b z b t r a d e r

ETF Prophet

2010-07-30T06:53:00.000-07:00

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

2010-07-30T06:11:00.000-07:00

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.

The Last Word

2010-07-29T23:35:00.000-07:00

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

2010-07-29T18:42:00.000-07:00

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

2010-07-29T06:14:00.000-07:00

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.

Fractal H&S on a PP Kind of Day

2010-07-28T06:11:00.000-07:00

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.

Everybody's Doing It

2010-07-27T06:17:00.000-07:00

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 Outlook

2010-07-26T06:20:00.000-07:00

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.

Looks Like Tuesday

2010-07-23T06:17:00.000-07:00

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.

Looks Like Monday

2010-07-22T06:12:00.000-07:00

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.

The GDX Situation

2010-07-21T06:17:00.000-07:00

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.

Currencies at a Glance

2010-07-20T06:15:00.000-07:00

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.

On Edge

2010-07-19T06:16:00.000-07:00

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.

The Pain Machine

2010-07-16T12:35:00.000-07:00

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.

A TLT Turn?

2010-07-15T18:57:00.000-07:00

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.

Mid Week VIXology

2010-07-14T09:41:00.001-07:00

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.

Surge Continues

2010-07-13T18:30:00.000-07:00

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.

A Little Pause

2010-07-12T10:21:00.000-07:00

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.

The Leader Board

2010-07-08T19:00:00.000-07:00

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.

VIX / TLT VIXENS

2010-07-07T09:49:00.000-07:00

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.

Dump the Whopper

2010-07-06T19:38:00.001-07:00

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.

A New Approach

2010-07-02T06:19:00.000-07:00

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.

The Never Ending Story

2010-07-01T06:13:00.000-07:00

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.

TLT . . Again

2010-06-30T06:13:00.000-07:00

On a day when many of the big caps saw long term support violated TLT was once again the safe haven of choice on Tuesday. After struggling a bit GLD also joined the party, but it's near term prospects look more neutral than positive.

I've adjusted the Rotator components, eliminating NEM and adding GDX, which is the Market Vectors Gold Miners ETF, and which reflects a somewhat wider spectrum of the gold producers than NEM by itself. A quick look at the Gold Rotator shows GLD as the only component that closed positive on Tuesday. This is a rather odd situation reflecting the attractiveness of bullion, but not the underlying companies prospecting and extracting the gold. TLT's chart suggests the potential for more upside on the near term. It is currently chugging along at the mean of the LR30 and not looking overbought. The midpanel technicals are upslope in unison and, while the lower panel technicals are getting a bit toppy, there's scant indication of an imminent reversal.

TLT or Not TLT

2010-06-29T06:18:00.000-07:00

We did get those new highs in the golds, silver and TLT but only TLT was able to hold those gains at the end of day. A bit surprising to me FXI (IShares China) ended up losing 1/2% Monday . . I was expecting some more enthusiasm for the support of the yuan, but HEY!, you know my bucket list. Also in contrast to my expectations tech didn't exhibit a jump although the retail sector via RTH did display a very modest decline. The glaring exception to retail weakness was WalMart, which rose 2% before that 10 minute closing collapse that shaved 1/4 of the daily gains. Clearly, I need to revisit my crystal ball going forward this week although Monday's closing technicals very uniformly negative.
That was an usually nasty high volume 10 minute sell off reversal at Monday's close...and it was across the board. The 2 minute bar at 12:50 pst was a real doozey on the NYAD...a sure clue that there was more downside to follow.

New Highs Ahead?

2010-06-28T06:17:00.000-07:00

Gold and silver look headed for new highs and TLT is tracking in a similar pattern. And there may be good fundamental reasons why. China's decision to let it's currency rise in value adds buying power to it's growing middle class. . . which is both good news and bad news for US companies. While electronics makers can sell more computers and ipods, retailers such as WalMart will find Chinese imports costing more, and since over 85% of WalMart products are made in China, somethings gotta give if they want to hold their price points, which may in part account for Wally's dollar drop on Friday while many of the markets were rallying.
And then there's the weekend's G20 summit with the Pres throwing in the towel . . and that can't be good for the US economy.
This is the equivalent of a one-two punch for the equity markets and looking in the crystal ball I'm expecting some nasty downdrafts this week.
Although we typically see some month end to first day accumulation, that may not be case this month.

Strange Day

2010-06-25T06:15:00.000-07:00

FXE really pulled one out of the hat on Thursday, defying the downdraft while at the same time essentially conforming to the intraday cycle of the NYAD. The Rotator now has the FXE ranked in slot #1, a curious situation after Wednesday's action. Rather than waste a lot of time taxing my old feeble brain trying to figure where that rascally FXE is headed next I'll just employ risk management rule #1 and stand back until the technicals sort themselves out. I mentioned earlier in the week that FXE was showing divergence signals on daily and weekly bars and we may be seeing some resolution of that divergence at the present time. Meanwhile, I'm not going to step into traffic until the crosswalk signal flashes all clear.
The yen has touched the May highs again, a scenario that was also suggested earlier in the week and the technicals still look bullish. Ultimate upside FXY targets remain in the 112 range but it's going to take some work to get there.

Worse Than it Looks

2010-06-24T06:19:00.000-07:00

I continue to concentrate on the currency ETFs (and NEM), especially FXE and TLT. The early action in FXE was characterized by another very bearish drop to 1 penny below S3 before it began its intraday run up. In a complete reversal of my previously stated tactic of being short FXE, the early drop allowed me no strategic entry and I therefore took the opposite side of the trade ...long at 121.85. This turned out to be pure dumb luck as the FXE slowly churned up to touch R2 before retreating. That's a huge intraday range for FXE and I was able to exit at 122.85 for a buck gain. Like I said . . dumb luck coupled with the artificial positive beta surge which typifies FOMC days.
Unfortunately, a quick look at the chart suggests that Wednesday's pop did nothing more than push the FXE further into overbought territory . . the technicals are distinctly bearish.
The other object of my attention is my once favorite FXC, which has broken down through the short term LR channel and looks headed for the 93.50 level.
Keep in mind these charts are formatted in 2 day bars. . the daily bar charts look even more bearish.
Both FXE and FXC are exhibiting increasing volume on the distribution side, while UUP volume has fallen off by almost 50%.
The yen continued its run but in the final analysis TLT has the best looking chart of the bunch.

No Hiding Place

2010-06-23T06:07:00.000-07:00

That nasty afternoon sell off savaged everything but negative beta or very low beta issues. Tech, small caps, energy and financials all caught flak and many of the ETFs suspected in being about to fade, such as IWM, have now turned downslope.
On the positive side of the ledger gold and TLT look encouraging, especially TLT, whose technicals are all poised to continue an upslope run.
On the currency front there's double gold and TLT, accompanied by silver, which has almost reached the 19 target I've spoken about in the past 2 weeks. The yen also is showing some promise, but with only a small likely margin to gain.
FXE . . . that's the real story, and the only encouraging note on Tuesday's action was that FXE stalled slightly below the S1 and didn't plunge to S2 or S3 in the midst of the afternoon slide while TLT manged to gain a buck in the last 3 hours. FXE is actually looking a bit confused with the daily chart clearly bearish and the weekly chart clearly bullish. Go figure.

FXE in the Spotlight

2010-06-22T06:04:00.000-07:00

I've been watching FXE lately, mostly to check it's intraday synchronization with the NYAD. In the process I've noted what may be an imminent change of character. . .a suspicion that was supported by Monday's negative mood on FXE and the slight positive move in UUP.
Below the FXE and UUP looking a lot like a Rorschach pattern in their juxtaposition.
Monday's action was clearly negative with FXE testing S3 pivot support several times before finally closing a few pennies above that level. On the near term FXE may be on its way back down to the 119s if the technicals are any guide.

Below are comparartive 30 minute bar charts of the FXE and NYAD and you can draw your own conclusions about the similarities. Keep in mind that the scales of these two issues are substantialy different, but the 7/12 MA crosses are well aligned. Just as an edge to your intuition . . if the NYAD fades in early trading, the FXE is never far behind.

Another Day

2010-06-21T06:04:00.000-07:00

You're probably getting tired of my talking about BP. Me too! With the latest $20 billion escrow account ($ 5 billion/year for 4 years) you might think this is the end of the story. BUT, I'll just mention in closing that I have yet to hear the talking heads wake up to the likely shareholder lawsuits that will inevitably follow. With a loss of almost $100 billion in shareholder value over the past 2 months, and now a dividend suspension, the worst may be yet to come. Some cursory research this weekend suggests BP might actually see the spill tab hit $ 60 billion. Just a thought for those considering possible longs.

On a completely different note. . .here's something I'd like to see: At the PGA major events (too bad nobody thought about this for the US Open) there's usually a few numnuts who yell out "In the hole!" just as golfers tee off. Tiger's true believers are famous for this inane rudeness. Imagine if, just as Tiger or Phil is midway through his tee swing, the respectful silence was shattered by the blare of several hundred vuvuzelas. Ditto on critical putts. I'd pay to see that.

I also note with some sadness that in May Britain's Norfolk District Council banned the traditional barroom game of "dwile flonking" just as the inaugural world championships were to take place at the Dog Pub in Ludham, Great Yarmouth. The game, which some believe has been played since medieval times, calls on players to fling a beer-soaked rag from the end of the small stick toward the face of an opponent, and in the event the tosser misses the target two straight times, he must quickly down a half-pint of ale. Those Brits . . they know how to have fun.

Finally, a tip of the hat to Robert L., one of my regular readers who tolerate my ramblings, for forwarding the link to Reuter's Insider and the a list of the top 25 most-favored stocks in high frequency trading. Also note the article entitled "Inside the Machine". This is the Institutional Investor site and carries a repertoire of news of a higher caliber than most of the popular press. I'm still running relative performance testing on the DIA versus the GS list of the hedge funds favorite stocks (using a Schwab metrics filter) which I labeled the HF20. Now I've got the HFT25 to run against the DIA and the HF20. I'll report any interesting results as they develop.

Really, finally, these are the top 10 companies hiring new employees. WalMart, Home Depot, UPS, Starbucks, McDonalds, Coke, Sears, AT&T, Boeing and Lockheed Martin. And you thought there weren't any good jobs available after 4 years of college and 3 years of grad school.

Planning a Break?

2010-06-19T07:00:00.000-07:00

I was swapping funny trading tales with my buddy Jeff Pietsch the other day and I reiterate the following true anecdote for your entertainment:
Over the years I've probably bought and read a couple hundred trading books, many of which I've loaned or given to other traders. There came a time last year when I decided to sell a bookshelf of trading books on Amazon after creating my own little online bookstore. During a period of 6 weeks I listed and sold 48 books and put some extra bucks in my pocket while reducing my storage needs. One of the orders I received came from a federal prison in the Midwest. I had no way of knowing what the buyer's infraction might be, but clearly it was a serious enough matter to warrant federal incarceration. Nevertheless, I'm always a champion of self improvement and thought this gentlemen might be considering a trading career when his term was complete. Plus, payment was via PayPal so I figured I wasn't going t have to deal with some heavily tattooed skinhead gang member in order to get my measly $30 payment. Off the book went. About 3 weeks later, here comes the book back in the mail with a notice stamped on the outside of the package to the effect that this was not acceptable reading material for inmates.
I'm scratching my head thinking "this is crazy, it's a trading book" and then the light went off . . the book was Elder's Entries and Exits. Either the buyer or the feds were obviously intrigued by the title which apparently had been construed as either burglar's guidebook or a prison breakout manual. Too bad guys...the book's a great read.

All's Forgiven

2010-06-18T06:05:00.000-07:00

Can't we all just get along?

OK. . I apologize to the gold gods for ever doubting their technical superiority.

Both the BZB and Currency Rotator have GLD in slot #1. Actually it's a double header for gold on the Currency front with NEM in slot #2. TLT also had a good day on both Rotators and a closer look shows SLV has continued its positive momentum as forecast on Wednesday.

Hey! . . I'm right some of the time.

The Qs and SMH have the highest MoneyStream numbers, and both have shown relative strength over the past few days. IWM, the single Rotator component that's all green, has been struggling over the same period of time and managed to eke out a small gain Thursday . . but caution is advised . . the chart does not look bullish.

