Thursday, April 30, 2009

Hairy Bottoms, again

Another nice example of the hairy bottom pattern yesterday as traders tried to game the Fed news. The volatility that started about 14:15 is typical of Fed news events, typically characterized by a quick move in direction A, followed by a short trend in the opposite direction, followed by a resumption of direction A. In yesterday's case the successive selloff in the 2 minute bars was countered by immediate accumulation, leading to the hairy bottom formation going into 14:30 as the Qs (and the rest of the market had a blast off to new highs.
While the ensuing action 14:30 to 14:45 might be stretched to be termed a hairy top, it was more like a crew cut squat bar, as it rested precisely on the R3 pivot before plunging for the remainder of the day.
The 7/14 MA crosses helped trigger two more trades post 14:45, without the benefit of of any hairy pattern confirmation.

Wednesday, April 29, 2009

Looking for the Hairy Bottom

Yesterday provided a classic example of one of my favorite daytrading trend reversal patterns...the hairy bottom.
The pattern is shown on 2 minute bars, although it can often be detected on 5 and sometimes 10 minute bars. The confirmation of the midpanel technicals is indicated by the green arrow, which was also picture perfect with the MACD histogram chugging across the zero line precisely at the entry trigger and the parabolics firing a BUY.
This type of convergence of trigger signals can be found frequently and provides the basis for initiating extremely high probability trades that typically run for at least 20 minutes. And, while there is no way of knowing the impending duration of these trades once entered, applying even minimal risk management and stop loss controls should produce a high rate of successful trade excursions.
The other side of the coin is, of course, the hairy top pattern and once you train you brain to see these patterns set up (especially when confirmed by the parabolics and MA crosses) your confidence level in entering these trades (and your equity curve) should increase substantially.

Tuesday, April 28, 2009

Testing Resistance

The Qs made a run at the November highs yesterday before retracing back to the VWAP into the close. Volume was unusually anemic as traders appear poised to head for the exits on the first break of support.
The pivots, as usual, provided great intraday swing targets and both the parabolics and the 7/14 MA cross displayed the triggers to pick up a few quarters along the way. Over the course of the past few weeks one the themes we've been discussing in the Rewind Chatroom is the tendency of the market to surge in the last hour of trading. Once a trendline is established, it's unusual for that trendline NOT to continue into the close. This was the scenario I was looking for today as the last hour progressed, but, alas, it was not to be. My preferred tactic at this point is to short the bumps against R1 levels, scalp off a few bucks and then wait for the next setup.
That being said, there are a number of technical setups that argue for a new bullish surge, so I'm cautious about getting too exposed. My general feeling is that it's too late to get long and too soon to get short on a swing trade basis, so my risk deployment is focused strictly on an intraday basis for now.

Monday, April 27, 2009

Qs Pivot Bands Update

Here's this week's Pivot Bands update for the Qs and the Pivot Impulse Indicator. After 7 weeks of upslope gains on constricting volatility, the bands have been getting progressively scrunched for the past 4 weeks. The Qs Pivot Impulse indicator (red line) has now reached the .5 resistance level that has held for the last 37 weeks (the duration of my little study) through both bearish and now bullish cycles, so we are once again at a critical make or break juncture. While we may not get a significant retracement this week, the technicals are suggesting at least a temporary rest to let volatility creep back in.
Finally, Vertical Solutions' prognostication for this week. He's been eerily precise for the last month, and if correct, we've very likely already seen the lows for the week......
And, for something completely different here's a 30 minute interview with Meredith Whitney on the US banking system and likely problems yet to be faced. Well worth your time IMHO.

