Qs Risk Map

Here's a little risk assessment tool of the NAZ 100 courtesy of the NASDAQ that I've mentioned before. For those who daytrade the Qs I find the tool useful in constructing a mini-watch list to gauge impending momentum in the Qs.
Currently, I use a mini-list of RIMM, GOOG, AAPL, MSFT, INTC and QCOM to help forecast Qs action (not shown).
This is a quick visual version of the 3 Finger Lead study in the Qs Dirty Dozen systems and when these Qs components are rolling to new highs (or lows) on 2 or 5 minute bars the Qs are soon to follow.
I also monitor the relative % gain (or loss) in the Qs and the mini-list, as the tendency is for the Qs to rise to the median level of the mini-list % gain (or loss). The beauty of this little watch list is that it takes just a few seconds to monitor, but it has significant predictive power (in my experience).
In the case of Tuesday I was puzzled by the Qs midday inability to keep up (% gain) with the DIA, IWM and SPY, as has been the case for several weeks now. It was only when I studied the mini-list that I realized GOOG was actually in negative territory for the day and this was the anchor that was holding the Qs back. Once the late afternoon surge began and GOOG went positive, the Qs picked up relative strength and ended on a % gain parity with the other majors.
So keeping track of ETF component stocks can be useful tool forecasting the parent ETF direction.

A Simple Lesson

Above and below: 2 minute bars of Monday's Qs and the NYAD.....
Monday's trend down day provides a classic example of why it's important to closely monitor the NYAD in real time in conjunction with price charts.
Many traders were looking for reversals off S2, S3 and S4 levels as prices continued to crumble throughout the day... and there were several occasions when it looked like pops in the TICK and TICK volume were going to signal some midday recovery.
Those that followed the NYAD, however, were not misled by these little feigns and head fakes as market makers tried to draw in buyers. With the NYAD refusing to budge above .12 even in the face of otherwise apparent rallies, and in fact spending most of the afternoon at .10 or below, there were few odds favoring an afternoon reversal.
As I have mentioned MANY times before, I regard the NYAD as one of the most important indicators in my daytrading toolbox and yesterday showed why.

Weekly Update

The Qs continue to lead the rally from a technical standpoint and have now approached the Nov 08 highs, which none of the other indices including the DIA, SPY and IWM have managed to achieve.
At the current time, all indicators are upslope, having put in extended runs on the LR30 upper channel band and the RSI2 overbought level. The XLE remains the most benign of my little basket, but in spite of crumbling markets, it's still the engine that drives the world economies.

On a little editorial note: on Friday's post I indicated I would be holding my short Qs calls for several days. In fact, I covered those positions early Friday morning and entered again 30 minutes preclose to lock in a few dollars. HEY..never forget the Bucket List rules.
Also, with a little introspection, I'd like to encourage otherwise reluctant readers to drop in the free Market Rewind chat room. Several of the chatters are newbies and are looking for ideas and just trying to put in some face time with the charts. But there are also several battle scarred trader/bloggers in the room who really do trade actively and in many respects it's like having several technical viewpoints looking over your shoulder as we all approach the markets with a little different bias and perspective. The fact that most of us focus on the Qs, XLF and SPY ( and their derivatives) helps narrow the focus. It's a very non-threatening environment for those who want to watch trade setups develop and the subsequent hilarity when we all scramble for the exits as the markets turn or our stops are hit. The chatters also frequently post unique site links that aren't generally found in the mainstream. A tremendous learning resource IMHO and as expressed by multiple guests.

Variations of the Qs/VXN

Here's yesterday's Qs chart on the 1 minute bars with the VXN signal overlay. We got several nice trades out of the crosses that were confirmed by the midpanel technicals. The setups were a mirror image using the either the VIX or RVX and the IWM.
The day before expiration can get squirrely as rollovers and spread adjustments get laid off, but we still got a nice bullish trend trade that took the Qs up to R3 , and later (not shown) to R4. . . at which point I went short the Qs, a position I intend to maintain for a few days as my technical signals are all screaming for at least a short term pullback.

Clueless had this litle nugget yesterday. So, for bluegrass lovers, here's my submission for a free crash course in trading.

Looking a bit sluggish

Here's Wednesday's Qs chart, this time on 2 minute bars. I managed to get off a couple trades on the VXN/Qs crosses . . . unfortunately, I was only able to pick up a few cents on each one as I chose to play the options in lieu of cash, hoping to goose my returns by capitalizing on the accelerated premium decay that typically abounds the 3 days prior to expiration. I may have to conduct a tactical re-assessment of that approach. Nevertheless, the signals were there with confirmations on the NYAD (as shown yesterday) and the Qs once again showed their propensity for the pivots as key reversal levels.

