I, Matador... and the Taming of the Bull

By: Joseph Russo | Wed, Feb 8, 2006
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Financial markets have long been a venue of intrigue, perversity, excess, and mysticism of sorts. As such, many of the baffling conundrums through out financial market history have led to many catch phrases. One such phrase is that "The Market is Always Right."

It Takes Two Baby...

It is our contrary stance that markets are always wrong. The value of anything is simply the current price to which the last two parties agree, at a specific moment in time.

This rather emotionally charged mechanism is all that is required to set a plethora of market prices on a daily basis. Opportunities arise when at any time, participants involved in the discovery process have false incentive, are incited by fear, greed, or ignorance toward a compulsion to agree on price levels further and further away from the most basic tenets of reason relative to the time period at which the price discovery is taking place.

Such opportunities present themselves intra-day, while larger imbalances are recognized months, or even years after excessive maladjustments. The level at which a given market is quoted vs where it "should be" fundamentally, technically, or otherwise are rarely one in the same.

Caught In the Crossfire...

Price discovery exists in a perpetually dynamic state of flux. Thus is our argument that the current market price is always wrong at its inherent common denominator. That said, it becomes a foregone conclusion that at any moment in time, half of all adversarial market participants (traders) are dead wrong.

Many participants jump back and forth to the various sides of price discovery in an effort to join with those in the "right" for the moment. Some may be reducing size and taking profits, while others are attempting to gain initial entry, while yet others may be getting out for good.

Come As You Are...

Investing or Trading "Nirvana" may be defined as getting "long" or "short", on the right side of a market either early on, or in the middle or final phase of a super extended long-term directional mega-trending market. In this case, "The Trend is Your Friend."

We should add to this particular catch phrase that yes, "The Trend is Your Friend," (contingent upon where and when you get in and out of it, and shall remain friendly until such time as it ultimately terminates its existing larger degree cycle.)

Sweet Emotion...

The price discovery process being one of great emotion is fraught with frailty and temperament, subject to change on a moments notice, and then change back again. Where are these larger degree terminals? Where does it all end? In short, it never ends!

Safe-Haven...

Safe-Haven authors, whom we greatly support and admire, are rather generous in sharing with us, pending fundamental and technical arguments relative to present and future price discovery imbalances that we all should remain cognizant of and highly regard.


Looking for Clues...

Many such arguments presented have immediate and direct impact, while others go ignored only to become quite relevant many months hence. In the interim, astute investors, institutions, and traders alike are searching for answers to back their short-term positions and long-term portfolios.

And the Answer Is...

May we boldly suggest that most all of the immediate and long-term answers lie simply in the proper interpretation of the footprints left behind by the collective culmination of pairs, telegraphing motive and intent via price patterns graphically expressed on a simple bar chart.

Can You See What I See?

What then is the best way to perceive this fragile process of ongoing emotional price discovery? Is there a discipline or group of methods by which we can accurately discern what the discovery process is inferring? Is there some high tech algorithm, inter-market interface program that can tell us when to go long, short, stand aside, or hold various sectors and indices? Perhaps there is, but we suspect it is a bit simpler than that.

Hold On Loosely, But Don't Let Go......

After more than 15 years of trading, investing, and intense study of financial markets, it is our firm opinion that good old fashion chart analysis with proper application of Fibonacci Ratios, Trend Lines, and Elliott Wave Theory is just about all one needs to navigate the markets safely, and with the highest levels of confidence.

As many have in the past, and as many more will do so in the future, shall come to find out the hard way that this seemingly common sense approach is without doubt, quite a lot easier said than done. There remains one small and elusive aspect of executive application that gets smack in the way for the majority of participants. That small but poisonous fly in the ointment would be that of sweet emotion.

It still takes two baby....

So what is the solution? We are of the firm belief that the solution rests upon the distinct separation of analysis and execution. In our opinion and real-time experience, incorporating such a strategy yields far superior performance.

I Can See Clearly Now...

Over the years, similar to the two party price discovery system, we have found the best approach to assertively navigating markets successfully also requires two parties. We have metaphorically morphed and characterized the navigational process of these two parties to that of a "Matador" as he masterfully orchestrates the "Taming of the Bull."

We emphasize, "Taming the Bull" simply because at the very largest degree of trend, equity markets are inherently bullish. They unfold on an upward path of progress with intermittent episodes of pause and regress. Some such episodes are brief and painless, while others may be prolonged, frustrating, and costly.