Friday, April 24, 2009

1 Minute LR Swings

Here's a little setup I introduced in the Rewind Chatroom today. The disolay is from, the platform of the Qs 5 minute real time chart posted on the right side of the blog.
What the chart displays are the parabolics (.02/.2), the VWAP line, the daily pivots and 3 linear regression lines(30,14,7). The white circled area corrals the action as the LR7 pivots down from the LR30 while the LR14 remains level.
This setup is specifically designed to capture short term trades and can also be viewed profitably on 2 minute bars. Using the 3 LR lines helps keep you on the right side of the trade and when watching the chart in real time, the slope of the LR7 in conjunction with the LR14 and LR30 can provide a dramatic indication of changing trends.
As the name implies, bestfreecharts is free, so set up the template and watch the action unfold in real time.

Thursday, April 23, 2009

RIMM/VXN Crosses

Here's a little follow-up to my ongoing study of how (or if) the VXN and VIX are useful tools in forecasting at least short term momentum of various stocks and ETFs. RIMM, of course, is one of the more volatile components of the Qs and an integral part of my 3 Finger Lead and Reverse systems. So I thought I'd look at how a high beta stock reacts to VXN crosses....turns out...pretty good. The obvious implication here is to set up a number of these 2 minute charts for RIMM, GOOG, APPL and QCOM and monitor the VXN crosses. When we get multiple crosses in these Qs components, the likelihood of a similar cross in the Qs is extremely high. So, watch the stocks, trade the ETF.......just another risk management approach.

Wednesday, April 22, 2009

Qs Risk Map

Here's a little risk assessment tool of the NAZ 100 courtesy of the NASDAQ that I've mentioned before. For those who daytrade the Qs I find the tool useful in constructing a mini-watch list to gauge impending momentum in the Qs.
Currently, I use a mini-list of RIMM, GOOG, AAPL, MSFT, INTC and QCOM to help forecast Qs action (not shown).
This is a quick visual version of the 3 Finger Lead study in the Qs Dirty Dozen systems and when these Qs components are rolling to new highs (or lows) on 2 or 5 minute bars the Qs are soon to follow.
I also monitor the relative % gain (or loss) in the Qs and the mini-list, as the tendency is for the Qs to rise to the median level of the mini-list % gain (or loss). The beauty of this little watch list is that it takes just a few seconds to monitor, but it has significant predictive power (in my experience).
In the case of Tuesday I was puzzled by the Qs midday inability to keep up (% gain) with the DIA, IWM and SPY, as has been the case for several weeks now. It was only when I studied the mini-list that I realized GOOG was actually in negative territory for the day and this was the anchor that was holding the Qs back. Once the late afternoon surge began and GOOG went positive, the Qs picked up relative strength and ended on a % gain parity with the other majors.
So keeping track of ETF component stocks can be useful tool forecasting the parent ETF direction.

Tuesday, April 21, 2009

A Simple Lesson

Above and below: 2 minute bars of Monday's Qs and the NYAD.....
Monday's trend down day provides a classic example of why it's important to closely monitor the NYAD in real time in conjunction with price charts.
Many traders were looking for reversals off S2, S3 and S4 levels as prices continued to crumble throughout the day... and there were several occasions when it looked like pops in the TICK and TICK volume were going to signal some midday recovery.
Those that followed the NYAD, however, were not misled by these little feigns and head fakes as market makers tried to draw in buyers. With the NYAD refusing to budge above .12 even in the face of otherwise apparent rallies, and in fact spending most of the afternoon at .10 or below, there were few odds favoring an afternoon reversal.
As I have mentioned MANY times before, I regard the NYAD as one of the most important indicators in my daytrading toolbox and yesterday showed why.

Saturday, April 18, 2009

Weekly Update

The Qs continue to lead the rally from a technical standpoint and have now approached the Nov 08 highs, which none of the other indices including the DIA, SPY and IWM have managed to achieve.
At the current time, all indicators are upslope, having put in extended runs on the LR30 upper channel band and the RSI2 overbought level. The XLE remains the most benign of my little basket, but in spite of crumbling markets, it's still the engine that drives the world economies.

