Wild Wednesday

Looks like Ben the Bear is living up to his namesake. The Qs diddled around this morning, with nobody wanting to get too far off the PP pivot. A little over 50M share traded until 14:00 and then ZOOWIE. . .43M over the next hour and 220M for the day. And the last hour selloff brought the Qs right back to where they started. These hyper gyrations are typical of the FOMC announcements. . .what is odd is the settlement back to the mean. At the end of the day we are left with volume up, price down. . traditionally a bearish signal. The markets generally take a few days to digest the FED actions, so I'd expect continued volatility through the end of the week.

I'm taking off for a couple days, driving over to Vegas with my darling wife for a little R&R and to check out the lastest in boom town construction. As a guy who has been in the construction business since he was 16, I'm always fascinated by what the cutting edge architects and builders are up to in Vegas, where 63 new hotels are now under construction, including City Center, a little $ 8 billiion project that's employing 28% of all Vegas area construction manpower. And you thought the economy was in trouble.

Waiting for Ben

Qs were back to hitting the pivots today, starting with an opening kiss of R1. This was another classic gap fade, as the market had turned down by the 6:38-6:42 time pivot and the TICK and the NYAD were both down slope. The Qs fell right to PP in the first 30 minutes and then a reaction bounce to the PP-R1 midline. . .where it basically stayed for the rest of day. The strength in the DOW was again skewed relative to the NAZ, but I believe this is just positioning ahead of the FED announcement tomorrow. I went back into the long EK trade. With earnings out tomorrow, this old dog has been showing some accumulation and I'd like to get a little piece of it..

Speaking of earnings, with volatility popping all over the place, here are 2 excellent posts on the use of back spreads in lieu of straddles or strangles in order to play earnings breakouts or breakdowns.

http://vixandmore.blogspot.com/2008/01/crossroads-options_6596.html

http://adamsoptions.blogspot.com/2008/01/volatility-crossroads.html

Qs wobbles

Upper chart is 5 minute Qs.

Lower is 5 minute MSFT.

The Qs basically did nothing today, failing to hit any of the intradday pivots. This condition has been addressed in previous posts and is actually fairly rare. Expect the pivots to reactivate tomorrow. This was a day of relative indecision, despite the pop in the DOW, this can't be taken too seriously. What was unusual was the disparity between the DJI and the NDX. On a typical day a normal multiplier is 5X, DJI/NDX. Today closed with a 7X. I frequently watch this multiplier during the day as it often provides a leading indicator for a pair-like trade between the DIA and the Qs. Quantifiable Edges had an interesting post on the NAZ/IWM divergence that's also worth a look. I suspect today's divergence is probably just the product of some gaming going on in advance of the State of the Union message, which promises to be loaded with eloquence and inspiration.

The reason I included the MSFT chart is to show off one of my classic dumb trades as I went long the MSFT near calls at Friday's close. . .expecting a bounce back from the great earnings news selloff and hypothetically capitalizing on the higher MSFT delta/premium yielding a better return than those pathetic Qs. NO SUCH LUCK. While the Qs managed o climb the wall of worry to yield a nice gain, MSFT continued the slide past short term support. . .and ended up one of the very few big-cap losers for the day. Fortunately, it was only a small position, but some days you just gotta wonder.

My profound sympathy for High Probability Trader. I hope he's able to hold it together and trade another day. Having sustained substantial losses myself in the past, I can empathize with his attitude and his reaction. The video is painful to watch and I sincerely wish him the best.

Qs Weekly Update

Upper chart is weekly 3 LRs study (30,11,3).

Lower chart is monthly bars of 3 LRs study.

As predicted last week by the 3LRs monthly study, the Qs came right down to 42, and then bounced back towards the mean. If the Qs can't make it back to the mean in relatively short order, then we're probably going to see a major trend reversal in the 3LRs and 36 will become the next dismal target for the Qs. Unfortunately for the longs, the MACD (5,20,3) in both time frames is decidedly negative. . .in the monthly we are just starting the plunge, in the weekly we are in rapid descent. Friday's unambiguous bearish action was a good warning that rallies are to be regarded with the utmost suspicion, until we get a definite trend change. The fact that home builders and regional banks have rallied strongly may only be the product of aggressive short covering. . .not long term accumulation.

