SFO

Some very interesting articles in this month's SFO highlighting the nuances of trend trading versus range trading. The always fascinating George Pruitt also offers some critical perspectives on trend system trading. George is research director for Futures Truth magazine, a must read for systems traders and developers. Check out their top 10 lists (free) on the website, which provides a quick reality check on what mechanical trading systems can and cannot do.
Sign up online for a free SFO subscription.

Tuesday Qs

Another sub par volume day, although the Qs (NDX) were the bright spot relative to the other major indices (DIA,IWM, & SPY). Tomorrow should tell the tale whether the NDX divergence in strength has some legs.
The NYAD was not very enthusiastic, although the 10/20 did flash a bullish cross at 12:00.
Only one trade today at 10:35 (47.17) as the Qs bounced off the S1 pivot (not visible on the above chart) and my new algorithm (center blue line) fired a BUY at the 35 level. With the overall market showing weakness I was skeptical of the trade but decided to follow the signal rather than my discretion. My first target was PP and when the Qs got there a hour later I was ready to bail. . .but the 10/20 had not crossed so I decided to stick with it and put in a even break stop. With the NYAD picking up at 12:00 the Qs sailed up and I set R1 as the next likely target. When the Qs reached R1 at 13:35, with the NYAD very tepid, the rest of the market stalling and my indicator falling below 80, I closed the position (47.52). Yes, the 10/20 had not crossed, but a doctor's appointment was approaching and I needed to leave. . and I was unwilling to leave the position open, stop or no stop.
Time in trade: 3 hours (more than usual)
Trade gain: .35
Given the lack of volume and the relative weakness in the rest of the market, I consider this a good trade, but was glad to be out of it ahead of tomorrow.

Finally, in a follow-up to yesterday's video clip on the El Churro, I've included some historical info and travel notes to help understand the uniqueness of this site.

http://www.alpinist.com/doc/web07f/wfeature-el-chorro-adventure-p1
As a former rock climber (not El Churro skill or risk level), who is now reduced to golf for outdoor pleasure, I can appreciate what it takes to survive in this sport. Great lessons in tactical planning and risk management. . . and mistakes are really costly.

Monday Qs Update - yawn

REALLY low volume today (lowest of the year) and a price collapse into the last 30 minutes doesn't bode well for Tuesday's open, but HEY!, anything can happen and hope springs eternal. WWY (Wrigley) blew the doors off today after it's rumored Bush told reporters questioning his economic policy "Let them chew gum", an apparent update to the famous "let them eat cake"utterance of Marie Antionette.
(OK, that might not be exactly what happened.)
Only one little trade today. . a short at 14:15 (47.55) as the parabolics fired a SELL and my new trading trigger (center window) fell below 90. This is an indicator I've been developing for some time and I finally put some money behind it. So far so good. Although the trade was entered late in the day for my typical comfort level, I was talking to a trading buddy (see below) while the trade was in progress and he assured me that once a fade had begun in the last 30 minutes of the market, that odds favored a continued downtrend into the close. I was hoping for a collapse to PP but, failing that, I closed the trade at 15:55 (47.30) to avoid overnight exposure.
Time in trade: 100 minutes
Trade gain: .25
Small gain, but every little bit helps.
Finally, another great link from my buddy Carl Wyman:
www.brightcove.tv/title.jsp?title=1438490562
Talk about risk management. . . this is the real deal!!!!!!!
Forget about pictures of snakes, just watch this a couple of times whenever you're feeling perky.

Qs Weekly Update + VIX

Above is the daily, weekly, monthly 3 LRs study of the Qs (30,11,3).
With the Qs up .44 for the week, all time frames are now displaying positive momentum.
This week's daily action managed to close above the LR30 mean on each day, reflecting the upward bias. Even Microsoft's Friday swoon failed to drive the Qs below the mean.
The weekly chart has now reached intermediate resistance at 47.00 on the lower LR30 channel bar. This is an important level to watch. If the Qs break through 47.00 resistance with gusto, the weekly LR30 mean at 49.50 will be the next significant target and 47.00 will become near term support.
Despite the ugliness that's characterized all 2008 so far, the monthly chart reveals the Qs still on an upward track and now sitting pretty dead on the LR30 mean. . .so this is a critical juncture.

