A Big Trading Opportunity Is on the Horizon
Editor's note: Some of the best trading opportunities are hiding in plain sight...
And the sign that a setup is coming could be as simple as historical cycles that play out. Ten Stock Trader editor Greg Diamond sees such an opportunity presenting itself, and he's telling investors that now's not the time to stay out of the market.
In today's Masters Series, Greg shares how one indicator is pointing to a brand-new trading opportunity...
A Big Trading Opportunity Is on the Horizon
I find it difficult to sleep when I see upcoming events in the market start to take shape.
I use W.D. Gann Natural Dates to help me "see" these setups...
W.D. Gann was a technical trader back in the 1900s. He predicted the 1929 stock market crash and the bottom in 1932. He's also known for predicting presidential-election outcomes and even wars. Gann used unique methods based on price, time, geometry, and even astrology to forecast turning points in the market. He is widely considered one of the best traders to ever live.
I utilize many of Gann's methods, and today I want to show you how one of them points to a new trade setup...
Gann discovered certain dates within a year, what he called a permanent yearly cycle, where stocks and major indexes tend to make major inflection points. These are referred to as Gann Natural Dates. These dates don't change much from year to year, hence a "permanent" cycle. Look for turning points, either a high/low/breakout/breakdown around these dates...
- February 8 to February 10
- March 20 to March 25
- May 3 to May 7 and May 20 to May 23
- June 20 to June 25
- August 3 to August 8
- September 3 to September 7 and September 21 to September 25
- November 8 to November 11
- December 20 to December 27
And the Natural Dates we're entering (starting this week) are similar to a tornado siren going off in a Midwestern town...
You don't ignore the siren and go have a picnic outside. You hunker down and prepare for what's coming.
Now, I'm not telling you this is a market crash.
I'm telling you there's a trading opportunity. And it's a big one. That's why we want to prepare now.
So today, I'll show you the evidence of what I'm seeing based on time and price.
Before I get into that, I want to quickly share a few things about Elliott Wave Theory to help explain what I'm about to show you.
R.N. Elliott first discovered the tendency of prices to move in "waves."
Specifically, he discovered that prices move in sets of five waves or three corrective waves that have specific characteristics.
When a stock is moving up, it will track five waves into a top. When a stock is moving down, it will track five waves into a bottom.
Here's an example of an uptrend with the wave counts labeled...
Note how when the S&P 500 completed Wave 5, a big decline unfolded. Also note that there are three "advancing waves" (Waves 1,3, and 5) and two "corrective waves" (Waves 2 and 4).
Corrective waves can be challenging and confusing and sometimes lack direction, but they're usually part of a three-wave move. Here's an example from 2015 to 2016 in the S&P 500...
Note the A, B, C waves in green – a large multimonth corrective rally that unfolded in the S&P 500 before resuming its uptrend.
With that explanation of how Elliott Wave Theory works, let's take a look at a recent development...
The midterms are over, and the futures market dropped initially but rallied back with strength that mirrored many Election Day setups we've seen in the past.
This also lines up with the cycle data I've put together going back to 1900, along with the current Elliott Wave setups we've been tracking. Throw in the Gann Natural Dates coming up, and these setups look promising.
Here is a chart of the Nasdaq futures...
The price action Tuesday night formed a "hammer" candlestick pattern (a long black line or handle with the positive green hammer) that usually "hammers out a bottom."
The Nasdaq futures came close to making a slight swing low and a near-perfect symmetrical move (the black boxes).
With the recent low and subsequent rally, there are still two favorable setups I'm watching heading into the Gann Natural Dates as we enter this week:
- The low is confirmed as of Wednesday morning, and we see a higher low develop with a big rally thereafter (the blue swing line on the chart).
- There is one more swing low to take out that previous swing low back in July (the A Wave on the chart) before the rally takes place.
Looking at the S&P 500 futures, there is a slightly different, albeit more powerful, setup to consider...
The S&P 500 futures chart made a higher high in August than that of the Nasdaq, and as you can see, I've marked this wave with a "1" in red.
That means the "ABC" correction (a three-wave pattern that counters a previous trend) in blue just completed alongside Wave 2 in red. What comes next?
A Wave 3 higher into the end of the year.
In short... this is going to be a very exciting time to trade.
As I've written recently, I expect a lot of volatility from here, with highs and lows that we can use to our advantage. And we can use tools like Gann Natural Dates to help guide our trades as it unfolds.
So if you've been sitting on the sidelines lately, now might be a good time to reconsider. Windows of opportunity like this are rare... Don't miss it.
Good trading,
Greg Diamond, CMT
Editor's note: Greg has doubled his money 28 times – each within 18 days – using one strategy. He has spotted a peculiar pattern that occurs following midterm elections, and it's about to appear again. But this time, you could triple your money before the end of the year.
But this window of opportunity won't be around for long. Investors only have a little time to prepare. After that, the conditions in the current bull market could drastically change. To hear Greg's warning and prepare for the "Doubling Window," click here.