On a little editorial note: on Friday's post I indicated I would be holding my short Qs calls for several days. In fact, I covered those positions early Friday morning and entered again 30 minutes preclose to lock in a few dollars. HEY..never forget the Bucket List rules.
Also, with a little introspection, I'd like to encourage otherwise reluctant readers to drop in the free Market Rewind chat room. Several of the chatters are newbies and are looking for ideas and just trying to put in some face time with the charts. But there are also several battle scarred trader/bloggers in the room who really do trade actively and in many respects it's like having several technical viewpoints looking over your shoulder as we all approach the markets with a little different bias and perspective. The fact that most of us focus on the Qs, XLF and SPY ( and their derivatives) helps narrow the focus. It's a very non-threatening environment for those who want to watch trade setups develop and the subsequent hilarity when we all scramble for the exits as the markets turn or our stops are hit. The chatters also frequently post unique site links that aren't generally found in the mainstream. A tremendous learning resource IMHO and as expressed by multiple guests.

Friday, April 17, 2009

Variations of the Qs/VXN

Here's yesterday's Qs chart on the 1 minute bars with the VXN signal overlay. We got several nice trades out of the crosses that were confirmed by the midpanel technicals. The setups were a mirror image using the either the VIX or RVX and the IWM.
The day before expiration can get squirrely as rollovers and spread adjustments get laid off, but we still got a nice bullish trend trade that took the Qs up to R3 , and later (not shown) to R4. . . at which point I went short the Qs, a position I intend to maintain for a few days as my technical signals are all screaming for at least a short term pullback.
Clueless had this litle nugget yesterday. So, for bluegrass lovers, here's my submission for a free crash course in trading.

Thursday, April 16, 2009

Looking a bit sluggish

Here's Wednesday's Qs chart, this time on 2 minute bars. I managed to get off a couple trades on the VXN/Qs crosses . . . unfortunately, I was only able to pick up a few cents on each one as I chose to play the options in lieu of cash, hoping to goose my returns by capitalizing on the accelerated premium decay that typically abounds the 3 days prior to expiration. I may have to conduct a tactical re-assessment of that approach. Nevertheless, the signals were there with confirmations on the NYAD (as shown yesterday) and the Qs once again showed their propensity for the pivots as key reversal levels.

Wednesday, April 15, 2009

Qs Like the Pivots

Above, the Qs 5 minute bars with the NYAD chart below it.
I've highlighted the usual VXN crosses and added signal arrows to indicate trade signals. Contrary to the frustration I expressed over Monday's pivot action, the Qs regained their reputation for mounting reversals at or close to the pivots and performed much as expected yesterday (in that regard).
The Qs showed strength relative to the SPY, DIA and IWM for most of day and into the close. The XLFs (not shown) were the big disappointment in terms of a 6.5% loss and 320M volume.
Typically, these "corrections" tend to carry three days, which would take us to Friday, an unlikely day for a rally based on the day of the week studies profiled here previously.
Nevertheless, I'm just playing it one day at a time, having faded the close for the past several days and covering 30 minutes after the subsequent open.
I did not follow that pattern on Tuesday's close, although with INTC down .75 after hours, I wish I had.
HEY!, it's a learning process.

Finally, for anyone in the Phoenix area, here's a rare opportunity to peek under the sheets and spend a free evening with one of the principles in Bright Trading (plus a free dinner).
Not to be missed if you're even remotely considering trading as a career.

Tuesday, April 14, 2009

Monday Foolery

I mentioned in the Market Rewind chat room yesterday that I found Monday's to be the hardest day of the week to trade, and the above chart displays a couple reasons why.
After sitting in front of several monitors for a decade watching the Qs and the IWM fluctuation on 5 minute bars, there are a few patterns that I have come to expect. Keeping in mind my cautionary Bucket List from a couple weeks ago, still, there are price setups that I have come to intuitively recognize as high probability trades. I leave the precise quantification to Rob Hanna and Jeff Pietsch, but when the Qs get 35 to 50% away from a pivot point, the odds are EXTREMELY high that the next pivot, either up or down will get touched. This is especially true if the NYAD is trending in the direction of the likely pivot target.
Those 2 conditions today defined by big orange Xs therefore reflect some surprises on my part.
In the first instance around 9:50, I was lying in wait for the Qs to drop to S1 as the NYAD was leading the way down. Instead, the Qs showed a hairy bottom pattern, rallied back to PP and then plunged down to S1.
In the second case, around 15:45, with the the market rocketing upwards and the NYAD in a 60 degree upslope, it looked like it was going to be another bullish blowout close with the Qs kissing R1. Alas, this proved not be the case, as the entire market and the NYAD rolled over to the downside.
Nonetheless, I was still able to pull off a couple VXN/Qs trades to help pay the piper and I learned, once again, to be wary of Mondays.

