Thursday, December 31, 2009

Retired Lazy Man System

This is an update of my previous Lazy Man's Trading System posted last Thursday.
Knowing that several of my readers are old geezers like myself with IRA accounts they like to trade, I've reconstituted the ETF blend a little bit to avoid any short selling restrictions.
And, I demurred to the Qs in lieu of the QLD to soften the beta a little bit.
Our new rotational model therefore includes just 4 ETFs . . QQQQ, EEM, DBC and SH . . with performance measured against the SPY.
The only issue with SH ( the S&P500 short) is volume, which has only been running about 1M a day. Back in October it was 8M a day, so there's been considerably attrition. Still, SH is a viable trading vehicle with penny spreads.
Most importantly this model only required 13 weeks to recover from drawdowns . . . a number I'm still not happy with as I strive to bring it down to 3 weeks . .which will require a new momentum algorithm as I believe I've reached the performance limits of this particular version.
Jeff has added my Lazy Man model along with his own over at Market Rewind with daily updates so you can now track the models.
For Rewind subscribers the relative momentum values of 190 ETFs are tracked in real time and you can construct you own lazy trading system based on momentum models of your choice.

Wednesday, December 30, 2009


No doubt about it . .trading has been tough the last 2 weeks as volume has frequently fallen to a trickle and technical oscillators have gone into a kind of stupor. What continues to work for me is my old reliable VIXEN setup, shown here as it developed Tuesday on GE, my favorite daytrading and swing trading stock.
GE was a bit unique Tuesday, showing glimmers of strength early in day, which later turned into a solid surge all the way from the PP to the R2 pivot . . not an insignificant move. And, while GE only showed a volume of 48M Tuesday . . by comparison, the Qs only managed to eke out 32M shares, so there clearly was some accumulation going on.
The last hour fade down from R2 to R1 was pretty much in sync with the major indices, which actually showed the bulk of weakness during the last 30 minutes, when GE fell off the 62% fib line.
I've shown the actual entry point of the trade on 2 minute bars and then, in the lower chart, the full day report showing how the VIX cross migrated down the timescale 2 hours. So, while hindsight is a great teacher, the VIXEN trades require a rapid response in order to capitalize on the signals.
Also see: VIXEN gadget link

Tuesday, December 29, 2009

UYM / VXX Pair

If you liked the EEM/VXX pair trade you'll really like the UYM/VXX trade. This is a very robust pair as demonstrated by the similar results for these 2 different timing models. . . one based on a 4 day lookback, the other based on a 9 day lookback.
The 4N model results are the product of simple condition 1 signals while the 9N model results are the product of both condition 1 and 2 signals.
Both models get to the same place eventually, you just buy a lot more risk exposure with the 9N model. As a partial tradeoff for reduced risk exposure the 4N model does incur additional commission expenses (Schwab traders get a break when using SCHF in lieu of EEM) but that's a small price to pay (IMHO) for the added safety of a shorter term hold period.

Interestingly, the topography of both models shows the same attractive ski jump pattern with a gradual decline in performance from optimized N day values. What we don't want to see is a pattern that looks like Niagara Falls since that will indicate that the results are probably over-optimized, unique to a very narrow range of parameters, and cannot be sustained.
This is another reason to review performance potential of a pair by checking the slope of the equity curve (chart D above) to confirm there are no major hiccups along the path.

Monday, December 28, 2009

Monday VIXology

The PDQ Dashboard for the VXX generated no new signals as of Thursday's close.
This model is updated daily and new signals will be noted as they emerge.
The big news last week was the VIX's fall below 20 and it's failure to rally back. A quick look at our style box below shows the VIX and VXX both remain downslope . . .VXX at the LR30 mean and VIX, perhaps a bit surprisingly, actually above the mean. Mid panel technicals aren't suggestive of an imminent reversal, even with the major indices clearly in overextended and overbought territory.
The dollar's momentum has rolled over and the MACD is now below the zero line so our decision to hold off on new dollar longs last week was well advised.
The Qs ,on the other hand, had a nice run up last week validating the Lazy Man's signal to Long the QLD on Monday.
The Lazy Man rotation model has some promising features and I'll be exploring a few of these in upcoming posts including an options trading version and TradeStation momentum models based on my previous published 3 finger lead and Happy Trails studies in the QQQQ Dirty Dozen.
My working goal is a reduction of the "weeks to recover" metric down to 3.

