Regarding Trading Positions and Long Term / Macro Outlook

I was asked a question by Maizy about my current long position (since 113.81 on the SPY Aug 23 as stated in this post) and my recent calls for the continuation of this cyclical bull market (see Yet another reason why I don't think this cyclical bull is over and Update on Long Term Projection). Is my long position because of these stances?

The answer (perhaps surprisingly) is: No.

The current long position that I have been discussing is as a result of my 60-minute Cycle Chart from my Trend system. It is a mechanical system and so the long position was established because I got a positive signal. This is 100% independent of macro analysis. When my signal goes into sell mode, I sell and go short, again independent of any macro analysis. This is a mechanical system looking for couple week to couple month long swing trades.

[I am making a distinction here between my trading account (which is what I discuss on this blog) and my investing account (which is largely not in general equities)]

So the reason why I have been discussing the results of the system on the regular posts (I normally just update it on my Trend System Page without announcement) is because I got a very strong breakdown signal when a lot of people were calling for bottoms: see here

And I got a very strong buy signal here (which got reversed in a few days) and again here (which is the most recent signal). Again I saw a lot of people calling for a large breakdown (despite the oversold levels) and my trend system was saying differently. So I thought it was of benefit to anybody reading this blog to give a different view.

Those are mechanical signals that have been pretty good recently at finding the trend and picking turning points.

My point in being contrarian on the macro (and discussing it on the blog recently) is because of the overwhelming bearishness (like in May 2010) and the fact that I think people are expecting another 2008 type event, even though the macro (IMO) does not support that at this time. I think there still continues to be evidence that the cyclical bull is not done.

So was this 'the' bottom before the next major leg up of this cyclical bull (assuming I am even remotely right)? Maybe. ... Maybe not.

But when I look at the market, and the drivers (both positive and negative), I think at 1130 on the SPX (which is where my last buy was issued, and where I happen to think a strong turning point is forming), there is much more upside risk than downside risk on a time horizon of 1-2 years.

That was the ultimate point of the last few posts.

So could we revisit 1100 again before the next run? Perhaps. ZimZeb and I have been discussing this, and here are my thoughts: see here and this chart in particular.

But that is just a guess.

I will let my cycle chart let me know where the tops and bottoms really are.

So I have:

1. Rough expectations based on the macro

2. A 'gut-feeling' that either the low is in, or if we re-test it won't be a significantly lower low but will display daily divergence (I like the PPO better than the MACD, as discussed here)

3. A mechanical system to keep me honest about trends and turning points in case I start to 'see' my 'expectations' (which is never healthy for your trading account value).

And yes, I am in the 'secular bear is not over' camp, but I am most definitely *not* in the 'P3' camp.

I think this cyclical bull has not yet run its course, and I am in no hurry to try to short 'the' top. My counts and trend system called the May 2 turn, and I was short while everybody else was counting a Minor 4 triangle and looking for the 5th wave up. They were all seeing what they wanted and I was trading reality. This is another reason why I never let my long term thoughts and expectations interfere with my trades and what I am seeing on a short term horizon.

My expectations are there like a compass. But a compass gives you general directional information, it doesn't tell you when you need to make an abrupt turn. You need a map for that. My trading system is my map. (Because sometimes the compass gets affected by 'unexpected' magnetic anomalies) :)

Every trader needs to find some way to keep themselves honest. That is what I built my trading system for. So that I never get too carried away with my 'expectations'.