Monday, April 13, 2009

Qs Pivot Band Update

We got the volatility dip forecast by last week's Impulse Indicator and the resultant bullish jump.
And the Qs are now approaching the lower volatility support level that has held for the duration of my study (33 weeks), so the expectation is that volatility will once again increase.
In Thursday's post the possibility of a new bullish paradigm was advanced and the action over the next week should clarify that question as we see whether the .5 support level holds.
As usual, keep in mind that these are weekly bars and a lot of chop can develop during the week prior to final resolution next Friday. The fact that Friday is also expiration may further serve to add an element of "excitement" to this week's action.
For the near term I'm sticking with my neutral stance mentioned Thursday, while continuing to scrape off dimes and quarters on intraday trades.
The VNX/Qs and VIX /IWM 2&3 minute bar trades have produced consistently reliable signals over the past week and a number of the traders in the free Market Rewind chatroom have explored nuances of the crosses.

Thursday, April 09, 2009

Thursday thumbnail

The bullish scenario forecast by last weekend's pivot impulse reading has played out consistently this week as the VIX has receded to 37, a level not seen since January.
Just a mid-day gander at my little ETF basket confirms that hope springs eternal on rapidly deteriorating volume. Perhaps amazingly, after this week's substantial pop the technicals are still hugging the zero line and generating ambivalent signals.
The XLE model continues to follow the LR75 channel model, while other components of the basket have all shown breakouts.
Faced with substantial overhead resistance at these levels, any sustained push higher will reflect emergence of a new bullish paradigm.
The volume issue continues to bother me as I consider it too late to go long and too soon to short.

Wednesday, April 08, 2009

Crosses and Reversals

Yesterday's post profiled some Qs/VXN reversals. Today's deals with what happens when the Qs and VXN successfully cross. While we managed to scrape a few dimes out of yesterday's trades, the Qs/VXN reversal at 10:30 that continued until 13:00 yielded a nice .50 gain, almost the entire hi-lo range for the day. We then got another reversal at 13:00 that ran to 14:00 and kicked out another .20 gain. While these types of returns are a bit unusual, they are certainly welcome and the setup doesn't get much easier to see.
Side note: I've linked a real time 5 minute bar chart of the Qs on the right of the blog with the pivots, parabolics and 11 and 30 linear regression lines.

Tuesday, April 07, 2009

Picking up dimes

Yesterday's chop/chop action was a bit frustrating, but if you followed the VIX/price reversals there were a few dimes and a quarter to be made along the way. These are 1 minute bars shown.
The late day surge that kicked off at 14:45 (not shown) carried through for a nice pop to the PP pivot. . .a bit surprising in lieu of the kickoff of earnings tomorrow, but welcome just the same.
RIMM was the star of the day, while JAVA took in the shorts as talks with IBM fizzled.
Remember the bucket list!!!!
Finally, with earnings season upon us, here's a link to Zack's earnings calendar and surprises. Also check out their Surprise Trader.

Monday, April 06, 2009

Qs Pivot Bands Update

This is a quick look at the Qs pivot bands going forward into this week.
Signs are actually bullish at these levels, despite all the technicals crying for a pullback.
Keep in mind data series 1-9 above are actually the R4-S4 levels + the PP = 9 data fields.
These are weekly data points, NOT DAILIES.

