Monday, October 19, 2009

Monday VIXology

These are the relative positions of the Qs and the VIX as of Friday's close. The VIX has now closed below the LR30 lower channel band, hypothetically putting it in oversold territory. At the same time, the Qs are sittng dead on the lower LR30 channel band.
A couple major differences here -- the VIX LR30 has been downslope for the past 2 months while the Qs LR30 channel has been upslope. The other technicals of note are the VIX's RSI, MAs and MACD, which all look poised to rebound, while the Qs similar technical all look poised to collapse. Net signal is bullish for the VIX and bearish for the markets.
Below is the new look for the PDQ Dashboard thanks to Jeff's handiwork.
Of particular note is that the PDQ was flashing SELL signals for the Qs on Wednesday's open and the signal got progressively more bearish going into Thursday and Friday . . so I'm encouraged about this little tool's forecasting value.
We'll be adding one more metric to the "Qs Position" section and that's what I call the "Firing Line" which will take into account whether the current equity curve of each pair is above or below the R2 slope and whether the current open trade position is showing positive or negative momentum.
Basically this is a stop loss and/or trailing stop to keep us out of entering trades whose equity curves have begun to collapse and at the same time help us retain any positive gains that the open trade may have captured.
As such, a new signal will need to be added to our repertoire of long, short, or out an that will be "close open trade" or COT. Those of you who have followed the evolution of the PDQ Qs pairs forecaster should already be familiar with these trade conditions but, in an attempt to avoid any ambiguity in the signals, this seems like a wise addition.
This PDQ reflects values and signals as of Friday's close . . still short the Qs although XME is giving us a contrary signal on a new entry.

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