Monday, June 30, 2008

Tuesday roller coaster

A real roller coaster big volume day featuring a hairy bottom, a hairy top, another hairy bottom and a gap fade proxy at 14:45. I hope you kept you eye on the NYAD if you were tempted to join the rally. . . it was a pretty good tell that buying was muted and probably more the product of short covering rather than "value" buying. The failure of the NYAD to penetrate PP overhead resistance was the clue.
I was listening to Cramer at noon, pounding the table and yelling that this was a real buying opportunity. . . sorry, jimbo, I not buying it. (I personally find his hyper dramatic yelling so annoying that I tend to bias everything he says with a negative spin however, so be advised.)
Here's the new yearly lows today about 30 minutes before the close and of interest in slot #1 for volume is MSFT, which at one point was down over .90. This is real institutional selling and, once begun, tends to continue in 3 day runs. Not a value stock yet IMHO.

Despite catching a couple good pivot swings today, I'm reluctant to take any positions for the remainder of the week as you can almost taste the volatility risk. Although the VIX managed to spike to 25.57 early on, it retreated to close down 1% for the day.
Although the pre-holidays tend to be bullish, I consider those historical patterns irrelevant in this unique market and while the market did manage to pull a rabbit out of the hat today I'm doubtful that today's modest gains can be sustained through the end of the trading week Thursday.

The cat pretty well sums up my attitude about the market (check out the nose plugs), although I like the pool more than he does.

Monday blahs

I count this as a narrow range day with a negative bias.
The Qs showed little enthusiasm to rally off the PP pivot and the fact that neither R1 or S1 were touched (until the last bar) reflects the level of ambivalence and indecision in the markets. The fact that it happened on relatively low volume is a further tell of lack of commitment at these levels.
The NYAD's double top formation midday should have been the clue to get short or get out, while the descent to PP at the end of the day yields a neutral reading for the day.
The Qs accelerating down volume and subsequent kiss of S1 at the close does not bode well.
Now that every technician has reported the market's oversold status, I guess we should all be ramped up for a big pre 4th rally. However, if that doesn't materialize Tuesday or Wednesday (1st and 2nd trading days of the month) then all bets are off.
Expect a Thursday sell off prior to the long weekend on diminishing volume.

Saturday, June 28, 2008

The good, the bad and the ugly

Stepping back to look at monthly bars of the 3LRs study provides a little clearer picture of what's been happening and what's possible in the near term.
In #1 position, my little friend the Qs. If they break through that lower LR30 channel, a kiss the channel goodbye pattern is the most probable outcome (see Friday's Update post for likely targets).
The DIA has already kissed the lower LR30 channel goodbye. . .a level which has provided overhead resistance for the DIA for the first 6 months of 2008.
The DIA technicals are uniformly negative, suggesting more ugly decline to come.
Bottom 2 charts are the XLE and XLF, the good and the bad. Neither appears ready to change trend.
Here are some more popular technical indicators on the 3 LRs study of monthly bars.
T2107 is % stocks above 200 day MA.
T2100 is the advance/decline line.
T2108 is % stocks above the 40 day MA.
The VIX, well, the VIX is the VIX. Run a "VIX" blog search to find my spin on this enigmatic indicator.
While several well respected technical bloggers have used the Telechart T indicators to develop oversold reversal models, I remain skeptical of a near term bottom until the VIX spikes back to overbought levels. In addition, the T2100 and T2107 look particularly bearish and the last time the T2108 looked like this was 2005, just prior to a major reversal pattern. Current T2108 technicals are negative, supporting my patience for a washout.