On the currency front FXE has broken to the upside over the past 4 days and is now pushing against overhead resistance. While Thursday's gain was impressive, it was accomplished after a roller coaster intraday ride that was a perfect mimic of the NYAD . . along with the VIXEN crosses. FXE has not tracked all that well with the NYAD in the recent past so Wednesday's action was a bit of a surpise (to me) that will warrant some further investigation.

Financial Updates

2010-06-17T06:12:00.000-07:00

As a follow up to last week's comment on the $ 1.5 billion claims pool for the BP spill I note that number has now morphed into a new dimension as the size of the spill now equals the size of Kansas. What's next? A Texas sized spill?
I haven't looked at the Financials Rotator for a while, having been focused on the 3 Stooges-like boondoggle of BP, but things look like they might be heating up in that sector and here we are:
In top slot is BAC, whose chart doesn't look like the barn burner that most bulls favor, but the technicals are certainly encouraging, with 14 providing a strong support level for the past year.
For the risk adverse a low exposure buy/write of the July 15's will yield 2.5 % with breakeven at 14.63, pretty good odds IMHO.
Stepping back a little almost all the components of the Rotator are showing positive Moneystream values with AXP and KBE showing the most leg. Although negative on Wednesday USB looks like it could mimic the BAC chart in short order. Yesterday's USB weakness may be due to analysts' crystal ball gazing that USB may be up for buying some midcap banks and their inherent risk.
SKF is the proshares' ultra short ETF so it's weakness is just the other side of the XLF coin.

The Golden Rule

2010-06-16T06:16:00.000-07:00

Bit of a push today with the last hour showing unusual strength and many issues closing on the high of the day. Volume was muted as usual but the nasty last 30 minute plunge that the longs have come to dread was no where in evidence today. After hours most of the majors were off .25% and although it may be hard to believe, a number of issues are hitting short term overhead resistance and displaying mildly overbought technicals.
Hey! nobody ever said trading was easy.
SPY, DIA, IWM and the Qs all showed the same pattern in the last 6 minutes. . big volume selling. Almost 15% of IWM's daily volume traded in the last 10 minutes, while 8% of the Qs daily volume traded in the last 10 minutes.
SMH was the clear star of the day on the Rotator, and this generally bodes well as a leading indicator for the Qs. The bad news...both SMH and the Qs have reached their January highs and while money flow is upslope on both issues, both are overextended relative to the rest of the markets.

On the currency front the Euro may finally be finding a base (emphasis on may) and the dollar got slapped in return. TLT has finally followed suit, showing some weakness while silver and gold reversed the negative mood discussed Monday. Silver has an interesting chart, having been stuck in a consolidation for mode the past few months. That blip up in May was actually a good thing, since it shows what's possible. It may not look that exciting but SLV's technicals are all positive and a return to May highs (19.40) would yield a 7% gain over yesterday's close.

Red Gold

2010-06-15T06:13:00.000-07:00

No, it's not a new variety of the precious metal, just reflection of the general mood in the sector. Below is the GOLD Rotator and this is more red than we've seen in a long time. The lone holdout, LIHR, is in the midst of a merger with Newcrest Mining who has just completed their due diligence process. Over the past 2 weeks we've noted some arbitrage opportunities with GLD and NEM, but the future of those situations has lost it's shine for the near term.
GLD may resume its uptrend, having only stalled at the lower LR30 channel band and not broken through to the downside. If we do see a "kiss-off" of the channel that may be the time to be short. . .for now there are to too many unknowns and associated risks. Flat is the safest bet for now IMHO.

Now, you wanna talk oil spill?

Here's a little item by Anene Ejikeme on NewYorkTimes.com that makes the BP blowoff look like a Saturday driveway spill while changing your car's oil.

Meanwhile, Senate Dems want BP to pony up $10 billion to cover sprill damages (I said this number was volatile) no doubt providing at least part of the impetus for the intraday 10% drop yesterday.

And, before you get lulled into the mindset that the worst is over and that a market bottom is at hand, take a look at Monday's volume, which is more reflective of short covering than serious accumulation.

TLT Surprises

2010-06-14T06:12:00.000-07:00

Friday's intraday market action was filled with the kind of twists and turns that we've all come to know and love. One of the most remarkable (to me) was the continued strength of TLT (and UUP) in the face of a bullish market. I've spend considerable time lately trying to create a robust and high probability trading plan for TLT and both Project Z and the PDQ Dashboard have provided some great tools in that research and have produced 78% reliable results over the past 16 months . . . not outstanding in my viewpoint, but definitely tradable.
The metrics columns reveal TLT volume is above normal and while price remains at the 97% level of the 6 month high, the fade in money stream is something that needs to be watched.

On the currency front the clear winner is GLD although the Rotator's trying to tell me something else. As with TLT, UUP is showing a roll over in Moneystream, a situation I mentioned last week.
Over in the chat room a few us closely monitor UUP, FXE, TLT and GLD throughout the day and everyone noted the surprising relative strength of TLT. The chat room is free so stop in if you're in the area, you just have to register with Chatroll to get started . In my continuing search for valuable trading nuggets, this is a venue of choice.

Playing the Energy Rotator is like juggling lit sticks of dynamite and close attention is required. Those beta numbers are deceptively docile . . it's the ATR that requires a closer look. The estimated $1.5 billion cleanup bill that I mentioned as suspicious last week has now mushroomed to $4-5 billion, a substantial change reflective of the great unknowns in this ongoing disaster.
There's some fast money to be made on these stocks if you're on the right side of the mood but the dramatic change in BP's stock last week demonstrated that you can't linger. Having looked at this motley crew in detail I now favor RIG as potential upside mover. Based on the WSJ article I posted last week and other research it appears that RIG has the most clearly defined risk exposure in this whole mess and with southern politicians galore calling for a a quick lift to the offshore drilling moratorium, the odds are building in RIG's favor.

XLE Leads Currencies

2010-06-11T06:16:00.000-07:00

Tonight I'm just looking at the 1 day results in lieu of the usual 2 day metrics. Oil really took hold today with XLE making over a 5% gain which happens very seldom (Rob Hanna can provide the precise numbers). The surge in the FXE and the drop in the dollar is a situation that merits closer attention before initiating anything more than a daytrade IMHO. Things can happen quickly in this high ATR environment and the major trend remains downtrend despite today's low volume blowoff. In his commentary Thursday night Don Worden noted that in the 32 market days since the April top half of the days have seen the DOW up or down 200 points. 22 of those 32 days have shown over 100 point gains or losses. Feeling a little giddy?
My little darling BP recovered over 12% on Thursday, keeping in mind that was 12% of a value depressed 15% on Wednesday, so that differential is a bit more than 3%. Glad I closed those long puts Wednesday EOD as the same near 25s closed at .41, down .86 from Wednesday's close.
Still, it was an impressive about face probably catalyzed by a number of BP and government spokespersons claiming that BP has plenty of assets to cover a likely $ 1.5 billion claims pool. This, of course, is complete speculation on every one's part trying to cover their arse and basically has the tangible value of hot air. No one knows the full extent of the damage as the oil continues to gush, pollute and destroy the economies of entire cities. Wait till the residue hits Cape Hatteras for the real backlash. With hurricane season setting up, the gunk could move halfway up the eastern seaboard . . a scenario that won't be smoothed over with a mere 1.5 billion.

Despite it's poor showing Thursday UUP still has one of the most bullish longer term charts along with NEM. Statistically the FXF looks like it should be a winner but the chart is just plain awful.
To be avoided.

750% in 24 Hours

2010-06-10T06:17:00.000-07:00

Turns out my Tuesday short call on BP was a bit understated. Readers who paid attention to that post should be ready to retire after yesterday's action. BP has lost 50% of it's stock value since the April explosion. . .15% of the adjusted value on Wednesday after trading 240 million shares.
Regular readers know I like to play the fringes of these disasters with out of the money puts . . in this case the near 25s which Tuesday were selling for a modest .15. Wednesday's high was 1.47 . . an 880% increase, but I was lazy and got out near the EOD at 1.30 for a 750% gain as volatility took a hit.

I don't think this is the end of story regarding the BP puts, but I prefer to play this one day at a time with the intent to fade any rallies, especially when and if they finally get a cap on it. With talk of bankruptcy looming BP could ultimately turn out to be another Enron situation with a stock value of zero, although it's not clear there was any criminal intent, just a series of bumbling miscalculations coupled with a lackadaisical attitude.

Also of note, Project Z initiated a new BUY on TLT at midday Tuesday. . a situation we'll examine in a bit more detail tomorrow.

A Glimmer of Hope

2010-06-09T06:10:00.000-07:00

A little glimmer of hope in the oil sector yesterday but, as expected, BP did not participate. RIG also got hit as offshore exploration looks like a threatened species, although it recovered from an almost 10% decline by the end of the day and APC, as one of BP partners, is also in the doldrums. A bit surprising perhaps DVN is looking almost bullish. Almost but not quite. What DVN does have going for it is a LR30 channel that is the nearest to level of the bunch.
However, just a quick look at XLE, XTO and XOM shows an almost identical technical pattern with DVN other than the LR30 channel . . . they're all looking like the next move is down.

After confusing some of my readers by adding NEM and GLD to the currency Rotator, I'm now adding XLE also. In reality, oil is the commodity that drives much of the global economy and while gold may be a tangible hedge, the supply and access to oil is still an important variable in the defining the stability of world currencies.

A little aside here . . . Back about 2o years ago when I was project manager for a $400 million project in Indonesia none of the international contractors working the job wanted to get paid in local currency because the political climate there was so volatile as was the value of the rupiah. Instead, contracts were paid in oil. . . tankers of which were dispatched to various US and foreign ports as payment.
OK, I could bore you to tears with the rest of the ill-fated tale of the Indonesian World Trade Center, but I won't. Instead, we'll just note the little pullback in the dollar that Project Z saw coming. While this certainty doesn't qualify for "reversal" status, a continued short term pull back may provide a lower risk opportunity for chasing the dollar further. And, while GLD also hit a little speedbump, NEM was on a tear as it looks poised to revisit it's mid-May high . . a feat GLD has already achieved.

Oily Pigpile

2010-06-08T06:08:00.000-07:00

Here's a little teaser to help you appeciate just how volatile the oil sector has become lately. XOM is kind of the senior citizen of the group while APC and HAL are acting like they're on steroids. These are not daytrading vehicles for the faint of heart and later in the week we'll look at some more tactical nuances for trading this group.

Blogger, which I will forever more refer to as Booger, was dead on arrival from Sunday night until Monday's market close thus preventing me from posting what was possibly the most important forecast I have ever shared with my readers. Too late, too bad, too sad. I suspect that GS was somehow in cahoots with GOOG to sabotage my post in order to prevent my readers from reaping the windfall they so richly deserve. Legal action is now pending and while we wait for the suit to lurch it's way through the legal system, here are a few energy related documents that might pique your interest.

Above and below are the results of the Energy Rotator as of Friday (above) and Monday (below). I am frankly amazed sometimes the way the Rotator ranks these stocks and was suspicious of both OXY and CVX, but Monday's results proved it right while SLB, RIG, DVN and BP continue to get spanked.

Monday's Rotator has clearly downgraded BP which mirrors my intuitive thinking. Below is a fascinating article from The Week magazine that really puts the screws to BP and shows how a series to judgmental blunders and braggadocio led to the financial and environmental disaster currently at hand. A close read of the article suggests that BP's subcontractors RIG and HAL probably did (or tried to do) everything pretty much by the book, but that it was BP's direction that caused the blow.

You'll need to zoom in the attached files to read them clearly but I doubt you'll be disappointed by the effort. BP's total liability may eventually encompass most if not all of it assets and short looks like the likely direction for the long term .