The A50 is getting significantly overbought, having now reached Nov 2007 levels. In a robust and growing economy, such enthusiasm would be understandable. In today's market conditions, the sustainability of these levels is questionable.

The A200 has shown some improvement this week, reflecting a larger participation of the NDX components in the recovery. This indicator is also resting in overbought territory and as it approaches the 200 DSMA, signs of reversal should be heeded.

Checking the VIX (above) with the 3 LRs study, we find a distinct change of character as the VIX rides the lower LR30 daily channel down, with no 10/20 SMA cross imminent.

The weekly chart is particularly interesting in the break below LR30 lower channel support. This is the first channel break (down) in over a year and may be a harbinger of a return to VIX levels suggested by the monthly LR30 channel mean (11.70) or, near term, the upper channel (13.60). Lower volatility means lower fear. Have traders become complacent, are they in denial, or do they truly believe the worst is over? Trends in the VIX suggest the market is on a roll.

Of course, this is all speculation based on mathematical probability studies which are just that, probabilities. Significant geo-economic developments such as a world food crisis, the collapse of the US housing market, the continued plunge of the US dollar, another major hedge fund collapse, a Chinese invasion, rampaging elephants, a new world-wide epidemic (what ever happened to bird-flu?) or the plots of lurking evil-doers could change these charts in a flash.

The strategy I have followed since the first of the year has been to focus on daytrading tactics, fading gaps and riding the intraday pivot trades guided by the parabolics, the 10/20 MAs and my stable of other technical indicators. With the markets currently overbought (my opinion) in the face deteriorating economic conditions, I'm not ready to commit to longer term positions on either side, but continue to manage risk by basically staying out of the line of fire as much as possible.

Friday wrap

MSFT's poor showing after the close Thursday was a dead weight on today's open. I suspect there were more than a few traders surprised, but yesterday's suspiciously weak close suggests some big money was in the know.
MSFT actually traded more shares than the Qs today (145M/122M) and closed poorly, though off the lows of the day.
The Qs staged a late afternoon rally (which I avoid on Fridays) showing good momentum, but unconvincing volume.
My sole trade of the day was a short at the open based on Microsoft's overnight decline which I entered at 9:44 (47.25) 0n 2 minute bars based on the failure of the 9:38/9:48 support line. With the 10/20 MA wide apart and the parabolics already on a sell, the probabilities looked attractive. My goal was S1 as an exit, but the squat bar that formed 9;54-10;06 and the subsequent parabolic BUY at 10:06 caused me to close the position at 10:06 (46.82). This was a quicker trade than I was anticipating, but the signals fired and my risk tolerance today was rather low as both the gas dryer and the refrigerator decided to go on the blink yesterday and I was thinking about getting them fixed instead of the market.
Time in trade: 22 minutes
Trade gain: .43
I obviously left some money on the table as the Qs proceeded to form a classic double bottom at 46.60 prior to the afternoon rally, but , all things considered, I've no regrets.

Deconstructing the DBC

After Tuesday's post on the DBA, I though it might be interesting to look at the DBC, which is more of a pure commodity play.
In recent days the food crisis situation has gotten legs as the feature story on the evening news and in the media everywhere. Rice shortage is currently the hot button as retail supplies dry up and commercial users scramble. Costco and Sam's now ration the amount of rice you can buy and some large buyers have lookouts posted outside the stores in order to alert them when shipments arrive.
Several articles have revealed that evil "speculators" are responsible for driving agriculture products off the scale, but, Hey!, speculation is what 90% of market activity is all about, especially in the futures markets, so I'm considering that news flash as non-tradeable.
The DBC, of course, is probably rife with the same speculators, but with the DBC you spread your greed to oil, fertilizers and gold and you still get wheat and corn.
Daily volume on the DBC is running about 750,000, though it has had 2.5M+ share days recently. DBA, by comparison, is recently running 2.5M daily.

Above is the DBC:DBA ratio chart indicating the current rise in DBC relative strength approaching Nov 07 values. Maybe a little arbitrage play as DBC gets lofty.

