I closed out my long trade based on T-Theory at 6013 on June 13, which was 2 weeks before the T was scheduled to end. Had I waited until June 24, I would have ended with Price at almost that level. But I had no angst regarding the 2% drop and recovery that followed.

There are a few things that can happen at the end of a Magic T. With an end to strength, the market could fall precipitously (more likely at the end of a Bear T), The market can continue a slow chug forward (as Terry Laundry expected the end of a T period of strength to create returns no greater than that of the Ten Year Treasury), or it can do what we’ve done here–continue on an accelerated path. Sometimes the least probable course is what occurs.

June 20 marked a low in the BPSPX, and it has since recovered to be back above the Keltner bands. Whenever it is above 50, it represents a positive environment. My personal thoughts are when it falls below the upper Keltner band (after being above it), it’s time to lighten positions. A cross below the middle Keltner channel might have given reason to short, but it never reached that level.

The Simple Chart (from Carl Swenlin) is an Intermediate Term chart showing Breadth and Volume Oscillators. This chart shows Breadth and Volume momentum slowly turning lower, after an amazingly sharp move off the April lows.

Both of the above tools are in my repertoire for use to confirm Magic T periods. They are preferred tools for swing trades, as opposed to short term Price movements. They confirm a trend, not initiate one.

My last post contained the following statement:

The difference between a trader and an investor can best be explained as one where a trader is willing to accept the risk of spotting the beginning of a trend change, as opposed to one who is willing to initiate or follow trends. The Venture Capitalist is an investor whose risk taking is based on trend creation. The worker with a passive 401K has his basic investing career set up for him via corporate guidance. There are multitudes of intermediate versions of the above criteria. Each one of them helps satisfy our primal emotions of Fear and Greed. 

This site is dedicated to the T-Theory concept of Terry Laundry. The basic concept of T-Theory is based on periods of exceptional strength following a period of weakness. Since we have not had weakness in Price since the end of the last T, we are not creating the base for a new T based on Price. But…

At the end of his career, Terry was contemplating RSI and MFI Magic T’s. The above T chart is based on Terry’s 76 week Optimum Moving Average chart for SPX. (He didn’t use the main 55 daily OMA for his weekly chart.)

Back in the day, I questioned him regarding his use of the 100 week OMA on a vehicle similar to TLT, when I thought the 50 OMA had “more hits”. The OMA should be the Moving Average that has the most hits. In a similar vein, I am now using a Bull Market Weekly chart with a 38 week OMA as follows:

Its upper band is 6610. My first suggestion that this T may be in play was on June 29 on elliotwavetrader.net.

Looking at the daily T-Theory Chart, I am not expecting a new T to be created before the middle of September. We would need to see the VO and McOsci move to deep negative territory, meaning below -70.

How can we consider a daily T forming within the larger Weekly T? As long as we stay above 5800, that RSI T is probable. Weakness that takes us to that level brings us to support.

We’re overbought on daily technicals right now, but nothing is clearly broken.

If you are a trader, you will not be able to use this information, and I thank you for reading this far. If you’re an investor or swing trader, the parameters are shown above.

• What is it that makes people “invest“ in equities? 
• How are the investments people make affected by news events​?
• What is the difference between an investor and a trader?
• What role does one’s individual psychological experience play in investment decisions?
• Are the emotions of Fear and Greed important to your investment decisions?

​People invest in equities for a variety of reasons. Capital appreciation, income, inflation protection–all are valid reasons to invest, but in my opinion the primary reason people who can afford to invest do so is because they are programmed to believe that this is a proper use of their resources. 

News events can cause people to react on different levels, but changing investment goals isn’t something that changes immediately for the retail investor. Investors don’t react to events, but rather  to longer term trends. The difference between a trader and an investor can best be explained as one where a trader is willing to accept the risk of spotting the beginning of a trend change, as opposed to one who is willing to initiate or follow trends. The Venture Capitalist is an investor whose risk taking is based on trend creation. The worker with a passive 401K has his basic investing career set up for him via corporate guidance. There are multitudes of intermediate versions of the above criteria. Each one of them helps satisfy our primal emotions of Fear and Greed. 

It’s my opinion is that we develop our individual standards for investing or trading based on our personal realities. There are no two people who share any one path. Shakespeare looked at the difference between Nature and Nurture and aptly named his work “The Tempest”. A Prince acts like a Prince when abandoned on an island, where he meets a Princess who is still a Princess even though she herds sheep on that same island. We are all affected by events based on our personal history.

There are no two events that are exactly alike. While it may be true that “Those who can’t remember the past are doomed to repeat it,” the past is not a known quantity. For the most part, history is written by the victors. Their vision of the past is filtered by the results of time between Then and Now. You can rationalize any headline depending on your personal biases.

Putting this in context of the market’s reaction to news, the past may give us a good idea as to the meaning of an event, but whose meaning is it? As Ben Graham pointed out,  “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” For example, when there is trouble in the Mideast and many fear oil inflation, others see–should their view of history be confirmed–a conflict that is closer to being resolved. One person’s fear may be another’s vision of a better future. 
As Terry Laundry wrote in a 1997 paper on T-Theory

It takes a special state of mind to “sign up” for a short boat trip, in a flimsy landing craft, to a beach completely controlled by hordes who have anticipated your arrival and have set up every imaginable way to do you in. Buying into major market opportunities presents a similarly discouraging picture. You may have good reason to anticipate profits, but if a great opportunity does indeed exist, nearly everyone will be against you, including your friends, and the predominant opinion expressed by your peers, including people you respect, will be that you are embarking on a foolhardy enterprise.

