Thursday, February 18, 2010

SMH & EEM Situations

Yesterday's suspicion of impending reversal in the SMH was confirmed 10 minutes after the open when 5 separate exit triggers fired. #1..the parabolics signalled a short (cover). #2.. price closed below the 8 bar hi/lo channel, #3.. the VIX crossed up through the SMH, #4.. the lower panel technicals (MACDs and SMAs) all went downslope, and conjunction with the parabolic signal, SMH failed to gain enough traction to even hit R1 resistance. Any 2 of these signals should have been enough to kick long SMH positions, what's usual is to see all the signals line up concurrently in such a dramatic fashion.

BTW, the new BZP2 market prognosticator concurrently fired a Sell at 9:40 for the larger market. One problem with the BZP2 is that you can't look back after the fact as this is a real time indicator only, so once it's gone. . .it's gone. Like real life. . .there's no do-overs. The early response to the BZP2 was very encouraging so I've added the BZP30, which uses a similar algorithm on 30 minute bars. Watching these 2 charts in real time can provide a a useful adjunct to other momentum indicators if, for no other reason, than to warn you off entering against the trend.

As promised, the current status of the EEM butterfly entered on Jan 28th is shown below. At this point the setup has earned a measly $ .21, with a full month of decay yet to transpire. The cash entry price of the EEM setup on 1/28 was 39.15 and the price as of this 2/17 9:00 AM PST update was 39.35, a net gain of .20 from the 1/28 price. While the butterfly hasn't generated a bigger gain than a buy and hold tactic, what it has accomplished is a muting of the risk factor that loomed on 2/5 - 2/8 when it looked like the bottom might fall out of the market. I'll look at the EEM situation in another 2 weeks with these benchmark metrics in mind.

Finally, I've mentioned many times my primary reliance on the NYAD for trading signals and/or confirmations. The Clueless One chimed in with a unique perspective on this invaluable metric and it's worth a close read. While I use the NYAD almost exclusively for daytrading, Clueless demonstrates a wider application. Speaking of the NYAD, the classic VIXEN also fired yesterday at 9:40 as the VIX crossed up through the NYAD, which should actually be considered confirmation signal #6 for the SMH short (cover) trade.

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