Friday, May 28, 2010

Hedge Fund Favs - Part 3

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

Thursday, May 27, 2010

Hedge Fund Favs - part 2

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

Wednesday, May 26, 2010

Hedge Fund Favs

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

The MLR Rotator is showing quite a bit more short term green than yesterday with TLT and GLD still holding positions of high rank. SMH, which I mentioned before as a potential breakout candidate, appears to be chaffing at the bit to make it happen.
Wednesday's open was jaw dropping, although the afterhours weakness on Tuesday should have forewarned you that the following open was going to be something special.
While there's no denying the dramatic nature of Wednesday's turnaround, most of the positive momentum occurred in the last hour and it's possible that at least a portion of that late push was short covering rather than serious accumulation. And while a case an be made for a technical bottom, I'm standing back for a few days before initiating new swing trades, preferring the safety of daytrading setups instead.

Tuesday, May 25, 2010

GLD Poised

That nasty 80 point collapse in the last 15 minutes yesterday dropped a lot of otherwise encouraging looking charts to their knees, with most issues finishing at the low of the day and then trading lower after hours. What we're left with on the Rotator is a pretty rosy picture. Not rosy as in cheery, but rosy as is negative returns. While TLT continues to hang at rank #1, GLD was actually the best performer for those not choosing to be short outright (SH).
GLD's relative strength position can be seen in the Rotator Currency model below, where it
holds rank #2. SLV did beat out GLD yesterday but on the longer term looks less promising. GLD has retraced back down to the upsloping LR30 lower band and now looks poised to move back up to the channel mean at 119.50 and possibly higher. The mid and lower panel technicals are supporting this forecast as GLD has consistently followed through with technical upside signals in the past.
The only caution here is seen on the weekly chart (not shown) which clearly shows GLD is coming off an all time high double top formation. A somewhat similar setup back in mid 08 was followed by a pullback of about 25%, which would take GLD back down to the 95ish level. Geo-political conditions are considerably different at this point in time however so, as usual, caveat emptor.

Monday, May 24, 2010

XOM at the Gate

I mentioned XOM in conjunction with my XLE study last week. This week's gyrations have put XOM in a potentially attractive buying position. The chart above shows the weekly bars with my arbitrary view of long term support and resistance. XOM has been riding this channel since October 09 when it managed to span the entire channel width in a single week . . a not-inconsequential accomplishment. At that time the VIX was also running in the mid-40s.
Below is Project Z's take on XOM as of Friday mid-day . . a trade signal to exit a short position in effect since 4/27. This is NOT is BUY signal but simply a short cover signal. The outlook for XOM and oil as a sector still has a cloud over it, but if oil starts to display some traction, this looks like a good bet.
Over the weekend I watched a video Don Worden on Telchart put out explaining his feelings about likely market direction. He's not bullish . . and views the year long run up as mostly a temporary reversal of a longer term downtrend. He bases most of his argument on the strength of the MoneyStream indicator, a proprietary tool of Telechart that does have a pretty good track record. While he sees the potential for some additional short term upside, the longer term picture is lilely down. This is just one man's view of the markets but, based on Don's 35 years of tracking the markets, it's worth a consideration.
My old trading buddy, The Clueless One, is also a follower of Telechart and has a much more detailed exploration of the current MoneyStream (MS) situation.

Friday, May 21, 2010

Sad, Morose and Downright Pitiful

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

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

Thursday, May 20, 2010

A New Low

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

A Two-fer Approach

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

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

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

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

Wednesday, May 19, 2010

BAC-up Time?

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

Tuesday, May 18, 2010

TLT Run Continues

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

Monday, May 17, 2010

DBC Doldrums & XLE: The Oily Hope

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

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

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

Sunday, May 16, 2010

Monday Outlook

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

On the currency front UUP continues to blaze a hot trail closely mirrored by NEM, our recent currency proxy addition. GLD looks like it weakening at first glance, which is why it's important to keep in mind that NEM's beta is .60, while GLD's is .10. Gld has only 1/2 of NEM's price volatility but reflected a price trend 50% higher than NEM so we best to not count it out yet.
To facilitate the understanding of these Rotator models I've added a menu of the metrics columns on the right side of the blog. I also removed the Qs real time 2 minute chart and have added back the full market 2 minute real time prognosticator.

