Technically Speaking, Market Analysis and Theory

Beware Consolidation at Resistance (or Support)

2012-02-02T20:33:00.000-05:00

I like to look at multiple time frames to help assess where buyers and sellers choose. And although there's a lot more than the SPX, it is a well-watched index.

The SP500 daily chart is at one level of support and is dancing around near resistance. Will we get a MACD cross above the zero line? (circle)
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On the 60 minute chart, levels of possible (price and trendline) support are more easily defined.
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Trade universe for tomorrow.
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Volatility-based trading hasn't worked well lately. Here are a group of reduced short-to-long term volatility setups with the so-called IDNR4 (inside day, narrowest range of four). Although I don't often trade them, they do help identify where volatility expansion trades might work.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Pancakes

2012-02-02T06:41:00.000-05:00

The opening looks to be pancake flat, as the futures buyers take a day off.

The lumber futures are green, but there's a lot of muted colors.

The homebuilders have been rising, but are in overbought territory (RSI7) and volume is drying up.
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The Cara 100 RSI7 'zone analysis' shows distribution patterns, a cautionary tale for some. Discipline trumps conviction.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Ramp City

2012-02-01T20:51:00.000-05:00

First day of the month was good to bulls; the issue isn't whether the market is overbought, but rather when will the pullback come and how shallow will it be?

Point-and-figure charts are unanimous in support.

The Mamis-Meisler breadth chart is in 'pause' mode. Run for the top?
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The VIX is hugging the ten period average
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The Aggregate Risk Tool, plus copper. Stochastics rolling down (risk on?)
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Trade universe for tomorrow, with some intriguing volatility expansion setups as well (NR7 column)...

Work to hold our winners and blow out the losers.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Why Can't We...Have a Better Healthcare System?

2012-02-01T12:44:00.000-05:00

We live in the greatest country in the world, yet our healthcare system clearly isn't the best. By the best, I'd include best in outcomes, best in access, affordability, perceived quality, or cost. Why not the best?

I suspect that the overlords of the system really aren't interested in changing it. More access means limitations in other intermarket forces (e.g. total costs), but we hear how preventive care changes outcomes. It's a complicated equation amidst diseases linked to widespread behavioral choices (diet, exercise, alcohol, tobacco), individual freedom, and cost.

Most doctors aren't happy with the system, patients aren't, and government officials recognize the cost-benefit inefficiencies. But everyone doesn't want their ox gored...doctors, hospitals, pharma, insurers, medical suppliers, etc., etc., etc (King of Siam continues...)

Maybe another time.

The first day of the month effect is in full force, with the SPY up over 1 percent, breadth solid and stable at plus 2000, TRIN of 0.8ish, and a falling dollar. Even the banks and insurers are up.

Of course, everyone doesn't win, and AMZN is off over 8 percent on revenue shortfall.

On my board, the big winners are: LSYCF, AMED (no position), GSX, EZPW, MPAA, VALE (no position), GS (no position), and NDZ.

GELYF (position) is taking a beating, as in the VIX, and TLT (position in TLT)

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Groupthink

2012-02-01T06:42:00.000-05:00

There's never a shortage of data points. But in the end, the market pays you to think as it does. First day of the month, statistically goes to the bovine persuasion, and overnight (futures driven) buying portends an up open. It's not Little League, so you can't decide to swing regardless of the pitch type and location!

The risk on metric of the AUD:JPY is in between the 200 day average (bottom arrow) and the down trendline (top arrow).

The breadth oscillator shows slowing momentum, but that's not PER SE a sell signal.
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What does sentiment say? Sentiment trader says a bit overdone.

The finviz.com futures market shows a 'wealth' of green this morning. Europe might not be gone but looks short-term forgotten, and the rich-slapping doled out in Florida by Mitt Romney might have also gotten some speculative juices going. But in the end, it's not why but how many...

Are they 'friends' on Facebook? (Position in Z)

Volatility remains low and is dawdling around the ten period moving average. Son Conor wrote about the sun setting on the age of volatility...why read him? Conor has experience in system development, worked for years in the hedge fund world, is a credit derivatives expert, writes professionally, has his name submitted in nomination for a Pulitzer Prize for investigative journalism, and is an outstanding speculator.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

January Thaw in Market Freezeout

2012-01-31T21:59:00.000-05:00

January was a good month for long traders.

