Home—Online trading—Spread betting explained—Spread betting blog—The Dow starts its big move down
Aug 24, 2012, 04:07
Posted byJohn C Burford
Comments (41)
Before I get going on the subject of today’s post, I want to set the record straight about the nature of my MoneyWeek Trader posts.
I noted two negative comments following my Wednesday post: The Dow edges up, but are we near the top?, and I wish to address them to clear up any confusion out there.
Here is a comment from Beasties: “The only time I’ve EVER placed a trade on an actual recommendation (extremely rare as they are!) from John the trade moved in the opposite direction from his analysis BIG TIME. He wasn’t even close to being right.”
While I will be the first to admit that I do not get everything right in my analysis, all readers must understand that I am not giving specific trading advice. My free-to-you email service is NOT a tipping service. We may be offering that service shortly if enough readers want it.
This service is aimed purely at educating anyone on how they can profitably use the methods I use. I illustrate my methods using real-time examples. I write the posts before 9am and you receive them, following checking and preparation at the MoneyWeek office, in the afternoon.
Because I cover the markets up to around 9am, the charts you see will be updated to that time. When you receive that day’s email, you can easily check for yourself what the market has done in the meantime. You can then, as a diligent student, find your own tramlines, Fibonacci retracements, or Elliott waves based on what I have done.
The idea is that an interested trader can learn how to use my methods for themselves very rapidly. My methods are simple and I want everyone who reads the MoneyWeek Trader posts to be winners. That way, you will stay trading for a long time and keep your spread-betting firm happy – after all, they want long-lived clients. It does them no good for anyone to blow themselves up and lose a customer.
Another misconception is this: spread-betting companies make their profits off your losing trades. They make it by offering the buy/sell spread. They hedge their net exposure in the futures markets to reduce their risk. Of course, the more trades you do, the more profit they make off you, just like a stock broker who charges commissions. But how often you trade is entirely in your hands. It is an open and honest arrangement.
OK, so how is my Dow trade working from Wednesday? Then, I showed the expanding wedge on the hourly chart and this is the update:
(Click on the image above for a larger version)
The market briefly touched the upper wedge line on Tuesday at the 13,330 level, and since then, has bounced off it like a scalded cat.
Recall I placed a short trade at the 13,270 area on Tuesday and now my protective stop is at break-even.
So let’s zoom in on the finer detail. Remember on Wednesday, I said that the 13,100 area was significant and to watch it closely?
The first reason is that the 13,100 area (pink bar) represents massive support from the congestion zone since 5 August. All attempts to push below this area were rebuffed – until yesterday. Now, sell-stops are being hit under 13,100.
With the pink bar lying above the market, this area now becomes a resistance to rallies.
The second reason is that if the Dow can close below 13,100 today, we would have a weekly key reversal – one of the most powerful indicators of a change of trend. I discussed this on Wednesday.
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So, it appears the market is being primed for the big move down that I have been waiting for.
Let’s examine the Elliott wave implications here.
I have labelled the Tuesday high as the top. The first wave down is wave 1 and the rally (in a clear A-B-C form) is wave 2. The move below the 13,100 area yesterday puts it in contention for a big wave 3. Remember, these are usually long and strong.
But we must always keep in mind the alternative scenario – that the move down off the top is an A-B-C, leading to a resumption of the uptrend.
For now, I believe the odds favour my first analysis. Why? For one thing, the public have become bullish on the rally (a bearish sign), and the internals (items such as put/call ratios, new highs/new lows, and so on) spell a bull market living on borrowed time. This is not a strong bull market. In fact, it is a very nervous one.
Just look at what occurred yesterday after release of the US Initial Unemplyment Claims data – the figure was only slightly greater than expectations, and yet the market sold off sharply. That was nervousness.
To confirm my analysis, I need to see a rapid decline to extend the third wave down next week.
On Wednesday, I set a simple tramline quest.
I drew in T1 and T2, which I showed then. I could draw T3 – equidistant and parallel. In Wednesday’s post, the market had fallen to T4, which is equidistant from T1-T3.
After a plunge down, the market rallied to kiss the underside of T4 – a classic opportunity to enter short trades. And the market is extending its losses as I write.
The kiss also has hit a terrific Fibonacci level:
The combination of the kiss, the 50% hit, and the A-B-C form to the rally made this a compelling short trade just above 13,200.