Friday, June 27, 2008

Qs Weekly Update

Qs weekly update of 3 linear regression (30,11,3) study of daily and weekly bars.
For the week, Qs down 1.77 0r 3.74%. DIA down 3.91%, IWM down 3.95%, SPY down 3%.
We got the market rollover suggested by last week's technical review and, unfortunately, the technical big picture suggests the same downside support levels are vulnerable.
Although the daily chart is showing signs of being oversold, today's doji like pattern may only be a temporary reprieve before further declines set in.
The weekly chart has still not retraced to the upper LR30 channel at 43.25 and the lower technicals offer only modest encouragement for a rally at these levels.
Both daily and weekly volume are increasing, but not accelerating.
I still believe some sort of a high volume wash out will be necessary prior to any real presumptive "value" buying.
The A50 is the most dramatic of our 2 NDX moving average charts, with this week's displaying the type of capitulation characteristic of impending market turns. With the A50 at 14.5, the Qs (NDX) have now pushed through the March lows and are quickly approaching the Jan lows, though not under extreme oversold conditions.
A likely scenario at this point is a consolidation pattern such as that in early Jan, followed by a plunge to the depths. While an abrupt reversal such as seen in August is a possibility, I think the overall market weakness, flood of bad news and downgrades, coupled with a lack of positive fundamental economic indicators increases the probability of the former scenario.
Having broken through the 50DSMA with gusto, the A200 mirrored weakness in the A50 this week, although not to such an extreme. With its current barely oversold technical levels, the A200 is an indicator to watch.

Thursday, June 26, 2008

60 minute man

I noticed this situation at closing today on the 60 minute bars and I thought it worth mentioning.
This is one of the trading chart setups that I use with the RSI2, Stochastics 10,3,3 and StochRSI 12,2,3 (a blend of the RSI and STO) which Schwab offers although most platforms do not.
Now the interesting thing to me at the close was the obvious extreme oversold sync of the the 3 oscillators. I suspect that for many traders this is a signal of an impending reversal and a high probability bottom fishing opportunity. But I'm not so sure that a bullish stance is the right one at this particular juncture.
Look at the price action 4 days ago, when the all day slide culminated in the most recent oversold technical signal. Was that a great time to buy?
What we got was a little bull stair for 3 hours and then a significantly lower closing low.
Today's volume was 189M; 4 days ago 197M.
This was followed by a bull stair for 2 days producing a 2% gain. . .which was completely wiped out by today's 4% loss.
If you look at the bottoming pattern of the indicators 4 days ago, you notice that the RSI displayed a little bull hiccup midday, but then continued to descend to a new lower low the next day. That's what I suspect lies in store for the Qs tomorrow.
In addition, there was no ambivalence about the close today. . .it was at the low of the day, with the NYAD at an absolutely pathetic .17 after being on a death watch all day long. The 10 & 20 MAs are wide apart (bearish) on the 2, 10 and 60 minute charts supporting the fractal argument for continued weakness.
I would be EXTREMELY hesitant to get long at this point as momentum appears heavily stacked to the downside. On the other hand, very tight stops are advised at these levels as any short covering rally could move the markets dramatically (per Bespoke's Monday link).
I'm still anticipating my Qs weekly update scenario to play out and am 100% in cash at the end of each day.

Wednesday, June 25, 2008

Hairy Top

I mentioned the Hairy Top (and bottom) formations before, and noticed a picture perfect example on Monday's open. I've shown both the 2 and 5 minute bars to demonstrate the fractal nature of the pattern but the 5 minute chart is the most dramatic.
If you've followed me for a while you know I like to fade the open gaps and look for reversal signals 9:35 to 9:45 on 5 minute bars, with a tighter reversal window 9:38 to 9:42 on 2 minute bars.
The gap at the open was only .21, which increases odds of a reversal and a continuation of Friday's slide.
I find Monday the most difficult day of the week to trade, as all the commercials that laid off risk over the weekend are looking to establish new positions for the week and those dynamics can be daunting (and frustrating)(and costly) to decipher.
Nevertheless, when setups like his occur I'm inclined to take them although, as I mentioned in the weekend update, I've always got an eye on the exit door.
So. . .here we go. . . . (on 5 minute bars)
The opening bar carries through the PP pivot but fails to close above it . . net rating=negative, but this is the first bar of a Monday so little weighting.
Second bar carries back through PP retraces, but manages to close above PP. . net rating=positive.
Third bar is a spinning top closing right on PP with a higher high and a low = previous bar. Time for a direction to be signalled.
Fourth bar opens on the PP, shows a little strength (hair), then plunges through the PP to hit a low for the day . . net rating=very negative, and a trigger to get short supported by the parabolics.
The exposed hair above the PP line was a great tell of the impending weakness, although when weakness finally played out it happened very quickly.
S1 was clearly the first target of support on this trade, and in classic fashion the Qs made it there in picture perfect form at 11:20 before reversing.
If you're not watching the pivots for intraday trades, you're missing a great, recurring trading edge.

