VIX Update

Here's the position of the VIX as of 7:20 AM pst today on the daily bar chart. The VIX has made a smooth retracement from the upper LR30 channel band to the mean during the last 5 trading days and now looks poised to revisit those levels again.
The lower technical panel contorted by the irrelevant volume bars includes the RSI2 and the Stochastics 10,2,2 indicators.
In past situations where the VIX retreated from the upper channel band to the mean, the VIX was typically well above the MACD zero line when the drop began.
What's different about the current slide it that it began with the VIX only slightly above the MACD zero line and the VIX is now running into extreme oversold -1 levels as supported by the RSI & Stoch near zero levels.
Today's first hour slide has certainly put a damper on Monday's bullish action and this little review of the VIX suggests that more of the same is the likely short term course.
A little good news could, of course, reverse the slide dramatically, so keep a close eye on the 2 & 10 minute NYAD for possible moves in that direction.

Monday Green

I meant to post this Sunday, but an attempted burglary here at the house caused me to devote all my time to hardening the perimeter and installing some security lighting and motion detectors.
This is an update from this morning's chart as of 7:30 pst. Friday's chart was a carbon copy, the only difference being the bottom technical RSI panel indicators have moved to upper resistance levels.
The mid panel technicals are bullish all around with the Qs showing both the greatest strength and the greatest chance of consolidation or reversal.
Only XLE has avoided a retracement to the lower LR30 channel band, and that's probably due to the nature of the LR30 as XLE is the ETF that's shown the largest surge over the month of June, thereby skewing the slope of the channel to the upside.
Following the pattern of these 4 charts, my short term bias for the week is selectively bullish as I continue to focus on the Qs and its components.
At the end of last week I opened a few longer term buy/writes on INTC, CSCO, MSFT and COST, each returning a potential 2%/month, with minimal downside danger (I say that now).
As of this post the rollers are all green, the Dow is up 80 and the Qs are lagging, pulled down by QCOM and RIMM. Based on past leveling behavior, I expect that lag to disappear shortly.

Fade to Black - III

OK, this is the last post on this setup.
I'm teaching a trading class in the afternoons this week, and this setup has been a focus of our attention, so I thought I'll get double duty from the post and link it to the blog.
Right out of the gate the Qs drop and look like the PP is coming up fast.
But then, by 9:34 we've got a little bullish soggy bottom formation (discussed last week) and the parabolics fire a BUY at 9:35.
Now this is pretty early in our 9:38 - 9:48 magic circle, so I've got some hesitation about jumping in at this point.
But then I look at the Qs technicals and the MACDs and MAs are all upslope and the NYAD is upslope along with its MAs and MACDs.
The NYAD parabolics are divergent but, as has been noted in the previous 2 posts, we disregard the NYAD parabolics for the first 30 minutes so the total net signal is strongly bullish.
We enter at 9:35 at 36.17 and I'm ready to cover at the first sign of a head fake.
That's exactly what looks like might be happening as a 9:39 - 9:40 dip develops.
But the NAYD is still chugging upstream and the Qs parabolics are still bullish. This type of 2 or 3 bar liquidity building fade is always a challenge for me, as one never knows if this is a start of a reversal or just a pause. I have a stop in place at 36.15 so I'm ready for whatever happens here.
As luck would have it, it turns out to be just a one bar fade and the Qs surge on up for the next 5 minutes before fading off again. I'm expecting this surge to run to R1 (36.67), which would make one great trade, but I'm also thinking "today is Friday and Friday's tend to be neutral to negative over 70% of the time", so I not wildly optimistic.
At 9:48 the Qs parabolics flash a SELL (cover).
The NYAD has started to flatten out and the Qs technicals are neutral to negative so, with a bit of hesitation again, I cover the trade.
Net time in trade: 9:35 - 9:48 = 13 minutes
Net trade gain: 36.17 - 36.35 = $ .18
Better than .01 a minute but a REALLY short term trade. Nevertheless, the signals were there and I followed my plan so I've no regrets.

