Friday, July 30, 2010

ETF Prophet

All future posts will be landed at ETF Prophet. I believe that sharing my tactical technical analysis in this format will provide readers with a more robust view of the markets, while at the same time availing them of a wider universe of market perspectives.

ETF Prophet is actually a community of 7 active trader/quants using diverse methodologies and trading a variety of vehicles including S&P futures, FX, options and stocks/ETFs.

As we progress with the refinement of the site we plan to offer some unique metrics and trading algorithms that will benefit both daytraders and swing traders in these rapidly evolving markets. Also under development . . access to an institutional algo trading account for our members. While many of our site services will be provided gratis, we plan to launch a number of fee-based advisory services including Project Z signals for a variety of ETFs and a unique suite of benchmarked rotation models designed to generate gains regardless of market direction.

The archives of this blog will remain intact for those wishing to review earlier posts.

My New Home



As part of my new residence at the ETF Prophet I've been thinking about another move . . . .
Many ETF Rewind followers know that Jeff lives on a remote island in the middle of the Straits of Juan DeFuca and Puget Sound and runs his advisory service from there. Although Jeff cannot see Russia from his back door and must reach the mainland via ferry, private yacht or seaplane, as a gentlemen alpaca rancher he enjoys a bucolic if somewhat sheltered life.
Taking his lead I'm considering relocating to a more safe and sane location and I can share a recent picture of what the new BZB Trader command center might look like. This waterfront residence has the charm of lapping waves against the shore, and the appeal of isolation, lack of drop-in traffic and other distractions. While this lifestyle may not appeal to everyone, you have to envy the low commute time to work, privacy and scarcity of noisy and nosey neighbors. I know my golf game would suffer immeasurably, but such is the price of paradise.

Following the lead of Gov. Palin I would also plan on aggressively lobbying my local congressmen to sponsor a government grant to build a bridge to the island at an estimated cost of $12o million. We can only hope that scheme would be successful as it would will greatly facilitate occasional visits of my readers and in-laws while at the same time expediting my weekly excursions for provisions.

Y'all could drop by any time.

Thursday, July 29, 2010

The Last Word

I'm going off the grid on this post. It has nothing to do with trading but a lot to do with timely issues that effect the life and death of hundreds of thousands of Americans and our ability to function in an atmosphere of national honesty and transparency . . 2 critical traits that have been woefully lacking in our current administration lately. There's plenty of blame to go around and this is just one vignette to illustrate my point. Truth is sometimes stranger than fiction and after reading this piece by respected Sunday Times of London war correspondent Christina Lamb I'm not sure whether to laugh or cry.

If you're wondering what's really going on in Afghanistan where US soldiers are dying every day for "freedom" here's a little peek under the sheets that our esteemed leaders would probably prefer remain unmentioned. Regular readers know that I live in Oceanside, CA., close to Camp Pendleton, the West Coast Marine training facility, with over 55,000 on base and an adjunct Navy and Marine Miramar airbase close by. While I am not a hawk and make no claim to understanding military strategy I am a humanist and detest and abhor the waste of life and the collateral misery that the wars in Iraq and Afghanistan have produced both in terms debilitating physical and mental injuries and the consequent destruction of family units. I get even more riled up when I think about the $ billions that have been pilfered by our "allies", squandered or stolen during the course of these wars. The problems facing the 50,000 troops now returning from Iraq are immeasurable and long term and I couldn't even begin to catalog them. What is a fact is that today's economy with (realistically) 22% unemployment and continued dim prospects in the civilian sector offers little encouragement for these returning vets except as possible conscripts to guard the Mexican border against the illegals. Is this the future they fought and died for? I hope not, but there it is, with no fix in sight for years to come.
My wife and I play golf at Camp Pendleton at least once a week and one of the unique features of Pendleton it that you never know who you might be paired up with. A few weeks ago we played with a highly decorated Marine pilot with 5 tours in Irag and Afghanistan. Now my spin on things is that we call in the Predator drones and the Hellfire missiles and just win the war and get the Hell out of there before we lose any more of our guys. "Not so easy" says my new pilot friend. Turns out the war is governed by the ROE (Rules of Engagement), at least pertaining to how our side acts. If the pilot's on a mission and a guy shoots at him from the ground and then runs into a building the pilot can't just send gunfire or a missile into the building. He's actually got to see new muzzle flashes aimed in his direction and even then he may be precluded from firing. The pilot further flabbergasted us when he said that it's not unusual for Marine pilots to be accompanied by Marine lawyers on their missions who advise the pilots whether or not it's OK to drop their ordnance or release a missile. That reminds me of the American Revolutionary war with the British in their red uniforms marching and firing from rigid formation while our forefathers picked 'em off from concealed positions in hopscotch ambushes. Remember how that war turned out? Until our political leaders decide they really want to prevail in Afghanistan or just pack up and leave and let those folks sort things out for themselves we will continue to be faced with the tragic and costly consequences of this farce of a war. This in no way is meant to denigrate our service men and women, many of whom I count as true friends. They are just doing their job putting their lives on the line every day because they have been trained to follow orders. It's the politicians and war profiteers that engineered this mess who are responsible and they are the ones that must bear the blame and the shame.














































































