Thursday, November 20, 2008

Thanks for the support

Thanks to all the nice folks who sent me comments or emails with your best wishes for my wife. They were appreciated. I'm back at the computer for a few minutes a day, but not trading again yet. Still sorting through those 262 emails I received while I was away. Bears look like they're winning the battle as the news gets more depressing each day so I'm glad to be in cash.
I pulled my wife out of the hospital after 2 and half days although she was supposed to be there 4-5 days. They had a MRSA outbreak in 2 of the rooms about 100' down the hall and were about to quarantine a quarter of the ward, when I called the doctor and told him we were escaping. Since his office is across the street from the hospital, he came over and after assessing the situation agreed with my plan and I then literally carried Carole out of the hospital and brought her home. If you ever want to be around a bunch of really sick people, just go to the hospital. And I'm not talking about the patients, I'm talking about the staff which, after this latest adventure, I will refer to as the staph. Since Carole's mobility is extremely limited, I'm still focused on her care and will be for the next week or so. Until then . . .

Monday, November 17, 2008

I'm Off for a While

My wife Carole is having surgery early Monday morning and will be hospitalized for a week. Thereafter the recovery process will require several weeks of close attention and my intensive participation. During this period I'll have little time to monitor or trade the markets and I am therefore suspending new posts to the blog, although I may manage a weekly update.
In the interim, for my loyal cadre of daytraders . . . I suggest you go back and study the GE /NYAD posts that began on October 23rd. This is, hands down, the most reliable, low risk and low stress scalping technique that I have found . . . and that's saying a lot. I hope you realize that the only reason this trade works so well lately is due to VIX60 conditions. Up until a few months ago this type of arbitrage trade against the NYAD could only make money for prop shops and commercial traders who could throw vast amounts of capital at these trades and scalp off a few pennies. With the current volatility, these trades are a whole new game, so squeeze out the juice while you can. The 816 cross updates that began on October 22nd are also worth a close review, both as a confirmation for the NYAD divergent trades and a stand alone trending indicator.
For you swing traders . . . good luck . . . and I really mean it!

Saturday, November 15, 2008

Weekly Update

The 4 ETF pivot chart pretty much tells the story and although the ranges contracted a little bit, the momentum was clearly down, with 3 of the basket closing on the low pivot of the week and the Qs between S1 and S2.
Check out the pivots for the coming week on the right side panel of the blog, they are all at new low PPs.
Once again the NDX is bouncing off the 50MA and the A200 continues to ride the 20MA down.
While I find little technical evidence of an impending Santa Claus type rally, Peter Worden has a somewhat different (bullish) spin based his classification of Thursday's action as a one-day-reversal pattern. Keep in mind that the Worden video was released some 80 minutes prior to Friday's market close, so he missed that market min-collapse in his analysis.

Friday, November 14, 2008

Friday GE scalps

I managed to get 4 GE /NYAD divergence scalps off today. . .more than usual but when the signals pop up you've got to take em. In each case GE diverged positively off the NYAD slope actual and projection (orange and blue) and in each case the trades were of relatively short duration.
Trade 1 - 11:28, the parabolics fire a SELL after a little 12 minute runup.
I enter at $16.18 and ride the slope down to the parabolics COVER at 11:44 at $16.02.
Time in trade = 16 minutes, net gain = .16
Trade 2 - 12:48, the parabolics fire a SELL after a 24 minute runup.
I enter at 16.22 but 4 minutes later the parabolics are fire COVER, and I'm out at 16.15
Time in trade = 4 minutes, net gain = .07 (I'm a bit shaken by that last trade, as the reversal was unexpected, but I'm sticking with the plan.)
Trade 3 - 13:00, after only another 7 minutes the parabolics are again on a SELL and I enter ( a little late) at 16.23. This proves to be a good trade that carries for the next 15 minutes before the parabolics fire a COVER at 13:16 and I'm out at 16.08.
Time in trade = 15 minutes, net gain .15
Trade 4 - by 13:30 GE has retraced back up to the 12:56 high and forms a litle squat bar for the next 12 minutes, so we know a break in coming. I'm still bearish on the markets at this point and the NYAD is supporting my negative bias so with the parabolics on a SELL at 13:42 I sell at 16.28. We the get a big bar down, but don't break through the PP, which is actually bullish, so when the parabolics fire a COVER at 13:52, I'm happy to close the position at 16.18 and get flat.
Time in trade = 10 minutes, net gain .10
None of the trades were big winners, but I did manage to collect .16 + .07 + .15 + .10 = .48 with only 45 minutes of exposure.
I'm done for the day.