Thursday, December 24, 2009

The Lazy Man's Trading System

I can hardly believe it but I understand that some of my readers are not daytraders at all but actually have jobs and otherwise spend their days not glued to multiple monitors watching 2 minute bars flow by.
I can almost recall a similar lifestyle many years ago, but being old my memory is a bit faded so I'll just have to take it on vague faith that I too once enjoyed that leisurely market approach.
The braintrust at ETF Rewind has graciously provided me with a variety of prospecting tools that have recently permitted me to fantasize about a return to those simpler trading days when high frequency trading, prop shop manipulation, algo program trading and dark pool shenanigans didn't make swing trading the equivalent of navigating a mine field while blindfolded.
So . .as we approach the new year here's a simple rotational system based on a 10 period momentum model with a simple PSAR stop that trades only 4 ETFs . . QLD (2x bullish QQQQ), EEM (emerging markets), DBC (2x commodity index) and VTI(vangauard total market).
The system is based on weekly bars and readjusts every Friday based on the momentum signal.
If momentum is trending up the model invests in the strongest of QLD, EEM or DBC.
If momentum is trending down the model sells short the VTI.
That's it.
Performance metrics are shown relative to a buy and hold SPY position.
While not currently available for subscription on the Rewind site, I expect this system and variations (currency, sector, country and volatility rotational models) to become available in the new year along with other cutting edge prospecting enhancements. Then I can relax, spend my time paddling around in the pool, golfing and otherwise enjoying a stress-free trading income.
Can't wait.

Wednesday, December 23, 2009

EEM / VXX Pair Trade

Today is my birthday and here's my present to regular readers...................
A robust little pair trade that's got a lot going for it.
#1... the N day cycle is 7 days, which produces a typical weekly cycle from entry to exit.. a time frame I like as it contains risk exposure and avoids extended drawdowns.
#2... checking the trade report for the past 6 months reveals no losers and some substantial winners. This is not a one sided PDQ trading approach, but a true pair trade generating gains from both legs.
#3... the equity curve has remained upslope for the backtest period duration and the bounces off the z-score bands have remained consistent without the extended lag we've seen in other profiled pairs.
#4... the EEM/VXX presents an attractive beta spread. 20 day beta on the EEM is 1.93, while the VXX is -2.83. I've found divergent pairs to be much more productive than convergent pairs and although that's a personal preference, I've found the risk/reward ratio easier to control.
#5... for Schwab clients a special can just trade the SCHF commission free as a proxy for the EEM side of the trade.
Check in the archives for my previous correlation alignment study of the EEM and SCHF.

Tuesday, December 22, 2009


Here's a snapshot of QLD using the VIVEN setup. To help confirm short term trend I've tagged on the Schwab hi/lo new count scroller linked to the NAZ and the Schwab Dynamic Ticker which displays on a tick by tick basis the momentum and volume of a user defined symbol list. In this case I've set up a symbol list which includes the movers and shakers in the Qs which comprise outliers in my various 3 finger lead systems and which use higher beta stock components of an underlying ETF to determine momentum in that ETF.
The simple dynamic visual signals of the scrollers and DT (red or green) will keep you on the right side of momentum 90% of the time.
We're using the QLD in lieu of the Qs strictly to take advantage of the 2x leverage offered by this product. One of the concerns voiced by some readers has been the inability of the VIXEN to pick tops and bottoms of the short term cycles. I'm not bothered by this behavior, rather I seek it as I prefer to take the "sweet spot" easy money out of a trade rather than get faked out by false breakouts and breakdowns. That's just me.
IRA traders can also use a combination of the QID and QLD (2x short, 2x long) to trade both sides of the VIXEN and avoid short selling restrictions
Some examples of the 3 finger lead concept, including actual coding language can be found at

Monday, December 21, 2009

Monday VIXology

For the week . . . Qs up .75%, IWM up 1.7% and SPY down .8%.
Good earnings reports on the NDX majors led the Qs bounce while ongoing doubts about the viability of the retail and financial sectors contributed to SPY weakness.
The dollar made a 1.5% jump for the week and is now sitting on a triple top pattern extending back to September. Looking technically overbought, the UUP is best left alone for the short term until we receive either a confirmation or reversal of the current upslope pattern.
The VXX and VIX LR30 daily channels remain downslope with some evidence of deteriorating mid-panel technicals. Expecting low volume and consolidation to be the mode for the coming (shortened) week with a mild bullish seasonal bias likely to play out.
The VXX Dashboard is providing no new entries as of Friday's close, although we did manage to scrape off some nice one day gains last week with the style box.

