Larry Pesavento Article

Watershed Events – Events that happen geopolitical or natural that can change the course of economic trends. Such an event may have occurred on September 22, 2003. The group of seven economic powers (G7) was meeting in Dubai to discuss coming events. After the meeting the US dollar dropped dramatically and the Japanese yen rose to the highest level in 2 years. All currencies rose against the dollar including the Hong Kong dollar which has been pegged “stabilized” at 7.7 Hong Kong dollar for many years. This price action in all currencies will be followed closely over the next few weeks because it is what moves the markets! To quote Linda Raschke, “Money makes the mare go round”.

The charts of the US dollar and the Japanese Yen depict the size of the price gaps and the patterns. Price action following gaps is interesting to watch especially in the case of a “breakaway gap”, which is a gap that occurs out of a consolidation area. These markets are not for everyone, in fact less than 2% of all traders should ever get involved in currency trading because the leverage offered is highly speculative – and they trade many times the value of the stock market each day and at any hour in the day. Knowing how money is moving from one currency to another (and in what asset class) may sometimes give clues to stock market direction.

Japanese Stock Market

Overnight news of the G7 meeting sent the Nikkei Dow down nearly 5% in one day, its strongest one day dip in over a year. The move was related to the Japanese yens appreciation in world markets. Economic theory suggests as currencies go up – the countries goods cost more so earnings go down, at least that’s the theory!

The Nikkei was at major Fibonacci resistance near the 11,000 level after rising more than 40% since the butterfly bottom at 7700. We continue to feel that our “Trade of the Year – 2003” is still in an emerging new bull market and this may be just normal corrections.

A Note on Market Information

Bloomberg Financial gave an interesting market statistic recently. It seems they tracked the stocks that had the largest number of buy and sell recommendations. Amazingly, the stocks with the most sell recommendations outperformed the buy recommendations by a whopping 50%! These statistics were valid in both bull and bear markets. Further evidence that the news does indeed follow the trend.

Astro Cycles

Shortly after I began publishing Astro Cycles I was invited to appear on the Ira Epstein television show. It was one of those periods where many astrological events were culminating at one point in time. The television show went very well and, as luck would have it, I was invited back for another session a few months later.

During preparation for the show I had a chance to talk freely with Ira about many aspects of the commodity and investment areas. He is exceptionally cordial, honest and very intelligent and operates one of the best full-service discount brokerage companies in the world. He openly admitted that he was skeptical of the astrological approach to speculation, but did agree that it was another form of cycles that might have some use. He then made the remark that his father-in-law told him to “always buy stocks on Rosh Hashanah and sell them before Yom Kippur.” I just acknowledged the idea and assumed it was another adage similar to the “voice from the tomb”.

One of my old friends and customers from my days at Drexal-Burnham-Lambert was Rabbi Jerry Fisher. I gave him a call to wish him a pleasant holiday for the Rosh Hashanah period. It was then that Jerry mentioned to me that this period is based on the lunar cycle of the Hebrew bible. Rosh Hashanah begins on a new moon (Sun conjunct 0 degrees Moon) and continues for eight days. That immediately got my attention! Jerry sent me the dates for Rosh Hashanah and Yom Kippur for the past 20 years and, using the Astro Analyst program, I plotted the days on the charts and noticed market turns near these lunar dates. They were short term changes unless accompanied by larger planetary pairs.

While it is impossible to know where markets are headed with any certainty. It is possible and helpful to assess market probabilities. Trading Tutor has compiled the finest market forecasting tools available anywhere and each week we will provide you with up to date information to help you assess trading probabilities for the coming week.

The Bradley Stock Market Model, designed by Donald Bradley in 1948, it is a planetary barometer that uses all two-planet angular separation pairs, weighted by the cycle length and classical polarity. The Model has provided some incredible feats of accuracy but has failed at times too. It is also important to understand that as with other "cyclical" methods, inversions can occur whereby an anticipated high comes in as a low or vice versa. The Bradley Model complements pattern recognition and is a useful tool.

The following chart is an overlay of the Bradley on the Dow Jones. This allows us see how well the model is tracking with the market and can serve to alert us when an inversion is taking place:

Every week, we review over 1200 stock charts in order to identify the various patterns that we trade. The patterns themselves are a proven and reliable indication of market probabilities in any given equity, so we use the data we gather as a market barometer. The “Szymanski Pattern Index” is a leading indicator like the patterns themselves. A value of 64 or greater is an overbought signal and a value of -64 or less is an oversold signal. Here is the most recent update:

The following chart shows recent historical performance of the index signals:

We make a practical application of these market forecasts by weighting our swing trading positions. For example, if we have an overbought condition in the Szymanski Pattern Index and/or a cycle high in the Bradley Stock Market Model, we would try to overweight our short positions and vice versa.

