The Monday cloud at the end of the tunnel

Another narrow range day with volume continuing for the 7th day below the 10DSMA. The Qs just couldn't get traction off the PP pivot and failed to hit either R1 or S1. . . a definite sign of trader caution.
NYAD action was equally tepid and narrow range after the morning pop.
TICK behavior was a bit weird in that every breakout bar was followed by an equal and opposite bar from midday on, thereby suggesting lack of trader commitment or enthusiasm.
Although the Qs showed a net gain for the day, I'm still holding with the weekend technical forecast.
Bits and pieces:
Just a little chart to keep in the back of your mind. . . 6 months ago cash was a safe place to be. . . 3 months ago the yield had dropped to 3%, but still a relatively safe haven. . . move to present and you see how dramatically yield has collapsed and risk-free money has evaporated.

And there's more depressing news from the bio sector as new Vytorin clinical studies raise questions, MRK loses 15%, SGP gets downgraded and loses 25%. OUCH!!!! Another reason to play the indices and avoid the open manhole covers of single stocks.

A great gap fade lesson from Corey today at Afraid to Trade. Also check out his weekend update. Good stuff.

Inspectd.com

My friend Dr. Carl Wyman sent me the following link http://www.inspectd.com/. It's a neat little trading simulator with a few programmable variables that may quickly become an addictive past time.

Qs Weekly Update

Click on charts to enlarge.
Above is the updated daily, weekly, monthly bar 3 linear regression (30,11,3) study.
After the Monday breakout from the upper LR30 channel, the Qs spent the rest of the week pulling back to close with a modest gain of +.40 for the week (DIA and SPY finished neg for the week; IWM was pos).
The Qs are displaying disparity between the various time frames, as we are seeing negative technicals in the daily and monthly and positive technicals in the weekly. With the weekly reading at the top of the LR30 channel and the monthly reading at the bottom of the channel, the most likely resolution is a continuation of the lateral consolidation channel shown in the daily chart and an eventual return to the LR30 mean (41.50). Once earnings get rolling, volatility typically picks up and if things get dicey with more reports like ORCL, we could easily see a test of the previous lows. I've yet to see any encouraging news regarding macro economic fundamentals. . . the current report card is verging on a failing grade.
Our longer term AROON model continues to be non-committal to sell. I've expanded the time frame to 13 months just to illustrate the great signals this indicator has provided in the past. As with all indicators, it's vital to backtest efficacy and in the case of the Qs, a daily setting of 18 seems optimal. We got a late BUY with Monday's pop, which I ignored, since it fired at the 75 level. . . suggesting little room for further upside move. . . which was proven out during the course of the week. The best AROON BUY entries are at the +-30 level, leaving plenty of room to the upside. Exits are best controlled with a trailing stop as a green/red down cross is way too late. Check it out for your favorite stocks, ETFs, etc at StockCharts.com.

Further signs of a likely continued slide back towards the daily LR30 mean (41.50) include both the A50 chart above and the A200 chart below. Although the A50 was able to impressively pierce the 200DSMA, strength was short-lived and a retreat back to the 20 DSMA now looks likely.
The A200 was even more volatile, and following Monday's pierce of the 50DSMA, has retreated to below intermediate support at the 20DSMA.

The RSI in all 3 charts continues on a downtrend, and while approaching short term oversold levels, suggests more downside to come.

Net results for the week. . . an exhilarating Monday, with immediate follow through Tuesday followed by a long fade into Friday's close. I continue to focus solely on intra day trades (see Tuesday's post for my typical screen shots and trading logic) and believe fading the rallies still provides the best risk/reward returns (and peace of mind) for the near term.

FINALLY. . .being an ole guitar player (for the past 50 years). . . I always appreciate some of the unique talent that pops up. . . this is one of the best:

http://youtube.com/watch?v=x9T4Nmr356g&feature=related

Friday recap

The lower open anticipated by yesterday's pre close 10/20 5M bar MA cross failed to materialize this morning (one benefit of focusing on intraday trades), but after a sluggish rise to R1 in the first 30 minutes, it was all downhill. On the plus side, the lost for the day was a modest .08, thereby considerably outperforming the other major indices.
Volume continues to lag howver, following suit for the past week with daily numbers again below the 10DMA.
The NAZ (not the NDX) McClellan oscillator shown above has consistently responded to readings at -50 and +50 support and resistance levels, with the latest turnaround cycle rapidly approaching the zero line. The oscillator seldom reverses before at least touching the zero line, suggesting more of the current trend to continue.

