By   Tue, May 11, 2010

If you are a new subscriber and if you are a member of Fearless Forecasters at Trader's Talk, you may use coupon code "FF2012" {without the quotes} and you will get the first TWO months for just $47.50 as an introductory special.

To subscribe, please click here, and you will be guided into the registration process.

SevenSentinels.com is available to subscribing members on a monthly basis at $75 per month, or yearly for $750. 

To subscribe, please click here, and you will be guided into the registration process. When you subscribe, you acknowledge that you have read and agree to comply with the terms of service, and specifically that you agree that the materials provided in this service, including graphic images, buttons, and text, may not be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, without the prior written permission.

Please address subscription questions to SevenSentinels@aol.com. Many thanks and good trading! 

Charts courtesy of StockCharts.com 

By IYB   Mon, Jan 04, 2010

SevenSentinels.com is in a class by itself with 110%+ since June 19, 2010! We know of no other timing service that can even begin to match that record with real time tracking of trading results. Period.

...and if you click PERFORMANCE you will be linked to linked to a summary of our tracking account at Updown.com. 

--------------------------------------------

As we lay out our market analysis, we then explain how we are directly applying that analysis in the market, in real time, via real trades and we constantly update our current position in the intra day reports. Performance can be displayed over a week, month, three months, or longer, either in static form or on a comparative basis versus various equity markets and/or any other UpDown participants.

As can be seen, we have outperformed the S&P 500 by well over 100%, a record that is matched by no other timing services of which we are aware - at least none with real time open tracking. This is no small achievement. We hope that this makes it clear that the concepts detailed here produce very real results in real dollars. This trading account is for demonstration purposes only and is displayed to give the reader some appreciation for what the SevenSentinels.com advantage means to serious traders in real time with contemporaneous trades based on the trends and ideas identified here. 

We do not warrant, imply or in any other way want to suggest that your performance will match ours. How you trade is a very individual thing, and how you use information provided here is up to you. We are simply showing what we have achieved using the tools and analysis we are discussing here several times each morning, afternoon, and evening. We will note, of course, that past results do not guarantee future performance.

Your trading style will likely vary greatly from ours - as we tend to manage our accounts aggressively. We fully realize that most readers will manage their accounts in a more passive manner, perhaps employing less leverage or different instruments. We don't expect readers to take every one of our individual trades. We do believe, however, that the trading tools provided here will provide a very substantial competitive advantage to followers, regardless of their individual styles, so long, of course, as they employ common sense and stops as well as other sensible and necessary money management techniques.

We hasten to remind you, again, that all of your decisions and results are your own. We are not your investment advisor, and we are not responsible for anyone's results but our own. If you trade, you do so at your own risk.

By   Mon, May 24, 2010

...regarding the usefulness of this service for your purposes. If you have questions about how we present our analysis and ideas, please let us know. If there are changes you'd like to see, let us know that. In general, if there is anything that you'd like explained, amplified, modified, etc, we are open to your inquiries and ideas. We will continue to make the calls as we see them, drawing on our unique methods and four decades of experience. But if there are additional elements of information you think would be generally helpful to users of this service or if clarification is needed in any particular aspects, we welcome your input.

Non subscribers are also invited to send their questions or comments if they would wish to do so.

Please email your comments and/or questions to sevensentinels@aol.com

By   Sat, Apr 03, 2010

The most powerful trading concept on Earth. Period.

The Most Powerful Trading Concept on Earth. Period.

Chart courtesy of StockCharts.com

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, 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. That concept cannot be overstated. If you have come to recognize this simple but profound principle, then you've come to the right place.

By now, you've probably reviewed dozens or even hundreds of market timing services of various kinds. You may have noticed that virtually every one has this fatal weakness: each tries to anticipate the markets next move based on the use of a dizzying array of technical or fundamental indicators. Occasionally they may even get it exactly right, but even when they do, usually the critical timing is off and this kills trading performance. More often the market completely ignores even the best of indicators or analysis - indicators that have "seemed to work great in the past". These "market timers" get so caught up in trying to anticipate the next move that they "forget" to identify the current prevailing trend- the dominating line of least resistance here and now - which is truly all that matters to a stock investor or trader. That's precisely where we are very different.

The concept of the Seven Sentinels is my own and is based on a very simple but universal truth that I've observed in nature, everywhere I look, since I was a child - the principle that external follows internal. The Seven Sentinels are internal measures of the pressure produced by current prevailing money flow into or out of the market. External price movement follows this pressure as a very natural process, just as birth follows pregnancy, exhaling follows inhaling, a volcano follows the build up of gases below the Earth's surface or a Tsunami follows a 10.0 earthquake. Simple, yet perhaps the single most powerful trader's edge in existence. Period.

We invite you to visit {"IYB's Seven"at} Investors University and Fearless Forecasters at Traders-Talk.com for unbiased analytical evaluation of the Seven Sentinels by active professional traders. The Seven Sentinels have been accurately calling key market turns since their introduction on that site in 2004 and are very often the number one subject there.

SevenSentinels.com has just one overriding purpose: to keep you focused on the prevailing trend -the right side, regardless of the market's deception and to continually provide you the perspective and confidence to be right and sit tight. We keep providing that perspective every day in up markets and down, trend days and countertrend days, regardless of the news hype and market (over) reactions, and regardless of your trading style which will undoubtedly vary greatly from our demo trading account tracked here. Our singular mission is to keep you on the right side of the current trend. Period.

We humbly invite you to discover for yourself whether the SevenSentinels.com will help you begin to experience world class market understanding and trading performance. We bid you the very best of success and good trading.   

By   Sun, Apr 04, 2010

Market Trends Explained

SevenSentinels.com

Context is Everything

Cycles {or trends if you'd prefer} are the primary organizing factor within equities markets price movement over time. When you look at a chart of the Dow Jones Industrial Average or the Standard and Poor's 500 Index, for example, price movements appear random. The market goes up; the market goes down; the market goes sideways.... and some will tell you that you cannot possibly know what it is likely to do next. But they are wrong. Market movements aren't random. Markets are organized, they are regular, they are repeating. And the primary organizing elements are called cycles. You can learn to appreciate how these cycles run and repeat, and most importantly, you can learn to go with, rather than fight, these cycles.

Round, like a circle in a spiral
Like a wheel within a wheel
Never ending or beginning 
On an ever spinning wheel....

Here, for example you can see just one simple organizing element- the very strong tendency for the market to bottom out every four years, in the non-presidential election year in the US. In ten of last 15  four year periods, the four year time span has nearly precisely pinpointed the cycle bottom :

Chart courtesy of DecisionPoint.com

Below we see the Dow Jones Industrial Average for the past 110 years, and if you look closely, you can identify the 20-year secular bull and bear phases:

And here we can see the cyclical bull and bear markets of the past 15 years:

And looking at the 8 and 34 for week moving averages, the crosses of the shorter one above and below the longer moving average identify the onset of the cyclical bull and bear markets:

We shall look at these organizing factors and demystify this seemingly "random" set of market moves, so that you, the trader, can make sense of the markets' regular and repeating trends. Once you understand the market in terms of its various cycles and learn to trade with the trend, you will experience a "quantum leap" in trading performance.

The concept of the Seven Sentinels is my own and is based on a very simple but universal principle that I've observed in nature, everywhere I look, since I was a child - and that principle is that internal proceeds external. The Seven Sentinels are internal measures of building pressure and impending market thrust. External price movement follows this building pressure, just as exhaling follows inhaling, or a volcano follows the build up of gases below the Earths surface, or a Tsunami follows a major earthquake. 