As an options play, DBC lacks open interest (less than half of DBA) and exchange participation is limited. Open interest at most strikes is less than 1000 and typical daily volume is zero in many of the strikes. Bid/Ask spreads are .15 -.20 and fills tend to be sloppy, so no daytrading or scalping going on here.

A MAY buy/write ATM (38) will currently yield 2.5%.

Given the thin open interest, the put/call ratio is essentially noise and can be assigned little importance.

Short interest has increased dramatically since February and reflects the same displayed by DBA. Some problems with Blogger prevent me from publishing the short interest chart.

The 3 linear regression study (30,11,3) suggests an emerging double top pattern that may morph into a "kiss the channel goodbye" situation. Petro products comprise 55% of the DBC net assets and with crude approaching 120 and gold approaching a cyclical low, my risk/reward assessment is that shorting is not a wise strategy at this point in time.

Loser

Las Vegas motto

Here are a few indications of what's going on in one of 2007's hot sectors.

Even the internationally diversified gaming companies are showing the pain.

With over 60 new hotel/casinos currently under construction in Las Vegas, including the $ 8 billion City Center project, the prospects for the gaming sector don't look encouraging. Recent gaming ETFs such as PEJ, BJK and PUF are all at near term lows. Gaming stocks IGT,BYD, PENN, PNK and ISLE have identical dismal patterns.

Down but not out? Technicals continue to deteriorate, with no prospects of relief in sight as airlines impose fuel surcharges and gas approaches $4.50 for summer travel.

Deconstructing the DBA

With a looming world food crisis, DBA might be worth a look as a tactical play on a scenario that will probably get worse before it gets better. Food riots last week in Haiti, where some of the population have resorted to eating "cookies" made from dirt, vegetable oil and salt while other food riots in Egypt, Vietnam and several African states are on the rise. Try to buy rice in Costco these days. . .nada. As food commodity prices soar and scarcity increases, food is quickly becoming the new oil.
AROON is on a BUY. Really a basket of futures, the DBA reflects a diversified base of agriculture products with a variety of calendar strikes looking forward.

As noted above, open interest in the DBA is hardly robust. DBA is currently at 38.27 with an almost 50/50 put/call balance. Heaviest interest is in the 36 puts (10,500 contracts), trading on a dime spread and recently filled at the ASK. Daily volume is typically less than 100 contracts in the puts and 100-250 in the calls, so it's difficult to finesse the bid/ask spread. Use limit orders.

A simple May ATM (38) buy/write 38.27/1.70 yields 4% at expiration and breaks even at 36.57 (minus commissions). Not a bad RR for 25 days.

The June 38 buy/write 38.27/2.65 yields a little over 6% and breaks even at 35.62.

Something to consider. Short interest in the DBA is clearly on the rise. Latest reported figures are now 3 weeks old (4/1), but shows a dramatic increase since Feb 1 and a topping out pattern currently in progress. Whether the current short interest reflects a substantial short stock, long call hedge strategy is doubtful given the level of call open interest.

Finally, the 3 linear regression study (30,11,3) is showing a retracement in progress back to the upper LR30 channel. The lower technicals are currently neutral, although poised to turn positive. Retracement back to the LR30 mean would take the DBA down to 34.50, a scenario that seems unlikely in the midst of the emerging food scarcity geo-economics. A more likely scenario would be "kissing the channel goodbye", . . . a pattern discussed in this weekend's Qs update. The Qs themselves have changed short term momentum and no longer appear to be kissing the channel goodbye. . .however, the situation with DBA may be a different story altogether.

Qs Hairy Monday

Welcome to the lowest volume Qs day this year. Clearly a lot of cash on the sidelines awaiting AAPL and MSFT to report(and others). With overbought signals flashing all over the place, traders appear to favor caution in lieu of valor before jumping into the fray.

The NYAD was asleep all day, with the exception of the classic 14:30 breakout rally.

The TICK was equally non-committal, and did not reflect the upslope NYAD action in the late afternoon. Closing TICK of 593 was bullish, but not considered indicative of tomorrow's open.