Tuesday, June 24, 2008

VIX and the CCI

In a ongoing effort to examine the VIX, I ran a CCI version of the RSI popper 2 system. The CCI is also an oscillator, but with somewhat different parameters than the RSI. Also, I tested weekly bars rather than daily since I was looking for indications of the trend rather than day to day volatility. This CCI system actually performs extremely well on the daily bars, but as everyone knows, VIX is not a stock, trading only options which are impacted by time decay and other variables which tend to skew technical results. The goal here was to find an indication of momentum, and in that respect I believe the CCI popper2 system can be a useful tracking and timing tool.
Want to know more about the CCI? Here's a starting point.
Also see the follow up CCI article links on the Investopedia lower panel.

In case you've been living in a cave for the past 5 years and don't know about Woodie, the CCI guru, then check out the incredible plethora of free info, trading systems, charts, chat rooms, etc., etc. on the CCI. Woodie uses variations of a CCI 6 and 14 crossover system to trade anything and everything (daytrading, swing trading, etc) and his following is international.
His zero line rejection setup is reliable in multiple time frames and helps keep you on the right side of the trend. You can program his indicators on most trading platforms. . .but be forewarned. . .Woodie doesn't watch price bars . . .he only watches the indicators. . .and that requires a significant leap of faith for most traders.
I kind of cheat and watch both price bars and Woodie's CCI 6/14 setup in a separate chart window, much as I watch the NYAD and TICK.
Some FX traders I know swear by the system, others swear at it, but like every systematic technical approach to the markets, you need to learn it, practice it, and feel comfortable with it. It helps if the system makes money with a controllable drawdown.

Monday, June 23, 2008

VIX update and short interest

Above is a snipit from a recent Bespoke post. Not exactly cheery and indicative of a growing mood and tactical approach to the markets. Check out the full article for implications of a potential short covering rally.

And then there's this.
I know I said I'd never post on the VIX again, but being old and of unsound mind let's me forget I ever said that without much penalty.
So here's the 3 linear regression study (30,11,3) (daily and weekly bars) of my little friend the VIX, and although we could try and disect these charts ad nauseum, the most glaring observation is that the VIX has a (considerable) ways to go to mimic previous market swoons.
Any idea that the market is at a near term bottom seems improbable until the VIX action picks up. Although the summer months often display confounding technical patterns, I believe it's a stretch to think that the worse is over.
Overbought on the daily and oversold on the weekly, the longer term VIX forecast is bullish (for the VIX, not the markets). The current earnings season is a likely catalyst to get things moving.
Also see Rob Hanna's recent study reflective of VIX complacency and market performance.

Friday, June 20, 2008

Qs Weekly Update

Qs weekly update of the 3 linear regression study (30,11,3) of daily and weekly bars.
For the week, Qs down .95 or 2%. DIA down 4%, IWM down 1% and SPY down 3.4%.
My contention last week that the IWM was showing short term strength relative to the Qs played out this week, although not quite as expected (it was less weak).
As my ole buddy Bob Dylan used to say, "You don't need a weatherman to tell which way the wind blows", or was that "the answer, my friend, is blowing in the wind"? More likely, current chart patterns suggest "a hard rain's a gonna fall".
Don Worden of Telechart, whom I have mentioned from time to time, sees a potential bottom in the DIA developing as a triple bottom pattern forms on the the weekly bars. SPY is showing a similar propensity, although the Qs and IWM are looking just plain bearish. Now, I like Don a lot, and highly respect his chart interpretations, but at this point in time, I'd have to favor odds for a continued slide (just my opinion)(and my money).
First downside stop on the Qs weekly chart is the upper LR30 channel at 44.18, while a mean reversion (which is possible if things get moving) would drop the Qs back to 40.
Increasing volume on the daily and weekly bars, but not at peak levels as seen during previous pivot low conditions. I see little evidence of selling capitulation yet and there's still considerable downside potential to retrace the March lows.
I'm currently in cash and will continue to focus on pivot point driven day trades with one eye on the exits at all time.
The A5o and A200 continued their rollover patterns which emerged last week, and both look poised to kiss the 200DSMA goodbye. We may get a rally next week as the real sellers try to shore up support before things get nasty. This may turn out to be one memorable summer, and not in a pleasant way if any of Thursday's RBS post plays out.

Thursday, June 19, 2008

Are you worried yet?