Bonds and Notes

On Wednesday, September 24, both notes and bonds turned up as stocks declined, bonds and notes had a strong trend day up while stocks had a trend day down. The 30 year (US3Z) has reached the daily .382 retracement and the 10 Year Notes (ZN3Z), which are stronger, are close to the .50 (it may be there by the time this is read). The daily .618 on the 10 Year Notes is at the 114’17 area, December contract.

The jaws continue to close:

Gold & Silver

The gold and silver index completed a bearish butterfly pattern and has since sold off sharply as shown in the chart below. The .618 profit objective is around 76.

Wheat

The Daily retracement on December Wheat (W3Z) turned from the .707 level. This makes for a difficult trade because with this particular pattern there was nothing to let us know it would complete there. If you used an 8 cent stop from the .618 entry your trade is working and look for resistance at the .618 of the c-d leg around 365 area. Any stop less than that would have been stopped out.

Trading without Capital
By Larry Pesavento

Several things are present in the equation to be a successful trader! The Trading Plan – The Mental Attitude – The Trading Capital.

Each part has a different weighting in my opinion. Mental Attitude is 70% - Trading Plan 20% (although your Mental Attitude can affect your Trading Plan 100 %!) and the least important is the trading capital. There is an old joke (somewhat sick) in our business and it goes something like this; “The best way to make a small fortune in trading is to start with a large fortune.” No Universities teach comprehensive classes on learning to speculate. There are some classes to be sure but nothing substantial. Thirty years a go I taught an evening graduate class in investments and little has been added since that time.

Traders are left in the wind to set their own sails. Entering into the investment forum is easy. You have to have some money and be able to sign your name on the account forms. Your first clue is the account forms! Warning of high risk are everywhere on these forms. There is a reason for this. The brokerage firms want to prevent litigation if things go array (as they often do). Multiple warnings are present in the forms for commodities and options. But speculators flock to the open doors of the first bastion of capitalism ill equipped to face some of the high seasoned traders of the world.

Faced with this challenge, thousands still enter the game. Beginning traders fail at the rate of 80% or higher. However, those that stick with it can usually expect positive results between one and five years. Amazingly similar to the length of a college education.

Marty Schwartz, author of “The Pit Bull’, revealed that it was 10 years before he was able to become consistently profitable. There is hope for all traders. Winston Churchill’s most famous speech was at the depths of depression in World War II. Walking on stage, the great statesman uttered these famous words; “Never give up! Never, Never, Never”! He then quietly left the stage.

Read books and articles on the subjects you will need, Technical, Fundamental and Psychological. Find a methodology that suits your own “Psyche”. Working with a seasoned veteran trader (a mentor) is the quickest way to learn. “The smart man learns from his mistakes – the wise man learns from the mistakes of others”.

Disclaimer: You should not attempt to trade any of these setups without a good understanding of pattern recognition, harmonic numbers and risk management. We encourage all of our students to paper trade or set up simulated trading accounts and achieve some success before actually trading with their own risk capital. There are no guarantees in trading – we deal with probabilities not certainties!

We provide a real time trading pit with both stock and S&P 500 coverage. Learn to day trade from experienced professional traders. See patterns and setups posted in real time, including the "Pesavento Map" used to identify high probability trading times for the S&P futures.

Are you too busy to day trade? We analyze over 1200 different charts a week looking for the best high profit "swing trade" patterns using volume, volatility and liquidity criteria. Earn consistent double digit returns with as little as ten minutes a day.

Each of our trades has clearly defined entry points, break-even points, trailing stops and targets. The amount at risk is always small and clearly defined.

Just getting started and want to get on the fast track or simply want to take your trading to the next level? Come spend some time with Larry in the trading room! Learn more about our one on one tutoring program by calling Jon Maresca at 1-800-716-0099 or you can call Larry at 520-529-0469. They'll be happy to answer your questions.

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Issue: September 2003 This month's newsletter is the Trading Tutor Market Letter written by Larry Pesavento and Kerry Szymanski Reprinted with the permission of Larry Pesavento.

Issue: September 2003
This month's newsletter is the Trading Tutor Market Letter written by Larry Pesavento and Kerry Szymanski
Reprinted with the permission of Larry Pesavento.