The Future

A few odds and ends here. This month's (August) edition of Futures magazine has some great reads and regular readers know this is a freebie www.futuresmag.com so hop over and check out a unique technical setup to catching falling knives and a top-down approach to selecting high probability ETFs on a rotational basis by Deron Wagner. I'd like to say Mr. Wagner stole this methodology from Jeff and I but I'll just say that great minds think alike. How's that for humble modesty?

A few days ago I mentioned the ETF-aX algorithm that BofA was touting and it's actually taken me 3 hours of phone time to locate Michael J. Lynch, who appears to more elusive than the Scarlet Pimpernel. 3 calls to BofA help centers produced nothing but blank stares and mumbling that they knew nothing about Mr. Lynch or ETF-aX. Sometimes a company can get too big for its britches and BofA appears to be living proof. Love the stock, hate the help centers.
The ETF-aX algo is actually a new product of the GES division described below. And, as you can see they provide a suite of tools and services to make you competitive (and well hidden) in the global markets. This, of course, means that you Mr. Retail Trader are going to find it harder and harder to make money in the daytrading arena. This is state of the art trading and as ETF Prophet evolves one of our goals is to offer our subscribers access to some of these programs in concert with Total Trader platform.


IWM vs. SPY

Those who have followed the generals over the past 2 weeks may have noted that IWM has been leading the SPY in daily gains. We now have an about face occurring with the IWM leading the SPY down over the past 2 days. That weakness can be seen in absolute % change: IWM -1.74% vs. SPY -.69%. Now part of that weakness might be explained in terms of relative beta, but the situation becomes clearer when we examine the intraday charts of the 2 ETFs. Tuesday I mentioned the possible bullish effect of the PP-R1 intraday pattern. We did see a bullish follow through at Wednesday's open pushing the NYAD to it's daily high but the remainder of the day was characterized by a PP-S1 range that collapsed in the last 2 hours to an S2 level . . with IWM clearly reflecting the weaker pattern of the two, .
Those who follow the BZB 2 minute Prognosticator may have also noted that over the past 2 weeks, the closing slope of the Prognosticator has been eerily accurate in forecasting the following day's open. Not necessarily the subsequent close, but it's been spot on for the open.
Also of note: a distinctly negative performance by SMH on Wednesday . . reaching S3 levels in the closing hour . . does not bode well for the Qs short term.

Wednesday, July 28, 2010

Fractal H&S on a PP Kind of Day

This is a follow-up on my comments yesterday about a head and shoulder formation seen in a number of the generals. Above is the weekly chart of SMH, which I regard as a reliable leading indicator of Qs momentum. Perhaps a bit surprising following upbeat reports by INTC and CSCO, SMH has not been a Rotator leader recently and MSFT's upbeat report has also been met with net distribution. This may have been a case of buy the rumor, sell the news . . in which case SMH may be out of bullets . . adding fuel to a H&S argument.
Now, just for fun, below is a chart of SSO on daily bars and (I know you're going to say this) there's a inverse head and shoulders . . sometimes called a stop and squat. Truth be told, this is a pretty bullish looking chart . . unless that red resistance line turns out to mean something. Sorry I can't make a more convincing case for the bulls but I do believe the matter will be resolved one way or the other by Monday . . you heard it here first.
And, despite an anemic NYAD that pushed many issues into the red, essentially all the majors managed to follow the intraday pattern of SSO on Tuesday, which fluctuated between PP and R1 the entire session. The net skew was actually to the PP side of the band, but the good news for the bulls is that PP provided a powerful VWAP target . . an encouraging technical confirmation.
My trading cohorts have just advised me that the ETF Prophet is about to go live and I want to assure you that we're working hard to provide subscribers with a suite of unique and adaptive tools and links that will allow qualified traders (among other things) to trade commission free, while also providing access to state of the art benchmarked trading algorithms and an auto trading platform for those who want to try the waters.