Currency Report

2010-06-04T06:15:00.000-07:00

Regular readers know the drill by now on this free e-magazine. Of particular note in this month's issue are the lead article on the global currency situation suggesting gold may actually be the trading vehicle of choice, an echo of my previous post considering gold as a currency. Also a clever analysis of the Asian session (11pm to 7 am GMT) and a tactical ATR approach to skimming some low risk gains. Worth a closer look for currency and FX traders or those considering these unique trading vehicles. Thursday's Rotator looks like it made a liar out of me regarding the NEM, but one day does not a market make. This relates directly to the article in Currency Trader that I mentioned above and I'll not waste space reciting that argument favoring gold. Regarding the UUP, it may be instructive to look at some of the additional metrics. Although UUP has a low to medium trending value, Price as a % of the 30 day high (last column on right....also see blog side panel) has the highest value of any of the Rotator components. Just as a cautionary note, these extreme values typically lead to at least a short term retracement. This is not to say that UUP won't continue to climb, just that there may well be a lower price entry in the near future for those who want to chase it.

Maybe it's helpful to look at the losers as well as the leaders on the Rotator and from this perspective the Euro continues it's deterioration. As long as debt default concerns continue to overshadow that continent FXE remains an unlikely rally candidate while the dollar continues to make headway.

Below is Project Z's position on UUP, currently Long but with the Z value reaching short term potential overhead resistance an exit may be fast approaching. Project Z has an 85% reliability with the UPP with very little drawdown so place your bets accordingly. The fixed bar exit on UUP is ten days, which will actually fire today at the close unless a /13 ATR stop is violated intraday.

Kermit's Color

2010-06-03T06:07:00.000-07:00

A big change of momentum yesterday, but will it hold? Getting 2 days up in a row hard been a hard sell for the past month and with Thursday being the highest probability down day in the week, the odds are a bit iffy. After suffering breaks of longer term support levels XLE and EEM staged dramatic recoveries yesterday. The BP incident has really done some damage to the energy sector including BP, APC and HAL. Actually, XLE would look a lot worse except that XOM is the largest component of the ETF and has so far managed to stay out of the liability pool, thereby propping up XLE. Until the BP well is finally capped I expect to see continued volatility in the sector as the specter of federal, state and local liability claims loom.

On the currency front the pound has been enjoying a little rally in the face of NEM's 2% gain. Technically, FXB, FXC and NEM reflect almost identical patterns, the big difference being that the NEM 30 day linear regression channel (LR30) remains upslope while the former 2 are downslope, the implication being that NEM is the better choice for the present time.

Project Z Loves TLT

2010-06-02T06:09:00.000-07:00

Above, weekly bars of the TLT showing the relative stability of 100 as overhead resistance. I say relative because there were a few months 08-09 when things got a bit hairy and TLT hit 123. Other than that little blip TLT been in a fairly tight trading range of 85-95 since inception in 02.

April and May have seen TLT hold a top ranking in our Rotator model more than 75% of the time, so I thought this might be a good time to check in with Project Z and see what the crystal ball was divining. Z fired off a Long exit 3 days ago based strictly on a fixed bar exit trigger, reinforcing the concept of a timing cycle.

These are the kind of performance metrics that keep me coming back to Project Z. Averaging almost 1 trade a month with a nice balance of longs and shorts the max consecutive losers is 0 to 1. Currently flat, TLT may be in a midst of a short term pullback, or something more substantial. . . only time will tell. Given the neutral to bearish mode of the majors as the market yo-yos, this is probably the safest course of action for the short term.

Picking Your Battles

2010-06-01T06:08:00.000-07:00

This is a little case study of monthly bars of 4 retailers: WMT, COST, TGT and BIG. The thing they all have in common is that the technicals are decidedly negative. All 4 also suffered a major drawdown in the Fall of 08 and into the first 2 months of 09.

Technically speaking, of the 4, I trend to favor WMT as a trading equity. Now, I understand that some folks would rather eat ground glass than put money with WMT, but I'm not one of them.

What I like about WMT is the 16 point (36%) range over the past 8 years. And as a reflection of its underlying power, it was first out of the gate after the 08 implosion. More than anything, this bias is a reflection of my focus on trading range and mean regression methodologies for short term trading. Clearly COST and TGT have been great trending stocks, both of which doubled from 03 to 08. The other side of this coin is that both were back to 04 levels on 09.

WMT was actually below 04 levels in 09, which sounds rather dismal until you realize that the average price of WMT 2000-2010 has been $ 50.50, precisely where it is right now.

As a consumer I frequent all four of these retailers and without making any subjective statements about the ambiance of these venues, BIG is the current high flyer on the charts and (of the 4) performs best on Project Z, closely followed by WMT, although the trading cycles are completely different.

Hedge Fund Favs - Part 3

2010-05-28T05:59:00.000-07:00

This is a sort of the GS hedge funds' favorite 50 stocks lists profiling the repeaters. Above, I've culled out the SER A and B rated stocks while below is the complete list. As far as dividend plays go JNJ, PFE and MRK are the most attractive, with WMT providing a somewhat lesser return. Only four of the group garner A ratings: APC, JPM, TMO, and WFC, but keep in mind these are fundamentally based ratings, not linear correlation ratings, which is what I'm concerned about.
The AB sort of 18 stocks reflects a wide spectrum of sectors: financial, health, tech, oil, manufacturing and retail.
My next project (as times allows) is to compare both the short and long term returns of a pairs model that plays HFT(hedge fund top)18 against the Dow30.
The other intriguing possibility is to trade the group as a basket using the Project Z algorithm. The problem with both of these situations is that they would be very capital intensive and incur a boatload of commission costs using my old reliable Schwab platform and commission schedule. The solution is easy: I just need to convince I-Shares or Schwab or ? to create a new ETF using these 18 stocks and then to periodically adjust the ETF components to reflect the latest GS report.

Hedge Fund Favs - part 2

2010-05-27T05:44:00.000-07:00

This is the first followup to yesterday's post of hedge funds' favorite stocks. These are the recent additions. The metric columns include the P/C (put/cal ratio), DivA (dividends . . expressed as $, not %) and SER (Schwab Equity Rating . . a subjective attractiveness index measuring stability and risk).
Note that my old friend XRX is the only SER A rated stock. NWSA is the only B rated stock. AGO, which is rated D (which generally mean "avoid"), is actually one of the more optimistic looking charts on both daily and weekly bars. You can check out other charts at your leisure. Four of the watchlist have daily volume less than 1 M, which is a bit odd for fund favorites, but 6 of the lot have daily volume over 2.5 million which makes them attractive day trading candidates with my setups.
KFT is the only stock with even remotely interesting dividends, but I'll just mentioned from my own experience that KFT is a great day trading stock. The current ATR is .80, which reflects the current VIX situation. For most of 2010 the ATR has been more like .40. Just for comparison, The Qs (at an average of $45), had an ATR of .50 so, perhaps surprisingly, KFT actually has a higher relative ATR.

Hedge Fund Favs

2010-05-26T05:22:00.000-07:00

Here's a little nugget I culled from one of the Schwab news feeds that scroll by during the day as I watch my portfolio value wobble like a drunken sailor. Some intriguing accompanying metrics to the news item may stimulate you to conduct further research to create a trading watchlist. They all like Apple, whereas I have focused on BAC for some time and have found it to be a great technical performer when used in conjunction with Project Z.
I was amused to see XRX new to the list as it's been one of my favorite daytrading and swing trading "niche" stocks for years. I guess the secret's out. When the specialists were alive and well you could just watch the 2 minute bars for episodes where the stock would drop .20 on virtually no volume and then shoot up .30 within minutes. This drop and pop was the specialist in action and savvy traders just kept a rolling entry stop set at .15 below the current bid. Once the order was filled (typically once a day, sometimes more) another order was immediately generated to exit at the previous "squat" level. These followup orders often executed within a few minutes and generated a nice little revenue stream. This is not urban legend. I executed this trade 204 times in 2004, with 198 trades profitable. The specialists are gone and so is this particular trade setup. Nevertheless, there are similar setups using XRX and other low profile stocks that can produce equally attractive results. For now we'll just call this the Backup Trade, which will be profiled on the soon to be released ETF Prophet site.

The MLR Rotator is showing quite a bit more short term green than yesterday with TLT and GLD still holding positions of high rank. SMH, which I mentioned before as a potential breakout candidate, appears to be chaffing at the bit to make it happen.

Wednesday's open was jaw dropping, although the afterhours weakness on Tuesday should have forewarned you that the following open was going to be something special.

While there's no denying the dramatic nature of Wednesday's turnaround, most of the positive momentum occurred in the last hour and it's possible that at least a portion of that late push was short covering rather than serious accumulation. And while a case an be made for a technical bottom, I'm standing back for a few days before initiating new swing trades, preferring the safety of daytrading setups instead.

GLD Poised

2010-05-25T05:39:00.000-07:00

That nasty 80 point collapse in the last 15 minutes yesterday dropped a lot of otherwise encouraging looking charts to their knees, with most issues finishing at the low of the day and then trading lower after hours. What we're left with on the Rotator is a pretty rosy picture. Not rosy as in cheery, but rosy as is negative returns. While TLT continues to hang at rank #1, GLD was actually the best performer for those not choosing to be short outright (SH).
GLD's relative strength position can be seen in the Rotator Currency model below, where it

holds rank #2. SLV did beat out GLD yesterday but on the longer term looks less promising. GLD has retraced back down to the upsloping LR30 lower band and now looks poised to move back up to the channel mean at 119.50 and possibly higher. The mid and lower panel technicals are supporting this forecast as GLD has consistently followed through with technical upside signals in the past.

The only caution here is seen on the weekly chart (not shown) which clearly shows GLD is coming off an all time high double top formation. A somewhat similar setup back in mid 08 was followed by a pullback of about 25%, which would take GLD back down to the 95ish level. Geo-political conditions are considerably different at this point in time however so, as usual, caveat emptor.

XOM at the Gate

2010-05-24T05:42:00.000-07:00

I mentioned XOM in conjunction with my XLE study last week. This week's gyrations have put XOM in a potentially attractive buying position. The chart above shows the weekly bars with my arbitrary view of long term support and resistance. XOM has been riding this channel since October 09 when it managed to span the entire channel width in a single week . . a not-inconsequential accomplishment. At that time the VIX was also running in the mid-40s.
Below is Project Z's take on XOM as of Friday mid-day . . a trade signal to exit a short position in effect since 4/27. This is NOT is BUY signal but simply a short cover signal. The outlook for XOM and oil as a sector still has a cloud over it, but if oil starts to display some traction, this looks like a good bet.

Over the weekend I watched a video Don Worden on Telchart put out explaining his feelings about likely market direction. He's not bullish . . and views the year long run up as mostly a temporary reversal of a longer term downtrend. He bases most of his argument on the strength of the MoneyStream indicator, a proprietary tool of Telechart that does have a pretty good track record. While he sees the potential for some additional short term upside, the longer term picture is lilely down. This is just one man's view of the markets but, based on Don's 35 years of tracking the markets, it's worth a consideration.

My old trading buddy, The Clueless One, is also a follower of Telechart and has a much more detailed exploration of the current MoneyStream (MS) situation.

Sad, Morose and Downright Pitiful

2010-05-21T09:27:00.000-07:00

Back in 1967 when I was lad I played banjo in a little bluegrass band back in Binghamton, New York. This was strictly a weekend gig when I was an undergraduate . . a way to meet girls and have some fun without shooting up the neighborhood . . which is what seems to pass for fun these days around here. Our band, The Susquehanna River Boys, sometimes known as The Soon Forgotten, had a limited repertoire which we categorized as either sad, morose or downright pitiful tunes. I am reminded of those innocent times after watching yesterday's action on the NYAD.
Last Thursday I mentioned it was really bad when the NYAD hangs at .13 all day. In that light consider Thursday to be downright pitiful as the NYAD opened at .03, then hung at .04 most of the day and closed at .05, actually higher than to be expected given the closing 30 minute collapse.
Historically speaking this phenomenon occurs less than 1% of the time, the last time being January 8, 09.