Fade to Black - II

Today's early drop was the inverse of Wednesday's pop. The subsequent 9:38-9:48 magic circle, however played out pretty much the same.
The difference, of course, was the sudden bullish reversal off of the S1 pivot back up to the PP pivot by 9:45, causing me to miss a nice little potential gain.
The Qs parabolics actually fired a BUY at 9:44, while the NYAD parabolics, as discussed yesterday, were still in a SELL mode and were in a divergence signal with the 3/7 MA cross. In these cases, during the first 30 minutes of day, the smart course of action is to ignore the NYAD parabolics and focus on the NYAD's MAs and the underlying Qs parabolics and MAs.
Following this trading plan, we enter the Qs at 9:46 at 35.60.
With the NYAD now upslope at 45 degrees and my rollers running all green, the first target is R1, which is reached in only ten minutes. At this point there are no signals indicating a reversal and after a 4 minute pause the Qs chew up to my next target - R2 - and by 10:18 that target is only 1 cent short.
The Qs then form an extended squat bar below the R2 and at 10:28 the parabolics fire a SELL. The NYAD has already fired a SELL at 10:24, so I follow the convergent signals and close the trade.
Net time in trade: 9:44 - 10:28 = 44 minutes
Net trade gain: 35.60 - 36.05 = $ .45
The trade managed to eke out my target of .01 per minute and once again I'm done early for the day.

Fade to Black

This morning's early pop sure looked like a possible fade candidate as the 9:38-9:48 magic circle played out. What was different about today, and what should have waved you off a fade was the sudden upsurge at 9:49 accompanied by a parabolic BUY on the Qs.
At this point the NYAD parabolics were on a solid BUY, but as I've mentioned before, the first 30 minutes of the NYAD parabolics are often essentially useless due to the skewed carryover from the previous day's momentum.
At 9:50 the NYAD 3/7 MAs execute a bullish cross and at 9:51 the Qs execute a 7/14 MA bullish cross, so we now have 4 signals bullish. The fact that R2 is only .15 above supports the odds for a quick trip to that resistance level and within 7 minutes R2 has been hit. We get a little reversal in the parabolics at 10:00 but the MAs have NOT crossed on either the NYAD or the Qs so odds favor holding at this point.
Sure enough, at 10:07 the Qs break through R2 with gusto and the NYAD flashes a large bar UP.
next target R3.
As the VXN and the Qs continue to diverge the odds of hitting that R3 target (35.75) look more and more reasonable.
With the market in a continuing upward momentum, R3 gets hit at 10:20. . .a very fast move.
And, while I'd like to stick around to see how far this thing will run, I've got some clients to meet in an hour and decide to cover the trade.
Net time in trade: 9:52 - 10:21 = 29 minutes
Net trade gain: 35.45 - 35.74 = $ .29
So, a penny a minute. . . my typical goal for these types of trades but seldom executed as cleanly as this trade.

Monday, Monday

At midday the markets are, uh, DOWN.
A look at my litle 4 ETF basket displays the relative performance of the major sector and shows the Qs are holding up the best, while XLE, which enjoyed a significant pre summer surge, is now settling back to that magic 47 number that's was a consistent butterfly money maker for many months.
The technicals are all in oversold or uber-oversold sold territory, so the likely expectation is for some degree of a bounce. The big concern, however, is that MoneyStream (dotted white line) is also trending down and we need to see some reversal or divergence here before putting on our longer term bullish hat again.
If selling does take hold at these levels and all the LR30 lower channels get the "goodbye kiss" we could easily see a retreat to the May support levels which could drag the Qs to 33, the IWM to 47, the XLE to 45 and the XLF to 10.50.
Today's relatively low volume may reflect the indecision in the markets, but the bearish .13 NYAD reading and consistently red rollers don't encourage buying at these levels.
As of this post (10:30 am pst) we are hitting an intraday low at the typical cycle low point of the day so the next few hours should be critical.

