This is the VC PMI Early Bird Daily Special Update for December 6, 2018.
As I write this, the E-mini S&P is trading last at 2,653.50 down 48.25. The average price for today is 2,729, and the market has come down into the area of our proprietary artificial intelligence algorithm Variable Changing Price Momentum Indicator (VC PMI) buy 1 (B1) level of 2658. The buy 2 (B2) level is at 2,634. These are the B1 and B2 levels of demand for the daily numbers.
A close above 2,668 would trigger the buy signal if activated, or if we come down to 2,634 and test that number, it would activate the buy signal if the closes above it. If the buy signals are activated, the first target would be 2,668. A close above 2,668 would activate 2,727. This is on the daily chart. The extreme above the mean is 2,663 at the sell 1 (S1) level, while the sell 2 (S2) level is at 2,824.
“The market has come down precipitously from that 2,804 target we had last week,” Equity Management Academy founder and CEO Patrick MontesDeOca said, “and we are almost at the extreme below the mean, which is a very good indication that prices or the volatility is beginning to increase. Once we get out of either side of this trading range we have been in, we are going to see much more volatility.”
The levels of the B1 and B2 have been tested several times from October 29 to November 23, and as we look at this test today, Patrick and I agree that we could be in the completion of a triple bottom confirmation as we move into the next cycle period. This cycle should be completed by December 6, in the same way the VC PMI analysis told us about a potential top coming in here during the early part of December.
“We seem to be accomplishing this swing down correction very rapidly and it leads me,” MontesDeOca said, “by looking at the weekly reports that we are in a very, very important harmonic level of support.”
The B1 level on the weekly VC PMI analysis is at 2671, while 2,584 is the B2 level.
“I’m not so sure that for the time being we are going to be able to come down to 2,584, as much as reverting,” MontesDeOca said, “which is what I am looking for from this area of demand on the B1 and B2 on the daily above 2,668.”
Meanwhile, the monthly VC PMI analysis has kicked in a buy signal from B1 at 2,650. As I write this, the market is trading right around that price.
“I am beginning to see all of the trends aligning themselves harmonically around this price level,” MontesDeOca said, “which is what we look for in order to confirm that the previous pattern has been completed.”
That would be confirmed for the daily, weekly and monthly VC PMI analyses by closes above 2,650, above 2,668, and above 2,571, which would confirm that all three trends have bottomed - an excellent time to go long.
Precious Metals: Silver
This cycle period also brings into question the precious metals, gold and silver. We have activated a buy signal here for the silver market.
Silver traded last at $14.5450. The daily average price is $14.62. The extreme below the mean of the B1 level is at $14.49. The B2 extreme below the mean level is at $14.43.
The average price above the mean (S1) is at $14.77, with the S2 extreme above the mean level at $14.90.
The market is currently trading above the B1 level. The market has activated a buy signal on the daily VC PMI analysis, but we’ve seen a significant harmonic alignment at these levels that bring into the picture some cycle work that we do.
“The various trends appear to be aligning themselves for a potential rally, similar to what we saw in 2016,” MontesDeOca said. “Let’s continue to get confirmation on this and take advantage of these potentially harmonically driven levels of demand. The metals and the stock market appear to have reached extreme levels of the relative implied volatility, which is a great time to get on the long side.”
The VC PMI Automated Algorithm
We use the proprietary Variable Changing Price Momentum Indicator (VC PMI) to analyze the precious metals markets. The primary driver of the VC PMI is the principle of reversion to the mean ("Mean Reversion Models of Financial Markets"; "The Power of Mean Reversion in Factor-Based Investing"), which is combined with a range of analytical tools, including fundamental logic, wave counts, Fibonacci ratios, Gann principles, supply and demand levels, pivot points, moving averages, and momentum indicators. The science of Vedic Mathematics is used to combine these elements into a comprehensive, accurate, and highly predictive trading system.
Mean-reversion trading seeks to capitalize on extreme changes in the price of a particular security or commodity, based on the assumption that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and buy low when an abnormal low occurs. By identifying the average price (the mean) or price equilibrium based on yesterday's supply and demand factors, we can extrapolate the extreme above this average price and the extreme below it. When prices trade at these extreme levels, it is between 90% and 95% probable that prices will revert back to the mean by the end of the trading session. I used this system to analyze the gold and silver markets.
Strengths and Weaknesses
The main strength of the VC PMI is the ability to identify a specific structure with price levels traders can execute with a high degree of accuracy. The program is flexible enough to adjust to market volatility and alerts you when such changes take place, so one can adjust strategies accordingly. Such changes include when the market breaks out of a consolidation phase or a trend accelerates. Such volatility usually happens when the market has produced a signal at the S2 or B2 level, and the market closes above or below these extreme levels. The day trading program then confirms that a higher fractal in price has been identified and the market will move significantly higher, although the same principle applies if the market falls significantly. By the price closing above the S2 level, it indicates that the buying demand is greater than the supply. This means that the market has found support for the next price fractal. Conversely, the price closing below the B2 level indicates that the selling pressure has met demand greater than supply at the extreme below the mean, and prices should revert back to the mean.
The basic concept of the VC PMI is that the program trades the extremes of supply and demand based on the average price daily, weekly, and monthly.
The strongest relationship we find in the algorithm is when the daily price is harmonically in alignment with the weekly and monthly indicators. We call this "harmonic timing." Such an indication produces the highest probability (90%) that the price will revert from these levels to its daily, weekly, or monthly average.
The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.
Seeking Alpha Marketplace
We now offer a Marketplace subscription service called Mean Reversion Trading on Seeking Alpha. Please take advantage of this excellent opportunity to learn how to apply the proven VC PMI to the markets. We are still be offering various summaries of our reports based on the VC PMI on the free part of the Seeking Alpha site, while subscribers gain access to regular full reports for gold, silver and the E-mini S&P, as well as Early Bird reports when the market requires them.
Subscribe to my Seeking Alpha Marketplace service, Mean Reversion Trading for regular weekly access to the VC PMI gold, silver and E-mini S&P reports. Get precise buy, sell and stop prices to trade with confidence. Try it today with a free two-week trial.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am the Director of Research for the Equity Management Academy. I write the articles for the Academy.