The key level for me is the previous major low at 12,800 – and then the lower wedge line at the 12,600 area.
I shall be watching for the big third wave next week!
• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:
• The essentials of tramline trading • Advanced tramline trading • An introduction to Elliott wave theory • Advanced trading with Elliott waves • Trading with Fibonacci levels • Trading with 'momentum' • Putting it all together
• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.
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Leave a comment
(24 August 2012, 05:18PM) Complain about this comment
Hi,just a quick note to agree with you about this not being a tipping service,i have been trading with mixed results for three years and have been following your Emails for a year now and your trading methods are a definite road map to success.I can now sit and view the market with a much broader set of tools at my disposal which is key at fx.Tipping may be a good idea if done properly,have heard some horror stories coming across the pond about these cowboys .
(24 August 2012, 05:22PM) Complain about this comment
Just wanted to say I have always found JB to be scrupulously clear about his analysis not being recommendations, and anyone who spread bets should be aware that the market is always right!I find his comments extremely useful and insightful, plus the fact is, he does this for free. How much more do you want?!Thanks for all the analysis, and a tipping service would be very interesting.PS I am not related to John or Moneyweek!
(24 August 2012, 05:24PM) Complain about this comment
The negative comment from Beasties obviously show that he's not a trader or that he doesn't understand trading. It's always easy to blame someone on a loosing trade than to praise for a winning one. If he has read about other gurus, none of them ever claim to be spot on & the consistently successful ones are always equipped with great risk management to protect their profits. You are doing a great job in helping traders like me to learn & I find that you're more often right than wrong. Thank you for your effort in educating the trading community & u have my thumbs up.
(24 August 2012, 05:25PM) Complain about this comment
Hi JohnThis is exactly why I said in an earlier comment that this should not be made into a tipping service.In the short time I've been trading I have never found you to be wrong about the Dow; it may not happen immediately and it may go the other way in the meantime but I've learned to hang on in there, don't panic at the large red and it will come right.You only lose when you close the trade, many times I've closed what I thought was a bad trade only to find if I'd waited 24 hours I would have had a profit.Patience, the man knows what he's talking about.Thanks for your emails please don;t change anything.Paul
(24 August 2012, 05:44PM) Complain about this comment
I really look forward to the regular email from the MoneyWeek Trader and I've found John's articles extremely interesting, educational and useful. While I may not be in agreement 100% of the time with his analysis I have to say his deductions have been right a lot more times than mine. This is just one of the tools I use when trying to determine my own trades and I have to say it's one of the more useful ones and I'd hate to ever be without it. I don't know what motivates John to share his insights but I'm really glad he does!
(24 August 2012, 06:05PM) Complain about this comment
I don't quite understand Beasties comments. There is no ambiguity in the intent of JB's educational emails. In fact what JB's doing is rare and refreshing. I find is emails hugely educational and have learnt a lot. Hope comments such as these do not deter you from your excellent work. A tipping service would be most welcome - we would then be taking the same trades as JB himself does! Do think about it John!YB
(24 August 2012, 06:26PM) Complain about this comment
I'd like to offer my sympathies to Beasties, he's in need of some serious shaking up, if he thought that JB was giving actual trade set ups, well, he'd be paying a small fortune to some fortune cookie, and would be heading for Stubbs Gazette!I, on the other hand, can't get enough of JB, this man is superb!! I think one needs to face up to the fact that not every trade works, but by watching how a chart developes, a great deal of knowledge is gained, and no better man than JB to show the way. A thorough gent to boot.
(24 August 2012, 06:36PM) Complain about this comment
Hello John.I just wanted to say that I also find Money Week Trader hugely educational, and read and file away every one. I am very grateful to you for them.For me, I would welcome a tipping service, and request one.John
(24 August 2012, 06:51PM) Complain about this comment
For the same reason I would never use or, rather, attempt to use a tipping service I would advise Beasties not to look to John's current posts to tell him what to do. You will never be a successful trader until you are able to work out for yourself what trades to take.As others have pointed out John has always been meticulous in making clear that his emails are meant to be educational.To the extent that Beasties may be saying he hasn't followed what John is saying sufficiently to be able to work out for himself when and what to trade I tend to agree with him. It has always seemed to me that Elliot waves are too subjective as is often evidenced by John's need to re-evaluate them in the light of what happened.