When Not to Trade - Part 2

Just in case Tuesday's post didn't make an impression on you, here's another clear example of when to stand back from an otherwise enticing trade.
Once again, we're using the NYAD as the dominant signal and the line in the sand for entry signals. While some traders favor using the TICK and/or TICK volume, I tend to downplay its usefulness other than looking at the slope of the 2 minute TICK bars for really short term trades and to confirm entry triggers. Just my impression after watching the TICK and the NYAD for years, but I really believe the NYAD will almost never give a false signal whereas the TICK will kick em out on a regular basis.
This morning's open did look bullish for the Qs. . .perhaps exaggerated by the wildly optimistic upgrade to MSFT by GS.
The NYAD, on the other hand, was anything but bullish right out of the gate.
While the Qs were able to rally to R2 early on, strength quickly faded on declining volume.
At 11:15 there was a truly odd print on the Qs as the low of the bar dropped to 35.98. . . perhaps a harbinger of things to come as the parabolics fired a SELL dead on the bar.
The NYAD had been on a SELL since 10:40, but past chart analysis should have warned against entering until the signals were in sync.
The Qs fired a parabolic BUY (or cover) at 11:40. . . and frankly, I'm hard pressed to see how that signal got issued, but there it is. With the Qs mid pivot at this point, the odds are for a further decline to R1.
This is reinforced by the NYAD which, at 11:40, is till solidly negative with the parabolics downslope 45 degrees, so the plan is to stay short and not bail.
At 12:25 the parabolics fir another SELL on the Qs, supporting the short existing position.
Finally around 12:30 - 13:00 an extended squat bar forms right on R1 and, exhausted from the
previous 2 hours, I exit the position.
In hindsight, a definitely sloppy trade that netted $ .29 for 105 minutes exposure.

Soggy Bottom

Here's a variation of my hairy bottom formation. . .something I'll call the Soggy Bottom in honor of the immortal Soggy Bottom Boys bluegrass band as portrayed in the movie O Brother Where Art Thou? The pattern sets up like the hairy bottom, the difference is the relative position next to the support pivot. In the hairy bottom, the pattern sits right on the pivot and tends to form a kind of squat bar for 4-8 2 minute bars.
In the example shown The Qs flash 4 bars in an ascending pattern, followed by a simultaneous parabolic BUY on both the NYAD and the Qs. The MA bull cross on the Qs is a confirmation that the odds are now favoring a run up.
Then, at 10:24 the Qs and the NYAD fire simultaneous SELL (or cover) signals as the Qs MAs roll over and the NYAD MACDs go downslope. These confirming signals reinforce the new short stance.
Finally, at 11:00, The Qs and NYAD parabolics again fire simultaneously BUY (or cover) signals as the NYAD MACDs turn upslope and the Qs start a run back up to the PP pivot. . . although I don't like the divergence of the MAs and MACDs on the Qs and decide to stay flat at this point.
A nice little cycle trade of 90 minutes duration with a .27 gain on the first leg and .11 on the second for a net gain of .38.

When Signals Align

This is a screenshot of one of my trading screens. In this case my target equity is the Qs but I'm using a variety of other charts to gauge relative direction and momentum.
At the lower left, under the Qs chart is the 2 minute NYAD, my #1 tattletale for being on the right side of the trade. I have frequently posted on the NYAD before, so I won't waste space being reduntant here.
Upper right is the IWM, with the same string of technical indicators as the Qs. When the IWM and the Qs get out of sync relative to hitting pivot points the odds for a pivot hit are great. In this case the IWM has already penetrated S1 to the downside so I know that the odds of the Qs getting down to the same level are about 100%.
Below the IWM chart are the "rollers" a great feature of the Schwab platform that I've not encountered on another platform and which is (so far) impossible to reproduce on TS. I use 3 of them, one for the NAZ, NYSE and the major indices and what they display is the daily high (green) or low (red) count on a tick by tick basis. The whole display scrolls as the counts change and, depending on the momentum of the market, can get rolling like a slot machine face in momo times. . hence "rollers". In this case everything is red except the VXD, which is the Dow VIX, which you would expect to react inverse to the market. This is bearish.
In the lower right is the TICK on 2 minute bars with an abbreviated stable of technical overlays. What I'm looking for here is the slope of the TICK and where it is relative to the zero line and the pivots. . .yes, the pivots.
As of this screenshot all signals were bearish and the trade was to short the Qs. And, although it took a little bit to get there, the Qs performed exactly as scripted and, in fact, closed at S1 for the day.