I will be off for the day visiting the Traders Expo in Ontario, CA. ( Last year's expo in San Diego was something of a disappointment (for me), but it's a chance to see some old friends and swap lies about how fabulous we're all doing. Last year's focus was on robotic trading and FX, so I'll be interested to see how many of those outfits are still in business and what new offerings are coming down the pike.

In the meantime, my trading buddy and guru Dr. Carl Wyman sent me the following because he knows there's nothing I like better than heart palpitations and a good cold sweat.

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Stocks, Credit Slump Will Worsen, RBS's Janjuah Says (Update1)
By Alexis Xydias
June 18 (Bloomberg) -- The worst of the stock and credit market declines that began last year is yet to come as inflation accelerates and economic growth falters, according to a Royal Bank of Scotland Group Plc strategist.
Central bankers are ``in a dangerous corner'' where the chance of a ``major policy error has just super-spiked,'' Bob Janjuah, a London-based credit strategist at the U.K.'s second- largest bank, wrote in a report. Any stock rally in the next month ``will be the significant opportunity this year to get short stocks,'' he wrote in a report dated June 11.
The Standard & Poor's 500 Index may fall to 1,050, a 22 percent decline from current levels, Janjuah said. The cost of protecting bonds from default is likely to soar, pushing the benchmark Markit iTraxx Crossover Index of credit-default swaps on 50 European companies to a record 700 basis point from 473, the note said.
The S&P 500 dropped 12 percent from a record last June as writedowns stemming from the credit turmoil approached $400 billion. The index is down 3.5 percent this month after Federal Reserve and European Central Bank policy makers indicated interest rates may need to increase as the threat of inflation intensifies.
``Mid-July through to October is likely to be the most bearish period we will experience in the bear market,'' Janjuah wrote.
In a short sale, traders borrow stock to sell it, on expectations prices will fall. Europe's Dow Jones Stoxx 600 Index dropped 1.1 percent to 302.88 as of 1:43 p.m. in London today.
Default Expectations
ECB President Jean-Claude Trichet said June 5 the bank may raise the euro zone's benchmark rate next month to curb inflation, running at the fastest pace in 16 years. Four days later, Fed Chairman Ben S. Bernanke said policy makers will ``strongly resist'' a surge in inflation expectations.
Janjuah ``is talking about it happening in three months so we don't have to wait very long to see if he's right,'' said Malcolm White, who helps manage about $7 billion in fixed-income assets at Legal & General Investment Management in London. ``Inflation fears will limit central banks' ability to take steps to control the crisis. Corporate defaults are going to increase, it's inevitable.''
Banks led declines in European equity trading today, with RBS falling 3.7 percent to 232.25 pence ($4.54) in London. Barclays Plc lost 2.9 percent to 330.5 pence, and Fortis fell 3.8 percent to 13.25 euros ($20.52) in Amsterdam.

Wednesday, June 18, 2008

Scratching the Hairy Bottom

Sorry, but I couldn't resist today's little hairy bottom vignette.
I'm showing 2 minute bars, although the hairy botom pattern is clearly evident in the 5 minutes also. I've also added the S3 pivot at 47.90 just to display the reversal pattern precisely at that level. . .because you know I LOVE the pivots.
OK, so the interesting stuff starts at 10:34 when that bullish reversal candle drops below S3 to 47.83 before takeoff.
This bar is followed by a 6 minute squat bar formation, at which point the 10&20 MAs have a negative divergence and the engulfing bearish bar at 10:42 blows clean through S2.
At this point the odds favor the downside, but I'm flat.
For the next 5 bars the Qs ratchet down quickly to S3 and then form a clean hairy bottom (slightly ascending. . .bullish bias), with a little doji at 11:02, followed by a bullish reversal bar at 11:04.
At this point the bias is distinctly bullish as the technicals come off oversold levels and S2 becomes our first up side target.
After slamming against S2 resistance for 10 minutes, the Qs break through S2 at 11:34 with the 10&20 MAs still parallel, so S1 becomes our next upside target.
This S1 target is realized very quickly at 11:50 on a 3 bar volume surge that blows through S1 resistance.
Unfortunately, the NYAD at this point is only .44 (not shown) so odds for a real rally are pretty thin.
Sure enough, at 11:56 the technical panel turns negative, and although the 10&20 MAs still look positive, the parabolics fire a SELL at 12:02 as price retraces to S1 and we close the trade.
Time in trade: 11:04 - 12:02 = 58 minutes
Trade gain: 47.94 - 48.35 = .41
This was a quick trade and contrary to my current bias to the short side, the odds favored a bullish reversal. Glad to be out of that trade as I was nervous about it.
I'm done for the day.