The thing I wanted to point out today is the almost 99% reliable trade (Rob Hanna can tackle the history on this one) that set up at yesterday's close. What happened in Thursday's last half hour?
Going back and looking at the tape shows that the problem was there were no more buyers. The bid kept falling away as prices reached the high of the day in many issues. This was the case with the SPY, IWM, DIA and as shown here on the Qs. This was followed by wave after wave of dropping bids and the result was that we closed on the lows of the day . . accompanied by increasing volume and an increasing ATR.
Back in April the DAILY ATR on the Qs was about .50. Yesterday the ATR was averaging .20 on 5 MINUTE BARS and, as shown in the lower panel on the chart technicals, it too was accelerating into the close.
This rush to the exits almost always leaves a lot of folks behind at the close and, as a result, today's opening bar 5 minute (white arrow) was the highest volume bar since the "glitch" on May 6th that produced the near 1000 point drop. And it was a down bar across the boards. There's the point and there's the trade. . close to open short and out. The pattern doesn't setup very frequently (especially over the last year) but when it presents it's worth paying attention.

A New Low

2010-05-20T08:31:00.001-07:00

A new low for the NYAD that is. After hitting .03 an hour into the session it rebounded to .04. That, my friends, is bearish. As of this post the NYAD has just edged into .05 territory so it's got a LOT of territory to make up.
First to break out to the upside today was BP, followed by a slew of other petro companies reflecting the technically uber oversold character of the sector.
I'm off for the rest of the day, hoping this will be the one day reversal (to the upside) that I've been waiting for.

A Two-fer Approach

2010-05-20T07:05:00.000-07:00

This is just another case where two heads are better than one. In this case tracking the NYAD and the VIX concurrently on 2 minute bars to better judge the timing and strength of possible market trend reversals as well as to confirm those reversals. You can use 1 minute bars if you're really antsy.

The NYAD and the VIX trading ranges are substantially different. On days like Wednesday the NYAD can move 200% or more with ease while the VIX, although the embodiment of volatility, tends to stay below 15% daily moves. As a result, some scaling issues are presented with the NYAD which complicate a trader's ability to see a changing trend.

Looking at the VIX helps to clarify exactly what's going on with the NYAD. Using the same suite of indicators . . parabolics, 3 SMAs, and 8/8 hi/lo channel . . makes it a lot easier to grasp what's going on. Even when it looks like the NYAD is just plodding along the VIX tells us that there is underlying movement and it tells us the direction of that movement.

As a little bonus I've also got the VIX chart overlaid on the NYAD chart to generate the VIXEN signal, but the real impact is felt when you look at the actual VIX chart and observe the indicator dynamics.

BAC-up Time?

2010-05-19T10:20:00.000-07:00

With the NYAD back down to .12 today things definitely looked dicey for the first couple hours. Yesterday's close was a bit scary as volume collapsed into the close and prices essentially froze. I say scary because those are the conditions that often signal an ugly end of day plunge. Instead we had a little rally at the open today AND THEN plunged . . a delayed gratification for short sellers . . a slow agony for the longs.
Days like today can be instructive if you keep track of what stocks/ETFs make the first break when the NYAD finally turns positive. BAC and SMH are a couple of nuggets that I've been tracking for a while and so far today they've both demonstrated some gusto.
The chart above is my spin on support/resistance lines as well as a 50% trendline that seems to be a historical turning point.
Below is Project Z's take on BAC with a 78% reliability over the past 16 months. Not exactly a barn burner, but that's 78% long and shorts with only 1 consecutive loser on both sides so, for me, that's a keeper. This is the signal as of 10AM PST today.
The linear regression lines are still convincingly bearish so I'm actually standing back on this one until I get some more confirmation of the NYAD slope really turning positive.
Meanwhile, GE, after a early slide, is back in the green and, as I mentioned yesterday . . that's good.

TLT Run Continues

2010-05-18T20:24:00.000-07:00

Once again the day finishes with GLD, TLT, VIX and SH in the green and with TLT proving to be the real winner after a quick look at relative betas. It's actually a bit curious that the Rotator doesn't rank TLT higher than GLD after the recent run up but that may come to pass by the end of the week. A number of traders I work with had projected a bullish run this expiration week after last week's weakness but so far that's turned out to be a pipe dream.
I highlight the GE chart as it may be putting in a possible bottom at these levels and, as I've mentioned in previous posts, I have a real enthusiasm for various risk/reward setups that are unique to GE. I'm currently hedged a long GE position with 18 calls so I'm keeping a closer watch on this one than usual.
On the currency front the dollar continues it's ascent, essentially tied with GLD for #1 rank but clearly displaying a substantially greater momentum. The real news is the Euro ETF, FXE, which has been steadily downslope since December 09. From that time until now the FXE has dropped from 149 to 121, an almost 19% drop and the 45 degree downslope on the FXE that has been in effect since May appears to be accelerating as it rides the LR30 mean. Worth keeping on your watchlist as it's unlikely that US capital markets will rebound without a reversal of European pessimism as reflected in the FXE.

DBC Doldrums & XLE: The Oily Hope

2010-05-17T15:35:00.000-07:00

Today's closing stats on the Rotator don't begin to do justice to the wild ride it took to end up here. With the NYAD plummeting out of the gate to a distinctly bearish .13 it looked like another day with blood in the streets, but then a slow grind up began and although it stumbled a few times along the way, all the majors ended up in the green. GLD was clearly stronger than NEM today (bit of an odd situation) and for a while TLT was the standout leader (again). The real star was probably SMH which took a bullish lead early on in the session and closed at the high of the day.
The hands down loser, as has been the case for a number of days, was DBC as global worries have significantly impacted commodity prices, especially metals which suffered a recent double whammy as a result of new hefty mining tax regulations in Australia and elsewhere.

Every night I routinely run through the actual charts of the Rotator components just to see if I agree with MLR 6 sort criteria ranking. Many times I don't and although I'm nearly a genius it usually turns out the next day that the software was correct and my feeble old brain was wrong . . which is why I keep looking at the Rotator.
Nevertheless, I'm a true glutton for punishment and the chart that caught my attention today was the XLE, which sure looks to be chattering against a clear lower support line. We made good money for the past 6 months playing a 57 butterfly but that position was exited a week ago . . dead on 57 and we are currently flat XLE.

My sidekick, Project Z, (shown below) was the impetus for my exit and is currently flat awaiting the next entry signal which should be a BUY unless oil really gets hammered in the next few days. Failing that, I'm of the mind that XLE will head back up to and through the 57 level . . at which time I may consider another butterfly.

Monday Outlook

2010-05-16T17:31:00.000-07:00

These are the Rotators as of Friday's close. GLD just doesn't want to give up that #1 slot although TLT has been the recent star (this discounts the SH which, as I mentioned last week, is just the inverse of SPY).
Interestingly TLT has a beta of -.06 while SH has a beta of -.96 and yet TLT's % price change was almost equal to SH on Friday. The momentum edge of TLT is further accentuated by the next 2 metrics . . 5 day price trend and MoneyStream surge. Giddyap go TLT!!

On the currency front UUP continues to blaze a hot trail closely mirrored by NEM, our recent currency proxy addition. GLD looks like it weakening at first glance, which is why it's important to keep in mind that NEM's beta is .60, while GLD's is .10. Gld has only 1/2 of NEM's price volatility but reflected a price trend 50% higher than NEM so we best to not count it out yet.

To facilitate the understanding of these Rotator models I've added a menu of the metrics columns on the right side of the blog. I also removed the Qs real time 2 minute chart and have added back the full market 2 minute real time prognosticator.

You Know It's Bad

2010-05-14T12:51:00.000-07:00

when you see the NYAD at this level. Today started out at .13 and immediately dropped to .10 where it's been stuck all day. This is the level we typically associate in conjunction with catasophic events and occurs less than 2% of the time. No hiding place today although the Rotator came through with TLT and NEM.

GLD Rolls On

2010-05-14T06:04:00.000-07:00

Yesterday's Strategy Matrix (SM) neutral view of GLD turned out to be a bit understated. Good news . . the SM kicked us out of our Longs, but didn't generate a negative GLD signal as it did as of Thursday's close.
Keep in mind the Rotator is based on 2 day bars so there is an inherent lag when signals reverse. This is the latest iteration of the Rotator with several of the metrics color coded to reflect positive/negative skew. One problem with the column headings is that they must be expanded to clearly see so I've provided a reference key below to aid in understanding the descriptors.
On the Majors Rotator (above) GLD is still in rank #1 reflecting the 2 day lag noted above.
I've shown the chart for TLT since this is really the first equity on the ranking scale that can actually be purchased. SH is, of course the short ETF for SPY . . note the betas and % change of SH and SPY, so SH is a metrically correct SPY short.

On the currencies Rotator the UUP is continuing it's breakout run. The next relatively attractive situation is FXA which is displaying a little momentum run. FXA's rank is far down in the sort values which will become readily apparent if you look at the FXA chart . . it's in the process of recovering from a significant fall off the LR30 channel and is, truth be told, a long shot Long.

GLD Turns Neutral

2010-05-13T06:17:00.000-07:00

Following on the heels of an extended run up, GLD closed neutral on Wednesday's Strategy Matrix, with the short bias on the 5-15 minute bars and the long bias on the longer term. For future studies I'm expanding the scope of the GOLD exploration, adding silver to the mix for a number of reasons that will be apparent in the following days.
I've also been refining the old PDQ Dashboard and we'll be rolling that out in short order. The Gold PDQ turned flat as of Wednesday's close in alignment with the Stategy Matrix so we'll be interested to see how GLD behaves over the next few days.

The Telechart program is crashing (again) so there won't be a rotator update posting tonite. What I can show is the relative momentum of GLD, UUP, NEM, and SLV on the charts below. The UUP continues to be the big breakout story while GLD and NEM continue their impressive march upward. Wednesday's dojis on GLD and NEM haven't been seen for a while. In the past the doji has not been a reliable tell for GLD related momentum changes (55%) although it has about a 70% reliability with SLV over the past 16 months (my typical floating TS lookback study period).

GLD Bug

2010-05-12T06:10:00.000-07:00

Gold was on a tear Tuesday in various iterations. On the MLR Currency Rotator the GLD ETF and NEM are over 2x as strong as the nearest competitor, the UUP. Keep in mind that GLD has a beta 1/6th of NEM. If we normalize the 2 equities GLD actually kicks out a sort value of 24. A quick look at the charts would tend to sponsor a profoundly overbought view of both GLD and NEM (and most of the other gold stocks), but geo-political issues are driving these nuggets higher every day and we're likely to see more upside before a retracement. (also discussed in the Futures' article mentioned over the past 2 days).
The Project Z GLD signal is currently flat having booked some nice gains (shown below).

Below are the results of a Project Z scan of GLD over the past 16 months. There are a number of impressive metrics here including the max # of consecutive losers on both the long and short sides . . 1. The balance between the longs and shorts is also attractive. Considering that most systems I've looked at recently are (understandably) skewed to the long side, this is a rather refreshing pattern. With an average of almost 90% profitable the Project Z scan looks like it has great potential for tracking the GLD.

Gold Currency

2010-05-11T06:13:00.000-07:00

I was intrigued by Frank McGhee's article in FUTURES (mentioned Friday) on viewing gold as a currency so I decided to expand the currency rotator model and run GLD against the Project Z algorithm. The results are encouraging . . to say the least . . and in talks with my compadres today we will probably make a gold trading model part of the larger repertoire on the new site.
At the same time I've created a separate MLR gold rotator featuring the GLD ETF and 11 highest market cap gold stocks. ABX, AU GG, KGC and NEM are the largest market cap gold stocks with ABX at almost 2x NEM's cap.
The GLD ETF understandably has the lowest beta, barely 1/6 to 1/9 of the stocks. This differential is further reflected in the price volatility metric column where GLD ranks lowest. I've got a little EXCEL spreadsheet that normalizes the price volatility/beta and the % change (yellow column values). Hopefully, I'll be able to integrate those results into Telchart or, failing that, simply export the data to an EXCEL charting format.
The odd outcome of Monday was that GLD declined while the majority of the gold stocks rose (GOLD was the exception).
On the Gold Rotator ABX is the leader with GG and EGO close behind.
On the Currency Rotator GLD is in the top slot despite Monday's weakness, reflecting the big gains over the past five days.

Tomorrow we'll take a look at the Project Z results as well as a new PDQ Dashboard for GLD.