I've switched the chart to 8 minute bars today to display a reverse signal that I frequently utilize and which I term either a hairy top or a hairy bottom. (The patterns can also be seen clearly on 10 minute bars. (Today was rather unique in that the Qs showed both patterns.)

The hair, of course, describes the candlestick tails, relative to the candle body.

Hairy bottoms:

Between 10:26 and 11:14, with the Qs candle bodies oscillating at the PP pivot, long tails predominate. Once the Qs close above the pivot at 11:14, the trend is up.

Between 13:46 and 14:18 the Qs flash another hairy bottom and at 14:26, with the hairy bottom squat pattern clearly broken, the Qs again trend up.

Hairy top:

Between 14:58 and the close (and this is a longer duration than normally occurs) the Qs candle bodies oscillate right on R1, with the tails poking up, but with no confirmation higher closes.

While technically a hairy top, I would caution trading that particular signal as it continued into the close. Had that pattern appeared midday I would have been much more interested.

I find hairy tops and bottoms Qs frequently telegraph impending turns of the Qs on 2, 5 and 8 minute bars. Since my current bias is towards trades that seldom last more than 120 minutes, these signals have saved me more than once. When the hairy top settles at or just below a pivot resistance line, or when a hairy bottom settles at or just above a pivot support line, the odds are extremely high that a reversal is imminent.

Works best on ETFs, indexes and big caps.

Qs Weekly Update

Top chart is daily, weekly, monthly bar 3 linear regression study (30,11,4) .

This week's strength has now put all 3 time frames into the bullish mode. Only the weekly chart displays an overbought RSI.

The daily chart's technicals are all positive.

Weekly chart's technical are coming off a 3 month bottoming pattern and are now uniformly upslope.

Monthly chart is somewhat ambivalent, but the upslope MoneyStream and RSI coming off extreme oversold conditions have to be weighted heavily.

Of some note is the fact that average daily volume in the Qs has now subsided to that of a year ago (approx. 125M).
The second chart is a blow up of the daily Qs 3LRs study and reflects a concept developed by Don Worden called "kissing the channel goodbye". Don, of course, is the driving force behind Telechart and provides an always thoughtful daily commentary on the markets as part of the Telechart subscription service. I've used Telechart for over 20 years and despite the spate of other sophisticated software currently available on the market, I believe Telechart is still a unique and very useful product (unsolicited testimonial).

The point that Don tries to make with the channel kiss, (he's a big fan of linear regression studies), is that the channel reflects reactive support and resistance levels. A goodbye kiss occurs after price has broken either above (or below) the longer term channel (I like the 30, Don has other periods he prefers) for a period of days and then retreats back to the upper (or lower) channel.

Don suggests that a subsequent short term consolidation at the upper (or lower) channel, followed by a breakout will most often lead to a new trend (in this case UP), of indeterminate duration. Hence, "kiss the channel goodbye". This pattern is now evident in the Qs, DIA,SPY and IWM. . a strong indication of market strength according to Don.

Those who have read this blog for a while know my hesitation to assume any long term positions in the midst of the current financial climate, but Don's perspective is still useful in developing short term daytrading tactics, since, if correct, we can expect more trending days and fewer gap failures as the markets recover to longer term resistance levels. And now a little different technical perspective:

The A50 is now is overbought territory, which would not be surprising if the economy was robust and growing. However, the dismal underlying economic fundamentals (remember GE ?)must be considered as an overhead weight sitting on the markets. With looming prospects for more unemployment, outsourcing, offshoring (a delicate way to describe giving your job to an Inidan or Chinese) and a dreadful housing market, I remain skeptical about the vitality of the current rally.

The A200 is substantially lagging the A50, which is close to reaching Oct 2007 levels. This suggests a narrow leadership in the NDX (QQQQ), and without wider participation of the NDX components in the current rally, it's sustainability is limited.

A good daily indicator to keep an eye on, for better or worse.

Friday

Another strong day with GOOG leading the way. MSFT got away from me today. I should have bought those 31 calls yesterday instead of waiting for weekend decay. Saving a few pennies cost me a bundle. Next time maybe I'll go for it when the signals fire.