This brings up another issue that I meant to address Friday, but feel it is really worth posting after I noted Dr. Brett's post today on taking a break, recharging the fuel cells and clearing the cobwebs from your brain.. Bottom line. . .you don't have to trade every day. In volatile market times like the current, it's probably better than you don't. I personally find the intradday market gyrations exhausting at times and become burnt out watching those 2 minute bars for an exit or entry signal. More than a few times I've just closed my open positions, or put in a close stop alert (I never use market visible stops), and taken a walk, or worked around the yard, or gone off and played golf. A very successful trader I know only trades a few times a month . . .he patiently waits for setups like Friday ( downtrending market, 2-3 days up, then a gap up at the open. . . .then he sells short all in with a close stop and a trailing stop. Also check out Afraid to Trade's excellent gap fade post.

My goal is to make money trading, but an equally important goal is not to lose money. Directional market timing is always a dangerous game because there are always deep pocketed market players with information, tactics and objectives that may be totally at odds with everything current technical analysis is showing. The global meltdown last Monday initiated in large part due to a rogue French trader is something that few risk managers could have imagined. Nevertheless, the effects were profound, dramatic. . .and costly. Maybe it's time to stand back for a bit, like Dr. Brett suggests, evaluate your current situation and consider if there's a better alternative. Like old Plato said, "The unexamined life is not worth living", and this holds true on many levels. Trading ain't an easy business my friends and anybody who says otherwise is a liar or a fool. And while there are a few folks who have a gift for trading, for most of us it's just plain hard work. Taking a break is not a sign a weakness, it's a sign of intelligence.

http://youtube.com/watch?v=H5-mX1OLdOs&feature=related

Been down so long it looks like up to me

We've looked at this pattern before as an opportunity to fade the gap and today's example was picture perfect. With 2 days up at our backs, the Qs gapped up almost a a buck in response to MSFT earnings (ostensibly). The Qs opened a little above R3, while the NYAD opened dead on R2, while the TICK action was devoid of any enthusiasm. The whole thing started to collapse from the open and when there was no buying at the 6:38-6:42 time pivot ( in fact the Qs had already retraced to S2) . . .THIS WAS A GUARANTEED SHORT. I entered an order for 20 ATM puts and ran off to do a few other things, after hearing my message window tone confirming my order. I checked back about an hour later to count my winnings, when I noticed that they had only filled 4 contracts!, so my wind fall kinda turned into a short fall. I refused to fill the order at the current price (11:00) and closed the position in disgust once we got to the lengthy squat bar at 14:30.

My Schwab StreetSmart Pro platform continues to have periodic shutdowns, datafeed halts, and sudden gaps in the charting displays, all of which are critical to my trading. In the face of current market volatility, these platform gliches are not easing my anxiety levels.

This really was a huge down day, considering the Qs started above R3 and almost ended at S2, and they were trying mighty hard to hit that number in the last 10 minutes. The NYAD deteriorated from R2 at the open to a near S1 close. . .another bad sign. I'll look at the longer term implications of today's Q action in tomorrow's weekly update.

Qs knocking at resistance

Qs managed a nice gain today, but are finding resistance at the 45.00 level. (After hours Qs are up .36 in response to MSFT earnings). It looked like a strong day for the Qs with only a 50 % retracement to PP, which was unusual. I was set to buy the puts at 10:00 and then my Schwab platform just quit. It came back for a few minutes, but no option quotes, then it came back 5 minutes later and, of course the puts had gained .04 in the interval and I wasn't that enthusiastic about buying them and then getting trapped if the platform went down again. . . which it did several times in the next 30 minutes. I hate when that happens, because there's nothing worst than being in a short term trade with no high speed data feed and no operative trading window to get you out. I stuck with my EK swing trade through the day. Yesterday I was kicking myself for not picking up some EBAY ahead of earnings. . .glad I missed that one! Dumb luck rules.

