Surge continues

The Qs came out of the gate mildly bullish above the PP and hugged the R1 pivot for the 4 hours preceding the FOMC announcement. In typical FOMC fashion, market volatility picked up just prior to the news (unfortunately, you can never be sure which way it's going to go), selling down hard on increasing volume until the announcement and then springing up to a new high at R2, with some retracement before rising to close at a new high. Notice how the 5 minute parabolics set up a nice short at 12:00, and a cover/buy at 14:20.

The NYAD stayed bullish all day, pulling back modestly to R2 at 4:15 before surging up on the news and into the close.

The TICK was somewhat more volatile, showing narrow range bars and giving little hint as to the coming action until 11:00, when the TICK pulled above the MACD histogram zero line. Volatility in the TICK actually preceded the NYAD by about 5 minutes (1 bar) and helped to confirm the rising momentum. The closing TICK was decidedly bullish at 974.

Qs and the Pivots

Dr. Brett posted a nice study today of pivot points and S&P behavior. I frankly avoid SPY and it multitude of proxies, much preferring the Qs and IWM because of the spreads, volatility and options in pennies. It's been my experience that both the Qs and IWM respond to the pivots much like magnets, with an especially high correlation of R2 and S2 pivots providing fairly low risk entries for counter trend moves when supported by confirming indicators such as the TICK, NYAD, signal line and parabolics. (Also see yesterday's post on trading Q gaps and review pivot action of the Qs, TICK and NYAD)

Today's Q behavior was typical in this regard (top chart). After opening at S1 pivot with ho-hum volume, the Qs jumped to the PP pivot, then retraced quickly to S1 again before beginning a slow ascent for the remainder of the day. The Qs did consolidate around the PP pivot for also 2 hours before breaking out and popping up to R1, where it consolidated until another breakout in the last 50 minutes, which suggested that R2 was the next target, but the TICK, NYAD, signal line and RSI&CCI (in the Qs chart study window) all suggested that the breakout was really trader gaming designed to encourage buying while the real goal of the market makers was selling. The large volume bars that followed that false breakout confirmed that the momentum into the close would be down.

Hope you caught the move.

Trading Q Gaps (part 2)

This post is a continuation of How I Trade, begun on Saturday.

The Qs gapped up at the open today, repeating Friday's jump. The difference today was that we got a trap door set up. I have included an great annotated chart of the "trap door" (lower chart) which I "borrowed" from cucca. The top chart is again from my Schwab SSPro platform, set to 5 minute bars. I have the MACD single line moving average turned on (signal line), along with the parabolic SAR, the pivot points and an 8 bar MA channel that I use for confirmations.

After the initial gap up, The Qs retrace on an engulfing bar, then ratchet to a new high in the next 10 minutes, before beginning a halting decline. On this chart, both the parabolics and the signal line suggest a short sale at 9:55am. A short sale is also suggested by the bounce off the R1 pivot.

Since I'm unwilling to accept these signals without confirmation, I check out my handy TICK and NYAD charts.

The 2 minute NYAD stays glued to the PP prior out of the gate and then does a little hang-dog at 9:50, followed by a turn down at 9:55. Meanwhile the MACD histogram is decidedly negative out of the gate and remains well below the zero line, except for that little game at 9:50.

For the final confirmation, the 2 minute TICK also stays glued to the PP pivot, showing narrow bars and little inclination to rise. The TICK break actually comes at 9:50 and the move is down. The MACD histogram is well below the zero line at the open and looks poised to stay there.

Adding it up, I have the following indicators all confirming the same signal:

On the price chart: MACD signal line, and parabolics.

On the TICK chart: pivots and MACD histogram.

On the NYAD chart: pivots and MACD histogram.

I gird my loins and sell naked the Qs near 54 calls.

I exit 25 minutes later when the Qs kiss the PP pivot for the second time in 10 minutes.

Weekly Qs Update

For this week's update I've attached both weekly and daily linear regression charts. The 30LR weekly chart shows the Qs bumping off the upper channel, with a likely man reversion to the 52 area. The 30LR daily chart shows the opposite picture, with the Qs bouncing off the lower channel, suggesting a mean reversion in the 55+ area.