When Not to Trade

Here's a little vignette from this morning's action that shows a classic divergence between the Qs and the NYAD. . .and the low risk approach to these setups. . . stand aside.
Several points to note here:
The Qs open higher, retreat to the PP and then surge up quickly. The fact that the Qs bounce back up thru the PP at 9:40 negates our open fade and we are net flat.
At this point the NYAD shows a little strength, but this quickly dissipates and by 9:54 the NYAD downtrend has begun as signalled by the double MACD downslope.
The Qs continue to waffle and aggressive traders could have entered short at 10:12 with a parabolics signal trigger following a NYAD parabolics short signal at 10:00.
The Qs then run upslope again until 11:16, in clear contradiction to the NYAD slope.
Finally, at 11:18 the NYAD parabolics fire a Sell, the Qs MAs roll over and the Qs parabolics fire a Sell. With everything now in sync (finally, we enter short with the Qs PP as out first line of support and a likely cover target.

VIX Update

Here's an update to last Monday's VIX post. The possibility of a channel kiss-off was quickly extinguished on Monday followed by a decline down to the LR30 mean at 27.50 that I was looking for as a mean reversion move and the VIX spent the later part of the week oscillating around that level as the major indices consolidated in tight trading ranges.
The mid panel technicals are now in alignment and are suggesting a bullish move in the VIX, with the upper LR30 channel once again providing the first line of resistance.
With expiration upon us this week, the tendency is for continued consolidation, so the net expectation for the majors is neutral to bearish.
I'm on the road for a few days meeting with a few trader buddies in Las Vegas so posting may be light but, as always, watch the pivots and the NYAD on 2 minute bars to confirm your daytrading trigger signals. You'll seldom be disappointed.

2% COST

Brett had an interesting post the other day on capitalization and realistic rates of return. One paragraph, in particular resonated with me: Look at it this way: if you can produce consistent 20% annual returns on capital with modest downside risk, you will always have a job as a portfolio manager for a top hedge fund. If you, as a beginning trader, rely on a business plan that calls for more than that, you are probably unrealistic in your assumptions and overly aggressive in your risk.
Having been at this for almost 25 years (and still kicking) Brett's spin on managing your money and your risk is something I adopted many years ago in order to help me sleep at night and avoid the emotional roller coaster that many traders new to the business experience. I prefer it slow and easy and, because trading is how I pay the bills, my prime directive is capital preservation.
I hate drawdowns and have crafted my trading plan over the years to reflect this goal. While I don't have many days where I blow the doors off with gains, I also have almost no days with unpleasant surprises. . .and that's the way I like it.
Maybe not your style (or reflective of your trading goals), but it works for me.
Also, with today's money market rates and 1 year CDs yielding almost nothing, it makes sense (to me) to deploy the bulk of the account into a program that can generate a low risk 2% per month.
It that spirit today's post takes a look at a chance to pick up 2% for 36 days exposure using a simple buy/write of the Costco July 45s.
COST has been consolidating for a few months now and looks to be near bouncing off medium term support at 45. A current buy/write will get you a break even of $ 43.96 and will yield a solid 2% if COST closes above 45 in July.
The 47.50s are for the more risk tolerant, and offer the potential of a 4% return over the same period.
A 47.50 butterfly is another setup that has possibilities. I mean to profile that in a future post.

GE - Still Kicking

In the spirit of yesterday's post on UNG, here's a little update on one of my favorite daytrading and swing trading equities. . .GE.
Thanks to Dave for suggesting that yesterday's post was responsible for today's huge pop in UNG, although there are no doubt some naysayers who would disagree.
Currently on a swing trade BUY signal via the majority of my Dirty Dozen system components, GE also offers some nice low risk exposure plays including a simple Jul 13s buy/write that will yield .53 or 4% for 37 days of exposure.
Your break even on this play is 12.48, so you've got over a buck's worth of insurance to the downside. Pretty good odds IMHO.
On the other side of the coin, for the more risk tolerant, selling the Jul 12 puts will yield .33. Worst case scenario, GE craters and you get the stock put to you at 11.67, which would reflect mid-April price levels.

