March 25, 2018 – The Line Of Least Resistance

Perhaps the greatest trader of all time, Jesse Livermore, said, “There isn’t a bull side or a bear side to the market. There is only the right side.” His point was that if you are on the wrong side of the market, a loss is not a risk, it’s a certainty. And if you are on the right side, profits will accumulate on their own. The trend is your friend. It is not possible to overstate that point.

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“If you can keep your head when all about you are losing theirs…Yours is the Earth and everything that’s in it” Rudyard Kipling

 “Veritas Nunquam Perit”- “The Truth Never Perishes” Seneca (the younger)

“It was never my thinking that made big money for me. It always was my sitting. Got that? My sitting tight!” J. L. Livermore

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Primary Trend: Bull Market

Intermediate Term: ~ Seven Sentinels Uptrend 5/2, 4-6-18, SPX 2604

Tracking Account Valuation 1,624,752 +17% YTD 2018 Vs. SPX +-0.2% YTD – Outperforming SPX By +17%

~ STS 1/6 Uptrend 4-6-18/10 AM- SPX 2638 Position: 30% SVXY, 70% Cash

Today Stopped on TNA, TQQQ

STOPS: SVXY 12.09

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Decades ago it occurred to me that Livermore was spot on: there really is only one thing that matters to a trader, and that is what Livermore called the line of least resistance- the current direction of the market. In simplest terms, a trader’s job is nothing more or less than to be long when prices are advancing, out or short when they are declining. Period. If you have this aspect right, then everything else becomes secondary, assuming, of course, that you employ effective money management.

Early on in my trading career, this philosophy led me to intense study and identification of the controlling secular, cyclical and intermediate-term market trends and then years later to the development of the Seven Sentinels themselves. The concept of the Seven Sentinels is my own and is based on an elementary but universal truth that I’ve observed in nature, everywhere I look since I was a child – the principle that internal proceeds external.

At SevenSentinels.com track the line of least resistance in a number timeframes, and the LOTR then determines whether we are long (when LOTR up) or short (when it is down) and by how much, depending on the interaction of SS and STS.

The Seven Sentinels Signal: (note that we got a new SELL on Friday, March 23):

The 2-hour Short Term Sentinels (STS) has been on SELL since last Tuesday (March 20) at 10 AM.

We trade the bullish 3X leveraged ETFs (we’ll call these “LONG ETFs”) or the bearish 3X leveraged inverse ETFs (we’ll call these “Short ETFs”) at any given time depending on the Sentinels. That’s both the Seven Sentinels (SS) and the Short Term Sentinels (STS), and we use the following rules. We always trade in the direction of the STS– or of course not at all- and we follow these rules:

When STS is in Uptrend, we can ONLY be in cash or LONG ETFs or a combination thereof

When STS is in Downtrend, we can ONLY be in cash or SHORT ETFs or a combination thereof

When STS Up and SS is in an uptrend, we can take our LONG position to a maximum of 100%

When STS Up and SS is in a downtrend, we can take our LONG position to a maximum of 50%

When STS Down and SS is in an uptrend, we can take our SHORT position to a maximum of 50%

When STS Down and SS is in a downtrend, we can take our LONG position to a maximum of 100%

Put another way; we trade in the direction of the STS and when SS is in a downtrend we limit our LONG exposure to 50% but when SS is an uptrend we are allowed to take exposure to as much as 100%.

We trade in the direction of the STS, and when SS is in an uptrend we limit our SHORT exposure to 50%, but when SS is in a downtrend we are allowed take exposure to as much as 100%.

Friday’s Seven Sentinels SELL Signal confirmed this year’s second STS SELL Signal that had taken us into the short side of markets again starting at 10 AM on March 19. We built our short position to about 50% following that signal trading long the UDOW, SQQQ, SPXU leveraged inverse ETFs and, naturally, in this robust decline, we’ve seen our equity move sharply higher- but this is just the beginning. Markets found another gear Friday as they moved to a Seven Sentinels SELL Signal and we took our short position to about 75% short so far, adding in leveraged inverse TZA ETFs.

Friday SS Sell Signal is highly significant in that it puts the SS and STS trend signals in alignment and, of course, it follows an extended period of market topping via records we’ve been citing for many months. And for months we had indicated here that we looked for the next IT downtrend to present one of (or perhaps THE) greatest trading opportunity of this decade.

That time has arrived, and we will state in the absolute strongest terms we possibly can: Now is not the time for indecision or inaction. The current market break offers the opportunity of the decade, and we hope that our subscribers will take full advantage! Trade with us or trade on your own, but we implore those who read this to understand the significance of the trend underway and the primary trend change that will develop in months ahead.

{Update April 21, 2018: Below is closing position April 20, 2018:} We look for 2018 to be the most profitable trading year of this decade.