Back on November 1st, 2011 is when I first noticed the signals that the markets were going to move sideways. I informed subscribers to my “Go With The Flow” Index Trading Strategy to move to cash.

Two weeks later on November 15, 2011 I noticed the S&P was forming a triangle pattern. I immediately released the first post in this series alerting all my readers to this pattern and to the upcoming move.

Just as I predicted, the move occured the very next day as the S&P broke out of it’s triangle to the downside. This was the signal to go short on the S&P. To short the S&P, all you need do is buy SPXU. It goes up when the S&P falls.

On November 20, 2011 I posted the second post in this series. I once again alerted my readers here that the S&P broke through it’s support and it was time to short the S&P.

Now that it was clear the S&P was falling it was time to buy SPXU. The new question is, when is the right time to exit SPXU?

To find the answer we turn to a post I did back in 2009. In that post, I described the Symmetrical Triangle Pattern and how to use it to tell when is the proper time to buy and sell a stock (I used IBM in the example). You can use this same strategy whenever you see an index form the triangle pattern.

In the graph below I’ve plotted the proper times to trade the S&P 500.

Since the S&P broke out to the downside, the proper time to buy SPXU (an Exchange Traded Fund that goes up when the S&P goes down) is at the open on November 17, 2011. SPXU opened at $15.06.

The proper time to sell is when it reaches line 4. That occured November 25, 2011. SPXU closed at $17.05 giving us a gain of 16.2%.

If you remember the rules for the Symmetrical Triangle, the support line (or sell price) is calculated by taking the height of the opening of the triangle. This is the difference between the #1 (around 1290 on the S&P) in the above graph and the #2 (about 1214 on the S&P). 1290 – 1214 = 76.

So there you have it. Now all you need do is figure where the S&P was when it broke out to the downside (around 1236). You then take that number and subtract 76 (1236 – 76 = 1160). Line 3 in the graph above represents 76 points on the S&P.

So now you know to close SPXU when the S&P hits 1160 (which it did November 25, 2011).

OK now that we close SPXU it’s time to profit off the S&P as it goes back up. To do that we buy UPRO. It goes up when the S&P goes up. On November 25, after we close SPXU we now move into UPRO. UPRO was $47.61 at the time.

Now that we are in UPRO, we need to calculate when we should close our position. To do that we once again turn to the rules of the Symmetrical Triangle.

The line marked “5″ should now be the resistance line. That is when you should close UPRO. The S&P hit that line on December 1, 2011. At the time UPRO was at $58.71. With a buy price of $47.61, thats a gain of 23.3%.

Now if you take your investment and make 16.2% the first time, then roll it all over and make 23.3% the next time, you would now have a compounded return of 43%!

Where is the S&P going next? I’m predicting it will move lower and trade within the shaded area (see the graph above), or at the least , move along line 5 in the short-term.

Rules for the triangle:
http://www.stocklocater.com/content/symmetrical-triangle.html

Previous posts in this series:
http://www.stocklocater.com/content/market-outlook-for-november-2011.html
http://www.stocklocater.com/content/market-outlook-for-nov-20-2011.html

Click here to learn more about my “Go With The Flow” Index Trading Strategy.

In the S&P chart below (chart as of November 15, 2011) I’ve marked some green lines that are showing the S&P’s support and resistence. If you notice we have a wedge pattern that the S&P has been trading within for the last two weeks.

I’ve marked a circle on the chart. That circle was when I told subscribers to my “Go With The Flow” Index Trading Strategy to move into cash. As you can see the S&P is currently in the same spot it was back on October 31 when we moved to cash. We have been going with the flow.

Soon the S&P will break out of the current wedge and by the looks of things, it could happen as early as Wednesday the 16th. As soon as you see the S&P close above or below the green line, that’s your signal to go long or go short.

If you don’t have the time to monitor the markets, or are not sure what to invest in when the signal comes, join my “Go With The Flow” Index Trading Strategy. I’ll email you when the time is right and I’ll email you what I’m buying to you can copy and do the same as I. Easiest way I know to trade.

In the graph below you’ll notice the head and shoulder with a neckline (support level of the two shoulders) at 1250 on the S&P. Once the S&P crashes through the neckline, then the H&S is officially formed. Before that, it could rise and create a different pattern.

To figure the bottom, you normally take the height of the pattern (from neckline to top of the head) and subtract that amount from the neckline to get the bottom.

Since the neckline is at 1250 and the top of the head is at 1370, that gives us a height of 120 points. So taking the neckline at 1250 and subtracting 120 will give us a bottom at 1130.

The S&P has played with this area on several occasions recently. Check out these days and the S&P lows on those days:
8/8 – 1119
8/9 – 1101 (the day I claimed we had bottomed)
8/10 – 1118
8/11 – 1121
8/18 – 1131

The S&P has been bouncing around a low of 1120 on average and today (8/18) it hit a low of 1131. If the S&P hits around 1120 again, that may be a good time to start getting greedy and doing a little buying.

 
Discover more tips on charting the markets with my DVD, “How To Trade Stocks In A Volatile Market.”

Forget for a moment that the US is on verge of default and that this is just normal times. The S&P is showing higher lows a bullish sign. It was showing higher highs (another bullish sign) but that all ceased a few months back. Now we are beginning to see lower highs as the deadline for the debt crisis nears (a bearish sign).

The S&P did find support last Friday at it’s 200 Day Moving Average. Should it fall through that this week and make a LOWER low, the markets will probably be heading lower. For now it should just head sideways another month.

That’s the way I see it barring the debt crisis. Throwing in the crisis, I and many investors (as evidenced by all the selling this week) do believe the credit rating will go from AAA to AA thus causing the S&P to lose 4% to 9% of its value (based on what happend in other countries).

If favorable news comes out in the next day ot two about the debt crisis, we should see the markets rise the rest of the month. If the downgrade comes, look for a return to 1250 before a bounce may be due.

Today the market is at peak and if you look at a chart, you’ll see it has gone sideways since Febuary.

Because the markets are back where they were before the crash, all the great gains have come and gone. At least until after the next big crash.

Inflation is coming and when it comes, the market will crash again. I’ve taken most of my money off the table.

Also, my trading style (swing trading) relies on quick short-term gains. It’s become much harder to find those opportunities now.

If you must get into stocks, I would go with a more BUY and HOLD strategy and ride through the upcoming crash. You won’t have fun trading but I would suggest a mutual fund or ETF that specializes in health stocks.

As the baby boomers age, health companies are going to benefit from the huge numbers of baby boomers. So these stocks should do well the next few years or more.

Also I like Gold. When inflation hits, gold shoots up and inflation will hit. The government has NEVER been able to control it, even though they say they will. The only question is, when will inflation take off?

Listen to the news and you will hear we are currently facing possible problems with our debt and us losing our AAA debt rating. Also expect more home foreclosures in 2012 and commercial foreclosures will start in 2014, this also spells trouble for the markets.

So I can’t really see where stocks are going to move up any higher any time soon.