Blue Monday

A Blue Monday, for sure. So much for the positive tone of Friday's 30 minute bars. The Qs were in a downdraft from the get go and never looked back. I was encouraged about 12:30ish when it looked like S2 wasn't going to get hit. With the overall market weakness it should have been a forgone conclusion. And the breakout at 15:00 might have also been encouraging, except there was no volume to drive it. That being the case, I was not surprised to see a fade into the close, although I had not anticipated the virulence and volume of the action. Since the first few trading days of the new year are historically very positive, I was looking to put on a modest long position. I ended up selling OTM near puts at 15:45 and .02 off the close. The only positive thing about the close was that the Qs didn't violate S2. As in similar instances last week, I suspect that if more big traders had been active the close would have been well below S2.

Let's see what fun and games the new year brings.

Good luck all around.

BTW, earnings are upon us and here's a great set of articles from the Stockbee to help you navigate the perils and opportunities this time around. Definitely worth a look if you like to play the game.

Qs Weekly Update

The Qs finished up $ 1.04 on the lowest weekly volume for the year, so any technical comments at this juncture are surely suspect and should be considered in the spirit of possibility rather than probability.

The top chart is the weekly 3 LRs study (30,11,3),

the lower chart is the daily 3 LRs study.

My spin on the current trend it that there seems to be considerable overhead resistance around 52.60 for a further short term move up in the Qs. This may, in fact, be overwhelmed by Apple's earnings on the 16th and the other NAZ100 gorillas MSFT and INTC. RIMM already came out strong and the market reaction was very favorable. In the interim, I'm favoring intraday short side plays with the aim of selling the rallies, not buying them. I'm also battle worn enough to know tight stops are essential at this point on the calendar, as job #1 is capital preservation. Next week's shortened session will probably not illuminate the picture much better and although I'd like to drop a butterfly trade on the 51 puts, I holding until Wednesday to avoid a possible Monday surprise.

I recommend at this point that you pour yourself a drink, click on over to the Clueless one's site and carefully read and perhaps reread every word of his posts for End of Year and Friday EOD. Cucca and I have very similar styles and interests as we both focus on Q options and play a variety of similar strategies with them. Our technical interpretations of the market are based on somewhat different parameters and indicators however, and one of the great things about the trading blogosphere is that informed and experienced people are willing to share ideas openly in the spirit of learning and growing (and hopefully to make a few centavos). If you haven't met Cucca before I hope you will enjoy the ride.

Dr. Brett recently suggested the creation a virtual trading rooms between like minded traders to facilitate the exchange of ideas and create a kind of trading synergy. I tried that around September but was deluged with spam and worse from folks who apparently have nothing better to do than create misery for others. I am, however, willing to give it another try and if my trading style and methodology (see sidebars) resonant with you, then I'd be glad to hear from you with the goal of forming a live online forum. My aim is to have as much fun trading as these guys have playing music: http://youtube.com/watch?v=z_k-CL3dJ8k

The blahs

Top chart is 5 minute bars, lower is 30 minute.

Qs finished the day just where they finished yesterday on like volume of 67M. The call premium evaporated like smoke in the first few minutes of the session and only very nimble fingers could capture any overnight gains. The 5 minute bar at 10:00 was a real doozie, dropping the Qs $ .27 on 2M shares. That should have been the clue that there was more to come, and after another hour of building false hope, the slide to and through S1 commenced. The Qs did show some strength at 13:30 (an untypical time for such behavior) and managed a respectable rally until 14:45 when the selling wave knocked it back down to S1. So what had taken the Qs 1 hour and 7M shares to gain, was eliminated in 20 minutes on 3M shares. Interesting how order flow gets queued to create these market dynamics and I sure wish there was some way to see it coming.

The 30 minute chart looks somewhat optimistic, having made the turn and with 3 parabolics up. Needless to say, I'm not convinced that UP is the next wave and I deferred making any weekend holds from a strictly risk management perspective.