Below you can see the onset of short term trends identified by Seven Sentinel Buy and Sell Signals:

Though analysts have identified longer term market and economic cycles, some lasting hundreds and even thousands of years, as well as shorter term trends that one could track down to seconds if he wished, the time cycles that are most important to a serious trader are the following:

 1.    Super Cycle, AKA the Secular Trend, AKA the "20-year" cycle

2.    Primary Cycle, AKA the Bull Market/Bear Market Cycle, AKA the "4-year cycles

3.    Intermediate Term Cycle, AKA "prevailing trend" typically several months.
4.    The Short Term Cycle which usually runs a few days to weeks
5.    The Very Short Term Cycle, usually minutes or hours

Of these, the one that has the most influence on trading success, in my opinion, is Number 3- the Intermediate Term Trend. The Seven Sentinels were developed precisely for the purpose of identifying the Intermediate Term Trend turning points, and keeping the trader in synch with the "prevailing trend". Once that is accomplished, trading success becomes relatively assured, assuming, of course, that the trader employs effective self control, discipline, and money management techniques which are talked about elsewhere on this site.

Market Trends Explained

SevenSentinels.com

Context is Everything

Cycles {or trends if you'd prefer} are the primary organizing factor within equities markets price movement over time. When you look at a chart of the Dow Jones Industrial Average or the Standard and Poor's 500 Index, for example, price movements appear random. The market goes up; the market goes down; the market goes sideways.... and some will tell you that you cannot possibly know what it is likely to do next. But they are wrong. Market movements aren't random. Markets are organized, they are regular, they are repeating. And the primary organizing elements are called cycles. You can learn to appreciate how these cycles run and repeat, and most importantly, you can learn to go with, rather than fight, these cycles.

Round, like a circle in a spiral
Like a wheel within a wheel
Never ending or beginning 
On an ever spinning wheel....

Here, for example you can see just one simple organizing element- the very strong tendency for the market to bottom out every four years, in the non-presidential election year in the US. In ten of last 15  four year periods, the four year time span has nearly precisely pinpointed the cycle bottom :

Chart courtesy of DecisionPoint.com

Below we see the Dow Jones Industrial Average for the past 110 years, and if you look closely, you can identify the 20-year secular bull and bear phases:

And here we can see the cyclical bull and bear markets of the past 15 years:

And looking at the 8 and 34 for week moving averages, the crosses of the shorter one above and below the longer moving average identify the onset of the cyclical bull and bear markets:

We shall look at these organizing factors and demystify this seemingly "random" set of market moves, so that you, the trader, can make sense of the markets' regular and repeating trends. Once you understand the market in terms of its various cycles and learn to trade with the trend, you will experience a "quantum leap" in trading performance.

The concept of the Seven Sentinels is my own and is based on a very simple but universal principle that I've observed in nature, everywhere I look, since I was a child - and that principle is that internal proceeds external. The Seven Sentinels are internal measures of building pressure and impending market thrust. External price movement follows this building pressure, just as exhaling follows inhaling, or a volcano follows the build up of gases below the Earths surface, or a Tsunami follows a major earthquake. 

Below you can see the onset of short term trends identified by Seven Sentinel Buy and Sell Signals:

Though analysts have identified longer term market and economic cycles, some lasting hundreds and even thousands of years, as well as shorter term trends that one could track down to seconds if he wished, the time cycles that are most important to a serious trader are the following:

 1.    Super Cycle, AKA the Secular Trend, AKA the "20-year" cycle

2.    Primary Cycle, AKA the Bull Market/Bear Market Cycle, AKA the "4-year cycles

3.    Intermediate Term Cycle, AKA "prevailing trend" typically several months.
4.    The Short Term Cycle which usually runs a few days to weeks
5.    The Very Short Term Cycle, usually minutes or hours

Of these, the one that has the most influence on trading success, in my opinion, is Number 3- the Intermediate Term Trend. The Seven Sentinels were developed precisely for the purpose of identifying the Intermediate Term Trend turning points, and keeping the trader in synch with the "prevailing trend". Once that is accomplished, trading success becomes relatively assured, assuming, of course, that the trader employs effective self control, discipline, and money management techniques which are talked about elsewhere on this site.

By   Sun, Apr 11, 2010

The 40-Year Cycle

Secular Trend

SevenSentinels.com
The "40-Year Cycle"

The Super Cycle, otherwise known as the Secular Trend is often called the "20-year cycle" (actually a 40-year cycle when taken peak to peak or trough to trough) because it defines the market environment for a whole generation of traders and investors, and tends to change roughly every 18-20 years from secular bull market to secular bear market, then back to secular bull again, ad infinitum.

Secular BULL markets are typically 18 (+ or - 3) year periods characterized by expanding valuations (P/E ratios, etc.), expanding public participation in equity markets, expanding speculation, and sharply rising prices. During a secular bull market, the entire Dow Jones Industrial Average or S&P500 will expand by as much as 10-15 fold or more. 1982 to 2000 was an excellent example of a secular bull market in all regards, as the Dow Jones Industrial Average expanded from the 700's to well over 10,000 in those 18 years.

Secular BEAR markets, by contrast, are periods of roughly the same length of time which are characterized by shrinking valuations, shrinking public participation, declining speculation, and range bound prices. The 1965 to 1982 secular bear market, for example, kept the Dow Jones Industrial Average range bound between roughly 500 and 1000 for that entire period as valuations, participation and speculation shrank markedly. The current secular bear market which began from the 2000 valuation peak clearly shares these characteristics, as even casual study will demonstrate.

Notice in the chart below 6 distinct secular cycles: 1909-1929 secular bull market (expanding), 1929-1945 secular bear (rangebound), 1945-1965 secular bull (expanding), 1965-1982 secular bear (rangebound). 1982-2000 secular bull (expanding), 2000-present secular bear (rangebound). We can expect that the current secular bear market, bound in the range of roughly DJ 6000-14000 to run until late in the next decade (2017+or-) at which time we can reasonably expect the onset of the next secular bull market which could take us another 15X+ higher to the area of 100,000 Dow Jones Industrial Average!

Chart courtesy of StockCharts.com

Why does any of this matter to a trader, particularly a "short term" trader? Precisely because context is everything! When one recognizes the current secular trend, he or she can then know how to expect the cyclical bull and bear cycles to behave. And that is important. Recognizing the current climate as a secular bear market, for example, the trader would have expected the the secular trend to stay rangebound, thus for the cyclical bull market cycle from 2003 to top somewhere in the vicinity of 1500 on S&P 500..... and he would have been RIGHT in 2007. "The crowd" labored under the delusion that SPX was on its way to 2500 or 3000 or perhaps much higher, and failed to get out of the way before the collapse of 2008. And most were very badly hurt. Likewise the trader who understands the secular trend in play would actually expect that this collapse is coming and would take it down at least into the vicinity of 800 if not lower. And his profits would have been spectacular had he traded that decline effectively. There was and will be in the future, a massive trading advantage in having that perspective. Context is everything. That advantage cannot be overstated.

By IYB   Sun, Apr 04, 2010

The Matrix, the Market and Andy Kaufman

"If you believe there's nothing up his sleeve, then nothing is cool"

If you haven't seen the Matrix film series, I highly recommend it, because it really is a powerful metaphor for the market. Lest I leave any doubt in this article, my point is that the market isthe Matrix, symbolically speaking. And the Matrix is the most elaborate deception ever conceived. Only those who see beyond this deception will truly be free.