Thursday, November 13, 2008

Qs / NYAD and the 816

I've mentioned the 8 and 16 MA cross in previous posts as a highly reliable trend indicator. Today certainly provided a great example of using the 816 with the NYAD to guide your trades in underlying securities. The 816 NYAD tell works best with the indices, especially ETFs like my sample basket. It was interesting today that virtually all the 816 crosses in the NYAD synced perfectly with the 816 crosses in the Qs. Where the 816 NYAD really earned its money today was in revealing the false cross in the Qs about 14:06. If you followed the lead of the NYAD you stayed in the trade and avoided being flushed out of the Qs bullish move and the subsequent impressive short term pop.
In my own experience, if I get stopped out of a daytrade with the 816 cross, I'm reluctant to re-enter the trade for at least 20 minutes, or until I'm confident that the trend has indeed resumed or reversed. That's just a little risk management tool I use because I'm old and my mind is easily confused. Watching the NYAD in lieu of the underlying and trading according to the NYAD 816 may cost you a few pennies in drawdown but it will typically keep you from being kicked out of trades prematurely as market makers run stops and play other head fake games.

Wednesday, November 12, 2008

Mid Week Update

I was really expecting a little pump today, but the technicals tell the tale. With today's slide the idea of kissing the channel goodbye with an upside bounce is pretty much out the window. Volume is increasing in conjunction with selling momentum.
All 4 of the ETF basket have kissed the LR11 good-bye to the downside.
Side note: GE down 8.5% today on volume equal to the Qs and XLF. OUCH!!!!
Not one of the mid-panel technicals is bullish, so what started out the week as a neutral forecast has now become resoundingly bearish and the trading range market that was expected has developed into a solid downtrend. For swing traders, the danger here is assessing the odds for a near term rally against further declines.
Perhaps surprisingly, in the face of the virulent selling today the VIX only jumped 8% to 66.46 with an intraday high of 67.19. I think we're going to see VIX 80 again before the bottom . . . the big question is when.
If we don't get any upside relief tomorrow, the odds of it happening on Friday or Monday are slim . . . recall my studies on selling Friday and Monday for a quantitative view.
Not a time to get frisky with your account.
Yes . . . there is some good news . . . guns sales are up . . . way up!
And . . . consigliere Paulson said late in the day that done of the bailout money would be used to buy bad mortgages. Wasn't that Bush's argument for the bailout in the first place? Hey, I'm old, I probably just misunderstood.

Tuesday, November 11, 2008

The Elephant and the Irish Setter

One e-mail I received recently asked me to clarify the reasoning behind the NYAD / GE divergence studies I have posted for the past several weeks.
The best example I can offer is by comparing an elephant to an Irish Setter. The NYAD, like the elephant, cuts a wide swath with considerable momentum and it's trail is easy to follow. While elephants do go rogue occasionally, that is not typical behavior. At the same time I'm reminded of a friend's Irish Setter, a delightful dog, that was a complete airhead, seemed to have the ability to run in several directions at once and seldom responded to voice commands in any meaningful way. Off leash, the dog would disappear for hours at a time, only returning for chow time or inclement weather. Think of the NYAD as home for our divergent Irish Setter stocks.
To date, I have only mentioned GE in conjunction with the NYAD. However, if you set up the 2 minute chart template as I have shown on multiple posts and then examine NYSE stocks like HD, MCD, WMT and VZ you'll quickly see very similar trading possibilities.
And if you really like excitement, load a few NAZ stocks like PCAR and EXPD against the NYAD.
Within an hour of fiddling with the template you'll have a stable of NYAD divergent trading candidates that will keep even the most hyper daytrader busy for a looooong time.
Some readers have commented that my trading style seems boring because I only focus on one or two ETFs at a time and just trade them up and down.
My response is . . . that's what works for me. I get up 15 minutes pre market open and often shut down well before the final bell. If I didn't spend a few hours a day blogging and testing ideas I'd have a lot more time to play golf and still have the same amount of money in my pocket.
I don't spend any time running scans, sorts or RS studies. I seldom read my live news feeds and consider most fundamental analyses generally flawed and after the fact.
And my expectations are pretty dull too. I just try to generate a steady income stream from day to day. I'm content to make .40 - .60 on a couple thousand shares a day with minimal exposure. I seldom have a tremendous day, but I never have a horrendous day. That's just my style of risk management and liking to sleep at night. I've tried lots of different trading styles in the last 23 years, and this suits me just fine. Each trader needs to find their own risk comfort level and their own trading style, whether it be discretionary, systematic, algorithmic, technical, fundamental or (most likely) some hybrid.
Hope these posts provide some ideas to help you find yours.