There are always going to be inconsistencies between how the market may react to a specific event. It doesn’t mean that news doesn’t influence the market, but we each have our personal biases as to how we interpret events. I could show you charts of how “the market” reacted to different events in accordance or discord to what we would normally expect. If these inconsistencies didn’t exist, there would be no immediate “voting”, and all we would be doing is “weighing”. 

I’m reminded of the mathematician Goedels first theorem of incompleteness. Basically it states that any mathematical system is either incomplete or inconsistent. My personal view of reality is in tune with that concept on philosophical grounds. We are all not the same, and we don’t look at the universe around us in the same manner.

One example of how the market showed different responses to events can be found when one looks at the Great Recession. Why couldn’t we reverse it earlier? Why didn’t the market react earlier? Perhaps it was because the attempts missed the mark, and no one saw an end in sight.

Some may point out that the market shrugged off the Federal Reserve’s early attempts to stop the damage by lowering interest rates. If one was only considering those attempts as the “reason” the market continued to fall, they would be ignoring other events that occurred in the same time frame, such as the failure of major financial firms, and the fact that no one was going to borrow money at any interest rate. What turned the market around in March 2009? It could have been the exhaustion of sentiment but there was also a fresh attack to halt the recession not by lowering interest rates, but by large scale asset purchases.

If you’re inclined to think that the Fed is evil, or that it is irrelevant, you can dispute this. 

Our charts can give us a pathway for the future, but obviously none of them can dictate Price. Those of us who spend an inordinate amount of time studying these charts do not all have the same biases, and our results will be based on those biases.

The future is non-linear, and so are our lives. Have a great Sunday.

We’ve stayed in a quite tight range since my report of June 7. (Last week, I only offered a short update as I was only armed with my phone.) The June 7 report was posted after a close of 6000 on the SPX. Since then, we’ve remained within 1% of the close on June 6. That followed a May 25 report, where I noted how there might be a resting period after the sharp move in April, but how the T should continue on through June 24. We climbed another 250 points after that before breaking down.

I can report Volume Oscillator (VO) T’s to the best of my ability, but I don’t make the rules. This was clearly a Bullish T, and hopefully some of my readers caught the undercurrent of the titles to my recent posts to hold firm–Opening the Door to Truth, Stumbling Within the Larger T, Sometimes a Cigar is Just a Cigar. This year has had very clearly observed Bullish and Bearish T-Theory outcomes.

Terry Laundry (as I remember his rules), felt that the best returns were to be made from remaining invested through a T’s end–with the best moves slated for the beginning of the T and ending of a T. Personally, I broke with the second rule, based on my additional tools of the “Simple Chart” and the BPSPX. They both turned negative on June 13.

So what happens next? When there is no T, Terry did not expect the market to outperform the 10 year Treasury. And that Treasury is not outperforming the 3 month Treasury, so there is no incentive to put money in long term bonds (as will be discussed below).

The above chart shows us the potential for a new T to begin next month, but it’s much too early to confirm that. We would need to see a lower low in the VO and the McOsci–preferably below -100 on each. The VO would then have to rise above 32 at a minimum to create the next period of strength.

Moving to TLT, the following charts show TLT:

These are not “pretty” charts. The chart on the left represents TLT’s price irrespective of dividend adjustments, and it hasn’t been able to move above its Optimum Moving Average. That’s a negative. At the same time, the chart on the right shows TLT’s price with what I consider to be trendline resistance.

There is still no fear in the bond market. The following chart shows the annualized return of major bond ETFs for the last year. The clear winner is still High Yield. That should always be the case, but perhaps it’s a little sideways right now, as volatility should show more damage to junk bonds at this point, in my opinion.

Have a good week.

While the Volume Oscillator T will continue through June 24, I advised those who are members of ellottwavetrader.net that I was closing my position when the market rebounded Friday to 6013, before it collapsed into the close.

As I pointed out last week, my personal indicators suggested that there was a possibility that the T could end June 17. Since I’ve captured most of the advance since April 8, this wasn’t a difficult decision. I’m traveling right now and not able to create a full post.

Doom sells papers. But sometimes things are just what they appear to be. In the present case, we are just on a roll that will eventually end, but using the existing rules of T-Theory as I understand them, we are in a bullish Volume Oscillator (VO) T that will last until June 24.

Our T’s this year have been very clear on direction. A Bear T ends with a rally at its end, followed by a collapse. That is what occurred , and it was then followed by the present Bull T which doesn’t need to collapse at its end–it merely ends the defined period of “extra” strength, after which we would expect equities to produce a return not above that of the ten year Treasury.**

The VO and McOsci have recaptured positive territory after making their expected returns to the zero line. Following the trading signals I’ve mentioned since on April 8 on elliottwavetrader.net, we’re up about 1000 points. The April 17 post (after a move off the lows of about 300 points) suggested an end to the rally. That was wrong. After missing the next 250 points, I confirmed the new T (on April 27) which we are following now. We had a Price T (in May) that I suggested would end around May 16, allowing us to capture some of that missed advance, as the market dropped 200 points. This offered a re-entry, or at least a hedging of positions.

While I still expect Price to climb through June 24, the bulk of this move is hitting what I consider a strong range of Price resistance. Friday’s high was just a point or two away from the lower part of a resistance zone I’ve been suggesting since January:

But while I’m on alert for a pullback, there’s very little technical confirmation of a change of direction at this time. BPSPX and the “Simple Chart” that I have used for years are not changing direction. Sometimes things are just what they appear.

There is a chance that June 17 can evolve into an early ending of strength, but it hasn’t developed into a reliable date at this time.

Counter to my thoughts on long term rates, TLT has advanced lately, but was stopped at the middle daily Keltner band:

It needs to break above 87 to create traction.

**Coincidentally, I am seeing a critical event developing in the Ten Year Treasury rates just around the time the Equity T is scheduled to end:

That last week of June should be “interesting.”