Qs fade

The Qs took it in the shorts today, ostensibly driven by the Dell-saster reports. While it surged up out of the gate along with the rest of the market based on some old guy's off the cuff remarks, there was clear resistance at R2, and little inclination for the market to repeat Tuesday's R2 to R5 pop. Once the Qs got to PP and then broke through on solid volume to S1, it hung in a relatively narrow range PP to S1. That final gasp to S2 right at 15:00 was technical hard to anticipate, but it took the Qs 15 minutes to retrace that drop. The last 30 minutes showed solid momentum to the upside, although the Qs ultimately closed right on S1 . . not exactly a wildly bullish signal.
The Stock Trader's Almanac notes that the first trading day in December has seen 100+ point gains 2003-2005 with turnaround Wednesday providing a pivot high for severe selling on Thursday and Friday. Not that history will repeat itself. . .remember the caveat that past performance is no guarantee of future returns. Just an interesting probability statistic to file in your brain pan while assessing next week's possibilities.

Some words of advice

The current Trader Monthly features several interesting articles. Johnny Chan's poker stories are always illuminating and a little piece by Doug Hirschhorn is extremely timely. An excerpt follows:
You don't need another software package. You don't need another computer. What you do need is to keep the game simple (up, down, sideways) and get comfortable with the fact that just as in daily life, we don't know what will happen next. My 92 year-old grandmother paraphrasing John Lennon often says that 'life is what happens to you when you're busy making other plans". Apply that to trading, and you get the following: "The market is what happens to you when you're trying to make money."

Tough love from the Doctor

For those of you who missed it, do yourself a favor and check out Dr. Brett's reality check for struggling traders. If nothing else let his post remind all of us that trading is a tough business where you will learn more about yourself, your strengths and your weaknesses, than 10 years of psychoanalysis could expect to produce. Trading can bring out the best in you, but it can also bring out the worst. The trick is to maintain your sanity, your sense of cosmic humor, your perspective on life and your bankroll as you compete in a marketplace with some the smartest, well financed and sometimes devious traders in the world. It ain't easy, and anybody who claims otherwise is a liar.

Gentle cycle

A narrow range day for the Qs as it modulated PP to R1 for the day, closing on atypical meek volume and no clear momentum. Although the Qs closed above yesterday's high, the fact that it couldn't quite get through the R1 resistance on 2 attempts was suspicious. I was sorely tempted to sell some calls at noon, but stood back as the noon hour is notorious for low volume gaming and head fakes that can produce technically unexpected surge moves . . in this case I suspected a move to and through R1. But, I was wrong and the noon momentum carried through to the downside before reversing (again), right at the PP. With the wide range bar break through the channel and the parabolics lighting up at 13:50 I opted to sell the near OTM puts, again with the expectation that R1 was in the headlights. Alas, the last hour failed to produce a follow through and I closed the position for a modest gain right at 15:00 as the signal line turned down and the parabolics flashed a reverse. Considering that most Q cycles run 90 to 120 minutes, this one was rather brief at 75 minutes but I was glad to be out and flat at the close.

Up

Top chart is the daily. . .lower chart is the 5 minute.

We got the break I was musing about yesterday, and in a big way.

Today we had the biggest 2 day rally in 4 years, and on solid volume. Things must be (really) good! And this is based on expectations that the Fed is going to lower rates because economic conditions are so bad. Welcome to the bizarro world of Wall Street. The Qs opened at R2 (like much of the broader market) and never looked back, closing somewhere in the neighborhood of R5, which is pretty much regarded as uncharted territory. Tomorrow we may see how much of buying frenzy was short covering, which is the predominate mode of the big hedge funds these days. This may be a timing thing also. . end of the traditionally strongest month, beginning that ole Santa Claus rally, coming off an oversold base, etc. Unfortunately, I was gone most of the morning and therefore missed much of the exuberance. I also missed the head fakes designed to lure in the shorts (could have been me) and thus missed the opportunity to throw a few bucks away on a last 30 minute fade.

Qs rally

Qs came alive today on pretty good volume. after a little head fake at 7:00 the Qs surged right up to R1, which became the resistance ceiling for the rest of the day. The downdraft at 14:00 looked like we might see an R1 to S1 day, but that PP pivot held and the Qs climbed right back to R1 in the last 60 minutes. Market action has become like New England weather lately. .if you don't like what's happening, check back in a couple hours . . it will likely be completely different.
Short term, the Qs seem locked in a 49-50 trading range. Guessing the break direction is the 64 dollar question. While the overall market strength was impressive today, there are lots of sectors that aren't enjoying the ride. I remain cautious at this point and continue to favor 30 to 120 minute intraday trades in lieu of swing trades, as carry over from the close has not been favorable.