Pullback

The assassination today put some real turmoil in the markets. Early on it looked like the Qs might actually hold it together, but the downward momentum was just too great. Checking over the NAZ100 components I was amused to see that about 85 of the components were negative and the only real strength was in AAPL and AMZN. Once AAPL started down the swoon was inevitable. Once again the volume was subdued. . .67M for today's count. I suspect we would have been looking at an S3 or lower finish if the volume players had joined in. We've seen these little hooks at the end before. . .typically they can't be relied upon to predict next day opens.
I'm currently flat, having covered the calls I sold yesterday.

Qs hit 52.60 target

The Qs made a solid run to the target I've mentioned for a few days: 52.60. Today that target (amazingly) corresponded to the R2 level so with the upward break off the PP pivot at noon, it was a good bet that 52.60 would get hit. The Qs then picked up volume in the last hour and slide back a bit to close at R1. Not the end of the world considering generally weak market performance today, especially in retail and the financials. Keeping things in perspective, the Qs only traded 57M shares today. . up from Monday's 35M. . but this session was 6.5 hours, not 3.5 hours like Monday, so the pace was actually about the same.
I did manage to sell some OTM calls right at the R2 kiss and am looking for a short term pullback to net a few dimes.

TickerSense notes that all 10 of the S&P components are either neutral or overbought, so we may be seeing the beginnings of a slide back to the lower LR30 regression channel (see Saturday's post) which would suggest a short term target of 50.

Monday

The Qs Sweet Spot trade was triggered by today's opening gap, but I failed to take it when the 6:38 -6 :45 pull back failed to materialize. Volume, as suspected was a pathetic 37M (the lowest since July 3) in the Qs and the action was essentially flat after the first 20 minutes. The usual gaming in the last 45 minutes, with a quick retracement into the close. Not much to be made of today's action, which may also be the case for Wednesday. Still watching 52.60 resistance.

Tis the Season

Still trying to figure it all out? Here's a picture that will help put things in perspective for the Christmas season.

Viewing instructions. . . . . . . . . . .

1. Open window to max size

2. Relax and then focus on the 4 small vertical dots in the middle of the picture for about 30 seconds

3. Now. . .take a look at a wall or light colored smooth surface near you (a blank Excel or Word doc also works great.)

4. You will see a circle of light start to develop

5. Blink your eyes a few times and you will see a image emerge.

Qs Weekly Update

Top chart is the weekly 3 LRs chart, lower is the daily.

Current reading: weekly - negative; daily - positive

For the week, the Qs were up $.88 or 1.73%.

We finished the week on 2 solid back to back gap-ups, a pattern not seen for a while. Meanwhile, the Qs are approaching intermediate resistance at 52.60, which may take the form of a 3 day pivot high. As noted in Friday's post, the Sweet Spot Qs trade is setting up nicely and if the Qs do gap on Monday I will likely fade it if we get the the usual 6:38-6:42 turn. That's strictly a short term trade, as the ho-ho spirit, visions of sugar plums and a low volume could well propel the Qs through 52.60 and back up to 54.00. Stranger things have happened recently, and in the unlikely possibility the Qs do land on higher ground next week, I will not be chasing them up but will be holding back until the technicals start to deteriorate once again.

What's next for the Qs?

Continued momo in the markets today, although on the lowest volume in 10 days in the case of the Qs. The volume surge to the upside in the last 10 minutes was encouraging for those looking for a continued Santa Claus rally. I stood back from today's action due to some other commitments, but with little regret. My current inclination is to be cautiously long as we approach serious overhead resistance and then move heavily to the short side once the rally wanes. Despite good earnings from RIMM, ORCL and others, there are still major holes in the economic fabric that will not be resolved any time soon.

With abbreviated trading next week, there will be lots of opportunities for the games that usually get played in low volume sessions. Stockpickr has one short term approach to trading the recent pop in the Qs that they call the QQQQ Sweet Spot. Based on the strategy parameters , the entry gap at the current price to trigger the trade on Monday is .15 -.31. They also profile a number of other Qs trading tactics, profiled under the Active Trader tab, along with a daily update of high probability trading candidates.

Be sure to use a stop.

