Wednesday, March 31, 2010

MLR Rotators Update

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.

Tuesday, March 30, 2010

Qs Exit Fires

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.

Monday, March 29, 2010

Some Rotator Divergences

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.

Friday, March 26, 2010

UUP Tops Channel

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.

Thursday, March 25, 2010

One Hand Clapping

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.

Wednesday, March 24, 2010

MLR Rotators Situation

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.

Tuesday, March 23, 2010

Low VIX & the Equity Curve

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.

Monday, March 22, 2010

MLR Rotator Rolls Over

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.

Friday, March 19, 2010

A Rotator Variation

Once again yesterday the Qs demonstrated their momentum edge. closing in the green while SPY and IWM turned red. And once again, not a lot of technical disparity between the top4 slots, which really is indicative of the ongoing broad advance of the markets. That, and a VIX below 17.
I've juggled the metrics columns format once more and I think this is a keeper for a while. The yellow column is still the daily % change, while the column to the right "Price" is, in fact, a Worden Brothers algorithm that calculates a proprietary price volatility value. It's like beta, but it's not. The next column to the right "5 Day' is the 5 day performance of the ETF relative to the performance of the SPY. Beta is , of course, beta. I don't know why Worden can't figure out the VXX beta. . it's currently at -2.16 according to other data vendors.

The Rotator models above and below reflect an ongoing research project that has so far shown considerable promise. I'm using the same 6 period 2 day moving linear regression channel slope to sort the Rotator components and define ranking. FXC and EWC have been the top $ and country for a while now and if you take a peek at the charts (not shown) you'll quickly see that Canada has been on a tear. While the Canadian dollar continues to shine, Mexico has now taken over as the top momentum country. . not exactly sure why. . pre Cinco de Mayo exuberance maybe? These are fairly low risk models as the currencies and the countries tend to trend for extended periods of time and typically flash broad technical signals of impending reversals.

Thursday, March 18, 2010

The $QQV Factor

Old Crow brought the $QQV (NAZ100 volatility index) to my attention yesterday. Actually, what he said was "What do you think of the $QQV?" and, frankly, I've never monitored it before. But, after a cursory look at the QQVs fractal behavior relative to the VIX, it does inspire some genuine curiosity.
Above and below are 10 minute Qs charts with QQV and VIX overlays.
Is anyone a bit surprised to see the correlation?

And, just to confirm a longer range correlation of the QQV and VIX, the lower 2 Qs charts are based on daily bars. There's really only a single divergence in these 2 charts as reflected in December, when Qs volatility rose, but VIX declined. What happened there?
So, despite the complex formula of SPX put and call reconciliation involved in calculating the VIX, is it, in fact, just a reflection of Qs volatility? It certainly has an uncanny relationship to the QQV and that must be considered a major factor when evaluating the utility of the VIX as a trading tool for the Qs.
Of course, the VIX is a measure of the volatility of the SPX not the NAZ. For that we have the $VXN, which looks a little bit different and I'll be probing some of those implications later this week.

Wednesday, March 17, 2010

Rotator Redux

And the Never Ending Story continues its run with essentially all the majors cruising along at RSI2 99, apparently blithely unaware that they're technically overbought. The FOMC news put the icing on the cake today but the "extended low rate" announcement was widely expected, so I'm not sure what all the market exuberance was about. Nevertheless, we're still on a tear with volume about the only non-confirming signal, although it too picked up momentum into the close. XLF is rising through the ranks and now shares a similar rating with IWM, SPY and the Qs.
The fractal Strategy Matrix closed bullish with 33 of 36 signals on a BUY.
GE rose another 4.5% yesterday on 228M shares . . 3 times the Qs volume and has now retraced up to November 2008 levels. Keeping in mind that the old high was 42+, there's still a lot of ground to make up, and GE looks to determined to show its stuff short term.