Qs on the edge. . again

The top chart is the Qs weekly with the 3 linear regression indicators. The LR30 lower channel break is now looking imminent.

The lower chart is the daily and shows the surge from Friday carried through for the first 30 minutes and lifted the Qs to the R2 pivot. From there it was all downhill. That little noon time swoon from PP up to S1 did offer some hope, but the failure to carry back above the R1 pivot was clue that the bears were going to make up for Friday's gains. As has been the recant pattern, the last 60 minutes saw a volume surge of selling that carried the Qs down through s2. The price/volume action is not indicative of a quick recovery tomorrow, and the market continues to frustrate any buying attempts. We are nearing the end of the month and as noted previously, November is typically the best performing month and the last week of the month is also typically very strong. So far, historical precedent has not been kind. . .I am staying 90% in cash on the sidelines until this mess gets sorted out.

Price Up, Volume Down

As I mentioned yesterday . . low volume . . so I wouldn't be high fiving the bulls just yet. Daily Qs volume has been running in the 300M range, so today's 45M blip was the lowest volume day since July 3. Once the Qs broke from the pivot at 11:00, it was all uphill, with clear sailing toward R1. I really thought the Qs would break and slip over R1, but as today was Friday, even the bulldogs decided to quit while they were ahead. Being dubious of today's action, I sold some near OTM calls in the last 30 minutes with the notion that a low retest is a distinct probability. The results of Black Friday sales will no doubt be the main topic for Monday's market action and based on today's performance, great things are expected.

Back where we started

The Qs crumbled at the open and then proceeded down to the S1 pivot in the first 90 minutes. Once that level held, a return to the PP base pivot looked like a good bet and sure enough, 2 hours later we hit it on rather anemic volume. As with most of the pivot turns with the big ETFs, there tends to be some spillover as the gamers try and suck you in to buying the highs or selling the lows. That was the case going into the last hour. With volume accelerating and a lot of momentum, the rug got pulled out for the 60 minutes as those tentative longs suddenly became panic sellers. It's all program trading of course and unless you realize that the odds of anything really dramatic happening today or Friday are close to zero. you will be frustrated and disappointed. The PP to S1 range today was a welcome relief from yesterday's R2 to S2 cycle.
Anything that happens on Friday's abbreviated session will likely be pure gaming, and although the anticipated volume will be low, don't expect the same for volatility.
Enjoy your Thanksgiving. . . .there's a lot to be truly grateful for.

Qs bump and grind

A wild ride today as the Qs made a complete R2 to S2 cycle intraday. We don't get a lot of those. And to top off the day's action, the Qs closed right back at the PP pivot where they popped out of the gate. The FOMC provided the catalyst for the volatility. . .the only trick was figuring out if the Qs were actually going to bounce in the last hour or if they were going South to S4ish. The TICK provided little clue, with more encouragement provided by the NYAD up slope, although that didn't happen until the last 30 minutes and then faded at the close. Once again best signals today were provided by the parabolics and the signal line, which at least kept me on the right right of the market most of the day and otherwise saved my bacon.

No Traction for the Qs

The open and the 14:00 turn were both somewhat encouraging for the longs, but the overall negative momentum of the market just dragged everything down with it. The financials, of course, looked horrible. Amazing how that burst of buying enthusiasm last week (co-incidental with expiration) quickly evaporated today based on "worry about the banking sector". If there was any good news for the Qs it's that the S1 support held at 14:00 and we didn't get one of those gut wrenching plunges to S2 or the nether regions below. The Qs are still within the lower LR30 channel (see yesterday's post), but if we get a breakthrough tomorrow, it may well carry for a while.

Qs on the edge

Topside is the weekly 3 linear regressions chart. The lower channel band has held so far, with this week producing a questionable doji pattern. If the Qs turn down at this point and head south through the lower channel, the retracement may run down to 44, a long ways off.

Historically, of course, we are in the strongest month of the year, which hasn't played out very well so far this year. The last week of the month is typically the strongest so if we can hold the line and get some traction this week or at least a modest consolidation, we may then get a surge back towards the old highs.

The lower chart is the Advanced Get daily, indicating we are coming off a wave 3 and headed up again with a 37% probability. The MACD certainly supports this notion, bouncing off the lowest reading of the year, but there have been numerous technical surprises (failures) this year, so I regard these readings with a grain of salt.