Lifting the Veil

2010-05-10T08:01:00.000-07:00

Here's something you don't see every day. . . the NYAD at almost 100. Of course it quickly faded to 50 and is now down to 25, but you've got to remember that a reading of 1 is neutral so this is wildly bullish. Quite a switch from Thursday's .03 readings.

The market is essentially a history of the strong shafting the weak and two (of many) articles by the cognoscenti Zero Hedge here and here lend some clarity to the otherwise headscratcher market behavior on Thursday.

And, for those who haven't accessed it yet, the HFT article in FUTURES cited in Friday's post is also a timely resource.

Moving On

2010-05-09T00:48:00.000-07:00

One of my favorite nuggets in Dr. Brett's poke was the observation that . ."If you're the smartest one in your group then you're in the wrong group." This is a wingtip corollary of "Two heads are better than one" and over the course of the past three years of this blog I've had the immense good fortune to meet and interact with a number of exceptionally talented traders who have stimulated a variety of topics for my research and helped to enrich my grubstake. Many of these traders I've never met face to face and yet, through weekly or daily communications, I consider a few of them among my best and most trusted friends. So . . I'm thinking maybe it's time to build some trader synergy.

For those of you not in the trenches the fact is that being a full-time retail trader focused on daytrading is actually a fairly lonely and isolated livelihood. While there are chat rooms, trader support groups, meetups and expos to provide venues for limited trader interaction, I believe most experienced traders would agree that daytrading requires a unique level of concentration and attention in order to remain consistently profitable. Active swing trading shares the same requirements . . buying the dips, selling the peaks . . and swing traders will always book more gains trading intraday than end-of day. Last Thursday was testimony to that fact.

"Expect success but prepare for the worst" spoketh the Donald and readers who've followed me for a while know that I'm much more concerned about NOT losing money than making money. Capital preservation is Job#1 in my book and is at the core of my bucket list . . that's my bias and it's been pretty transparent in my posts.

At the same time I feel that I keep repeating myself in the course of these posts. . and the blog is getting stale. Really . . if you can't figure out the VIXEN trade after reading a couple dozen of the over 60 VIXEN related posts then you should probably not be a technical trader. The trading setups I use every day are now well documented in the archives and while I may have done a better job sorting them all into neat categories, my goal was always to get readers to conduct their own research and develop their own indicators and systems to fit their trading style and risk management comfort level.

More than anything else, the blog has been a journal of my market investigations and exploration . . . always looking for those nuggets . . . and I've found quite a few along the trail.

But now it's time to move on to something a little different. Over the course of the next month I will be joining forces with several other bloggers and traders to create a practical strategy and solution based site that will focus on trading ETFs using a number of diverse approaches.

I originally lobbied for the site to be called "BZB and More", but that was summarily rejected by my "partners" so we've come up with something a little bit more . . communal.

While there are already other aggregated trader sites, I hope this one will prove to be a little different, speaking with a cohesive perspective and exploring a variety of markets to mitigate risk. At the same time we hope to provide an extended portal for trader resources and offer a spectrum of viewpoints on various trade setups . . sort of like Siskel and Ebert for traders.

When I first started this blog I was specific that one of my long term goals was to develop a basket of systems to trade a basket of stocks/ETF. The new site will provide an operational outlet for that goal, which is shared by the other site participants. Project Z and the PDQ Dashboard were direct products of that goal.

My focus will remain on Project Z and VIX related trading tactics while other members of the site community will focus on ETF rotation models, the SPX, pairs trading and perhaps, in a new departure, Forex . . plus a few wild cards.

Over the course of the next few weeks I'll be providing additional details about our new endeavor, which we hope will prove to be both educational and profitable for our readers.

MLR Updates & Futures

2010-05-07T17:23:00.000-07:00

I've mentioned this magazine before, it's free and there's an e-version available. The mag has a whole new look and several of this month's articles provide compelling introspectives on viewing gold as a currency (cover article) and the intricacies of HFT (high frequency trading) which now accounts for over 60% of daily trading volume but is only carried out by 2% of trading firms. HFT trades generally have a duration of less than a second but generate effectively no-risk big returns. After you read the article you'll see how simple it is. The Futures site also has an e-based free I-Trade show that typically delivers some high quality presentations.

I've been on the road for a couple days and, as usual, as soon I get away from my computer the market crashes . . which is one reason I seldom take time off. So far I'm batting 5 for 5 for the past 2 years.
Everybody's talking about equities . . buy of the decade type of stuff . . so I'll just run through the current situation on the currency front. The MLR Rotator has UUP in the top slot by a wide margin although it lost .11 today. Just for comparison sake I've included views of the FXC, FXY, BZF and FXE. The Euro's really been feeling some pain lately as a result of the whole Greece, Spain, Portugal debt cloud while BZF has fallen through the lower LR30 channel band but looks technically poised to recover from oversold conditions.

The currency that really has my attention is the FXC. Back on April 8th we exited our Long FXC position at 99.38 based on our 1/3 trailing ATR stop. That turned out to be a great exit . . too bad they all don't turn out that well.
Thursday's FXC plunge below 93.00 was a whopper of a buying opportunity which I was blissfully ignorant of as I played a glorious round of golf with my wife on our anniversary (I'll always remember that one). On the weekly chart (not shown) the FXC is now sitting dead on the lower LR30 channel band, which remains upslope. FXC has been riding that channel since 7/09, so there's quite a bit of history there from when FXC was at $ 91.
Canada's got a lot going for it in terms of economics and geo-politics IMHO so I'll be monitoring this one closely. Another intraday plunge on the 60 minute bars and I'm in.

Volatility indices @ upper resistance

2010-05-05T18:43:00.000-07:00

Here's the 4 volatility indices at today's close as seen on weekly bars. I can't show the Russell RVX as Worden doesn't support that symbol. As we mentioned before VXX is not an index but an ETN and as such behaves in a different manner than the formal indices. What I'm interested in here is the amplitude of the volatility peaks and as you can see the VNX is actually leading the VIX, hinting that the recovery in the Qs may be a bit earlier and with possibly more gusto than the SPY. That's just a working premise and not a quant model. In fact, in today's early rally into the green the SPY led the way. . ahead of both the Qs and the IWM.

Midday and struggling

2010-05-05T10:23:00.000-07:00

Here are 2 views of the same thing. . . the VIX and the NYAD. The idea was to see if there was any difference in the clarity of the signals by taking opposite views. To my eye there's not, although the scale of he VIX chart might make it a bit more dramatic.
Looking at the VIX chart we can discern a clean VIXEN cross at 9:55 in real time (remember, the crosses float with time) and the close below the 8 hi/8 lo channel was one confirmation, further supported by the parabolic SELL. There were a few potential whipsaws along the way but the real signal to exit market longs was the 12:00 reversal. This was an in-your-face signal that things were about to change. The swings in the TICK today have been particularly wide -900 to 809, reflecting the current market instability and many 800 point swings occur over the course of a single 2 minute bar, so best to pay close attention if you're just playing this intraday.

Shoulda, woulda, coulda

2010-05-04T08:39:00.000-07:00

There's 3 words that I keep thinking I've managed to eliminate from my trading vocabulary. . but then days like today pop up. Watching Monday's close on the Strategy Matrix I noticed an unusual situation . . the VIX and VXN were both 27:9 bullish = market -, and the SPY, Qs and IWM were also flashing bearish 13:23 readings. At the time, of course, the markets were up big time and although the NYAD was running lateral, it was still delivering a strongly bullish reading in the 3s. After rapping my knuckles against the monitor a few times to make sure I was getting live readings I had to conclude that the technicals were clearly indicating impeding weakness.

Meanwhile, the Currency Rotator was flashing a confirmed UUP BUY signal (see previous post), but my feeble ole brain was suspicious of that signal, opting instead to stand back and wait for some additional technical confirmations. Bad move.

My point? Technical traders like myself are occasionally faced with a dilemma . . to follow or ignore an active trading signal. In this case my decision to ignore signals on the Matrix and the Rotator resulted in a significant opportunity cost and a bit of drawdown on open Longs that I should have exited at yesterday's close. Despite the many limitations of technical analysis sometimes it works superbly, while over-analyzing a trading situation can have costly consequences. Shoulda, woulda, coulda.

Three hours into today's session and the NYAD is tracking along at .14, having hit an earlier low of .13. Event days like today where the markets open at S2 or lower offer limited opportunity for high probability entries IMHO since the conditions setting up a bounce or follow through scenario are difficult to evaluate out of the gate. Best to stand back and wait.

With the VIX and VXN making 25% jumps today and the QQV up almost 32% we may see NYAD values down to .10 or lower . . a strong indication of exhaustive selling momentum.

Monday Tune-Up

2010-05-03T12:21:00.000-07:00

Little bit of a change of character with Friday's worries apparently long forgotten and the bull at full throttle. GLD is now at the top of the ascending LR30 channel band and if past experience is any gauge, we're likely to see some backtracking at this point. Of course, as the old saw goes, experience is what you've got left after you've lost all your trading capital, so the usual short caveats apply.
Some nice spill-over gains in the financials as Buffett affirmed his love of GS . . geez, the guy's got like 5 billion on the line with those soon-to-be felons, so what can you expect?
The BZF is continuing a good winning streak (told you so!) while the yen and Euro got hammered, manifesting the underlying weakness that we identified in Sunday's post.
Some other good stuff on the BZF below.........

Currency traders note that the current issue of CURRENCY TRADER has an interesting take on Latin American currencies, with some some nice insights on the BZF. Sign up for a free subscription and download the current issue here.

TLT Upslope

2010-05-02T16:36:00.000-07:00

While many of the market majors have been in a lateral consolidation (or squatting) pattern over the past 2 weeks, TLT has been quietly building positive momentum, breaking out the LR30 downslope channel and is now showing renewed possibilities based on Friday's wide-based market weakness.
Just in case you were thinking about chasing DBC or GLD, a quick check of the charts shows that the technicals for these two typical safe-havens just aren't that encouraging going forward.
For those readers who aren't familiar with it, the SH is the ProShares Short S&P500, hence the -.96 beta. IRA account holders who are otherwise restricted from shorting the S&P may consider the SH as a means to achieve a short position. There are several nuances to be aware of if you do decide to trade the SH. For example, Friday's SPY volume was 270M, SH volume was 2.6 M.
SPY option open interest is HUGE, with typical spreads about .03. SH open interest is thin at best with near open interest less than 50 at most strikes and the spreads are equally discouraging at .10 -.20. The interesting consideration is that while the SPY is trading at $ 119, the SH is less than half of that at $ 48.
On the currency front the Euro and, to some degree the yen, made a positive turn also based on Friday's weakness, although both remain downslope and have considerable base building to complete before developing trend changes. For my money BZF still looks like the dollar of choice and I base that opinion on the results of the 5 Day Trend column, where BZF was clearly the winner.
Meanwhile, the UUP appears to be going nowhere fast, although the mid and lower panel technicals are reinforcing the PDQ's short signal from a week ago.

MLR Updates

2010-04-29T16:20:00.000-07:00

If the seams in the market are cracking they are doing so in their own sweet time as Mr. Pietsch so eloquently pointed out in yesterday's comments. Today was a strong day, with only a few reluctant lagers like SMH, which finally joined the party in the last 2 hours.
With oversees debt worries easing EEM rose almost 2%, rising an additional .03 after hours.
XOM was a curious party pooper today. Actually, XOM's been a party pooper pretty much all year. Considering that XOM is a major component of XLE and XLE has risen from $ 47 to 61 in the last year, XOM has risen from $67 to 68.50 during the same period . . otherwise known as flat, so essentially it's been holding the XLE back.
On the currency front BZF staged a nice channel breakout today and now leads the way in our little basket by a substantial margin. Whether it can maintain positive momentum should be demonstrated by Friday's action.
Despite it's drop in the ranks FXC still remains an attractive chart, whereas the yen and the Euro are bearishly downslope. We're finally seeing some weakness in the dollar, a few days after the PDQ Dashboard called for such a move.