Tuesday, March 16, 2010

The Dismal VXX

As promised yesterday, here's the sad chronicle of VXX's steady decline and decay. Little more than a year in existence, this pitiful proxy for market volatility has fallen from 110 in April to 23+ yesterday, a staggering 79% drop. And it doesn't look like the fun's over yet.
The ATR8 has fallen from 6 in April to less than 1 today, a modest 83% drop. Reversing yesterdays' ATR/price ratio logic makes the situation appear a bit rosier but you can only put so much lipstick on a pig . . bottom line . . it's still a pig.
A little aside here... the 20 day beta of the VIX is -3.51, while the beta of he VXX is only -2.16, so a thinking man might expect the VIX to reflect a larger drawdown than the VXX. Not so.
I've tacked on the AROON indicator in the lower technical panel just for fun. This rather esoteric momentum signal needs to be "tuned" to reflect the beta of the study target and this is about the best we can do with VXX. Not a lot of BUY signals here and the door is wide open for further declines so thinking twice is the first caution here before getting bullish on the VXX.

Monday, March 15, 2010

Consequences of a Low VIX

Everyone knows the VIX has been in freefall for the past year, but for daytraders and short term swing traders this has consequences . . mostly of a negative nature. Gone from recent memory are those Prosac-grabbing 500 point daily spreads that provided the catalyst for more than a few traders closing up shop and finding other meaning of sustaining a livelihood. Back are the days of low volatility and, presumably, relative market calm.
Until the next black swan appears.
But, as part of this dramatic volatility decline, the daily ATRs have also decreased dramatically. Above and below are the SPY and Qs charts with the 8 bar ATR shown in the lower tech panel.
Since last April the SPY's ATR has dropped from 3.00 to the current 1.10 and the Qs have dropped from 1.00 to .52.
Now these are absolute values, not percentages, so the ATR of the Qs is actually large than the SPY. Also to be noted is the fact that these ATR values have to be considered in the context of the underlying price change. Hence, in April, an ATR of 3/price of 70 = 4.0%, while a current ATR of 1/price of 115 = 0.8%, only 1/5 the April value. You can run the numbers of the Qs, but they turn out similar.
The net result is that those 90 minute daytrades that use to produce a $.75 gain are now yielding a measely $.15. So while you may have improved your daytrading skills over the last year, you had to improve your performance by 500% just to keep up. They call economics the dismal science . . maybe they should call trading the dismal profession.

And what's a little surprising to an ole geezer like me is that the VIX ATR profile below looks exactly the same as the SPY, Qs and basically all the majors. So the VIX is kind of a victim of it's own success, and if you want to peek at the REALLY dismal consequences of this swoon, just check out the chart of the VXX . . the VIX futures based ETN. But more on that at a later date.

OK, enough of the grim realities of trading . . let's get back to the Neverending Story of the bull market. Friday was, well, a day to be doing something else. The NYAD hung on a neutral 1.00 value like static cling after a brief opening pop&go. TICK was neutral, volume was non-confirming and the closing stats , as shown below, were flaccid.

Friday, my little buddy and favorite VIXEN setp GE was the shing star of the day with over a 3% gain on sustained accumulation. This was an easy peasey trade if you track the GE/VIXEN setup chart on the blog or if you've got the setup on your own platform.
Every so often, and generally without much technical warning, GE blasts off , and pays off . . which is why IMHO it pays to monitor this little prima donna.

Friday, March 12, 2010

Qs Rule

We got the long awaiting dip yesterday morning, but it was quickly overwhelmed by muted accumulation that drove the markets into green at the close accompanied by multiple new highs in the majors. It was more like watching OJ's low speed Bronco chase than a real horse race, but the Qs crossed the finish line as the winner by a nose.
Not a lot of disparity between the top 4 and, with EWC slightly lagging 5th place, the old leaders continue to lead.
Yesterday's VIX action was a classic example of how frustrating it can be to try and capture VIX dynamics with VIX options. Although VIX did make a nice pop at the open, followed by a parallel action in the calls, for the remainder of the day the whole scenario went bizarro. After an early dip in the VIX it proceeded on up to new daily highs. . a situation that was accompanied by the plunge in call values to the low of the day. Now I understand that there are only 5 days left until expiration but I'm talking about the 20's here, not the 24's.
Following that 9:30 am pst high, the VIX plunged straight down, losing 1.34 points or 7% from the daily high to close at it's low of the day.
Meanwhile, the VXX actually closed up .4% for the day, further muddying the waters. Some days you just can't get a break with the VIX and yesterday makes the point in spades.

