Monday, December 27, 2010

QQQQ Watch

The Person's Proprietary Signal bear phase on the Nasdaq 100 (QQQQ) exchange-traded fund has ghosted away, as has the polarized fractal efficiency confirmation. The hills may well be forever, but signals are not, at least prior to the end of the trading day.

Three signals -- the macd, parabolic sar and Heikin-Ashi candlesticks -- have switched to bear phase.

ha-trendppspsarmacd pfe trendpfe loc ma20ma50ma200
QQQQ $54.50

The bull phase now ending (maybe) began with a pps bull phase on Nov. 22, followed two trading days later by phase switches on the Heikin-Ashi and parabolic sar, and eight days later by the macd. Confirmation came on Nov. 26, when the polarized fractal efficiency (pfe) line turned up.

The pps whipsawed one to bear phase for a day, but it was unconfirmed by the pfe.

So, in calculating bull-phase results for the pps, parabolic sar and Heikin-Ashi, the starting point is Nov. 26, and the bull phase resulted in a 3.4% price inrease. (I'm pretending for the sake of argument that the pps switched phase today.)

For the macd, the confirmed phase change came on Dec. 3, the price increased by 2.1%.

For me as a trader, the key fact from this chart is the lack of bearish confirmation from the polarized fractal efficiency line. The pfe is at 108 plus change, trending sideways. A high pfe suggests that the price finds easier movement to the upside, but the level also suggests that most of the upside potential has been exhausted.

The price has retreated from a three-year swing high set last Wednesday. To the downside, the 20-day and 50-day moving averages provide close support, preceded by the swing low that marked the start of the most recent upswing.

Reversal Levels
  • $54.96, +0.8% (swing high)
  • $54.50 --- You are here.
  • $54.08, -0.8% (20-day moving average)
  • $52.84, -3.1% (50-day moving average)
  • $51.88, -4.8% (recent swing low)

I don't plan to trade this week -- my theory is that during this low volume period between Christmas and New Year's Day, the interns are in charge, sailing empty pizza boxes down the corridors of Wall Street and playing endearing pranks: "Hey! Dude! Let's drive down the Qs!!"

But in any case, I think it's premature to short QQQQ.

  • h-a trend - Heikin-Ashi trend.
  • pps - Person's Proprietary Signal.
  • pfe trend - Trend of the polarized fractal efficiency line.
  • pfe loc - Location of the polarized fractal efficiency line.
  • psar - Parabolic Stop and Reverse

  • ma20 - 20-day moving average

  • ma50 - 50-day moving average

  • ma200 - 200-day moving average

  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • h-a trend: green for two up candles, red for two down candles, yellow for one of either.
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • pfe trend: green for uptrending, red for downtrending, yellow for no trend.
    • pfe loc: location of the pfe - green for above 50, light green for zero to 50, orange for below zero to -50, red for below -50.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.
PPS/PFE Analytical Tools The analysis uses the daily Person's Proprietary Signal (pps), developed by John Person, and the weekly Person's Pivot, which he also developed. These are black box signals -- the "proprietary" means that Mr. Person knows how they work under the hood, and I don't. But they have shown a fair degree of success in identifying good entry and exit points, and I find them useful. For confirmation, the analysis uses an indicator called the polarized fractal efficiency (pfe) technical tool. It uses the fractal math of Benoit Mandelbrot to measure how efficiently move between levels. The higher the efficiency, the more directional the price trend. The math for the pfe is public knowledge, but it is well above my math knowledge, and so to me is also a black-box signal. This is a relatively new technical tool, based on fractal math. Investopedia has only a cursory explanation. Wikipedia is silent on the subject. ThinkOrSwim has a fuller explanation. PPS/PFE Trading Rules These rules are very preliminary. I’m still trying to figure out how the polarized fractal efficiency signal works. When Person’s Proprietary Signal (pps) is in bull phase, enter when the polarized fractal efficiency (pfe) turns to an uptrend (pfe trend). A pps signal and pfe uptrend have less strength but greater upside potential when the pfe location (pfe loc) is below -50, and greater strength but less upside potential when the pfe location is above +50. When the pps in in bear phase, enter when the pfe trend turns down. The set up has less strength but greater downside potential when the pfe loc is above +50, and greater strength but less downside potential when the pfe loc is below -50. The target is the weekly Person’s Pivot level in the direction of the trend, determined by the pps. The question is how to treat the pfe when it has flatlined at the top of its range, above 100. My preliminary observations are that the price by then has had a large upward run and tends to present a picture of exhaustion. However, by the description of the pfe, a high level should indicate a continued strong trend. This is something that i’ll figure out as I go along. Key to the PPS/PFE tables
pps bull phase
bear phase
pfe trend uptrend
no trend
pfe loc above +50
0 to +50
-1 to -50
below -50
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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