Tuesday, July 27, 2010

Everybody's Doing It

Monday . . same as Friday, including the bull surge at the close. Plenty of upside momo (although volume is sadly lacking) and we may be back on our way to Q2 highs. What could possibly go wrong with this scenario? Plenty . . but let's not dwell on that and spoil and otherwise chipper rally. As we are poised 4 days before month end there's strong odds that July will turn out to be a barn burner ignoring the fact that many of the technicals are sitting dead on mid term resistance right now. A lot of head a shoulder patterns flashing for those that put stock in such formations and we may see some slow down before a big push Friday - Monday.
And then there's this little item that may be of interest to my system trader readers. Why fiddle around trying to develop a robust trading algorithm? Just open an account with BofA and let the bankers due the heavy lifting and let the good times roll. I'm still trying to get info on the "algo trading suite" mentioned by Mr. Lynch in the article for those that may be interested.

Monday, July 26, 2010

Monday Outlook

First of all I have no idea how the Rotator came to rank FXY as #1. The chart looks like it's rolling over and although it's had a nice run the technicals suggest there's not much juice left in this one. I might be wrong but FXY goes in the AVOID box for now for me.
On the other hand GDX and by extension SLV look to be picking up as does XLE. FXE is a bit harder to read and seems to still have some doubts about where it should be going . . I'll give that one a little room to breath before jumping in.
The positive tone of last week's earnings reports appears to have given new life to a market that was about to capitulate in the face of deteriorating fundamentals and gloomy Fed forecasts. Always keep in mind that the market is driven by expectations and a tendency to interpret data to suit one's own agenda, which is what make it so much fun (and challenging).
A long standing joke among quants is that 87% of all statistics are made up on the spot and if you read enough Goldman analysts' reports you might come to believe it. GS probably pulled off one of their best trades in the history of the firm by paying a piddling $550 million fine to the SEC to settle claims of that Goldman helped structure a mortgage security that was designed to fail and sold it to unwitting clients.
FYI, $550 million represents 2 weeks worth of GS first quarter profits so the fine is cosmetic at best plus, as part of the settlement GS doesn't have to admit to any wrongdoing. Hey! . . just an honest mistake . . can happen to anybody. Buffett still loves 'em so all's forgiven.

Friday, July 23, 2010

Looks Like Tuesday


Positive earnings reports appear to have overcome that irrational pessimism spawned by Bernacke's gloomy comments. NYAD readings were WAY up and were sustained all day. Volume was unconvincing but HEY!, in this yo-yo market nobody wants to hang out there too far. Thursday night Don Worden said Tuesday WAS a key reversal day and we're now poised for a new uptrend. OK Don. For my own part I closed my short FXE position at the open and managed to book a whooping .05 gain. Live and learn. I should have played my usual daytrader role and pocketed profits at Wednesday's close. For now I'll just reload and wait for the next setup.
BZF is on a high volume tear and check out the MoneyStream value . . some real accumulation under way as volume continues to fade in the golds and UUP.
As an aside, I live in an over 55 community where I'm the current HOA President, serve on a number of advisory committees and preside over a small investment club. Many of my fellow residents are now VERY conservative with their investments, having suffered major hits to their IRAs and other investments in 2008-09 and are limping along on .5 % CD returns.
So, for the truly risk adverse here's a doctoral paper on an interesting collar strategy focused on the Qs that has consistently yielded almost 10% annually with very controlled risk. Now, 10% doesn't seem like a lot but it is 20 times better than .5% and the system requires very little maintenance. Worth a look IMHO. Also consider the potential returns using QLD, SSO or other blended higher beta ETFs with (and this is key) very robust options open interest chains and .01 option bid/ask spreads.