On an intraday basis the 10 & 20 MA 5 minute bars and the NYAD tracker did a great job of keeping us on the right side of the Qs. The subsequent failure of the rather feeble rally at the open is a further indication that rallies should be sold, not bought. Until the markets stop fading into the Friday close, the likely momentum is down.
This weekend we'll review the 3 LRs studies and update developments in the A50 and A200.

Thursday recap

We got the downside follow through we were expecting as a result of yesterday's late 10/20 MA cross.. With another 10/20 5 minute bar MA cross going into the close today , odds of a continued decline tomorrow are increased. The behavior of the 5 minute 10/20 MAs going into the close has been a good indicator of next day opens for several weeks now and I'll look to quantify the success rate of particular 10/20 patterns in this weekend's update post.
It looked another narrow range bar was on tap, but the late afternoon breakdown of support took the Qs down to S3 on a volume surge. . .another indicator of likely weakness tomorrow.

Thursday: BXN tattletale

Above are the daily charts of the QQQQ and the QQQQ/BXN, which reveal some interesting divergences between the price of the underlying and the performance of a buy/write strategy.

Above is the daily chart of the BXN, displaying the sudden and sustained drop in performance since the late December peak. Although the chart mirrors the peaks and valleys of the NDX, note the volatility of the BXN relative to the underlying.

Below is the symbol list for other interesting NDX (QQQQ) index indicators that can be set up on the free EOD StockCharts.com SharpCharts.

If you'd like more info on understanding the dynamics and implications of the BXN, this is the site to check:

http://www.cboe.com/micro/bxn/introduction.aspx

Wednesday blahs

Another sub par volume, narrow range day. Weakness prevailed from the open with a little low volume pop in the afternoon session, but the PP pivot band resistance contained it. On the daily bars (top chart) the Qs are coming off an overbought condition and, fundamentals not withstanding, are most likely to continue down for several days. The 10&20 MAs crossed pre close. . . a look at Tuesday's similar pre close cross resulted in a weak open, so this should be regarded as a cautionary note for Thursday's open.

The VIX, NYAD and TICK had some disconnect today. The VIX looked bullish after the 10:30 low (described yesterday) and continued in that mode for the remainder of the day.

The NYAD looked like it was almost inoperative, as it maintained such an extremely narrow range. There was some enthusiasm going into the last hour, but it never got any traction.

The TICK clung to the PP pivot all day with some gaming evident in the last hour as the TICK hit both the R1 and then the S1 in 25 minutes.

Tuesday - Fade the Open Lesson

The fade setup at 9:50 was a picture perfect example of how I scalp the open.
I typically look for a reversal on the 2 minute bars between 6:38 and 6:48. I'm not going to post the TradeStation studies I've run to confirm this time frame, or try and explain why this little window of time is unique, those are topics for another day. . . suffice to say for certain ETFs like the Qs, IWM, DIA and a collection of big cap NYSE stocks, this is a critical time pivot. Since I like to be in and out with a max exposure of 120 minutes, this type of trade has a real appeal for my risk averse nature.

The charts displayed are 2 minute bars, a departure from my daily 5 minute bar summary posts, but these are the setups I use to scalp, watching both 2 and 5 minute bars simultaneously.

At 9:48 price falls off of a 5 bar squat characterised by a hairy top (bars with tails). . . one of my favorite turn signals.
Also, at 9:48 a number of indicators turn negative in sync:
The signal line turns down.
The parabolics turn negative.
The RSI, CCI and Williams %R are downslope.
Woodies CCI signal is downslope and parallel.
The only confirmation lacking is the 10 & 20 bar MA cross, but these are intended as stops, not entry triggers, so these indicators don't negate the trade.