Friday, December 18, 2009

Friday Rerun

While I'm off for a few days here's another one of my favorite posts.
Erwin Rommel, often called the Desert Fox, and arguable one of the greatest military minds, once said "We must measure what we might gain by what we might lose". . . a useful mantra for traders as well.

Thursday, December 17, 2009

Thursday Rerun

I'm off for a couple days and in my absence here's one of my favorite teaser posts from the past.

Wednesday, December 16, 2009

WMT Double 6s w/stop

Here's a follow up to my previous post on WMT and the double 6s. Last time around I'd suggested a $100 per trade stop to minimize drawdown and Ramon offered a brief critique of that idea.
I re-optimized using a $110 stop and TS kicked out a slightly different set of inputs . .in this case 6,7,4,6.
The new model has a slightly smoother equity curve but we're still showing some imminent rollover in the curve at the present time.
The rolling profit curve shown below has essentially been flat since April, missing the price retracement from April to November, but also avoiding the drawdown that would have been a consequence of a buy and hold position.
Comparing the two models side by side shows the relative safety of the later model at the expense of more frequent trades and an increased number of consecutive losers.

Tuesday, December 15, 2009


Last week I profiled the new Schwab Broad Market ETF SCHB that Schwab clients can trade commission free.
Today I'm taking a look at the alignment of Schwab's SCHF (emerging markets ETF) and the EEM. The chart on the left is shown on 5 minute bars and compares the price line charts of EEM (blue) and SCHF (white).
The chart on the right shows EEM versus the NYAD on 2 minute bars.
The simple implication for daytraders is that the close correlation between SCHF, EEM and NYAD make it a viable (commission free) VIXEN trading vehicle and/or a proxy for EEM system based trades.
As with SCHB and SPY, SCHF does lag in daily volume relative to EEM.
EEM trades about 50M shares a day with .01 spreads while SCHF trades about 200K with .03 spreads. While there are options on SCHF, there is currently no open interest.
Both SCHB and SCHF have only been active since 11/03/09 so the anticipation is that volume will pick up somewhere down the road.
Daytrading the SCHF (and SCHB) can be something of a leap of faith given there are frequent 5 and 10 minute bars with no volume, but tracking the SCHB against the SPY and the SCHF against the EEM based on % change has consistently shown an extremely high correlation and mean reversion behavior.

Monday, December 14, 2009

Monday VIXology

Last week's VIXology forecast a consolidation and that's pretty much how it played out.
Qs advanced one thin penny, IWM lost a quarter and SPY advanced a dime.
The VIX rose .34 or 1.6% and is now in an inside bar pattern on the weekly bars as it approaches the lower LR30 band on daily bars. The VXX finished the week with a nice little doji at the lower LR30 band and with the MACD reading at the zero line the PDQ is suggesting a SHORT position.
The VXX has been short for 3 days giving us 100% accurate forecast. The FXF N day value is 7 so we'll need to keep our stops in place in case expiration week volatility shakes us out of the position.
Although the dollar made a nice jump last week, previous excursions to the LR30 upper channel
in October and November led to retracements all the way back to the lower LR30 channel so our optimism is still muted for UUP.
Looking ahead, the Qs and SPY have sold off January for the past 2 years, and while there's currently no trend momentum suggesting that a selloff might be repeated this year, note that looking back for the past 5 years consolidation the last two weeks of the year has been the norm . . . so in the face of the current subdued volume, this seems like the most likely scenario going into year's end.

Friday, December 11, 2009

SCHB Revisited

Yesterday I mentioned the possibility of using Schwab's Broad Market ETF SCHB, which trades commission free for Schwab customers, as a proxy for the SPY.
SCHB is shown above while SPY is shown below on identical technical settings.
After looking at the intraday action in SCHB over the past few days, I've been struck by how well it reacts to the intraday pivots, one of my favorite technical support and resistance indicators.
And, although the parabolics actually generate smoother signals than the SPY, that's probably because of the volume differential. . . SPY traded 138M Thursday, SCHB a paltry 164K.
It's clearly in Schwab's interest to maintain a close correlation in price dynamics between SCHB and SPY (and/or VTI) and I suspect that there are trading mechanisms in place to assure that SCHB doesn't get too far off course too often and become an arbitrage baby.
That's good news for Schwab traders who can trade SCHB (for free) just as they would SPY, with relative confidence in the technical alignment of the two vehicles.