Above chart is 2 minute bars (partial day) to display today's trade technical dynamics. The trade today was based on the 2 minute 10/20 MA cross strategy, which has worked well in trending days. Initial entry at 10:34 (46.40) coincided with the parabolic sell signal that fired back on 10:24. I was considering entering at 10:24 but the NYAD was on a pullback at that time and I don't trade against the NYAD. By 10:34 the NYAD was upslope once again, and with the Qs at the same price as 10:24, I went long.

Keeping in mind my Friday bias to sell well before the close, I decided to follow the price up on the 2 minute, in lieu of the 5 minute, since the markets were already overbought (my opinion only).

At 12:34, the hairy top that at held for 12 minutes gave way and the parabolics fired a SELL. Since I really had little confidence on this thing surging further and with the 10MA turning down, I closed out at 12:42 on a dumb luck uptick at 46.85. The 10/20MA did cross at 12:50 so I had no regrets about the premature parabolic driven exit 10 minutes earlier.

Net time in trade: 138 minutes

Net gain: .45

While not the greatest trade, I did manage to follow my trading plan and capture the sweet spot in today's action, while limiting my exposure with the parabolics and the 10/20 cross stop.

Tomorrow, with the Weekly Qs Update, we'll look at the "kiss the channel goodbye" concept.

CDOs --the real black hole of uncertainty

I admit I'm no genius, but the constant (re)fessing up from the biggest (supposedly smartest) financial institutions about how much money they REALLY lost in the whole subprime mess is like watching a blind man throw darts (no offense to the visually impaired intended). Aren't these guys supposed to be financial geniuses? Don't they have accounting departments that keep track of the P&L. Don't they have massive server farms with nano-second data retrieval?
Just a few thoughts running through my feeble mind whenever I hear the latest loss projections. . . which is exactly what they are. . . guesstimates. And then I read a couple of articles on CDOs today and all of a sudden a (dim) light went on and I understood a lot of the problem. Basically, they've "mis-spoke" (been lying through their teeth all along) and now they're trying to figure out how to restate what they should have said in the first place. When you've got an hour or two and you don't mind breaking into a cold sweat, delve into some of the Seeking Alpha Search results here:
For a more generic view of CDOs check here:
I suspect we're going to hear a lot more about CDOs in the near future as some of the biggest names in the financial sector look into the abyss. A sector fraught with danger.
Also see this little gem, via Cucca.

Thursday Calm

Based on my post yesterday, I thought some snake images might help to calm those testosterone levels that probably got all pumped up from yesterday's excitement. These images may turn out to be a great risk management tool to control your subconscious, chemically driven desire to trade irrationally.
Feel free to print them and keep posted next to your monitors.
My gift to you.
Also, to the best of my knowledge, Goldman is NOT acquiring Playboy, although rumors persist that an opening is being probed.

And the market report today. . .like watching paint dry. No need to even post a chart. Everything was in a narrow range- TICK, NYAD and the Qs (my universe). We got a pivot high signal at Wednesday's close, reflecting our previous study suggesting Wednesday as the day of the week with the greatest probability for such turns.

Earnings remain the name of the game and the price and volume contraction today is likely a reflection of the level of caution in the markets.

Of some interest is the accumulation underway on MSFT. Intermediate resistance at 31.25 is 2 bucks above the current price. May be a runner. Earnings report April 24th. Check out the prospects at http://www.zacks.com/research/earnings/index.php The MAY 31 calls are .47 on a delta of .28.

With 10 minutes to go and the NYAD showing some positive momentum , I'm gone for the day.

Renew your PLAYBOY subscription today

And then there is this little news item:

http://www.wtop.com/index.php?nid=220&sid=1386619

I've highlighted in red some of the interesting high points:

