Letters To The Editor

July 2010 Letters To The Editor

The editors of S&C invite readers to submit their opinions and information on subjects relating to technical analysis and this magazine. This column is our means of communication with our readers. Is there something you would like to know more (or less) about? Tell us about it. Without a source of new ideas and subjects coming from our readers, this magazine would not exist.

Address your correspondence to: Editor, Stocks & Commodities, 4757 California Ave. SW, Seattle, WA 98116-4499, or E-mail to editor@traders.com. All letters become the property of Technical Analysis, Inc. Letter-writers must include their full name and address for verification. Letters may be edited for length or clarity. The opinions expressed in this column do not necessarily represent those of the magazine. —Editor

GOOD ISSUE

Editor,
I have taken Stocks & Commodities for many years now, and I usually find the articles of some interest. The April 2010 issue was outstanding, particularly the interview beginning on page 50, as well as the article on K-waves, which is written in a very nice, friendly style.

Please renew my subscription for another year.
—Percy Lamb

MODIDOR SPREAD AND IRON CONDORS COMMENTARY

Editor,
The May 2010 S&C was one of your best issues, and I’ve been a subscriber since I don’t know when. Two comments:

1. On page 47 of the May 2010 issue, in Figure 1 of Jay Kaeppel’s article, “Introducing The Modidor Spread,” 51.29 is the upside breakeven on this condor, not a downside breakeven as was stated in the article;
2. Your interview with Jared Woodard in that same issue was an exceptionally lucid discussion of the condor strategy. However, he deals with adjustments in a general way; could he be more specific, for example, illustrate a step-by-step adjustment?

Keep up the good work.
—Colin

Thank you for your feedback. In response to your first question, you are correct that 51.29 is the upside breakeven, not the downside breakeven. The notation in the table was incorrect. The same goes for Figure 3 on page 49.

Regarding your second question, it’s a little difficult to give a short response. We’ll try to publish an article in a future issue that addresses this question.—Editor

KONDRATIEFF WAVE AND ELLIOTT WAVE

Editor,
I am writing from Australia after reading Koos van der Merwe’s interesting article in the April 2010 issue (“Kondratieff Wave Comeback”). I have read Elliott Wave Principle by Frost and Prechter, but I am fairly new to the Elliot wave theory (and technical analysis) and some of the concepts in Merwe’s article are unclear to me. I have several questions in relation to the article and would appreciate it if the author could clarify.

First, I noticed that Merwe uses the Rsi indicator to help with his count. It looks like he counts a wave when the 12,7,3 is in the “proper order” (that is, 12>7>3 for an uptrend, and 3<7<12 for a downtrend). Is this correct? If this is correct, as a rule, does he always count a wave when the proper order has occurred, and does he always use the numbers 12,7,3 for the Rsi?

Second, in regard to Figure 4, he writes that we are currently in a wave II. Since the article was published, the weekly S&P 500 chart has gone higher than the wave 5 mark (1150 points) and the wave II did not make a 3 wave down pattern. The S&P 500 is at 1195 as I write this in mid-April. The only conclusion I can come to is that we are making an expanded flat correction. Does this seem logical? Further, he suggests in his article that we are making a complex correction because of the Rsi reading, but I was unsure how he came to this conclusion. What characteristic of the Rsi allows one to make this conclusion?

Finally, I am slightly confused at how he arrived at the count for wave 4 ending in late 2008. I noticed he has labeled this wave a-b-c-a-b-c. I assume he is determining the correct labeling as the wave unfolds. How does he determine the correct labeling? In addition, I noticed he hasn’t subdivided any of the waves from March 2009 onward, and it looks like a subdivision of wave 2 ending in mid-2009 is not possible. Is this correct? Doesn’t Elliott wave theory state that all waves should subdivide?

I am looking to use Elliott wave theory in currency trading. Is there evidence to suggest the Elliott wave theory works in currency markets?

If the author can answer any of these questions it would be greatly appreciated, as it will help me practically employ the Elliott wave theory.
—George Haddad

Koos van der Merwe replies:
First, let me explain my interpretation of Elliott wave theory.

I always look for simplicity and wrote about exactly that in an article in S&C last year (“Elliott Wave Theory, Simplified,” February 2009). I also wrote that wave theory is only a signpost in the wilderness, and a new signpost can appear within three steps of the old one.

As I write this at the end of April, and for some time now, my wave count has been telling me to expect a Wave II retracement. When I wrote the April 2010 article, I believed the chart was setting up for one, but it did not form a Wave II retracement; it formed a wave 4 of Wave I. Thus, I am still waiting for Wave II, and my present count hints that the Djia, S&P 500, and other indexes are all completing a wave 5 of Wave I, which means Wave II is yet to come… maybe we will get it in May and we will end up with a “sell in May and go away” situation.

As to the Rsi: It seems to work well at bottoms, but not so good at tops recently. In a bear market, it’s the other way around: good at tops, lousy at bottoms. So I watch carefully, and prefer to use the StochasticRSICycle indicator (an indicator in MetaStock) for a further guide. As to subdivision of Elliott waves? Well, nice in theory.

I expect the Wave II correction to be a “flat” — that is, a complex correction. Why? Because at the time of writing the April 2010 article, wave 3 was less than Wave 1. But this is no longer the case — the signpost has changed, and wave 4 of Wave I is the Wave I to Wave II of the chart in my April 2010 article. If you would like an updated chart, I can send one. The big thing to realize is, never become fixated on an Elliott wave pattern. Always remember the signpost just down the road with Elliott wave. This is the reason why wave theory is so difficult to apply to the forex market: too much volatility, with a pattern that can change in the blink of an eye.

Hope this answers your question.

EXCEL SPREADSHEETS

Editor,
I’m a subscriber to your great magazine. I was wondering whether there are ready-to-use Excel spreadsheets or macros at your website? I would like to use Excel as a tool for analyzing and backtesting stocks and indexes.
—Simo Kokko

The Subscriber Area at our website at https://technical.traders.com/sub/sublogin.asp contains code and formulas that were given in the printed magazine. It is posted by issue. There are no macros available, but occasionally, when the author of an article provides Excel formulas for a technique, we post them there.

In addition, in the April 2010 Traders’ Tips, Excel formulas for the modified volume-price trend indicator were provided by reader Jez Liberty, available in the Traders’ Tips area of our website at https://www.traders.com/Documentation/FEEDbk_docs/2010/04/TradersTips.html.—Editor

MARKET PROFILE ARTICLES?

Editor,
How can I get articles published by you on the topic of Market Profile and how to apply it? Are they available free from your past issues, or can they be purchased separately?
—Mahesh

You can search for past articles we’ve published on the topic of Market Profile by using the search engine at our website, www.Traders.com. The results will link you to our Online Store, from where you can purchase individual articles as downloadable Pdf files.

Here are some articles that mention Market Profile:

ERRATA: SCHAFF TREND CYCLE CODE FOR TRADESTATION

In the April 2010 issue of Stocks & Commodities, in the article “The Schaff Trend Cycle” by Brian Twomey, several errors appeared in the EasyLanguage code given in the sidebar on page 96. The correct code is posted at our website in the Subscriber Area at https://technical.traders.com/sub/sublogin.asp.

Originally published in the July 2010 issue of
Technical Analysis of Stocks & Commodities magazine.
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