We note the absence of a third lower low to make a Gann three day low.
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Here's a reduced volatility (short/long term) with the inside day, narrowest range of four days pattern. Price expansion is predicted, but not direction.
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Trade universe for tomorrow.

For now, I'm mostly managing existing trades, as few are in the overbought extremes or oversold nadirs that I follow.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Retesting 1,2,3

2012-01-31T06:10:00.001-05:00

Yesterday wasn't exactly the bulls' day, but a meager loss wasn't so deflating. And with the Facebook IPO beckoning, the bovine doesn't whine for long.

Still, as shown last night, the bigger (overbought) picture can benefit from some consolidation/cooling.

The 'risk on' currency pair, AUD:JPY has temporarily defeated the 200 day average and is looking to retest the down trendline.

The finviz.com futures are en fuego. Heck, even coffee is up.

Baby Buffett (BRKB) flirts with the support/resistance line (position in BRKB)
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The Mamis-Meisler breadth oscillator stood still.
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Doug Kass shows us the (non) relationship between the dollar index and the SP500. Like many 'expected' correlations, the results don't match what you might expect.

The Cara RSI7 sort shows who has been naughty (weekly values low) and nice.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Beware of Greeks Bearing Bonds?

2012-01-30T21:15:00.000-05:00

The US markets were said to have struggled with the Greek indecision. Whatever.

Trade universe for tomorrow.
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The Aggregate Risk Tool (plus copper) with the 'safe' stocks in the pairs oversold and stochastics turning up.
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Part of a daily exploration of the inside day, narrowest range of motion stocks with reduced short/long term volatility. This predicts price expansion but NOT direction.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Technical Difficulties

2012-01-30T12:40:00.000-05:00

The market is overbought. Check. The economy is still a bit sluggish. Check. There is a lot of bearish sentiment out there. (Not so clear, and if so, not necessarily bad). Europe is still a mess. That's the bearish argument?

The economy has improved. Interest rates are going to stay low (short-end of the curve) for the foreseeable future, and some business types see the possibility of regime change. We'll see.

In other words, markets do pause, regroup or consolidate, and that's pretty much my story...and I'm sticking to it. People don't like to admit they're wrong, and it's usually worse the smarter they are. Nobody like that around here, Washington, or anywhere else, right?

Breadth is modestly negative
TRIN is unfavorable at 1.3+ but below intraday averages
The US dollar is up, but off highs (BUCK)
Beta? AAPL up over a percent, GOOG down 0.4%
Bonds. The TNX is around 1.85. Who's buying that, the Fed?

And the Facebook IPO awaits. Will money come out of everything and go into 'the Facebook'?

Winning on the ETFs? VNM, XLK.

Best on my board? IMUC (microcap). Position in IMUC. Worst? SCCO (no position). Whacked (TBT and RKH). Position in TBT.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Ursine Thaw

2012-01-30T06:19:00.000-05:00

The bears have been in hibernation for awhile now. Stirrings from the ursine kind appear on the radar this morning. Technical correction or something more?

The AUD:JPY currency pair backed off from the trendline but is still above the 200 day.

To introduce politics, the consensus view is that a Romney candidacy offers more to business than a Gingrich run. Meanwhile, ZeroHedge says that the 'coverup' of MF Global has stolen the line from "The Rock" as the money was 'vaporized'. Wow. Forensic accounting disappears...only Madoff is guilty, not the Corzines of the world. If they don't find it, it's because they CHOSE not to.

The futures have a heavy dose of red this morning from Finviz.com.

The Mamis-Meisler breadth oscillator...extended but yet to signal a downcross through a descending longer-term average.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Poker Face? Tells to Watch

2012-01-29T20:25:00.000-05:00

Markets seldom act in isolation. They also seldom move in a straight line, preferring to zig and zag, trying to pull you in or push you out at the wrong moment.

So we watch market dynamics and price. Killer B's, to a degree:

Breadth
Banks ('as go the piggies, so go the poke' - Todd Harrison)
Beta (how are the market bellwethers doing?)
Buck (the US dollar)
Bonds (sometimes called a 'safe haven', but not always)

HYG tells us the 'confidence' in corporate bonds (as an imprecise proxy, maybe)

TLT - maybe it doesn't tell us anything (with so much intervention)

The Bank Index- MACD rollover, but price hasn't left the 'ledge'

Breadth charts

The Semiconductors

Oil - Iran - Bah, Bah, Iran

Copper - Doctor Copper the market forecaster

Breadth - cyclical, helpful in context of new highs and new lows as well

Gold:Miners: at least I like to watch it...