Just to confuse things a little more, the 11LR daily in moderately negative, while the 11LR weekly is fairly positive. Both the daily and weekly 3LRs are negative.
Historically, the next 2 weeks are regarded as almost sure things, but the Stock Traders Almanac has had an inordinate number of faulty predictions so far this year so I don't want to get too frisky, go all in and then regret it.

To satisfy my risk comfort level I'm looking at a Qs straddle to supplement my counter trend day trades. With 21 days to expiration I can sell the near 56 calls for .41 and the near 51 puts for .38. This play seems fairly low risk with the advantage that and I can always scale in or out and adjust the delta depending on each day's moves.

How I Trade Gaps

The Qs got a boost Friday, thanks largely to MSFT stellar earnings. The overnight futures told of the coming pop, and the real question was . . .should I fade the open or wait for the classic trap door set up. If not familiar with the trap door, mosey over the cucca's site and browse around for a description. I use Schwab's SteetSmartPro platform, which actually is Cybertrader, and the lower black background charts are 2 of the 6 charts that I monitor throughout the day to trigger my entries and exits.

Both the TICK and NYAD charts have only a few indicators: pivot points, MACD signal line (on the chart) set at 5,20,3 which is the single line moving average component of the MACD, and a MACD histogram, again set at 5,20,3 in a lower study window of each chart. Since I'm a visual guy and react to pattern recognition, the histograms provide a simple way to monitor the pulse of the market. The NYAD is also set with a parabolic SAR.

What these two charts tell me at Friday's open is twofold:

1. The TICK chart histogram stays below the zero line and the baseline PP pivot at the open. This tells me that contrary to the wild pop at the open, there doesn't appear to be much momo behind it and the likely next move will be down. BUT, I don't want to get slammed in the butt by the trap door, so I'm not quite ready to sell those naked calls yet. . .

2. The NYAD, which serves as my confirming indicator, does show some strength at the open, rising from the PP open to a level of about R3 in a about 6 minutes where a doji forms, followed by a engulfing solid (red) bar 2 minutes later, which is my trigger to go net short. Immediately following the entry, the signal line turns down and the MACD histogram falls below the zero line. . .giving me some confidence that the entry was correct. I also have the parabolic SAR (pink dots) on the NYAD, but this indicator does not give reliable gap entries and is best used in a 5 or 8 minute bar setting (more on that later).

The TICK histogram actually stayed below the zero line until 12:15, (not shown) when both the parabolics and the MACD signal line flashed a reversal signal, and I exited. I contemplated going long at this point, but because of a pending medical appt. in 2 hours, and since it was Friday, decided not to risk the exposure.

Put/call Tracker

Here's a nifty little free tool from Schaeffers Research. Just enter the ticker symbol and get a historical perspective on the SOIR, including ratio and rank. Direct link to chart included.

Technicals deteriorate

The Qs deteriorated today, retreating back to the lower leg of the 30 day linear regression channel. The Qs have been in a lateral channel for the past 15 days on building volume. the break will probably be dramatic (maybe earnings driven?). The other major indices have already broken through the lower leg of the channel and look poised to continue down. If the Qs do follow suit and break through today's low (52.75) , the next support level looks like 50, a long way off theoretically, but if we get a redux of Aug, 16th action . . completely possible. Afterhours MSFT is up $3.12 on good earnings. That may pull us back to midstream tomorrow.
On a side note I got down on my kness and thanked my lucky stars I didn't scratch the itch on Monday that told me to buy Wellcare, WCG. Ooouch!

Fair Value Calculator

Smart Money provides this neat little free tool for determining fair value. A few discretionary inputs enable adjustment of your risk assessment or you can just let the calculator use its internal database for a default evaluation.

Wide stance

Here's the NASDAQ closing ETF heatmap, suggesting which sectors may continue recovering tomorrow. For most of the day the map was uniformly red. The early money was made in the ultra short ETFs (not shown) .

EOD traders missed all the fun today as evidenced by the size of the daily bar tail. The Qs volume was the highest since Aug 16th and it looked for a while like the results could have been similar as the Qs dropped a full 2 points with the rest of the markets bleeding in like fashion. But the turn came, ending with the Qs down a modest .41 and again showing the NAZ100 the place to be. While DIA and SPY looked decidedly weak, the Qs continue to demonstrate resilience. While I like a little volatility to trade off of, these wide swing days have an inherent danger that the bottom can fall out while you're waiting for the turn. As a result, I have found it's safer to be a trend trader rather than a counter trend trader in these times. . at least until it's clear that the trend has indeed turned.