A bounce

Well, everyone who missed the fun yesterday got a chance to join in today. The DOW managed a rather amazing 660 point range, closing at the highs of the day, while the NDX actually closed in negative territory for an unusual disconnect of the markets. AAPL probably had a lot to do with it, and despite a 30% retracement from the lows, it still finished off 16 points. Qs volume was nearly identical to yesterday and this may well be the near bottom. I suspect earnings reports for the next 2 weeks will drive the markets and it remains to be seen how much of the last hour breakout was short covering. The Qs selloff down to S2 at 13:00 was accomplished on decreasing volume, which was unusual, so there be some concern about a retest of the lows.
I went long the near calls way too early at 11:15, doubled up at S2 at 13:00 and closed the position for a small gain at 15:15. Should have held into the close, but it looked like a reversal was imminent. I repeated my long EK at the open and held that one into the close for a nice gain.

Reversal?

The Qs bounced out of the abyss in the first 60 minutes into a narrow range S1 - S2 day. That 2nd to the last 5 minute bar was a tell that not everyone was buying. AAPL's earnings were less than expected and it is off $19 and change after hours and the Qs are at 43.68 . . .down .52 from the close.
The problem with today's "rally" was that the black hole of an open was de facto. . . .there was no sell down or capitulation leading to the reversal although volume was heavy (380M compared to the Aug 16 plunge at 362M). I may be nitpicking this thing. . .(buying the open was clearly a great opportunity), but I am skeptical of the strength of this bounce (the DOW did finish down 128 and the Qs were down 1.15 before the after hours drop.)
I managed one long at the open in EK which I closed after 15 minutes as I had other projects to deal with. No regrets.

Is your money safe?

A timely and scary article in the February edition of Technical Analysis of S&C (www.traders.com) by Jon Sarkett discusses some issues that many traders may not be fully aware of. For those sitting on substantial cash pools, you'll be dismayed to learn that FDIC and SIPC only cover you for $ 100,000 or $ 500,000. . .depends on your broker and a number of other variables. Best advice. . .(a) read the article, (b) call your broker and find out exactly what kind of protection you have and (c) diversify your cash holding into a number of accounts to achieve maximum protection. When I called my broker (Schwab) and learned that only a portion of my funds were insured, the support guy commented that Schwab was so big that if they went under I would probably have serious things to worry about. . .which wasn't really reassuring at any level.

Tuesday's open

These are the Globex quotes as of the close of futures trading today. They are extremely negative numbers. The NQ lost close to 2% today and on the global markets the Indian markets were down over 11%. Cucca gives a great recap of today's implosion and I would be very, very cautious about taking any long positions until this thing settles out, as there are likely to be multiple head fakes along the descent into the abyss (before the recovery). The 42 number for the Qs that I mentioned Saturday may just be the jumping off point for the lower levels (like 36), so, again, EXTREME CAUTION is advised. Those little pop and drops from last week got some traders interested in holding overnight longs, looking to sell the near Open. I'm lucky that I wasn't one of them. My current strategy will focus only on daytrades. . .no positions will be held overnight until further notice. Actually, I'm inclined to sit this whole thing out for the next couple weeks and focus on some home repairs that I've been putting off. This is beginning to feel too much like watching a serious train wreck.

Qs Weekly Update

All charts are 3 linear regression studies (30,11,3).

Top chart is monthly Qs.

Middle is weekly Qs.

Lower is weekly VIX.

Starting at the top, the Qs retraced to the channel mean this week. That doesn't mean the Qs are ready for a bounce. . .the 42 area is where a bounce becomes overdue. In the meantime, there may be some intermediate rallies, but with all the talking heads saying "sell the rallies", don't expect a lot of traction at these levels.

The Qs weekly is in freefall, with little technical sign of abatement.

The weekly VIX is in an interesting position, ending right on the channel mean after a pop to 29.12 earlier this week. In sync with the Qs, the VIX shows little inclination to retreat. Although the VIX got strangely comatose earlier in the week, it did show its true character on Thursday.

Without a bump to the 32.50 level, the VIX is not in overbought territory.