Thursday, December 10, 2009

Free SPY Proxy Trades

Regular readers know that I utilize the Schwab StreetSmart Pro platform for trade executions. This isn't a promo for Schwab, I just like their graphics, indicators, proprietary tools such as the hi/lo scrollers, dynamic ticker and option tools. Their strategy tester is . . well . . (sorry, Schwab) junk, which is why I also use TradeStation.
Despite being an ultra conservative company (Schwab has weathered the downturn better than most) they occasionally hit a home run with their product offerings.
One such product might be their new suite of ETFs that Schwab customers can trade commission free. While there are only 4 active ETFs and 4 more due in December, the expectation is that this portfolio will eventually increase to include ETFs reflective of other sectors, commodities, energy, etc.
Probably the most viable current Schwab ETF is SCHB, U.S. Broad Market, with a current daily volume of about 250,000 and .02 spreads, this is a mirror image of the SPY and NYAD on 5 & 10 minute bars. Next in the queue is SCHF, International Equities, which mirrors the EEM and which has a daily volume of about 125,000 with .03-.04 spreads.
Be advised that these ETFs have only been active since 11/03/09 and that much of the daily volume is probably Schwab trading with itself in an effort to validate the ETF and entice new dollars.
That being said, IMHO the SCHB does track SPY and NYAD very nicely (and plays well with the VIXEN) and offers a practical opportunity to avoid commissions, both for day and swing traders.

Wednesday, December 09, 2009

The VIXEN's Young Daughter

Today I introduce a new variation of the VIXEN trade based on the countervailing dynamics of the VXX and the NYAD . . . the VXXEN.
The VIX was introduced in February 1986 while the VXX was born in February 09 so it really is a young thing that nevertheless displays respectable daily volume of about 2 M shares and spreads typically at .03, a bit more than I like, but as volume increases this may decline.
As I've mentioned before there is no option chain since this is an ETN (exchange traded note) . . essentially a derivative of a derivative.
One of the technical aspects of VXX that makes it attractive to traders is the beta value.
Comparing a brief list of relative betas (20 period) we note that SPY=1, QQQQ=.93, IWM=1.43, EEM=1.85, VIX=-5.00 and VXX=-2.65.
From an intraday perspective that makes VXX a viable trading vehicle although we should expect to modify some of our technical indicator settings (like the parabolics and the MAs) in order to keep up with the fast pace of this young lady.
Some readers have mentioned that they need more momo than the dimes and quarters that the VIXEN trades usually produce. Options that I've suggested before include the QLD in lieu of the Qs, or options, which is the route I prefer. This is another approach.
The chart above compares the same time frame trades on the Qs/VIX and the VXX/NYAD.
Time frame 13:50 - 14:24 -- Qs net $.18, VXX nets .39
Time frame 14:30 - 15:20 -- Qs net $.39, VXX nets .48 but it exits at 14:48, fully 30 minutes prior to the Qs exit.
The Qs underlying value is $44, while the VXX is $38, and simple math shows which one returns the greater %.
The other side of the beta coin is, well, beta . . and the volatility in the VXX chart versus the Qs shows this young lady can be a bit unruly at times, so be advised.
I'll babysit this setup for a couple weeks and report back on possible indicator resets.
As usual, reader input and feedback on this daytrading setup is always welcome.

Tuesday, December 08, 2009

Wally Meets the Double 6s

You know me. I like simple, high probability trading set ups with minimal drawdown and performance charts characterized by a lot more winning than losing trades.
One of my favorite systems with these parameters is the Double 3s, originally posted as the Double 7s. There are a number of these posts in the archives and you can get a flavor of some typical results by checking them out .
With a 30 month lookback the optimized results for WMT are 6,6,9,6.
Different stocks and ETFs have different inherent cycles and beta, so some adjustment to the inputs is required in order to establish an attractive equity curve.
And, a funny thing has happened to many stocks and ETFs tested using this system . . . the equity curve has rolled over or gone negative as of March 09.
That's clearly not the case with WMT and although the last couple trades have been losers, the odds are now favoring a resurgence of the equity curve.
As with the PDQ models, the use of a reversing equity curve slope as a stop should be considered for any of the double 3 study candidates.

The actual trade distribution is shown below and one performance enhancing possibility that's pretty obvious is the use of a $100 stop loss (per 100 shares). That simple little risk management tool would eliminate half of all losing trades.