(24 August 2012, 06:52PM) Complain about this comment
In my view there is no method, system or chart that can predict anything about where a market, stock or instrument will go.All I am interested in is applying the laws of probability. Which trades are like to have the best chances of success. I have yet to work out how Elliot wave theory or Fibonacci numbers are able to help me with this.To say how amazing it is that charts turn at a Fibonacci levels so often is no more significant to me than to note that when they reach round numbers they tend to reverse, if only briefly, or that when they have gone up or down a lot they are likely to reverse.
(24 August 2012, 06:53PM) Complain about this comment
The charting feature I have found the most useful by far in telling me when these turning points are significant enough to prompt me to look for an entry point are the targets thrown up by point & figure charts - which are probably not that familar to many traders. Even then they don't predict a level they merely say if it goes in the right direction for long enough it will reverse at the indicated level with an accuracy that can be amazing. But like all charts you have to know how to use them.
(24 August 2012, 06:58PM) Complain about this comment
So I will continue to follow John's emails patiently, politely and hopefully as I am always interested in having as many strings to my bow as possible.But another golden rule of trading is that you must develop a strategy or method that suits your trading style and personality. I am slowly reaching the conclusion that Elliot waves and Fibonacci numbers are suited more to some trading approaches than others.So, Beastie what is your trading style? It may well be that none of this is for you! (Or me!!!)
(24 August 2012, 07:58PM) Complain about this comment
I am a fan. there is an unsubscribe button forthose who are not.
(24 August 2012, 08:10PM) Complain about this comment
I am not sure you have to be a fan to want to learn, je, but I take your point. I unsubscribed once but opened my mind again. I live in hope of adding to my knowledge. I'd love to hear a 'fan' announcing a trade he or she has entered so we can follow their progress. Being a fan is not enough - making it all work day in, day out is what matters!
(24 August 2012, 10:37PM) Complain about this comment
@mrNot quite what you are asking for, but as a 'fan' of JB, I took this same trade yesterday, adding to my short position at the A-B-C into FIBR 50% with momentum divergence around the 13225 level, i.e before this blog came out, but entirely thanks to the methods learned here. You'll have to take my word for it as we don't have a mechanism for posting trades. The thing that has made a difference has been to use the charts as many have said educationally, and mark up charts myself, rather than in a 'glancing' way as mentioned by some. Anyways, as a free educational tool, this has to be up there with the best around - especially as John is not trying to sell us some under the bonnet indicator like a lot of bloggers and 'gurus' out there are.That said, I'd welcome a more user friendly forum where we could discuss, and monitor potential set ups, rather than this blog by blog comments list.
(24 August 2012, 10:42PM) Complain about this comment
And on that last point, I've suggested to Money Week that we set up a dedicated MOney Week JB Trading FB page, so an ongoing healthy discussion covering potential set ups along JB lines can be discussed.. anyone else feel the same, then please write to Money Week too and maybe we can get a productive discussion going for people who are actively trying to use these methods on a regular basis.
(24 August 2012, 11:52PM) Complain about this comment
@LT If MW are not keen on your idea you could start a thread on a popular discussion forum like trade2win http://www.trade2win.com/boards/ Perhaps entitled John C Burford - The Tram Line Trader.
(25 August 2012, 02:59AM) Complain about this comment
Hi John, Great to see you addressing the negatives from your last e-mail. As always I thoroughly enjoy and look forward to each one. I don't think that we can ever stop learning, no matter what stage we are at in our trading. The Workshop's sound exciting and at some point I would very much like to get south of the border to attend one. Have a good weekend and I look forward to your next e-mail.Many thanks Susan
(25 August 2012, 04:32AM) Complain about this comment
All comments are valid.Your current headline is not valid. You should all wait for the big fall to be signalled and dont try to pre-emp it. I dont agree with the expanding wedge.It could easily be viewed as two parallel lines with a break out to the upside and pull back.You want gold to fall, you want the dow to have a big fall.It will have a big fall eventually, provided you keep repeating then you will eventually get it right. That is how many tipsters work.I dont regard your articles as atipster. Dont get too obsessed and keep the balance right.I would caution your readers not to get engrossed only in the short termthe longer term trends and chart patterns are just as important to watch. they should be learning that first before becoming a short term trader.
