Art & Science of Active Trend Trading–Free Report Jan 11, 2015

The first trading week of 2015 is now officially in the books! Very pleased with how the Text and Alert service worked and provide time for traders to parallel or paper trade a great move on AMBA. As we highlighted over the past couple of weeks it is our intent to provide timely Text Alerts followed by greater detail in an email alert.

What can our Premium & Early Warning Alert members expect going forward? Trade set up alerts either the evening before the next trading day or early in the morning prior to the beginning of trading. Of course there will be times when alerts will be coming out during the day depending on market conditions. Secondly, I want to provide Market Updates between 11 and 12 noon Pacific Time. These will be a mix of both written and video updates. If there is action that is required I will highlight that action in the body of the email containing the link for the Video Update.

– We will introduce the Active Trend Trading Affiliate Program by Friday, Jan 16th. We’re making sure all the glitches are out of the application so members who also become affiliates will receive a cash bonus each month for members they refer to Active Trend Trading or Early Warning Alerts.
If you have not had a chance to check out the research Mike Trager and I have done to start the EWA service you can find a short 10 minute preview at: http://youtu.be/MgC9GMAWh4w

If simplifying your life by trading along with us using the index ETF is of interest you can get the full background video at: http://activetrendtrading.com/etf-early-warning-alerts-video/

Remember if you are a premium or Early Warning Alert member you can receive Text Alerts and Trade Notifications if you send us your mobile phone number. Sent us your number with NO HYPHENS please and we’ll get you on the Text Notification List.

The How to Make Money Trading Stock Show—Free Webinar is back this Friday, January 16th at 10 a.m. PDT. This weekly live and recorded webinar helped traders find great stocks and ETF’s to trade with excellent timing and helped them stay out of the market during times of weakness. Join us by registering at: https://attendee.gotowebinar.com/register/6121221289147482369

To get notifications of the newly recorded and posted Market Stock Talk every week subscribe at the Market Tech Talk Channel: https://www.youtube.com/channel/UCLK-GdCSCGTo5IN2hvuDP0w

 


In this week’s edition of the Trader’s Report we have a bonus article by Mike Trager. This article is spot for assisting us in understanding what the current Market Cycle is as we begin the 2015 Trading Campaign. Good Stuff!

Mike’s Macro Market Musings: “Predictions Are Difficult…Especially When They Are About The Future” – Niels Bohr

We can’t predict the future – if it were possible fortune tellers would all win the lottery and/or buy the absolute bottoms and sell the absolute highs in the financial markets. They don’t, we can’t, and we aren’t going to try to. However, we can analyze what has happened in the past, weed through the noise of the present, and try to discern the possible outcomes of the future. I believe it was Mark Twain (I could be mistaken, please correct me if I’m wrong on the reference here) who said that history doesn’t necessarily repeat itself, but it often rhymes. Also, it was Aldous Huxley who stated “that men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach”.

All of that being said, though, I believe it can be a useful exercise to be aware of past cycles in the equity markets that have proven their importance and repeatability over a period of several decades in order to establish some kind of expectation or bias for what might be coming. The start of a new year seems an appropriate time and excuse for a basic review of calendar based stock market cycles. Keeping in mind, of course, that current price action in the markets is king and prevails over all the other types and sources of noise that attempt to distract us from this cardinal principle.

2015 is the third year of the presidential cycle and also the fifth year of the decennial cycle. The following table will provide an excellent overview of the historical tendencies of the U.S. equity markets as represented by the Dow Jones Industrial Average going back nearly 180 years broken down by calendar years and their position within these well-established cycles

10 year cycle

Note how years ending in “5” are historically the single best performing year in the 10 year market cycle over approximately 180 years of U.S. equity market history. The 5th year of the decade has a history of large double-digit returns. They are historically awesome, presenting extraordinary average returns of approximately 21.5% with very little downside. In fact, the other nine years in the ten year cycle seem to do nothing more than chip away at the extraordinary gains realized during the fifth year of the decennial cycle. Also, the third year of the presidential cycle is notorious for being the single best year in the four year presidential cycle. When these two phenomena coincide, as they do in 2015, it is logical and very rational to establish a strong bullish bias for the U.S. stock markets as 2015 gets going.

However, before getting carried away and placing your life savings in “long only” trading and investment vehicles, consider some of the other lessons of history that might help us develop more of an overall perspective than just depending on the aforementioned cycles. It should be noted that there are only three previous periods where all three prior years showed positive returns prior to a year ending in “5”. One of those three periods returned -8.5% (1865, also the year of Lincoln’s assassination). Furthermore, there is no precedent for the fifth year of the decade when the previous six years were all positive. In fact, going back to 1835, there are only two periods in history where the markets had sequentially positive returns for six years or more, both of which led to significant multi-year bear market declines.