Looking for Mr. Goodbar

It sure looked like it was going to be another slow burn day, with premium getting sucked out of the near options at lightning pace. Then, at 13:00 a flurry of buying, followed by a modest low volume retracement before a full scale rally at 14:00 that carried through the rest of the day. Some suspicious pre earnings moves in RIMM got the momo going, which has followed through after hours. I made my move to sell naked the 51 calls in the first half hour and sat out the action for the rest of the day. With all the gaming that goes on at expiration, I'm tempted to hold back on tomorrow's session hoping to gain some clues to the level of short covering that was responsible for the breakout surge this afternoon. On the other hand, with excellent news out of ORCL and RIMM I'm expecting a good pop for tomorrow's open, which should scare the bejesus out of all the guys that sold the 51 naked all week, which will probably foster even more cover buying. If we actually do get momentum that pushes the near 52s into double digits I will be inclined to fade that move short term.

A calm day

The Qs started out midpivot and finished midpivot, having failed to gain much traction during the day. That 3 hour waddle along the S1 pivot looked like it was going to turn nasty, but the 14:00 buying put that on hold. I was looking for a nice bounce up to sell some naked calls at the open, but the premium evaporated in the first few minutes to the ridiculous level and I held back. May go for the 51s tomorrow if we get some momo up in the morning.

An interesting post by Ticker Sense today on reported lowered expectations for the next quarter's performance and why you shouldn't necessarily accept it at face value.

A classic day for the Qs

The Qs continued the slide out of the gate, settling right at our S1 target of 49.30, before gradually chewing back up to close at the PP pivot. templates. The TICK picked up significantly after 13:00 with a change of character (see above), which in turn got the NYAD upslope into the close. Volume also picked up a bit today and tomorrow's action should reveal whether that was due to short covering or true buying enthusiasm. The slow cycle move today between PP, S1 and PP was picture perfect, with a little flurry of selling at the tail end telegraphing the market's uncertainty.

From bad to worse

Things looked ugly at the open with S1 as the starting point. They didn't get any better as the day wore on. In fact, the downward momentum was led by the NAZ and basically followed the same downslope from Friday. Noon brought the technical possibility of a rebound, but that little spurt of low volume buying was met with renewed selling pressure. Now that the Qs have broken down through 50, the next support looks like the 49.30ish area. If that fails to hold, then the August lows are the next target. Since the Fed move failed to generate sustained buying, or even a holding pattern, it's hard to figure what possible factors could lead to a rally at this point in time. Pegging your hopes on a Santa Claus rally or the January Effect is a bit tenuous (and risky). The momentum is clearly down and I would look to set short any rally into expiration.

Dark Pools - Part 2

Here's another article on the rise of Dark Pools, as a follow up to my previous post on Dec 13th. The article reports that 7-10% of daily market volume is Dark Pool transactions. That's a big number when you consider that retail trades account for an average of only 3% of daily volume. Most of the Dark Pool transactions never get reported, which makes their prolifieration even more worrisome. Some interesting tables and charts in the article if you take the time to dig in.

Qs Weekly Update

Top chart is weekly 3 LRs study; lower is the daily.

For the week the Qs finished $ 1.36 lower, or -2.60%.

Both charts now look bearish.

On the Weekly, the Qs failed to carry through on the LR30 channel mean and have broken down through the LR3 lower channel. The MACD and OBV have turned negative. although the RSI has not come on board with an overbought signal yet.

On the Daily, all indicators with the exception of the short term RSI are also negative. Friday's profound negative action as reflected in the falling hammer was a complete reversal of Thursday encouraging close. This 49-50 range looks like the next target, and with expiration upon us this week (Triple Witching, actually) there may be some added volatility. Caution is advised.

No relief

Once again I got snookered at the open, having failed to sell my long calls at yesterday's close. I did manage to exit flat after the first 60 minutes, but that only made me even. The Qs spent the rest of the day in a 2 step down, and as expected, sold off on increasing volume into the close.
If there's any good news here (it might be a stretch) the Qs did not fall down to S2 for the close. . which looked like a distinct possibility in the last 60 minutes as the DOW plunged, feigned a turnaround and then sank again.
Being a ceaseless optimist I picked up a few long calls right at the close, looking for a Monday early rebound. Of course, that's more of an outright gamble than a reasoned trade, since the vast majority of recent economic reports have been decidedly negative and the overall market mood is somewhere between grim and morose. If the retail sector chimes in with poor sales figures, that will only aggravate the current weakness. I'm glad to be over 90% in cash and based on this week's trade failures with overnight holds, will probably discontinue that practice.
The weekly Qs update will be posted on Sunday.

