Bookmark these new trading signals links. I’ll be pushing out a video shortly to explain the changes, which add Market Sentiment to the pre-conditions checklist. More about the pre-conditions checklist below.
Trading Signals 5.0
(Recovering Markets / Leveraged Short ETFs) In recovering markets that have been persistently bearish for weeks to months, I’ll allow for a bearish long-term trend, but then I insist that all other trading pre-conditions be at their strongest. Recovering markets can often be fake-out markets, so I always cut my risk at least by half. If I’m allowing for bearishness in the long-term, the intermediate trend must be bullish. No exceptions.
Since bear market conditions don’t last and are usually shorter (because prices tend to crash rather than float down), I’ll allow leveraged short ETFs to either be in bullish long or intermediate uptrends (or both). These ETFs are not designed for long-term holds.
(Bullish Markets) Long and Intermediate-term trends must be bullish.
Money Flow: It’s the magnitude of institutional buying & selling: Very Bullish above .2 CMF, Very Bearish below -.2 CMF. I would like (Chaikin) money flow to be at least Neutral + (about .05), signaling light accumulation. as a pre-condition to trend trade. In recovering markets, I insist that money flow is at least Bullish, (.1 or higher) and I check my chart to see that it has been persistent over the past few weeks. We need evidence of strong institutional accumulation over a period of time to confirm breakouts and bearish reversals.
Relative Strength v. SPY (90 Days): The ETF should be outperforming SPY over the past 90 trading days (4.5 calendar months roughly).
Compare 60 to 90-Day Relative Strength Trend: The magnitude of the ETF’s relative strength vs. SPY should be increasing when we compare a shorter time frame to the longer one.
Market Sentiment: The path of least resistance for stocks and ETFs is determined by the Market Forecast's longest-term indicator., Market Sentiment. The stronger the long-term sentiment, the more entrenched the long-term trend tends to be. Bearish market sentiment has a subduing effect on uptrends. Resistance tends to hold, requiring repeated attempts to break through and rallies tend not to last very long (support more easily gives way), though they do indeed occur despite a bearish Market Sentiment Indicator. I require at at-least mildly bullish market sentiment before I enter most trend trades. (In fact, mildly bullish market sentiment can optimal, because it implies that any potential long terms bullish rally is in its infancy.
Even though this indicator is part of the Market Forecast trading signals section of Mike O’s Trading Cheat Sheets, consider its reading an important pre-market checklist item as well. If I’m considering a bullish trend-following strategy, I require this indicator to be at least mildly bullish before I pull the trigger.
With bullish trends already established, money flow supporting price, and better price-performance vs. SPY that’s accelerating, ETF trading signals have a much better chance of working out and for trends to run longer (and profits), particularly if the Market Forecast indicator’s intermediate posture and sentiment are prognosticating an at least mildly bullish future. This checklist has really improved my trading results.
Since cheat sheets are designed for bullish trend traders, we’re sitting on our hands for the most part. This is a good time for a deep dive into how to get the most out of Mike O’s Trading Cheat Sheets.
I include signals on the inverse, leveraged ETFs. So, there are instruments to apply the signals to even if you just want to test them out and trade in a simulated account. Read more: https://mikeocheatsheets.substack.com/p/what-you-need-to-know-for-monday-0a1?r=1f0d05&s=w&utm_campaign=post&utm_medium=web
I updated the only two cheat sheets that matter right now, ETFs that are highly traded and liquid - short and long. One of the big pitfalls in a bear market is a lack of liquidity when everyone lines up on the same side of the trade. Bid-ask spreads widen, and even when you take a shot and pick direction correctly, the slippage when trying to get out can be bigger than the profitable move. Just look at some of the after-hours spreads between bid and ask right now. I’ve most certainly seen that during regular market hours on big “whoosh” days, even on ETF's that trade in the millions of shares per day. Specialists perform the role of liquidity providers, but they aren’t a charity. They’ll take the other side of a trade-only as a last resort in the absence of buyers or sellers only at terms favorable to them. Try getting out of illiquid security moving against you on a panic sell (or buy) day, and you’ll see what wide bid-ask spreads can really do an otherwise profitable trade.