Other tells, include the ratio of XLP to XLY (staples to discretionary) and XLV to XLK (healthcare to tech). Nervous Nelly markets like the 'safer' must haves of staples and healthcare. Lately utilities have also been weaker...which can relate to rotation and/or energy costs. The old saw suggests a look back to see where the utilities are relative to 15 weeks ago. If they move up, that's more favorable. Of course, it's all 'statistical'.

I like the 3,10,16 'Raschke' MACD...winners tend to live above the zero line, losers below, crosses and divergences can help, as well as short-term bounces off the longer term average. And MACD line crossings above the zero line also often bespeak strength.

Microsoft (MSFT), with recent skip off the long average. Currently, MACD lines crossing down above the zero average, not as favorable as an upcross or an upcross above the zero line. No position currently.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Skepticism is Good, Overbought Not As Much

2012-01-29T16:18:00.000-05:00

The Aggregate Risk Tool is unfavorable.

Aggregate risk tool plus copper, with normalizing stochastics. The risk pairs are very overbought toward the aggressive, meaning "risk off" has some potential here.

Trade universe.

Sometimes you have to get nourishment where you can get it. These piglets must have wondered about going 'for lunch' in the tiger cage though.

VIX not so stretched short-term, relative to 10 period MA.

SPDR Financial ETF (XLF)

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

What Are We Measuring?

2012-01-28T12:33:00.000-05:00

Aswath Damodaran gives us (if we're willing to pay the price) tools and principles.

Proposition 2: Embedded in every multiple are all of the variables that drive every discounted cash flow valuation - growth, risk and cash flow patterns - Aswath Damodaran (Stock valuation expert)

Proposition 4: There is no reason why a firm cannot be compared with
another firm in a very different business, if the two firms have the same risk,
growth and cash flow characteristics - (Damodaran)

Here's a Cara RSI7 (weekly sort) of some stocks with (as of January) EV/EBITDA less than four; most also have a low price to book ratio.

Sierra Wireless (SWIR) monthly

New bull markets get very overbought, with both NYSE bullish percentages and stocks above the 50 period averages.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

The Up Downs

2012-01-27T06:18:00.000-05:00

Trading results come as the sum of the payout and payback, the waxing and waning, yin and yang of intraday and longitudinal results. It should go without saying that profits simply follow the ability to hold winners and blow out losers. Of course, most of us struggle with the day-to-day discipline to 'do the next right thing right'.

The reflexive rally Wednesday leads to some modest payback yesterday, and we have to live with our own "identity statement" and "performance statement" to borrow from Jason Selk's "10-Minute Toughness".

As I have reduced the extent of my in-hospital work, I have converted that energy into more trading.

My trader/coach "identity statement" is "I AM A PREPARED AND DISCIPLINED TRADER." That means I willingly do my preparation and focus on doing the right thing (like avoiding averaging down).

My trader/coach "performance statement" is equally brief, "DO WHAT THE MARKET DOES". Maybe that's the closest I can come to Chevy Chase's Caddyshack classic "Be the ball."

Finviz.com futures.

Nordion (NDZ) crosses the 200 day average, with rising volume, on good news. It's not the news, it's the reaction. Position in NDZ
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Johnson & Johnson (JNJ) basing in the box. Negative relative strength. No position.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Reflex Re-Axing?

2012-01-26T19:33:00.000-05:00

The market jumped reflexly on the news that the Fed plans not to raise rates until after the Mayan apocalypse. Today, upon further review, the market said "not so fast". Maybe.

Problems with technicals? Always.

Do oscillators apply in a trend? Here, the SPY shows a higher high, higher low, lower close. Stealth bullish?

VIX hammer, or just lower high, lower low, higher close?

In other words, the VIX is the mirror image of the SPY today.

Trade universe for Friday.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

You Pays Your Money...

2012-01-26T12:45:00.000-05:00

and you takes your choice.

Are you buying five year treasury notes to get 80 basis points of interest? Or ten year notes with negative yield after inflation?

That's the choice that TPTB roll out there. Do they care about "you" or the movers and shakers whom they expect to create jobs (insert laugh here)?

