INP and DUST update

I try not to care about macro events and FED decisions etc. I wan't to be purely technical. So I just conclude that for whatever reason a bunch of charts had an interesting day yesterday. In the case of INP it completed a downward move comparable to the last leg up. So what's next? While it's not possible to know the exact shape of the supprting floor for the megaphone pattern of INP it can at least be estimated to be somewhere in either of the two concave lines drawn on the chart below. (The chart is 3X reversed) It's possible that the momentum will push the chart even lower put pretty soon we should see a bounce and a crawl up towards the trendline. I pointed out two possibles scenarios. Both are the same move, it's just a matter of scale. The point is that soon a bounce towards the trendline should be expected. It could be played both on the up move before the trendline is reached and on the downmove after.

Regarding DUST, a bounce towards the trendline is what just happened. But personally I got greedy and wanted to get in at the last minute so except for an initial small position I didn't make much money on this latest move down. I thought the bounce would go just a little bit further up at the 40 level.

After this latest fall in DUST I don't have any read on what DUST is going to do next. The megaphone pattern is finished and I have to greatfull that it was a predictable and profitable pattern. There could be a second attempt towards the trendline but it's nothing I'm going to bet on. If there is a second attemt for the trendline it would be as a new megaphine pattern starts. It's possible that happens, especially considering how big the latest megaphone pattern was. Then DUST is very tradable again, but for not I'm just going to keep my small short position at least for a few days longer and continue to look for megaphone patterns in general.

Exiting India ETF and exits in general

I write a lot about entering trades and not so much about exiting trades. That's because exiting is much harder and I haven't focused as much at theories for exits as I have for entrys. I regularly do blog posts when I enter trades and then do not bother to post when I exit. I'm not as sure about the exits and quite often I'm happy with getting some money out of the trade and then forget about it. But with the megaphone pattern (my favourite) there are some hints when it might be a good time to exit a position.

The megaphone pattern is a series of increasingly larger spikes, usually set on a concave supporting floor. Now please excuse the artistic quality of the illustration you are about to see.

Once the chart breaks the supporting floor it tends to look for a test of this floor from below, smash in to it and head further down. My preferable way to play the megaphone pattern is to short what looks to be a big spike. 

A typical example of this is the post i did August 28. On ordinary stocks and ETFs I search for the megaphone pattern by reversing charts and magnifying the daily movements 3X so the chart mimics the 3X daily leveraged ETFs where the megaphone pattern can be found frequently. So 20 days later the 3X reverse chart of the INP looks like this:

So the question for finding the right exit is where is the chart in relation to the support floor. 

Are we here?

Or rather here?

I would argue something close to the latter since the floor line is more concave and symmetric. So there is a high likelyhood the support floor has been broken and the latest spike has almost gone all the way down as it first had spiked up. There is still a high likelyhood that the symmetry of the spike will be completed and that it will move down to the same level as it started before moving up. There is also a high likelyhood that this chart will test the support floor sooner or later. With this in mind we have definetly entered the exiting zone of this ETF. While a few more percents might be made I took the money today and decided to exit INP with a decent profit. But keep in mind there might soon be a second chance to make a trade if there is a test of the support floor coming.

India in reverse

And India is in full blown reverse mode today. I havn't checked Indonesia but can only guess. The predictability of the megaphone pattern is strong. It's a high likelyhood that the bottom is in but not garanteed. Further spikes can come and then I will allocate more money to this trade. I'm currently only about 24% of portfolio commited. It is hard to know at what point the BOT exactly is turning, and I want to keep adding money to the trade on the way so that a big portion of the money in the trade is near the turning point. Unfurtunaltely I didn't feel I did that good enough on this trade. More money could have been placed near the turning point. This is the only big trade I'm involved in at the moment so I could have allocated more than 24% at this point. I have the opportunity to go to leverage if needed so even 100% portfolio allocation would have been ok, especially considering I used only non leveraged ETFs for this trade. I have to start out smaller and increase the size of the bet for each day the trade is building. No day should have betting that is smaller than the day before if the BOT is continuing to build. I should evaluate probabilities of high high the BOT can go to see how many days I could at maximum endure before all my capital is used. The big misstake was probably yesterday when I could really smell a turning point but still didn't bet aggressivly but just added marginally to the existing position. This will be a profitable trade but the point is to maximize profit/risk taking in each trade.

India

India ETFs are now in full blown megaphone pattern mode. This usualy only ends one way.

INP (3X Inverse)

I am now about 21% of total portfolio commited in India and Indonesia ETFs. From that position the loss is about 7-8% percent so far. I will continue to add on further declines.

India close to a short term bottom

INP (3X reversed) in megaphone pattern

News from India is very bearish. Volume in most India ETFs spiked two days ago. Yesterday was a 5% down day. (15% up on the 3X reverse chart) A reversal day is close. However it still might be early in the general megaphone pattern with more tops to follow. The correction might be short lived and a bigger spike might start to form. Another possibility is that this might turn in to an even bigger spike right away. That would be a gift and should be betted aggressively. Anything up from here should be betted but with some caution that this is most like not the end of the pattern. The risk in situations like these is that the pattern will not go below this point for months from here. I studied a lot of megaphone patterns and I would say that this pattern is beond that point now. People who played the second largest top from here might have their money trapped for some time but people who play this top most likely wont.

Ideas for Monday

Real estate ETF looking almost ready. I'm hoping for an overshoot (when the stocks breaks the exponential curve but still moves higher, usually in the end of a BOT) to enter. Unfortunately there are no stocks available for short sale at my broker. Alternatives are SRS or going long an unleveraged ETF, there are plenty to choose from. In those cases I pick the one with the highest volume. Volume has value. JP Koning in his excellent blog on monetary matters calls this liquidity premium.

This is REZ, a regular real estate ETF, with the chart altered 3X and inverted. It is looking totally ready.

Brazil bear ETF BZQ is not quite ready to be traded yet (A general rule of stock trading I believe in is that it is better to miss opportunities than to do mistakes) but looks very interesting. I wonder where it is going with this. 

This is an India ETF. I don't think there is any 3X bear India ETF available. Taking a regular ETF and inverting it and expanding it 3X shows a better picture of what's going on. The chart is clearly spiking inside a megaphone pattern. My favourite pattern to trade. That the latest gap down is so big shows there is a lot of momentum in the movement. If the spike is not bigger on Monday then it means it spiked when the market was not in session. This is close to a trade, Monday will tell.

I'll plan to do a post (no promises) with regular stocks in inverse BOT/Megaphone patterns before Monday but ETFs are my first priority.