For those anticipating a huge multi-day rip to the upside. It’s probably coming. The Market forecast can help. Look for the MF-I (green line) to make a “Trend Progressions Signal” above 20, confirmed by an MF-M (red line) close above 90 and a blue MF-NT line above 80. That may give us a chance to ride a short-term rip-roaring rally to the upside that lasts a few days, probably back up to broken intermediate support. Remember to wait until near the end of the trading day. The rally will likely ultimately fail, with an extreme intra-day reversal that can break necks. Trading with price targets helps. This is what makes bear markets hard. These rallies start as short sellers cover their trades to take profits. Eventually, suckers fear missing out and jump on the bandwagon, and then institutions wait for their chance to take their money and push prices lower and profit off new shorts. Bear markets suck.
I like trading option credit spreads in markets like these. It requires less riding the joystick. I simply spread out my strikes to diversify my risk, with small positions, and I don’t panic when there’s a counter-trend move. Risk-defined, out-of-the-money credit spreads (mostly in the direction I think the market is headed, which is DOWN), but I do take a few shots on bullish reversals. This can be especially rewarding on big down days. A bull put spread usually pays better then, and thanks to increased volatility, I get paid the same to move my strikes much further away from current prices. I sleep better at night. And I don’t wait until expiration to take profits. I set a limit order to buy back a spread once I’ve gained 50%. In bear markets, this can happen very quickly, when the market is making volatile swings.
For those interested in trading bullish leveraged short funds below. I stick to liquid-only ETFs for reasons similar to what I discussed above. The long-term signals showing now (10-week EMA crossing over 40-week EMA - remember - these go up when the market goes down) aren’t fully legit until the close on Friday. We need the weekly moving averages to cross once the trading candle for the week is fully formed. Bear market rallies could delay the inevitable. Since this is looking to be the beginning of a long bear market, I’m not afraid to trend trade the double short funds. But, all my disclaimers about holding leverage funds over a long period of time hold true. I use a 2.1 ATR stop below the 21-day EMA.
Trading Signals 4.0
Cheat Sheets 4.0 are in release and free during the beta period. The links are are regularly updated and made available in substack blog. Old links get decommissioned and replaced, new ones are sure to be available there, so look there first.
Remember the NFK rule when it comes to market direction. Nobody fuckin’ knows which way market prices are headed. But a convergence of the right data points, analyzed and acted upon intelligently, with proper risk management, can put the odds of being right (and profitable) on your side.
Just Released - Mike O’s Relative Strength Trend Trading Cheat Sheets 4.0
I spent the last couple of days making changes to Mike O’s Cheat Sheets, introducing some new trading signals which I had designed last weekend. If you bookmarked any old cheat sheet links, you should delete them. Hey, this is why Mike O’s Cheat Sheets are free for now — in beta and subject to revision. New links are below.
The bullish cheat sheets are mostly useless now anyway, because the bear market playbook is what we have open next to the reading glasses on the nightstand. But I’m sharing the most liquid, highly traded non-leveraged bullish ETF cheat sheets with you now because tomorrow, the pundits will come out in force suggesting that today’s down move was the washout we’ve been looking for to resume the prior bullish trend. They will talk about how this is a stock picker’s market and will allude to their expensive newsletter, results curve-fit to past prognostications that “prove” they alone are up to delivering an impossibly perfect track record in the face of all this bearishness (that will shower you in riches”. You’ll learn their secrets of directional trade assumptions that made them millionaires. And for a handsome fee, they will share their picks with you.
These bozos have one thing going for them…access to an incredibly potent drug stash from their high-end drug dealer on speed dial.
The rest of us may have avoided the hopium that comes with blind faith investing, but the truth is that no one really knows where the market is headed. That’s the truth. However, a set of good data, a proper approach to risk management and a willingness to apply smart analysis running a bucket of money you can afford speculate with and possibly lose, and we can doubt make a go of things.
Remember, if you guess correctly 4 out of 10 times, and deliver trading wins that double the amount of profits compared to losses, you can earn 15% compounded return on your money every year..
I’ll handle the good data part and explain some of my systems to you. Hopefully, that information paired your own internal wiring to be greedy when others are fearful (and vice versa) and you can may make a go of this trading thing.
Here is the revised Mike O Cheats you’ll want to review ahead of Friday’s trading.