A bounce

Qs and everything else popped today on the news from IBM that things are good. Although the volume wasn't all that convincing, the Qs opened at R1 and basically hung around there all day, neither declining to PP or rising to R2, which I took as a sign of non-commitment. Although these days of non-pivot turns occur about 15% of the time, they seldom follow back to back, so I suspect the market will yield clearer turn signals tomorrow.
I took the Open pop as an opportunity to buy back the MS puts for .05 that I sold Friday at 15:15 for .18 and which closed Friday at .12. Interestingly enough, although I bought back the puts for .05 at 9:32 this AM, and the Qs closed .30 above the open, the MS options were still trading .o5 at today's close, even with a whole day of decay. A bit unusual it seemed to me, and when I saw this behavior going into the last 15 minutes I decided to go the other way and bought the OTM Feb puts, since decay is going to get ferocious for the next few days and there are few short put plays that look attractive right now. We may actually get a little more juice out of this rally, and if so I will adopt a delta neutral position and will look to exit the long side at or before Wednesday's close, the highest probability 3-day pivot high day.

Qs Weekly Update

Top chart is weekly Qs; lower is weekly VIX.

Qs down $ 1.35 or 2.79% for the week. November support was dramatically broken the week before and the next stop looks like the August lows. That corresponds to the monthly 3LRs study of the Qs earlier this week and is suggested by the current technicals, which (perhaps surprisingly) to NOT indicate a significantly oversold market. Thursday's rally attempt fade provided a good tell that buying was most likely the result of short covering rather than value plays. I think the short term odds remain on the sell side as there are few sectors of the market holding up (utilities are an exception) and most are looking vulnerable to further erosion. The VIX also looks like the current trend is up towards the mean at 27.50, which doesn't encourage me to play the long side. Until I see some base building daily patterns I'm inclined to focus on delta neutral premium decay tactics and very short term day trades based on the daily pivots, which provided consistently reliable signals for the past week. Cash is a good place to be until this thing sorts itself out because if we break the August lows the next stop for the Qs is at the 36 level, and that, my friends, is a long way down.

New US Currency Revealed

In case you missed the news, as part of a comprehensive plan to revitalize our faltering economy the administration is rolling out a brand new currency. Since the dollar is on the verge of falling to zero anyhow, this seems like a great idea. For complete details, check the following: http://blip.tv/file/520347

Selloff continues

Today's Qs chart was the exact opposite of yesterday's. What remained the same was the action off the pivots. A lot of technical damage to the NAZ100 leaders today drove the Qs down .94 at the close. The immediate slide to S1 after the open was a bad sign but I thought we were out of the woods at noon when I sold some OTM near puts. That didn't pan out too well and when the Qs got that squat bar going 14:00 - 14:30 you knew S2 was the next stop. Sure enough S2 got hit and I sold a few more puts (hoping the Qs wouldn't really get nasty and drop another pivot before the close). We then got a market wide reversal that carried for about 30 minutes before the obligatory fade into the close typical of Fridays. At the end of the day, my short puts were actually ahead a few cents and with weekend decay factored in, the position should be good on Monday. The technicals suggest there is still more selling to come, as there has been no high volume selling frenzy or the parabolic price capitulation characteristic of a true bottom, so my plan continues to focus on selling short term premium.

Late note

Also note today's and yesterday's posts at Bespoke. This is a series of excellent articles that showcase current market conditions and at the same time detail some backtests of select earnings reports that can provide a tactical advantage if you like to play the earnings game. Definitely a keeper.

A mixed day

The Qs went on hold until 12:00 when Ben mumbled something about doing whatever was necessary to keep the economy afloat. Figuring that there would at least be the impression of good news coming, I picked up some long calls at 11:00 and was ready for the blastoff. I was looking for a short term exhaustion top at 12:20 to exit and had my finger on the button watching 1 minute bars, but by the time I concluded the top was made (elapsed time: 90 seconds) the calls had already retraced .03 before I could get out. Just not as fast as I used to be. I did nothing for the next few hours until 14:00 and with the Qs coming off the PP pivot once again, I sold the near OTM puts. Volume was inconclusive going into the close and there is still an obvious bias towards the sell side at this point. My goal is to focus on premium decay rather than directional moves for the next few days.

