NO VIDEO MARKET OUTLOOK THIS WEEK
I am in Arizona visiting my daughter until Oct 14. I have figured out how to record video on my laptop without any fancy equipment so will be resuming that shortly. For this week, I am sticking to the blog format.Â
EXCITING ALGO TRADING UPDATES!!
- BACKTEST VIDEO THIS WEEK: I will publish another video with my backtest results this week 2020, 2021, 2023, 2024 have all clocked > 70% win rate
- 2022 IS BAFFLING ME: 2022 is still killing me and I don’t have a solution for that yet. However, my code accurately detects bear markets and the simplest approach would be that the algo stops trading when it detects a bear market. The win rate was 7% when I started testing it and I tried every thing under the sun to get it up. Like tweaking DTEs, buying inverse ETFs (instead of buying put spreads). Even if I can get to a 50% win rate in a bear market, I will be set because the algo will still make money in that case. At 35% win rate, the algo breaks even, but a 7% win rate is horrible, so if I can’t get the win rate > 50%, I can simply tell the algo to stop trading until markets come out of a bear market. Stay tuned…. as this is the most exciting challenge for me. Winning years are great, but figuring out how to handle a year like 2022 is the fun part.
- ALGO IS NOW LIVE! The algo is officially live with paper trading and has opened 4 trades so far. I now need to test whether it is closing profitable trades at 94% ROI, and getting out of losers using 50% loss, 65% loss and PNR rules in the live environment.
- PHASE 4 WORK STARTS ON MY PART: The 4 stages of algo development were 1) Create the algo 2) Run backtests and tweak as needed 3) Go live 4) Connect the algo to discord so I can receive opening/closing trade alerts. So I am going to start working on phase 4 this week while continuing to run backtests and make any tweaks that are required.
Massive amount of jobs data next week!
Markets are in a slow melt up phase at the moment but this week is riddled with important jobs data. We are back in a “bad news is bad news” environment, and if you remember SAHM’s rule triggered around Aug 24th. The rule has predicted recessions with 100% accuracy so far and when the rule triggers, a recession is usually 3 months down the line (it is a much faster predictor than the yield curve inversion which takes 2-3 years to materialize).
ADP and NFP reports are the main market movers this week. Any weakness in job creation will provide confirmation that SAHM’s rule is real and things can turn ugly very quick from there.
QQQ – Stalling?
Qs are going to lead this market as we are clearly in risk-on (sorry the chart says risk off) mode. Although we are seeing no signs of any pullbacks yet, we are definitely seeing waning momentum as noted in the chart below.
SPY – Emas stacked up to the upside
I will use QQQ as my leading indicator for now as SPY will simply follow QQQ’s lead next month. But looking at SPY, there are ZERO signs of a pullback so far. EMAs are stacked up and fanning out more indicating a strong bull rally in place.
SPY – another view
Using my MRT indicators, all I am seeing is a flat RSI which may just point to a sideways /consolidation phase for now. SHOCKTOBER FEST will only happen if we either get bad jobs report, and bad CPI report the following week. Outside of that, we are just heading into chop city here.
RRG charts – Last chance to prove yourself buddy
What a disappointment so far. RRG has been showing that tech is in the lagging quadrant for weeks now. To some degree it is right as we are not seeing any monster rallies in tech. This picture tells me that Qs are going to dump here anytime soon. Let us see what October brings and we will have confirmation that RRG has no predictive power.
Watch this video if you haven’t already: LINK: https://tradingextremes.com/sector-rotation-secrets-picking-the-right-stocks-to-trade/
EARNINGS: Take a chill pill
Earnings season is scheduled to start on 10/11 with the big financial institutions. So we get to relax for the next 10 days. After that, you know what happens. NFLX, TSLA, AAPL, GOOGL, MSFT, META…..shudder!
Trading plan for next week
- ADP on Wednesday and NFP on Friday are a big deal!
- Markets are range bound at the moment and slowly melting up. If we don’t see any big moves, I will just keep posting trade ideas for our group and hold off on trading for Monday and Tuesday.
- Also note that earnings season is coming up so trade ideas will start shrinking very fast. We may have to stick to the index ETFs but even that will be tricky. Imagine going bearish on QQQ and META or NFLX come out with blowout earnings?