Friday, October 31, 2008

GE and the NYAD

Here's a different spin on the GE / Qs trade . . . GE and the NYAD. Those of you who have stuck with me for a while know my strong predictive feelings about the NYAD (on most platforms the symbol is $NYAD. TS makes it a little harder to display, but this is the Schwab StreetSmart Pro chart shown above). The chart above shows that the NYAD smooths out a lot of the volatility (or noise, depending on your viewpoint) that would otherwise appear if we use the Qs for our GE pair.
Using the NYAD enables us to see GE divergences from the NYAD mean (slope) farily quickly. As long as the NYAD maintains a trend line, GE's volatility will typically revert back to the NYAD trendline slope.
In the chart above the lower orange lines trace the NYAD short term trend line slopes, with a mirror projection of those slopes onto the GE price chart.
The blue lines define short term volatility skews of GE relative to the NYAD.
The blue circles define the turning points or reversals of GE volatility skews as they begin retracing back to the mean NYAD slope line.
The white circles capture the 816 crosses which I mentioned previously as intraday trading signals. It's interesting that on today's chart, 2 of the 4 circles correspond precisely with the GE slope divergences from the NYAD, and the other 2 actually lag the signals provided by the reversal of the GE slope line.
As a tickler today, we had a little GE/NYAD divergence that set up at 13:25 but quickly developed into a 10 minute squat bar on GE and that was our signal to exit the long trade with a piddling .12 gain.
My four 816 GE trades today netted .55 as GE displayed a strength relative to the Qs that was absent yesterday.
Using the NYAD for a GE baseline in lieu of the Qs appears to offer a distinct advantage and I'll continue to explore the possibilities of this pair and other NYAD combos in my ongoing research.
When, and if, the VIX retreats from it's current 60s level, these scalps will likely become more difficult to discern and less likely to generate an attractive ROI. Until then, these quick mean reversion trades avoid the risk associated with having to predict market direction.

1 comment:

Woodshedder said...

Very interesting. Good stuff BZB...