A bounce

The Qs continued the sell down today on decreasing volume, culminating at 14:00 in a low volume swoon towards S1 and then changed direction on a (suspicious) low volume reversal which held for the remainder of the day. The action got a little weird around 13:45 when option activity all but dried up as traders waited for the plunge to and possibly through S1. The opportunity to scalp the bottom lasted about 90 seconds at 14:10 before the market makers opened the normal .01 spread to .02 and .03, apparently not wanting to give anything away and at the same time hedge their positions. That spread opening provided a good tell that the trend was about to change.
I flip flopped in and out of a couple short puts plays early on. . .then went flat into the afternoon until 14:15 when I sold some OTM puts. With 10 days until expiration a lot can happen, but at the close I was up 50% on the position so I've got some margin to play with as decay wears away. Friday is typically a high volume day for rollovers and premium decay should begin to accelerate significantly at that time. I typically load up on short puts going into the Friday afternoon prior to expiration week just to capture the premium decay. If the Qs hold together till then I will take a flyer on that game, but I'm still a bit wary of the Qs based on the 3LRs studies posted over the past 2 days.

Qs monthly perspective

For another perspective on the current situation with the Qs, here's a monthly chart of the 3LRs study (30,11,3) which shows the Qs superior performance in 2007. The chart also dramatically shows the carnage of the current month. Reversion to the LR30 mean would bring the Qs to the 45 level, which may not necessarily get hit on this cycle, but it's a target to keep in mind.

Qs track. . then plunge

After my whining about the Qs not hitting the pivots yesterday, they got back on track, but it wasn't pretty. The lazy W pattern that the Qs displayed today could have provided a good foundation for a intermediate term bottom. Instead, the last 90 minutes saw the Qs drop all the was from R1 to S2. That's a long ways to fall in that short a period and the volume was escalating into the close, suggesting more of the same to come tomorrow. For those who follow the VIX as a inverse indicator, I suggest you take a peek at my earlier post today. . .which was made while the markets were in the green. The VIX 3 LRs study doesn't imply a bottom will develop at VIX 27.50, it just means the VIX is headed in that direction.
The Qs are now down to levels of May 2007 and just a few dimes from the August lows. Investors have seen 8 months of gains dissipate in 2 weeks. . .so you've got to ask yourself whether buying at this level is tactically prudent.
I was playing it extra cautious with the short puts I sold yesterday into the close along with a long call position on EBAY that looked promising when I put it on 10 minutes before yesterdy's close. At 10:10 today, with the Qs making a squat bar at the PP pivot and an impending medical appt. 30 minutes away, I bought back the puts and sold the calls. . .each for a measely .10 gain. I seriously debated with myself before closing the trades, since I have a bad habit of taking profits too soon and thereby cutting my profits short and bringing on heavy levels of regret and remorse ( see Dr. Brett's site for an exhaustive study of these trader foibles). Unfortunately, ( or fortunately) I didn't get back until 10 minutes before the market close and was grateful that I had indeed closed those positions, as I would have been some $800 poorer if I had left them open. Sometimes dumb luck works. I was tempted to sell the Q puts again in the last 10 minutes, since their value had increased dramatically from the morning session, but the sheer volume and virulence of the decline made me stand back as I sat with my finger on the trigger and watched the seconds tick by to the close.

Another look at the VIX

I haven't looked at the VIX for a while, but this 3 linear regression study (30,11,3) of the weekly bars gives something to ponder. Given the upslope of the VIX since the beginning of 2007, the 30 bar channel has been a good overbought/oversold tell. Disregarding the current oversold character of the markets, the position of the current VIX bar suggests that increased volatility is the likely trend for the near term. Based on the 3 LRs model, a reversion to the mean would take the VIX to the 27.50 area. . which would translate to a significant decline from current market levels. This concept is at odds with my previous VIX trading methodology which revolved around the VIX's propensity to revert at least 50% back towards the mean within 4 days. . .the mean being the 10 and 20 day SMAs. . when an 18% boundary had been violated. Although that system worked well going into late summer (82% reliable for the IWM)), the August and November performance was rather pitiful as the inverse correlation between the VIX and market returns failed to hold up. In hindsight, (always the best way to trade) the 3 LRS study would have proven the better choice to time my swing trades (2-4 days) and I am adopting this directional model for my current short term trades in the Qs. If nothing else, the 3 LRs model suggests exercising caution before entering those "can't lose" near term longs. "Better safe than sorry", as my ole Pappy use to say.