Qs Like the Pivots

Above, the Qs 5 minute bars with the NYAD chart below it.
I've highlighted the usual VXN crosses and added signal arrows to indicate trade signals. Contrary to the frustration I expressed over Monday's pivot action, the Qs regained their reputation for mounting reversals at or close to the pivots and performed much as expected yesterday (in that regard).
The Qs showed strength relative to the SPY, DIA and IWM for most of day and into the close. The XLFs (not shown) were the big disappointment in terms of a 6.5% loss and 320M volume.
Typically, these "corrections" tend to carry three days, which would take us to Friday, an unlikely day for a rally based on the day of the week studies profiled here previously.
Nevertheless, I'm just playing it one day at a time, having faded the close for the past several days and covering 30 minutes after the subsequent open.
I did not follow that pattern on Tuesday's close, although with INTC down .75 after hours, I wish I had.
HEY!, it's a learning process.

Finally, for anyone in the Phoenix area, here's a rare opportunity to peek under the sheets and spend a free evening with one of the principles in Bright Trading (plus a free dinner).
Not to be missed if you're even remotely considering trading as a career.

Monday Foolery

I mentioned in the Market Rewind chat room yesterday that I found Monday's to be the hardest day of the week to trade, and the above chart displays a couple reasons why.
After sitting in front of several monitors for a decade watching the Qs and the IWM fluctuation on 5 minute bars, there are a few patterns that I have come to expect. Keeping in mind my cautionary Bucket List from a couple weeks ago, still, there are price setups that I have come to intuitively recognize as high probability trades. I leave the precise quantification to Rob Hanna and Jeff Pietsch, but when the Qs get 35 to 50% away from a pivot point, the odds are EXTREMELY high that the next pivot, either up or down will get touched. This is especially true if the NYAD is trending in the direction of the likely pivot target.
Those 2 conditions today defined by big orange Xs therefore reflect some surprises on my part.
In the first instance around 9:50, I was lying in wait for the Qs to drop to S1 as the NYAD was leading the way down. Instead, the Qs showed a hairy bottom pattern, rallied back to PP and then plunged down to S1.
In the second case, around 15:45, with the the market rocketing upwards and the NYAD in a 60 degree upslope, it looked like it was going to be another bullish blowout close with the Qs kissing R1. Alas, this proved not be the case, as the entire market and the NYAD rolled over to the downside.
Nonetheless, I was still able to pull off a couple VXN/Qs trades to help pay the piper and I learned, once again, to be wary of Mondays.

Qs Pivot Band Update

We got the volatility dip forecast by last week's Impulse Indicator and the resultant bullish jump.
And the Qs are now approaching the lower volatility support level that has held for the duration of my study (33 weeks), so the expectation is that volatility will once again increase.
In Thursday's post the possibility of a new bullish paradigm was advanced and the action over the next week should clarify that question as we see whether the .5 support level holds.
As usual, keep in mind that these are weekly bars and a lot of chop can develop during the week prior to final resolution next Friday. The fact that Friday is also expiration may further serve to add an element of "excitement" to this week's action.
For the near term I'm sticking with my neutral stance mentioned Thursday, while continuing to scrape off dimes and quarters on intraday trades.
The VNX/Qs and VIX /IWM 2&3 minute bar trades have produced consistently reliable signals over the past week and a number of the traders in the free Market Rewind chatroom have explored nuances of the crosses.

Thursday thumbnail

The bullish scenario forecast by last weekend's pivot impulse reading has played out consistently this week as the VIX has receded to 37, a level not seen since January.
Just a mid-day gander at my little ETF basket confirms that hope springs eternal on rapidly deteriorating volume. Perhaps amazingly, after this week's substantial pop the technicals are still hugging the zero line and generating ambivalent signals.
The XLE model continues to follow the LR75 channel model, while other components of the basket have all shown breakouts.
Faced with substantial overhead resistance at these levels, any sustained push higher will reflect emergence of a new bullish paradigm.
The volume issue continues to bother me as I consider it too late to go long and too soon to short.

Crosses and Reversals

Yesterday's post profiled some Qs/VXN reversals. Today's deals with what happens when the Qs and VXN successfully cross. While we managed to scrape a few dimes out of yesterday's trades, the Qs/VXN reversal at 10:30 that continued until 13:00 yielded a nice .50 gain, almost the entire hi-lo range for the day. We then got another reversal at 13:00 that ran to 14:00 and kicked out another .20 gain. While these types of returns are a bit unusual, they are certainly welcome and the setup doesn't get much easier to see.
Side note: I've linked a real time 5 minute bar chart of the Qs on the right of the blog with the pivots, parabolics and 11 and 30 linear regression lines.