Thursday, March 11, 2010

Looking Familiar?

Yesterday's EOD Rotator update looks a mite familiar with EWC, IWM and the Qs leading the charge. IWM, Qs and SPY are really in a dead heat for poll positions and EWC's lead is not significant.
Ultimately is was a strong day with only GLD and 20 year bonds displaying any weakness. Even the VIX and VXX were in the green, leading to another unstable EOD as the VIX accelerated into the close.
Thursdays have the greatest statistical probability of being short term pivot high days
so it will be interesting to see how that bet plays out.
With virtually all the majors extremely overbought it's hard to fathom how the markets can continue uptrend much longer. Nevertheless, the market seems inclined to inflict the maximum pain to the greatest number of traders on occasion and I'm foregoing any new longs until we get a couple steps back. Meanwhile, my portfolio, which has been net long since mid-February has been re-aligned to reflect a more defensive fully hedged posture.

Wednesday, March 10, 2010

MLR Rotator Update

The MLR Rotator closed Tusday with EWC at the top of the list . . closely followed by IWM and the Qs . . . 2 ETFs majors that have led the market up recently. The closing numbers would have been much stronger had the markets not suffered a substantial reversal in the afternoon session as the NYAD plunged through 1, rebounding slightly to close at 1.27.
While the market majors all closed in the green, so did the VIX and VXX and, as mentioned previously, this signal of market instability in typically resolved in favor of volatility.
Keep in mind that the MLR sort is based on 2 day bars . . were it based on only one day bars it would look like the sort below. The VXX and VIX made nice rallies into the close and Project Z now has the VIX as a BUY, while the TS pivot low signal generated a BUY on Monday.

Tuesday, March 09, 2010

VXX Tracking the VIX

This is a followup to yesterday's argument for using the VXX to track the VIX. First of all, a couple caveats: the inverse of this study doesn't deliver comparable results. That is, the VXX works well to forecast the VIX but the VIX doesn't work nearly as well to track the VXX. . . at least for the purposes of this study, which uses my Project Z algorithm to determine pressure points which translate into entry and exit signals. This development is somewhat frustrating since my ultimate goal was the refinement of a Project Z settings that could be used to forecast the VXX, which trades like a stock as opposed to the VIX, which can only be traded via options, which are subject to their own decay and volatility issues.
This brings up caveat #2. The performance results of this study should only be considered in reference to the number of successful/winning trades. Since the VIX is a statistic and not a tradeable entity, there's a few monkey wrenches that have to sorted out here. The dynamics and pitfalls of entering these signals as VIX options trades are well beyond the scope of this post and each trader has to assess his/her risk exposure comfort level which, in turn, will determine how these signals are translated into trades.
Side note: the yellow dots along the price chart are pivot high/pivot low signals generated by the TS default PH/PL algorithm set to 4/2. I use the signals as a second set of eyes to confirm entries and guard exits.
I view this current study essentially as a jumping off point for further research but it's encouraging to find this initial foray into VIX/VXX alignment so consistent.

