October 26, 2022

Yesterday's disappointing earnings reports from technology bellwethers played themselves out today, as the two-week rally predicated on a Fed pivot away from its hard-charging rate hike campaign lost steam.

Despite the setbacks in blue-chip stocks which dominate the S&P 500 and Nasdaq Composite, the broad market was positive today, including small- and mid-cap issues.

Once again, it was energy and healthcare sectors that led all broad sectors.

As discussed in yesterday's video, a number of pattern setups are in stocks with earnings coming out in the near future. Some of these are already making a move out of their bases. The plan here is to let these announce earnings and then use a pullback entry if one presents itself.

Meanwhile, stocks that came out of consolidations while the averages were still in a downtrend did not sell off today, generally. This is a good sign for the nascent rally.

At the moment, we are waiting for some setups to appear, and are not interested in forcing the issue just because we are in a new rally.

Among the names, the following is believed to be the most attractive for our strategy of speculation in the $13+ market. Click to zoom in.

Archer Daniels Midland (ADM)

System P

A subscriber asked if some example charts of System P trades could be shown. The following chart of ACLS is the first test idea that has presented itself. The vertical line is the signal bar, indicating an entry the following day a tick above the signal bar's high. As noted, the system strives to enter a position as a stock is transitioning from a downtrend to an uptrend, or vice versa for shorts.

Using the rough rule-of-thumb that says an option's move will be 10x that of its underlying stock, the three-day gain would be 54% for the call option, or 91% on an MFE basis. I calculate the option's approximate gain, and not the stock's gain, because I view this system as being all about trading options. While stocks can be traded, most people use the strategy for options. This is what I intend to do, assuming the test results are acceptable.

SCHW is another that met the entry criteria, though I did not notice it until after the fact. Thus it will not be counted as part of the test results. The option would be up 37%, and 56% on an MFE basis.

The above results do not take into account option spreads. Of course, past performance is not necessarily indicative of future results.

Should the test results appear promising, System P ideas will be added to the Focus List. Until then, I am not interested in subjecting anyone's capital to something that is unproven to me, though I know a number of people that have had good results for years.

The system relies on a series of indicators, each of which could be used as a stand-alone system. When these "subsystems" are combined into one system, the probability of a profitable trade is enhanced, though of course there will be losses as with all systems.

Kevin Marder

Trading Lessons
Introduction to the service (38:00)
Money management and risk management (20:27)
Bread and butter pullback (11:10)
Bread and butter pullback: Pt II (15:09)
Bread and butter pullback: Pt III (31:48)
Bread and butter pullback: Pt IV (30:16)
Bread and butter pullback: Pt V (1:41)
System R
Short-selling (25:53)
Wyckoff spring reversal (2:30) 
5-minute breakup test (8:01)
Screens (21:03)