Sectors: Positive SLV, GLD, XLU, XLB, SMH, EEM, XLI

Breadth minimally positive. TRIN rising and above intraday 20 period avg on the 5 minute chart (negative). US dollar is down.

Best on my board (GSS, PAL, RVM, QMM, AMZ, KGC, NDZ, FCX, TEF) positions in GSS, PAL, RVM, QMM, NDZ, TEF....

Worst on my board (MFC, CWCO, TSTC ACAS, MRO, PDS, ASYS) position in MFC and CWCO

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Heat Check

2012-01-26T06:29:00.000-05:00

In basketball, they call it a "heat check", when a player gets 'too hot'. This market may not need a heat check now, but how long will it be before the Fed says "what have we done?"

Some say they are punishing savers, but the question becomes are they rewarding (or will they) malinvestment. For example, will commodities, including precious metals, energy, and more importantly agriculture take off without even a threat of restraint. Will another Arab Spring land elsewhere producing political instability by virtue of inflation of food, energy, and other necessities?

The AUD:JPY currency pair.
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The Aggregate Risk Tool plus copper, has simply spun out of control.
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Early finviz.com futures. US dollar dropping and others rising.

Revett Mining (RVM) with improving relative strength, MACD, and trendline break. Position in RVM

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Ring That Bell?

2012-01-25T21:45:00.000-05:00

ZIRP 4EVA (zero interest policy) today got a boost from the Federal Reserve which moved the goal posts of time again, suggesting that interest rates would not be reset until 2014.

Commodities and equities took little time to respond.

The daily chart moved to new intermediate-term highs.
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The Fed's 1230 announcement was the Helen that launched 1000 stocks.
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Gold miners ETF (GDX)
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Agnico-Eagle Mines (AEM)...
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"Bull markets don't let you in. Bear markets won't let you out."

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

We're Not Stupid

2012-01-25T12:26:00.000-05:00

The Fed will have some grand pronouncement, or maybe not so grand. Traders wait. It's not much longer (1230, I think).

There hasn't been a big reason to do much ahead of that.

BBH and VNM, XLK and XLP are all green. Most sectors are not. As for relative volume, then AAPL, IAU, GWW, and FXY are all up there, although of those, only AAPL is green.

Breadth is mildly negative, and TRIN is 1.34 and rising; no reason to seem 'anxious' to buy before the Grand Pooh-Bahs get blustery.

Worse on my board are CWCO and GWW (no positions).
Best are AAPL and OTEX (also no positions)

How many words can you use to say 'nothing'.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Who Rules?

2012-01-25T06:32:00.000-05:00

US equities have risen impressively into overhead resistance. Declining MACD peaks worry me. Will LSAPs continue?
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Volatility serves as one proxy for 'risk on' behavior. Volatility has simply been crushed.
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The AUD:JPY has also served as a marker for speculative buying. The relationship is at trendline resistance. Important?

Charts provide a framework for decision-making. We create hypotheses based on technicals, fundamentals, and intermarket analysis. Intermarket relationships are neither linear nor constant. For example, the dollar and precious metal prices can diverge, rise, or fall together, although most "expect" divergence.

Expect little fireworks ahead of the Fed. They're not raising short-term rates. Better chance of Tim Thomas becoming a Hari Krishna.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

State of the Market

2012-01-24T21:13:00.000-05:00

The Federal Reserve meets. Nothing really happens as traders wait.

The Aggregate Risk Tool, plus copper shows overbought conditions

Trade universe for tomorrow. We wait.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Tuesday Follies

2012-01-24T06:25:00.001-05:00

Even the most dour observers have noticed incremental gains in the US economy. Not politician brain-penetrating gains, mind you, just observable gains to sentient human beings.

As for market sentiment, it's not overwrought, just overbought.

The Cara RSI system, here sorted by weekly data, shows who's been nice or naughty at a glance.

The finviz.com futures heatmap shows coffee at the low end of its range, a little weakness in the Aussie dollar (worth watching), and the deadest commodity dog on the block (Natural Gas, NG = No Good?) green.

Here's a shot I got pregame Sunday of some Patriot defensive backs.

Have a great day.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Wound Up

2012-01-23T21:57:00.000-05:00

The market has stretched to the upside.