SIDE NOTE: I have multiple copies of Advanced GET, and am selling EOD version 7.6, complete with the manuals, 5 VCR traning tapes, a study guide and the security block (you need a serial port to run this, not a USB port) all for $400 (includes shipping)(cost $2800). I use TC2005 as my data source, which runs it seamlessly, although it will operate on a variety of feeds.

If interested, drop me a note at bzbtrader@aol.com.

Qs close strong

A typical expiration day, punctuated by a number of quick high volume moves as the big dogs tried to finesse pins strategies. The initial fade was impressive before a 2 hour recovery into the noon hour. Traders got conservative into the afternoon session, consolidating at the PP pivot and waiting the later afternoon break, which has been down for the last several days. Considering the tendency for Friday closes to be weak as Traders offset weekend risk, today's little surge into the close at R1 was a distinct surprise. The final 5 minute bar high volume bar was, of course, down. Cucca has a lot to say about the larger perspective emerging lazy W pattern, and it's worth a close look. We are currently at the make or break level and next week's action should tell the tale whether the worst is over.

Tale of the Pivots - Part 3

Well I learned something from yesterday. . .believe in the pivots. I was encouraged out of the open that if the Qs could break above the PP pivot then R1 was a good bet for the day. The break, in fact came to the downside (not a big surprise after yesterday's weakness) and after chewing down a bit, looked like it might stabilize at 50. I got looking at yesterday's chart and thought the S1 was the more likely target and sold some Dec puts to hedge my longs. Sure enough, right down to S1, then some rattling around before dropping through it on increasing volume. The technicals started to turn right about then so I covered the puts a few cents too soon, but was glad to be long for the last 20 minutes. Expirations are always squirrely with the big dogs trying to make pins that you and I have no way of knowing about and the games that get played are frustrating for the little guy to say the least (see yesterday's vent). The Globex is flat as of 6:30 pst, so little clue for what's in store for Friday.

Pivots flip flop

A little pop and drop in the Qs today as the pivots did a perfect flip flop of yesterday. I don't make these numbers up, the pivots are based on the previous day's high, low and close. After the market's open at R1 and the first 2 hour weakness, I thought the Qs might find a landing at the pivot PP, although at the time it sure seemed a long ways away. The rally for the next 2 hours made PP look unlikely and I closed my long put position. Big mistake. The TICK readings should have warned against that move, but the TICK hasn't been all that reliable lately as the algorithmic traders seem to have figured out not only how to cloak volume, but also momentum. Everyone was waiting around with 1 hour to go, unsure which way the market would break. After a couple of the usual head fakes the high volume surge into the close was all down although the TICK somehow showed buying momentum.. It's enough to give me a headache and I have to spend some more time over at TraderFeed getting an attitude adjustment compliments of Dr. Brett before the markets drive me to distraction. Life's too short to get worked up about this stuff.

Here in beautiful Southern California it's a crystal clear sky and a balmy 80 degrees at the beach; the dudes and dudettes are hanging ten on some righteous curls and the blood red sunset was close to a religious experience. Company's always welcome.

The amazing pivots

So the VIX dropped something like 30% today. . .that's a lot for a one day move. Somehow, yesterday's worries all got set aside and folks bought everything in sight. The retailers performed especially well along with the financials. . .two of most (previously) oversold sectors.

I feared that we were going to see a pop and drop at the open, especially with the NYAD kissing 5. and although the NYAD did fade for the first hour, the TICK remained adamantly bullish.

Once the Qs broke through R1 resistance about noon and the TICK started up slope I figured the next target would be R2 at 50.80. It always amazes me how the pivots act as magnets to attract and repel prices and today's action was a classic as the high close of the day was (hold the applause) 50.79. Once the Qs got through the noon hour games (always a bad time to trade) the parabolics and channel kept me long into the final 5 minutes when I picked up some Dec OTM puts just in case this little dream scene doesn't continue tomorrow. That's when we find out how much of today's action was short covering.

Decline persists

Another high volume erosion of the Qs today. It looked like we might hold S2 at 14:00 but the buying was quickly sold down once the tenuous resistance of S1 was reached. The long tail TICK readings starting at 14:00 warned of the impending weakness and once again the last 30 minutes produced a surge in volatility and selling. The several rally attempts at 10:00, 12:00 and 14:00 were all greeted with engulfing sell downs. Although the Qs are technically oversold at this level, we know from previous weeks' Qs behavior that overbought/oversold signals are proving less than reliable. The high volume into the close suggests that if the markets were open another hour we would probably be looking at a 47 level in the Qs. Maybe tomorrow we get a bounce.