Friday, May 14, 2010

You Know It's Bad

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

GLD Rolls On

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

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

Thursday, May 13, 2010

GLD Turns Neutral

Following on the heels of an extended run up, GLD closed neutral on Wednesday's Strategy Matrix, with the short bias on the 5-15 minute bars and the long bias on the longer term. For future studies I'm expanding the scope of the GOLD exploration, adding silver to the mix for a number of reasons that will be apparent in the following days.
I've also been refining the old PDQ Dashboard and we'll be rolling that out in short order. The Gold PDQ turned flat as of Wednesday's close in alignment with the Stategy Matrix so we'll be interested to see how GLD behaves over the next few days.
The Telechart program is crashing (again) so there won't be a rotator update posting tonite. What I can show is the relative momentum of GLD, UUP, NEM, and SLV on the charts below. The UUP continues to be the big breakout story while GLD and NEM continue their impressive march upward. Wednesday's dojis on GLD and NEM haven't been seen for a while. In the past the doji has not been a reliable tell for GLD related momentum changes (55%) although it has about a 70% reliability with SLV over the past 16 months (my typical floating TS lookback study period).

Wednesday, May 12, 2010


Gold was on a tear Tuesday in various iterations. On the MLR Currency Rotator the GLD ETF and NEM are over 2x as strong as the nearest competitor, the UUP. Keep in mind that GLD has a beta 1/6th of NEM. If we normalize the 2 equities GLD actually kicks out a sort value of 24. A quick look at the charts would tend to sponsor a profoundly overbought view of both GLD and NEM (and most of the other gold stocks), but geo-political issues are driving these nuggets higher every day and we're likely to see more upside before a retracement. (also discussed in the Futures' article mentioned over the past 2 days).
The Project Z GLD signal is currently flat having booked some nice gains (shown below).
Below are the results of a Project Z scan of GLD over the past 16 months. There are a number of impressive metrics here including the max # of consecutive losers on both the long and short sides . . 1. The balance between the longs and shorts is also attractive. Considering that most systems I've looked at recently are (understandably) skewed to the long side, this is a rather refreshing pattern. With an average of almost 90% profitable the Project Z scan looks like it has great potential for tracking the GLD.

Tuesday, May 11, 2010

Gold Currency

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

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

Monday, May 10, 2010

Lifting the Veil

Here's something you don't see every day. . . the NYAD at almost 100. Of course it quickly faded to 50 and is now down to 25, but you've got to remember that a reading of 1 is neutral so this is wildly bullish. Quite a switch from Thursday's .03 readings.
The market is essentially a history of the strong shafting the weak and two (of many) articles by the cognoscenti Zero Hedge here and here lend some clarity to the otherwise headscratcher market behavior on Thursday.
And, for those who haven't accessed it yet, the HFT article in FUTURES cited in Friday's post is also a timely resource.