The NYAD falters at 9:48, perfectly in sync with the wide range down bar on the TICK. These are high probability turn signals, and as such, confirm our upper SHORT signal.
If you've ever looked at the STOCK TRADERS ALMANAC, you know that historically 10:30 and 13:30 tend to be low cycle points intraday. While these time pivots are obviously not hard and fast, it's really just about probabilities and for my money, time of day matters. . . a lot.
I'm short at 9:50 at 44.72.
My exit plan contains two options: either the PP pivot, or the 10:30 turn.
I fully expect the PP pivot to get hit, since this is typical behavior for the Qs.
At the same time, I'm keeping an eye on the TICK and especially the NYAD to make sure I don't get trapped in the short position.
The Qs get within .07 of PP at 10:02 and in the following 2 minutes most of the indicators turn positive. . .with the parabolics not yet firing. The NYAD is bouncing off S1 and the TICK is upslope. I get the definite feeling the markets are turning up and I bailout at 10:06 on 44.36.
Total trade time = 16 minutes.
Gain = .36
The trade didn't have the duration I had anticipated, but you're always safer (and typically richer) taking what the market gives you rather than what you expect.
I'm done for the day, back in cash and off early.

Monday breakout

A uniformly strong day today, with increasing volume the only missing component. Overnight the NDQ were smoking so the open at R1 was expected. Carrying over Thursday's strong close, there was no morning fade, and hence, no signal to short. the Qs continued on a tear until 12:45 and an R5 reading. . . a level of strength not seen for quite some time. The modest 1/2 pivot fade into the close gave little indication of tomorrow's likely action. Big, engulfing bars like today typically see an immediate follow through, with a subsequent fade back to mid bar levels before resuming an uptrend. This would be the entry signal we are looking for to put on short term swing trades. The unusual sky-is-falling economic reports may derail that plan, and for now, new trades are restricted to that mentioned above and opening gap fades.

In sync alignment of the VIX, TICK and NYAD today, all he way into the close. . .which was positive.

The 60 minute chart is showing the afternoon fade, which may continue into tomorrow's open. I reiterate again that daily Qs volume has been sub par for the past 2 days, which may be a clue that this rally is running out of stream. Today's breakout from near term resistance is dramatically evident in the 60 minute, and a retracement to below that previous 43.30 level would be indicative of a rally failure.

Weekly Qs Update

Above is the 3LRs study of the Qs (see sidebar for chart indicator details if new to the blog). The daily chart continues to display a lateral consolidation pattern, with the Qs currently locked on the LR30 mean. The channel has served us well for the past 8 weeks, identifying the relatively narrow band of support and resistance that has characterized the Qs. . .although intraday volatility might lead you to believe otherwise.
The weekly chart is actually showing some positive momentum, with the Qs breaking through the upper band of the LR11 channel and looking like resistance at the 10WSMA could be next. The lower technical, including Moneystream, TSV, RSI and the MACD are all modestly up after Thursday's rally, and although Thursday's volume was suspiciously low, the weekly volume was above both the 8 and 20 day volume moving averages. . . so another argument in favor of the bulls.

The Qs continue to oscillate around the 20DSMA, although, as noted in the 3 LRS study above, there are technical signals that suggest a likely change of trend to the upside. Whether this is a longer term trend change, or merely a rally in an ongoing bear market remains to be seen. The AROON, which we rely on for longer term signals, remains non-committal.

The A50 showed considerable improvement this past week and is now bumping against short term resistance. The A50 can be considered a positive sign for continued Q gains as long as it holds above the 20DSMA. Next resistance level is the 200 day.

The A200 showed an even more dramatic reversal this week, bouncing off an almost zero level to touch the 20DSMA, which again has provided overhead resistance since last October. . . so a breakthrough to the upside should be considered a significant signal of strength.

Thursday recap

A strong day with basically no fade into the close. . . surprising for a long weekend and perhaps indicative of a short term trend change. The 5 minute 20 SMA showed the way all day, and especially for the afternoon session when I was expecting a weekend fade. It's proven to be a great short term trading trigger and stop for the past several weeks.

Although volume was within the 10 day range for the DIA, IWM and XLF, the Qs had the lowest volume in over two weeks. XLFs up almost 8% today, closing strongly above the 20DSMA and now entering the overbought twilight zone.

We'll be looking to see if the market can follow through next week with additional gains. Fundamentals remain dismal to doubtful and the real test will be market performance during the upcoming earnings season. If we see new bad earnings reports rewarded with higher prices, then figure a positive perception bias is in play and all bets are up. The converse is also true.

Weekly update to follow tomorrow.

Wednesday fade

A major give back today of yesterday's pop, holding true to previous post-FOMC rate cut behavior. All the technical tells were in sync today after the morning double top.