Aggregate risk tool (ART) plus copper.
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Trade universe for Tuesday....21 of 32 items have stochastics greater than 80.
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Mamis-Meisler breadth oscillator.
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Volatility index continues to fall but is less than 10 percent extended from the ten period moving average.

Risk on currency pair with possible reversal bar at the 200 day average. Red alert...warning sign but actionable?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Rumor Has It

2012-01-23T06:42:00.000-05:00

That the Federal Reserve will announce policies for targeted inflation.

The problem with inflation if you have assets (homes, stocks, other real estate)? Nothing really, as your assets appreciate. The problem if you don't? Everything you purchase, from energy, to food, shelter, insurance, tuition, and healthcare rises, so you end up worse off.

Thus, the new paradigm, "meet the new boss, same as the old boss."

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Trade Universe for Monday

2012-01-22T21:26:00.000-05:00

Trade universe for Monday

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Sector Daily Charts

2012-01-22T09:59:00.000-05:00

Here are SP500 sector daily charts. Chartists monitor price, pattern, trend, time, and some monitor volume closely. Oscillators have a role during non-trending markets. Traders also often follow relative strength (for example see the utility sector chart XLU), and look for intermarket analysis. For example, transportation stocks are adversely affected by high energy costs and financials tend to weaken under rising interest rate conditions.

Cara RSI7 model of same:

Note oversold (XLU) and overbought (XLK) using the daily RSI7 only.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Chart Roundup

2012-01-21T09:28:00.000-05:00

The simple question for shorter-term traders is "how overbought is this market and how can I participate?"

Xinhua 25 (FXI)
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India (IFN)
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Turkey (TKF)
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Vietnam (VNM)
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Mexico (EWW)
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Korea (EWY)
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Brazil (EWZ)

A rather simple (maybe inelegant) way to look here is just at the correlations. Short-term (looking at the oscillators, not suggesting anything beyond correlation) they are in nosebleed territory.

What about the US?

Dow Industrials ETF (DIA)
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Russell 2000 ETF (IWM)
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SP500 (SPY)
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Currencies?

US Dollar Up (UUP)
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Japanese Yen (FXY)
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Euro (FXE)
The US dollar is oversold and the Yen and Euro overbought. Duh!
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Commodities?

Agriculture (DBA)
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Silver (SLV)
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Gold (GLD)
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Copper (JJC)
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Oil (XOI)

Surely it looks as though traders have gobbled up the low hanging fruit.

Oil index (XOI) relative strength to Agriculture (DBA). It does make you wonder.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Paws That Refreshes?

2012-01-20T06:16:00.000-05:00

Son Conor predicted awhile ago that most of the gains would come from overnight action (futures driven). And so it has been. Do we ever get a 'sell the news' moment? What would it look like?

I can think of several types, not to say there aren't more.

1) Opening gap reversal. (OGRE) Certainly the BEST time for the entrenched to exit and the Johnny-Come-Lately types to get stuck
2) New highs on light volume, as no more buyers are left to come into the market (the DeMark Sequential (tm) buying exhaustion)
3) Shot over the bow. "Madmen Across the Water". Some have called the FTSE the canary in the coal mine.

Finviz.com early futures. Nothing really ominous here...move along.

Breadth oscillator. Getting heated, but not at conventional 'overheated' (e.g. +1000) levels. Can't rely on that.
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AUD:JPY, still RISK ON there.
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T2108...Worden indicator at breadth extremes
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London FTSE (one month)...not exactly weak so far.
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Utilities and staples have stopped working relative to more speculative areas.
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There is no drop-off (divergence) in new highs.
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SPX:VIX with Bollinger Bands. Volatility implosion with bands pretty good at containment. Final flash or failure? Is McMillan talking buying SPX calls and VIX pairs or SPX puts and VIX puts as a low risk trade? I used to subscribe, but haven't in awhile.

For me, the 'healthiest' market would consolidate rather than push higher here.

Cara-style ETF and currency overview

The weight of the evidence hasn't given the bears much hope. T2108 and SPX:VIX extremes deserve a keen eye. Breadth, banks, and the beta stocks (e.g. MA, AMZN, GOOG, AAPL) should be good tells.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Bears Still Empty-Handed

2012-01-19T20:47:00.000-05:00

Big day for earnings with the usual mixed bag of top and bottom line performance.