Sunday, May 09, 2010

Moving On

One of my favorite nuggets in Dr. Brett's poke was the observation that . ."If you're the smartest one in your group then you're in the wrong group." This is a wingtip corollary of "Two heads are better than one" and over the course of the past three years of this blog I've had the immense good fortune to meet and interact with a number of exceptionally talented traders who have stimulated a variety of topics for my research and helped to enrich my grubstake. Many of these traders I've never met face to face and yet, through weekly or daily communications, I consider a few of them among my best and most trusted friends. So . . I'm thinking maybe it's time to build some trader synergy.
For those of you not in the trenches the fact is that being a full-time retail trader focused on daytrading is actually a fairly lonely and isolated livelihood. While there are chat rooms, trader support groups, meetups and expos to provide venues for limited trader interaction, I believe most experienced traders would agree that daytrading requires a unique level of concentration and attention in order to remain consistently profitable. Active swing trading shares the same requirements . . buying the dips, selling the peaks . . and swing traders will always book more gains trading intraday than end-of day. Last Thursday was testimony to that fact.
"Expect success but prepare for the worst" spoketh the Donald and readers who've followed me for a while know that I'm much more concerned about NOT losing money than making money. Capital preservation is Job#1 in my book and is at the core of my bucket list . . that's my bias and it's been pretty transparent in my posts.
At the same time I feel that I keep repeating myself in the course of these posts. . and the blog is getting stale. Really . . if you can't figure out the VIXEN trade after reading a couple dozen of the over 60 VIXEN related posts then you should probably not be a technical trader. The trading setups I use every day are now well documented in the archives and while I may have done a better job sorting them all into neat categories, my goal was always to get readers to conduct their own research and develop their own indicators and systems to fit their trading style and risk management comfort level.
More than anything else, the blog has been a journal of my market investigations and exploration . . . always looking for those nuggets . . . and I've found quite a few along the trail.
But now it's time to move on to something a little different. Over the course of the next month I will be joining forces with several other bloggers and traders to create a practical strategy and solution based site that will focus on trading ETFs using a number of diverse approaches.
I originally lobbied for the site to be called "BZB and More", but that was summarily rejected by my "partners" so we've come up with something a little bit more . . communal.
While there are already other aggregated trader sites, I hope this one will prove to be a little different, speaking with a cohesive perspective and exploring a variety of markets to mitigate risk. At the same time we hope to provide an extended portal for trader resources and offer a spectrum of viewpoints on various trade setups . . sort of like Siskel and Ebert for traders.
When I first started this blog I was specific that one of my long term goals was to develop a basket of systems to trade a basket of stocks/ETF. The new site will provide an operational outlet for that goal, which is shared by the other site participants. Project Z and the PDQ Dashboard were direct products of that goal.
My focus will remain on Project Z and VIX related trading tactics while other members of the site community will focus on ETF rotation models, the SPX, pairs trading and perhaps, in a new departure, Forex . . plus a few wild cards.
Over the course of the next few weeks I'll be providing additional details about our new endeavor, which we hope will prove to be both educational and profitable for our readers.

Friday, May 07, 2010

MLR Updates & Futures

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

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

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

Wednesday, May 05, 2010

Volatility indices @ upper resistance

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

Midday and struggling

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

Tuesday, May 04, 2010

Shoulda, woulda, coulda

There's 3 words that I keep thinking I've managed to eliminate from my trading vocabulary. . but then days like today pop up. Watching Monday's close on the Strategy Matrix I noticed an unusual situation . . the VIX and VXN were both 27:9 bullish = market -, and the SPY, Qs and IWM were also flashing bearish 13:23 readings. At the time, of course, the markets were up big time and although the NYAD was running lateral, it was still delivering a strongly bullish reading in the 3s. After rapping my knuckles against the monitor a few times to make sure I was getting live readings I had to conclude that the technicals were clearly indicating impeding weakness.
Meanwhile, the Currency Rotator was flashing a confirmed UUP BUY signal (see previous post), but my feeble ole brain was suspicious of that signal, opting instead to stand back and wait for some additional technical confirmations. Bad move.
My point? Technical traders like myself are occasionally faced with a dilemma . . to follow or ignore an active trading signal. In this case my decision to ignore signals on the Matrix and the Rotator resulted in a significant opportunity cost and a bit of drawdown on open Longs that I should have exited at yesterday's close. Despite the many limitations of technical analysis sometimes it works superbly, while over-analyzing a trading situation can have costly consequences. Shoulda, woulda, coulda.
Three hours into today's session and the NYAD is tracking along at .14, having hit an earlier low of .13. Event days like today where the markets open at S2 or lower offer limited opportunity for high probability entries IMHO since the conditions setting up a bounce or follow through scenario are difficult to evaluate out of the gate. Best to stand back and wait.
With the VIX and VXN making 25% jumps today and the QQV up almost 32% we may see NYAD values down to .10 or lower . . a strong indication of exhaustive selling momentum.

Monday, May 03, 2010

Monday Tune-Up

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

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

Sunday, May 02, 2010

TLT Upslope

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