An unconvincing day

We are again seeing divergence in the Q time frames. Currently overbought on the 5 minute and oversold on the daily. The 30 minute sell down that began at 10:00 got a lot of people's attention. With AAPL down over $9 at one point and RIMM close behind, the idea that the whole market might just implode looked like a possibility. The fact that the Qs managed to rally back to the open price was encouraging, but I was unconvinced. The ensuing sell down from 13:00 down to the last 20 minutes looked like we were in for a pitiful close, but the late buying surge brought the Qs out of the woods. Interestingly, the Qs failed to kiss the pivots, either up or down, and I'm unsure what significance to attach. Premium got sucked out of both the puts and calls at the open, and I closed my Friday longs 10 minutes in, staying flat for the majority of the day and then selling near OTM puts at 15.25 and .03 off the low. The position at the close was .06 to the good, but if things get hairy tomorrow, I'll exit and wait for the next setup.

That was Bad

That was about as bad as it gets. The chart doesn't look that scary until you realize the Qs opened below S2, immediately fell to S3 and ended day somewhere in the neighborhood of S7. The Qs hit my intermediate low target of 49.15, and then proceeded down to an overflow 48.85. .which I (unfortunately) took as a buy signal for a modest near OTM call position. So that didn't turn out very well and to add insult to injury I picked up some more calls 10 minutes before the close. This falls into the category of a "hope" trade, or bet more than a reasoned tactical play. But with the Qs 6 days down and now at the lowest since September 19th the odds for a technical bounce (at least short term) seem reasonable. The Qs may get some follow through selling on Monday as those last few bars at the end of the day were decidedly negative. With 15 days to expiration I need any move up to happen fairly quickly as premium decay will start to kick in with a vengeance towards the end of next week.
Fortunately, I'm still 95% in cash and plan to remain so for the foreseeable future.

5 Days Down. . almost

Top chart is the daily; lower is 5 minute.

The Qs were down for the 5th day in a row, (until the last 5 minutes) giving a 77% chance of an up day tomorrow. The Qs certainly looked like they were moving early on, but the positive NAZ100 components were mostly of relatively low volume (ORCL was the exception). . .so minimal impact to the index totals. The NYAD and the VIX moved lockstep today and the turn at 12:30 set the tone for the rest of the day. I managed to get out of my long calls in the first 10 minutes... and then watched as the Qs churned on up to PP at 10:00 and the calls actually declined. . .weird. I'm still short the near puts into the close and although the Qs fared poorly, the puts actually fell a few cents (a good thing for me), but again weird. The Qs are now up .11 after hours. The little doji that formed on the daily chart today looks bullish going back to mid-December. I typically like to see a 3-4 bar hairy bottom (candle tails) before getting excited about the turn, but you gotta take what the market gives you and this may the start of rally (which I will look to sell ).

Wednesday

Dr. Brett had an recent post noting all the 2007 DOW gains could have been made by simply buying Tuesday's close and selling Wednesday's close. That system doesn't show the same stellar results with the Qs, but it corresponds with my research marking Wednesday as the best performing 3 day pivot high sell day. In today's case, unfortunately, the system only worked if you bought puts Tuesday and sold today. . . but the holiday, FOMC and other economic reports and light volume coming into the day should have been clues to stay away from this Tuesday/Wednesday anyway. I managed to gird my loins coming off 13:00 and went long the near calls. I was looking for a retracement up to S2 (at least) and when the Qs stalled at 14:15 I decided to just take the money and run . . . I'm glad I did. We closed somewhere down in the S5 region and my RSI(2) daily system triggered at 15:45, so I'm now long the near calls and short the near puts. I'm going to keep tight stops on those trades as the Qs may continue down to the 49.15 area if overall weakness prevails and my strategy would be to close those current positions, rather than add to.