Monday, December 07, 2009

Monday VIXology

A quick look at our VIX 4 square style box is generating mostly neutral signals.
With the exception of the dollar, which made a big surge on Friday, the VIX, VXX and Qs are all riding the MACD zero line.
Note the unusual disparity between the LR30 slope of the VIX and VXX. The more likely resolution of this conflict is the development of the VIX LR30 to downslope, which would be bullish for the capital markets.
The VXX Dashboard (not shown) is not offering much help on this front, with a current balance of long and short signals.
Each time the VIX has fallen below 21 in the past 2 weeks, it has rallied, although not convincingly.
Going into the holiday season this low volume, low volatility consolidation may be the emerging pattern and next week's price action should be a good indicator of that scenario..

Friday, December 04, 2009

The Moving VIXEN

A number of readers trying to apply the VIXEN setup have expressed frustration over the dynamic movement of the crosses so I'm posting this little before and after vignette from yesterday's action in GE to clarify my previous statements about VIXEN dynamics.
Charts are shown on 5 minute bars.
Note that on the left chart the VIX crosses up over GE at 14:55 as the MAs flatten. The dual signal lines are already downslope and the parabolics have been on a SELL since 14:15. With a re-confirming parabolics SELL at 14:55 this is a high probability short.
And, if you toggle over to VIXEN's alter ego, the NYAD you'll see that chart is clearly negative on all points.
If you are really the nervous type, then the GE price cross down through the 8/8 channel at 15:10 was a strongest possible short confirmation and/or a signal to add to the short position.
Flipping over to the left chart shows how GE turned out EOD, and we see that the VIX cross has now mysteriously migrated to 15:35, some 40 minutes later that the live chart position . This is the effect of the floating VIX scale relative to the GE price over time . . . and the reason these trades require a quick response.
There was high volume ugliness at the end of day and I've transposed the actual volume bars for GE onto the left hand chart to show the overwhelming negative momentum. It looked like GE was going to plunge all the way to S1, but it managed to stave off that collapse.
BTW, for readers interested in using the Schwab platform to trade the VIXEN, or other setups, Schwab has dropped the requirements for free access to the platform from 120 trades a year down to 36. That's a big drop and reflective of their desire to recapture some of the active traders they lost when CyberTrader was shut down. I get no perks from Schwab, I offer this info only as a service to my readers.

Thursday, December 03, 2009

VIXEN and the Pivots

A VIXEN trading criterion that I've been remiss in discussing is the value of a pivot point overlay . . and yesterday's quick ride on the the Qs was a great example.
The VIX crossed the Qs right at 9:47 after coming off some opening volatility at R1 (this is bullish) and the early bullish sentiment was echoed by the NYAD chart on the right.
The 3 MAs signal was also confirming upslope along with the bullish parabolics.
Those readers who use my Schwab setup can toggle to 1 minute bars and see the little hairy bottom formation (9:45- 9:49) that was really the trigger.
For the next 25 minutes the Qs rose steadily, hitting clear resistance at R2 and forming an unusually long 30 minute squat bar before failing.
The easy exit trigger was broadcast by the NYAD's collapse at 10:34, midway through the Qs squat bar formation. This type of dramatic reversal in the NYAD is always worthy of close attention as it reflects the dominant momentum of the market and the odds of trading against it are slim to none, except for low volume NAZ stocks which may be news driven with their own momentum.
The Qs parabolics also supported the NYAD collapse by switching to SELL (cover) at 10:36, but the real hammer for this exit was the NYAD.
This trade turned out to be a nice little run from 44.20 to 44.46, producing a .26 gain over 49 minutes exposure.
Looking back at the trade I probably should have exited earlier around 10:18 when the NYAD first started to fizzle, but there were few confirming exit signals to support such a decision and (luckily) I wouldn't have increased my net gain.

Wednesday, December 02, 2009

XLE PDQ Dashboard

Here's a quick look at the XLE dashboard, strongly suggesting that XLE still has room to run short term.
The 3 filtered long signals are brand new and all are based on 10-13 N day cycles.
Both the EWJ and EWH XLE pairs are showing 'AP" equity curve status, reflective of the highest probability signals while the EWC appears to be the most questionable Long signal as it is supported only by a neutral "BF" equity curve and a marginal linearity correlation.
Note that the EWZ and NEM have attained "BD" status and are likely candidates to be removed from the PDQ. In the same manner EWZ and EWC have suffered significant hits to their XLE correlation and have fallen to low 60% values....declines large enough to warrant their removal from the dashboard/
I'll be keeping a close eye on how his trade plays out as it represents a 2 week cycle that was just Monday.
The XLE is a bit unique in that the PDQ components comprise both a short 4-5 N day and longer term 10-14 N day target cycle and as part of the ongoing refinement of the PDQ we are leaning towards normalizing the N day value to focus strictly on a shorter term (3-5 N day model) in order to minimize total drawdown and to confirm the signal trend more frequently.
Net effect -- as a result of correlation deterioration and the N day re-alignment expect to see a new component list for the XLE Dashboard in the near future.
Finally, for VIX addicts out there, the new December FUTURES magazine notes the release of the new mini-VIX contract (VM) at 1/10 the standard size.
More details at if you're interested.