Picking up dimes

Yesterday's chop/chop action was a bit frustrating, but if you followed the VIX/price reversals there were a few dimes and a quarter to be made along the way. These are 1 minute bars shown.
The late day surge that kicked off at 14:45 (not shown) carried through for a nice pop to the PP pivot. . .a bit surprising in lieu of the kickoff of earnings tomorrow, but welcome just the same.
RIMM was the star of the day, while JAVA took in the shorts as talks with IBM fizzled.
Remember the bucket list!!!!

Finally, with earnings season upon us, here's a link to Zack's earnings calendar and surprises. Also check out their Surprise Trader.

Qs Pivot Bands Update

This is a quick look at the Qs pivot bands going forward into this week.
Signs are actually bullish at these levels, despite all the technicals crying for a pullback.
Keep in mind data series 1-9 above are actually the R4-S4 levels + the PP = 9 data fields.
These are weekly data points, NOT DAILIES.


The Qs impulse indicator is not necessarily an indicator of price action, but pivot range volatility and the metrics of its construction have been discussed in detail previously. What the indicator is showing now is a bumping against the upper standard deviation level that has held for the last 25 weeks, suggesting that range volatility is about to contract and, hypothetically price will rise.
While this inverse relationship between volatility and price is considered by most traders to be a reliable tell for market dynamics, last week's strange behavior wherein the VIX and price trended together off and on for several days, left more than a few scratching their heads.
Adam also had some thoughts on this strangeness. Check out his spin.

VIX / VXN Crosses

OK, I know I said I was done with the VIXEN yesterday, but here's a little comparison of the Qs with the VXN and the IWM with the VIX.
You, of course, are welcome to insert whatever ETFs or stocks that you fancy, but what I'm trying to display here is the relative synchronization of the 2 VIXs.
I monitor the IWM in real time in conjunction with the Qs just to verify short term market momentum and I know from previous experience that, when the two charts diverge, it's safest to stand back from any new entries and to keep my finger close to the EXIT button.
This is another way of evaluating the relative alignment of the IWM and Qs signals.
Based on a quick look at the "firing order" of the crosses on 2 charts there doesn't appear to any advantage between the 2, although a more reasonable test would lookback over several hundred crosses to get a quantified number.
If you've got multiple monitors one use of this relationship would be to set up you screens similar to that above, using the concurrence of the crosses to confirm trade entries.
Or (assuming your platform has the capability) you can set up 3 or 4 or more of these charts with the same template to help confirm trade signals.

The Last Nail

This will be my last post on the VIXEN.
After 2 weeks of setup posts, I think the concept should be clear.
What's different about today's post is the use of VXN in lieu of the VIX.
VXN is the Nasdaq 100 volatility line and it's use was talked about in the Market Rewind chat room yesterday. So what I did was run a real time duplicate of the VIX/Qs screen using VXN/Qs. Perhaps surprisingly, using the VXN produced a little smoother indication of the volatility reversals than the VIX. At the same time, (not unexpectedly, the VIX produced smoother reversals with the IWM, XLE and XLF.
So the lesson to be learned is that there is a difference and, depending on what you're tracking, the VXN may be he preferred pairs choice.

VIXEN .. .again

Here we go again with yesterday's Qs/VIXEN action. While the Vixen gave just a hint of the 12:30 bullish setup, the consolidation of price and VIX from 13:00 - 14:00 was a nice level platform for a break. . .one way or the other. I personally find these extended areas of flatline activity attractive trading opportunities as the next price action move is an either/or situation that typically extends for at least 30 minutes and often much longer.
The bullish surge at 14:00 was telegraphed by the change in slope in both the SMA and MACD signal lines. While the signal didn't generate a cross (really bullish) the fact they were tracking parallel was a definite positive indicator.
Just before 15:00 the VIX executed a clear 90 degree reversal, followed quickly by a 90 reversal in the Qs price action. Depending on your stance at the time this was a clear long cover/short signal that tracked right into the close. Those that were hesitant about the bear VIX signal were given a clear second chance to go short 30 minutes pre close when he parabolics fired a SELL and the SMA and MACD signal lines showed a bear cross.

For the past week I've been hanging out in the Market Rewind chat room with a few other technically oriented blogger/daytraders as we monitor chart action and possible trading setups. The room is free and I'm kind of getting my feet wet there before deciding if I want to run my own. The VIXEN has been adopted by several of the group and (so far) the signals generated have been impressive.
As mentioned previously, the VIXEN's dynamic scaling issue is the only sticky issue that has to be dealt with on a platform by platform basis. The trick is to monitor the VIX on 1 (a bit jumpy) or 2/3 minute bars that only reference the current day. This means adjusting the range of your lookback, which I otherwise typically set on my 2 minute charts to 4 days. This takes a bit of experimentation, but once you get the settings locked down, the signals are very precise.