Thursday, July 22, 2010

Looks Like Monday

Was Tuesday's bull pop just a one day wonder? We're about to find out trader buddies. The catalyst for Wednesday's swoon of course was Bernacke's gloomy comments that hit the markets like a surface to air missile. Tuesday evening Don Worden had proclaimed the day's action a classic one-day-reversal portending bullish things to come. Wednesday's night comment referred to it as a "fluke", with the odds now favoring the bears. Go figure.
Some readers have questioned my recent focus on currencies more so than stocks/ETFs and my response to that is that although I'm old I'm adaptive and follow the path of least resistance and greatest clarity.
For those that have followed the BZB Currency Rotator you may have noticed that the model's # 1 rank was correctly positioned 45 days in a row February to March. There's been a few stumbles along the way but from a risk management standpoint I'm finding currencies more technically consistent that equities and easier to forecast.
On Monday's close Project Z generated a BUY signal on UUP and a SELL signal on FXE. I prefer to run these 2 studies separately rather than as a pair trade just to see if the divergent signals confirm one another and I don't enter the trades intraday if price is moving against me. As a result I entered the trades late at Tuesday's close as the signals fired again. So far so good . . with 6 days to a fixed bar exit unless that 1/3 ATR stop fires on either position.

Wednesday, July 21, 2010

The GDX Situation

Tuesday's action offered some surprising strength on both GDX and XLE following my bearish prognosis for both on Monday. Looking at the Gold Rotator components we see a mixed bag of 5 day price trend and an overwhelming negative Moneystream values with the stocks NEM and AU leading the pack. Most all the components are running 50-65% of volume surge although NEM and EGO are showing some high 80s% potential reversal volume patterns.
Virtually all gold components are displaying virtually identical technical patterns and look to be coming off a recent W support formation. Better odds for Longs may kick in once technicals cross above the MACD zero line and a short term uptrend is confirmed.


Tuesday, July 20, 2010

Currencies at a Glance

Returning to the typical 2 day bar sort of the Currencies we note the yen is actually holding up better than its counterparts while the dollar exhibits the lowest MoneyStream value, initially suggesting more weakness to come although the technicals are arguing for a consolidation and/or bottoming formation.
The big volume movers were the yen, Aussie dollar and the euro. Largest short interest ratio now resides with TLT, closely followed by the euro.
Of some note: XLE is riding a downtrend with the next intermediate support level around $50, some $2 below current levels. In similar manner GLD is drifting in a downtrend with intermediate support around $110, over $5 below it's current level.
Monday's action on the majors was clearly mixed with the financials, especially BAC, still showing pervasive weakness. The low volume creep Monday felt a lot like the earlier low volume melt up that preceded Friday's plunge and, while earnings reports continue to drive short term momentum, sell side programs continue to overshadow intraday dynamics.

Monday, July 19, 2010

On Edge

You don't need a weatherman to tell which way the wind blows . . Bob Dylan said that. Technicals don't look good . . I said that. In a departure from my usual 2 day bar sorts which tend to buffer short term momentum the above sort of Friday's action is straight up daily bars. Keep in mind that the VIX marches to a different drummer than stocks and ETFs because it's a statistical value, not a tradeable equity.
Items of note on the sort include:
1. Volume surges in TLT & SH, while GLD has dropped to almost 50% normal volume.
2. Lowest short interest ratio continues to reside in SH, which some believe is bullish.
3. The majors are red in all 3 lead categories. (I'm discounting SPY 5 day value of .01)
4. And, if you want to get nervous, take a gander at the weekly and monthly charts of the majors. They all look poised to plummet off the chart. Now, I don't want to be discounted as one of the doom and gloom prophets . . because starting from my current flat position I just follow the market lead up or down . . I've no preset bias either way.
Unfortunately there's lots of folks with big bucks tucked away in their IRAs in the form of mutual funds (I have no idea why anyone would still own a mutual fund with all the great ETFs available that can be opened or closed in a few seconds without waiting for the end of day to execute). Those monies will be at risk if we do get a real drop and, if nothing else, maybe picking up some SDS or SH to at least get neutral until the danger has passed and we get back to an uptrend should be considered. Better safe than sorry . . you know me. . . always trying to look out for my vast readership and loyal subscribers.
Finally, a little item that may get your attention. As part of my Telechart Gold subscription I receive the nightly Worden Report which is sometimes dead on and other times wildly off the mark, and I make no warranty as to the reliability or tradability of the attached report. Worden Bros. have been at this for something like 30 years (I've had a subscription for 24 years) and they see the markets through their own technical lens and forecast accordingly. A robust and versatile suite of technical tools at a rock bottom price IMHO. Of course this report is copyrighted material but if you go to http://www.worden.com/ you can get a free 30 day subscription, so I'll just assume all my readers will do that and keep me out any legal trouble.