Monday, March 08, 2010

Monday VIXology and MLR

Here's a quick look at the VIX and VXX on both daily and weekly bars. It's instructive to view these two together as the VIX has declined 50% since last May, while the VXX has declined
75%, with considerably fewer rally episodes. Of course, the VIX is a statistic and the VXX is a tradeable ETN so we're not really talking apples and apples here. But potential VXX traders should take note of the VXX chart as it probably reflects underlying volatility sentiment in a truer fashion than the VIX. I've run the VIX against VXX in a Project Z study that I'll post later in the week to support that contention.
For now the downtrend in VIX/VXX remains, with VXX hitting lower lows each day and with the VIX retracing Friday to a previous low of Jan 11th. . .which was followed by a month long double top rally. This is really a critical breaking point for the VIX and this week should reveal what the near term trend will likely be.

Looking for some guidance this week, the MLR Rotator shows IWM has ignored upper resistance as it blows the doors off the other model components but it's ability to continue on this surge is more than a little suspect. The Qs showed their stuff as well last week and are now sitting at long term resistance (along with many of the other top ranked components). It's not clear what the catalyst would be to drive the markets even higher . . one thing it's not is jobs.

Friday, March 05, 2010

Market Tracking

This was the indices watchlist profile as of 10 AM pst yesterday and, if you've followed my previous posts on the implications here, your attention should be drawn to the green nature of both the SPX and the VIX/VXX. This unusual alignment signals short term market instability and is typified by narrowing trading ranges (which may extend for some time). This situation is further reinforced by the position of the NYAD which, at 1, reflects a neutral market condition and the TICK, which is not far off neutral at -105. This is a good time for a bathroom break.

And, while waiting for the consolidation to break, you can mosey over to the real time trackers on the right side of the blog panel to see how the Qs and GE are doing. I've recently updated these 3 vignettes, as well as the GE VIXEN and the full Qs tracker further down. All 5 FSC charts are now set to 60 bars, which improves the definition of the signals and avoids possible misinterpretation. The Volatility and Qs Prognosticators display a little algorithm that hopefully captures turns in both trending and trading range markets, while the lower (and bigger) GE and Qs charts contain a different set of indicators designed to display momentum.
I use these simple 3 real time vignettes every day to guide my Qs trades. When I see an alignment of the windows as shown below I pay attention because the short term 6 bar (yellow) linear regression lines have all tipped into a confirming pattern that translates into a high probability setup from my experience.

A little side note here: The bad news is FSC has upgraded their format since I originally developed all these charts and although they provide a dynamic widget generating feature as part of the site, it's no longer possible to create the robust charts such as those shown on the right blog panel. The good news is that I have the original code archived and the charts still display as intended in Blogger. Sometimes older is better (which is what I keep telling my wife).

Thursday, March 04, 2010

Second Mouse Gets the Cheese

Looking back on Tuesday's Rotator post finds GE in a rather sad situation. Truth be told, it's been in that low slot for a number of days, stuck at +/- 16 with little inkling of the next move. However, yesterday GE made a clean break generating a 2% intraday pop at one point. GE's volume was actually confirming, trading 50%+ above the Qs.
The VIXEN did a nice job of catching the big break at 10:35 and the trade was confirmed by the parabolics, the 8/8 hi/lo channel and the mid panel MAs so this was a high probability entry.
In like manner, the parabolics, 8/8 channel and 3 MAs lined up at 12:02 to signal a clean exit. This rather quick 90 minute trade yielded a respectable $.23 or 1.4%, a sizable portion of GE's current daily ATR of .34.

Reviewing the first 60 minutes of the chart is also instructive as it reveals a common VIX/price dynamic that often provides an alert for things to come. While it is easy to call that early VIX cross over and back a head fake type of move, the fact is that I've seen it hundreds of times and in about 85% of the cases it leads to the situation that unfolded at 10:30. This may be a testing of the water, so to speak, before the big move, or it may simply be the prop shops dropping the bid so they can pick up shares cheaper ahead of the bigger run up. Bottom line: my oft repeated mantra that "the second mouse gets the cheese" applies to this setup in spades.