Tuesday, December 01, 2009

The GE Jiggle

Good news and bad news on Mondays VXX PDQ long forecast....good news....we did get a nice surge in the VXX early morning.....bad news.... it didn't last. Not to be discouraged, our crack development team is focusing efforts this week on refining stops and exits for the PDQ in order to capture overnight and intraday gains resulting from the Dashboard signals.

Meanwhile, the GE VIXEN continues to serve as the workhorse for the daytrading portfolio and the VIX crosses presented triggers for 3 profitable trades today as shown above.

The 3 trades generated $ .06, .18 and .11 respectively, not a windfall but the total gain of $.35
represented more than the hi-lo spread for the day and as such has to be regarded as successful. One of the problems with daytrading is that win, lose or draw, you're going to be out by the end of the day. GE, (or any other target equity) may have a daily range of a dime, a quarter or a just never know and you have no way of knowing whether the day will be trending or trading range (I prefer the later) so patience is required to take advantage of these setups.

Monday, November 30, 2009

Monday VIXology

This week should provide a clearer view of the Dubai World default fallout. Based on the results of the latest VXX PDQ update the technicals are poised for further market weakness.
Note that most of the Long signals are 2 to 3 days old and the median N days value for the current longs is about 5, which means signal re-evaluation on Wednesday will be required in order to confirm VXX momentum.
The VIX has jumped ahead of the VXX since July, although the ratio study below suggests that, at least short term, the VIX may be due for a little pause. With a confluence of the charts now sitting near or dead on the (LR30) linear regression channel 30 day mean, mean reversion traders are looking for a bounce.
In the face of these mixed signals, Monday's momentum catalyst is likely to be news driven and risk adverse technical traders are best served by waiting for the trend to be more clearly defined.
Finally, I note without comment a little item in the Financial Times that traders at Goldman Sachs suffered only one losing day during the 65 business days of the third quarter. On 36 separate days during the quarter, the firm's trades netted more than $100 million each day.

Friday, November 27, 2009

VIXEN Meets Old Crow

It's always gratifying to know that somebody is actually trading the VIXEN setup and one of my loyal readers, Old Crow, has forwarded 2 of his recent forays using his own version of the setup.
As with all my VIXEN posts, Old Crow has shown these trades on the Schwab Street Smart Pro platform.
He uses a few more MAs than I prefer and has turned off the pivot points, but this is what works for him. It's always interesting (to me) to see how different traders adjust my default settings and indicators to create their own unique trigger perspective and risk control signals.
Old Crow uses a number of smoothed MAs, a resident feature of Schwab and has applied the signal line (the moving average component of the MACD) directly on top of the chart in lieu of placing it in a study window.
He retains the parabolics and in the examples posted it's easy to see that the SAR provides a consistently reliable trend reversal signals.

Wednesday, November 25, 2009

The VIXEN Four Faces

With yesterday's volume at about 60% of the daily norm I thought it might be a good time to review some of the basic VIXEN concepts and at the same time show the disparity between some of the large asset class ETFs relative to the VIX crosses.
Shown above are the NYAD, Qs, IWM and SPY. I could have shown the DIA, the VTI, the EEM, etc., but I leave that to you, gentle readers, in explore over your holiday.
What's of interest here is the relative performance of these 4 charts on the VIXEN cross.
The duration of each concurrent trade is shown with the red and green horizontal lines and the vertical white line. . . stats are as follows:
Qs . . +.3 %
SPY . . +.2%
IWM . . +.5%
NYAD . . +54%
Yes, a little breathtaking on the NYAD, but that's typical short term behavior characteristic of a rally. . in this case 60 minutes. Too bad you can't actually trade the NYAD. . but, like the VIX, it's a statistic, not an equity or derivative.
One of the reasons I never trade the SPY, or any of it derivatives is reflected in the relative performance of the SPY vs the IWM vs the Qs. There's just less momo, less beta, less volatility, less risk, but also less risk/reward.
This particular example is a bit peculiar as the ranking of volatility is typically Qs, IWM and SPY.
I suspect that recent higher volatility in the IWM can be traced to it's current lagging the other indices in new highs, with the result that bullish surges tend to favor the IWM as it tries to play catch up.

