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    The MEJT System: A New Tool for Day Trading the S&P 500 Index
    The MEJT System: A New Tool for Day Trading the S&P 500 Index
    The MEJT System: A New Tool for Day Trading the S&P 500 Index
    Ebook136 pages1 hour

    The MEJT System: A New Tool for Day Trading the S&P 500 Index

    By Jeffrey Tennant

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    About this ebook

    A new technical analysis tool for S&P 500 day traders
    The MEJT system is a brand new and exclusive tool for use alongside other technical analysis techniques in day trading the Standard and Poor's 500 Index. It is based on the principle that price action at certain times of the day can allow traders to make predictions regarding future support and resistance levels. The system also defines, well in advance, which trends might have staying power and which ones should retrace.
    Here, in the first book on this new trading tool, the rules of the MEJT system are explained and carefully illustrated with real price charts. Readers are encouraged to analyse price chart examples for themselves, before reading the author's analysis of the trading situation. The final chapter of the book follows three weeks of consecutive trading days on the S&P 500, examining, for each, what the MEJT tool suggested for the day and how reliable the prediction was.
    The ideas in this book will appeal to experienced day traders who ware already familiar with technical analysis of the stock market and who are interested in learning about - and putting into practice - a new, profitable trading technique.
    If you use technical analysis to trade the markets, this book will give you information you can, and will, use every day.
    Jeffrey Tennant posts a daily video of MEJT System analysis on his YouTube channel: http://tinyurl.com/jt-mejt
    LanguageEnglish
    PublisherHarriman House
    Release dateFeb 3, 2011
    ISBN9780857191014
    The MEJT System: A New Tool for Day Trading the S&P 500 Index
    Author

    Jeffrey Tennant

    Jeffrey S. Tennant, MD is an individual investor. For over eight years he has been giving daily online analysis (most recently at www.timeandcycles.com) of the Standard and Poor's 500 Index. He has relied heavily on the MEJT System to make his predictions, and he wrote this book because of the large number of requests he received from traders who wished to learn his methodology. Jeffrey Tennant posts a daily video of MEJT System analysis on his YouTube channel: http://tinyurl.com/jt-mejt In addition to performing technical analysis of the stock market, which he has done for over 30 years, his lifelong interests include ophthalmology, trivia and chess. He and his wife, Noreen, have four grown children: David, Hilary, Andrew and Bradley.

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      The MEJT System - Jeffrey Tennant

      situation.

      Part 1: Introduction

      1. The MEJT System: Background, Definitions and General Principles

      Introduction

      Kudzu is a plant which grows in many places. It is native to Japan and China but has made an effortless transition to the United States, where it has proliferated so much that it is known as the vine that ate the South.

      Most technical analysis techniques are like kudzu. They flourish everywhere. Bollinger bands and moving averages may have been developed for the stock market, but they work for commodities and futures as well. Stock traders also routinely use these and other indicators to trade the Forex market. When a new security or a new market begins trading, technical analysts use techniques they have used with other issues to analyse it. If something trades, market technicians can analyse it using techniques they already have.

      The Haleakala silversword is not like kudzu. It is a beautiful plant which grows in a highly restricted range in Haleakalaā National Park on the Island of Maui. Move it outside of its narrow ecological niche and it dies. That pretty much describes the MEJT system I use to help me trade the S&P 500. It doesn’t work for individual stocks, for other indices, commodities, Forex or anything else. But for the S&P 500 it is a very useful tool. Like the Haleakalaā silversword, give the MEJT system the right environment and it blossoms.

      The uses of the MEJT system

      The system’s main use is to help one day trade the S&P 500. However, less frequently, it can help one make long-term predictions.

      In March 2003 a multi-year rally in stocks began. MEJT predicted that, ultimately, all of the gain would retrace.

      In October 2007 the market made a major top. MEJT predicted, soon after the top, that the S&P 500 was going to circle the drain for a long time.

      And, as far as short-term calls are concerned, take a look at Figure 1.

      Figure 1 – S&P 500 28-29 October 2009

      There was a big drop on 28 October 2009. MEJT predicted, well in advance, that the drop would retrace, most likely before a little over a trading day had passed.

      Basic principles of the MEJT system

      The fundamental principle of the MEJT system is that market action during certain times of the day has predictive power over future price action. Were it not for the internet, I might never have learned that.

      In early 2002 a member of an internet chat room acquainted me with the characteristics of the five-minute bar beginning at 9:05am Central Time (CT). He said that another trader had discovered that, if the market were to trend sustainably during the morning (and perhaps during the day) its retraces, if any, would not go through this bar. This is the bar I call am MEJT, or am for short. Unbeknownst to me, the person who had discovered this fact had developed an entire trading system based on it. Perhaps it was just as well that his system was unknown to me; his system turned out to be totally different to mine and I think mine is superior.

      The am sequence

      The sponsor of the same chat room routinely made a prediction for the day’s action at 9:15am CT, five minutes after the am bar printed. I thought there must be something special about the bar after am MEJT as well. It soon became obvious that, while those bars were important, it was the following bar (the five-minute bar beginning at 9:15 CT) that had the most predictive power.

      I define the three five-minute bars beginning at 9:05am CT as am MEJT, am MEJT+1 and am MEJT+2; for short I usually refer to them as am, am+1 and am+2. The three bars as a whole are called the am pattern or am sequence.

      The basic principles of the am sequence are these:

      In general, the am bar is the default reference bar. Attempts to trend, if sustainable, should not correct through this bar. Under some conditions the reference bar changes.

      The action of the am+1 and am+2 bars determines whether there will be an attempt to trend.

      The action of the am+2 bar determines whether or not the attempt to trend will succeed.

      To be sustainable, any attempt to trend during the morning must show an attempt to trend (in the same direction) by the am+1 and am+2 bars. In addition, action of the am+2 bar must indicate that the attempt will succeed, i.e. that the attempt is sustainable. If the rules for sustainability are not met, prices should retrace to the reference bar. The specific rules are discussed in chapter 2.

      Thinking about why the MEJT system works

      I did not know why the system worked, but I had a theory. I assumed that, after the rush of public orders had been taken care of during the first 35 minutes of trading, big money players began to get down to business, and that they did so at a very consistent time. If the market trended strongly enough during that time, the trend could continue. If not, I felt there was no institutional support for the move and that prices would retrace back to the am bar. Whether or not that assumption was true, trading based on it proved profitable for me.

      The MEJT sequence

      Trading the am sequence proved so rewarding that I wondered if big money players had a similar consistent pattern of behaviour after they returned from lunch. Assuming they had lunch in the Eastern Time Zone (ET), it did indeed appear that there was a similar pattern after lunch. Market action from 1:10-1:25pm ET (12:10-12:25pm CT) has predictive powers.

      The three five-minute bars beginning at 12:10 CT are defined as MEJT, MEJT+1 and MEJT+2. As a whole, they are referred to as the pm pattern, pm sequence or MEJT sequence.

      The basic principles of the MEJT sequence are these:

      In general, the MEJT bar is the default reference bar. Under some conditions the reference bar changes.

      The action of the MEJT+1 and MEJT+2 bars determines whether there will be an attempt to trend.

      The action of the MEJT+2 bar determines whether or not the attempt to trend will succeed.

      The rules for trading these principles are similar to the rules for trading the am pattern, but there are some significant differences.

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