Some Cracks in the Seams

2010-04-28T17:06:00.000-07:00

Above, the 4 square chart of weekly bars with the VIX/SPY and VXN/Qs, and it's hard to tell these 2 sets apart. Short term mid-panel technical implications are bullish for the VIX/VXN and bearish for the SPY/Qs although the SPY/Qs continue to ride the LR30 mean upslope.
Below is a pattern that is becoming evident with an increasing number of the majors. In this case it's shown on the EEM, which was surprisingly weak today, spending a good portion of the day in negative territory but closing in the green. The white circle captures the erosion of new highs also seen in the Qs, SPY, SMH and IWM (to a lesser degree).

We got the widely expected knee-jerk pop in the majors today after yesterday's 30% rise in the VIX, and although volume was enthusiastic, buying was sporadic and failed to make any significant intraday pivot swings.

The VXN Matrix opened at 28:8 positive = Qs bearish, but the Qs downdraft only lasted 2.5 hours and closed the day at 18:18, a distinctly neutral position.

The Worm Turns

2010-04-27T17:15:00.000-07:00

Bit of a turnaround today as global debt worries appear to have sparked a selling spree. Things looked like they were going to perk up around 12:45 as the VIX started to fade, but those who have been trained to keep a close eye on the NYAD noted only a modest revival in that index, thereby warning risk adverse old guys like myself to stand back for some bullish confirmations.

Those confirmations never materialized, and the NYAD only managed a meager rise to .30 before collapsing back down to .19 at the close. Market swoon reversals are often characterized with selling pressure that reaches a maximum negative momentum at NYAD values of .10-.12 . . a level not even approached today, suggesting more of the same to come.

Below a quick snapshot of the day's carnage with the VIX's over the top 30% pop highlighted. Typically, reversals off these sharp VIX spikes are seen the day of the spike and are reflected in the bar's top tail. In today's case the VIX closed virtually at the high of the day . . a further hint of more selling to come.

SMH and the Dollar

2010-04-26T16:11:00.000-07:00

You probably thought I was going to make some astounding correlation between SMH and the dollar. Not his time around amigos. I simply wanted to point out that despite the weakness on the majors today, SMH managed to close in the green. Hey! . . maybe there's something to this rotation thing. Of course, over the short term things don't look quite so optimistic for the semis . . with an apparent consolidation pattern well underway. The SH, although in last slot, did make a nice little pop today and we'll be keeping a close eye on that for possible further evidence that a pullback may be imminent.

The currency front has some interesting developments going on and the metrics are actually a little bit deceptive until you step back and look at the broader picture. To help in that regard I've posted the PDQ Dashboard for the UUP. While I haven't posted on the PDQ for a while, it's still alive and well, kicking out those signals every day and I've actually found that using the VXX and the dollar (UUP) as PDQ targets provides a good probability edge. In reality, all you had to do was be Long over the past year and your total return on the majors would be very impressive, but I'm one of those traders who keep thinking mean reversion will kick in one of these days and actually reverse the upslope markets. Meanwhile, I'm net Long with one foot out the door and I continue my digging for nuggets.

Thanks for the Nuggets

2010-04-25T17:45:00.000-07:00

I would be shamefully remiss if I didn't acknowledge Dr. Brett's decision to shut down his blog, which has been both a showcase and a benchmark for other bloggers. Over the years Brett has been more than generous, sharing his trading knowledge on a daily basis and introducing new bloggers with varied perspectives to his readers. Many of us owe our original reader base to a tip of the hat from Brett and I'd be lying if I said it wasn't sincerely appreciated. His recognition and avoidance of much of blogdom's blather and false claims is further testimony to his quest for truth and reality in the otherwise convoluted world of trading hype. I often liken my quest for trading wisdom to the efforts of a gold miner . . looking for nuggets while trying to avoid the fool's gold. In that respect Dr. Brett was this miner's good friend and I owe more than a few $ in my poke to his nuggets of trading insight. He will be missed.

Divergence Expands

2010-04-24T18:23:00.000-07:00

The usual suspects led the pump on Friday after the expected fade at the open. SMH and the Qs were front and center and by the end of the day all the lagers had joined in the surge.
The XLE broke out of the upper LR30 channel closing on the high of the daily bar. With summer driving season only weeks away this move was not unexpected and additional upside momentum is likely.
I mentioned the need for caution on Thursday when the 4V (volatility indices) all closed in the same direction as the majors (SPY, QS, IWM). I suggested that when all symbols are green the market typically favors the 4Vs signal =market bearish. What we got was a fade at the open that lasted 30 minutes (20 0n the NYAD) before buyers stepped in and pushed the markets to new highs on moderate volume.
Once again Friday's VXN Strategy Matrix closed 18/18 = neutral, while the SPY and Qs each closed +25,-11 = bullish 2:1.
Just in case you though GS was hurting as a result of the SEC charges, they aren't. The WSJ noted that GS's new 43 story 2.1 million square foot headquarters in downtown Manhattan cost $ 2.1 billion to construct. Among other features, it contains 6 trading floors, each larger than a football field and a 54,000 square foot gym to help those frenzied traders take the edge off.
Below is a 4 square chart of the VIX/SPY and the VXN/Qs. The interesting thing here is that while the SPY and Qs continue to rise, VIX and VXN are also upslope . . not a lot, but not downslope as you would expect.

Thursday Divergence

2010-04-22T18:24:00.000-07:00

The SMH was an impressive leader today, although after hours it has given up all the day's gains plus some. The same story holds for the financials in the form of XLF which trended up all day and then gave back all the gains at the close.
The NYAD was solidly upslope 30 % after the first 30 minutes of today's session, rising all the way from a bearish .22 to a decidedly bullish value of 1.83 at the close with no fade evident in the last 60 minutes . . typically a sign of impending reversal.
Of some concern is the divergence of the 4Vs and the majors. As we have experienced in the past, bullish closings of the 4Vs and the majors are typically resolved in favor of the Vs = bearish for the majors. I would have thought the bulls path was clear at this point after the positive skew of earnings reports, but exigent factors can swing the markets quickly and that be happening now.

Of note: Turns out at least 2 dozen senior officials (attorneys, accountants, etc. earning $ 100-220K annually) at the SEC that were supposed to be keeping democracy (and our brokerage accounts) safe have been logging huge hours on their SEC computers watching porn instead. The real pornography is the crap guys like Madoff and Drier pulled off while these numbnuts were comatose with visions of sugarplums in their heads (some were females).

Tracking the Day

2010-04-21T18:43:00.000-07:00

Here are 3 sequential views of the market using the Indices watchlist and the Strategy Matrix focused on the VXN (Qs volatility index). The first view is one hour into the market, the second is 4 hours into the day and the 3rd is posted at the close.
At the end of the first hour the VXN is skewed almost 3:1 down = Qs postive. The Qs at this time are up .34%, while the SPX is flat and the IWM is down .01% . . essentially flat.
Note that the VXN is down 2% and the QQV is down 4.7% . . both bullish for the Qs.

At midday the metrics are only modestly changed. The Qs are still at +.36% and the VXN and QQV are still tracking the first hour values. The Matrix has eased a tiny bit but we're still seeing a 23:13 neagtive skew = positive for the Qs. This has the feel of a consolidation day and I'm not expecting much excitement for the afternoon session.
The IWM has picked up some positive momentum, while the RVX has also gained .3%, so we've got a divergence on the IWM that may be worth keeping an eye on. Typically we see this kind of "testing" before a reconcilation of the divergence.

OK, I've changed the look of the Watchlist for the EOD panel just to see of you're paying attention. I've deleted the volume column as it's effectively meaningless for the majors and yields no values for the $ type indices except the DJ.
At the close our midday forecast for a dull afternoon with possible action at IWM is proved correct. The VXN Matrix is now dead neutral at 18/18 while the Qs themselves are just a few pennies off the 1st hour and midday values. Ditto with the VXN and QQV = a sleepy day for the Qs.
Of note is the late afternoon IWM bump accompanied by a 1.3% drop in RVX . . just the type of inverse correlation we expect from the IWM/RVX. If you look at the 2 minute VIXEN setup of the IWM/RVX (not shown) it should be crystal clear that the last hour of the day was a great IWM Long opportunity that would have yielded a quick $.40 for 45 minutes of exposure . . a classic VIXEN trade.

Volatility Drop

2010-04-20T17:37:00.000-07:00

A 9% drop in the VIX, RVX and VXN reflected today's bullish trend. VIX closed on the low of the day and is now tracking down to the low 15s. However, and despite those impressive numbers, the Strategy Matrix of the VXN at the close was dead neutral at 18/18.
Positive earnings appear to be urging the markets back up to previous highs, supported by mostly bullish guidance by the analysts.
GS is chattering around a bit at short term support while talk of lawsuits from California state pension funds (among others) with 330 million worth of GS stock loom on the horizon.
SMH and some of the semi components made a late day rally, which typically bodes well for the Qs so it's not surprising to see the Qs in slot number 3 after today's action.

A Volatility Watchlist

2010-04-19T19:52:00.000-07:00

We're seeing a bullish bias going into Tuesday as the financials surged and the GS fallout abated.

On the Indices watchlist I've added the $RVX which now makes 5 volatility markers for the majors including the SPX, NAZ, Qs and IWM as well as the forever dismal VXX ETN.

I decided to add the RVX after several weeks of study which showed the RVX to be a great tell for forecasting IWM strength or weakness relative to the other majors.

The only volatility metric I really care about is the % change and on today's watchlist results you can see that the high percent change value for the RVX corresponded with the poor performance of the IWM.

I've spoken about the VXX before and as it continues it's slow drift to oblivion my only advice is to short the rallies, a tactic that has worked flawlessly for the past year.

Godot Arrives

2010-04-18T18:52:00.000-07:00

First . . please note a change to the blog publishing schedule. Future postings will be released early in the evening rather than pre opening. This change will (hopefully) enable readers to take advantage of EOD conditions and prepare for the following day trading opportunities.
While I had initially considered making these advance posts available only to my Plutonium subscribers, in the spirit of equality I'm extending it to my Platinum and Gold subscribers also.
That's what we call an instant response as the VIX surged over 15% and Qs volatility rose 7.5% on Friday. And, despite the widely expected market reversal off VIX 15 levels, even the most non-conspiracy minded trader has to ponder the perfect timing of the SEC's announcement of GS fraud charges that prompted the explosive move on Friday (also see the last chart at the bottom of this post). Wouldn't it be funny if it turned out GS was massively long VIX options going into Friday?
Hey... ZeroHedge...let's check it out.
Interestingly, the VXN Strategy Matrix, as discussed on Friday, is now basically neutral on the VXN, with the longer term fractals skewed to the long side. And, there is some support for a moderately optimistic view based on the Friday's NYAD performance.

While the NYAD did manage to hit the low teens for a few mid-day hours, the slope into the close was modestly up, closing at a not too scary .24. The underlying 3 SMA and MACD technicals actually paint an optimistic picture of Friday's close, but I'm still playing this hand close to the chest.

And now a note on the Qs VIXEN:

Above and below are 2 minute bar charts of the Fridays Q's action with the VIX overlay. The upper chart displays the real time cross of the VIX at 10:50, setting up a short trade just ahead of the big drop through S2 and down to S5. Of course at 10:50 you've really no idea how far this thing might drop which is a big reason to keep one eye focused on the NYAD VIXEN chart (shown above the Qs chart). These 2 amigos move together like clockwork.

The chart below shows what happens when you view the same setup in the hindsight of the end of day. Now the trigger has migrated to 11:15. I've posted extensively on this "floating" character of the VIXEN but this is a crystal clear example of the phenomenon.

On 5 minute bars (not shown) the VIXEN cross was at 11:15 and there was still pretty of downside action following that entry point with a lower risk exposure. The more comfortable you get with the VIXEN setup, the easier it is to execute on the 2 minute bar triggers . . always using a cut-loss stop.

Goldman lost 12% on Friday although I am surpised the volume was not higher. Based on GS's often suspected and now documented history of saying one thing while doing another I wouldn't be surprised if it's revealed later that GS itself made more money on Friday than any other day this year. You heard it here first.

