I am urging everyone to not consider any of my signals for at least the next two days. As a mechanical trader, I haven't had a very good history of making seat-of-the-pants decisions, particularly in the face of unprecedented selling. I have to cop to something. Every system I trade has been tested in relatively normal market environments, the occasional singular shock (Black Monday, 9/11) notwithstanding. What we're seeing now goes way beyond that. Certainly "reversion -to-mean" systems have been getting killed as the market goes into relentless freefall. Momentum is distorted. It may work relative to the huge arcs that are now mandated, but who can sit through them?

You hear a lot about a necessity of a "washout" -- a capitulation point where the last of the panicked share holders demand to get out at any price. Again, I only trade off historical results, but the closest thing I can reference to our current environment is the week leading into Black Monday. The volatility was relentless and the point drops unprecedented. The Friday prior to Black Monday was the first day ever that the Dow lost more than 100 points on the close. It looked like the end of the world right there, but of course, the infamous Monday lost several multiples of that amount. (Remember, the Dow was only in the low 2000's going into that event.) The next day was even more precarious for the overall economy although few people remember that. The markets opened sharply higher on unprecedented higher gaps. Then the market started a steady slide until it broke through Monday's lows and seemed to be heading for oblivion. That's when they closed every index market for a brief interday period except for the Board of Trade's Maxi contract. Buyers came into that pit with a flurry, with the result being that when the other markets re-opened, the shorts were handed their lunch.

That day, Tuesday, represented the ultimate market low. Trade wasn't great after that mainly because volatility went 180 degrees to the ultra-light level for several years. The slope from there, however, was relentlessly upward.

I'm going to go out on a limb, based on that mere one-time model to suggest that there is much pain coming on Friday, perhaps the first ever Dow quadruple point decline. Monday will be worse. Tuesday will see lower intra-day prices still, but the close will be sharply higher. I think that may be the ultimate capitulation. It's based on a singular event, but I can't think of any other one (or group of them) that is more plausible.

One final thought: it's 4 p.m. Central Time as I write this. If you can get access to the Asian markets, start monitoring them at 6 p.m CT. If they're going to melt as a result of our activity, I can't imagine how the indices won't start a huge swoon of their own in the overnight session. On the other hand, overnight stability here and abroad might be the best clue that the markets won't fall Friday after all and I'm probably dead wrong about everything.

I guess it will be good news if I'm dead wrong. Then again, the washout will still be ahead of us.

Either-Or Biases

The first set of biases includes six biases that individually signal either long or short on a daily basis, except for the rare tie. Each bias has a +1 value for long bias, and a -1 for short. The bottom line is the sum total, which can range from -6 to 6. Positive totals are bullish; negative are bearish. For bullish signals (opposite is bearish):

1. The 2-day average is below the 5-day average.
2. The close is above the 40-day average.
3. The highest close of the last 50 days occurs before the lowest close of the last 50 days.
4. The day's trading range is smaller than the 10-day average range and the day's close is higher than the previous day's close OR the day's range is larger than the 10-day average range and the close is lower than the previous day's close.
5. The close is above the midpoint of the average 15-day range. (The 15-day high average plus the 15-day low average divided by 2.)
6. Fade the majority direction of the last three open-to-closes.



Infrequent Biases

The five infrequent biases are listed below. For bullish signals (opposite is bearish):

1. Four successively higher closes were followed by yesterday's down close. Today's action was irrelevant.
2. Five successively lower closes were followed by today's up close.
3. CUP trade. For the last three trading days, the middle day had both the lowest low and the lowest close. In addition, the low on the middle day must also be lower than the lows from the previous three trading days before the middle day. (CAP is the reverse and bearish.)
4. The highest low minus the lowest low of the last three days is less than or equal to 20% of the highest high minus the lowest low of the last three days.
5. For the previous two days, the market closed lower than it opened.



Calendar Biases

The calendar biases in the indexes are listed below.



DISCLAIMER: It should not be assumed that the methods, techniques, or indicators presented in this column will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented in this column are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The author, Tiger Shark Publishing LLC, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

Art Collins is the author of Beating the Financial Futures Market: Combining Small Biases into Powerful Money Making Strategies. E-mail him at art@traderinsight.com.