Short term bottom?

The Qs finished a few pennies higher than the open on strong volume. For most of the day the action resembled paint drying. At a couple points I rapped my laptop to make sure it was still working. As surmised in yesterday's post, my end of day bravado holding long calls turned out to be misguided, leaving me .14/contract poorer at the open. I managed to gain back a few pennies before dumping the position and going short. That position held for about 90 minutes before I bailed and went flat. About 13:45 TICK action started to pick up, all my indicators turned up and my Q tracking stocks turned positive, prompting me to buy the 53 calls. That turned out to be good trade as the Qs inched up into the close on increasing volume. The fact that the DOW turned around pretty impressively from -100 to + 40s was also encouraging. I'm again net long, trusting that I won't get caught in ringer overnight. The TICK was surprisingly bullish for much of the day. I have alerts set that sound a tone when the TICK hits 525, 800, -525 and -800. The majority of alerts were bullish going into the afternoon session, although the mean TICK readings stayed firmly at the PP pivot. The NYAD went upslope for the last hour, which added further encouragement to my maintenance of the long calls into the close. Tomorrow's Friday and with the current extremely negative mood about the financials, real estate, retail, etc. . we may see a risk management sell off into the close (I may join the crowd to avoid paying the weekend premium decay).

SFO and the Rise of Dark Pools

SFO magazine typically has great articles and this month is no exception. The issue of Dark Pools is something I had vaguely known about, but had no real information about. This article changed all that, and now I've got to up my Lexapro dosage to overcome this new worry. But really. . .it's worth a few minutes of your time to learn a little bit more about Dark Pools since it will help you appreciate and understand how the deck continues to get stacked against the retail trader.
One way to avoid the problems with the Dark Pools is suggested in the article on Butterfly Nets, since this is a strictly premium decay strategy, although it can be set up with a directional bias. A bit complex to set up for some ( many platforms let you set up and enter the order as a single trade) , but Mike Parnos does a great job of explaining the risk/reward the setup and the ideal time frames. Worth a close look by option traders looking for another potential revenue stream.

Register on line for a free subscription.

Indecision

The Qs daily chart actually looks fairly benign, with an open at R1 and an almost touch of S1 late in the afternoon, before a very green run to the PP pivot for the close. What is not apparent is the size of the range today. . . $1.55 as compared to yesterday's $1.63. Coming out of the gate this morning the markets looked pumped to crush the shorts, but when you start with the NYAD above 14, we are in very thin air and levels like that cannot be sustained for long, regardless of the shenanigans the FED is trying to finesse in order to buoy up the ship. Such was the case today as the NYAD declined to bearish levels of less than 1 in the late afternoon.

I used the open as an opportunity to close my naked puts, which retraced to approximately yesterday's open price and then turned around and bought the same puts. I (unfortunately) misread the surge (and accompanying signals) at 13:00 and closed the position, thereby missing the collapse at 15:00 and leaving .20 on the table. I watched the hairy bottom form for almost 30 minutes and with the parabolics and the signal line flashing a BUY signal, bought some OTM calls which I rode into the close and (in an act of bravado) decided to hold over night with the idea that the surge may carry over into the morning session. The Globex is -375 at the time of this posting, so I may regret my action.

Late Note

For those who follow Worden Brothers ( I use the data feed and charting for the linear regression studies, which I am unable to find otherwise displayed as clearly as on TC2005), all indicators for the major indices (SPY, DIA, QQQQ) in all time frames are now DOWN (that's bearish). I've been with Telechart since 1987, in all it's iterations and consider their comments about 80% reliable. .for what it's worth. If you still have a bullish bent . . just beware that you don't let HOPE over rule your reason. Always have an escape hatch ready, especially in these unique times.

Disappointment

The sleeping giant woke up a few minutes after 14:00 and wasn't happy. Massive volume surge sent the markets into freefall and the stalwart Qs crumbled also. Looked pretty good going into the Fed news and expected skinny volume, but that all changed quickly and dramatically. Qs finished the day on the highest volume of last eight days and given recent behavior that's all you need to know to correlate with down days. Tomorrow we'll see how much of this momo selling was program trading inspired if and when we get a bounce up.