Blue Monday

A Blue Monday, for sure. So much for the positive tone of Friday's 30 minute bars. The Qs were in a downdraft from the get go and never looked back. I was encouraged about 12:30ish when it looked like S2 wasn't going to get hit. With the overall market weakness it should have been a forgone conclusion. And the breakout at 15:00 might have also been encouraging, except there was no volume to drive it. That being the case, I was not surprised to see a fade into the close, although I had not anticipated the virulence and volume of the action. Since the first few trading days of the new year are historically very positive, I was looking to put on a modest long position. I ended up selling OTM near puts at 15:45 and .02 off the close. The only positive thing about the close was that the Qs didn't violate S2. As in similar instances last week, I suspect that if more big traders had been active the close would have been well below S2.

Let's see what fun and games the new year brings.

Good luck all around.

BTW, earnings are upon us and here's a great set of articles from the Stockbee to help you navigate the perils and opportunities this time around. Definitely worth a look if you like to play the game.

Qs Weekly Update

The Qs finished up $ 1.04 on the lowest weekly volume for the year, so any technical comments at this juncture are surely suspect and should be considered in the spirit of possibility rather than probability.

The top chart is the weekly 3 LRs study (30,11,3),

the lower chart is the daily 3 LRs study.

My spin on the current trend it that there seems to be considerable overhead resistance around 52.60 for a further short term move up in the Qs. This may, in fact, be overwhelmed by Apple's earnings on the 16th and the other NAZ100 gorillas MSFT and INTC. RIMM already came out strong and the market reaction was very favorable. In the interim, I'm favoring intraday short side plays with the aim of selling the rallies, not buying them. I'm also battle worn enough to know tight stops are essential at this point on the calendar, as job #1 is capital preservation. Next week's shortened session will probably not illuminate the picture much better and although I'd like to drop a butterfly trade on the 51 puts, I holding until Wednesday to avoid a possible Monday surprise.

I recommend at this point that you pour yourself a drink, click on over to the Clueless one's site and carefully read and perhaps reread every word of his posts for End of Year and Friday EOD. Cucca and I have very similar styles and interests as we both focus on Q options and play a variety of similar strategies with them. Our technical interpretations of the market are based on somewhat different parameters and indicators however, and one of the great things about the trading blogosphere is that informed and experienced people are willing to share ideas openly in the spirit of learning and growing (and hopefully to make a few centavos). If you haven't met Cucca before I hope you will enjoy the ride.

Dr. Brett recently suggested the creation a virtual trading rooms between like minded traders to facilitate the exchange of ideas and create a kind of trading synergy. I tried that around September but was deluged with spam and worse from folks who apparently have nothing better to do than create misery for others. I am, however, willing to give it another try and if my trading style and methodology (see sidebars) resonant with you, then I'd be glad to hear from you with the goal of forming a live online forum. My aim is to have as much fun trading as these guys have playing music: http://youtube.com/watch?v=z_k-CL3dJ8k

The blahs

Top chart is 5 minute bars, lower is 30 minute.

Qs finished the day just where they finished yesterday on like volume of 67M. The call premium evaporated like smoke in the first few minutes of the session and only very nimble fingers could capture any overnight gains. The 5 minute bar at 10:00 was a real doozie, dropping the Qs $ .27 on 2M shares. That should have been the clue that there was more to come, and after another hour of building false hope, the slide to and through S1 commenced. The Qs did show some strength at 13:30 (an untypical time for such behavior) and managed a respectable rally until 14:45 when the selling wave knocked it back down to S1. So what had taken the Qs 1 hour and 7M shares to gain, was eliminated in 20 minutes on 3M shares. Interesting how order flow gets queued to create these market dynamics and I sure wish there was some way to see it coming.

The 30 minute chart looks somewhat optimistic, having made the turn and with 3 parabolics up. Needless to say, I'm not convinced that UP is the next wave and I deferred making any weekend holds from a strictly risk management perspective.

