Saturday, August 09, 2008

Qs Weekly Update

Qs are the clear winner this week: up $2.44 or 5.4%. DIA up 3.4%, SPY up 2.5% and IWM up 2.4%. After nearly touching our 44 level support on Monday, Tuesday's positive action was the precursor for strength into Friday's close.
The Qs have now effectively "Kissed the channel good bye", suggesting an impending change in channel slope and a continued run up.
Checking the monthly bars 3LRs study, we can see how the lower LR30 channel has acted as long term support for the Qs for the past 4 years and the lower panel technical readings are looking bullish for the near term.
At the same time, the Qs are approaching short term overbought levels, having come a long ways in a relative short time. Therefore, expecting either a consolidation at these levels for a few bars, or a modest retracement going into expiration week.
The only non-confirming bullish technical signal is volume, which continues to run below both the 10 and 20 MAs. These numbers may be skewed by the hyper volume of late June and early July when the summer swoon was in full motion, so I'm mentioning it, but not placing a lot of emphasis on it.
I'm still working on backtesting the A50 and A200, so no updates this week until that little project is complete.
I was diverted from several of my goals this week as I tested various Buy the 10 Day Low scenarios. . . a decision I don't regret. Although my bias is CLEARLY in favor of daytrading the pivots and fading the gaps, systems that offer a testable edge like the 10 Day Low are very attractive probability plays to capture some short term (5-10 day) gains.
I've got 2 new versions of the 10 Day Low system that look very promising and I'll post those next week. I'm trying to keep the code very simple so that those using other platforms can code it in without much effort. Perhaps surprisingly, I have found that the simplest systems are often the most robust indicators of market momentum, which is the way I typically use them.

The XLF is also showing signs of life, perhaps in the wake of surviving earnings season and the lack of any more significant bank failures (s0 far). The was no doubt a lot of short covering going on Friday and the collapse in the last 15 minutes on the XLF was indicative of the underlying weakness that's still festering there. Thinking about short the XLF and long the IWM/Qs for the near term, just to keep things in balance. My Qs SEPT 45 butterfly play hasn't turned out that great, but risk is fixed so I'm not THAT concerned.

I'll post more on the butterfly spread next week if anyone's interested. It's a nice little premium decay setup with limited risk and the potential for a nice revenue stream if the markets don't get too volatile going into the fall . . . which is just wishful thinking on my part, and has no statistical basis.

In case you missed it, Brett has a link to a new prop shop blog that will provide a little reality check about how these firms think and trade. Some insightful tips.

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