2012 Trade of the Year in TBT

Larry Pesavento:  ‘For the past several decades I’ve issued a trade of the year based on butterfly patterns. Though these traits have been correct 90% of the time there have been a few small losses.   Here are a few of my past trade of the year recommendations:

  • 1999 – Buy crude oil at $11 a barrel.
  • 2003 – Buy gold.  Also sold the Euro at 164 and bought it back at 85.
  • 2009 – Short treasury bonds and that led to a very large win.
  • 2010 – Short the Dow Jones industrial average which worked well for three months and then the market had a spike which took out the trade at breakeven.

This year’s trade of the year is going to be short treasury bonds by using the ETF TBT.  Buying  TBT at $17.17 cents per share with a $3 stop gives a very adequate risk reward ratio in my opinion.

The long-term thirty-year chart’s trend for interest rates has been down since 1981.  For the past 30 years our government and citizens have been using paper money via bonds, mortgages, and credit cards to live a lavish lifestyle many far beyond their means. Now is the time that this is going to change if my analysis is correct as we see a final (at least I think it’s final) leg up in treasury bonds bringing the yield on the 30 year treasury bond to near 2.5%. I asked myself this question, is there anyone that you would lend money to for 30 years at under 3% given the history of what’s happened to inflation during that time? The answer is a resounding no. This would be the fundamental factor that I would think would make this trade work. But it is only a trade and carries with it some risk.’

Bank of America

Larry Pesavento:  “The next Lehman Brothers???

Bank of America has fallen in value by 90% since the 2007! It is the largest bank in the United States and is dangerously close to going below five dollars a share. Historically stocks a drop below five dollars a share usually go into bankruptcy better than 85% of the time. Bank of America would certainly be a bank that would be in the category of “too big to fail” by most people’s assessment. However, the protest groups on outcry Wall Street will make it difficult at least temporarily for legislatures to take over Bank of America. Citicorp the third-largest bank in the United States looks even worse as it has had a 10 to 1 reverse split and has dropped more than 95% of it’s value since 2007. Fortunately all the executives are still making their multimillion dollar salaries and all looks well in Camelot. Whether Bank of America will be the next Lehman Brothers remains to be seen. But if you’re Chartist, as I am, I would be very skeptical of owning either of these stocks.”

Forex Trading – A Technician’s Dream!

Larry Pesavento:  “The US Dollar Index is a good example of using technical analysis to determine trends for entries and exits in foreign currency trading in 2011. The strong trending years of 2007 through 2009 have gone by the wayside.  Lets narrow down technical analysis to three areas:

  1. Pattern Recognition – The chart for 2011 has several AB=CD lightning bolt patterns. In addition, there are several Gartley patterns during the year. HM Gartley describe this pattern in his classic book ‘Profits in the Stock Markets’, published in 1937.
  2. Fibonacci Ratios – Only the four major ratios of the Fibonacci sequence 0.618, 0.786, 1.27, and 1.618 are needed to describe price movement within the pattern recognition signals. These ratios we are the most common and the most reliable. The goal is to keep it simple rather than reinvent the wheel.
  3. Cycle Analysis – Using standard cycle analysis from Edward Dewey and James Hearst we come up with a nominal cycle of 62 days.  This cycle is repeated four times during the year.

Armed with just a few of these technical analysis tools the market mystery behind the US Dollar Index is not really a mystery at all.  Trading comes down to risk control and money management.”

Live Cattle Daily AB=CD Pattern

Larry Pesavento:  “This week’s focus will be on Live Cattle.  The live cattle market is forming another AB=CD pattern following the same pattern for the past few months. The last AB=CD pattern into new high ground is very important as it means a breakout has occurred or a bear trap has been set.  Notice the shaded pink areas on the chart as the cattle began their “bull” run. Harmonic moves like these are on all charts and I highly recommend technicians look at them as they are telling a story of cycles in price!

COW, the ETF for cattle, has lagged badly recently which may be another clue as to a potential top in cattle. It is my opinion that this emphasizes why some ETFs are not a good proxy for the actual futures account, but can still be used for exposure in retirement accounts that allow that type of investment.”

ESPL: Custom Symbol

Q:  I did this in E10 ESPL.  I have a Quote Page open with IBM, MSFT, and CSCO quotes which show correctly.  But my custom symbol MANO1 shows up blank after I click the Run button.  What is the problem?

procedure Mano11;
var price, MANO1: real;               
{ if (TimeStr >= '07:20') and (TimeStr <= '14:00') then}
  Feed := eSignal;
  price:= Get('IBM') + Get('MSFT') + Get('CSCO');

A:  Steps I took: 

  1. Click Setup | Custom Symbols
  2. Enter the code in the editor.   NOTE:  I do not have a Procedure as in your example. The presence of Procedure is the problem.
  3. Click the Save button, then the Compile button which has the gear image.  Then click the Run button.
  4. Open the quote page for eSignal and it shows the custom symbol updating.

ESPL: Custom Quote List

Q:  I’d like to create and edit daily a custom symbol with about 50 or more stocks in the index.  Instead of editing ESPL code, would it be possible to reference an array in the E10 spreadsheet, which can be updated more easily?  What would the basic code look like?

A:  Use the predefined   sList   variable which is a TStringList variable.  TStringList has useful methods for working with a list of strings.   The data source file would be an ASCII file that you edit using Notepad, or it could be a custom quote page file, such as   MyList.dat.    When using a custom quote file the records have a market group character in the 1st character position, followed by the symbol.   This example copies the symbol from the 2nd character position.

Moving Average on Volume

Q:  In 1988 I had the first Knight Ridder Tradestation and I was able to do something that was pretty neat but I have never seen it since the demise of KR.  I could plot moving averages of volume and then display them on top of price. Using Fib numbers for the MA’s it gave very interesting wave structures and knowing this was a volume push was a powerful indicator.  Is there a way to do this in Ensign?

A:  Yes.   Change the Data Point for the Moving Average study to reference Volume.