Market) signal, it is definitely on high alert as it has dropped to new 2009-11 lows.
So the three measures above show PBrM readings for price and direction of EMA, PBlM readings for MACD, High alert for CCI. The readings for the World Market Index, while weaker than SPX, show the same conclusions, and the MACD at just +1.001 may go to SELL next week, almost certainly next month short of a powerful rebound:
http://stockcharts.com/c-sc/sc?s=$DJW&p=M&st=2000-01-28&en=(today)&i=p46450940130&a=171272749&r=20.png
Next lets look at the weekly 8/34 EMA for SPX. When a rising 8 EMA crosses above a rising 34 EMA that's a PBlM trigger signal; when the a falling 8 EMA drops below a falling 34 EMA, that's a PBrM trigger signal:
http://stockcharts.com/c-sc/sc?s=$SPX&p=W&yr=5&mn=0&dy=0&i=p25786451212&a=203038378&r=733.png
This will give a sell trigger signal on Monday, using any SPX reading under 1250. So this is currently on PBrM mode. {This, too, gave a "false" PBrM signal in Summer 2010, btw}
http://stockcharts.com/c-sc/sc?s=$DJW&p=W&yr=5&mn=11&dy=0&i=p66932092435&a=241125381&r=900.png
Likewise, the 8/34 for the World Index is already on PBrM mode.
So now we have the monthly and weekly moving averages confirming PBrM both on the SPX and DJ World Index, MACD still on PBlM on monthlies but very close to sell especially on World Index, and Monthly CCI's on high alert.
We are reviewing literally hundreds of other indicators of Primary Trend this weekend, and they are all "right on the edge", some on PBrM mode, others remain on PBlM mode. We cannot know what lies ahead until we get the market signals - but we can and will read the message as the market makes that call. Recently we said at SevenSentinels.com:
"Markets are, in the final analysis, driven by fundamental developments. Markets "know" far more than even the very best and brightest economists on the planet could ever know about what is and what is not important in driving price and trend. Our job is to let the market do its job of sifting through, interpreting and weighing all relevant information, and then to trade with whatever trend all of those factors ultimately produce.".....
And that's what we will do with regard to the Primary Trend as well as it is currently right on the cusp of a critical change from Primary Bull to Primary Bear Market. If, like March 2008, we drop into PBrM mode, the context over coming months with be a market that drops hundreds of points from here, rapidly. If, on the other hand, like August 2010, the PBlM remains intact, we are near a low here looking at the trade of the year on the long side shortly. Polar opposite strategies, depending on the signals we get in the next few days or weeks. Context is everything, and we'll know that context very soon. Those who get it wrong will be once again fighting over crumbs at the expense of the few who truly are tuned in.
With regard to the Intermediate Term Trend, we had a Seven Sentinels Sell Signal on August 2, 2011, our fourth of the year, and went short and remain short:
http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=1&mn=7&dy=0&i=p23824210672&a=181755090&r=115.png
Good trading all, Don
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Recently we crossed a rather exciting milestone at SS.com as our tracking account at Updown.com, here, which we started June 19, 2010 at $1,000,000 crossed through 100% gain and finished Friday at $2,079,897.15. Context truly matters! To celebrate this milestone and to assist traders through the current troubled waters, we decided to offer, one last time, three full months of SevenSentinels.com for just $75 as an intraductory offer. This link will take you to that offer.
, though if you follow the dotted line you will see that the account never went below its $100,000 starting value. Not sure how those green lines are generated but they are inaccurate. But to answer your question directly, I made a boneheaded trade in late July- easily my single worst trade of 2011, when I took a position in anticipation of a budget agreement on August 2 believing we'd spike when the agreement came.... and didn't stop it out when I should have. I made a classic rooky error from which I'd thought I was immune - once in that trade, believing that the settlement would prove me right, I didn't take the loss when I should have. I lost a lot of sleep over that - as I'd taken great pains to stay OUT for the SS.com website and tracking account and SS Prudential....which of course I did. I make mistakes like the rest of us, but I try very hard always to learn from them, and hope and expect that the pain of that burned into my psyche forever that I must not ever do that again. I am still new to Collective2 as I develop my methods, techniques and trading rules, though as a result of that draw down, I now have written rules to which I adhere 100%. Thankfully, too, staying locked onto market context has a way of overcoming even the dumbest of boneheaded mistakes. 
Let's watch and see if I'm correct. But, believe me, I understand why you would question this. Very best regards, Don