NOTE: Sorry for any misunderstanding about the intent of my previous post. The title was cleverly designed to convey the message: A good time to buy the financials. . .when pigs fly, NOT to convey the idea that now is actually a good time to buy these timebombs.
I noticed that Citi came out with a SELL rating on WAMU this morning and watched with some amazement as it retraced 50% of its overnight gap down. But following the ratings observations of Stephen McClellan as noted in ACTIVE TRADER on an earlier post today. . I figured the odds of this thing imploding were close to 100%. I was not disappointed on that one.

A good time to buy the financials

Just my opinion of course, but this thing just keeps getting scarier and scarier and indications are that the worst news may be yet to come, especially for the thrifts and mortgagers . A sector to avoid for those who want to sleep at night and not wake up to the likes of today's news and resultant action in WAMU and FNM.

The Analyst Racket

With today's developments in WAMU and a few other financials, there is a very timely and eye-opening interview with Wall Street insider Stephen McClellan in the January 2008 issue of ACTIVE TRADER on what analysts' recommendations really mean. Just in case you thought you understood the ratings game, McClellan pulls back the veil and offers some unexpected suggestions on how to game the ratings yourself. Hint: it's not daytrading. I wish the interview had been a lot longer, but it's provides enough tease to get you interested in buying McClellan's new book - FULL OF BULL. (that's the name of the book, not a comment). Nevertheless. after reading the article you probably will have a greater respect for the power of ratings changes.

Waiting for Tuesday

Some indecision for the Qs today as the R1 pivot became the focus of attention with some slip over both up and down for the duration of the day. The low volume also reflected the sidelines view. Tomorrow, of course, will be volatile and we probably will not know what the street really thinks about the news for a few days.
Some momo in the financials today. WAMU apparently using the opportunity to announce after the close a huge dividend cut and the shut down of 190 loan centers. Can't be good news and WAMU is down $1.70 from the close. Probably a few more of these nasty surprises will follow shorty as earnings season approaches.

Qs Weekly Update

Top chart is the 3 LRs daily Qs.

Lower chart is the 3 LRs weekly Qs. Net change for week = +$ 1.02.

Some interesting developments are noted this week in the charts. At first glance, both time frames appear bullish. On the weekly the Qs have bounced against the mean for the last month and although the short term LR is headed up, it has done so on declining volume. The daily chart is somewhat cautionary in several respects. Although the Qs have managed to land above the upper LR30 channel, the RSI looks overbought and the latest 4 day rally has also been driven by sub-normal volume. Friday's doji may be harbinger for a short term retracement as the big money prepares to game Tuesday's FOMC news.
For the past week I have focused on the intraday pivot moves, selling calls at cycle tops and selling puts at cycle bottoms. This is a somewhat risky tactic for my typical comfort level and I plan to to be flat going into Tuesday and then adjust my intraday tactics to a spread basis, being long calls and puts, just in case the markets gets dicey pre-expiration.

Qs take a break

An oddly narrow range day for the Qs today, with the close just .03 off the open. Although the Qs did manage a bounce off S1 in the first 30 minutes, the pivot lines became elusive for the remainder of the day as the Qs meandered around the zero line. Some pre-noon hour momentum looked like R1 might get touched, but the 4 black crows got knocked down by a selling wave for the next 90 minutes. There was similar little conviction noted in the rest of the markets in anticipation of next week's sure-to-be-exciting FOMC news on Tuesday.

Qs redux

Top chart is the 3 linear regression daily channel study, lower chart is the 5 minute bar trading layout.

The Qs performed pretty much like yesterday. We did get a retreat in the first hour, which I considered a gift horse and bought back my short naked calls for a .03 loss, which turned out to be a wise move since if I'll held them I would have been down .20 at the close. I really didn't see the last 90 minute momo coming. Volume was pretty weak for most of the morning with a lot of volatility in the NAZ100 components. The initial timid touch of R1 in the first 30 minutes suggested we might stay in a narrow range today but the 14:30 cross up over the R1 was on solid volume. . .although the surge was probably a reflection on the perfectly timed breakthrough in MSFT, which had otherwise been doodling around all day until someone pulled the trigger. The market now seems on a juggernaut to take out the old highs and I am now net long on the portfolio. My current view is to add to the long side on pullbacks.