Tuesday, June 17, 2008

RSI 2 Qs and IWM update

Current status of the RSI2 system trades. . . .flat both Qs and IWM, having closed both open long positions at today's Open for quick 2 days gains ($ .83 for the Qs and 1.10 for the IWM).
I'd like to get the trigger signals more in sync with the pivot high, pivot lows to improve overall performance and that's a focus of my current research. Since the pivot highs and pivot lows are LookBack studies this is a bit of a problem and I continue to explore various anticipatory (leading) indicators that will provide an improved trading edge.
Still, with over 80% current system reliability, the RSI 2 model is generating the type of incremental income stream I'm looking for with only a 2-3 day exposure.

Monday, June 16, 2008

COST and RSI 2

I'm going to stop posting these RSI studies pretty soon, as my model trading basket is almost complete, but here's is today's prime candidate, Costco.
Just a bit of history here. . .I spent 35 years in Seattle, the last 25 in a place called Kirkland. . .a suburb of Seattle and home of Costco. .which is why all their private label stuff is called "Kirkland". I'm actually member # 86000 so you can tell how old I am. I remember when the first store was opened. . .I was there. . .sorry, no pictures. Back then I was in the custom home building business and built homes for several of the Costco execs . . .believe me . .these guys know how to make money (and spend it).
OK . . .enough reminiscing.
This is a powerful bullish chart by anyone's standard and although buy and hold is the wise man's play, you know me, I prefer to trade it.
The RSI 2 settings for COST are (3,34,80,26,78). Still easily within a single standard deviation of our base model, but the interesting thing here is that the optimized RSI value is 3, not 2. . which is an indication that (this is a quiz)...................the stock tends to trend.
Contrary to our NEM study last week where the short side excelled, COST excels on the long side. . .again no doubt reflecting its overall bullish trend and its constant distant from the 200 WSMA (top most chart is weekly bars).
From trading standpoint, there aren't a lot of trades. 128 over 5 years equals 1 every 2 weeks, with the average length of trade 7 days for the winners and 15 for the losers. A couple stops, fixed and trailing, will knock the later number down substantially and also limit drawdown. Taking the long side only equals about 1 trade a month, holding for a week and then out.
The RSI study may also be a useful cycle indicator for option traders for buy/writes (.64 dividend) and calendars. Limited exchange participation here and although open interest is robust, the ATM spread tends to run .05-.10 on $2.50 strike increments, so not a daytraders fancy.
Probably best to focus on the long side of COST since, as with XLE, the short side is considerably more risky and less profitable. Still, the long/short equity curve contains no hiccups.

Saturday, June 14, 2008

Qs Weekly Update

Above, the daily and weekly bar linear regression Qs update study (30,11,3).
After a wild ride, the Qs finished down .66 or 1.35% for the week, while IWM and DIA finished down .8% and SPY showed relative strength, losing only .1% for the week.
The week started out fairly ominous, as suggested in last week's update, with the Qs kissing the lower LR30 channel goodbye as the other technical signals all turned negative.
The upslope in volume that accompanied the decline early in the week should have been a clue that more of the same was coming.
The strength into Friday's close was surprising to me, as any of you who have followed me for a while know how negative I feel about Friday afternoon sessions.
The daily candlestick pattern has now turned bullish, supporting the oversold position of the mid-panel technical indicators.
The weekly pattern however, is still rolling over from overbought conditions so, as usual, we have a divergence between the daily and weekly bars (Hey!. . .nobody ever said this was easy!)

The A50 and A200 both bounced off oversold levels on Friday after displaying significant weakness for the previous 4 days. The current position of the A50 resembles that of early November, just before it kissed the 200 DSMA goodbye to the downside so I,m not inclined to get frisky with any bullish plays at this point, despite the various bullish indicators.
The same argument applies to the A200 with relation to the 50 DSMA and next week's price action should give a better picture of what's likely coming down the pike for the next cycle.
This is a time to choose your trades carefully, not only how you trade, but what you trade, as the IWM currently looks technically more attractive than the Qs (check it out, or see next Monday's post).