TICK, NYAD and the VIX aligned to show the way down. Once the parabolics turned negative on the double top and the 20 bar SMA got violated mid pivot, the trend was clearly down and once PP got violated in the last hour, S1 was a pretty good bet. Strong selling into the close doesn't bode well for tomorrow. We continue to follow our "sell the rallies" strategery. With the Qs now back below the 20DSMA, we are looking for a test of the lows.

Tuesday wrap

Impressive gains across the boards today as the FOMC .75 cut was met with some enthusiasm. The Qs got the 3 pivot+ move I was anticipating. . . and it was all up. We may get carry over tomorrow, but the interesting day will be Thursday with the 3 day weekend looming. I missed today's action as I left early in the AM for an appointment and didn't return until after the close. Another couple days up will get the Qs in overbought territory again, and as per my previous comments, I'm looking at the 20 DSMA as the line in the sand. The Qs closed above it, but the question is whether it can hold. The 3LRs are still not positive although the underlying technical indicators are looking encouraging in the daily and weekly time frames. Caution is advised.

Blue Monday

The NYAD opened at less than zero today as an indication of what was going on pre-market. On somewhat restrained volume (less than Friday), the Qs clung to the S1 pivot. . .both opening and closing on it. This is inside day behavior, despite the argument for the price range expansion. The NYAD never made it over .35, even with the 850+ TICK readings in the last 90 minutes. These inside days (when the Qs have not hit another pivot) are typically resolved with 2-3 pivot ranges the following day (think engulfing bars) and the anticipation and volatility characteristic of FED days (tomorrow) should only serve to exaggerate that range. The last two 5 minute bars of the day are likely a hint of tomorrow.

The VIX continues to climb and the financials continue to fall.

The arguments posted in Friday's Weekly Update for a continued slide remain intact.

Qs Friday recap and Weekly Update

So, after today's slide you're feeling a little bit like that donut? Unfortunately, the technical indicators are strongly hinting that there's more of the same to come. Staying out of the water for a while might be a good alternative to consider.

The A50 has turned negative again, bouncing between the 20 and 50 DSMA, but still clearly down slope.

The A200 looks even more ominous as the number has broken away from the previous 20 DMSA resistance level and continues to drift down, looking to find a new resistance level at the 10 DMSA (not shown).

The daily, weekly, monthly 3 LRs studies show the continuing erosion of the Qs, with the upper LR30 channel line providing overhead resistance for the past 2 months. The good news is that the lower channel (currently at 42) has managed to provide support. If the Qs break to downside with gusto, next stop is likely 36-37.

The VIX 3LRs studies in all three time frames continue with an upslope bias, so as much as I don't look forward to it, this is a further indication of probable market weakness.

There was considerable blog chatter this week on the inevitable bottom and the various technical and relational tells that can aid in detecting that welcome event.

Are we approaching ground zero?

Did Tuesday's 400 point jump set the stage for continuing market advance?

Wednesday's pivot high and Friday's high volume slide have caused a number of technicians to rethink the case for the bull while the ongoing fallout of looming large bank failures and escalating unemployment are guaranteed to create significant collateral damage throughout the markets for some time to come.

The next earnings season. . .only a few weeks away. . .may be the true watershed for the market.

Important technical indicators that I watch are currently negative:

The 20 DMSA is riding above the 10 DSMA

The MACD , MoneyStream and TSV are all downslope

Price dropped today on accelerating volume

The Qs are coming off an RSI overbought level

The LR30 channel is downslope

The LR11 channel is downslope

The A50 and A200 charts are downslope

Until the Qs can break the upper LR30 channel resistance and hold, I'm a believer that the trend is down.

Thursday recap

A decent day for the Qs and once again the 5 minute 20SMA showed the way in both the Qs and the NYAD. Similar to yesterday action, but today's move ranged from S2 to R1, while yesterday was nearly a narrow range PP to R1. Volume also picked up today, although there was no acceleration into the close. . . so a bit of suspicion there. It will be interesting to see if current prices can avoid the Friday risk mitigation sell off that has characterized the markets recently. Narrow range Qs days have most recently been resolved to the downside, so today's action was a departure. The current daily chart looks ambiguous, but the 30 and 60 minute are clearly bearish. Today's close, while encouraging, remains below the 20DSMA, a line in the sand I consider important prior to initiating any new (short term) longs.