Similar EOD comments for the VIX. It could have been a calm inside day except for that 3 point tail popping through the upper band. Still riding well above the 16 DSMA (our 4 day target) on day 3, I'll be interested to see if the closing surge carries forth tomorrow. The markets are technically looking rather shaky and, as evidenced by the reaction to MER's earnings, are ready to sell down whole sectors in the face of weakness. The positive tone of last week's earnings reports has gradually eroded to the current situation of looking for the exits.

October has a historical pattern of high volatility. . the trick is not to get hammered by it.

Evacuation Avoided

I've attached a photo of my gentle family as we prepared to evacuate in the face of the local wildfires. For those who have missed my kinship link with Jethro, just go the far, lower right portion of this blog and click "musical interlude". Around here they have reverse 911 service. . if they want you to evacuate, they call you on 911 and tell you to skedaddle. Although the entire sky is now yellow brown smoke, continuously raining black ash all over the place, we dodged the bullet and never got the call to leave. The cat appreciates that as it would disrupt her normal 22 hour/day nap.

On a more boring note, the Qs made another new high on good volume and technically look ready to surge onward and upward. I attached the Qs linear regression channel, you can see that after a picture perfect bounce off the lower channel, not only are the Qs not overbought, but they are dead in the middle of the channel, suggesting substantial upside potential.

The VIX followed through with the bounce off the upper band, this being day 2 of the 4 day count back to the 16DSMA. The technicals strongly suggest that we may get to that target on this cycle.

Smoking

When I say smoking, I'm not exactly talking about the Qs, although they did put on a good show today. The better (and scarier) show was to look South out my bedroom window at the sky this morning,, engulfed horizon to horizon with a sickly yellow, brown smoke extendng up 20,000 feet or so. Here in beautiful Southern California we're used to a little excitment, but being burned out of your house by 10,000 acre wildfires whipped by 60 mph winds is a little more than I bargained for. The San Marcos fire is about 10 miles upwind and I drove down to the smoke line at Palomar just to check it out. So far they've evacuated over 250,000 folks (that's a lot) and the winds are expected to increase this evening. Lost power a couple times, but so far our place remains on the fringe of the burn line. Talk about risk management.

The markets did get a reprieve today, although at times it looked pretty tentative. The Qs managed to bounce off the 20DSMA, with the 10DSMA the likely next stop. MSFT announces on the 25th and there will no doubt be some gaming before than. I did notice that MSFT premium lifted a bit today and took the opportunity to sell some Nov calls. If it lifts more tomorrow, which I expect, I'll probably sell more.

The Vix did a little flip flop, popping up out of the gate and then slowly ratcheting down for the remainder of the day to close 14% above the 10DSMA. I suspect we will see a bit more deterioration in the VIX as it works of a slightly overbought condition.

Short post tonight as we have to pack up some essentials in case the fire heads this way in the middle of the night and forces us to join the hordes of evacuees.

Zack's Earnings Tool

Zack's provides a variety of free info on earnings, including earnings surprises, a calendar of earnings reports and a earnings info lookup by symbol. They also have a premium (fee) service with more sophisticated info and tools.

Weekly Qs Update

The Qs were holding their own going into Friday when the bottom fell out. We are now seeing some cause for concern looking at the linear regression chart above (click to view clearly).

If the Qs break through the bottom of the channel at 52 then we can expect more downside action to follow. For the present, all three channels are still positive, with the suggestion that Friday action was a selling over-reaction. With many of the big names yet to announce earnings next week however, I remain cautious and am on the lookout for some confirmation signals before initiating new longs. (see Friday's comment on VIX)

TASC

If you subscribe to Technical Analysis of Stocks and Commodities, you can access a trading system analyzer that yields respectable returns using fairly rudimentary systems. While the systems are not applicable to all stocks and ETFs, TASC provides a ranking of the best performers for the various systems. One way to take advantage of these highly correlated performance systems to to devote a small portion of your trading capital to several and treat them as niche trades, completely independent of how and what you otherwise trade.