Up a bit

The puts I sold yesterday turned out to be a good investment. I may have jumped a gun a bit ahead of tomorrow's action when Bush announces the big give-away for the woe-is-me folks who got snookered into the zero down ARMs that are now ratcheting upwards of 10%, but I'll let Cucca vent on that one, although I share his view completely. . .enough said.
The Qs opened at R2 and vaguely touched the R4 stratosphere before a minor retracement into the close. Afterhours the Qs are rubbing 52, so we'll likely see carry through tomorrow. Wednesday is typically a pivot high day, but with all the event driven moves lately and the current momentum distinctly up, I'm opting for closing the sold put gap by selling even more, which isn't a practice I commonly follow (selling puts into a rising market). I'm also short some 53 calls (down .07) at the moment and will look to vacate that position on a decent pullback with the goal of re-entering at a better price. If we don't get a pullback, I'm considering selling the 50 puts to create a delta neutral position. The only cloud on today's action was volume, which was not profoundly bullish.

Some Q puts ideas

Above are the EOD abbreviated option chains for the Qs from yesterday. Today's action has effectively cut the puts in half, while the calls (52-54) have increased by about 30% each at the time of this post.

The mini-spreadsheet at the top reflects the daily range of each of the options as reflected against the daily range of the Qs. My take on these few examples is that I get more bang for my buck my selling the 47 and 48 puts than the 49s. My recent experience is that the stated delta has very little relationship to the actual delta as reflected in the range of the 47s and 48s puts relative to the 49s. I regard the 46s as throwaways and if someone is willing to give me .13 for them, I'm glad to sell a bunch. Notwithstanding a global catastrophe, major terrorist attack or complete unravelling of the current financial mess (ie., the truth will remain hidden until the next round of earnings reports), I consider the 46s safe territory for the next 17 days.

Sidenote: as of time of this post those 46 puts are now .06, for a fast 1 day 50% return and the 47s are now .11, also a 50% return. There are few venues to finesse this type of tactic but I think the Qs offer unique opportunities in this area.

Qs on weak narrow range

Some odd behavior from the Qs today as they failed to make any inter pivots moves. The launch from S2 at the open was suspicious from the get go, so as the Qs powered on through S1, it sure looked like the PP was a high probability target. Not so. Instead we were treated to a very narrow range malaise for the remainder of the day, finally bouncing off and then closing at S1 in a bearish display of accelerating volume. Some significant decay in premium today on the OTM puts. I'll examine some possible low probability short puts for tomorrow's session and post the results. As always, reader input is welcome.

Q slide continues

After a slow runup to the PP pivot, the Qs deteriorated down to sniff the S1 at the close. The Goldman downgrade of many of the NAZ100 big caps was evident in the continued selloff in RIMM and AAPL, among others. Volume was very constrained until the afternoon session, when the action turned decidedly negative. The last 30 minutes into the close showed increasing downside momentum, which I suspect will carry over into the morning session.
Once again, the historical bullish pattern failed to materialize. If the Qs are unable to find a footing at this level and in short order, a retreat back to support at the 49th parallel is a distinct possibility. I'm still cautious on my swing trades, preferring to play the intraday cycles between the pivots.

Qs Weekly Update

Top chart is the weekly 3 linear regression channel chart and the lower chart is the daily. The indicators at the bottom are the usual MACD 5,20,3, RSI3 and OBV.

On the weekly the Qs continue to oscillate between the mean and lower LR30 lines, with the latest engulfing bar offering some bullish encouragement. The RSI is turning up from an oversold condition and this also looks positive. The MACD on the other hand, remains downslope and we would want to see a reversal of that signal before getting frisky with the Qs.

The daily chart clearly shows the support at 49 that held through 11 days of selling. Now that the Qs are back above the lower LR30 channel line, all the daily indicators are in upslope sync for a continued rise. Friday's action, however, was NOT bullish and it remains to be seen if Dell's collapse, along with significant selldowns in Apple, Rimm and other NAZ100 big caps is the start of a new leg down.

I'm still cautious at this point, preferring to be 90% in cash and short OTM puts until a clearer trend develops and probabilities increase.