Want Gas?

Here a snapshot of the US Natural Gas ETF, UNG, option string for July.

If you're just interested in picking up some premium, this might be a candidate.

A buy/write on the 13s will drop your net exposure down to $ 12.30 and based on a current price (as of this posting) of $14.00, the 13 call will pay out .75 or 5.7% fro 38 days exposure.

The options have a robust open interest while UNG itself trades about 50M shares a day recently.

The options trade in nickel,dime spreads, but my experience is that limit orders placed at the mid Bid/Ask point will get filled and save you a few bucks.

10 M Template Update

This is a little update to my FreeStockCharts 10 minute bar chart (also applicable to other time frames, especially 5 and 30 minute bars).
I've put the actual Detrend Oscillator (30) in shadow mode (same as the MACD histogram) to minimize clutter on the lower technical panel.
The MA 3 and 7s sit on top of the MACD histogram.
The Time Series Forecast (10,2), which is actually a forward looking linear regression and the Lin Reg (7) sit on top of the Detrend Oscillator.
Note how the Lin Reg (7) applied to the price displays differently than the Lin Reg (7) applied to the Detrend (upper and lower orange ellipses). I find it's handy to use this setup to detect early turns in price and momentum that might otherwise not be apparent.
I'm continuing to explore for a moderately reliable overnight tell, and recent tests using this template as a core component reinforce its usefulness for a soon to be announced Overnight Open Predictor Signal (OOPS).

VIX - Down But Not Out

I haven't examined the VIX for a while, but here's my standard Telechart template applied to that rascal. In contrast to the normal weekly update Telechart display which uses the VIX as the comparison chart, I've overlaid the VIX with the SPY (S&P500) line chart to show relative price action.
I mentioned this phenomenon months ago, but the VIX/SPY and VXN/Qs and RVX/IWM crosses have consistently provided great entries, both on daily bars and, more appropriately for day traders, on 1 and 2 minute bars. Exits are based on other signals and I've explored several in previous posts, including the parabolics, MA crosses, the Detrend and others.....
The orange channel is the 30 bar linear regression channel (LR30), which I have found to be extremely useful is gauging momentum and support/resistance levels.
At this point the mean reversion side of my brain looking at this chart sees probabilities favoring a VIX decline down to the channel mean (27.50) and possibly further. Over the past 3 months, each of the upper channel "kisses" has followed this pattern and there is scant evidence to suggest an impending change (disregarding fundamentals which, of course, are dismal at best).
If there is a change is trend, we'll likely see it coming with a break off the LR30 channel and a VIX pattern of "kissing the channel goodbye" as we saw in March will be a true sign of a new bear phase.
Just something to keep an eye on to help minimize exposure to the wrong side of the trend.

Qs Open Fade

This setup was eerily similar to last Friday's gap fade.

Although it wasn't that impressive as a gap, the first 10 minutes (1 minute bars shown)showed some clear facilitation about any more strength coming it. The fact that this hesitation occurred right at the R2 pivot was a further hint that a fade might be in order.

But the real kicker was the action of the NYAD, which showed weakness after the first 2 minutes.

The Schwab chart fired a parabolics SELL on the Qs at 9:43, right in line with the window of opportunity that I described last Friday and the NYAD signal was right in sync.

The fade down the followed transpired quickly and within 6 minutes the Qs were down to PP. I took of half the position as the Qs bounced up, noting that the NYAD was still clearly downslope.

At 10:16 I re-entered the half position Qs short as the parabolics fired again and the NYAD was still on a SELL.

This turned out to be a good call as the Qs quickly dropped to S1 at 10:14, the parabolics fired a COVER on the Qs and the NYAD and I was out of the full position.

Net results: a nice little run down from 36.96 to 36.48 = .48 in 32 minutes.

Surfing the Qs Wave

Here's the FreeStockCharts (FSC) template I use for monitoring hourly bars on the Qs and a few other equities. All the settings are clearly visible if you click and enlarge the file.
In contrast to the Detrend studies I've posted over the previous 2 days this Detrend indicator is set to 30 and the Time Series Forecast (yellow line) is actually on top of the Detrend, not the underlying price.
As an aside, using this same template with 10 minute bars produces a very nice tell for forecasting close to open probability. This has been an onging project study and this template provides a quick visual barometer for + - or neutral overnight action.
Unfortunately, I can't replicate this template in Schwab and FSC has no backtesting capabilities so I'm left to try and formulate the template in TradeStation. . . just something more to add to my "to do" list.

