Friday, October 19, 2007

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.

2 comments:

contrary canary said...

Bzb - I'm curious as to whether you've more of a bull or a bear, in a broader sense. From this post I take that you are becoming more bearish from Friday's market action.

Personally I'm looking at the steep run up the market has had since it's August lows and thinking that this is an expected venting, to let the longer period moving averages catch up, and we'll see some more sideways consolidation followed by more upside after several weeks.

So I guess I'm a two week out bear and a two month out bull. What do you think?

bzbtrader said...

Wish there was an easy answer to your question, but there's not. I really re-assess the probabilities each day of market strength and weakness and gauge my trades and degree of risk comfort based on that assessment. That why I like the Qs. .easy in, easy out, easy to hedge with options or QID, penny spreads and instant execution + huge volume. The Qs also response well to my favorite tech signals. .parabolic SAR and MACD signal line(MA component). I use these indicators in a fractal manner, ie., 5-10 minute bars for daytrades with 2 minute exits, and 60 minute/ daily bars for the longer term trend. My concept of "longer term" is about 6 weeks, so don't rely on me for any visionary insights. For the "longer term" trades I try to create a constant revenue stream by selling premium that will generate 2.5-4% per month with minimum risk. I've spent many years developing this strategy and the penny option spreads and the QIDs have helped push me in that direction. Sorry to sound ambivalent, but I try to take each day as it comes and respond accordingly to what the market offers. This is easier said than done and is obviously still a work in progress.