(25 August 2012, 04:00PM) Complain about this comment
@Joe - Who is pre-empting anything? John has illustrated and described the only 2 scenarios possible. The two parallel lines are not just parallel lines, they are the 2 lines that show quite clearly the line of resistance and the line of support that have been in place since June and as yet have not been violated. As we are now near September I would hardly categorise this as short term! Obviously you are unfamiliar with technical patterns, but the pattern these 2 lines have created is called a Rising Wedge. Working with daily, monthly as well as yearly charts is a must. How do you think any of us have arrived at the belief that a big move down is due? Its all a case of when and how that can be determined, which is what John's email is all about! Such negative and ill informed comments are not useful or particularly appreciated!!!
(25 August 2012, 07:23PM) Complain about this comment
@Joe - should have been clearer and said that the parallel lines have been in place and developing since June and that until either line from here on in is violated. I would caution you not to get too engrossed ;) The trend is only your friend until it ends!
(25 August 2012, 09:49PM) Complain about this comment
Never used Fibs or waves but I always look forward to what John has to say with interest as backup to my methods. For what its worth my 60min chart shows the Dow in an upward sloping channel from June containing a large moving average Bollinger Band of which has captured all the swings from overbought to oversold on the way up. I went short where John did as not only was the Dow near the top of the channel but also hit the top BBand. From there it dropped to the MA bounced up a bit then dropped thru to 13027 and then shot up again to 13157 to retest the MA at 13156. A move up from there might see the top of the BBand at 13340 reached or a fall could see at least the bottom band at 12964 and past that to the bottom channel round the 12800 mark. Of coarse all this is contained within a much larger channel going right back to 2009 where the bottom support line is now around 12000.
(25 August 2012, 10:15PM) Complain about this comment
Thanks Rob - will look into that. Agree with Susan.
(25 August 2012, 10:47PM) Complain about this comment
I was looking at the 4 hr chart on Friday which did look a lot like a potential a-b-c into the 38% fib so guess the test will be whether 13225 area holds and a wave 3 moves down... Or not.
(25 August 2012, 11:56PM) Complain about this comment
@LT Thanks :)
(26 August 2012, 04:02PM) Complain about this comment
Hi SusanThe headline was pre-emptive.Familiar with the markets and technical analysis since 86. John is not in my opinion using standard book technical analysis he is looking at the very short term, and i am most interested to see how this works. To play short term u should be aware of how traders think.By standard technical analysis the Euro + USD indexes clearly had a reversal that has now completed. John never mentioned it. Did you see it?? I pointed it out before.All watch the USD index very closely,not just Dow+Euro.USD should rally - momentum divergence (with a short term fall in the Dow) but then may be a bigger head+shoulders top fall in the USD, If so,forget your bearishness on the Dow + gold for a while. With John’s articles you are not watching this.I cant see the USD falling, + we must be very near the top in the Dow, but you never know. That is the point to make.I dont agree with pre-emptive moves now. Wait for confirmation and a new trend.
(26 August 2012, 04:34PM) Complain about this comment
A tipping service is a very bad idea. Don't be lazy, do it yourself and take responsibility. Trading is 90% in the mind and 10% the rest. Regardless of all the tecnical knowledge, the fact is that some people can crack it and most can't.I'd never ever take tips. It's a mugs game.As for the Dow. As you did John I shorted both waves down and the wave up to 13160 so a excellent week for me. I am currently out right now and will wait for the Asian markets to open sunday night. If they fall and the FTSE follows Monday I would then expect the Dow to follow Monday afternoon. If not I would expect a rally close to the high for a double top. This could all time very well for sept 12th!
(26 August 2012, 06:26PM) Complain about this comment
Hi JohnYou must be getting familiar with some of the comments, good or bad.Some people may be too inexperienced to realise that a trader looks at the key markets and not just one factor.The Dow index reacts to other factors but is also a prime mover.You perhaps need to warn people that they should always be watching the key factors ie bond market, USD, oil price and Dow. They all interact. Be very careful making a decision on 1 alone.In my opinion the gold price reacts after the others but it can act as a confirmation.Interested to know your opinion.