Trade universe for tomorrow.
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Aggregate Risk Tool (plus copper) with the stochastics normalization showing overbought conditions (low values) but downturn 'flutter' showing ongoing bullishness.
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Aw Snap, SNA (no position)

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Normal

2012-01-19T12:48:00.000-05:00

The herd has continued to go with the 'flow' up.

But everyone doesn't seem to be aboard. Among the high priced spread, with SPY up 0.4%, GOOG is up .44%, AAPL is flat, AMZN up 2.4 percent, but BLK off 1.4 percent.

Anatomy of a trade.

Recently, using the Cara RSI7 approach, I elected to take a long trade in CME. From a risk management approach, I chose to buy calls, and did so on February 2012 230s at 10.8, with CME trading around 232.4. I looked for a mean reversion play to about 241 (50% retrace), and when that happened I sold half at 14 and ultimately the rest at 16.1. Currently, those calls are selling for about 14.2.

From a risk control standpoint, I had a fixed potential loss, and used Fibonacci approach to help manage the trade.

Dynamics:
The BKX is mildly negative, breadth is plus 1000, but weakening, and TRIN is drifting higher at 1.07.

Personal view:
Best longs for me are UEPS (discussed recently), the CME trade, and LYSCF

The market remains extended, but perhaps not as much (by VIX extension) as what I might have expected.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Good Morning

2012-01-19T06:20:00.000-05:00

Good morning, nothing exciting here.

Breadth oscillator still in favorable mode.
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Futures more in green mode with US dollar weakness.
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AUD:JPY stalling at 200 day average?
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Good to see "price stability".

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

1300...Or Bust

2012-01-18T21:27:00.000-05:00

The action isn't that subtle.

SPY breaks out with increased volume from a large ascending triangle.
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The weekly chart shows the bigger picture with volume drying up. Does volume matter?

The Cara RSI7 system status as applied to SPY (latest data not included)

The VIX isn't particularly extended from its 10 period average.

Powerful price-volume action from the likes of MCHP (no position)

Still nada for the ursine kind.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Bulls Argument: Show Me

2012-01-18T12:42:00.000-05:00

The bears have just had nothing recently. Breadth hasn't topped out by my metrics, and the slow drift upward continues.

Many companies don't have to hire more people or buy more stuff to make money. They can issue cheap debt and do share buybacks, AND take some comfort that the Fed isn't raising rates in the near future.

The US dollar is down (Europe is solved?), breadth is good enough (+1300), and TRIN is low at 0.7

The big 'sector'/country winners on my screen are SMH, VNM, EEM, XLK, XLY, XLF. Semis and tech and financials. Whoo hoo.

I had bought some UEPS yesterday solely on 'value'. Got a bit rewarded today, and haven't been trying to press a 'short' argument with positive breadth, weak dollar, and low TRIN; what 'mean reversion' says and what the market does are two very different things.

I do have a risk-controlled (calls) position in CME on mean reversion.

Consistency may or may not be the hobgoblin of little minds, but I want it, whether I'm coaching basketball or coaching my portfolio.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Starship?

2012-01-18T06:33:00.002-05:00

The overnight gap 'crap' is here again.

Ridiculous microcap play for today (OPXA)...position in OPXA

Breadth oscillator has refused to top out...so far.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Citi Gropes for Success

2012-01-17T21:48:00.000-05:00

Citigroup (C) stunk out the joint, but overall the market left with a positive tone.

The part of the day I watched seemed pretty uneventful.

The BKX flirts with the 200 day average and threatens a MACD cross (circle)...

I'm still finding a lot more overbought candidates than oversold.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Soft Landing, Hard Landing

2012-01-17T06:33:00.000-05:00

In addition to the debacle in Europe, traders are focused on China.

Is China (represented by FXI here) going south, or will the 34-37 consolidation resolve to the upside?

Chinese automaker Geely (GELYF) is a good example within the space. Position in GELYF
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AUD:JPY continues to work higher (risk on)
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Finviz.com futures. Trade 'em or fade 'em.

Sentiment? www.sentimentrader.com

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Discipline

2012-01-16T20:18:00.000-05:00

I preach to my basketball players about preparation, attitude, energy, and discipline. Can I learn something from them?

If my core trading belief is mean reversion, from either overbought or oversold situations, then what is out there?

First, the general trend of the market has been up, with the Wall of Worry juxtaposed against the Wall of Overhead Resistance.