Tuesday, November 24, 2009

Facing the Music

Monday's PDQ forecast for a bullish VXX turned out to be a bit off. Actually the VXX did rise, (temporarily at mid-day) but that was after it had fallen almost 5% at the open.
OK . . , no excuses . . the VXX long signals were bad. In an effort to determine why, I went back and looked at each of the pair trade signals. Since the PDQ produced a mixed bag of signals, clearly there were some attributes of the correct signal pairs that need to be integrated into the incorrect signal pairs.

My investigation led to a continuation of my earlier post on the zero line rejection behavior of the z-score. While the Z-score rejection signal does offer a useful stop, the salient discovery that will first be integrated into the PDQ is a fixed time stop based on the optimized N day value for each pair.
I spent a few hours manually toggling through each of the PDQ Dashboard performance studies and virtually every one could be enhanced (some significantly) by applying this N day stop. Now these results are a bit surprising (to me) because it suggests that there really is a unique underlying timing cycle for each pair.
While this sounds deterministic, we need to factor in the all-important caveat that the PDQ model is designed to be adaptive and the N day cycle is really only valid as long as the equity curve of the pair trades remains positive.

Monday, November 23, 2009

Monday VIXology

Just off the cuff for Monday's VIXology the charrts look long the VIX and short the Qs. The VXX, the tradeable derivative of the VIX is a bit more ambiguous, which is reflected in the signal(s) currently being generated by the new PDQ Dashboard (Lite version).
The dollar is also looking bullish via the short term technicals, although we had a close call with the last UUP Dashboard BUY, so caveat emptor on this one and the wise course of action is to either 1. Stand back until an uptrend is actually confirmed or 2. Trade small and be ready to bail on a tight stop.
As mentioned above, my continued noodling with the PDQ has led me to evolve it's format into a Dashboard with 5 pairs rather than the original 8. Through on-going backtesting I've found that using the 5 highest linearity correlation pairs produces signals just as reliable as the 8 pair model with reduced noise.
I got a bit sidetracked last week on some new refinements of the PDQ including the zero line rejection signal and never got around to the VXX/UUP study I promised earlier. I'll rectify that delay this week and also show some graphical studies of a pairs trading model that will, I venture to say, give credence to the old adage that "a picture is worth a thousand words."

Friday, November 20, 2009


Here's another example of the VIXEN setup, this time using the Qs as the underlying. With the NYAD in a VERY slow ascent (.09 total rise) as of one hour pre close, there were still a few bucks to be pulled out of the Qs using the VIXEN.
I'm not showing the NYAD chart today as the % change was so small as to be barely noticeable and effectively untradeable.
Although these 5 trades only netted $ .11, .16, .12, .11 and .06 respectively, the total gain over a 4 hour span was $.56 (- commissions), a respectable return IMHO considering the total range of the Qs is currently $.75.
The VIXEN produced a very nice ride from 11:00 to 12:30, and when that trade reversed it looked like the 11:00 lows might be revisited. The turn at 13:30 demonstrates the utility of confirming signals as the parabolics fired a BUY (or cover) and the 3 MAs turned upslope.
Readers who clued in on the SMA8 high and low channel that I mentioned earlier can also see how the channel crosses helped signal trend change.

Thursday, November 19, 2009

More on NYAD / VIXEN

This is a little variation of a setup I previously profiled using the VIX and NYAD to signal trade entries and exits in GE. The setup works for a variety of underlying stocks and/or ETFs, although the large caps and the indices seem to work most consistently.
I like GE because it mimics the overall market so well while at the same time displaying a beta that makes it trade more like a Proshares ultra than a stock. I also like the penny option spreads and the huge open interest across a long option chain given the fact that this is a $16 stock.
What's different about this setup is that instead of looking at parallel GE charts, we looking at the VIX crosses on GE (or your choice) and on the NYAD. You would intuitively think it was important to keep the underlying target a vehicle that's convergent with the major indices and not something like the UUP, which is divergent, but the simple remedy for that problem is to make the VIX the underlying on right chart with the NYAD as the overlay.
These setups can provide great little intraday scalps with the caveat that you always need to have one foot out the door in case things go awry.
There was some ambiguity in the underlying technicals on the NYAD/VIX chart (red circle) which will now prompt me to review and retest those indicators prior to future trades.
Finally, after over 3 years of daily posting on this blog I've decided on a new visual clue to reflect my attitude towards the markets. Gone is Homer's Scream, now replaced by a photo of my humble support team. . . Lopaka, Wilson and Tonto.