Layered on top of all of this are the current extremes seen in market valuation metrics such as market cap/GDP, Tobin’s Q ratio, and CAPE, all at levels that have only been surpassed once in the history of the U.S. equity markets, at the height of the dot com bull market which peaked in 2000, not to mention extremes in bullish investor sentiment at levels not seen in several decades. These valuation metrics are currently at levels exceeding those which could be measured at historically significant market peaks preceding marked declines, such as 1929, 1987, 2007, just for example. Let us not forget that the concept of mean reversion we have previously discussed also applies to market valuation metrics and levels of investor sentiment – the mean reversion dynamic applies to just about everything, actually.

2015 promises to be an interesting year, one that historically warrants a very strong bullish bias while also posing significant risks such as global economic weakness, multiyear lows in several commodities, rising deflationary pressures, and unprecedented global central bank policies and interventions, that should not be readily dismissed. Be prepared for anything because predictions are difficult, especially when they are about the future, and “anything” is what we are likely to see.


 

General Market Observation:   On each of our tracking Indexes including SPX, NDX & RUT, price action between the daily charts and weekly charts are out of synch! The Weekly Charts appear to be favoring a stronger pullback. While the Market was reclassified as in Confirmed Uptrend but Friday’s downside movement makes me question the underlying strength. On each of the Indexes there is a moving average squeeze going on which can be a great spring board to a fresh highs or a floor which if broke will turn into a ceiling on future bounces. The low from Tuesday’s bounce shows a strong level of support on each Index. The range down to this level of support if the moving averages fail as support is a tradable range on the Index ETFs.

The SPX was the strongest of the three Indexes with NDX and RUT ranked second and third in the strength category. The Russell provided the best negative signal showing a Bearish Dark Cloud Candlestick Pattern on the daily chart Friday. If the 1180 level fails, then watch for a drop to just below 1160 where the 100 & 200 day SMA are squeezed together.

 


Summary of Monthly Closed Trades as of the January 9th:

The Margin Account us invested at 2.7% currently. IBD show the Market in Confirmed Uptrend, but I’m seeing a mixed Market that could go either way in the short term. It will continue to be a market of stocks for the patient trader.

cum 1-9-15

 

Total Booked Profits since Jan 1 when the timing service began: $820.50

_______________________________________________________________

Account Returns for 2014—Each account is now reset to $100K to begin 2015!
Margin Account: Up Net 28.1% YTD; Gross Up = 30.9% (no commissions costs)
IRA Account: Up Net 55.4% YTD; Gross Up = 57.3% (no commissions costs)

For those just joining Active Trend Trading, the reason for the difference between the Margin and IRA account returns is because the Margin account up until June of this year was used as a test account for various strategies. On June 1st we have only made trades using the ATTS system in this account along with a demonstration trade with TSLA. This account is up 15.1% net since June 1, 2014.

Active Trend Trading’s Yearly Objectives:
– Yearly Return of 40%
– 60% Winning Trades
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/

Updated at the beginning of each month.


 

Outs & Ins:   Five stocks made a debut on the IBD 50 list this weekend. Each of these has been on the list in past years and none are at a buy point with the exception of ATHM which appears to be building a base and may launch another assault on the past high above $52. FL is in a trading range and LAD is a low volume addition. Remember that the stocks on the IBD 50 tend to run up during the first few weeks of the year then correct to a new low and then often put in their stronger move later in the year between April and August.

Watch for great entry action points and don’t chase stocks that are extended!

out-in 1-9


 

Comments and opinions written below this line of text may be provocative and only obliquely related to trading. Some may find these “Off the Wall” comments challenging to their outlook on life. I will not post any comments made on subject matter below this line, so if you disagree blast away.

OFF THE WALL

wallstreetOff the Wall:   “My thoughts and prayers go out to the victims of the Radical Terrorist who attacked a satirical newspaper in the name of Islam this past week in Paris. Today there was a march of solidarity between countries that recognize and call out the evil that is coming from these extremist. France, Germany, Great Britain, Israel, Jordon, Egypt and many other Mid-Eastern Countries sent either the top person in their governments to march arm-and-arm. It was a very moving picture to see the top dignitaries from so many nations there and it was very sad to see that the US only sent our ambassador to the march.


I think CNN’s Jake Tapper captured the moment best when he noted that Jordan, a close Muslim ally of the US, was represented by its king.


“I don’t mean this as a criticism of the Obama administration, but as an American, I do wish that we were better represented in this beautiful procession of world leaders,” Tapper was quoted as saying.


I mean I do understand why the US was so poorly represented, after all tomorrow the San Antonio Spurs are due at the White House and schedules must be maintained!


 

Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at dww@activetrendtrading.com or leave a post on the website. Thanks!

 

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