Detrend Redux

While continuing my review of the Qs Detrend system posted yesterday, I noticed a fundamental mistake in my testing of the original system back in March. That mistake was in not allowing a larger window for the fixed bar exits when I optimized the inputs. Had I expanded the potential range to 20 instead of 10, as I had done, the results would be as shown above. . . reflecting twice as many trades and twice as much equity gain.
And, perhaps surprisingly, given the recent market runup for the past 3 months, the original optimized inputs are identical to the current ones: (2, .75, -1.25, 14, 14).
As per yesterday's post pyramiding is NOT turned on, as reflected in the maximum position sizing in the performance summary.
I've received several emails from readers reporting a respectable performance daytrading the Detrend on 3 and/or 5 minute bars with somewhat different settings for the ES and ER, so I'm encouraged to learn that the system seems relatively robust and applicable to a variety of trading vehicles.

Detrend Revisited

This is an update of my March posting on the Qs Detrend system.

In the wake of the recent market meltup I'm reviewing components of the Qs Dirty Dozen systems to see how the bullish bias of the past 3 months has effected the equity curve and optimized settings of the various systems.

As per my usual methodology I'm using a floating 16 month study period which results in a new set of optimized settings (2, .75, -1.25, 14, 14), reflecting a narrower detrend range and a longer target holding period than the original post.

This study is run without pyramiding turned on. With pyramiding, the system equity curve is boosted by another $1000 with little impact of net drawdown, but requiring an ultimate position size of 300 shares in lieu of 100 to achieve net results.

In the process of running this update I've noticed some parameters of the system that may bear further refinement and I'll (hopefully) explore those in more detail by the end of the week.

The Detrend system continues to churn out a decent return IMHO while maintaining a low max consecutive loser # for both the longs and shorts. The equal balance between the frequency of long and short trades is also an appealing feature.

30 Minute Overnight Tell

This is a continuation of my previous studies of possible tells for forecasting the Open based on the trend of the previous day's closing bars . . . either the 10, 30 or 65 minute.
In this case I'm looking at the 30 minute bars for the Qs.
On the chart itself the 7 and 14 SMAs are shown, the optimized values for the Q that I've discussed previously.
In the lower technical panel the 3,7 and 12 SMAs are displayed along with the Schwab signals lines of 5,16,4 and 3,14,3, again values I've discussed before in the context of my ongoing refinement of the Qs Dirty Dozen systems.
The classic values for the MACD histogram 12,26,9 are also displayed.
For this post I'm most interested in the slope of the 7,14 on the chart and the 3,7,12 on the lower technical panel in conjunction with the signal line and the MACD.
Sometimes the simplest approach is the most robust and what I've noticed from looking at this little snapshot is that when the 7 and 14 MAs are both upslope into the close, the following opening hour is positive. If the 7 and 14 MAs are both downslope into the close, the following opening hour is negative.
The same results are achieved using the lower technical panel of the 3,7,12 MAs. The effect of the MACD and signal lines may add confirmation to the closing signals, but require additional testing before deploying.
On a side note, I've been working on a pairs trade idea using the overnight % change in the Qs and the SPX or DIA (higher to lower beta) to gauge likley price behavior for the day. My intuition told me that I should expect a mean reversion. . .that is, if the overnight change in the Qs was + 2% and the overnight change in the SPX was 1%, then I should Sell the Qs and Buy the SPX. Surprise! It doesn't work that way. . at least going back the 300 days of data that I looked at. The best results are achieved by Buying the larger % gainer and Selling the lesser gainer if the differential overnight returns are greater than .9% and positions are held to the end of the day. Obviously these results can be improved considerably by adding some basic stop losses and/or trailing stops. This study is in very rudimentary stages and requires considerable more work, but the initial data runs are encouraging, to say the least.