Last quarter of 2018 crisis was predicted in advance using the DeLorean indicator. A larger correction was overdue for a long time and time was running out. So inevitably at some point there would be a breaking point where our indicators turn RED. Finally we have witnessed again extreme turbulence in the stock markets which has upset the financial world. Investors and traders were not accustomed anymore to wild markets, not counting the February 2018 flash crash, nor a bear market. A decline in the SPX index (as well as many other indices) of 20% was indicated by the time patterns and triggers of DeLorean, before it happened.
Of course it was accompanied by bad news and expectations which did not hurt during periods where DeLorean indicators were green. Rising interest rates, Brexit, government shut down, risk of recession, all surfaced in the last quarter of 2018.
In August we published the following DAX chart (the same for SPX) for customers, which are typically investment / hedge funds looking at the medium term:
This medium term indicator of DeLorean shows the larger moves in the indices of stock markets. Please note how well it predicts the big moves in 2017 as well as 2018. Imagine you would have seen the indicator in August predicting a decline until december and then a strong recovery. We have had no loss in these declining markets in spite of volatility. This is an exceptional tool for investment funds to adapt exposure in the markets before markets get wild.
So funds who received our predictions and followed up did not have a loss in the last quarter, other funds who did not have available our indicator, lost up to 15% in December.
In between the indicated (arrows) larger swings, the smaller moves in the indicator also show smaller up trends and down trends. For example from april till June 2018 where our DeLorean indicator on a smaller swing or fractal was up (green) and from end of May turned down (red)
Since our indicator basically is of fractal nature where smaller time patterns build larger ones, we can zoom in and display the hidden smaller patterns.
Since end of June 2018 we have forecasted negative markets for the week of November 25th 2018 (see previous 2 articles in Tradersworld) , which we picked because it was the epicentre of the coming fiancial earthquake. Also we had discovered trigger time patterns active during that period which we discovered in researching history, especially crashes or high volatility markets. Because the indicator was very negative since the end of september, the outlook was bearish.
Back to the future
Take a seat in DeLorean and we will travel to the future. Every day and week there will be trends up and down, small and large. Below we list some trends, around the following dates in 2019:
Up: 23-24 February, 13 May, 19-20 August, 7-8 sept (!vola)
Down: 29 March, 10-18 April, 9 July, 24 July
What next ? Research
Research is an activity that never stops and is fun to do, especially when important new information is found time and time again. So the next stp will be to complete Research of 100 years of Dow data (1900-2000) to inspect time patterns and its fractals in depth. Also checking combinations of patterns and how these work. Last but not least development of trading systems.
DeLorean OPEN – day to day cyles for opening trends.
The short term time cycles of our DeLorean indicator are used for predicting trends at opening (DeLorean OPEN), which has excellent results. Here the smallest up and down forces are calculated to determine if SPX, DAX or HSI will be stronger or weaker at their opening in the near future.
Here we investigate our DeLorean indicator’s reading at the opening of different markets exactly. In the morning CET (European time) DeLorean indicator could still be red, so DAX index would be down if additionally validated. Thereafter DeLorean indicator could turn up and become green before SPX opens at 15:30 CET-
Here’s an update of performance using DeLorean OPEN:
Below we will give you some examples how our DeLorean indicator for opening trends works.
First of all look at the trend date. First signal November 6th DOWN (column DeLorean trend). In order to profit from the expected DOWN in red you will have to SELL(entry date) November 5th and BUY back November 6th (trend date). Total profit for the month was around 97 points using ES future.
First trade had a small loss. Trade for trend date November 7th (UP trend) had a profit of 21 points. (zoom in on chart below)
Of course the indicator is already visible 1 month before prices of SPX catch up. So everything you se in the chart with regard to indicator is known the 1st of November! The DeLorean indicator above is also used for DeLorean Monthly predictions (see below)
You see that SPX is green at the opening of the 7th, therefore trend is UP and you are signalled to buy the 6th.
In general this is how it works. The indicator should be green, at a top or rising and minimally above zero.
12 th November was down but skipped because of risk over weekend. 13th DOWN, small profit, 14th UP because of rising indicator from lows (+16). 15th DOWN because of indicator red, declining and below zero (+ 33).
In general that is how it is done! However we also inspect specific time patterns (how strong these patterns are and how reliable) that build DeLoren indicator which could skip the trade. In addition a shorter term cycle is used as well.
DeLorean Monthly indicator-predicting reversals for 1-3 days
DeLorean Monthly is mostly used by day traders as well as position traders. Using DeLorean indicator you will have a high probability of knowing the upcoming trend in the markets for the next month ahead. This is the most rewarding indicator for traders, because you can see all 1-3 day cycles coming up . It can be used for option trading as well as future trading, trading delta. It looks the same as the medium term indicator, but cycles are much shorter thus providing many more entries and high probabilty trades.
DeLorean Monthly indicator is the basis of DeLorean time cycles on stock indices, more specifically the SPX, the HSI and the DAX or Eurostoxx50.
If the indicator goes up from a low to the next high, prices will go up around the reversal in the indicator. Therefore this is generally the time to buy (using a simple confirmatio) stock, futures or call options or write put options. When the indicator is reaching its high it is time to sell the index, selling stocks / futures, writing calls or buying puts.
Below we show you an actual example of our indicator.
Here you can see how November 25th is in the middle of the decline with a deep red score. The period in the beginning of december at first sight looks more positive (green) but looking at the indicator beneath it, which shows the strongest patterns only, it is clear that RED is dominant still. This is the case until the beginning of February 2019, in both indicators. Writing this article the last week of January the crisis -Brexit, shutdown- had not ended yet.
In the not too distant future (within 2 months) indicators will become more positive.
Trading system using options.
We have developed a directional tradings system for options using DeLorean Monthly as shown before. Directional ofcourse means that we follow the DeLorean indicator by writing / short calls or puts. If the indicator reverses from a top to the next bottom, we write calls. If it reverses from bottom to the next top, we sell puts.
Contrary to the popular “strangle ” systems where traders have no clue of the next direction of the index price and consequently write calls and puts at the same time, we write either calls or puts.
The problem with a strangle is that by definition either the call or put looses money. When the price stays in the bandwith there is no problem, but a big problem when it crashes out of the bandwith or a strong trend continues.
The latest quarter caused heavy losses for the stranglers but delivered a very good profit for DeLorean Option trading.
Additionally mention that we use SPX options because of liquidity, diversification, pricing and excercise almost every 2 days. Short term options are most advantageous.
Below we let you see when and how it trades:
Trading is based upon the swings in the indicator from top to bottom and vice versa. So a short trade (red arrow)-writing calls- will appear when the indicator starts to decline. A long trade (green arrow)-writing puts- when indicator rises again from a bottom. The strike price is 1% above the SPX price when writing calls and 1% below the market price when writing puts. This way a trade will still have full profit as long as it stays within this bandwith. If not the trade is stopped out.
Starting 26th of Ocober, trading only 1 option with on average premium of $4 with maximum 2 days expiration date brings 29 trades and $6000,-+ profits in 3 months. Hitratio is very high above 90%. Normally this period would be devastating to option writers! Margin is 22k and exposure initially only around 35k because of low delta, so with 40k a healthy profit of 5% per month.