Monday, November 10, 2008

GE Monday

A refreshingly obvious and easy GE / NYAD divergence trade this morning.
Trade setup as per previous posts:
Do not enter setup for first 30 minutes.
Trace GE and NYAD slope when they start to diverge - in this case 10:00
After 20 - 30 minutes extend the NYAD slope line - blue line
Wait for reversal in either GE or the NYAD - in this case GE reverses down at 10:30
Parabolics fire a SELL (inital trade signal) and 6 minutes later the 816 crosses down (confirmation). We are now double short (2 positions).
GE crumbles down to the NYAD slope mirror - pink line at 10:56 and continues to ride it down in sync with the NYAD's continuing downslope behavior.
EXIT - at 11:0 the parabolics fire a COVER signal as GE comes off 2 little dojis.
Although the 816 has not crossed in GE, the NYAD 1 minute bars display an 816 cross in conjunction with a parabolics reversal to the upside.
As I've mentioned in previous posts, I often toggle to the 1 minute bars for an exit signal in an attempt to capture as much gain as possible. This tends to lead to whipsaws, but that's the risk management tradeoff that works for me. Another option is to close half the position and let the remainder ride. That would have worked nicely in this scenario as GE is down another .21 since I closed my position and the NYAD is once again downslope, but I'm off for the rest of the day and wanted to be flat.
Net gain: $ .43 for 56 minutes exposure.
This was a long duration trade relative to previous GE examples but, Hey!, every once in while you get a runner like this that just keeps going.

Sunday, November 09, 2008

Weekly Pivots Update

Here's the weekly pivots update for the 4 ETFs. The range expansion that I was expecting didn't quite pan out, although the XLE did produce a very modest expansion. Looking forward to next week, all the ranges have contracted substantially except the XLF, which remains essentially flat.
Above is the Qs weekly pivot data running back to 7/3/08 which looks at the MAs of the PP pivots and the MAs of the pivot ranges (charting series 1-5).
Below is the charted progress of the Qs for the past 3 weeks:
Each of the 3 charts becomes progressively longer as we add the present week's data to the string. The gradual decline in the Qs momentum that began the week of 8/29 (week 6) is clearly seen here, as is the range expansion that accompanied it (think volatility).
Last week's chart was interesting in that we began to see a flatting of the Qs pivot and range declines. This is assumed to be the first step in any market reversal to the upside and as such, this week's chart was eagerly anticipated.
And here we go!. The coming week's PP of 31.87 is a modest gain over last week's 31.62, but the Range MA3 has dropped a full point and the Range MA4 has dropped .5 points. Both these trend lines are now looking neutral to bullish and whether week 14 will turn out to be the bear market bottom remains to be seen.

Saturday, November 08, 2008

Weekly Update

Another week and we are technically right back where we were 5 days ago . . . riding the upper LR 30 channel line. The difference, of course, is that all 4 ETFs made attempts to kiss the channel good-bye . . . and failed. While there are instances where a return to the upper channel line has served as a springboard to new highs, the current underlying technicals are neutral to bearish, with the exception of the RSI2, which is fast approaching oversold levels in all 4 ETFs.
Volume in all 4 was below both the 10 and 20 DSMAs all week, which suggests that the big money remains on the sidelines despite the election.
As suggested last week, the MA50 served as overhead resistance for the A50's rise and Friday's surge has provided a little pause as the A50 looks poised to retreat back to the 20DMSA. I've added the AROON indicator to the chart for more guidance, which in this case is in a SELL mode.
The A200 looks very similar to the A50, the difference being that price has already retraced to the 20DSMA. The A200 AROON is also on a SELL.
MACD on both the A50 and A200 are dead on the zero line and trending down short term.
Not a lot to go on for next week which, given the current technicals, is more likely to be a trading range market than a trending one.