Waiting for Godot

2010-04-16T06:13:00.000-07:00

For bears watching the markets over the past year it's been like Waiting for Godot. There is a small possibility that Godot may actually be arriving soon if today's uniformity of market majors and the 4 volatility indices I monitor are any indication. (VIX, VXN, VXX, and QQV)(OK, VXX isn't an index, but an ETN).
Over a month ago our close analysis of the VIX LR30 channel suggested the low 15s as a long term reversal level for the VIX and, although at the time the likelihood of reaching that low level seemed almost an absurdity . . here we are.
Normally the 4Vs and the markets are divergent, as pointed out in yesterday's posting, and in the past when the markets and the 4Vs have aligned at the end of day it's been a good indicator of a coming market reversal, if only for a short time.
Another signal that the markets may be setting up for a dip can be seen in the Strategy Matrix signals of the VXN. I've found that using the VIX or VXN as the Matrix study target produces more reliable forecasts than using the SPY or Qs or DIA, etc.
The Matrix is kind of color blind . . it doesn't care what its analyzing. it just kicks out the long or short signals. And, by almost a 3:1 margin the VXN signals are bullish = market bearish.
A word of caution, however . . We saw a slew of these preliminary reversal patterns during the last 2 weeks of March, only to have the markets embark on a new bull surge in April so it's safest for bears to just hang tough for the present until we do get a solid and confirmed reversal.

VIXEN Scale Views

2010-04-15T06:16:00.000-07:00

Top chart is the Qs on 130 minute bars (3 bars per trading session), while the lower chart is 5 minute bars of the NYAD. Both have the VIXEN overlay in place . . and the technical implications of both charts are bullish.
I often use the 130 minute charts to get an arms length look at the market dynamics. At this level you can see whether relative strength was at the open or close while at the same time getting a marco view of trend momentum. The lower panel technicals, especially the 3 SMAs are also useful for trend confirmation. While we've used the VIXEN setup almost exclusively for daytrading purposes in previous posts, keep in mind that the VIX cross tactic was originally developed based on an analysis of daily bars. And, while the VIX is currently trading at sub-16 levels, the 130 minute chart provides no hint that we're anywhere near favorable short trades. Keep in mind that the VIXEN setups virtually never catch the absolute tops and bottoms of the cycle . . what they do is signal truly "sweet spot" trades with extremely low risk exposure . . and at this juncture we just have to bide our time on new shorts.
The NYAD chart below is just a microcosm of the Qs chart above. Those who follow and trade the VIXEN setup know that the VIX/prices crosses "float", . . that is, they move along the chart as time proceeds. In this regard, the actual VIXEN trigger on Wednesday's NYAD chart was 10:30, which coincides exactly with the NYADs early reversal off of the early swoon.
It doesn't get much clearer than this.

The EEM Situation

2010-04-14T06:02:00.000-07:00

After looking at the Qs Situation yesterday, it seemd like a good time to review the performance and status of the rest of the Lazy Man's rotation model. In this case the focus of our study is the EEM.

The Project Z results for the EEM are shown below while the current technical status of EEM is shown on the chart above utilizing the same suite of indicators as applied to the the Qs.

As with the previous Qs study, an item of interest is the lagging performance of the Short trades relative to the Longs. While the Long-Short disparity is not as great as in the case of the Qs, the distinction still warrants a closer look, which we'll examine in the cases of DBC and SPY in the coming days.

As of Tuesday's close we are flat both EEM and the Qs, having executed a Short stop on the Qs yesterday am for an $.18 loss.

The Qs Situation

2010-04-13T06:19:00.000-07:00

Here's an update to my ongoing Project Z research. I've added the BZV and the PP+ pivot related indicators along with the Project Z indicator in an effort to see what kind of signal alignment shows up. Project Z fired a Sell signal 4 days ago when the Z value plunged down to the .8 level before starting a slow reversal ascent. Both the BZV2 and the PP+ are currently bullish with the trade only pennies away from a 1/3 ATR cover.
The performance report for the Qs and Project Z are shown below for my typical 16 month floating analysis lookback window. The Long side trades have clearly done very well, but I'd be lying if I didn't admit disappointment with the lagging performance of the Short side trades. Of course the markets have been in a steady up swing for the past year and trading the short side has been more than a little problematic for most traders, but a lesson to be learned here is the old adage, "don't trade against the trend", or if you must, then have a tight stop in place and follow the trading plan.

MLR Steady, FXA Advances

2010-04-12T06:15:00.000-07:00

The MLR updates are getting kind of boring, but it's a just a reflection of the ongoing uniform market advance. After a little consolidation pause we're seeing glimmers of strength as the leaders vie for position. The IWM and XLF charts actually look eerily similar, with both showing potential breakout patterns.
All eyes are on Monday's earnings reports, which will likely provide the initial catalyst for either a breakout or a breakdown. This earnings season has been unique in the lack of pre-earnings warnings so it will be really interesting to see if that's an indication of good things to come or an unwillingness to fess up.
Plenty of unknowns at this point that could move the markets either way in a hurry.

Over in the currency corner the Aussie dollar is making a nice run of higher highs as it reaches for the channel mean and the first point of technical resistance. FXA has been in an ascending LR30 channel since February and the midpoint technicals suggest it's comfortable on this momentum track for the near term.

Easy Peasey Thursday

2010-04-09T06:14:00.000-07:00

As suspected in yesterday's post, the pullback proved to be just a temporary speed bump. To prove the point Thursday's market produced a nice little nugget . . a picture perfect low risk VIXEN setup at 11:50 on the Qs. Virtually all the technical signals were screaming BUY . . the hairy bottom at the open, the 8 hi/lo channel cross, the parabolics BUY signal, the mid pivot breakout, the 3SMAs slope and the 45 degree VIX cross. This is as good as it gets amigos and if you aren't working these setups you're leaving some easy money on the table.
This trade produced a $.22 gain in 75 minutes . . almost half of the Qs current ATR8 of .55.
And, if you had any doubts about the possibilities for the trade at 11:50, a quick look at the NYAD should have convinced you that the trend was clearly up.

Turn or No Turn?

2010-04-08T06:13:00.000-07:00

As expected on a red day the TLT made a nice little pop. Also not unexpected was the almost identical % gain in GLD. What was of interest (to me) was the strength in SMH, which often leads the Qs in these divergences. The implication of that strength is that Wednesday fade may not have much momentum and any carry through is therefore suspect.
Of the majors (Qs, IWM, SPY) the Qs were down the least at .25%, reinforcing the previous argument. Also note that Monday's top Rotator pick . . BAC . . continued as a standout gainer, while AA gave up a sizable portion of Tuesday's surge.

On the currency MLR it looks like the yen is a real goer . . until you take a look at the chart and realize that it's essentially gone from truly morose to simply dismal . . technically an improvement but still a questionable long. The UUP is showing its good side, and while its not riding in rank #1, it clearly has positive momentum.
Our FXC superstar lost a little ground today. FXCs ATR8 is $.64 so the 1/3 ATR (trailing) stop is $ .21 which executed a LongExit at $ 99.38 . . and we are now flat FXC.

Mid-Week MLR

2010-04-07T06:16:00.000-07:00

We're seeing a modest shift in leadership momentum here with the financials, as represented by BAC, and EEM are picking up the pace. Still not much divergence among the top 5 as the markets continue to inch upward. The new PP+ is bearish on the Qs and this will be the indicator's first trial under fire so I'm interested to see how the next few days resolve.
We continue to witness some flattening in most of the system equity curves, the product of both conflicted signals and a VIX bumping along at 16. The VXX hit another all time low close today at 19.59, with no let up in sight and in my opinion swing traders should ignore this ETN, leaving it to die a slow death. Daytraders, on the other hand, should take note of the daily ATR of .81 (4%)as an attractive trading vehicle . . keeping close attention to the ongoing downslope bias ( sell the rallies).

FXC is still leading the currency pack although a closer look at the Rotator results shows BZF continuing its run and actually leading on the 5 day performance metric. The dollar is picking up momentum once again and the yen, probably just to spite my Monday post, staged a little burst of enthusiasm.

Next week kicks off earnings season with AA leading off. Maybe coincidence, but Citi yesterday maintained its "BUY" rating on AA with a target of $17 (currently at 15). Whether this is gaming on Citi's part should become apparent next Tuesday and will provide an important benchmark for things to come.

The BZB PP+

2010-04-06T06:16:00.000-07:00

As promised last Thursday, here's a peek at what I call the PP+ indicator. It tracks the baseline pivot PP against the R1-S1 daily range and therefore provides a daily update of how volatility is fluctuating in the face of either rising or falling PP momentum. And, as expected from those who've followed me for a while, I've added a few nuances to the algorithms to smooth the indicators and enhance signal reliability.
The utility of this indicator is very straightforward. Think of the PPP (yellow line) as a signal line for PP momentum. When the PPR (white line) signal line crosses the PPP the odds of a successful trade in the direction of the signal line slope increase substantially. I've annotated a few bullish and bearish signals on the chart above. The crossovers are clear in most cases although there are incidents of congestion as seen around Dec 1st.
I've considered that problem a bit and the result is a confirming indicator that is also shown on the chart (the cyan line), which I've termed the BZV (I'm trying to get as much mileage out of this BZB thing as possible), which is really a derivative of the QQV (in the case of the Qs) and is still a work in progress.

Meanwhile, I consider the PP+ to be a tradeable daily indicator in much the same manner as my ole reliable VIXEN daytrading setup, although the signal confirmation indicators are a little different. That's a topic for additional research but I'll touch on a few of my favorites later in the week.
The TS2000i code for the PP+ is shown below. Astute readers will notice some realignment of the code language as well as a smoothing factor for the range differential that has not been applied to the PP calculations. The zero line function has also been deleted since the focus of our attention is only the signal line crosses.

The MLR Situation

2010-04-05T06:09:00.000-07:00

A tip of the hat to Dr. Brett for his kind link this weekend to Thursday's pivot indicator post. Apparently there's a lot of interest in the functional utility of the pivots for daytrading purposes and that's good because I've been preaching about their unique forecasting behavior for years. Brett disclosed some interesting pivot metrics on Friday and it's worth a closer read. His point of reference is the SPY, but I suspect that if his point of reference were the Qs the target correlation numbers would be a bit higher. Later in the week I'll show why, which may, in turn, help to explain my continued focus on the Qs in lieu of the SPY, DIA of IWM. Also later in the week I'll post the integrated pivot and volatility indicator and, without giving anything away, it's got some intriguing possibilities.

The SPY took over #1 rank on Thursday, but it's still a pretty even horse race among the top five. EWC continues to demonstrate impressive resilience both as a country and a currency (see below). This market shows little inclination to fade and Thursday's low volume pop was probably a result of a lack of sellers rather than a flock of buyers. April has a historical tendency to be bullish which, as game theory students know, means absolutely nothing in terms of a trading edge.
On the currencies front the Canadian dollar is easily leading the pack. BZF is showing a similar momentum pattern, but FXC is acting like it's on steroids. The last couple weeks have seen a slap happy pattern in UUP and FXE, each constantly jockeying for the lead and then quickly retracing. Currency traders expect this type of behavior between the dollar and the Euro, it's the volatility that's unusual. Meanwhile, the dollar remains uptrend on weekly bars while the Euro remains downtrend. The yen is not performing well.

BZB Pivot Indicator

2010-04-01T06:10:00.000-07:00

Here's a little egg for your Easter basket . . the product of a project I've been fiddling with for over year which utilizes the PP pivot to forecast momentum. Basically we're looking at an oscillator similar to a 2 moving average cross system, but in this case our focus is not price per se, but the PP baseline pivot.
I have an expanded version of the indicator with R1 and S1 bands integrated into a single line range volatility indicator superimposed on the PP line, and this delivers an immediate view of floating volatility over time relative to the position of the PP, effectively complementing the momentum signal and producing a VIXEN setup situation. We'll look at that next week.

The Pivot Indicator should not be confused with the TS default zigzag indicator which is superimposed on the candlestick chart above. Although the zigzag tracking results look very impressive, the ZZ is in fact a lookback indicator that is always 2 days behind the curve and I use it more as a visual aid than a trade forecaster.