Male Sex Hormone May Affect Stock Trades April 15, 2008 - 5:34pm
By RANDOLPH E. SCHMID AP Science Writer
WASHINGTON (AP) - The hormone that drives male aggression and sexual interest also seems able to boost short term success at finance. But what seems to start out well can turn bad, with elevated testosterone levels over several days possibly leading to irrational risk-taking, according to researchers at the University of Cambridge in England.
"If people want to get practical, it would be good for both banks and the financial system as a whole if we had more women and older men in the markets," said John M. Coates, lead author of a study appearing in this week's issue of Proceedings of the National Academy of Sciences.
Such a change would produce a much more stable financial system, said Coates, a research fellow in the university's department of physiology, development and neuroscience.
Coates and Joe Herbert studied male financial traders in London, taking saliva samples in the morning and evening. They found that levels of two hormones, testosterone and cortisol, affected traders.
Those with higher levels of testosterone in the morning were more likely to make an unusually big profit that day, the researchers found.
Testosterone, best known as the male sex hormone, affects aggression, confidence and risk-taking.
Cortisol is tied to uncertainty, novelty and unpredictability, "which pretty much describes a trader's life," Coates said in a telephone interview.
Coates and Herbert's study comes less than two weeks after U.S. researchers reported that young men shown erotic pictures were more likely to make a larger financial gamble than if they were shown a picture of something scary, such as a snake, or something neutral, such as a stapler.

There's more to the article and you can read it all at the link above^

Wednesday surge

Qs up and staying up after hitting R4. Up another .45 after the close.
The lack of a 10/20 MA cross kept our 10:20 entry (44.85) open long for most of the day, although I closed out the position (early) at 12:30 (45.30) for a modest .45 gain. No regrets.
The NYAD never gave any reason for a fade as it rode the R2 into the close, while the TICK showed strength by staying above the PP baseline for the entire afternoon session and closed at a whooping 1095.
With more earnings on tap this week, anything can happen, and I continue to focus on daytrades to manage risk and limit exposure.

XLF Update

With some of the biggest XLF components poised to announce earnings, this might be an appropriate time to run a technical check on the XLF.
Above are the daily and weekly bar 3 linear regression studies (30,11,3). The daily chart displays the technical failure of the early April rally and the subsequent retreat of XLF back to the upper LR30 channel. The last 3 days have shown a break(down) through that channel as the XLFs move in the direction of the LR30 mean (23.50) as a first level of support. Failure of that support level would likely take the XLFs lower. . . a lot lower, as the lower LR30 channel is level with the March 17th lows of 22.27.
The weekly chart shows the XLF sitting fat on the LR30 mean, with virtually all technicals in a negative mode. LR11 and LR3 are downslope, suggesting further short term momentum.
Positive surprise XLF component earnings report may reverse this trend, but I prefer to stand back for a bit and await the next clear trend (see last chart).
Current put/call open configuration reveals only a modest put skew. The May contracts reflect an almost perfect bell curve. With the XLFs currently at 24.60, the 25 puts are the main attraction. Put/call distribution does not reveal any extreme sentiment bias at this time.

Finally, the daily AdvancedGet chart (ver7.6) with the Elliott Trigger indicator turned on. Although I find it difficult to develop an objective analysis of Elliott wave theory ( everyone seems to have legitimate argument for the precise location of Wave 1, Wave 2, etc.), I have found the Elliott Trigger indicator gives highly reliable signals when used as a trend indicator when it crosses the zero line. Reading the indicator in any other fashion is more of an art than an exercise in technical analysis, so I refrain from making any dramatic claims about its efficacy.

Nevertheless, buying on the cross above the zero line and selling on the cross below the zero line generates impressive results. The latest cross below the zero line (sell) was April 10th, and the indicator remains heading down. Reversals should be regarded as hard stops.

Monday

Clueless had a recent great link to Dave Johnson with a live trading lesson. I don't know what Dave's taking to stay so relaxed, but I'd like to get some.
For those looking for the bigger picture, here's a complete trading system in song. . . and best of all. . .it's bluegrass music.
Tip of the hat to my trading buddy Dr. Carl Wyman for the link:
http://www.youtube.com/watch?v=LiE1VgWdcQM

I closed my late Friday Qs buy for a .06 loss (closed too early).
Some gliches with my computer are impairing my charts refresh and with unreliable charts I'm basically dead in the water so I'm off for the rest of the day to work on my golf swing and enjoy the balmy 85 degree temps..

