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“Veritas Nunquam Perit”- “The Truth Never Perishes” Seneca (the younger)
There is only one side to the market, and that’s the right side. Jesse L. Livermore
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-91%
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Primary Trend: DOWN
Intermediate Term: ~ Seven Sentinels Downtrend, 8-02-19, SPX 2933
LOLR Trend: ~ Downtrend – 10 AM, 7-30-19 SPX 3011
2018 Tracking +58% versus SPX -6% Outperformed SPX By +64%
2019 Tracking Valuation 2,365,777 Versus SPX +15% YTD
Trades: BOT 7% TZA
Trading Position: 19% SPXU, 36% SQQQ, 26% TZA, 12% TVIX, 7% cash
Stops: SPXU 24.88, SQQQ 30.38, TZA 42.08, TVIX 13.68
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ALL TIMES EASTERN
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Friday 4:00 CLOSE:
SS LOLR STS
Down Down Down
0/7 4/3 1/6
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Today we’ll reveal a magnificent secret that is capable of catapulting traders who grasp it into the top one percent of all stock market participants world-wide. Hyperbole? We don’t believe so. Read on:
Less than one percent of all traders, investors, and even Fund Managers understand the most powerful trading concept on Earth. Period. Those who have been with us for years do. For those who are new, we expect that you will after studying this article, understand the importance of this truth. Most will keep it as a fundamental part of their trading tool kit for the rest of their lives.
External follows internal.
This principle is the organizing principle of this universe into which we’ve each been born. It is as accurate of the most trivial matters as it is of those of vast importance to humankind.
Exhaling follows inhaling. A sneeze comes from irritation of the nasal passages. An illness develops from the proliferation of an ingested virus. A volcano results as a consequence of the build-up of gasses below the surface of our planet. A tsunami occurs from a powerful earthquake. Birth (yours and mine) followed our mothers’ pregnancies. Even our very universe is believed to be evolving and expanding from a “big bang” billions of years ago.
When we observe the internal, we can then anticipate the external manifestation. Full stop. There is no more powerful trading axiom in existence.
For markets, the quintessential measure of “this internal force” is market breadth – net advances or net declines at any given moment. Four of the Seven Sentinels use breadth to define the Trend – the Line of Least Resistance – of the stock market. They do so with the use of moving averages of the McClellan Oscillator (NYMO and NAMO) and the McClellan Summation Indices (NYSI and NASI).
The primary measure of “the external reaction” is the Price.
Thus “external follows internal” in this context becomes Price follows breadth. We can be even more specific and say that SPX follows the McClellan Oscillator. We’ll display eighty-nine years of examples of this phenomenon below.
We’ve written many articles about this powerful trading concept and plan at some point ahead to write a book on this subject. But for now, suffice it for this article to show several prime examples of how breadth (internal) led Price (DJIA or SPX) over the last 89 years. The ways this principle manifests are myriad- the following is just one such example.
In the following, we lined up on each chart the internal and the external. The McClellan Oscillator indicates “the internal,” and DJIA or SPX “the external.”
Following these images, we’ll explain the profoundly potent application of the above principle as conveyed to you and me in each example- including right now on August 11, 2019!
October 1929:
October 1987:
September 2000:
July 2007:
October 2007
February 2018
October 2018
The reader has by now picked up the pattern in the above seven charts. The McClellan Oscillator reached a low negative number and was confirmed by Price -which also reached lows for the move at the dotted vertical line.
So far, so good. Now comes the critical part.
The new low in NYMO (internal) is and always will be followed by a lower DJIA or SPX- the external. New lows in Price were inevitable, and thus the serious trader stayed short the market and rode through the anticipated decline. Period.
NYMO leads/SPX follows. NYMO ultimately reaches it’s the lowest reading, and then a LOWER DJIA/SPX is YET TO BE PRODUCED. Often, like in 1929, 1987, 2000, October 2007, this initial low point for NYMO is to be followed, ultimately, by a total collapse of prices.
Breadth leads. Price follows.
Understanding that, what does this tell us about SPX in the days and weeks ahead?
August 2019:
To be clear, on August 5, 2019, NYMO closed at -78.92 while SPX closed at 2844.74. Each made a low for this move after the highest SPX close in history – 3025.86 on July 26, 2019. There is yet to be a new SPX low for this move that is NOT confirmed by a further low NYMO reading – thus, the SPX decline will continue. That is inevitable.
The little-understood trading principle that external FOLLOWS internal tells us that there will yet be a lower SPX low. Examine the first seven charts above. Those were not selected out to support a theory. The law is universal. If one examines this relationship over the last 100 years for every powerful NYMO slide off off the set up we had in every one of the above cases- one finds this relationship to be axiomatic. We know this to be true because we’ve done so.
This concept tells us that the current downtrend is ongoing and will continue. It will do so until at least we get new SPX lows with higher NYMO reading than we saw on August 5. As stated above, the new low in NYMO (internal) is followed by a lower DJIA or SPX- the external. New lows in price ware inevitable thus, we stay short the market as we ride through the anticipated decline. Period.
That SPX low will likely be far lower and later than most currently think. For that, we’ll use, as always, the Sentinels Trend Measures to call the next turn.
The principle discussed here has thousands of applications for serious traders. The above application was just one.
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Here is a quick overview of the Monthly (1st image), Weekly (2nd), Daily (3rd), and LOLR (4th) Sentinels:
All trends are down. We cannot know what headlines will emerge between now and the close of markets Monday. Thus we will not try to predict how markets may react in hours ahead. But we DO know that the Monthly, Weekly, Daily, and LOLR Sentinels remain in downtrends. Accordingly, we continue 86% short.
We will update our Seven Sentinels, LOLR, and STS tomorrow every time a significant or actionable change occurs in real-time. We’ll publish signals as they materialize and tracking trades, including time and Price, as they arise- and advise members on Twitter as these occur in real-time.
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