(26 August 2012, 09:36PM) Complain about this comment
on the theme of a forum I find the set of trams indicating a double bottom on daily/weekly spanish 35 index quite compelling-broke thru and just returned to 'kiss'neck line@7200ish or maybe fall to 50% retrace@6770?-Any views?-Also considering activating stops on a daily close basis to try to avoid spikey stops-downside of course is big daily moves against me! Again any views/experience?Hope this tangential post is ok with John/MW-viewed hopefully as a consequence of Johns great commentary
(26 August 2012, 10:19PM) Complain about this comment
With reference to gold and the USD. If you have the means overlay one chart on top of the other going back say four or five years and see something that really cant fail to be of interest. As I've mentioned before I dont know much about Elliot waves so I have a question. If for example on a monthly chart a wave 3 is in progress then I assume this wave can be sub-divided into a wave on a weekly chart and again this wave sub-divided into a daily chart and so on. Surely the longer time frame waves would have a strong impact on the say 1hr chart. Yes, No?
(26 August 2012, 10:40PM) Complain about this comment
Hi JoeThanks for comments. Might be an idea to familiarise yourself with John's articles (covers various markets including bonds and how they relate to the Dow!)tutorials and the comments thereof. You may be pleasantly surprised to learn of reader's successes through John's Methods At the moment your comments only serve to suggest that you wish to predict what is going to be happening and what we should be doing - not very suggestive of someone who is here for interest. Additionally they highlight that you've just joined the commentary without prior knowledge or fact of what John is about. I've only been trading 3 years and use a combination of technical and fundamental analysis combined with sentiment. I have a long way to go and will never stop learning or being open to and interested in others methods, butt I have to say that had I been trading since 86 and did not recognise lines of suppport and resistance or rising wedges, I think I'd be throwing in the towel!
(26 August 2012, 10:45PM) Complain about this comment
Sorry but following on to my question above I forgot to ask what (longer term) wave number is the current channel in which started in June and when did the wave start.....if you get my drift?
(26 August 2012, 11:04PM) Complain about this comment
@Bronco Bill- have a look at Elliotwave.com they explain it all. The waves do all sub divide in varying degrees. I wouldnt like to say what I think as I only have a basic grasp of Elliot and could well be wrong.
(27 August 2012, 10:29AM) Complain about this comment
John writes interesting informative articles however ay least some spread bet companies take some of the risk and benefit from your losing trades, that is a fact. You may wish to look at www.financialtraders association.com
(27 August 2012, 01:18PM) Complain about this comment
Thanks Susan for your reply. What I have in mind is that for example if a simple indicator like the relative strength index (RSI) shows to be overbought on a weekly chart and especially say together with a monthly chart showing as well, this would certainly give confidence that success would be more likely on a daily chart. If so, the 13300 level ("top") touched last Tuesday could this be half way up say of a much larger degree wave on a weekly or monthly chart? I know its all down to the time frames each of us work in but it was just a thought.
(27 August 2012, 02:37PM) Complain about this comment
@Bronco Bill - Hi Bill, Yes a possibility to your second point about the top last week. Its so difficult as it is actually happening and thats why you often see John having to do a recount of his wave numbering. Its only when you look back at much longer term charts that its clearer and far more easily identified, but of course by that time its all over and finished! I find it really difficult and doubt I'll ever fully grasp it. I'm no expert Bill, but from my perspective I would say a definite yes to overbought on the daily's (for the Dow)
(28 August 2012, 12:39AM) Complain about this comment
@ Bronco Bill - Apologies,completely misunderstood what you were saying earlier. Way I try to work it out is start with the longer time frames (years) and work my down months weeks days trying to do the sub divisions as I go. So on the shorter time frames like daily and weekly it will be part of the larger degree. Hope this makes sense. Like I said Elliotwave.com is really educational.
(28 August 2012, 05:45PM) Complain about this comment
My sense is that while a tipping service might increase subscriptions over the short term, it would undermine the longer term goals of improving investor education and discipline. I believe it could also become bothersome - e.g. having to continually explain variances - to the point of discontinuing the column. A lot of people, even the lion's share, don't even have the discipline to commit to value investing over the longer term let alone trading. Why risk achieving one's goal by exposing oneself to the constant complaining and carping?
(29 August 2012, 03:23AM) Complain about this comment
great work John got a feeling it was ABC correction? after the move back up to 13200 and things now seem to be bottoming out at 13100 (new wave 2) or are we now using the 13025 as the bottom of wave 1? Cant see QE3 coming personally but can imagine the herd can.. tipping service complete with sms service would be fantastic...!!! keep it up...
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