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|About: Huron Consulting Group Inc. (HURN), MRCY, UUP, XOM

CGTS Algo Trading System

byMichael Clark

LatestGetting Started



Oct. 12, 2018 7:36 PM ET•UUP, HURN, MRCY, XOMComment!

I came across a FED FUNDS RATE chart showing the last 30 years. We are worried about rising rates? Now? Rates are still pretty low, from an historical perspective.

We ran our INTERNALS again, to inspect the damage of the last couple of days. SOME damage, no doubt. Not catastrophic, in my view. Of course it could get worse. Changes since 10/9, two days earlier: COUNT1=1 (BULLISH) down 6.7%, to 434. COUNT1=2 (Bullish CORRECTION), up 5.91%, to 425. We want this type of transition, 1 to 2 and NOT 1 or 2 TO 3, which means GAME OVER for Bulls. Overall Bullishness (C1=1 and C1=2 fell from 75.5% to 74.63%. Our volatile market gauges have both fallen under 50% bullish: Prop2: 46.31; ST TREND: 46.48%. In a real correction these gauges will get down into mid 20%. We are not there yet. May not get there.

When C1=1 deflate and become C1=2, this suggests only a correction -- and that the Bull Market is still in place.

Our Major Stock Trading System M5AB BASIC has 417 LONG trades and 125 SHORT trades, 76% BULLISH. I was keeping another index, M2F ALT WEEKLY DIFFERENTIAL. It was so BEARISH earlier in the week I stopped trusting it. I have it back now. 794 issues are below zero in terms of M2F ALT WEEKLY DIFF; and only 349 above zero. 30.5% BULLISH. It went negative last week and I thought it was some kind of mistake. I'm going to watch it closely now. It may also tell us when it is safe to go long again. We'll see.

Leadership? What is leadership?

I have been engaging in SA discussions lately. One writer defended Obama, saying he was elected to "fix the economy". My understanding is that the job of the Democrats, among other things, is to lessen the gap between the rich and poor -- asset equalization -- to help avert civil war.

Obama knew NOTHING about economics. Because of this, he turned everything over to the "experts" (Bernanke, Paulson -- is Paulson the Devil? -- and L'il Timmy Geithner). They increased the gap between the rich and the poor 10-fold. Obama SHOULD have known something about economics; I think Obama's specialty was "social justice".

America voted Obama in because he promised CHANGE. He could have dismantled the TRUSTS like Teddy Roosevelt did; instead, like Bill Clinton before him, he joined the country club.

The only "thing" Obama did was Obama-Care, which was a disaster, because it was a health care proposal to please everyone, especially the insurance companies and medical conglomerates. If we want a health-care solution, we have to first pop the medical bubble and start over again from scratch.

The economy is not FIXED. Look at the massive debt loads all around the world. That is not a FIXED economy. That is an economy put on IV with a steady drip or money from the future.

Our presidents do not have to be geniuses or saints. They just have to do their part, and let Time heal things. Time is driving.

Obama was graceful, articulate, thoughtful, charming. He was not a leader; he was a manager. I read somewhere on these boards: "Since Trump America is not the leader of the free world any longer."

What is a leader? Is he the guy who gets everyone in a room, writes down everyone's opinion, tries to find common ground, manages the group consensus, comes up with a plan everyone can live with? No, that is a consensus manager. The Democrats today think that is leadership -- too much Mother mentality. A leader takes a country often where it does not want to go, but where it needs to go. A leader leads, it does not follow group consensus. It does not follow polls and campaign strategists. Real leaders strap the world on their back and carry the world into the future, often when the world is screaming and accusing and demanding attention, fearful of going forward, not certain what "forward" is or means. Great leaders go alone where they need to go. People have to learn to follow again. They have grown accustomed to listening to their own opinions and thinking leadership is just talking.

JUST DO IT. When Nike came out with its famous advertising motto in the 80s, my brother, cynical, responded: "Yes, Just Do IT, Don't think about it first." My take was quite different: "Just Do It, Don't Talk About It."

Historically, stocks follow the Business Cycle. From my book TURN OUT THE LIGHTS:


1911 (1923*) DJIA @ 75.23 - 1929 DJIA @ 331.65: BUSINESS (INFLATION) CYCLE: Positive 400% = +67% per year.
*limited data, DJIA prices not going back to 1911.

1929 DJIA @ 331.65 - 1947 DJIA @ 175.66: DEFLATION CYCLE: Negative 47% = -3% per year.

1947 DJIA @ 175.66 - 1965 DJIA @ 854.36: BUSINESS (INFLATION) CYCLE: Positive 386% = +22% per year.

1965 DJIA @ 854.36 - 1983 DJIA @ 1045.07: DEFLATION CYCLE: Positive 22% - +1% per year.

1983 DJIA @ 1045.07 - 2001 DJIA @ 10,604.59: BUSINESS (INFLATION) CYCLE: Positive 915% = +51% per year


What SHOULD have happened is that the FED should have slowly begin raising rates in 2001, and continued tightening slowly through 2019. This would have avoided our BUBBLE ECONOMY and the majestic accumulation of debt globally. The FED wanted to be the hero, and heroism assumes PERPETUAL GROWTH in the economy. But NOTHING grows perpetually. Watch Nature. Gestation is a season (SEED TIME); Flowering is a season (Spring); Fruiting is a season (Summer); Harvesting and Death is a season (Autumn). No perpetual growth. Everything we ARE and produce and create intellectually is subject to these laws of Nature.

