Bearish and Ready to Trade

My blog has been very quiet this year while I have waited patiently for a good opportunity.

That opportunity seems about to be presented.

I am bearish on the Dow for three reasons, and none of them is the situation in Japan.

Reason 1 – Dow Technical

The Dow Futures contract is now at a new 20 day low having been bought up this year in a huge move. In fact the whole up move from March 2009 has been one of the fastest and strongest in history. Even people who are bullish admit there is room for a pullback.

A new 20 day low is one of my favourite sell signals.

Reason 2 – Martin Zweig Model

I update and follow Zweig’s brilliant 4% Model. NB This model has not yet signalled but it is very close. I expect it to trigger a sell signal within days. Once it triggers I will go short.

If I had not waited for this signal I would have taken the 20 day low that signalled on 9 March. Note that price has not gone above the high of the trigger candle (9 March).

[Click on the chart to enlarge it.]

Reason 3 – Elliot Wave

I am not an Elliot Wave theorist but I greatly admire Bob Prechter and Robert Folsom.

Today they released a special extremely bearish post. This is VERY unusual for them to come right out with a strongly one-sided recommendation. You can read it in full at:

http://www.elliottwave.com/single-issues/ff/FFS99-Bearish-You-Bet-You-Will-Be-Too-Once-You-See-What-We-See.aspx?code=CG

How will I trade it?

I will most likely sell the June mini-Dow Futures contract.

In my 20 years of trading the markets I have found that the best trades are the ones that go strongly in the direction you expect, and don’t look back i.e. when going short the price does not go above the top of the break candle (i.e. the candle that made the break). This is a very low risk way to trade because you can use a tight stop. In addition I may also use the weekly pivot as a protective stop.

Happy trading.

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

2 Comments »

  • JOE WOHLERS says:

    Thanks Oli,

    Really inspired by your teachings… picked some real good tips on risk management, realized being more disciplined will secure a spot for me, becoming a pro trader… another fellow that inspires me, Robert Miner, he has a very straight forward approach, with something you don’t see from a lot of teachers ___ the truth and reality about how real trades work___ and doesn’t give you the usual ify, kind of, sort of like this info, but turns trading style into an exact science, so you can determine good probabilty, and then execute… kinda like you!

    Seriously enjoy your writing,

    JOE WOHLERS
    Overland Park, KS

  • admin says:

    Thanks Joe.

    I really appreciate your positive feedback.

    Oli

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