The market operates on two levels. Level one is what seems true, very much like the Matrix, which is believed by the many. Level two is what is true, and this level is recognized by the few - and those few have become true masters of the market.

I have punctuated this piece with continual quotations from "The Matrix" series for sake of illustration.

MORPHEUS: "I AM TRYING TO FREE YOUR MIND NEO. BUT I CAN ONLY SHOW YOU THE DOOR. YOU ARE THE ONE THAT HAS TO WALK THROUGH IT...

Successful trading requires forgetting everything you thought you knew, and everything that seems logical - and appreciating the market for its purity and simplicity. Making that extraordinary leap of faith is not easy;  in fact it's not even possible for some, precisely because it is so unnatural. The market is not what it appears; and it has but one purpose, and that purpose is to deceive us. And its efficiency of purpose is a wonder to behold!

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.

When, very early on in my career, a successful veteran trader who had become my mentor stated over lunch one day that 'there has been more misinformation written about the stock market in the last 50 years, than about any other subject on this planet', I listened intently. 'Because it's such a popular subject, and half of what's written is wrong?' I asked. 'No', he replied, 'because 99.9% of what is written is based on superstition and myth.'

MORPHEUS: WHAT IS THE MATRIX? CONTROL. THE MATRIX IS A COMPUTER GENERATED DREAMWORLD BUILT TO KEEP US UNDER CONTROL.

Your job is look beyond this deception, and to FIND the 0.1% that is truth - those diamonds in the coalfield - and hang on to those gems for dear life.

MORPHEUS: "YOU ARE HERE BECAUSE YOU KNOW SOMETHING. WHAT YOU KNOW, YOU CAN'T EXPLAIN. YOU FELT IT YOUR ENTIRE LIFE. THERE IS SOMETHING WRONG WITH THE WORLD. YOU DON'T KNOW WHAT IT IS, BUT IT'S THERE, LIKE A SPLINTER IN YOUR MIND, DRIVING YOU MAD. IT'S THIS FEELING THAT HAS BROUGHT YOU TO ME. DO YOU KNOW WHAT I AM TALKING ABOUT?"

Could the old man be right, I pondered? How can this be? How could any serious investor base decisions on superstition? Why would people invest real dollars based on myth? Then the answers began to come. It is because they want to believe! Houdini made a career of giving people what they wanted - an illusion that they could believe!

MORPHEUS: "IF THE VIRTUAL REALITY APPARATUS, AS YOU CALLED IT, WAS WIRED TO ALL OF YOUR SENSES AND CONTROLLED THEM COMPLETELY, WOULD YOU BE ABLE TO TELL THE DIFFERENCE BETWEEN THE VIRTUAL WORLD AND THE REAL WORLD?"

NEO: "YOU MIGHT NOT. NO."

And Houdini was not alone. P.T. Barnum mastered the art of deception, and of course, illusion WAS Andy Kaufman - he succeeded in making people actually believe that they were seeing things that are far beyond most people's wildest imagination. Like the market AND the Matrix, he mastered manipulation of mass perception and belief. I am absolutely certain that each would deeply appreciate the film "The Matrix". And I am also certain that each had the instincts to become brilliant traders.

MORPHEUS: "ALL THEY NEEDED TO CONTROL THIS MIND WAS SOMETHING TO OCCUPY OUR MIND. AND THEY BUILT A PRISON OUT OF OUR PAST; WIRED IT TO OUR BRAIN AND TURNED US INTO SLAVES."

Much later in my life, Michael Stipe of R.E.M. wrote a song about this concept - Man on the Moon - using Andy Kaufman as his example. The words hit home with me in a major way - as I'm a huge fan of the 20th Century's greatest hoaxer who was so successful, incidentally, that to this day, many remained convinced that he had faked his own death - and they await his return! Think of it. Illusion so "real" that it became immortal! 

NEO: "THIS ISN'T REAL?"

Houdini, Barnum and Kaufman knew instinctively that people want to believe that which promises them money, fame, health, sex, mystery, love, excitement, immortality - you name it. Whether what they get is fact or fantasy is completely immaterial. What they seek is served up to them, and they are grateful.

CYPHER: {MARVELING AT THE SENSORY WORLD AND POINTING TO A MORSEL OF STEAK}: YOU KNOW, I KNOW THIS STEAK DOES NOT EXIST. I KNOW THAT WHEN I PUT IT IN MY MOUTH, THE MATRIX IS TELLING MY BRAIN THAT IT IS JUICY AND DELICIOUS. AFTER NINE YEARS, DO YOU KNOW WHAT I HAVE REALIZED? THAT IGNORANCE IS BLISS.

And so it is with most traders. They remain blissful in their world of illusion, oblivious to the fact that they are looking to charlatans for guidance, or depending on "indicators" and "systems" that bear no correlation whatsoever to trading success. Or worse yet, they believe what the market seems to be telling them, still blissfully unaware of the market's central purpose - deception. Real stock market success, I ultimately learned, comes only by following an unnatural path, not unlike what Neo learned from Morpheus. We must learn that 'what looks like it should work, doesn't'. What seems logical isn't. In short we must start by unlearning everything we thought we knew - because like the Matrix, or an Andy Kaufman performance, it is all illusion. If you believe, you are just begging for others to take your trading capital- or as Stipe says "nothing is cool".

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.  

Our ways are not the market's ways. What is real is unnatural. It took thousands of hours of pouring over the works, biographies and interviews with many of the greatest traders, to fully begin to absorb that truth. My overwhelming desire has been to discover what really makes money.

MORPHEUS: "YOU HAVE TO UNDERSTAND MOST OF THESE PEOPLE ARE NOT READY TO BE UNPLUGGED AND MANY OF THEM ARE SO INERT, SO HOPELESSLY DEPENDENT ON THE SYSTEM, THAT THEY WILL FIGHT ANY CHANGE."

The Matrix, the Market and Andy Kaufman

"Market is designed to fool most of the people most of the time" - J.L. Livermore

"If you believe there's nothing up his sleeve, then nothing is cool" - R.E.M.

------------------------------------------------------------

If you haven't seen the Matrix film series, I highly recommend it, because I believe it can be viewed as a powerful metaphor for the market. Lest I leave any doubt in this article, my point is that the market is the Matrix, symbolically speaking. And the Matrix is the most elaborate deception ever conceived. Only those who see beyond this deception will truly be free to profit from market trading.

The market operates on two levels. Level one is what seems true, very much like the Matrix, which is believed by the many. Level two is what is true, and this level is recognized by the few - and those few have become true masters of the market.

I have punctuated this piece with continual quotations from "The Matrix" series for sake of illustration.

MORPHEUS: "I AM TRYING TO FREE YOUR MIND NEO. BUT I CAN ONLY SHOW YOU THE DOOR. YOU ARE THE ONE THAT HAS TO WALK THROUGH IT...

Successful trading requires forgetting everything you thought you knew, and everything that seems logical - and appreciating the market for its purity and simplicity. Making that extraordinary leap of faith is not easy;  in fact it's not even possible for some, precisely because it is so unnatural. The market is not what it appears; and it has but one purpose, and that purpose is to deceive us. And its efficiency of purpose is a wonder to behold!

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.

When, very early on in my career, a successful veteran trader who had become my mentor stated over lunch one day that 'there has been more misinformation written about the stock market in the last 50 years, than about any other subject on this planet', I listened intently. 'Because it's such a popular subject, and half of what's written is wrong?' I asked. 'No', he replied, 'because 99.9% of what is written is based on superstition and myth.'