Friday, November 07, 2008

More GE Trades

Today's GE scalps shown above.
11:00 divergence of GE and the NYAD on 2 minute bars (white down arrow), which (interestingly) corresponds to an 816 cross.
The divergence lasts 10 minutes (which as mentioned in previous posts, is a typical duration.)
Parabolics fire a SELL on GE at 11:16 while the NYAD continues down.
For my own trading I frequently take the trade after the second 2 minute parabolic signal (white dot) and then double up after 4 dots, as this confirms the trend.
This turned out to be a really nice fade that lasted 18 minutes that produced a .42 gain before the NYAD reversed at 11:38 (big pink blob) and kicked me out of the trade.
The next setup kicks off at 12:50 when GE and the NYAD once again diverge until 13:08 (or 18 minutes, which is on the long side of the expected divergence duration).
At 13:08 the parabolics fire a SELL and GE drops .08 in 2 minutes.
I enter short at 13:09 (late to the game) and exit after only 10 minutes when the parabolics fire a COVER and GE hits the mirror of the NYAD downslope line and projection (orange/blue line).
Net gain from trade = .07 (Hey!, at least it wasn't a loss).
With the NYAD still downslope and being a glutton for punishment, I short GE again at 13:33 on the parabolic SELL signal.
My target, of course, is . . . (this is a test). . .the mirror of the orange NYAD downslope line.
16 minutes later our target gets hit and with the parabolics firing a COVER signal at 13:49 (on 1 minute bars), I'm out.
Net gain from trade = .10, so a little better than the previous but nothing to write home about.
I'm done for the day as I've a few errands to attend to.
Summary for the day. . . 3 trades. . . total gain .60 and I'm flat going into Monday.
Today's total range for GE (as of 15:00) is 18.28-19.10 = .82 . . . so I'm happy to walk away with .60 for 44 minutes of exposure.

Thursday, November 06, 2008

A Different View of the NYAD

Here's a look at the NYAD compared with the Qs for the last three months on daily bars.
First of all, I need to clarify that I wouldn't trade the Qs or anything else based on the NYAD daily chart, even if I was being prodded to do so with a red hot poker.
I've already expressed my daytrading bias and focus in many previous posts, and this same bias extends to the NYAD. The price scale skew that typifies the NYAD at the market open is a giant caution flag for any traders (like myself) trying to use the NYAD to guage momentum divergence . . . which is why I have suggested not implementing any NYAD based trades during the first 30 minutes, during which time NYAD volatility tends to subside to a more trackable range.
With that disclaimer, what I find interesting here is the way the daily NYAD has responded to the 3 LRs study, especially the LR30. Although the LR30 mean has been upslope since mid-September, the majority of daily bars have clearly been below the zero line. Although we can trace a distinctly upslope momentum in the NYAD in the week prior to the election, the last 2 days behavior has retraced the NYAD to a level currently below the lower channel leg.
This current daily NYAD position is accompanied by a number of technical indicators suggesting that a quick bounce off this otherwise oversold level is not likely to occur quickly. This short term bearish stance is also reflected in the Qs technicals, as the Qs have retreated once again to the upper LR30 channel.

Wednesday, November 05, 2008

GE / NYAD Signal Setups

Here are a couple more ideas for watching GE (and other securities) in conjunction with the NYAD (NYSE advance/decline line).
Orange lines are slope of GE and NYAD for 30 minutes.
Blue lines are 60 minute extensions of the orange, unless a reversal.
Pink lines are mirror of NYAD slope onto GE price range.
White circles indicate reversals in GE upward slope, accompanied by parabolic sell signals (per yesterday's post).
The low risk trade develops when the 30 minute slope of the NYAD and its projection diverge from the 30 minute GE slope at 10:45. Interestingly, the GE slope continues to diverge for 30 minutes, which is somewhat longer than we are use to seeing over the past 2 weeks, and then reverses to the downside at 11:15, accompanied by a parabolic sell signal and a 816 sell signal 6 minutes later. With these 3 indicators now in sync, the scene is set for a clear GE downtrend.