Wednesday Qs wrap

After an initial follow through of yesterday's strength, the Qs went into a holding pattern for most of the afternoon session before a modest late-day selloff. Although the Qs did manage a R1 break, it was short lived and that failure signalled the weakness to come. The 5 minute 20 SMA line typically provides a great tell for the turns and the last couple days have been good examples. The 5 minute 20 SMA also worked well on the NYAD and would have kept you short (or at least not long) into the close. The upslope ADX on the NYAD starting at 15:00 was another confirmation for the shorts that the Qs were going to be weak into the close.

But wait, you say. . .the NYAD reflects the NYSE. My response is, that's true, but the positive correlation between the NYAD and Qs behavior is uncanny, and if you spend a little time watching the NYAD in sync time frames with the Qs, you'll see what I mean.

Dr. Brett talked about dropping a 10SMA on the TICK to determine short term trend. I echo the idea along with watching the NYAD, although I prefer a 2 minute bar look since the length of my typical trade is seldom over 120 minutes. Using a MACD histogram or single line MA component of the MACD (5,20,3) or (3,10,16) in a study pane will also yield good turn signals once you become familiar with the pattern.

Tactically, I was hoping for a little more upside in the Qs and the other indices for a couple days to really build up the overbought momentum. Today's action instead demonstrated that "sell the rally" is still the prevailing mantra. The XLF's looked particularly weak going into the afternoon session, so any new longs should be viewed cautiously.

Tuesday wrap

The only thing missing today was volume. Surges in all the indices were substantial and the closing 15 minutes was dramatically parabolic (the Qs are up another .28 after hours). In the course of one day many of the markets have gone from being oversold to being overbought.

For my money the easy play was fading the open. We had the classic NYAD in the 12s setup and that type of move is never sustainable (as mentioned before many times). The squat bar chatter around R1 for the first couple hours was a great setup for the drop back to PP, at which point I exited once the parabolics turned positive and the NYAD ceased declining. I missed the afternoon rally as I was waiting for another shorting setup. Alas, the Qs never fell below the 20 SMA for the rest of the afternoon, and although the R2 kiss in the last 30 minutes looked like it might prove a good shorting situation, I held back so as to avoid any overnight positions. A lucky move, in hindsight. This rally was overdue and the percentage of rise attributable to short covering should become evident rather quickly. The rally may continue for another day or two, at which time the Qs will be considerably overbought and I'll be looking for a regression to LR30 mean levels.

Deconstructing the SMH

Outperforming the Qs and now at the 200 DSMA of the ratio. Prospects look encouraging.

Continuing our study of the ETFs, today we look at SMH, the semiconductor offering. Currently trading about 12M shares a day, with penny spreads, the SMH provides good liquidity and fast fills. Like many of the ETFs previously examined, current price is hovering around the 20 DSMA, with the 50DSMA acting as intermediate resistance. Option open interest (discussed later) is thin relative to the Qs and XLF, with total open interest less than 350,000 contracts. Bid/ask spreads on the near ATMs are .02-03, but there is not active interest in all the exchanges, so fills midstream are seldom. SSG is the x2 ultrashort ETF for the SMH, but it typically trades less than 50,000 shares a day on .12-.19 spreads, so it's viability for scalpers and active traders is very small. Limit orders are always recommended in this type of spread environment, the problem being that when and if the stock starts moving either you'll never get filled, or you'll get filled at a price that's already in the hole within 30 seconds.

The semis are a hardware business and 90% of SMH net assets come from 10 companies, with the top 3 companies accounting for over 60%. Some correlated pair trades possible here, but the ratios are thin. A Qs/SMH divergence pair trade might have better results.

Above is the 3 linear regression study of SMH for daily, 3 day and weekly bars. The lateral consolidation for most of 2008 is clearly evident, and the SMH is demonstrating a resilience not seen in many of the other sectors.

Above is the March open interest configuration, below is April. These look like mostly spreads positions, with a significant skew to the calls, as opposed the previous put/call ratios examined over the past 2 weeks. Open interest in the OTMs drops off dramatically. The OI skew may look different tomorrow as over 5200 April 28 puts have traded today on a previous OI of 2188, so somebody thinks they know something.

Finally, the short interest chart is unusual relative to other ETFs we have examined. Although price is declining, short interest has mirrored the move down. If nothing else, we can take this as a positive sentiment indicator. News for SMH components has been neutral to negative recently, but the technicals portray a bottoming pattern, with a bias to the up side.

Worth keeping an eye on since they have held up so well to date.