MORPHEUS: WHAT IS THE MATRIX? CONTROL. THE MATRIX IS A COMPUTER GENERATED DREAMWORLD BUILT TO KEEP US UNDER CONTROL.

Your job is look beyond this deception, and to FIND the 0.1% that is truth - those diamonds in the coalfield - and hang on to those gems for dear life.

MORPHEUS: "YOU ARE HERE BECAUSE YOU KNOW SOMETHING. WHAT YOU KNOW, YOU CAN'T EXPLAIN. YOU FELT IT YOUR ENTIRE LIFE. THERE IS SOMETHING WRONG WITH THE WORLD. YOU DON'T KNOW WHAT IT IS, BUT IT'S THERE, LIKE A SPLINTER IN YOUR MIND, DRIVING YOU MAD. IT'S THIS FEELING THAT HAS BROUGHT YOU TO ME. DO YOU KNOW WHAT I AM TALKING ABOUT?"

Could the old man be right, I pondered? How can this be? How could any serious investor base decisions on superstition? Why would people invest real dollars based on myth? Then the answers began to come. It is because they want to believe! Houdini made a career of giving people what they wanted - an illusion that they could believe!

MORPHEUS: "IF THE VIRTUAL REALITY APPARATUS, AS YOU CALLED IT, WAS WIRED TO ALL OF YOUR SENSES AND CONTROLLED THEM COMPLETELY, WOULD YOU BE ABLE TO TELL THE DIFFERENCE BETWEEN THE VIRTUAL WORLD AND THE REAL WORLD?"

NEO: "YOU MIGHT NOT. NO."

And Houdini was not alone. P.T. Barnum mastered the art of deception, and of course, illusion WAS Andy Kaufman - he succeeded in making people actually believe that they were seeing things that are far beyond most people's wildest imagination. Like the market AND the Matrix, he mastered manipulation of mass perception and belief. I am absolutely certain that each would deeply appreciate the film "The Matrix". And I am also certain that each had the instincts to become brilliant traders.

MORPHEUS: "ALL THEY NEEDED TO CONTROL THIS MIND WAS SOMETHING TO OCCUPY OUR MIND. AND THEY BUILT A PRISON OUT OF OUR PAST; WIRED IT TO OUR BRAIN AND TURNED US INTO SLAVES."

Much later in my life, Michael Stipe of R.E.M. wrote a song about this concept - Man on the Moon - using Andy Kaufman as his example. The words hit home with me in a major way - as I'm a huge fan of the 20th Century's greatest hoaxer who was so successful, incidentally, that to this day, many remained convinced that he had faked his own death - and they await his return! Think of it. Illusion so "real" that it became immortal! 

NEO: "THIS ISN'T REAL?"

Houdini, Barnum and Kaufman knew instinctively that people want to believe that which promises them money, fame, health, sex, mystery, love, excitement, immortality - you name it. Whether what they get is fact or fantasy is completely immaterial. What they seek is served up to them, and they are grateful.

CYPHER: {MARVELING AT THE SENSORY WORLD AND POINTING TO A MORSEL OF STEAK}: YOU KNOW, I KNOW THIS STEAK DOES NOT EXIST. I KNOW THAT WHEN I PUT IT IN MY MOUTH, THE MATRIX IS TELLING MY BRAIN THAT IT IS JUICY AND DELICIOUS. AFTER NINE YEARS, DO YOU KNOW WHAT I HAVE REALIZED? THAT IGNORANCE IS BLISS.

And so it is with most traders. They remain blissful in their world of illusion, oblivious to the fact that they are looking to charlatans for guidance, or depending on "indicators" and "systems" that bear no correlation whatsoever to trading success. Or worse yet, they believe what the market seems to be telling them, still blissfully unaware of the market's central purpose - deception. Real stock market success, I ultimately learned, comes only by following an unnatural path, not unlike what Neo learned from Morpheus. We must learn that 'what looks like it should work, doesn't'. What seems logical isn't. In short we must start by unlearning everything we thought we knew - because like the Matrix, or an Andy Kaufman performance, it is all illusion. If you believe, you are just begging for others to take your trading capital- or as Stipe says "nothing is cool".

MORPHEUS: "THE MATRIX IS A SYSTEM, NEO. THAT SYSTEM IS OUR ENEMY.  

Our ways are not the market's ways. What is real is unnatural. It took thousands of hours of pouring over the works, biographies and interviews with many of the greatest traders, to fully begin to absorb that truth. My overwhelming desire has been to discover what really makes money.

MORPHEUS: "YOU HAVE TO UNDERSTAND MOST OF THESE PEOPLE ARE NOT READY TO BE UNPLUGGED AND MANY OF THEM ARE SO INERT, SO HOPELESSLY DEPENDENT ON THE SYSTEM, THAT THEY WILL FIGHT ANY CHANGE."

By   Mon, Apr 12, 2010

The Primary Trend (The Four Year Cycle)

The primary cycle is simple, yet profound. And once you learn to recognize it, you will never again finding yourself vacillating daily with the single day rallies and declines, wondering "Is this a bull market or a bear market?" That basic cornerstone will always be at the very center of your trading strategy.

Chart courtesy of StockCharts.com

The Primary Trend-Bull or Bear Market

The Primary Cycle, AKA the bull market/bear market cycle, AKA the 4-year cycle is the cornerstone of the successful market trader, because it defines the primary direction of the market. Over the years, bull markets have averaged 2.5 years in length, bear markets 1.5 years, though these numbers are just that- averages, and some primary bull markets or bear markets have been somewhat longer, some much shorter. But the propensity for the primary cycle to bottom in the mid-presidential year (1950, 54, 58, 62, 66, 70, 74, 78, 82, 86, 90, 94, 98, 2002, 06, 2010) has been uncanny, as shown below. Once one recognizes that pattern on the charts, it all starts to make sense....and come into clear focus. When this trader becomes conscious of the primary trend in real time, his trading performance is likely to improve exponentially. He immediately has a massive trading advantage over his competition, "the crowd". Context is everything.

As we write this in late 2009,we are  smack dab in the middle of a primary bull market at just over 1000 on SPX. Yet millions of traders worldwide, and talking heads on CNBC, on Bloomberg, in the Wall Street Journal, and on trading message centers everywhere are talking about "double dips" and new lows below 666 SPX. But that's all it is - Talk. If you understand market cycles, you have the huge advantage over these millions of traders and self apointed "experts"- the advantage of knowing that we are in and will continue to be in a bull market well into 2010. You will recognize this rally for what it is....a genuine bull market. The beauty of it all is that when you choose to buy, millions of willing "bagholders" are only too happy to take the sell side of your trade. Why? They sell because they are clueless about the Primary Cycle. They only "know" what the talking heads are telling them about "double dips" and what they "feel" about the market. 

Understanding of the primary cycle alone is enough to distinguish market winners from the herd of market losers. In a zero sum game, each new level of understanding puts you closer to the top 1% who make 99% of the stock market profits!