Pullback

The assassination today put some real turmoil in the markets. Early on it looked like the Qs might actually hold it together, but the downward momentum was just too great. Checking over the NAZ100 components I was amused to see that about 85 of the components were negative and the only real strength was in AAPL and AMZN. Once AAPL started down the swoon was inevitable. Once again the volume was subdued. . .67M for today's count. I suspect we would have been looking at an S3 or lower finish if the volume players had joined in. We've seen these little hooks at the end before. . .typically they can't be relied upon to predict next day opens.
I'm currently flat, having covered the calls I sold yesterday.

Qs hit 52.60 target

The Qs made a solid run to the target I've mentioned for a few days: 52.60. Today that target (amazingly) corresponded to the R2 level so with the upward break off the PP pivot at noon, it was a good bet that 52.60 would get hit. The Qs then picked up volume in the last hour and slide back a bit to close at R1. Not the end of the world considering generally weak market performance today, especially in retail and the financials. Keeping things in perspective, the Qs only traded 57M shares today. . up from Monday's 35M. . but this session was 6.5 hours, not 3.5 hours like Monday, so the pace was actually about the same.
I did manage to sell some OTM calls right at the R2 kiss and am looking for a short term pullback to net a few dimes.

TickerSense notes that all 10 of the S&P components are either neutral or overbought, so we may be seeing the beginnings of a slide back to the lower LR30 regression channel (see Saturday's post) which would suggest a short term target of 50.

Monday

The Qs Sweet Spot trade was triggered by today's opening gap, but I failed to take it when the 6:38 -6 :45 pull back failed to materialize. Volume, as suspected was a pathetic 37M (the lowest since July 3) in the Qs and the action was essentially flat after the first 20 minutes. The usual gaming in the last 45 minutes, with a quick retracement into the close. Not much to be made of today's action, which may also be the case for Wednesday. Still watching 52.60 resistance.

Tis the Season

Still trying to figure it all out? Here's a picture that will help put things in perspective for the Christmas season.

Viewing instructions. . . . . . . . . . .

1. Open window to max size

2. Relax and then focus on the 4 small vertical dots in the middle of the picture for about 30 seconds

3. Now. . .take a look at a wall or light colored smooth surface near you (a blank Excel or Word doc also works great.)

4. You will see a circle of light start to develop

5. Blink your eyes a few times and you will see a image emerge.

Qs Weekly Update

Top chart is the weekly 3 LRs chart, lower is the daily.

Current reading: weekly - negative; daily - positive

For the week, the Qs were up $.88 or 1.73%.

We finished the week on 2 solid back to back gap-ups, a pattern not seen for a while. Meanwhile, the Qs are approaching intermediate resistance at 52.60, which may take the form of a 3 day pivot high. As noted in Friday's post, the Sweet Spot Qs trade is setting up nicely and if the Qs do gap on Monday I will likely fade it if we get the the usual 6:38-6:42 turn. That's strictly a short term trade, as the ho-ho spirit, visions of sugar plums and a low volume could well propel the Qs through 52.60 and back up to 54.00. Stranger things have happened recently, and in the unlikely possibility the Qs do land on higher ground next week, I will not be chasing them up but will be holding back until the technicals start to deteriorate once again.

What's next for the Qs?

Continued momo in the markets today, although on the lowest volume in 10 days in the case of the Qs. The volume surge to the upside in the last 10 minutes was encouraging for those looking for a continued Santa Claus rally. I stood back from today's action due to some other commitments, but with little regret. My current inclination is to be cautiously long as we approach serious overhead resistance and then move heavily to the short side once the rally wanes. Despite good earnings from RIMM, ORCL and others, there are still major holes in the economic fabric that will not be resolved any time soon.

With abbreviated trading next week, there will be lots of opportunities for the games that usually get played in low volume sessions. Stockpickr has one short term approach to trading the recent pop in the Qs that they call the QQQQ Sweet Spot. Based on the strategy parameters , the entry gap at the current price to trigger the trade on Monday is .15 -.31. They also profile a number of other Qs trading tactics, profiled under the Active Trader tab, along with a daily update of high probability trading candidates.

