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Paul Mosgovoy
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Market Masters: Livermore, Wyckoff and Loeb
  • Surprise Downside? ........ No Surprise With Livermore, Wyckoff And Loeb 4 comments
    Jul 10, 2014 9:44 AM | about stocks: IWM

    For several weeks, this site has been discussing and presenting the conditions that were a pre-cursor to this morning's open.

    Those conditions were, that the Small Cap sector represented by the iShares Russell 2000 ETF (NYSEARCA:IWM) was setting up for a significant, mid-to-long term reversal.

    There is at least the potential for the IWM to retrace to a 38% level as shown in this previous post.

    That is a cautious estimate of potential direction. A more aggressive estimate would put the IWM at lower levels..............much lower.

    (click to enlarge)IWM Daily chart

    Chart by TeleChart

    Is this move in IWM that we are seeing now going to be the move that gets us to lower levels? That can not be answered until it is all over.

    However if this move is the one, then the objective of the trader/speculator is to take full advantage of the condition.

    With that in mind, a full position has been established in the Direxion Russell 2000 Bear 3X ETF (NYSEARCA:TZA) so that we can participate in the trend change that is taking place in the IWM.

    Since it was using Livermore, Wyckoff and Loeb analysis techniques that got us into this (very profitable thus far) position, it must be those techniques that get us out.

    At this point, there are no sell signals in the TZA. In fact, as TZA progresses, it may give additional buy signals. As the current position profit increases, so does the ability to use additional margin.

    This method is exactly the same as what Livermore used to make a fortune during the Panic of 1907.

    Disclosure: The author is long TZA.

    Themes: Small Cap, TZA Stocks: IWM
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Comments (4)
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  • Lulzasaur
    , contributor
    Comments (2) | Send Message
     
    Hi Paul,

     

    I enjoy reading your insights. On a side note, I thought Livermore relied on momentum and his gut instinct to trade? At least, that was the impression I got from reading his memoir.
    10 Jul, 01:16 PM Reply Like
  • Paul Mosgovoy
    , contributor
    Comments (113) | Send Message
     
    Author’s reply » Thank you,

     

    Good question.

     

    In the early stages of his trading, Livermore was a technician of sorts (keeping his "dope book" as he called it) and relied on his intuitive sense as well.

     

    This type of trading is good (if one has the skills) for short term moves. It is obvious that he did indeed have the skills but like all of us had some other problems to work out.

     

    Eventually, he decided that his real talent came by looking at the overall market situation and deciding if there was going to be a significant move up or down.

     

    As you know, he would establish a large position early in the move and then "pyramid" if he so desired.

     

    The Panic of 1907 (which I have researched) was just such a move. Livermore determined early on that because of general conditions (there was no fractional banking back then and only a limited amount of cash available at any one time) that there was going to be a crash.

     

    Of course, he did not know before-hand the extent that the move would go. No one does.

     

    At the bottom or near the bottom he covered his shorts and cleared around $1,000,000 (silver/gold-backed money): http://bit.ly/1rYZvpv

     

    The same technique is being used on the IWM position.

     

    The general (business) conditions are very poor for the smaller capitalization stocks. Those conditions are not likely to change any time soon.

     

    The entry in TZA over the past week or so is in concert with the thinking that the small caps are going to be hit especially hard relative to the rest of the market.

     

    Of course, this move may not be "the one". However, with each passing day and with each technical level threatened and then breaking, it is starting to look as if we are in for a least a move of significance.

     

    Thanks again for the question.

     

    Feel free to contact me again.

     

    Regards,

     

    Paul
    10 Jul, 03:09 PM Reply Like
  • zaw77
    , contributor
    Comments (45) | Send Message
     
    Hi Paul, thanks for update, I sold out today in pre-market high, and bought back at $14.90 - made some money and again full loaded. Regards, Chris
    10 Jul, 04:10 PM Reply Like
  • Paul Mosgovoy
    , contributor
    Comments (113) | Send Message
     
    Author’s reply » Well done,

     

    We will have to watch the TZA low of today at 14.73. If the IWM is in a powerful reversal, that may be a place to put a stop.

     

    Tomorrow may give more clarity.

     

    Paul.
    10 Jul, 04:34 PM Reply Like
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