Current indicators suggest more downside and with most traders expecting a high volume, capitulation sell off, the bias is clearly to the short side. If you are uncomfortable with the short side, then cash is advised until there are clear signals that a rebound is in order. However, I am hard pressed to imagine a scenario where the markets rally substantially. . .there are just too many fundamental problems with economy and the likelihood of things getting worse before they get better is substantial.

Volume up, price down

Top chart is the Qs 5 minutes.

Lower double chart is VIX on top, NYAD on bottom: both 5 minute.

After a lot of interday gyration, the Qs basically went nowhere today. I should have sold that ridiculous pop in the first 30 minutes but, of course, I wasn't even near the computer so that one got away. Then the markets sold down hard, approaching S1 (DIA hit it; IWM blew through it), and the Qs bounced with a purely technical touch, recovered some ground and then traded in a narrow range for the remiander of he day. The NYAD shows the market action clearly; bias to the short side but no rush to the exits (probably because everyone had been anticipating a high volume capitulation today). The VIX shot off into the 29s and then retreated 2 full points into the close.

Tomorrow I'll look at the weekly 3 LRs studies for the Qs and the VIX. Although both have returned to approximate mean levels, that doesn't imply the correction is over. I'm still expecting a washout or one day reversal before getting long on any size.

Weakness prevails

As per Tuesday's post, the August lows are now within easy range and tomorrow may tell the tale, helped along by expiration, being Friday and being the start of a 3 day weekend. Looking at the charts it's hard to make a case for the long side at this point. Sure every market is oversold to the extreme, but don't let that lull you into thinking a rally is just around the corner. It may be, or it may be a long way off as I noted in my earlier 3 LR studies of the Qs and the VIX (which incidentally came alive today after maintaining a comatose behavior for much of the declines this week). Watch for 27.50 on the VIX.
I did nothing today, finding no long setups that looked attractive and reluctant to go short at these extremely oversold levels. FYI, my feeling about WM was correct (short) , but I have few regrets about passing on the trade. Cash is my current safe haven as I figure its better to be flat rather than lose money, plus I will be occupied with a couple other projects for the next few days and the focus of my attention will not be on the markets.
The Qs are up .30 after hours, but as demonstrated by today's open, that may just be the cat waiting to pounce. Good luck out there.

Not so bad

The Qs recovered overnight a substantial portion of the initial dramatic response to INTC's earnings report. I suspect some of the big dogs were similarly positioned as myself prior to INTC's news, the difference being that they can manipulate things overnight and I cannot. I did basically nothing today, flipping some long puts for long calls, but making just enough to cover commissions as delta was absolutely dead in the FEB OTMs on both sides.
I stayed away from the WFC and WM trades mentioned yesterday....WFC's surprise rise and the ridiculously high cost of WM puts and calls made any kind of strangle play way too expensive for my tastes.
The Qs finished on a perfect long tailed doji for the daily bars, hinting that there may be a change in market temperament, but it's too early for me to get seriously interested in the long side. Although I am still holding long FEB OTM calls, I will wait until we get a 3/7 bar SMA crossover before I add to the position.
The smart money says wait till this earnings season is over prior to putting on any size as there could be some nasty surprises with a significant trickle down effect.
I'm adding the following link for my fellow traders featuring the aptly named Soggy Bottom Boys with their greatest hit. It seems appropriate to describe the curent markets.

August lows approaching

Yesterday everyone loved IBM - today everyone hated Citicorp - and after the close they are hating INTC even more....currently down $3.25 with the Qs down $1.00 afterhours. That's going to make for a terrible opening tomorrow and earnings season hasn't really begun so I am thinking that puts is the way to go. I, unfortunately, sold my long puts at 15:00 and loaded up on a slug of long FEB calls in anticipation of great INTC earnings, which would have given me a opening gap up to sell tomorrow. No such luck.
With the banks starting to report now I will look to buy the FEB OTM puts, probably in WFC (which got downgraded today) and WM (which is a highly manipulated stock, and which also got downgraded.) I'll wait and see what tomorrow brings as far entry setups.