Qs Weekly Update

The Qs suffered the worst calendar week loss in the last 15 years and did it by a wide margin. Friday's action was particularly virulent with virtually no buyers for the last 30 minutes as 30 million shares of the Qs sold down 2%. This is what happens when there is no uptick rule. Great if you're short. . .not so great if you're long. There were absolutely none of the typical 1-2-3 retracement patterns during that last 30 minutes, further demonstrating the devastating power of program trading and the curtailment of trading controls.
The weekly linear regression chart does not look good. This week was the widest range bar of the year and is was clearly all down. Which is easy to appreciate in hindsight, but difficult to predict from the several daily setups during the week that appeared to encourage a recovery.

The daily linear regression chart (not shown) looks just plain awful and the current technicals do not bode well for a rally of any substance.

Ouch!

I was actually feeling mildly encouraged going into the last hour, but decided that a few scaredy cats might do something flaky like sell to cover before the weekend so I closed my short puts, bought some puts and sold some calls right as we got to the last half hour. Unfortunately I didn't buy near enough and I covered 5 minutes before the close. . .two costly mistakes in a half hour. The Qs tenacity to the S1 throughout much of the day was a bit suspicious, especially as the NYAD had a slow steady ascent. . .nothing really too encouraging, but it was moving up. When we got the break at 14:00 I thought the Qs had some traction and was looking for a surge to the close, but 1 million shares a minute down for 30 minutes cost the Qs 2%. So the next question is, where do we go from here?

If you're one of those buy the crash advocates, I suggest you mosey over to Vix and More and check out Bill's analysis of what happened in the aftermath of similar debacles over the past 6 years. It's not all that rosey.

Are we done yet?

As suspected, the Qs fell through the trap door at the open and never looked back. As has been noted before, when the NYAD opens at 3 (about R16) after previously closing at .14, a short is in order. The NYAD didn't disappoint and chewed all the way to the .50 level before showing any buying interest in the last hour. The TICK was similarly ambivalent and demonstrated what happens when the VIX is hitting the high 20s and outside the upper band (not shown). What happens is a TICK range on the 5 minute bars that cycles between R1 and S1, reflecting the similar fast and furious wide range bars for the equities. If days like today don't get your heart pumping then you're not paying attention or you're in shock. The TICK gave a hint of possible things to come at 13:30 as the MACD histogram crossed above the zero line. That break was quickly erased, but the interesting thing was we didn't get a new low at 14:30, instead the Qs just went into a hold pattern until the last hour, when buying finally emerged as signaled by the up slope TICK and NYAD and the positive TICK histogram. The lazy W bottoming formation looks encouraging BUT that little high volume hook down at the end of the day suggests that not everyone thinks the downdraft is over. I sold some naked puts at 13:00 and again at 14:30 but covered 10 minutes into the close just in case.

No Green

Today's slide was pervasive and unrelenting. For a while it looked like the Qs were going to manage another PP to S1 day, but things fell apart in the last hour as the other major markets accelerated in decline. It looked like S2 might be a probable reversal point going into the close, but CSCO's unconvincing earnings has it down 4.33 after hours and the Qs down to 22.75. Expect the futures to limit down at the open, and where we go from there is anybody's guess.

Qs Break 54.40

It took some doing but the Qs did manage to break the 54.40 mid term resistance level (R1) in the last 1/2 hour. In doing so, the Qs avoided a second consecutive close below the LR30 lower channel (mentioned yesterday), which would have been highly indicative of a trend failure. Although the TICK was giving few outright buy signals, the histogram did display the overall bullish bias that was developing. More informative was the NYAD, which began an up slope at 12:00 that carried through to the end of the day. Again, the last 1/2 hour showed the biggest momentum, and whether that was real buying or merely short covering remains to be seen.

I've added the StockCharts daily of the Qs, just to show the larger perspective. Based on this chart the Qs are essentially mid range with considerably upside potential.

For a slightly different point of view, Cucca also has some revealing charts on prospects for the Qs that are worth a close look.

Qs Close Below LR30 Channel

The Qs held their ground today with a S1 to PP cycle and some volume driven spillover. Of concern is the fact that the Qs did close below the lower channel line of the LR30, the first time this has occurred since the upward cycle began on Aug.17. The short term question is whether the Qs can get some traction and break through the support of today's high (54.40). If we get another close below the LR30 Tuesday, we may be seeing a trend reversal in the Qs.

November is historically the strongest month (S&P ROI) and the first 3 trading days are typically strong, clearly not the case this year.