By   Sun, Apr 04, 2010

   
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By   Fri, Dec 09, 2011

Primary Trend: Bear Market

Intermediate Term: ~Seven Sentinels~ Sell Mode

Short Term: Sell Mode

Open Positions: 20% SPXU (14.8}, 30% QID {45.15}, 20% TWM (42.55}, 20% DXD {16.97}, 10% Cash

----------------------------

Just a quick review regarding the counter-trend rally in the IT decline. On Thursday December 1, our analysis said this with regard to the counter-trend rally and whether it had run it's course:

"From a purely technical standpoint, the answer to the headline question is "Yes". We are there.....Tomorrow AM we have the monthly NFP ("the big one of the month") at 8:30 AM before the open, and there is no way of guessing whether it will beat or fall short of expectations, nor what news may come from Europe overnight or over the weekend....What IS KNOWN, though, is that we now have reliable short term sell signals in an IT downtrend in a Primary Bear Market."

Then on Monday, December 5, the Sentinels told us this with regard to the same question, "Are we there yet?":

"The Sentinels are telling us that despite record Black Friday sales, a 22-nation bailout of Europe, a drop in Unemployment of 0.4% and the rest...The TREND is down.......As said, this and anything else we say tonight is just a repeat of what we've been saying for the last week... so we'll just say again: "Yes - we are there." We are 90% short and will sit tight."

Tonight we note that every single short term indicator that we follow has now confirmed the decline is back in force. That inludes stochastics on the indices, stochastics on NYMO and NAMO, NYSI and NASI, TRIN and TRINQ daily and various other indicators we've been showing here for the past week:

On a side-note, while this 1000 DJ point counter-trend rally has caused all of us a whole lot of stress and anxiety, it is interesting to see that rally in the context of the NYSI and NASI charts (circled area in charts below), and to realize just how minor it's impact in the Intermediate Term decline underway:

In this highly news charged environment, it is absolutely impossible for us (or anyone else) to predict the trading pattern ahead, other than to note that we have completed a short term advance in an IT uptrend in a Primary Bear Market, and this implies some extreme downside volatility will follow. Where and when the upside spikes will occur within that decline depends on the news flow. But that really does not make a great deal of difference. We are essentially fully short (90% leveraged ETF's) and will stay short through the IT decline.

We saw an extreme TRIN again today (5.15) which implies a snap back rally within the next day or so - but again, we will stay focused on the bigger picture and stay short. We'll use any snap backs to increase shorts for trading accounts.

EOM

By   Thu, Nov 10, 2011

Primary Trend: Bear Market

Intermediate Term: ~Seven Sentinels~ Sell Mode

Short Term: Down

Open Positions: 40% SPXU (14.8}, 20% QID {45.15}, 20% TWM (42.55}, 20% DXD {16.97}, 

----------------------------

Today we got our long anticipated Seven Sentinels Sell Signal and we took on short positions as we approached the close. In the last hour we did not yet have the 13/34 EMA readings for final NYMO for today, and after the final numbers were in, we saw that while the 8/34 on NYMO went to sell:

...the 13/34 was just short of a crossing:

Markets followed through lower after the close of regular trading and we do not regard the small "miss" by the 13/34 as meaningful.  Likewise, while NYSI turned negative, it did not cross through the 2-day ema in the regular session. But with NYMO negative, NYSI having turned down, and markets lower after the close, we do not regard this technical "miss" as meaningful either:

We've worked with our Seven Sentinels for many years now, and we've come to recognize the difference between real "failures to confirm" that occur when a trend has NOT truly changed, and technical "misses" which are meaningless when a trend truly HAS changed {as now} but the numbers haven't yet had a chance  to reflect the crossover by the time the regular session closes. This is the latter. The Seven Sentinels Sell Signal is valid.

Comparing again this market to May 2008:

"I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans -- and human nature never changes." Jesse Lauriston Livermore

2011:

2008:

2011:

2008:

2011:

Markets Repeat.

Here is what followed the May 21, 2008 Seven Sentinels Sell Signal:

So we are now short in a Primary, Intermediate Term and Short Term downtrend. Our biggest challenge will be VOLATILITY. There will be sharp moves in BOTH directions - including counter trend rallies, ahead. Today, TRIN closed at 7.14, a very high reading rarely reached.

But when we DO see these kinds of extreme readings the most frequent market response is this:

Sharply lower readings the next morning followed by late strength that next day - often resulting in a reversal day. That is the day reaches it's lows in the first hour and closes up- near the day's highs. That may happen tomorrow. History also shows that these high TRIN readings in IT downtrends are usually followed by the above described trading pattern the next day, but then sharply lower prices AFTER that reversal day....as we highlighted above in the chart on October 28, for example.

So that's what we look for here - a low open, higher close Thurssday, then continuing downtrend Friday and Monday. If markets do indeed unfold that way, we may take some profits in the first hour Thursday, looking to re-load those shorts on Friday. We'll see what comes and make those decisions accordingly.

More before the open tomorrow.

EOM

By   Wed, Nov 02, 2011

Primary Trend: Bear Market/ Intermediate Term: ~Seven Sentinels~ Buy Mode/ Short Term: Down, 100% Cash

The Primary Cycle officially moved from Primary Bull Market to Primary Bear Market at the end of September 2011:

While the Seven Sentinels moved into buy mode - IT uptrend - in early October, we have recognized the markets as extremely dangerous and unstable overall, and have remained mostly on the sidelines. As we quoted from our home page on October 23:

"SevenSentinels.com has just one overriding purpose: to keep you focused on the prevailing trend -the right side, regardless of the market's deception and to continually provide you the perspective and confidence to be right and sit tight."

Implicit, though, in that mandate is perhaps an even more crucial objective of keeping subscribers and ourselves "out" of grave danger - to keep readers, to the very best of our ability, from losing money during periods when we regard risk as unacceptably high. For the most part, NOW is such a period. Risk is unacceptable..." 

Last Wednesday night, EU news sent markets straight up in what we regarded at the time as capitulation on Thursday, as we said then:

"...we reached the most overbought level of the year today as markets powered into resistance.... a level of overbought that has initiated a strong pullback in every incidence over the last several years. Some of those tops were short term, several were Intermediate Term, but each was a significant high point from which markets receded:"

We had observed several sentiment indicators on October 31 which confirmed this capitulation, showing a shift to extreme bullish sentiment across the board.

... as we observed the similarity to this same relative position in 2008 after the Primary Bear Market had been signalled in March. Then (per below chart), as now (as shown in above chart), markets had a sharp Bear Market rally which temporarily punched through the 200-day moving average, having said in the weekend report:

"Meantime though we are closing in fast on the next down-leg of this Bear Market - one which we expect to be very powerful AND extremely profitable for traders who get on the trend and stay with it. Here is the set up leading to that down leg and that decline itself in the last cycle, with the period we regard as very similar to now circled. Notice that both times, the 200-day MA was surpassed briefly on the Bear Market Rally."

Additionally, we observed:

"We look for the next Sell Signal to be very important.... and profitable. Looking at the chart for 2008 above, notice two boxes labeled "A" and "B". The current market shares characteristics with each. "A" was a ST top that lead to a ST buy opportunity ahead. The second, "B" was the final IT top. We believe that the current market is at one or the other approximate position.....a top leading to a solid trade, or "the top" leading to the best trading op in years."

After Monday and Tuesday's market action and the breakdown of market internals over those two days, we strongly suspect now that the box market "B" will approximate the next few days leading to a Seven Sentinels Sell Signal. We'll enlarge that area in the box below to take a closer look following several observations. The drop in NYMO from Thursday's close of +93.06 to today's close of -11.17 in just three days has been perhaps the fastest complete melt down from a closing high we've ever observed. And we've been observing for over 40 years. Same with NAMO's meltdown from +79.94 to -13.27 in that same period.