More VIX Tattletales

Despite yesterday's distinctly negative performance, there were a few intraday trading setups using the VIX that yielded a few dimes and a quarter into the close.
On the 2 minute Qs chart above I've tracked the VIX trend with white heavy lines and the Qs price trend with orange lines.
Just for comparison I've added the buy sell signals generated by the SMA and MACD signal line crosses in the mid-panel and highlighted an obvious congestion area with the white circle.
While not foolproof, using the VIX is certainty useful as a confirmation for other technical triggers and, just as my cardinal trading rule is to never trade against the NYAD, a secondary rule would be not to trade against the VIX.
These rules apply to the Qs and the other index based ETFs like my mini-basket. Individual stocks may not conform to these rules.
As mentioned previously, the dynamic scaling issue must be recognized when using the VIX overlay and each day must be tracked on it's own, hence the suggestion of using 2 and 3 minute bars in lieu of larger time frames.

Qs Pivot Bands and Impulse

Here's the latest on the Qs Pivot Bands and Pivot Impulse indicator. It's just another way of looking at the data fields based on the value of the weekly pivots and the weekly change in the R2-S2 range. So far it's been a valuable tool for keeping us on the right side of Qs momentum and has provided the baseline for the Dirty Dozen SD reversion study.

Based on Friday's study the probability skew is clearly to the downside, with the LR75 mean providing the first line of support.

Friday Outlook

Coming into the open today my little ETF basket are all hugging the upper LR75 channel band. I've stepped back from the typical LR30 perspective as that channel got a good-bye kiss 10 days ago from the entire basket.
While the action over that time frame has produced 45 degree price ascents in the basket, if the market is going to pull back, this is a likely high pivot. Friday's Qs have about a 70% percent of ending down over my recent 16 month backtest period, so there's an extra little bias favoring the downside.
Traders that focused solely on overbought RSI(2) levels have clearly been frustrated as those levels have persisted for 10 days or more in each of the basket and are, in fact, still holding.
The MACD indicator panel is more suggestive of an impending retracement, but is also divergent with recent price action.
On an intraday basis trade activity over the last few days has been rather weird to say the least as extended periods of price consolidation are dramatically catapulted in one direction or another without apparent catalysts. This is one reason the VIX remains in the 40s despite the recent market surge.
Finally, don't overlook Tuesday's Bucket List post.

VIXEN Redux

Here's yesterday's VIX action with GE, one of my ETF trading outliers. The afternoon VIX cross at 13:25 was a great tell that price was about to fade and the flattening and reversal of the VIX starting at 15:00 was a good tell that a bounce was about to ensue.
In the lower technical panel of the chart, the best indication at 13:25 that GE was still going down was the continued downslope of the MACD and SMA signal lines. They also did a good job of signalling the late afternoon rally when they crossed to the upside at 15:15 and the histogram crossed over the zero line.
Bill had a good question on yesterday's VIXEN post and I recommend reading that and my response if the VIXEN has any interest for you.
The dynamic scaling thing is an issue to be dealt with and Jeff Pietsch over at Market Rewind has given me some areas of research to pursue in order to lock this thing down in TS2000i, which, as it turns out, is a bit behind the algorithmic curve from TS8.4. I may have to finally get 8.4 and join the ranks of the up-to-daters, if only for backtesting purposes as I much prefer the look and feel of the Schwab platform for actual trading.

VIXEN daytrading

Contrary to the contention I made several weeks ago that the VIX was only useful for trading on daily bars, here are 2 examples of using the VIX/price cross on intraday bars to forecast short term momentum. The VIX (close) is displayed as a continuous white line on both charts.
Above is Monday's action on 5 minute bars, below is portions of Monday/Tuesday's action on 2 minute bars. On the upper chart I've also highlighted with white arrows the midpanel technical short term buy setups to see how (or if) they correlate. Clearly, the midpanel 3/7 SMAs and the Monday's early VIX/Price cross were great prognosticators of what was coming down the pipe for the rest of the day, whereas the late afternoon breakout was clearly forecast by the failure of the MACDs to turn down.

The VIXEN studies are obviously a work in progress, but I'm certainly encouraged from my initial forays that the VIX/Price crosses can provide useful intraday guidance in both trending and trading range environments.

I've previously mentioned my confidence in intraday NYAD/Price divergent trades using GE as an example and I typically maintain a NYAD overlay on the intraday price charts. My problem now is determining whether it is more indicative to have a NYAD or a VIX overlay on the charts. For the time being I've just duped my main trading screen . . . setting one up with the VIX and one with the NYAD to see how trades set up.

More to follow as I pursue the VIXEN coding and backtesting project.