LETS LOOK AT THE ODDS HERE
This table shows selling the opening of each trading day of the month for Feb and the next chart shows buying it. Both exit MOC that same day, so we see what tendencies there are for up or down days. You absolutely cannot just blindly trade on this alone, although there was time when I did exactly that. However, it does show us what the tendencies have been for February over time. We can see that the sweet spot for sells has generally been about now and mid month forward. The best buys have been trading days 7, 8 and 9.
You can really see that once we get past the 10th day the odds on average go down quite a bit for longs this month. Since we combine this with the excessively bullish sentiment and the next graph I am going to show, I do think we need to be looking for sells on a short term basis.
We now have the POIV lagging quite a bit, you can see the seasonal tendency down, and the red line at the bottom is a big problem. This tracks the relationship between bonds and stocks, and when it is negative, that is not good for stocks. You can see the last time this happened, right before our last decline. It is true this can be a little noisy just by itself, but when everything else seems to be lined up, this is a must do trade for me. I will do it if today's low gets taken out tomorrow. Will it? Who knows? That is my plan, how exactly I will enter this if we start moving down will be a game time decision.
This does not make me a crash monkey, I am not looking for a huge move down. I am looking for something trade able that seems to have several things pointing me in that direction. KISS etc.. Remember I am a dumb non-thinking Republican, so I am limited in what I can handle apparently. As long as my brain generates enough energy to keep my legs moving I am happy.
I have come to a conclusion on stock trading that I was trying to avoid. Here are the problems with trading stocks the way I see it.
First, the are not very liquid.
Second, the chart patterns are awful for the most part
Third, they gap all over the place chasing overnight futures moves
Four, the games played with stops should be illegal but are not for some reason
Five, their leverage is not really very high
Six, the wild tail event on news events can wreak havoc at any moment in one of them
With all this in mind, I have been trying to find ways to trade them differently than futures, to try and get around some of these problems. The conclusion I have drawn at this point is that they are so highly correlated to the stock indexes, that there is no reason not to just trade more futures contracts and forget individual stocks. After all if they are just along for the ride why not just be the driver instead of the passenger? When I test mechanical ideas with them, they turn out absolutely great, but there is one major major problem with them.
In those tests when I inject the SP 500 correlations they mostly show that does not matter, yet in actually making trades you can see each stock move almost directly tick for tick with the futures. It then becomes obvious, why trade a lagging less liquid vehicle? I will keep researching this because what I am hoping to develop is a way of trading stocks during these running markets in the indexes where they give no entries in the futures. One thing is absolutely as clear as crystal. Do not trade individual stocks against the main trend of the market, it is suicide. There was a time when you could do this, but that time is long gone.
I will be talking more about this as I plow onward trying to accomplish what I just described. I am not optimistic that I will find it. I think the world has changed so much it is pointless but time will tell.
That is it for tonight