A bounce

Qs and everything else popped today on the news from IBM that things are good. Although the volume wasn't all that convincing, the Qs opened at R1 and basically hung around there all day, neither declining to PP or rising to R2, which I took as a sign of non-commitment. Although these days of non-pivot turns occur about 15% of the time, they seldom follow back to back, so I suspect the market will yield clearer turn signals tomorrow.
I took the Open pop as an opportunity to buy back the MS puts for .05 that I sold Friday at 15:15 for .18 and which closed Friday at .12. Interestingly enough, although I bought back the puts for .05 at 9:32 this AM, and the Qs closed .30 above the open, the MS options were still trading .o5 at today's close, even with a whole day of decay. A bit unusual it seemed to me, and when I saw this behavior going into the last 15 minutes I decided to go the other way and bought the OTM Feb puts, since decay is going to get ferocious for the next few days and there are few short put plays that look attractive right now. We may actually get a little more juice out of this rally, and if so I will adopt a delta neutral position and will look to exit the long side at or before Wednesday's close, the highest probability 3-day pivot high day.

Qs Weekly Update

Top chart is weekly Qs; lower is weekly VIX.

Qs down $ 1.35 or 2.79% for the week. November support was dramatically broken the week before and the next stop looks like the August lows. That corresponds to the monthly 3LRs study of the Qs earlier this week and is suggested by the current technicals, which (perhaps surprisingly) to NOT indicate a significantly oversold market. Thursday's rally attempt fade provided a good tell that buying was most likely the result of short covering rather than value plays. I think the short term odds remain on the sell side as there are few sectors of the market holding up (utilities are an exception) and most are looking vulnerable to further erosion. The VIX also looks like the current trend is up towards the mean at 27.50, which doesn't encourage me to play the long side. Until I see some base building daily patterns I'm inclined to focus on delta neutral premium decay tactics and very short term day trades based on the daily pivots, which provided consistently reliable signals for the past week. Cash is a good place to be until this thing sorts itself out because if we break the August lows the next stop for the Qs is at the 36 level, and that, my friends, is a long way down.

New US Currency Revealed

In case you missed the news, as part of a comprehensive plan to revitalize our faltering economy the administration is rolling out a brand new currency. Since the dollar is on the verge of falling to zero anyhow, this seems like a great idea. For complete details, check the following: http://blip.tv/file/520347

Selloff continues

Today's Qs chart was the exact opposite of yesterday's. What remained the same was the action off the pivots. A lot of technical damage to the NAZ100 leaders today drove the Qs down .94 at the close. The immediate slide to S1 after the open was a bad sign but I thought we were out of the woods at noon when I sold some OTM near puts. That didn't pan out too well and when the Qs got that squat bar going 14:00 - 14:30 you knew S2 was the next stop. Sure enough S2 got hit and I sold a few more puts (hoping the Qs wouldn't really get nasty and drop another pivot before the close). We then got a market wide reversal that carried for about 30 minutes before the obligatory fade into the close typical of Fridays. At the end of the day, my short puts were actually ahead a few cents and with weekend decay factored in, the position should be good on Monday. The technicals suggest there is still more selling to come, as there has been no high volume selling frenzy or the parabolic price capitulation characteristic of a true bottom, so my plan continues to focus on selling short term premium.

Late note

Also note today's and yesterday's posts at Bespoke. This is a series of excellent articles that showcase current market conditions and at the same time detail some backtests of select earnings reports that can provide a tactical advantage if you like to play the earnings game. Definitely a keeper.

A mixed day

The Qs went on hold until 12:00 when Ben mumbled something about doing whatever was necessary to keep the economy afloat. Figuring that there would at least be the impression of good news coming, I picked up some long calls at 11:00 and was ready for the blastoff. I was looking for a short term exhaustion top at 12:20 to exit and had my finger on the button watching 1 minute bars, but by the time I concluded the top was made (elapsed time: 90 seconds) the calls had already retraced .03 before I could get out. Just not as fast as I used to be. I did nothing for the next few hours until 14:00 and with the Qs coming off the PP pivot once again, I sold the near OTM puts. Volume was inconclusive going into the close and there is still an obvious bias towards the sell side at this point. My goal is to focus on premium decay rather than directional moves for the next few days.

