Lots of Cockroaches

My old friend and market forecaster Dennis Gartman says that in markets there is never a single cockroach. They always come a dozen at a time if at all. A bit like London taxis. This was the case in the week gone by and I will allow your weekend papers to discuss these insects in detail. China, Greece, US rates and “lead in the sky” on the borders of Korea, all mixed, to produce a scary Friday afternoon. I suspect that the holidays may have added to the chaos with traders squaring off in advance of the long weekends on both sides of the pond.

On a weekly chart the VectorVest Composite has fallen to support as defined by a trendline on the weekly chart starting from a low in May 2012. This is a very important level which is just a tad south of the 62% retracement of the range from the low last October to the high of April this year. The chart is shown below.

VectorVest gave plenty of warning of the move with the most conservative timing system known as a Confirmed Call printing a Down signal at the end of July 2015. This signal (as I say at all the talks) needs to be taken very seriously. The Confirmed Calls can be overlaid on the Market Timing Graph of the Composite and of each and every share on the market by a mouse click. If you don’t know how to do this please call support at 0800 014 8974 in the UK and 0800 981 891 in SA. This is a vital skill. The confirmed UP signals are in the form of a Green arrow and the Down signals a similar red arrow. In essence when the market is giving a Green arrow I want to be in the market and building positions. When Red as now I want to be very careful. At the talks I tell the audience that there are four things to do when you see a Confirmed Down signal.

1. Don’t buy any more.
2. Watch the shares you have and monitor the stops carefully.
3. Weed the garden. Get rid of the weakest or those where the fundamentals have deteriorated since purchase. Raise cash for the next buying signal which will come soon.
4. Play a little “Bob Marley”. Don’t worry about a thing “Every little thing going to be alright”

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In addition to the Confirmed Down at the end of July the short term trend of Primary Wave gave the last sell signal on August 11^th. On this date both the Primary Wave and the underlying trend were down. Two days after this the Color Guard printed a red light in the price column indicating that the Composite was down both day over day and week over week. Also on that date there was an asterisk within the red light. This means that the red light sell signal was confirmed by the RT Kicker timing system. In other words there was a sell signal from price which was confirmed by momentum. In the background VectorVest applies two moving averages to the RT of the Composite. When the short average is below the longer the RT is trending down. When you see the red light and the asterisk together and within a Confirmed Down signal, invariably there is more downside and it makes a great shorting signal.

As you will have seen the Color Guard gave another Red Light sell on August 18^th which was confirmed by the RT Kicker and that preceded the strong move down over the last 3 trading days.

Last week I reported that I had bought a 786 retracement of the last range on both the Ft100 and the Dax. Both positions bounced well at these levels and I took a few points on each with half the position. I was stopped at entry on the second half on both positions. The pattern used for the entry was a bullish Gartley and it’s a high probability signal which in this case failed. Once it failed the down move was highly probable. Once the July low was broken, as I have noted here before, the strong move south we witnessed over last sessions was certain. My hope of another wave up was long gone. As I have said often, the Elliott patterns are subjective and ego based, whilst the trends on VectorVest are reality.

I traded the index (Dow cash) twice on Friday using a 5 minute chart and both trades were initiated at FIB levels. In the morning the Dow rose in a perfect rising wedge to a 786 of the last fall and started down again. In the afternoon after the US open the Dow gained in a bearish Gartley pattern to 618 of the last fall and then started down again. I didn’t get all of the moves but happy with my efforts. I use the Color Guard as my filter for intraday trades and NEVER long the market if the Primary Wave is Down. Certainly NEVER long the market intraday if there are RED lights in the Color Guard that are being confirmed by the RT Kicker.

In the stock market I am still holding the shares I spoke of in the last few reports here. They have held up reasonably well and are still well above their VectorVest calculated stops. As you know these were taken from a Confirmed Up signal on the 20^th of July which in hindsight was a poor signal.

In the US the VectorVest Composite is approaching a support trendline drawn on the weekly chart from the lows in 2009. The 786 retracement of the last daily range from the low of October last year to the high of April this year is calling the Composite lower on Monday morning. A similar situation is seen on the Dow cash index which closed at 16459 while the 786 level of the range from October last to the highs of 2015 is at 16380. The 786 and the long term trendline on the VVUS Composite are showing a confluence at a single level. The MTI of the US market is at 0.6. The research staff at VectorVest regard this level as an oversold level that invariably precedes a bounce or a change in trend.

It’s not all bad news with the European PMI reporting a sound number and an advance by Germany in particular. The US and the UK are growing and growing enough so as both countries are contemplating an increase in interest rates. I have no doubt that China will respond soon with some form of stimulu

Watch for a shakeout first thing on Monday and then a bounce. I will do nothing until the Color Guard on VectorVest shows me some green.

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David Paul

August 22^nd 2015