VIX update

Upper chart is the daily VIX with the CCI, parabolics and ROC. With the VIX bouncing off the support line at 22, effective for since Jan 2008, the technicals are all in sync suggesting the next move up, with short term resistance at 26 and intermediate resistance at 30. As earnings season gets into full gear this week, the catalyst for that rise may become apparent. A few more big hits like GE and WB could inflict significant collateral damage to the markets. INTC's report on Tuesday could be pivotal.

And here's the weekly bar 3 linear regression study (30,11,3) of the VIX displaying the upslope in the VIX that began Jan 2007. With the VIX currently rubbing against the long term lower LR30 channel support and the TC technicals either neutral (MACD, MS) or oversold (TSV,RSI), our expectation increases for the VIX to retrace (at a minimum) back (up) to the LR30 mean at 28.11.

Qs Weekly Update

Above is the 3 LRs study (30,11,3) of the daly, weekly monthly bars and once again the Qs are showing some time divergences and indicator conflicts. The daily chart is negative, having lost the LR11 upslope and now trending down in sync with the technicals. First level of support is 43.75, while a retracement to the LR30 mean would take the Qs to 42.50. These are just some targets to keep in the back of your mind. The Weekly chart is all negative. . .a reversion to the LR11 mean would take the Qs. . .a lot lower. The monthly chart is ambiguous. . .the Qs are at the bottom of the LR30 channel and the technical are negative except for the RSI which has turned up from oversold conditions. This is the monthly chart however, and a lot can happen in the next 18 days. If we get a solid break of lower LR30 channel support at 42.00, then, things could get dicey.

Above is the little pivot high, pivot low daily chart of the Qs in TradeStation. Although it is clearly a lookback indicator, I use this to help determine likely next days trends. Since I'm a very short term trader (seldom more than 120 minutes), I've crunched the settings to (2,1) as I'm basically trying to detect 3 day swing patterns. This is a Show Me study, (magenta and turquoise dots) in TS version TS200i. The buy/sell signals are a product of an RSI based Qs trading strategery that has over an 80% success rate, and used with a trailing stop, has only modest drawdowns. Since my ultimate goal after 20 years of trading is to develop a mechanical trading system that yields a consistently rising equity curve with low drawdown, this is a work in progress (for the last 9 years). Hey! . . I'm a slow learner.

The system generated a BUY midday Friday and despite my aversion to late Friday trades (mentioned on several previous posts), I went long a small position 10 minutes before the close. Monday could see follow through selling and so I'm prepared to cut and run if that scenario pops up.

A chart of historical volatility above shows the Qs remain at elevated levels on declining volume.

The A50 has now retraced to the 200DSMA in sync with our mean reversion model. Our current expectation is that further declines are likely to follow, with the 50DSMA providing the first line of support.

A similar story with the A200, although with the early April rally, we are seeing more of a consolidation pattern, so few clues as to impending momentum. If the Qs do start another slide, the 20DSMA will quickly turn downslope and the A200 will chase it down.

The weekly update provides a few different technical views of the Qs that may help guide your own trading analysis. With earnings season in gear anything can happen (a la GE) and with INTC reporting on Tuesday, we could see some real volatility swings.

As always, caution is advised.

Friday fade. . .big fade

OK, so I was right the first time. . .Monday was the pivot high. I knew if I waited around long enough I'd get it right. I was just one day ahead of myself. For those not using TradeStation, I'll review the embedded pivot high, pivot low signals in the weekly update tomorrow.
Well, that was ugly today and the lack of volume was puzzling. Maybe everyone who normally trades the Qs and other minor stuff like the DIA, IWM and SPY went over and traded GE today. . .that would account for the 366M shares traded, which is about 10 times normal. If GE's poor showing and subsequent negative forecast are any indication of things to come, we had better batten the hatches and gird our loins, cause it could get really nasty.
Right off the bat you had to know it was going to be a bad day. When the NYAD opens at .11, that's not a signal to buy. . .that's a signal to stand back so you don't get clobbered. The obvious concern is that the dramatic fall of GE at the open (a stock coveted by widows, orphans and retirees for its resilience and reliability) could be the catalyst for considerable collateral damage throughout the markets. Forget for a moment that the Qs components have little relation to a behemoth like GE (which should result in a showing of relative strength for the Qs), when a whale gets wounded all the local smaller fish go into a fright frenzy and there are few safe havens.
From a technical perspective, the NYADs dismal weakness all day clinging to S1 and the TICK finding S1 as a baseline after 12:00 suggested no afternoon rally would materialize. Plus, it was Friday, and with GE's bungle, risk managers REALLY wanted to be gone for the weekend in case the other shoe fell. The 10/20 5 minute gave a clear sell signal all day long right into the close. Once again I neglected to note yesterday's 10/20 sell cross 20 minutes prior to the close. . .it's proven to be a good next day open forecaster that merits a look.