A bounce

The Qs continued the sell down today on decreasing volume, culminating at 14:00 in a low volume swoon towards S1 and then changed direction on a (suspicious) low volume reversal which held for the remainder of the day. The action got a little weird around 13:45 when option activity all but dried up as traders waited for the plunge to and possibly through S1. The opportunity to scalp the bottom lasted about 90 seconds at 14:10 before the market makers opened the normal .01 spread to .02 and .03, apparently not wanting to give anything away and at the same time hedge their positions. That spread opening provided a good tell that the trend was about to change.
I flip flopped in and out of a couple short puts plays early on. . .then went flat into the afternoon until 14:15 when I sold some OTM puts. With 10 days until expiration a lot can happen, but at the close I was up 50% on the position so I've got some margin to play with as decay wears away. Friday is typically a high volume day for rollovers and premium decay should begin to accelerate significantly at that time. I typically load up on short puts going into the Friday afternoon prior to expiration week just to capture the premium decay. If the Qs hold together till then I will take a flyer on that game, but I'm still a bit wary of the Qs based on the 3LRs studies posted over the past 2 days.

Qs monthly perspective

For another perspective on the current situation with the Qs, here's a monthly chart of the 3LRs study (30,11,3) which shows the Qs superior performance in 2007. The chart also dramatically shows the carnage of the current month. Reversion to the LR30 mean would bring the Qs to the 45 level, which may not necessarily get hit on this cycle, but it's a target to keep in mind.

Qs track. . then plunge

After my whining about the Qs not hitting the pivots yesterday, they got back on track, but it wasn't pretty. The lazy W pattern that the Qs displayed today could have provided a good foundation for a intermediate term bottom. Instead, the last 90 minutes saw the Qs drop all the was from R1 to S2. That's a long ways to fall in that short a period and the volume was escalating into the close, suggesting more of the same to come tomorrow. For those who follow the VIX as a inverse indicator, I suggest you take a peek at my earlier post today. . .which was made while the markets were in the green. The VIX 3 LRs study doesn't imply a bottom will develop at VIX 27.50, it just means the VIX is headed in that direction.
The Qs are now down to levels of May 2007 and just a few dimes from the August lows. Investors have seen 8 months of gains dissipate in 2 weeks. . .so you've got to ask yourself whether buying at this level is tactically prudent.
I was playing it extra cautious with the short puts I sold yesterday into the close along with a long call position on EBAY that looked promising when I put it on 10 minutes before yesterdy's close. At 10:10 today, with the Qs making a squat bar at the PP pivot and an impending medical appt. 30 minutes away, I bought back the puts and sold the calls. . .each for a measely .10 gain. I seriously debated with myself before closing the trades, since I have a bad habit of taking profits too soon and thereby cutting my profits short and bringing on heavy levels of regret and remorse ( see Dr. Brett's site for an exhaustive study of these trader foibles). Unfortunately, ( or fortunately) I didn't get back until 10 minutes before the market close and was grateful that I had indeed closed those positions, as I would have been some $800 poorer if I had left them open. Sometimes dumb luck works. I was tempted to sell the Q puts again in the last 10 minutes, since their value had increased dramatically from the morning session, but the sheer volume and virulence of the decline made me stand back as I sat with my finger on the trigger and watched the seconds tick by to the close.

Another look at the VIX

I haven't looked at the VIX for a while, but this 3 linear regression study (30,11,3) of the weekly bars gives something to ponder. Given the upslope of the VIX since the beginning of 2007, the 30 bar channel has been a good overbought/oversold tell. Disregarding the current oversold character of the markets, the position of the current VIX bar suggests that increased volatility is the likely trend for the near term. Based on the 3 LRs model, a reversion to the mean would take the VIX to the 27.50 area. . which would translate to a significant decline from current market levels. This concept is at odds with my previous VIX trading methodology which revolved around the VIX's propensity to revert at least 50% back towards the mean within 4 days. . .the mean being the 10 and 20 day SMAs. . when an 18% boundary had been violated. Although that system worked well going into late summer (82% reliable for the IWM)), the August and November performance was rather pitiful as the inverse correlation between the VIX and market returns failed to hold up. In hindsight, (always the best way to trade) the 3 LRS study would have proven the better choice to time my swing trades (2-4 days) and I am adopting this directional model for my current short term trades in the Qs. If nothing else, the 3 LRs model suggests exercising caution before entering those "can't lose" near term longs. "Better safe than sorry", as my ole Pappy use to say.

