Discussing the E-mini S&P 500 today, Equity Management Academy CEO said:
The E-mini is at a critical level in relation to the daily and weekly signals as determined by the artificial intelligence of the Variable Changing Price Momentum Indicator (VC PMI)."
The weekly chart as we come into this week, which we published in Seeking Alpha on Saturday, said that the buy 2 (B2) level was 2767 and the buy 1 (B1) level was 2800. The market as we came into this week traded below 2800 and now has activated the B2 level of 2767.
"What is important to point out," MontesDeOca said, "is that when the VC PMI identifies the price to be in blue, it represents that this area is the highest probability of accumulation of demand, where you can expect buyers to appear."
On the weekly chart, coming into this week, the market was trading above 2800. If the market comes down and activates the 2767 level and it closes above it after the setup is in place, it activates a weekly trigger point or buy signal with a 95% probability that a reversion will unfold from here back to the mean of 2838.
Based on the weekly signal, we went long at 2769 with a stop at 2767. The market is at 2783.75. Your first target is 2800. A close above 2800 activates the mean as a target at 2838. You can trail position with a stop.
For the daily signal, the B2 signal was 2774. The market activated a buy signal at 9:15 am at 2775.56. If you are a day trader, the VC PMI's structure identifies the stop as the level below, which is 2774. You are long from 2775.56, your stop is 2774, and your first target is 2789. If you have multiple positions, you can sell part of it at your first target, trail stop balance and then wait for the market to confirm on a close above 2789, which would activate the upper target of 2815. When the price reaches these levels, we go back to neutral. The daily, weekly, and monthly cycles use the same concepts, just based on different data sets.
The reversion to the mean has confirmed a buy trigger point on the daily charts from 2774 and the weekly from 2767 with a 95% probability that the price will revert back to the mean. The daily mean is 2815. The weekly mean is 2838.
"This is what we call a harmonic alignment in the trends as defined by the artificial intelligence of the VC PMI," MontesDeOca said.
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 am/we are long SPXL. 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.