"I, Matador"

We have coined this engineered dual state of control, "I, Matador."

The notion of "I, Matador" embraces the concept of two distinct operational arms. The "navigation" arm and the "tactical" arm. However, unlike the two adversarial parties agreeing upon and setting price in the course of discovery, the two arms of the Matador act in tandem, sharing the same objectives, while focusing their respective concentrations distinctly apart from one another.

Hungry Minds Are Never Fed...

Matadors as we have described them, do not prognosticate, hold onto, or ballyhoo grand predictions. Nor do they aspire toward Guru Status. It is strictly the successful execution, and ongoing process relative to the immediate business at hand, that may then only temporarily satiate the incessantly starving mind of a Matador.

I'm Your Captain...

The navigation arm continually monitors and accurately plots the safest most reliable course, otherwise known as the dynamic market forecast. The "navigators" nourish the tactical arm with regularly updated road maps inclusive of destination targets, detours, short cuts, risks, and potential hazard zones. The navigation arm is NOT emotionally concerned with open profit, or loss as they are entirely removed from the highly charged adversarial discovery process itself. The singular focus of the navigation arm is continuous identification and anticipation of dynamic directional movement across varying degrees of trend. Its prime directive is feeding this vital information to the tactical arm, which then deploys it to engage in the adversarial discovery process.

Ride Captain Ride...

The "tactical" arm is the second part of the duo, which extracts the key directional information provided by the navigation arm. The tactical arm assimilates the information to suit their varied objectives, and with calm assertion, applies it to their advantage upon taking part in the otherwise emotionally charged price discovery process.

It is up to each tactical team to fully develop and strictly adhere to a diligently managed risk strategy based upon adequate resources and realistic objectives. The singular tactical focus is to act prudently, with an assertive calm discipline strategically engineered to execute pre-planned assaults based upon the directional coordinates received from the navigation arm.


Go On; Take the Money and Run...

The tactical arms sole purpose is to book profit, and manage risk exposure relative to the time frame and risk at which each team is geared to travel.

One is a Lonely Number...

Together the two arms become one, morphing into "I, Matador. Neither bullish nor bearish, their combined stature is that of the most brilliant Matador, masterfully orchestrating his will over the most dangerous adversarial terrain. As "Brothers in Arms," they assert their skill with deadly force in the face of an opponent far more powerful than they as one.


 

Joseph Russo

Author: Joseph Russo

Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology

Joseph Russo

Since the dot.com bubble, 911, and the 2002 market crash, Elliott Wave Technology's mission remains the delivery of valuable solutions-based services that empower clients to execute successful trading and investment decisions in all market environments.

Joe Russo is an entrepreneurial publisher and market analyst providing digital online media solutions designed to assist traders and investors in prudently and profitably navigating their exposure to the financial markets.

Since the official launch of his Elliott Wave Technology website in 2005, he has established an outstanding record of accomplishment, including but not limited to, ...

  • In 2005, he elicited a major long-term wealth producing nugget of guidance in suggesting strongly that members give serious consideration to apportioning 10%-20% of their net worth toward the physical acquisition of Gold (@ $400.) and Silver (@ $6.00).

  • In 2006, the (MTA) Market Technicians Association featured his article "Scaling Perceptions amid the Global Equity Boom" in their industry newsletter, "Technically Speaking."

  • On May 6 of 2007, five months prior to the market top in 2007, though still bullish at that time, he publicly warned long-term investors not to be fooled again, in "Bullish Like There's No Tomorrow."

  • On March 10 of 2008, with another 48% of downside remaining to the bottom of the great bear market of 2008-2009, in "V-for Vendetta," using the Wilshire 5000 as proxy, he publicly laid out the case for the depth and amplitude of the unfolding bear market, which marked terminal to a rather nice long-run in equity values.

  • Working extensively with EasyLanguage® programmer George Pruitt in 2010 and 2011, the author of "Building Winning Trading Systems with TradeStation," he assisted in the development of several proprietary trading systems.

  • On February 11, 2011, he publicly made available his call for a key bottom in the long bond at 117 '3/32. Within a year and half from his call, the long bond rallied in excess of 30% to new all time highs in July of 2012.

  • For the benefit of members and his general readership, he responded to widespread levels of economic and financial uncertainty in the development of Prudent Measures in 2012.

  • He publicly warned of a major top in Apple on October 26, 2012 in the very early stages of a 40% decline from its all time high.

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