Depending on your level of interest in technical trading and programmable algorithmic systems TASC will either deliver the goods in spades or have you scratching your head in dismay. While my intent in this week's series was to profile free sites, a subscription is $65/year and if you can't find one nugget of trading enlightenment that yields at least 10x that amount then your risk management plan may need to be re-examined.

But wait!. . .I'm always on the lookout for ways to save my gentle readers a few bucks, so if you go to http://www.traders.com/ (TASC homepage) and check the 1 year subscription box . . . it's only $49.95.

That was bad

The Qs went into freefall right out of the gate, dropping 1.00 in the first 90 minutes. After that, it was touch and go at S2, until it finally fell through the bottom in the last 1/2 hour. The Qs are now sitting at the 20 DMSA, a critical support level. The linear regression channel currently shows the Qs oversold, and I'll post that chart along with the weekly update tomorrow.

The VIX closed at 22.96 had a very volatile day and now sits a full 25% above the 10 and 20 DSMAs, with fully 50% 0f the bar above the upper band. Today's action triggers my RSI reversal model which posits if the VIX finishes >18% above the 12 DMSA, there is an 82% probability of a reversal back to the 16 DMSA within 4 days.

Looking through the DOW components, it was pretty much a blood bath, with CAT down 4.26, MMM down 7.30, XOM down 3.18 and the 2 gorillas (INTC and MSFT) down .61 and .86 respectively.

Where's the green?

Mid-day update and not one heatmap ETF in the green. Market weakness is pervasive and virulent. The NYAD remains locked at S1 (.25) and shows little inclination to budge. Careful on bottomfishing at this level.

Risk Map

Yet another free NASDAQ tool. This one is accessed by going to the linked site and clicking on "Risk Map". The map is programmable according to a number of criteria and is a good complement to the heat map mentioned on Monday. The map's focus is limited to the NAZ100 and S&P 500 stocks, not bad baskets to trade.
The "Stock Consultant" box available with the Risk Bar mentioned earlier this week is also linked to the Risk MAP, but not shown on the above picture.

Qs advance; banks stumble

The Qs showed some early instability, but got a late day breakout to finish solidly in the green as tech proved to be the sector of choice. The other major indices (DIA, IWM, SPY) finished in the red, dragged down by the financials, consumer staples and housing (which look poised to break through to new lows.)

The VIX popped up at the open, then faded down for the rest of the day to finish essentially unchanged.

The big news today was the financials, with BAC and WM getting slammed on poor earnings along with other elements in the sector, including the XLF. The news was not unexpected, but the consequence was swift and dramatic, with the commercial banking sector losing over 20% for the day.

TradingDay.com

Continuing our look at free risk management sites, http://www.tradingday.com/ offers this suite of tools to help you gauge the technical strengths and weaknesses of target stocks and ETFs. You get quotes, you get charts, you get news. . .and by opening the "Technical Buy/Sell Signals" tool you get a thumbnail look at a variety of MAs and other TA indicators to assess the relative risks of plunking your dollars down on a stock (or betting against it).
This tool and other recently profiled risk assessment sites can also be linked to through the block titled "Stock, ETF and Option Ratings" on the right side of this blog.

Qs gap

The Qs gapped up at the open in response to INTC earnings (apparently) with the other 800 lb gorilla MSFT pushing along with it. (I told you so yesterday) There was a nice S1 retracement bounce at 11:30 which I would have bought had I been in front of the computer, but Dr. appointments kept me otherwise occupied. Poop! The Qs have been trading laterally for the past 5 days, but looked pretty strong today. The folks over at Bespoke posted an interesting study on the daily performance of the S&P500 during option expiration week. So far their expectation's are playing out. I'll do my own analysis of the Qs for this time frame this weekend along with the weekly Qs update.

The VIX bounced right off the upper band today, landing at the 20DSMA and only a tad from the 10DSMA. The market showed considerably upward momentum the last 1/2 hour. . the NYAD was on a 60 degree upslope, the TICK was solidly above the MACD histogram zero line and the $VIX lost almost .50. Unless late/early earnings derail the current trend, we should see continued market strength on Thursday.

Power Ratings

Yesterday I profiled risk ratings. . this site profiles power ratings. It's brought to you compliments of Larry Connors' TradingMarkets.com. Larry is probably one of the sharpest stat guys in the business and his little gem "How Markets Really Work" is a marvel of statistical elegance and relevance. This is a handy little tool, and incredibly easy to use. They also profile a daily list of highest rated and lowest rated stocks, so no screening required! It's is a free site, although there is also a daytrader version that is fee based. Buy the 10s, sell the 1s. Let's hope CXO runs a performance test on it.

