Trend Cube Update
by, 04-15-2012 at 09:29 PM (1210 Views)
My Uptrend Trend Cube, found on the Message Board, Members Account Talk, debuted in March, 2012. It is meant to view market conditions and aid trading decisions at a glance. Today’s trend cube as well as a brief explanation for each cell is shown. Daily trend cube updates will be posted on my thread in the Members Account Talk area.
The Uptrend Trend Cube is a trend based system for the Thrift Savings Plan F, C, S and I funds, in three timeframes; days-weeks, weeks-months, and weeks-years. The signals are generated in the daily timeframes for the short and intermediate term trends and weekly timeframes for the long term trends. The time periods for each trend period cannot be more specific, because they depend on price movement with time. These signals are on rows 2-4 and appear raised for ease of identification.
Gold, silver and oil are not used, because of their speculative nature, where they are sometimes correlated with equities price movements, but at other times they diverge.
The Practical Use section, explains how to use the trend cube. Since the Intermediate Term Trend is the preferred signal for bull markets, longer periods of market time to be invested would occur, contrasted to bear markets where the Short Term Trend should be followed. It is the author’s opinion that many TSP traders (including myself) tend to make too many trades, and at the wrong time and subsequently get whipsawed from a position. This system attempts to avoid that problem. This trend based system cannot anticipate large sudden drops, mostly unforeseen by technical analysis, sometimes referred to as the “black swan”.
This system is for educational and informative purposes only. The author is a physical scientist and student of markets, but not a financial advisor and makes no claims of returns, or applicability to an individual situation. Please consult a financial advisor before making trading decisions, as market positions can incur gains and losses.
Reading the Cube
The Uptrend Trend cube is in rows; left to right.
Row 1 The header row.
There are four conditions and colors; Buy & Hold (green), Sell (red) and go to G or F, Potential Turn Up (orange) and Potential Turn Down (yellow). The orange and yellow can flip on and off in an indecisive range bound market in the short term timeframe and occasionally in the other timeframes.
Rows 2, 3, and 4
The left side cube identifies the trend time frame: Short Term (days-weeks), Intermediate Term (weeks-months) and Long Term (weeks to years). A short term or daily trend can be on sell, while an intermediate trend and long term trend can be on a buy. The TSP funds, F, C, S and I, and color scheme are shown to the right for each trend timeframe. They are slightly raised for ease of identification.
Rows 5 and 6.
Selected general market information is shown for an “at a glance” look to aid in interpretation of the TSP trend cube signals.
Breadth This includes daily summary statistics for the NYSE and NASDAQ including the Advance/Decline Line, McClellan Oscillator, Summation Indexes, Bullish Percent for SPX and Composite, Up/Down Volume, and Arms Index. Breadth is somewhat of a lagging indicator.
Momentum Market direction in the short term timeframe determined for SP 500 Index, from MACD, Stochastic, and Williams % R.
Strength Determined from selected breadth data, and put in four classes: 1) Weak, <20, 2) Moderate, 20–70, 3) Strong, 70-120, and 4) Very Strong >120
Money Flow Determined for SP 500 Index. Method uses a combination of the Chaikin Money Flow and Money Flow Index. Liquidity displayed as one of five classes: 1) Excess, 2) Expanding, 3) Balanced, 4) Contracting, and 5) Scarce. Except for major market tops and bottoms, class 1 and 5 are not used.
US Dollar Short term trend determined from ticker symbols UUP and $USD.
Date Developed from previous day closing data, and in effect for day shown. May occasionally use opening day data in first 90 minutes in close calls for an affected cell(s), where, in all probability, the market move is sufficient to keep any new TSP Trend Cube color change in effect.
VIX Volatility Index determined for SP 500 Index. Conditions are: Bullish Extreme, Trending, or Bearish Extreme.
Contrarian Sentiment Calculation that goes against the herd, determined from options data and another method.
SPX Path Potential path, determined from Elliot wave theory, and support and resistance levels. The path is subject to change when different wave forms develop. The target range is for Intermediate waves and not the minor or minute wave fluctuations of a few to about 40 points. This is meant to correspond with the Intermediate Term Trend trade.
Risk On/Risk Off Determined from emini SP 500 futures and currencies. This is determined for the Short Term Trend timeframe.
Since the Thrift Savings Plan allows only 2 inter-fund transfers (IFT’s) each month, careful management of available transfers is required. In bull markets the Intermediate Term Trend (ITT) is the preferred signal, and back testing has produced the best results. For the purposes of this system, a bull market is defined as a conditions where the 50 exponential moving average (ema) is above the 200 (ema) in the daily timeframe. When the market is falling and sustained, the Short Term Trend (STT) and if severe enough, then the Intermediate Term Trend (ITT) will turn to a Sell (red) condition. It is very important to take a buy position, as soon the ITT signal trips to orange or green, after being red. When this occurs, the Short Term Trend (STT) will go to a Potential Turn Up (orange) or Buy & Hold (green) condition on a prior day(s). An earlier entry point is possible following the STT, but is higher risk and subject to whipsaws and a potential losing position. However, if successful, greater capture of the move is possible in what I am terming a “piggyback”, if and only if the ITT also confirms and goes to a Potential Turn Up (orange) or Buy & Hold (green) condition. On average, there are only about 5-7 ITT signals each year. (In 2011 there were 5 signals, and in 2012 there has been a carry-over signal, but no new signal yet).
In a bear market, defined using the aforementioned 50/200 ema cross, the Intermediate Term Trend will not work (unless extremely oversold). Many bear market rallies do not exceed eight trading days, where the bulk of the move is swift. Therefore, an entry is made when the Short Term Trend turns orange or green, after all timeframes have been red. Entry and exit points are extremely tricky, and the signals have been adjusted to be more sensitive. Some trader’s front run as the market is bottoming, but may result in whipsaws and a possible losing position.