Be sure to use a stop.

Looking for Mr. Goodbar

It sure looked like it was going to be another slow burn day, with premium getting sucked out of the near options at lightning pace. Then, at 13:00 a flurry of buying, followed by a modest low volume retracement before a full scale rally at 14:00 that carried through the rest of the day. Some suspicious pre earnings moves in RIMM got the momo going, which has followed through after hours. I made my move to sell naked the 51 calls in the first half hour and sat out the action for the rest of the day. With all the gaming that goes on at expiration, I'm tempted to hold back on tomorrow's session hoping to gain some clues to the level of short covering that was responsible for the breakout surge this afternoon. On the other hand, with excellent news out of ORCL and RIMM I'm expecting a good pop for tomorrow's open, which should scare the bejesus out of all the guys that sold the 51 naked all week, which will probably foster even more cover buying. If we actually do get momentum that pushes the near 52s into double digits I will be inclined to fade that move short term.

A calm day

The Qs started out midpivot and finished midpivot, having failed to gain much traction during the day. That 3 hour waddle along the S1 pivot looked like it was going to turn nasty, but the 14:00 buying put that on hold. I was looking for a nice bounce up to sell some naked calls at the open, but the premium evaporated in the first few minutes to the ridiculous level and I held back. May go for the 51s tomorrow if we get some momo up in the morning.

An interesting post by Ticker Sense today on reported lowered expectations for the next quarter's performance and why you shouldn't necessarily accept it at face value.

A classic day for the Qs

The Qs continued the slide out of the gate, settling right at our S1 target of 49.30, before gradually chewing back up to close at the PP pivot. templates. The TICK picked up significantly after 13:00 with a change of character (see above), which in turn got the NYAD upslope into the close. Volume also picked up a bit today and tomorrow's action should reveal whether that was due to short covering or true buying enthusiasm. The slow cycle move today between PP, S1 and PP was picture perfect, with a little flurry of selling at the tail end telegraphing the market's uncertainty.

From bad to worse

Things looked ugly at the open with S1 as the starting point. They didn't get any better as the day wore on. In fact, the downward momentum was led by the NAZ and basically followed the same downslope from Friday. Noon brought the technical possibility of a rebound, but that little spurt of low volume buying was met with renewed selling pressure. Now that the Qs have broken down through 50, the next support looks like the 49.30ish area. If that fails to hold, then the August lows are the next target. Since the Fed move failed to generate sustained buying, or even a holding pattern, it's hard to figure what possible factors could lead to a rally at this point in time. Pegging your hopes on a Santa Claus rally or the January Effect is a bit tenuous (and risky). The momentum is clearly down and I would look to set short any rally into expiration.

Dark Pools - Part 2

Here's another article on the rise of Dark Pools, as a follow up to my previous post on Dec 13th. The article reports that 7-10% of daily market volume is Dark Pool transactions. That's a big number when you consider that retail trades account for an average of only 3% of daily volume. Most of the Dark Pool transactions never get reported, which makes their prolifieration even more worrisome. Some interesting tables and charts in the article if you take the time to dig in.

Qs Weekly Update

Top chart is weekly 3 LRs study; lower is the daily.

For the week the Qs finished $ 1.36 lower, or -2.60%.

Both charts now look bearish.

On the Weekly, the Qs failed to carry through on the LR30 channel mean and have broken down through the LR3 lower channel. The MACD and OBV have turned negative. although the RSI has not come on board with an overbought signal yet.

On the Daily, all indicators with the exception of the short term RSI are also negative. Friday's profound negative action as reflected in the falling hammer was a complete reversal of Thursday encouraging close. This 49-50 range looks like the next target, and with expiration upon us this week (Triple Witching, actually) there may be some added volatility. Caution is advised.