Friday, July 16, 2010

The Pain Machine

The TLT did show it's stuff today as the VIX executed the runup forecast earlier in the week. The afternoon session was divergent with both the SSO and VIX maintaining a downslope on 5 minute bars. Surprisingly, with an average downturn of over 2.5 % in each of the majors, the NYAD never got below .18. Selling of this virulence is typically accompanied by NYAD levels more around .10 and a preliminary conclusion to be drawn is that there more downside to come. The biggest volume day in BAC since May reflected a 9% loss while most of the financials including XLF saw +/- 4% hits . . with the glaring exception of GS, which was actually up 2 % at one point before plunging into the close.
Monday could be a doozey and I'm glad to have both oars in the boat and flat at the close.

Thursday, July 15, 2010

A TLT Turn?

A late post today as some updating problems with TC delayed my efforts to alert my readers to developing conditions. OK . . there may be a bit of hyperbole there, but on the daily bars it sure looks like TLT is undergoing a change of character to the upside, perhaps in conjunction with a rising VIX.
Note that the highest volume surges were in TLT and SH today, while GLD showed only 50% of typical volume.
Also of note: the current short interest ratio on the SH is the lowest of the bunch . . by a huge margin.

Wednesday, July 14, 2010

Mid Week VIXology

Now that the excitement's over for AA and INTC I thought this might be a good time to see how the VIX was doing longer term . . in this case on daily (above) and 65 minute bars (below).
OK .. a little aside here. I keep mentioning the use of 65 minute bars in lieu of 60 minutes (hour) bars because there are 390 minutes in the trading day and 60 doesn't go into 390 very well, while 65 (or 130) fits very nicely. Now, in the process of bringing Project Z to the market in the forthcoming ETF Prophet site, one of my loyal trading buddies tested the SSO/TLT model using both 60 and 65 minute bars. The results are pretty amazing, with the 60 minute model showing a flat equity curve, while the 65 minute version was a true thing of beauty with a continuously upslope equity curve. Now that analysis applied only to the modified z score algorithm that drives Project Z, but let me just suggest that system traders working on hourly bar signals may do themselves a favor and try 65 minute bars for a performance comparison.
And now, the VIX. I've drawn some whimsical support and resistance lines on the daily chart, supporting an otherwise completely non-technical view that the VIX's next move will be UP. The 65 minute chart kind of leans in that direction also although we have to temper any enthusiasm with the realization that the VIX tends to behave oddly during the final days preceding expiration, as was noted in yesterday's post and as is evident in today's action on the 2 minute bars.
We're seeing the rollers turn red as of this post and I'm off to Coronado to visit some friends and play a few holes so I won't be around to see today's closing. I will mention in conjunction with the Tuesday INTC report that I have a deep pockets trader buddy who places one trade religiously every quarter. He shorts INTC afterhours on positive earnings reports and then dumps the stock either at the open or throughout the next day. This simple lay in wait tactic has netted him a substantial nest egg over the years and bears closer scrutiny for those interested. I ran the same game with EK for years with equally high probability results. . . although EK isn't the market force it used to be and now that game is more like chasing water down the drain.

Tuesday, July 13, 2010

Surge Continues

A strong day with the NYAD showing some of the best and most persistent intraday strength seen in months. After hours INTC's most profitable quarter in a decade report has that stock up $1.50. Many of the techs have followed suit after hours. . CSCO is up .50, as are the Qs. The last hour surge pushed most issues past the R2 resistance level and reflecting the technical confusion that typifies expiration week, the VIX was up also . . strangely rising as the SPX made surges almost perfectly on the half hour . . and you though the markets were random.
A lot of traders were waiting for the INTC numbers before fading this rally, but based on the breath of this current rally it's probably a bit early to get short. A revisit to the April highs would be a great shorting opportunity.

Monday, July 12, 2010

A Little Pause

Monday's markets produced mixed results on thin volume as traders waited out the AA earnings report. After hours prices are up substantially, reflecting AA's positive report and probably looking forward to INTC's Tuesday report.
All of a sudden gold has a stigma and the popular press is making the sign of the cross whenever its stability is mentioned. HEY!. Things change.
Remarkably, virtually all the currencies are in the red although this was the data field at the close and after hours XLE is showing green, perhaps in anticipation of a BP capping success and disposal of assets. Tread lightly on that one IMHO.
The NYAD was upslope most of the day although it closed at a decidedly bearish .55 value.
Finally, as a follow up to last week's comments about a fundamental change in market dynamics induced by HFT, I enclose two ZH links, here and here that may help to clarify some of the issues at hand.
And, for those wanting to try their hand in this new milieu OEC offers a variety of tools for futures traders.