Thursday surprise

OK, so yesterday's pivot high retracement turned out to be a BUY signal. . . . Hey! . . .it's a learning process.

Once again the 5 minute 10/20 MA provided good entry and exit signals. My problem (just one of many) is that I failed to noticed yesterday's 10/20 cross in the last 20 minutes, which has been proven to be a good follow through pattern for much of the last 2 months.

Yesterday's price action had led me to expect a continued decline today, and the danger of having a preconceived market bias is that it tends to hamper your brain's ability to say, "Ooops, that's wrong, now let's go the other way."

By the time I washed the cobwebs out of my mind, the Qs were coming off the 10:00 lows and with the 10/20 cross on the 2 minute bars at 10:18 and the NYAD now upslope, I went long at 45.14. I followed the 10/20 up to 11:22, where we got a pendant formation for the next 3 bars and with the NYAD now pulling back I bailed out 11:28 at 45.64 in anticipation of further decline.

As in other recent trades, my exit proved to be premature, but I consider the trade a success as capturing the high and low of an intraday cycle is very difficult, at best. In hindsight I should have closed 1/2 the position and let the remainder ride until the 2 minute 10/20 cross.

There's always a next time.

Today's trade recap:

Time in trade: 70 minutes

Gain: .50

Wednesday pivot high

Qs volume picked up a little today in the midst of a day long slide. The 10/20 MA cross gave us a great entry and exit today, although the parabolics actually generated the better signal.
The NYAD showed a complete lack of upward momentum and although the TICK looked modestly bullish after 12:00, it proved to be poor indicator of the afternoon session.
On daily charts (not shown) The Qs, DIA, SPY and IWM are all coming off pivot highs. . thereby suggesting more downside in the short term.
I've included the 5 minute IWM chart below just to demonstrate the rather amazing correlation between the daily dynamics reflected in the pivots, parabolics and 10/20MA turn signals. I watch the IWN in tandem with the Qs as a confirmation of my short term trades. Doing so often keeps me from being sucked in to false breakouts. . .a favorite market maker head fake technique designed to get you to buy just before they sell.

Tuesday reality check

On the lowest volume day of the year the Qs showed a volatility contraction with a distinct negative bias.
NYAD and TICK stuck close to their baselines and that little half -hearted rally attempt announced by the TICK in the last 40 minutes quickly fizzled.
I made no trades today as the only possible setup for me was the S2 pivot kiss at 14:25, but I found nothing tempting about it.
Finally, if things weren't bad enough before, now we've got zombies to worry about:
http://ddo.typepad.com/ddo/2005/07/japanstyle_zomb.html

Monday recap

Qs regressed today with below 10 day MA volume (102M). I missed the fun at the open as I was dealing with a leaking water heater. The real action came with the completion of the double top at 12:45 and the failure to penetrate the R1 resistance. With the parabolics on a sell and the 10/20 MA on a cross, I went short the Qs with the PP as a likely target.(13:10 at 46.20). By 14:30 the Qs hit the PP target and with 2 dojis and a parabolic BUY at 14:50 I closed the trade dead on the pivot at 45.88).
Net time in trade: 100 minutes
Gain: .38
Not my best trade and like last week I let the parabolics wash me out when I would have made more $ by following the 10/20 MA.
Hey . . . it's a learning process!
Sloof - hope you scrapped a few bucks out those long calls today.

Qs rule

Qs now realtively stronger than the DIA, IWM and SPY.

Holding in a narrow range with the SMH (below).

For a quick reality check on the economy your homework is to check out the QQQQ:XLF