In fact, looking at all Seven of the Sentinels, we note the following:

BPCOMPQ, TRIN and TRINQ are all on sell mode now:

Meantime with NYMO having dropped to -11 and NAMO -13 per above, we note that NYSI and NASI are very close now to sell mode:

and finally.... NYMO and NAMO 13/34's are moving rapidly in that direction:

We are rapidly approaching now that key Seven Sentinels Sell Signal which we expect to produce the most profitable trades we've yet seen since we've been providing this service. But how might it unfold from here? In a straight down move into the SSSS? Possible. But much more likely it will unfold in a similar fashion to the end of the March-May 2008 Bear Market Rally. Here is that enlargement of "Box B" referenced above:

In that portion marked "Initial Sharp Sell-Off", the Sentinels, just as now, started moving rapidly towards SELL MODE. But then the market rebounded one last time and then finally produced the Seven Sentinels Sell Signal of May 21. What followed was this:

Worth waiting for? We certainly think so! One final caveat though. The pattern here will not repeat the above pattern per se. They never do precisely. Perhaps the rebound and sell will unfold faster, considering the extreme nature of these markets. Perhaps the shape will be different. And perhaps we won't even get the expected rebound but will move directly into the sell mode. We'll let the market make those calls. But we will be listening carefully and ready to act accordingly. If we get the right set-up, we'll take a trade for the rebound. If not, we'll wait for the SSSS. But as we've been saying, "it's now just a matter of time".

EOM

By   Thu, Oct 13, 2011

Primary Trend: Bear Market ~ Intermediate Term ~Seven Sentinels~ Sell Mode, 100% Cash

3:00... The last hour will be interesting as it may begin to give us some important clues to the dilemma discussed below, especially if we rally. We'll be watching volume and breadth in particular, along with, of course, price action. Breadth remains weak at this point, but that could change. We'll discuss that and other factors in the evening report. 

2:15... Again, to put today's market in context with the bigger Intermediate Term picture, the critical ST question that we need to resolve before moving ahead is whether, like the last three bear market spikes, this latest one is yet another that is leading and will continue to lead to yet another test of the lows of this trading range between about 1230 and sub-1100 versus SPX.... or whether instead this advance will have the internal strength to break through and carry the IT much higher. Volume patterns and other irregularities suggest the former; our Seven Sentinels Buy Signal suggests the latter. We described the factors we are assessing (breadth, volume, price behavior) and will continue to assess over the next couple of days to make that decision and either continue to stand aside for now or move forward with long positions:

1:15... Breadth remains very weak at -1500/-700 at midsession as the markets have rallied from moderately oversold status at the lows of the day, with the DJ now down 60 and Nasdaq slightly green again led by AAPL. We monitor internals carefully as we wait to re-enter markets. For now we have chosen to stand aside in cash, and will continue to do so perhaps for the balance of the week. We are watching for breadth, volume and price to reintegrate. For the time being, they remain disparate and inconsistant. If volume were to stay low on pullbacks, then increase on rallies accompanied by strong breadth while the Sentinels remain on buy mode, we'd begin to accumulate longs in a day or two.

10:50... As expessed earlier, market price and volume patterns are out of sync with the signals being produced by internals, and markets are showing unusual instability and volatility. We suspect, though, that over coming days markets will reintigrate and we'll get back to more "normal" patterns. We remain defensive for now, looking to re-enter only when that process occurs... not until. Very short term, markets have come off of extreme overbought conditions and divergent breadth and are correcting;

10:20... In a rather rare move, we made the decision yesterday to not act on the Seven Sentinels Buy Signal because of the general instability of this market, and because of volume patterns which appear to be indicating distribution. Also the late decline yesterday left reversal patterns on most major indicators. Today breadth is very negative at -2000/-1000. We have been and will continue to stand aside in cash until markets show some reintegration between the signals and behavior:

9:30... Markets are opening weaker Thursday after Wednesday's late decline. We remain cautious and stand aside in cash. We'll assess internals after the first hour.

By   Wed, Sep 28, 2011

Primary Trend: Potential Transition to Bear Market ~ Intermediate Term ~Seven Sentinels~ 100% Cash

Today, September 28, 2011 we got a confirmed Seven Sentinels Sell Signal, and this may well be our most important signal since we began this service. Not only is this signal resounding and solid, but it coincides with a Primary Cycle Sell Signal that is only our third such Primary Cycle Sell of this millennium. While this Primary Signal will not be "official" until the close on Friday, with a very solid SSSS tonight it's not likely to be reversed. In fact after the close today, SPX futures have dropped another six points below the level shown on the following chart:

All seven can be seen here. BPCOMPQ and TRINQ were the last two to confirm:

We believe that simplicity is the essence of clarity. To add additional analysis here would only distract from focus. We have a confirmed Seven Sentinels Sell Signal and are two days from an official Primary Bear Market Signal. Our job is to get short and stay short. Tomorrow our task will be to get fully short as gracefully as we can for our ETF account, but that may not be easy because we could gap down. With a final TRIN today of 5.39, it has been our experience over the years that a likely scenario will be a gap down followed by a rally, and then follow through down to further new lows Friday. No certainty of that pattern, of course, but its a pattern we very often see when we get extreme TRIN readings. We may short via ETF's early, but wait till the end of the day to get fully short. We'll report in real time as always.

The overriding message we want to convey here - the main focal point of all of this, is that we have a confirmed Seven Sentinels Sell Signal and our most important goal is to get short and stay short through what market internals indicate can be expected to be a very significant decline ahead.

EOM

By   Tue, Sep 27, 2011

Primary Trend: Transition to Bear Market ~ Intermediate Term ~Seven Sentinels~ 100% Cash

By the end of the day Tuesday, the Eurozone led recovery rally had taken five of our Seven Sentinels, BPCOMPQ, TRIN, TRINQ, NYSI and NASI all to buy mode, and had forced us to cover our short position.... before failing as we'd beeen expecting all along:

Following that stop out, markets sold off as we'd been expecting all along, prior to the stop. But we'd been forced to close shorts for reasons having to do with risk management. We are left, therefore in a full cash position tonight and will not re-enter markets until we get a new Sevn Sentinels signal confirmed on the market close by all Seven elements.

There is no way to express how difficult this scenario has been for us, nor would that serve any purpose. It is what it is. We can only move on from here, lessons learned and fully absorbed. We will use this experience to tighten our discipline and methods and patiently wait for the next confirmed signal from which we know, based on many years of experience, that the next trend and series of profitable trades will follow.

EOM

By   Mon, Sep 05, 2011

Primary Trend: Up ~ Intermediate Term ~Seven Sentinels~ BUY MODE, 20% DDM, 30% QLD, 20% SSO, 30% UWM

Following is a somewhat lengthy study. For those who want just the botom line, it's this: The Seven Sentinels indicate that the IT uptrend remains intact and we have no basis to trade against that trend. We will remain long unless or until a Sell Signal is produced or 1135.91 is violated on a closing basis.

On Friday we said:

"10:30... In a perfect world, we'd never get "black swan" news releases and negative events in IT advances. Bad reports would never happen to "good markets". But we live in the real world of course, where they can and do occur, unpredictably, and it is our job to deal with what comes. Today's "zero jobs" report was below even the most negative of the projections and is shocking Wall Street this morning with a broad and devastating sell-off."