Thursday, July 08, 2010

The Leader Board

WOW!. . . 3 up days in a row.
OK. . this reminds me of a parallel and I must digress. . . .
I lived in Seattle for 35 years and for those that have spent any time there you know that July through September can be absolutely beautiful . . trees are in full bloom and the air is rich with invigorating oxygen. The sun shines almost every day and it's a great place to be outdoors. Unfortunately, that paradise is typically short lived and Fall often ushers in an almost permanent condition of overcast gloom, occasional drizzle and chilly winds. This situation persists through the winter months, frequently accented by driving rains and snow storms with temps is the 20s and low 30s. After 5 or 6 months of this many folks tend to aberant and/or suidical behavior as vitamin D deprivation begins to effect thier brain chemistry. And then the sun finally appears in the Spring and people emerge from their self-imposed cave-like existence, step out into the street and stare into the sky at the golden orb whose existence they had almost forgotten.
Such is a prevalent attitude among some bloggers following these past 3 days who claim that the low of the year is now in. And they may be right. BUT . . I seem to recall an old theory of pain management applicable to trading that says traders will look for the first opportunity to dump risky positions once they have reached a breakeven point or if it apears that recovering positions are poised to plunge again. That point is of course different from trader to trader depending on their entry point, but a likely baseline would be the LR30 upper channel line. . . a level that has now been reached on many of the majors this week.
So while these markets may have a bit more room to run, I'm not that encouraged by the post July 4th low volume melt up. Earnings reports may be the catalyst that drives the markets over the next 2 weeks and by most accounts the early reports have been mixed. Now a little caveat: If you've learned anything over the past 3 months it should be that this market is fickle and it can change direction in a heartbeat. I sincerely believe that the past quarter has placed traders in an entirely new paradigm, driven and manipulated by HFT and masking programs much more that anyone including the SEC would care to admit. Now, I'm not a conspiracy nut . . but if you watch the markets every day on 2 minute bars you would have noticed that market dynamics are not what they were last Fall and I believe there are profound reasons for that change . . which I'll explore in upcoming posts as time permits. In the meantime, the New Approach coupled with the Market Prognosticator is the best revenue stream I can find.

Wednesday, July 07, 2010

VIX / TLT VIXENS

Thanks for the emails regarding my New Approach post with suggestions for further improvements. It's nice to know that some folks are trading variations of this setup every day even though it may be formatted on a different platform. As Clueless pointed out . . why trade the Qs at $43 when you can trade SSO at $33 with twice the beta? Of course you could trade the QID ultrashort Qs at $19 with the same beta although some brokers classify the the QID as HTB, making shorting the QID difficult . . and the ultralong QLD is $51, so I still think the SSO/SDS pair is the best value play.
Here's a variation of the 5 minute chart setup using SSO/VIX on the left and SSO/TLT on the right. It might surprise you learn that applying the VIXEN crosses setup to SSO with TLT in lieu of VIX actually produces about a 7% performance improvement while reducing net drawdowns similarly. The downside to using a TLT based VIXEN is that it tends to lag the VIX signals and as a result the total net gain is reduced a bit. That's the tradeoff . . increased reliability for reduced net gains.

Tuesday, July 06, 2010

Dump the Whopper

The good news is we got an explosive up open on Tuesday. The bad news is that this may well be just another one day wonder, resolving the extremely oversold nature of most markets and setting up a series of further nasty plunges.
I may be old but I'm slowly learning the new paradigm . . sell all gap up opens. This is especially true when we get whoppers NYAD pops like Tuesday where the opening value of the NYAD was 18.20. Please . . a little tough love here . . if you don't realize the extreme inflation of such a value then you need to study the markets a little more. The odds of this number be sustained for even a few minutes is close to zero. And, as confirmed by the end of the day results, the NYAD had fallen to 1.08, an essentially neutral value.
I picked up a number of longs on Friday with the idea that most of the big traders would be selling risk at Friday's close over the long weekend. Of course then I fretted over the weekend that Tuesday would be another doozey down day and I'd be a bit poorer . . and Monday night's down futures didn't improve my mood.
But lo and behold, Tuesday gapped up big and I couldn't sell everything fast enough, finally getting 100% cash 30 minutes in. I left a few bucks of opportunity cost on the table with my long SSO calls and BAC, having bailed on them a smidgen too early, but dumping WMT at 49.21 was a gift.
Sometimes you just get lucky . . . and that's exactly what it was. I've got no illusions about being a forecasting wizard . . the whole scene could have gone the other way in a heartbeat . . don't kid yourself . . this is an ugly and scary trading environment.
Oh yeah . . TLT is back in the lead again.