No relief

Once again I got snookered at the open, having failed to sell my long calls at yesterday's close. I did manage to exit flat after the first 60 minutes, but that only made me even. The Qs spent the rest of the day in a 2 step down, and as expected, sold off on increasing volume into the close.
If there's any good news here (it might be a stretch) the Qs did not fall down to S2 for the close. . which looked like a distinct possibility in the last 60 minutes as the DOW plunged, feigned a turnaround and then sank again.
Being a ceaseless optimist I picked up a few long calls right at the close, looking for a Monday early rebound. Of course, that's more of an outright gamble than a reasoned trade, since the vast majority of recent economic reports have been decidedly negative and the overall market mood is somewhere between grim and morose. If the retail sector chimes in with poor sales figures, that will only aggravate the current weakness. I'm glad to be over 90% in cash and based on this week's trade failures with overnight holds, will probably discontinue that practice.
The weekly Qs update will be posted on Sunday.

Short term bottom?

The Qs finished a few pennies higher than the open on strong volume. For most of the day the action resembled paint drying. At a couple points I rapped my laptop to make sure it was still working. As surmised in yesterday's post, my end of day bravado holding long calls turned out to be misguided, leaving me .14/contract poorer at the open. I managed to gain back a few pennies before dumping the position and going short. That position held for about 90 minutes before I bailed and went flat. About 13:45 TICK action started to pick up, all my indicators turned up and my Q tracking stocks turned positive, prompting me to buy the 53 calls. That turned out to be good trade as the Qs inched up into the close on increasing volume. The fact that the DOW turned around pretty impressively from -100 to + 40s was also encouraging. I'm again net long, trusting that I won't get caught in ringer overnight. The TICK was surprisingly bullish for much of the day. I have alerts set that sound a tone when the TICK hits 525, 800, -525 and -800. The majority of alerts were bullish going into the afternoon session, although the mean TICK readings stayed firmly at the PP pivot. The NYAD went upslope for the last hour, which added further encouragement to my maintenance of the long calls into the close. Tomorrow's Friday and with the current extremely negative mood about the financials, real estate, retail, etc. . we may see a risk management sell off into the close (I may join the crowd to avoid paying the weekend premium decay).

SFO and the Rise of Dark Pools

SFO magazine typically has great articles and this month is no exception. The issue of Dark Pools is something I had vaguely known about, but had no real information about. This article changed all that, and now I've got to up my Lexapro dosage to overcome this new worry. But really. . .it's worth a few minutes of your time to learn a little bit more about Dark Pools since it will help you appreciate and understand how the deck continues to get stacked against the retail trader.
One way to avoid the problems with the Dark Pools is suggested in the article on Butterfly Nets, since this is a strictly premium decay strategy, although it can be set up with a directional bias. A bit complex to set up for some ( many platforms let you set up and enter the order as a single trade) , but Mike Parnos does a great job of explaining the risk/reward the setup and the ideal time frames. Worth a close look by option traders looking for another potential revenue stream.

Register on line for a free subscription.

Indecision

The Qs daily chart actually looks fairly benign, with an open at R1 and an almost touch of S1 late in the afternoon, before a very green run to the PP pivot for the close. What is not apparent is the size of the range today. . . $1.55 as compared to yesterday's $1.63. Coming out of the gate this morning the markets looked pumped to crush the shorts, but when you start with the NYAD above 14, we are in very thin air and levels like that cannot be sustained for long, regardless of the shenanigans the FED is trying to finesse in order to buoy up the ship. Such was the case today as the NYAD declined to bearish levels of less than 1 in the late afternoon.

I used the open as an opportunity to close my naked puts, which retraced to approximately yesterday's open price and then turned around and bought the same puts. I (unfortunately) misread the surge (and accompanying signals) at 13:00 and closed the position, thereby missing the collapse at 15:00 and leaving .20 on the table. I watched the hairy bottom form for almost 30 minutes and with the parabolics and the signal line flashing a BUY signal, bought some OTM calls which I rode into the close and (in an act of bravado) decided to hold over night with the idea that the surge may carry over into the morning session. The Globex is -375 at the time of this posting, so I may regret my action.

Late Note

For those who follow Worden Brothers ( I use the data feed and charting for the linear regression studies, which I am unable to find otherwise displayed as clearly as on TC2005), all indicators for the major indices (SPY, DIA, QQQQ) in all time frames are now DOWN (that's bearish). I've been with Telechart since 1987, in all it's iterations and consider their comments about 80% reliable. .for what it's worth. If you still have a bullish bent . . just beware that you don't let HOPE over rule your reason. Always have an escape hatch ready, especially in these unique times.