Below is the TS2000i code for the Pivot Indicator. I call it the Pivot Pivot because that's exactly what it is . . a signal of when the pivot pivots. As with most oscillators it's best to "tune" it to your focus stock or ETF . . . in this case it's set to 3 and7, although if you were to optimize it as a trading system the inputs would be 2 and 8.

With these relatively short data series the exponential function in lieu of a simple MA doesn't make much of a difference, but I'm always trying to squeeze as much out of the orange as possible.

As an aside I've once again tweaked the right blog panel to speed up loading time. The Prognosticators have been migrated over to the Pair Solution site after I updated the indicators on the real time Qs chart to reflect the Prognoticator signal in the lower technical panel (yellow).

MLR Rotators Update

2010-03-31T06:21:00.000-07:00

You don't even have to look at the sort results. If you've been watching the Rotators for a while you know that the odds-on favorite, the Qs, are leading the pack as usual. So, it turns out my uber cautious exit was a bit premature yesterday. But I'm not feeling any regrets. . . the $.14 I left on the table from Monday's exit to Tuesday close was more than made up for by an early 90 minute short that netted $.40 using my old reliable VIXEN setup confirmed by both the parabolics and the 3 SMAs.
Considering that the Qs daily ATR has now dropped to .52 (from .54 on Friday) a $.40 daytrade in 90 minutes is more than acceptable. A year ago when I first starting posting this setup we were looking for .01/minute net return as a performance target. That goal became unrealistic months ago . . a reflection of dwindling volatility. Yesterday's trade was a unique and isolated situation, albeit a happy one.
BTW, if you take a look at the midpanel technicals on the Qs Rotator chart you would most likely surmise that the Qs are going __. This view is confirmed by Frank, who has gone far beyond the Blogger's call to duty in preparing his latest multi-system market forecast.

On the currency front the UUP was the star yesterday, clinging to the upper LR30 channel band. As long as the channel remains upslope the prospects for UUP remain positive, so we'll be keeping a close eye on this situation.
Just as a point of reference on the 1/3 ATR trailing stop mentioned last week . . the Qs, with a beta of 1.11 have a daily ATR of $.52, while UUP, with a beta of -.27 has a daily ATR of $.16 so, from a practical standpoint, using 1/3 ATR or $.05 for a trailing stop with UUP is probably more a recipe for frequent premature exits than a smart risk management tactic.

Qs Exit Fires

2010-03-30T06:15:00.000-07:00

I probably should have clarified yesterday that the $.18 1/3 ATR8 stop I was applying to the Qs was a trailing stop. From an execution perspective the Qs made an intraday high of 48.40 15 minutes into the session, followed by a hairy bottom swoon to 48.23 and hour later and a gradual climb back to the daily high an hour later. A little more than 90 minutes later at 12:45 the Qs hit the magic 48.22 exit target and the position was closed. This particular Qs position was one of my few remaining open longer term positions and I am now almost entirely in cash. If I had taken the close below the 8high/8low channel back at 12:30 I could have scrounged another .08 out of the trade, but the trading plan called for 48.22 exit and I stuck with my plan.
The NYAD VIXEN setup generated a similar short signal, although it fired a bit earlier at 11:35 on both the 2 and 5 minute bars, a rather unusual coincidence. and was quickly followed by a bearish 8high/8low channel signal.
Of course the Qs surged up in the last 2 minutes and are up another dime after hours at 48.34 so I may regret my (possibly premature) exit. The good news is I can always buy at back and hopefully that will occur at a significantly lower price.

With each passing day it has become more and more difficult for me to identify even moderately attractive longer term positions. While I would prefer to be more fully invested, I'm loathe to be exposed in the face of a major market slide when, for example, GS analysts proclaim the markets to be woefully overbought. That's all it would take to drop the bulls to their knees and I want to be safe and dry if and when something like that transpires.

Some Rotator Divergences

2010-03-29T05:59:00.000-07:00

The MLR Rotator still has the Qs in slot #1 while the top 5 slots continue to be closely grouped. GLD was the big mover on Friday, but note that in the 5 Day column (relative 5 day SPX performance) GLD is still in negative territory. Given the somewhat precarious technical position of the majors, I'm implementing the 1/3 ATR8 stop that I mentioned last week. The current ATR8 on the Qs is .54, so our stop is $.18. This may seem a rather tight stop, but for the time being I'm in the capital preservation mode. The market could slide either way at this juncture and the end of month rebalance trades may, all by themselves, goose the markets higher.

On an intraday basis it's been noteworthy that the NYAD has rarely fallen below 1 in the past two weeks. Shown below is the 30 minute bar chart of the NYAD for the past 12 days. While there were 2 instances of the NYAD running in the mid .5 range most of the day, we have not seen the .3 levels that normally presage the NYAD dips to the low teens, which are characteristic of reversals. Bottom line . . there has solid accumulation during this period and while it may have been of the low volume variety most of the time, shorts have had a very hard time finding any traction.

A preliminary glance at the Currency Rotator shows the UUP failed right at the upper channel band, while the Euro preformed an abrupt turnaround. This may have been one of those situations where the uber hype had primed the market for further UUP gains and the smart money decided to play a little switcheroo and pick up some easy cash. Whether it will stick or not remains to be seen. Keeping with the reversal theme the Pound also picked up some steam, effectively reversing Thursday's rank ordering.

Asute readers may have noticed I've made a few changes to the blog layout to expedite loading time and avoid the occasional browser crashes that a few readers have complained about associated with the multiple FSC real time Qs and GE charts. Those charts have been migrated to a another site, which actually contains even more BZB preformatted charts designed to facilliate daytrading the Qs VIXEN, the GE VIXEN and the DIG/FAS pair. This is a work in progess and may eventually be a stand alone product with daily updates of the VIX PDQ Dashboard and pair trading ideas.

UUP Tops Channel

2010-03-26T06:00:00.000-07:00

UUP surged again today, completing a technical run that has taken it from 1 standard deviation below the LR30 channel to the upper channel band in only 7 days, eerily similar to the run UUP made Jan14-21 earlier this year. That pop was followed by an extended bull run that lasted another 45 days. The jumping off point this time is considerable higher than January, but at 24.13 the dollar is still well below the longer term high of 26.76 a year ago.

That was a dramatic reversal yesterday. From over 100 points in the green midday to a red finish for SPY, IWM and the Qs, volume accelerated steadily into the close. The VIXEN picked the turnaround at 10:30 am pst, almost dead on the first bar reversal and stayed with the trade right into the close. The VIX/VXN and QQV volatility trackers were all cruising along happily in the red until the turnaround woke them up. As an indication of the closing selling pressure. all three Vs were up 2.5% 15 minutes pre-close. At the close they were all up at or near 5%.
I've turned the 36 cell Strategy Matrix upside down, so while the SPY is reading +13, -23, the VIX is reading +30, -6. This 2 sided use of the Strategy Matrix is a new idea and I'll be following the results closely to see if the beta differential between the SPY (.99) and the VIX (-3.26) is reflected in the Strategy Matrix signals.

One Hand Clapping

2010-03-25T05:45:00.000-07:00

I hate to say I told you so, and actually the MLR Rotators told you so, but Tuesday's top picks . . GE and UUP stood out as real stars yesterday, while FXE took it in the shorts. Yes, there were other movers, but from my two handpicked baskets came a couple nice late bloomers.

This brings up another issue I keep coming back to that has to do with the utility of simple systems . . an issue I touched on in Occam's Razor .
Using 2 day bars for the daily MLR sorting tends to deliver selections that are displaying both trending and rising momentum behavior. Those readers that have followed the MLR selections over the past month will have noticed that the top ranked picks consistently perform on the following day, or if failing that, show minimal disparity with the actual basket top performer. Since the big basket contains the majors (and a few sector wild cards) we have to anticipate that there will be some degree of arbitrage as the lagers play catch up to the leaders.
If nothing else, the Rotators clue you in to what's hot and what's not and the recent "bunching" behavior of the top sort values has been a good indication that the meltup has been broad and not just a one trick pony.
As mentioned previously, the need for trailing stops and the implementation of such is still a work in progress. One area of investigation is a 1/3 ATR(8) as mentioned in the Occam Razor post. If it works for the big prop shops there must be something effective about it.

MLR Rotators Situation

2010-03-24T05:44:00.000-07:00

Like the proverbial bad penny, GE refuses to give up its high rank in the MLR Rotator model. Up another 1.5% today for another new high, GE continues to display solid accumulation behavior. Too bad option premium volatility has gotten kicked in the teeth recently as it takes the fun and relatively easy money out of trading GE.
SPY, IWM, Qs and XLF remain bunched, reflecting the markets broad advance, even at a low volume pace.

On the currency front the Canadian dollar is back in the lead, closely followed by UUP, which became our subject of interest since Friday.
On a % change basis Brazil was the clear leader and may make further gains in the term term as it runs up to the LR30 mean as suggested by the underlying technicals.
The Euro and Pound continue to suffer consolidation pains, with the technicals pointing to likely further weakness in the near term.

Low VIX & the Equity Curve

2010-03-23T06:09:00.000-07:00

Last week I mentioned the consequences of a low VIX value on the ATR and the resultant problems that situation presented for traders. Over the weekend I also noted that the Clueless One posted some updates to a few of the IWM and Qs Dirty Dozen portfolio of TradeStation systems that I posted a while back. I don't know if that's a good or a bad indication of Clueless's trading performance . . that he's had to resort to dredging up my old studies, but I know him to be an astute trader, smarter than the average bear, and almost as risk adverse in his trading as I am so I suspect he's just spring boarding off my humble little market probings.
Among other things, Clueless notes the flattening of the equity curve of many of the systems. Now I actually trade a few of these systems to supplement my daytrading so I'm pretty much up to speed on how's they're performing and I've noted this flattening myself so I decided to examine the performance metrics a little closer.
Above is the composite equity curve of the top 5 Qs Dirty Dozen Systems going back 16 months. The chart reflects the average performance for each of the systems.
And here's the surprise: the systems are actually chugging along with pretty much the same ratio of winning/losing trades as 1 year ago BUT the net return per trade has steadily declined as the VIX has fallen, followed by the ATRs.
To use an analogy. . there's only so much juice you can squeeze out of a dried up orange, and it's getting tougher and tougher to generate per trade returns similar to those of a year ago from the same orange (Qs or IWM).
This drying up is also painfully evident in the options market. Up until just month month ago it was pretty much a no-brainer rolling out ITM GE covered calls to generate 2-3% a month. That's just a distant memory as of this expiration, with the April 17s yielding 1-1.5%. Of course, you could sell the ATM 18s for 3%, but that's a little riskier situation IMHO. Again, the point is that for the last year you could have sold the slightly ITM GE calls for a pretty much risk free 2-3% per month . . a world away from the piddling 1% money market returns and 1.5% APR CDs, if you can find them.
From a practical standpoint I'm finding it harder and harder to identify attractive longer term trading situations. Most of the majors are still sitting at 6 month overhead resistance levels as the low volume melt up continues and, per the comments above, low volatility has significantly reduced the hedging edge previously offered by using covered calls or side spreads. Too risky to go long, to early to go short IMHO.
Time for Plan B.

MLR Rotator Rolls Over

2010-03-22T06:02:00.000-07:00

The #1 ranked Qs (along with all the other +beta components) are showing some negativity, but the thing about the Qs is that the daily % decline was almost the lowest (EWC led by a hair). Keep in mind that these rankings are based on 2 day bars, so the underlying strength of the Qs is still evident, even in the face of a market rolling over.
For the next refinement of the MLR model I'll activate an equity curve stop based on daily bars and a trailing stop to lock in accrued gains. Tuesday Ill explore some general implications of a shrinking ATR on the shape of equity curves that may help explain a consistent recent trend to see these curves flattening out.

The Currency model now shows UUP with #1 ranking . . . the only component of the model that produced a positive return on Friday. There are other currencies that I could add to flesh out the model, but the reality is that most of those have limited daily volume and spreads that make them otherwise unattractive as short term trading vehicles.
On a side note: Don Worden featured UUP as a LONG pick on Friday based on completely different technical signals . . so it will be interesting to see how this pick plays out over the next several days. The currencies have a tendency for longer term trend runs, which accounts for their relatively low price volatility and beta values.