Friday, July 02, 2010

A New Approach

It's easy to be pissed off and frustrated by the HFT manipulation of the markets that has become commonplace. Unless you've been trained as a jet fighter pilot like some of my trading buddies your reflexes just can't keep up with the intraday big bar trend reversals that have become the new paradigm for daytraders.
There's still the standard benchmarks for traders like the pivots that continue to provide valuable intraday reference points and, perhaps interestingly, I've noticed that the pivots appear to have become even more reliable as stop and reverse or stop and rest points than they have before. This may have to do with the nature of some of the preset risk management controls embedded in many of these HFT programs, because once the pivots are violated the volume surge typically accelerates substantially.
Now, you know me . . I'm always looking for a better mousetrap, or in this case an easier mousetrap.
I've been following the recent developments of my trading brother in arms the Clueless Q Trader, who shares my underlying fascination with the Qs as a trading vehicle. Clueless has now migrated a goodly portion of his daytrading over to the SSO and, as I pondered and examined this development, it's simple brilliance struck me.
I've often said that if I could just trade the NYAD, life would be a breeze. Of course the NYAD is just an indicator reflecting the relative NYSE advancers versus decliners. BUT, the SPY is a perfect mimic of the NYAD . . you'll never see any significant divergence between the SPY and the NYAD. Using the SSO just doubles the beta. . voila!!.
Thus my new trading platform setup as shown above to capture those SSO moves. This is the Schwab SSPro platform and includes just 4 charts . . SSO/VIX, VIX/NYAD, NYAD/VIX and TICK. In between the charts are 3 dynamic scrollers that display the new highs and lows count of the day for the NYSE, the indices and the Nasdaq. Below the scrollers are 2 watch lists. . one of the major indices, the other of the volatility indices plus a few wild cards. The Watchlists have an interesting Schwab feature that let's me turn on the real time tick for each item, so I can see at a glance whether the major or vol indices are in alignment.
I've been using this setup for just a few days, but am extremely impressed with it's reliability and ability to discern the market turns. The charts above are shown on 2 minute bars, but the whole display is fractal and can be set to 1, 2, 5, 10, 30, 65 minute or daily bars.
One thing you might notice is the clarity of the VIX chart relative to the SSO chart. The dynamic ATR of the VIX 2 minute bars is surprisingly low relative to the SSO and this is the reason that I juxtapose the 2 setups side by side. While momentum might not be immediately clear on the SSO chart it's crystal clear on the VIX chart.
This is a work in progress and no substitute for a co-located server at the exchanges and a million dollar software program but as a discretionary trading tool it's the best thing I've found to date.

Thursday, July 01, 2010

The Never Ending Story

Yup! . . just like yesterday. TLT actually looks to be accelerating to the upside on increasing volume . . a further grim prognosis for the major markets. And once again we saw a divergence between the GLD and the GDX although the volume in both ETFs has dropped off significantly. FXF has been on fire on also double normal volume and the FXY, which was projected to hit 112 last week, has now reached that target and is looking more than a bit technically overextended.
Almost without exception all the technical gurus are predicting new lows, much lower lows, before a bottoming process can begin. And, based on those nasty HFT driven end of day plunges we have seen over the past 2 weeks, the probability of such a scenario does seem imminent. Those of us watching the markets intraday have noted several clearly bearish patterns, including the negative skew of the TICK spread throughout the day and the preponderance of large plunge bars that may or may not be accompanied by volume surges. This is just more evidence that the nature of trading is changing before our eyes as HFT, algo trading and order management masking create a market environment that is less and less accessible and transparent to the average retail trader. Discount the apologists who claim HFT adds liquidity to the markets . . these are the same folks who believe front running the markets is just smart trading.