Looking carefully at the chart you might wonder why the GE reversal at 10:15 doesn't merit the same level of confidence as the 11:15 trade.
The reason is simple . . . the NYAD is still in an upslope at 10:15. While a more risk tolerant trader might have taken the 10:15 GE sell trade as signaled by the parabolics and confirmed by the 816 cross 8 minutes later for a net gain of .17 - .20, I prefer to wait for all 3 signals to be in sync. The result is fewer trades, but also fewer whipsaws and less anxiety. That's my comfort level.

Tuesday, November 04, 2008

Pullbacks and Reversals

This is part of my continuing study of GE and NYAD divergences that may serve as high probability tells for intraday scalps of GE. Although my initial tests of GE and QQQQ divergences still offer trading opportunities, my research over the past 2 weeks has led me to conclude the $NYAD is a much more reliable GE counterpart. This is probably due to the fact that the Qs reflect the average momentum of 100 Nasdaq stocks, while the NYAD reflects momentum of the entire 6400 issues in the NYSE, therefore making the NYAD a lot harder for market makers to game than the Qs.
What was interesting about today's action was the 11:00 slope reversal in th NYAD, while GE continued to climb, then falter, then climb again to noon when it began a 4 hour descent, punctuated by several pullbacks to the downsloping GE trend line.
One indicator that is helpful capturing these short term pullbacks is the parabolic SAR, which I typically set up with a minimum step of .05 and a maximum step of .2. Most platforms provide the parabolics, although the default settings may be a little different. The white arrows on the chart above designate the parabolic triggers for today's GE overhead pullbacks. Used as either a confirming or leading signal, the parabolics can help keep you on the right side of a trade.

Monday, November 03, 2008


Summary for the day: nothing happened on low volume. A few little GE/NYAD scalps set up but I had little interest in chasing them. Which, as it turned out, was the best course of action as none lasted more than 12 minutes or returned more than .15. The intraday hovering around the PP was a good indication that today would be range bound.
Based on my weekend post, the technicals looked like we would see a run up before the election, which clearly failed to materialize today. Maybe tomorrow.
I'm more inclined to just stand back and wait for volume to resume.

A side note on GE/NYAD trades (or other divergent trades using the NYAD):
Because of the frequent openings pop in the NYAD, it is not recommended using the NYAD for anything other than intraday trades after the first 30 minutes. Trying to compare the NYAD with other equities and ETFs on daily bars will inevitably produce a conflict of price scales that will effectively prevent you from discerning otherwise attractive slope divergences.
Also, keep in mind that GE arbitrage is a popular trading theme (although I seem to be late to the game), and as such most slope divergences of GE with the NYAD, Qs and other correlated tells are best played on 1 or 2 minute bars since the duration of most recent divergences seldom exceeds 20 minutes and exits have to be fairly precise. . . which is why I term these trades scalps.

Sunday, November 02, 2008

Weekly ETF Pivots Update

All 4 of the ETF basket reached the upper LR30 daily channel this week and all 4 closed the week with the technicals in a bullish mode. We are now at a challenging point: will the market exhibit some of that (truly) irrational exuberance and kiss the channel good-bye to the upside . . or will the LR30 continue to hold as upper resistance and usher in the next cycle down to the lower LR30 channel? That, of course, is the 64 dollar question and whether the election results catalyze a market explosion or an implosion remains to be seen.
One scenario that has been posted widely foresees a surge into election eve and perhaps for a day or 2 thereafter, followed by a virulent decline to previous or lower lows. Given the position of the current technicals, this is a distinct possibility, so extreme caution is advised for those favoring swing positions.
For the week all 4 of the ETF basket closed at the R1 level, reflecting the lockstep bullish behavior of the markets. This should also be an indication to you that these ETFs do indeed move in somewhat predictable ways.
The pivot ranges for the coming week are almost mirror images of last week, so what's interesting here is that the % delta of the ranges has almost reached 100, indicating a leveling off of volatility. Unfortunately, this is happening when the asset value of these ETFs is down about 40% from this time last year. What this suggests, of course, is an impending range expansion . . but as with the LR30s study in the top charts, the question is whether the break will be to the upside or downside.Finally, a quick look at the NDX (Qs) stocks above the 50 day MA. Coming off a zero reading for most of October, this certainty looks encouraging, and based on past behavior of this indicator, we should at least expect a cross of the MA50 line before a retracement. We'll check back next week to see how the A50 played out.