Wednesday, November 18, 2009

Zero Line Rejection Stop

In my ongoing refinement of the PDQ Dashboard I've been studying each pair chart individually to see how these trades actually play out.
One phenomena that keeps popping up is what I'll call z-band zero (zbz) line rejection and it can be seen clearly on the EWC/VXX performance chart above.
Note how each of the winning trades (green lines) move smoothly from one band to the other with only minor chatter and a clean break of the zero line.
Now note how the 2 losing trades had a completely different profile, characterized by multiple bounces off the zero line, which also produced open trades of 43 and 26 days respectively, whereas the average duration of the winning trades was only 9 days.
Examining each of the losing trades a bit further shows that if the trades had been exited when the z-score retraced 10% off the zero line both trades would have actually produced marginally profitable results and closed after only 7 and 12 days respectively.
Lesson learned. A new risk management stop (BZB zbz) will be added to our current stop menu that will incorporate a fixed time stop and/or a 10% zero line bounce hit.

Tuesday, November 17, 2009

The Simple Life

I'd be lying if I didn't confess to being a mite perturbed about the dismally incorrect signals that the technical indicators have broadcast recently including the VXX PDQ model posted Monday. But HEY!, it's a learning experience and I'm always striving to learn from my mistakes.
Two years ago I had the opportunity to actually talk privately with the Donald for about 15 minutes and, despite his public image as a bit of an arrogant arse, I found him quite personable and open. I was lamenting a recent trading slump at the time and he simply said, "Don't beat yourself up, just promise yourself that you'll learn from this down period, apply what you learn and strive to to do better next year." Nothing profound there, but the words stuck with me and have served me well as a sort of self-improvement mantra.
Which brings me to today's post. While not seeking to sound like a broken record, I always go back to the tried and true if the technicals are confusing.
And, in my toolbox of high probability daytrade setups, my favorites are the oft posted VIXEN and NYAD crosses.
Shown above on 5 minute bars is today's picture perfect launch of the GE/NYAD cross at 10:45.
As of Friday's close I was prepared defensively for a Monday down day. When it became apparent that we were much more likely to see a bullish trend day, I wanted to gooble up a few scraps and, for my money and risk tolerance, these are the easy money trades.
With the 3 MAs in the lower window continuing to track higher this was a multi-hour trade and I was expecting a fade late in the afternoon as the NYAD flattened and then ultimately turned down . . . so I was looking for a signal to exit
I haven't mentioned this before but one of the very short term technical trackers I use is a channel of the SMA8 highs and SMA8 lows (2 blue lines). Through the course of a few thousand trades I've found violations of the channel extremely helpful as both entry and exit triggers, and in today's example (white circle) the violation of the channel corresponded with a parabolic SELL, the cross of the 3 lower SMAs and the beginning of the afternoon downtrend.

Monday, November 16, 2009

Monday VIXology

This is a little different spin on the VXX PDQ Dashboard. Last week I profiled a VXX basket using the currencies while today we're looking at a basket of ultra 2x ETF pairs. The net effect is that the ultra ETFs have much higher inherent betas and so the pair betas average out to a little over -1, considerably more consistent and muted than the VXX currency pairs.
And, proceeding with the weekly update, here's a little different VIXology mix, which includes the VIX, VXX, UUP and, of course, the Qs.
Thursday's UUP basket update post with a strong BUY signal turned out to be a one day wonder (actually 2 day since the PDQ fired a consensus BUY on Wednesday's open.
Our 5-6 N day target now looks seriously in jeopardy and the initial BUY was stopped out on Friday's open for a measly .05 gain based on the ELE stop which closes the position if it has retraced 50% of it's previous gains.
Of interest here is the mirror image of the VXX and the UUP charts with the VIX chart understandably showing an exaggerated relative trading range no doubt due to the fact that VIX is not a price, but a statistical reflection of volatility in the SPX.
I'll run some comparative PDQ pair studies to assess the relative risk/ reward of trading either the VXX or the UUP against the same pairs.
To be honest, I should have seen the striking similarities in these charts earlier, but HEY!, I'm old and there's lots of distractions down here in beautiful Oceanside, CA so I'll try and redeem myself later in the week.