Just a note of explanation as to why I no longer post daily VIX charts and comments.First, there are a number of excellent sites offering insight and technical studies on the VIX, including Vix and More and more recently, Traderfeed. I felt that my posts analyzing the VIX were becoming more redundant than informative, and although I closely follow VIX action in 2,10, 60 minute and daily bars and utilize VIX extreme reading to gauge my trading, these are essentially discretionary signals that serve as trend indicators rather than trade triggers.Second, those who have followed me for a while know that my focus is really on the Qs (and Q options) and although the VIX provides a relational base for reviewing the Qs performance, I have found that it is really not predictive in the same manner as the NYAD, TICK, pivots and parabolics. Thus, I have dropped the StockCharts daily bar format and adopted the Schwab SSPro platform charts and TC2005 linear regression charts as the backdrop for my daily commentaries. These are the the charts that I look at as I trade and the indicators are set the way I examine them throughout the day in order to trigger entries and exits. I believe that this new format will better serve both my readers understanding and my explanation of the setups that I favor and the technical analysis tools that I use to evaluate trade probabilities.

Pivot Tool

Much of my day trading and many of my comments revolve around the ranges established by the daily pivot points. Dr. Brett's recent posts also highlight the possibilities of using pivots to gauge short term market targets. For those of you who don't have pivots available on your platform, here's a pivot calculator from TradingMarkets.com.

Qs Weekly Update

For the week, the stats are as follows:

DIA . .. -1.90 (-1.38%)

SPY . . -2.42 (-1.58%)

IWM.. .-2.48 (-3.02%)

QQQQ. 0.49 (+0.91%)

My safe haven theory about the Qs has played out well and my Qs trading has focused on buying the intraday S1 pullbacks and selling the R1 rallies. Looking at the weekly linear regression channels (top chart) however, there may be some concern for a continuation of this trend. The Qs have been at the upper channel band for 5 weeks now, with a modest pullback 2 weeks ago, followed by an engulfing bar that brought it back to the upper band. Many of the Qs components are wildly above their upper LR30 bands, while many of the DIA/SPY/IWM components are substantially below their lower bands. At some point, the Qs will be considered a poor value relative to other sectors, and we are going to see either a reversal or contraction in the Qs performance. My plan is to lighten up on my Qs long exposure for a while by hedging with some near term calls. The straddle that I described in last week's update has worked out well so far.

Qs Rally

The upper linear regression chart shows that the Qs are temporarily out of danger. How the long tail doji will be resolved remains to be seen, but current indications are that the NAZ continues to be a relative haven within the markets as the financials continue to hemorrhage and weaken the wider market sectors.

Some good intraday volatility in the Qs provided several nice setups. The in ital drop and subsequent consolidation at S1 provided the first setup around 10:15. It was a quick trip up, with a parabolic exit flashed at 11:00. I was actually looking for more strength, so didn't take the short leg signal. When the Qs retraced down to S1 and consolidated there for 15 minutes, I was ready for the parabolic long signal and took the trade. The uptrend for the next 90 minutes was uninterrupted, and as the Qs approached R1 the momentum faltered and I was ready to exit when the parabolic flashed at 13:10. With 3 hours to go and the weekend ahead I passed on further signals, preferring to avoid a closing sell off (which never came).

SFO

The new issue of SFO is out and there's a little article at the very end that you might fail to notice that's really worth a second look. Subscriptions to the magazine are free. . .just go to the web site and sign up.
I often liken my ongoing trading education to that of a gold miner constantly searching for a few nuggets, while avoiding the fool's gold that litters the landscape. The article I'm referring to is Kira Brecht's piece on the MTA and its TA contest. For this year's winner go to http://www.mta.org/eweb/docs/2007DowAward.pdf
It's a nugget.

I liked yesterday better

Despite the carnage out there today, the Qs held up relatively well. The Qs opened at S1 and managed to maintain that support until the last 1/2 hour when we got the break to the down side. The fact that the Qs were able to avoid the S2 pivot is further testimony to their strength, since once the break from S1 begins, the S2 pivot is usually close behind. The fact that the break did not happen until the last 1/2 hour may also have some relevance. If weakness continues into tomorrow, then the current S2 level will likely be the first support level to be broken.

The linear regression chart (top) shows the precarious curent level of the Qs. Watch out if we get a close below the lower channel line.

The NYAD started out pathetically and ended morosely. It showed no sign of anything approaching an upside reversal.

The TICK was equally negative, spending the entire day between PP and S1, with frequent forays into the nether regions and closing on a decidedly negative -669.