Tumble continues....but wait!

Qs tumbled today on accelerating volume. The 7DSMA has now turned down and is at the 3 DMSA cross. If we don't hold and reverse here, we can expect further declines. Putting on my Carnak turban however, and going way out on a limb, I'm predicting a gap up in the Qs at tomorrow's open. Enough said.

The VIX made a doji close on an expanding upper band and now sits 11% above the 10DSMA. If the major market decline continues and that gap gets to 18%, we have an 82% chance of reversal, so I'll be keeping an eye on that development.

Completely aside . . .interesting posting by Bespoke on the best and worst performers in the Russell 3000 to date and the impact of Fed rate cuts on the various sectors.

Risk Bar

This is another free tool compliments of the NASDAQ. Just enter the symbol for any stock or ETF and the risk bar kicks out a comparative risk analysis relative to the S&P and NAZ. But wait, there's more! Moving over to that innocuous little screen to the left labeled "Stock Consultant", enter a symbol and get a comprehensive technical bull/bear statistical analysis. Definitely worth a look.

Retreat or regroup?

The Qs broke down today, mirroring loses of the other major indices. The good news was that weakness didn't carry the Qs down to S2, although there were several occasions when it sure looked like it was going. In addition, the last /12 hour looked fairly strong with the NYAD and TICK upslope and the VIX on a steep decline. The Qs regained .37 in that last 30 minute bar on almost 16M shares. Whether this will carry through tomorrow remains to be seen.

The VIX is now 8% above the 10DSMA and looks poise to continue its uptrend, although it is bouncing off the upper band. Expiration week can produce some unexpected volatility and the developing earnings reports are create a frothy mixture in some sectors, such as the financials.

Although the portfolio is net long at this point it is also fully hedged with ratioed covered calls and will remain so until after expiration.

Looking for Green

Here's the NASDAQ sponsored free heatmap which I've mentioned before, and it's worth a look. The map is updated every minute from 9:45 to 4:15 and provides an immediate profile of what's hot and what's not. Just hover over any ETF symbol box and a JAVA chart and other info pops up. This is a useful daytrading tool for those who lack a momentum screener in their trading platform and who like to trade the ETFs (and who have multiple monitors).

Qs linear regression model

This is a TC2005 chart of the Qs, tracking activity post Aug 16th. The chart actually reflects 3 LR channels, a 30 day, 11day and 3 day...as suggested by Ricard Muehlberg in this month's Futures Magazine.
You need to click on the chart to see it coherently. . . one of the problems with blogger format. Despite the steady ascent from Aug. 16th, the LR study suggests that the Qs are not overbought, having resolved any danger of that with Thursday's little flip-flop. The Qs are still chugging along in the middle of the major and midrange channels, having overcome the oversold position in the midrange channel created at Thursday's close. This is just another way of looking at the data, but it clearly shows the relentless advance of the Qs over the past 60 days.

Qs Weekly Progress Update

This is the weekly Qs progress update. I have revised the data field since last week's post and reconciled all prices to 10/1/2007 prices, thereby accounting for the fact that the Qs were $7.60 in 1992 and $84 in 2000, etc.
Regardless of which data field we utilize, it's clear that the Qs have had a great run so far and the historically strong weeks are just about to begin. The pre-expiration week weakness that was suggested by the VIX expectation model failed to materialize and the only looming threat to the continuing trend is earnings disappointment, a factor that cannot be taken lightly.

Qs shine again

The Qs soared again, leading the indices pack in gains for the day. Since the lows of Aug 16th the Qs have consistently stayed above the 10DSMA. That will be 60 days on Monday and reflects a rise of over 8 points (18%). With accelerating volume today and options expiration next week, the trend line is firmly up. If any of the big techs stumble on earnings, that could threaten a derailment, but so far the news has been mostly positive and many of the techs don't report until after expiration.

The VIX fell off the 20DSMA and ended at the 10DSMA today. Recent behavior in the VIX makes the bollinger bands and the 10 and 20 MAs look like daily pivot points and I have limited faith in the predictive value of VIX action while we are in the current trend line mode.