Wednesday, March 03, 2010

MLR Rotator Mods

Short note: The Rotator's choice of EEM on Monday worked out nicely with yesterday's sort producing a similar ranking for today.
The MLR Rotator now has a slightly different look and an adjusted portfolio of components. I've initiated the component changes based on continuing Project Z studies and will eventually merge the output of single stock/ETF Project Z system studies with the MLR ranking in order to evaluate the rotation model using 2 diametrically different timing models.
First, the deletions . . DBA, EFA and DIA. DBA has never fared well as a rotator candidate and DBC effectively covers the commodities market for my study. EFA tracks technically very similar to EEM and I prefer the robustness of EEM. DIA is, in my opinion the toughest of the majors to trade technically. The massive gaming by major prop shops of DIA components makes trading this ETF a challenging proposition and I think there are many other ETFs/stocks that respond to timing models in a more reliable manner. Project Z actually does a great job of timing the DIA (85%+) but I think it's 30 stock base makes it too susceptible to surprises. That's just me.
New components include GE, BAC and EWC. While those selections may seem a bit odd at first glance there's really some method to my madness. GE is like Caesar's wife, all things to all men.
It's a financial stock, it's a tech stock, and it tracks more like an ETF than a single stock. With daily volume that often exceeds the Qs and IWM, GE is a high beta juggernaut that provides some attractive trading opportunites for short-timers like myself. Ditto for BAC which routinely trades 200M shares a day and which tracks very well technically. While it has no tech side like GE, BAC does have a beta 1 point higher than the XLF and for rotation evaluation purposes I believe it will prove useful to see how BAC ranks relative to XLF on the daily rotator update.
EWC . . OK, here's a wild card but, after many, many hours of testing, I've found EWC provides an interesting relational sounding board for both EEM and GLD, and EWC technically tracks very well (92%) on Project Z.
Side note: I've realigned the Rotator columns with % change (yellow) moved closest to the sort value. To further clarify: the "5 Day" column is looking at the stock/ETF's 5 day performance relative to the 5 day SPX.

Tuesday, March 02, 2010

EEM on the Move

Monday's surge put EEM in slot #1 with EFA close behind. TLT may have seen the end of it's recent run as the market looks technically poised for further gains although volume remains non-confirming. With the VIX sub 20 (19.26), the daily odds for a retracement continue to loom. Most of the indices are sitting at overhead resistance so IMHO traders betting the long side are best served by small, cautious and hedged positions.
I've pulled back on the blog right panel BZX chart, instead turning on the BZV2, which tracks 2 minute volatility based on a blend of the VIX, VXN and VXX. The BZV does not reflect actual prices or indices values, but underlying momentum and trend.
Project Z is currently FLAT on EEM, having exited on 2/19 a Long trade initiated on 2/9 for a $ 1.38 gain. The EEM butterfly trade continues to improve but after a month in the trade I'm putting a safety net around the accrued profits and will likely exit if EEM falls below my 39 strike target.

Monday, March 01, 2010

MLR Rotator & BZX

The Friday EOD update of the MLR Rotator has TLT once again in slot #1 after showing impressive gains on Friday. Keep in mind that the model is based on 2 day bars so the daily chart sometimes doesn't do justice to the actual slope of the MLR (6 period moving linear regression). I've expanded the column metrics with one more value . . that is the 5 day trend, which is shown abbreviated as "5 day". This metric should help put into perspective the relative proximity of the current ranking within a 5 day window of time.

I've also been fiddling with the previous XLF component Rotator and have added a few related ETFs into the mix in an effort to better discern likely momentum patterns. New to the XLF (now Financials) model are KBE (regional banks), KIE (insurance), TLT (20 year bonds) and SKF (ultra short financials). All ETFs have good daily volume and narrow spreads making them viable daytrading and/or short term swing trading candidates.
Interestingly, TLT pops up in slot #1 for the Financials rotator also.

On the blog right panel I have added the BZX2, which is my means of tracking intraday beta.
This chart in intended to serve as an adjunct to the VIXEN layout and is designed to help forecast short term market momentum from a somewhat unorthodox perspective.