So we have a huge FED GORGING BALANCE SHEET, which it is now deflating, UNWINDING. Don't judge the FED's GORGING as a success until the UNWINDING is completed and the Necessary Deflation Season is finally confronted. The BERNANKE FED did not FIX anything, it postponed something. It postponed the NECESSARY UNWIND of debt accumulation.

2019, Growth Season begins again. Can we GROW our way out of Debt? That is the only question. If we can, it will teach us how to deal with cyclical deflations, and Bernanke will be a god. If we can't, then we will learn that DEFLATIONS (serial recessions, depression) are necessary and we need to plan for them to return cyclically: 1929-1947, 1965-1983, 2001-2019; 2037: 2055....

Business Cycles last 18 years: ...1911-1929; 1947-1965; 1983-2001; 2019-2037....

Nature has seasons. Man-in-Nature has seasons also. History also has seasons. We do not get to have Summer (heat, expansion, wealth,economic joy) perpetually. We are not children in a candy store.

Democrats (women) love to talk about it. Dems confuse consensus (expressing opinions) with THE TRUTH and with action.

THE MARKETS bounced back today. Love to see that VIX go down.

CUR3: New Position, ZARCAD, SHORT, S African Rand vs Canadian Dollar. Our intention is to focus even more on currency trading next year, when we get more time and more health.


CUR6. This is our LTerm Currency trading system. CUR3 is for short-term trading. No new trades today.



No new trades. SHORT Report.

LONG Report.


A lot of new LONG TRADES. Has oil had its beat-back?

ERX is one of my favorites generally -- but it seems to be in a consolidation pattern.

We did not show NDX above, as we usually do. You will notice that NDX (and UDOW, and QQQ) are on our BUY LIST above.

SHORT Report. No new trades. But look how the most recent SHORTS are telling us that this correction in stocks is about over.

If we look at SPXS, BEAR SPX, 3x, from the historical perspective (central pane of chart) we can see how feeble this sell-off has been so far. We are still in the grips of a BULL MARKET. When the BULL has ended, we will have MOMO breaking through upside resistance -- it is not even close to doing that at this point.

What do I mean by this, MOMO breaking through upside resistance? Well I had to look for a bullish chart to show what I mean. See the central pane below for an example of this.

Here is our traditional NDX chart, for those of you who like to compare. Both COUNTPoint3 and COUNTPoint6 (our currency traders) went to 2 during the selling, TRADING SELL (BULLISH CORRECTION). PROP2 SPIN and COUNT1 SPIN did not. They remain at 1, BULLISH; M2F ALT3 says we are ready for some BUYING.

Let's look at the USD (UUP) and our FED UNWIND narrative -- we believe the FED is scalping China and EM-markets with its Dollar destruction UNWIND, which is bad for global markets in the short-run but GOOD for the Dollar and America in the long run.

The Dollar is now OVERSOLD according to M2F ALT3 (top pane). Note the two "bottoming processes" as shown by PROP1, bottom pane. In the first, Jan 2018, COUNTPoint6 Spin bolted up to 2 -- TRADING SELL. COUNT1 Spin did not. In the current "bottoming process" neither Count System bolted up to 2. Meaning there was not really much selling in this sell-off.

CHINESE STOCKS? M2F ALT3 is turning up from OVERSOLD. But look at the authority of the bottom pane, PROP1. CHINA is being scalped by the FED UWIND and its essential destruction of US DOLLARS in circulation. A strong Dollar crumples global debt bubbles.

The arrow shows where we are; to the right of the arrow shows where we are going. The Lesson: don't take on more cheap debt just because it is there.

Here is another view of the same thing:

Note where the FED BALANCE SHEET was before BERNANKE SHRUGGED began in 2008. Also notice how the FED FUNDS (yellow) moves up as the BERNANKE SHRUGGED (BLUE) began to move down.

I celebrate the FED for doing this. Saving the Dollar is the number one job of the FED today. A stronger Dollar makes Americans richer. A weak Dollar allows foreigners to buy American Assets (houses, for instance) on the cheap. A stronger Dollar will allow Americans holding dollars to buy foreign assets on the cheap (businesses, homes, property). I do not believe in a strong Dollar perpetually -- but it is necessary NOW. It WILL deflate the world economy brick by brick -- and it will cause much pain -- I don't wish for this -- but, in the long run, it will reduce debt and prepare for the next Global Economy schedule to flower in 2028 and fruit in 2037.


We write about a lot of things in this newsletter. We want to re-commit to our first order of business, helping you to become financially independent. That is our ultimate goal.

We have only one new BUY SIGNAL today, HURN, HURON CONSULTING.

SHORTSELL Report. No new trades.

The markets are a bit shell-shocked at the moment.

Are you tempted to get into gold, into an EM country that has been pushed to the brink by the strong dollar? Turkey maybe? Don't.

PROP1 in the bottom pane shows you why you don't want to go anywhere near TUR except as perhaps a SHORT.

As we wrote last night, we are working to develop several M5AB BASIC based trading systems, systems which focus only on M5 for TRADING SELL TRIGGERS.

These systems are encouraging; and they are giving us a lot of BUY SIGNALS now, suggesting the BEAR is not as strong as it wants to be. We love SNE, SONY; and MRCY, MERCURY SYSTEMS (see chart below).

Have a good weekend all.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.