E-Mini 500 S&P: Short-Term Targets Completed

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Includes: IVV, SH, SPXL, SPY
by: Equity Management Academy
Summary

As I write this report on May 16 at 12:44 pm, the high so far today was 2,894, which completed the upper end of the extreme above the mean target.

With the market at 2,874, below the average price of 2,884, it has activated a bearish trend momentum and a target of 2,829.

We are flat the futures contract and are waiting for the market to activate once again a trigger point, either above at sell 1 or below at B1.

This is the mid-week Variable Changing Price Momentum Indicator (VC PMI) Special Report on the E-Mini S&P 500.

An E-Mini futures contract signal was activated in our last report at 2,932. The stop was 2,929, and our target was 2,884. As I write this report on May 16 at 12:44 pm, the high so far today was 2,894. This completed the upper end of the extreme above the mean target. With the market at 2,874, below the average price of 2,884, it has activated a bearish trend momentum. The price has activated a trigger point with a bearish trend momentum and a target of 2,829 again.

Courtesy: TDAmeritrade

After the market triggered the buy signal on May 15, it completed a target that was prospectively anticipated in our report at 2,884. The VC PMI says not to trade at this level of 2,884; it is a 50/50 standard deviation. As a self-directed trader, you want to trade the highest probabilities identified by the VC PMI's artificial intelligence, such as if the market comes down to 2,829, the Buy 1 (B1) level, or if it were to rally up to 2,941.

What the VC PMI does for you as a self-directed trader is create a structure that uses the average price for the day, if you're a day trader, and it identifies the extreme levels above and below that mean with high probability factors. If the price comes down, as it did on the 15th to that B1 level of 2,829, there is a 90% probability that the reversion will occur, bringing the price back up to the mean, as it did today. This has completed the pattern of the reversion back to the mean, returning us to neutral. We are flat the futures the contract and are waiting for the market to activate once again a trigger point, either above the mean of sell 1 (S1) or below the mean of B1. The VC PMI is a transparent algorithm that gives you a definite structure with an entry point, a stop and an exit point. The market will then do the rest.

Summary

The signal that was activated from 2,932 has completed the target at 2,894, which is more than a 60-point profit or more than a $3,000 profit in three days by trading the E-Mini futures contract. The ability of the VC PMI to give directional figures is only one dimension that you as a self-directed trader can apply. Depending on your risk management and portfolio, you can also use the VC PMI reports to trade stocks and/or ETFs. Besides our trades in the E-Mini S&P, we have taken profits on SPY and SPXL. We are now waiting for a reversion and the market to come back down to give us a better buying opportunity or for the price to reach the upper end of the extreme above the mean to give us a better selling opportunity.

The VC PMI Automated Algorithm

We use the proprietary Variable Changing Price Momentum Indicator (VC PMI) to analyze the precious metals markets and several indices. 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's between 90% (Sell 1 or Buy 1 level) and 95% (Sell 2 or Buy 2 level) probable that prices will revert back to the mean by the end of the trading session. I use 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.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SPXL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.