One of the most difficult aspects of what we do here at SevenSentinels.com is dealing with what we call a {thankfully rare} "black swan" event and the resultant deep draw-down such as we saw Friday...and now on Sunday night and Monday has accelerated into a "mini-crash" as the liquidity crisis in Europe deepens. But such events DO happen in the real world - within IT up-trends - and *thus far* our research this weekend still confirms what we had said last week, that the current market is still an IT uptrend, and our research further confirms that we can expect the uptrend to resume once this extreme sell-off subsides in coming hours. We cannot know how much longer this "mini-crash" will last, but our work tells us that we can expect markets to be moving towards new highs for this move later this week....unless the new fundamental conditions driving this mini-crash truly are producing a sudden semi-permanent shift that will take the Seven Sentinels to sell mode with it. History suggest that to be a highly unlikely market outcome, yet we cannot completely rule out that possibility. We are on full alert and have been spending and will continue to spend this weekend in research......reporting conclusions with regard to the above all-critical question.

Seven Sentinels Signals since July 1, 2007 {in reverse order}:

SEVEN SENTINELS BUY SIGNAL AUGUST 29, 2011

SEVEN SENTINELS SELL SIGNAL AUGUST 2, 2011

SEVEN SENTINELS BUY SIGNAL JUNE 27, 2011

SEVEN SENTINELS SELL SIGNAL MAY 13, 2011

SEVEN SENTINELS BUY SIGNAL MARCH 25, 2011

SEVEN SENTINELS SELL SIGNAL MARCH 7, 2011

SEVEN SENTINELS BUY SIGNAL FEBRUARY 8, 2011

SEVEN SENTINELS SELL SIGNAL JANUARY 20, 2011

SEVEN SENTINELS BUY SIGNAL DECEMBER 6, 2010

SEVEN SENTINELS SELL SIGNAL NOVEMBER 12, 2010

SEVEN SENTINELS BUY SIGNAL SEPTEMBER 13, 2010

SEVEN SENTINELS SELL SIGNAL AUGUST 11, 2010

SEVEN SENTINELS BUY SIGNAL JUNE 3, 2010

SEVEN SENTINELS SELL SIGNAL MAY 4, 2010  

SEVEN SENTINELS BUY SIGNAL FEBRUARY 16, 2010

SEVEN SENTINELS NEUTRAL SIGNAL JANUARY 21, 2010

SEVEN SENTINELS BUY SIGNAL NOVEMBER 10, 2009     

SEVEN SENTINELS SELL SIGNAL SEPTEMBER 24, 2009

SEVEN SENTINELS BUY SIGNAL SEPTEMBER 10, 2009

SEVEN SENTINELS SELL SIGNAL AUGUST 14, 2009

SEVEN SENTINELS BUY SIGNAL JULY 15, 2009

SEVEN SENTINELS SELL SIGNAL MAY 12, 2009

SEVEN SENTINELS BUY SIGNAL MARCH 9, 2009

SEVEN SENTINELS SELL SIGNAL JANUARY 14, 2009  

SEVEN SENTINELS BUY SIGNAL NOVEMBER 24, 2008

SEVEN SENTINELS SELL SIGNAL NOVEMBER 17, 2008

SEVEN SENTINELS BUY SIGNAL OCTOBER 28, 2008

SEVEN SENTINELS SELL SIGNAL AUGUST 25, 2008

SEVEN SENTINELS BUY SIGNALJULY 17, 2008

SEVEN SENTINELS SELL SIGNAL MAY 21, 2008

SEVEN SENTINELS BUY SIGNAL MARCH 24, 2008

SEVEN SENTINELS SELL SIGNAL MARCH 1, 2008

SEVEN SENTINELS BUY SIGNAL JANUARY 28, 2008

SEVEN SENTINELS SELL SIGNAL DECEMBER 19, 2007

SEVEN SENTINELS BUY SIGNAL NOVEMBER 29, 2007

SEVEN SENTINELS SELL SIGNAL OCTOBER 16, 2007

SEVEN SENTINELS BUY SIGNAL AUGUST 22, 2007

SEVEN SENTINELS SELL SIGNAL JULY 20 2007

By carefully scanning the charts above, the reader can see every one of those periods that we have identified as IT up-trends based on Seven Sentinels Buy Signals from July 1, 2007 to the present day over four years of market history laid out in daily form.

The title question for this article was " Is Current Market Action A Game Changer?" The first question we want to address is:

1. Whether we are correct in classifying the current trend as an IT up-trend.

Then, assuming we have correctly classified the current trend, we will consider the question of:

2. How much draw-down we can expect under extreme conditions within such a period.

And finally we'll consider the question of:

3. What factors would cause us to conclude that the market is no longer in an IT up-trend mode.

These are the three most critical questions we can ask as we consider our trading position and under what conditions we'd make changes...which ultimately, of course, is our purpose.

The draw down from Wednesday's peak intra-day price on SPX to Sunday nights low as implied by the SPX futures is about 91.5 points, and the decline is still underway. Do draw-downs of that magnitude occur in IT up trends? Let's look back and see whether there were any 5-10% draw-downs in past SSBS periods in the past four years which left the IT up-trend intact. And if so....what followed each instance? We'll answer these questions Monday, but the reader could get a head start on these questions by simply reviewing the above charts.

-------------------------------------------

We'll tackle first the question of the Seven Sentinels and the IT trend. Here we'll examine each individually on August 29, 2011 and today by extrapolation from Friday using current Futures data:

BPCOMPQ was clearly on buy mode on August 29, and our best attempt to extrapolate Monday's numbers would give us a likely sell signal as of today.

NYMO was clearly on buy mode on August 29, and extrapolating Monday's numbers leave us squarely on buy mode as of today.

NAMO was clearly on buy mode on August 29, and extrapolating Monday's numbers leave us squarely on buy mode as of today.

NYSI was clearly on buy mode on August 29, and extrapolating Monday's numbers would give us a sell signal as of today.

NASI was clearly on buy mode on August 29, and extrapolating Monday's numbers would give us a sell signal as of today.

TRIN was clearly on buy mode on August 29, and extrapolating Monday's numbers would give us a sell signal as of today.

TRINQ was clearly on buy mode on August 29, and extrapolating Monday's numbers would give us a sell signal as of today.

So to sum up part one of today's critical question: The IT uptrend as defined by the Seven Sentinels Buy Signal of August 29, 2011 is absolutely legitimate, and is clearly still in effect.

-----------------------------------------

Part two of the question is "How much draw-down we can expect under extreme conditions within such a period, and is this draw-down within those parameters or does it exceed past such declines?"

The draw down in SPX futures from the August 31 peak of 1229.75 to the Monday {thus far} low of 1138.75 has been 91.5 points, or just under 7.5%. Is this consistent with the worst of the draw-downs within past SSBS period over the last five years? If so, what has followed each of those draw-downs?

Listing all such draw-downs over 5% within SSBS periods that were "contained within that up-trend" we find:

*November 28 to December 1, 2008, dropped 81 points (898 to 817) or 9.02%. Market made new high on Dec 8, 2008.

*March 26 to March 30, 2009, dropped 53 points (832-780) or 6.37%. Made new high on April 2, 2009.

*April 17 to April 21, 2009, dropped 53 points (877-823), or 6.05%. Made new high on April 29, 2009.

*June 3 to June 9, 2010, dropped 64 points (1103-1042), or 5.80%. Made new high on June 14, 2010.

We see, thus, that draw-downs of this magnitude, while extremely rare, are not inconsistent with IT uptrends in progress under extreme externals events. We see above four examples of draw-downs within SSBS periods that did NOT reverse the IT uptrends in progress. Each was followed within a few trading days by a new high above where the draw-down began.