The Qs impulse indicator is not necessarily an indicator of price action, but pivot range volatility and the metrics of its construction have been discussed in detail previously. What the indicator is showing now is a bumping against the upper standard deviation level that has held for the last 25 weeks, suggesting that range volatility is about to contract and, hypothetically price will rise.
While this inverse relationship between volatility and price is considered by most traders to be a reliable tell for market dynamics, last week's strange behavior wherein the VIX and price trended together off and on for several days, left more than a few scratching their heads.
Adam also had some thoughts on this strangeness. Check out his spin.

Friday, April 03, 2009

VIX / VXN Crosses

OK, I know I said I was done with the VIXEN yesterday, but here's a little comparison of the Qs with the VXN and the IWM with the VIX.
You, of course, are welcome to insert whatever ETFs or stocks that you fancy, but what I'm trying to display here is the relative synchronization of the 2 VIXs.
I monitor the IWM in real time in conjunction with the Qs just to verify short term market momentum and I know from previous experience that, when the two charts diverge, it's safest to stand back from any new entries and to keep my finger close to the EXIT button.
This is another way of evaluating the relative alignment of the IWM and Qs signals.
Based on a quick look at the "firing order" of the crosses on 2 charts there doesn't appear to any advantage between the 2, although a more reasonable test would lookback over several hundred crosses to get a quantified number.
If you've got multiple monitors one use of this relationship would be to set up you screens similar to that above, using the concurrence of the crosses to confirm trade entries.
Or (assuming your platform has the capability) you can set up 3 or 4 or more of these charts with the same template to help confirm trade signals.

Thursday, April 02, 2009

The Last Nail

This will be my last post on the VIXEN.
After 2 weeks of setup posts, I think the concept should be clear.
What's different about today's post is the use of VXN in lieu of the VIX.
VXN is the Nasdaq 100 volatility line and it's use was talked about in the Market Rewind chat room yesterday. So what I did was run a real time duplicate of the VIX/Qs screen using VXN/Qs. Perhaps surprisingly, using the VXN produced a little smoother indication of the volatility reversals than the VIX. At the same time, (not unexpectedly, the VIX produced smoother reversals with the IWM, XLE and XLF.
So the lesson to be learned is that there is a difference and, depending on what you're tracking, the VXN may be he preferred pairs choice.

Wednesday, April 01, 2009

VIXEN .. .again

Here we go again with yesterday's Qs/VIXEN action. While the Vixen gave just a hint of the 12:30 bullish setup, the consolidation of price and VIX from 13:00 - 14:00 was a nice level platform for a break. . .one way or the other. I personally find these extended areas of flatline activity attractive trading opportunities as the next price action move is an either/or situation that typically extends for at least 30 minutes and often much longer.
The bullish surge at 14:00 was telegraphed by the change in slope in both the SMA and MACD signal lines. While the signal didn't generate a cross (really bullish) the fact they were tracking parallel was a definite positive indicator.
Just before 15:00 the VIX executed a clear 90 degree reversal, followed quickly by a 90 reversal in the Qs price action. Depending on your stance at the time this was a clear long cover/short signal that tracked right into the close. Those that were hesitant about the bear VIX signal were given a clear second chance to go short 30 minutes pre close when he parabolics fired a SELL and the SMA and MACD signal lines showed a bear cross.

For the past week I've been hanging out in the Market Rewind chat room with a few other technically oriented blogger/daytraders as we monitor chart action and possible trading setups. The room is free and I'm kind of getting my feet wet there before deciding if I want to run my own. The VIXEN has been adopted by several of the group and (so far) the signals generated have been impressive.
As mentioned previously, the VIXEN's dynamic scaling issue is the only sticky issue that has to be dealt with on a platform by platform basis. The trick is to monitor the VIX on 1 (a bit jumpy) or 2/3 minute bars that only reference the current day. This means adjusting the range of your lookback, which I otherwise typically set on my 2 minute charts to 4 days. This takes a bit of experimentation, but once you get the settings locked down, the signals are very precise.