An unconvincing day

We are again seeing divergence in the Q time frames. Currently overbought on the 5 minute and oversold on the daily. The 30 minute sell down that began at 10:00 got a lot of people's attention. With AAPL down over $9 at one point and RIMM close behind, the idea that the whole market might just implode looked like a possibility. The fact that the Qs managed to rally back to the open price was encouraging, but I was unconvinced. The ensuing sell down from 13:00 down to the last 20 minutes looked like we were in for a pitiful close, but the late buying surge brought the Qs out of the woods. Interestingly, the Qs failed to kiss the pivots, either up or down, and I'm unsure what significance to attach. Premium got sucked out of both the puts and calls at the open, and I closed my Friday longs 10 minutes in, staying flat for the majority of the day and then selling near OTM puts at 15.25 and .03 off the low. The position at the close was .06 to the good, but if things get hairy tomorrow, I'll exit and wait for the next setup.

That was Bad

That was about as bad as it gets. The chart doesn't look that scary until you realize the Qs opened below S2, immediately fell to S3 and ended day somewhere in the neighborhood of S7. The Qs hit my intermediate low target of 49.15, and then proceeded down to an overflow 48.85. .which I (unfortunately) took as a buy signal for a modest near OTM call position. So that didn't turn out very well and to add insult to injury I picked up some more calls 10 minutes before the close. This falls into the category of a "hope" trade, or bet more than a reasoned tactical play. But with the Qs 6 days down and now at the lowest since September 19th the odds for a technical bounce (at least short term) seem reasonable. The Qs may get some follow through selling on Monday as those last few bars at the end of the day were decidedly negative. With 15 days to expiration I need any move up to happen fairly quickly as premium decay will start to kick in with a vengeance towards the end of next week.
Fortunately, I'm still 95% in cash and plan to remain so for the foreseeable future.

5 Days Down. . almost

Top chart is the daily; lower is 5 minute.

The Qs were down for the 5th day in a row, (until the last 5 minutes) giving a 77% chance of an up day tomorrow. The Qs certainly looked like they were moving early on, but the positive NAZ100 components were mostly of relatively low volume (ORCL was the exception). . .so minimal impact to the index totals. The NYAD and the VIX moved lockstep today and the turn at 12:30 set the tone for the rest of the day. I managed to get out of my long calls in the first 10 minutes... and then watched as the Qs churned on up to PP at 10:00 and the calls actually declined. . .weird. I'm still short the near puts into the close and although the Qs fared poorly, the puts actually fell a few cents (a good thing for me), but again weird. The Qs are now up .11 after hours. The little doji that formed on the daily chart today looks bullish going back to mid-December. I typically like to see a 3-4 bar hairy bottom (candle tails) before getting excited about the turn, but you gotta take what the market gives you and this may the start of rally (which I will look to sell ).

Wednesday

Dr. Brett had an recent post noting all the 2007 DOW gains could have been made by simply buying Tuesday's close and selling Wednesday's close. That system doesn't show the same stellar results with the Qs, but it corresponds with my research marking Wednesday as the best performing 3 day pivot high sell day. In today's case, unfortunately, the system only worked if you bought puts Tuesday and sold today. . . but the holiday, FOMC and other economic reports and light volume coming into the day should have been clues to stay away from this Tuesday/Wednesday anyway. I managed to gird my loins coming off 13:00 and went long the near calls. I was looking for a retracement up to S2 (at least) and when the Qs stalled at 14:15 I decided to just take the money and run . . . I'm glad I did. We closed somewhere down in the S5 region and my RSI(2) daily system triggered at 15:45, so I'm now long the near calls and short the near puts. I'm going to keep tight stops on those trades as the Qs may continue down to the 49.15 area if overall weakness prevails and my strategy would be to close those current positions, rather than add to.