Disappointment

The sleeping giant woke up a few minutes after 14:00 and wasn't happy. Massive volume surge sent the markets into freefall and the stalwart Qs crumbled also. Looked pretty good going into the Fed news and expected skinny volume, but that all changed quickly and dramatically. Qs finished the day on the highest volume of last eight days and given recent behavior that's all you need to know to correlate with down days. Tomorrow we'll see how much of this momo selling was program trading inspired if and when we get a bounce up.

NOTE: Sorry for any misunderstanding about the intent of my previous post. The title was cleverly designed to convey the message: A good time to buy the financials. . .when pigs fly, NOT to convey the idea that now is actually a good time to buy these timebombs.
I noticed that Citi came out with a SELL rating on WAMU this morning and watched with some amazement as it retraced 50% of its overnight gap down. But following the ratings observations of Stephen McClellan as noted in ACTIVE TRADER on an earlier post today. . I figured the odds of this thing imploding were close to 100%. I was not disappointed on that one.

A good time to buy the financials

Just my opinion of course, but this thing just keeps getting scarier and scarier and indications are that the worst news may be yet to come, especially for the thrifts and mortgagers . A sector to avoid for those who want to sleep at night and not wake up to the likes of today's news and resultant action in WAMU and FNM.

The Analyst Racket

With today's developments in WAMU and a few other financials, there is a very timely and eye-opening interview with Wall Street insider Stephen McClellan in the January 2008 issue of ACTIVE TRADER on what analysts' recommendations really mean. Just in case you thought you understood the ratings game, McClellan pulls back the veil and offers some unexpected suggestions on how to game the ratings yourself. Hint: it's not daytrading. I wish the interview had been a lot longer, but it's provides enough tease to get you interested in buying McClellan's new book - FULL OF BULL. (that's the name of the book, not a comment). Nevertheless. after reading the article you probably will have a greater respect for the power of ratings changes.

Waiting for Tuesday

Some indecision for the Qs today as the R1 pivot became the focus of attention with some slip over both up and down for the duration of the day. The low volume also reflected the sidelines view. Tomorrow, of course, will be volatile and we probably will not know what the street really thinks about the news for a few days.
Some momo in the financials today. WAMU apparently using the opportunity to announce after the close a huge dividend cut and the shut down of 190 loan centers. Can't be good news and WAMU is down $1.70 from the close. Probably a few more of these nasty surprises will follow shorty as earnings season approaches.

Qs Weekly Update

Top chart is the 3 LRs daily Qs.

Lower chart is the 3 LRs weekly Qs. Net change for week = +$ 1.02.

Some interesting developments are noted this week in the charts. At first glance, both time frames appear bullish. On the weekly the Qs have bounced against the mean for the last month and although the short term LR is headed up, it has done so on declining volume. The daily chart is somewhat cautionary in several respects. Although the Qs have managed to land above the upper LR30 channel, the RSI looks overbought and the latest 4 day rally has also been driven by sub-normal volume. Friday's doji may be harbinger for a short term retracement as the big money prepares to game Tuesday's FOMC news.
For the past week I have focused on the intraday pivot moves, selling calls at cycle tops and selling puts at cycle bottoms. This is a somewhat risky tactic for my typical comfort level and I plan to to be flat going into Tuesday and then adjust my intraday tactics to a spread basis, being long calls and puts, just in case the markets gets dicey pre-expiration.

Qs take a break

An oddly narrow range day for the Qs today, with the close just .03 off the open. Although the Qs did manage a bounce off S1 in the first 30 minutes, the pivot lines became elusive for the remainder of the day as the Qs meandered around the zero line. Some pre-noon hour momentum looked like R1 might get touched, but the 4 black crows got knocked down by a selling wave for the next 90 minutes. There was similar little conviction noted in the rest of the markets in anticipation of next week's sure-to-be-exciting FOMC news on Tuesday.