We hasten to point out however, that there were OTHER times during those four years where a sharp draw-down within an IT (SSBS) up-trend period ultimately was NOT contained by the IT up-trend and developed into a Seven Sentinels Sell Signal. Following are all instances we could identify where markets dropped more than 5% before developing an SSSS:

*November 14, 2008, market had dropped 130 points or 13% from it's November 4 peak when an SSSS was produced. November 4th high was not seen again for many months.

*June 29, 2010, market had dropped 90 points or 7.95% from it's peak when a Neutral Signal was produced. Markets made new highs in August.

*August 2, 2011, market had dropped 93 points from the 1347 peak of July 21 peak to 1254 when a Seven Sentinels Sell Signal was then produced. 1347 has not been seen since.

So we conclude that this draw down in and of itself does NOT suggest that the SSBS/IT up-trend has been negated, and, in fact, in four instances in the last four years, draw-downs of this magnitude were followed within days by new highs above the peak before the draw-down. There were, however, three instances where draw-downs of this magnitude developed into Seven Sentinels Sell Signals within the following days, and in two of those cases, the peaks before the draw-downs were NOT seen again afterwards.

Thus whether or not we will immediately overcome this draw-down and resume the up-trend and make new recovery highs is inconclusive from this study of Seven Sentinels history.

-----------------------------------

So now the third and  most important part of the whole question - "What factors would cause us to conclude that the market is no longer in an IT up-trend mode and that thus we need to liquidate our long positions?"

Considering that the market is and remains in a clear Seven Sentinels Buy Signal, and that this draw-down is consistent with four past draw-downs in SSBS periods that were contained and followed by new highs shortly thereafter, BUT that there also were three times in the past where the draw-downs were NOT contained {developed into Sell Signals shortly thereafter), we have determined that we will hold all current positions unless of or until:

1. A Seven Sentinels Sell Signal is produced, or

2. 1135.91 SPX is violated on a closing basis. {1135.91 was the low on the day all Seven Sentinels went to buy mode.}

This decline is scary and "looks" extremely convincing. But we are reminded that ALL deep draw-downs in legitimate IT up-trends appear very compelling at the time they are occurring. It is just NOT possible to conclude whether this draw-down represents a real game changer in terms of the driving forces which will be affecting markets moving forward, or whether it is an understandable temporary reaction to a very negative situation which will, along with dozens of other such scary situations since this Bull Cycle began in March 2009, be absorbed into the Primary Bull Market as have all of the others. Until proven otherwise, we'll give the benefit of the doubt to our Seven Sentinels and that primary cycle, and sit tight.

EOM

By   Tue, Aug 02, 2011

Primary Trend: Up ~ Intermediate Term ~Seven Sentinels~ SELL MODE, 20% TZA, 80% Cash

First and foremost, markets finally gave us an Intermediate Term Signal, and did so in a spectacularly decisive manner. August 2, 2011 marked our fourth Seven Sentinels Sell Signal of 2011 and we began to short today as it became clear that this signal was a certainty for today's close.

This morning's pre open intra-day article was entitled "Decisive Market Action Immediately Ahead", and as it turned out today's action, though frustratingly late off the recent top, was one of the single most decisive days we've seen in this entire Primary Cycle, as not only are all Seven Sentinels very decisively in sell territory, leaving absolutely no doubt as to the Intermediate Term Trend being now DOWN, but a whole host of individual market internal and external measures all set decisive 2011 new lows. Among them:

BPCOMPQ:

NYMO:

TICK 19 and 39-day ema's:

10-year TSY yeilds:

20-year TSY bond rates {via inverse pricing}:

SPX (closing basis):

RUT:

$SOX:

Today's action was indeed decisive in terms of setting forth the line of least resistance for markets ahead. As we'd detailed earlier in today's intra-day comments, since this signal came much later than prior sell signals vis-a-vis the most recent top, on the seventh consecutive down day off of the recent 1346 SPX high, this presented certain challenges for us. Once we got the signal, the near term position of the market made it difficult to put out our entire line at prices with which we could be comfortable, because markets by then had come off 60-70 SPX points already in just 7 sessions and were getting oversold and ready for a "bounce" of some sort... perhaps a sharp scary one. Experience tells us that these bounces in sharply declining IT Trends can often be vicious and frightening, and to get caught 100% short on a 200 point DJ advance, for example, would be just too uncomfortable for any of us - should that happen. And we have absolutely experienced counter trend moves of that magnitude and more in past declines.

So we settled in upon the strategy of putting out 20% of our position late today, with the intention of shorting into bounces ahead. And so we shall. We'll report in real time just as quickly as we possibly can, every trade we take now for the tracking account, as we did today when we bought 10% TZA at 2:15 and another 10% at 3 PM. The percentage figures refer to what percentage of our entire account was positioned into that stock. We hold 20% TZA which is about 9700 shares and 80% cash which is about $1,550,000 at the close today, for total value of $1,956,176.98, up 95% from where we began in June, 2010.

The trend is clear. Our mission is clear. Now our job is to navigate the short term vicissitudes of the market as gracefully as possible over coming days, so as to put in place and hold our line of inverse ETF's for the IT downtrend ahead. We expect some sharp and intimidating rallies along the way, and may be due for the first of those very shortly, perhaps tomorrow. So now we buckle up and get to work.

EOM

By   Sun, Dec 11, 2011

As the EU agreement now begins to lose its headline status, we believe that the market trends in place will begin to dominate. To review again, those trends are as follows:

Primary Cycle: Bear Market

Intermediate Term Trend: Down trend, SELL mode per the Seven Sentinels Sell Signal of November 9, 2011, with NYMO and NAMO remaining on sell mode, and Now TRIN joining the downside, and BPCOMPQ and TRINQ very close:

By   Tue, Nov 15, 2011

Primary Trend: Bear Market/ Intermediate Term: ~Seven Sentinels~ Sell Mode/ Short Term: Down, 20% DXD, 20% QID, 40% SPXU, 20% TWM

8:30: Markets are looking to open lower Tuesday Morning. This decline into the first hour should easily confirm the ST downtrend within a confirmed IT downtrend, as we'll be discussing after the first hour of trade.

By   Fri, Oct 07, 2011

Primary Trend: Bear Market ~ Intermediate Term ~Seven Sentinels~ Sell Mode, 30% DXD, 20% QID, 30% SDS, 20% Cash

9:00 AM... Markets had been telling us all week that the NFP numbers would likely come in "hot" and they did at +137,000. Now the question is: "Is this enough to overcome an established downtrend". Of course that's possible, and we stand ready to close shorts if we have to based on market trend. But we are not there, at least yet, both based on price trend which is still down, and market internals via the Seven Sentinels, which are still on sell mode. We will monitor both carefully today, and if downtrends hold up, we'll sit tight. We expected a "hot" report and incursions through the trendline initially. If however, markets do manage to produce a buy signal by the end of the day, we'll be forced to cover....and we will. More after the first 30-60 mintes of trade.

By   Thu, Oct 06, 2011

Primary Trend: Bear Market ~ Intermediate Term ~Seven Sentinels~ Sell Mode, 30% DXD, 20% QID, 30% SDS, 20% Cash

9:15 AM... Markets have been extremely volatile overnight, with SPX futures reaching 1148 before selling off again to 1134 as we approach the NYSE open. The IT Trend remains down, short term counter trend moves notwithstanding. We'll assess market internals after the first hour.