Thursday, June 12, 2008

RSI 2 and NEM

As a litle follow up to yesterday's GLD/NEM post, here's the results of the RSI 2 system with NEM. The system parameters have been optimized (28,78,38,82), but system return remains fairly robust within a 5% paramter range. Interestingly, the short side trades work out considerably better than the long side over the 5 year test period. I suspect different exit conditions for the longs would improve trading performance and will address that in later posts.
As I continue to refine the RSI 2 components to include in a daily trading basket, NEM is looking like a consistent performer.

Wednesday, June 11, 2008

NEM versus GLD

Any benefit in trading the GLD ETF versus NEM, the 800 lb gold gorilla?
Let's take a look.
NEM, of course is a large cap company with a long and illustrious past.
And, while most ETFs are a composite of related industry companies (spread the risk, share the gains), GLD is a pure commodity play as its sole holding is gold bullion.
Both NEM and GLD have seen substantial upward momentum since last September, when the smart money started to plan for the November market tops.
Above is the NEM:GLD ratio, showing the relative weakness of NEM Jan to May and the current mean reversion underway with NEM leading the way.
GLD just recently started trading options, so an apples to apples comparison isn't really possible, but the contrast is certainly dramatic when looking at the NEM. The current problem with GLD options is that they trade in .10 - .20 spreads and although daily volume is currently on parity between NEM and GLD, exchange participation is greater on the NEM, thereby providing a marginal trading advantage to NEM. NEM options also trade with .02-.03 spreads, a distinct attraction for active (short term) traders.
Finally, a comparison of short interest in GLD and NEM shows a stark contrast, suggesting positive momentum still favors NEM as both a short term and swing trade candidate.
There may be a short term pairs trade here: short GLD and long NEM, but I'd favor a July butterfly on each ( or just NEM) to manage risk.

Tuesday, June 10, 2008

RSI 2 and the XLE update

Number one trading topic around these days is OIL, so I thought I'd pile on with an update of our 500 bar RSI2 model on the XLE and components with (30,88) settings. Only the long side of the system is shown for brevity. I have a little trading rule that's served me well for the past 3 years. . .DON"T SHORT OIL, simple, but effective. The short side trades of the system do make money, but with a much more marginal return and considerable higher drawdown, so I limit my XLE and component trades to BUY signals.
Previously I mentioned Elder concept of a fractal 1:6 time frame ratio to confirm trading momentum, so for today's update I've posted 10M, 60M and daily bars. RIG is still a great perfomer and on the daily bars 7 of the 11 stocks had better trading results than a buy and hold strategy, while on the 60M and 10M all 11 of 11 had better peformance results. I still believe that the trading basket concept still looks like the most robust strategy with the best risk management opportunities.
Before deploying any real money to these trades, additional conditions should be applied, including a stop loss, trailing stop and possibly a time stop. While the current system backtest indicates little open P&L, that situation can change quickly and dramatically.

Monday, June 09, 2008

RSI 2 Qs & IWM trading model updates

The Qs RSI2 daily trading model is currently flat. The RSI will have to cross back up through the 28 level before a new BUY is triggered. On the intraday model (60 minute bars), the RSI2 crossed down through the 78 level at 10:30 on Friday, corresponding to my short entry, although that trade was based on completely different technical signals.
The IWM RSI2 daily model is currently short, holding a position opened on Monday at 73.99. Although both the Qs and IWM models are reflecting almost identical RSI levels, IWM's upward surge the previous week managed to get it into an overbought position. If the system allowed pyramiding, we would have added to the Monday short position on Friday's session, when the 80 level was crossed (again) to the downside. This option will be explored in future system performance tests.

Sunday, June 08, 2008

Qs Weekly Update

How the bears felt yesterday.

