An apology is in order for the delay between the last blog post of 31st October 09 and this one, but writing has had to take precedence over all else at the present time. I really would like to write more about the MIDAS system here but it simply isn’t possible right now.

The main point of my last blog entry of 31^st October 09 was to draw attention to the results of the Topfinder curves which had been launched on accelerated portions of the trends of a number of key markets linked in recent months to the expansion of risk appetite with the US dollar as a funding (carry) vehicle for this expansion. Very quickly, the results were as follows:

S&P 500: Topfinder launched October 2^nd 09 and terminated within two daily bars of the end of the accelerated trend.

Euro futures: Topfinder launched April 2st 09 and terminated within three daily bars of the end of the accelerated trend.

Crude futures: Topfinder launched September 28^th 09 and terminated within three daily bars of the end of the accelerated trend.

Gold futures: Topfinder launched 6^th July 2009 and, at the time of writing on 31^st October (the last blog entry), still had 4% cumulative volume remaining when the accelerated trend had all but completed.

Further update

Now that the corrections from these accelerated trends have ended, I can add a little more detail:-

S&P 500: after the Topfinder signal, the S&P futures fell by 6%.

Crude futures: after the Topfinder signal, crude futures also fell by 6%.

Euro futures: after the Topfinder signal, Euro futures fell by 3%.

Gold futures: the Topfinder exhausted its remaining 4% cumulative volume exactly halfway through the subsequent pullback, which resulted in gold futures falling by 4%.

Immediate aftermath following these declines

Since these declines after the accelerated portions of the trend completed, some analysts have been pointing to a significant decline in global risk appetite. My own view is that this is far from conclusive at the present time, although the main point of a second blog to follow this one over the weekend is to draw attention to several factors in the US dollar index and the Euro which are hinting at this turnabout in mood rather than conclusively proving it.

When it comes to trend reversals, one of my favourite tools is Victor Sperandeo’s “1-2-3 Reversal” as described in his book Trader Vic: Methods of a Wall Street Master. Here graphically is that rule as it pertains to the completion of an uptrend, which is of concern to us here in all four markets under consideration:

Thus, the first criterion is the breaking by price of the uptrend.

The second criterion is price rallying from the low that had been created as a result of the breaking of the trendline to a lower high, ie, a high that didn’t take out the previous one.

The third criterion is price reversing from this lower high and breaking the previous low that had been part of the trendline break.

Let’s move on …

S&P 500: with positive ISM data, pending home sales, and construction spending recently, the S&P 500 futures have so far only satisfied criterion (1). When the Topfinder expired, the resulting 6% decline broke the March 09 trendline but rallied immediately back up to break the previous high caught by the Topfinder very marginally. Therefore (by a tiny margin) we do not have Sperandeo’s second criterion in place and nor by a longshot currently do we have his third criterion in place. See Figure 1 below. As can be seen in Figure 1, a new Topfinder was launched on 2^nd November 09 when this new accelerated uptrend began and it has now just expired on a duration (cumulative volume) of 200,000. It remains now to be seen whether we’ll get another trendline break, thus ushering in the possibility of Sperandeo’s other two criteria being met.

Figure 1 above

Gold futures: as stressed before, if this is the end of global risk expansion for the foreseeable future, we must have an Elliott Wave count in gold consistent with this change of mood. At the present time, and as also stressed in a previous blog, it’s essential to see the current trend to a new high as a wave B of an expanded flat. Expanded B waves normally expand above (or below) wave As by a maximum Fibonacci ratio of 38% and the gold futures are currently at 25%. The implications can be seen in Figure 2, with sub-wave b of this large putative B completing as a symmetrical triangle (though it must be said that the prior “flagpole” measuring implications of this pattern project the top of putative wave B far above the 38% Fibonacci level).

Figure 2 above

Figure 3 below reveals that a Topfinder was also launched at the same bottom as the S&P 500 recently, albeit a few days before in the gold futures on 29^th October. This Topfinder expired yesterday and, as readers can see, the futures have just produced a “bearish engulfing” candlestick pattern. Still, however, Sperandeo’s criteria are nowhere to be seen yet in gold futures, despite the recent termination of the new Topfinder.

Figure 3 above

Crude futures: Figure 4 below shows in fairly close detail what has happened since the Topfinder terminated. How are we situated vis-à-vis Sperandeo’s criteria? The situation in crude futures is much weaker. Sincer the Topfinder completed, price has broken the Short Term early October trendline and has since rallied to create a lower high, thus satisfying Sperandeo’s second criterion. His third criterion is about to be tested as I write. However, before readers get too carried away by this implication, it should be borne in mind that this is only a Short Term trendline break. The Intermediate trend is defined in terms of a 6 week to 9 month time period, which is what the mid-February 2009 trendline covers. This is the trendline that needs to be broken for us to have an Intermediate trend change on our hands, though as stated before in this blog, crude stockpiles in the US are reaching record levels and, according to a recent DoE assessment, fuel consumption in the US is significantly lower than in recent months. This has led US refineries to reduce capacity.

Figure 4 above

Euro futures: finally, let’s take a look at the Euro futures in Figure 5 below. When the Topfinder expired and the Euro futures fell by 3%, they tested the Intermediate trendline created in February 09 with a sharp piercing before closing a fraction above it. This arguably is a satisfaction of Sperandeo’s first criterion. Since then it has rallied up to a lower high and started to fall again, thus satisfying the second criterion. The third criterion lies at a fraction above 1460 on the futures. Time will soon tell whether we have an Intermediate trend change on our hands.

Figure 5 above

***

Note on a related blog post to follow

The US dollar index has created some very interesting results in relation to two fractally related Bottomfinders launched from different segments of the Intermediate trend. I want to add a second blog entry related to this one over the coming weekend.

– A Coles 13th Nov 09

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