For the week - Qs down 1.52 (3%); DIA down 3%, IWM down 3 %, SPY down 3%.
As with the previous week, the major markets are moving in a volatile lockstep.
Weekly 3 linear regression study (30,11,3) of daily and weekly bars shown above.
The Qs are showing a rather ominous rollover pattern that may develop into a double top. At the same time, the daily Qs have broken through the LR30 lower support channel and the weekly Qs are clearly overbought on the LR30.
At this point the majority of the technical signals and the LR30s are negative.
The IWM has led the pack for the past few weeks, handily out performing the DIA and SPY. That may also be about to change.
For those who follow Telechart, Don Worden's Friday comments focused on the similarities between Friday's action and that of the Friday preceding Black Monday. Don noted 2 dominant price-volume relationships; price down with volume down (1349 stocks) and price down with volume up (1302 stocks). The first relationship is typical of bear markets and implies that more oversold conditions are yet to develop. The second relationship is more arbitrary. I'm sorry that I can't post the content of the post, but copyright laws prevent me from doing so. The salient points of his argument are similar to my short term view and I definitely wouldn't want to be trapped in any long term positions at this point.
I was surprised that volume was relatively muted in proportion to the downside move Friday. Looking back at those volume bars in March is more of what I expected and that may yet come to pass if things do get rolling to the downside next week. These downside slides tend to move in 3 day patterns; sometimes 2 down, 1 flat or slightly positive and then a whopper down.
Extreme caution is advised at these levels.
What has amazed me is the amount of positive economic spin coming out in the press recently announcing that the worst is over. I'm personally not buying it and think new lows are a real possibility by October and probably a lot sooner. The XLF (above) suggests what may be coming.
For now, I continue to daytrade only to manage risk, suck a few bucks out of the market and sleep at night.
My note on WM the other day suggested that you couldn't make much on a $9 stock. With WM touching $7.15 on Friday, that notion was shattered. Hope someone got a piece of that one.

Friday, June 06, 2008

Bear's Revenge

Several bad things happened today, foremost was probably the dismal jobs report, which is actually long overdue. Also it was Friday and regular readers know that I typically regard the last day of the week with a bearish bias.
Thursday's action during the last hour was certainly a bit odd. . .that extended squat bar that sat at 50.53, with all the tails up (hairy top) and no fade into the close.
Today's type of gap down on the open is seen by some traders as a buy the dip opportunity, but those who have studied gap behavior know that when down gaps of this magnitude occur, it's best to either stand back or take short positions. In today's case, the market got a bit squirrelly for the first hour before settling down to selling off with a vengeance for the remainder of the day.
The utter lack of strength in the NYAD was a powerful indicator that any attempts at a rally would not be forthcoming.
Fortunately, or unfortunately, I slept in this morning and didn't fire up the screens until 10:15.
With the 10/20 MAs wide apart, the parabolics firing a SELL and the bearish reversal bar at 10:25, I managed to get short at 10:30 at 49.90.
With the NYAD flatlining by this time, my obvious expectations were for an S2 target.
Noon saw the markets level off a bit on declining volume, and knowing that a lot of market maker games get played out during the lunch hour, I'm typically nervous about whipsaws during that time frame.
When the 10/20 MAs crossed at 12:35 I exited 1/2 the position at 49.70 and put a stop in at 49.80 for the remainder.
Once we got past 13:00 the downtrend resumed and the slide through S2 at 14:05 was strongly bearish.
When the Qs leveled off on the squat bar 14:15 to 14:45 I decided I'd had enough and covered to close at 49.20 at 14:45.

Time in trade - 10:30 - 12:35= 125 minutes; and 10:30 - 14:45= 255 minutes
Trade gain - 49.90-49.70= .20; and 49.90-49.20= .70

Holding onto the second half of the initial entry was clearly the best strategy, but I stuck to my trading plan and have no regrets about the trades. Regular readers know I prefer trades less than 150 minutes in length, so it was a stretch for me to hold the second half of the trade for over 4 hours. . .profitable, but uncomfortable. . .as I really didn't expect the magnitude of selling that unfolded into the afternoon session. One of a trader's prime directives is to expect the unexpected and today certainly showed that truth.

Thursday, June 05, 2008

How bears feel on days like this

NASDAQ heatmaps

The NASDAQ heatmaps can provide a quick snapshot of what's hot and what's not.
It's a free tool , and you can create custom heatmaps by loading your own selection of stocks or ETFs. The premarket heatmap provides a good indication of what's likely to come, at least for the first 30 minutes. Also useful for providing a quick sector analysis.
Not real time, but updated every minute from 15 minutes pre-open to 15 minutes post close.
The ETF heatmap is shown above, but other canned sorts of the NASDAQ components are available on the site.