Second, here's the "Trade Universe" to which I've added another column labeled stretch. It reflects the degree of overbought or oversold conditions for that vehicle. For example, the most OVERSOLD vehicles are VIX, AEM, and TNX. The most overbought is the breadth measurement T2108.

Third, reviewing possible trades, I see very few stocks or ETFs that are attractive, so I need to have the discipline to wait for the shot.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Dig Doug

2012-01-16T09:18:00.002-05:00

Doug Kass on the Fed.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Puking Bad Yet?

2012-01-16T06:41:00.000-05:00

Whether we like it or not, we are all currency traders. In addition to following the dollar, which does not always have steady intermarket relationships, I like to follow the AUD:JPY as a measure of 'risk' appetite, but also the EUR:JPY as an indicator of perception of change.

New lows on the weekly chart for EUR:JPY. Just saying. Confidence in Merkel, Sarkozy, and others is not running at highs.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Point and Figure Charts

2012-01-15T19:36:00.000-05:00

Dow Theory anyone?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Fibonacci confluence

2012-01-15T19:13:00.002-05:00

Via Android app

like this was readable?

numbers are 1238-1244

Good trading and great risk management to all.
Educational use only. Never intended as investment advice.

Mastery?

2012-01-14T12:38:00.000-05:00

Sometimes we might just look at a 'single stock', the fundamentals and technicals.

It's good to be aware of sentiment .

First, let's examine the market:

The SP500 weekly. Note the relatively low volumes recently.
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The SP500 daily has bounced down from the RSI(2) peak and has falling MACD peaks. Something to watch.
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Visa (V) weekly. No real distribution during the 'markup' phase.
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Fundamentals:
The market cap is about 43 billion dollars with an enterprise value of about 38.6 billion with a strong growth profile.

The net income for the past year was about 2.3 billion, or about 6 percent of enterprise value. The dividend is about 0.6% which is negligible.

Obviously, if rapid growth continues, one could easily justify a high valuation based on expected growth in net income.

The same ratios for Visa generates a net income to enterprise value of about 5.5 percent, with a mildly higher dividend at 0.9%

The Cara RSI7 system for somewhat similar companies (weekly sort) shows MA looks less overbought than some.

MA broke out from a triangle, and now lies just below prior support. A lower low is forming.

On balance, this could be an attractive growth story, but the short-term chart shows something between indecisiveness and weakness. I'm watching but don't feel compelled to get involved, here.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

The Easy Trade?

2012-01-13T12:35:00.000-05:00

I know that there is a lot of 'institutional' fear about a second plummet into recession. Why else would the players pile into TLT and the like? And of course, there will always be plenty of doomsday pundits, who also run money and are looking to change the landscape by their 'whale' size. Not to name names, but Bill Gross would come to mind.

If you're out there making predictions, is it sincere, or with all the conviction of one looking to ring the register, to move the needle in your favor? I don't know, but I'd probably trust the generic politician about as much.

But our job is to trade successfully, where through timing, asset allocation, reaping dividends, or option premium.

I've done okay lately, but ask the question, where is the alpha coming from, and how do I keep it coming?

To quote a former Navy colleague, "I'd like to believe that I'm smarter than everyone else you've seen, but that's not realistic. Rather, there is something different about you and your condition". I think that might be the answer, improved preparation, but mostly improved discipline. Define THAT.

The US dollar is up (negative), VIX is up over 5 percent (note VIX divergence shown recently)
Breadth is down and below intraday averages I follow (negative)
The only 'sector' fund on my FIRST LIST that is up is VNM (I am now out). On a separate list of foreign ETFs, IF and EWJ are both up.

Microsoft is flat, resisting the heaviness. The winner on my screen is KMTUY. My 'core belief' is that after the Japanese tsunami, Japan will be rebuilding using heavy equipment for a decade. I think KMTUY is a difference maker there, and is a Michael Jackson "Got to Be There" stock.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Complicated

2012-01-13T06:09:00.000-05:00

At least early on, it looks as though we're not getting a gap up opening. And if we did, I'd be fading it in an extended environment.

Ladies and gentlemen of the jury, first we have a 'tails up' reversal of the AUD:JPY at th 200 day average.
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Second, we have the US dollar, reversing the failure swing below 81
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Less substantial, you see early futures weakness.
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And we should be using Natural Gas for more than we are. Looks as though they're giving the stuff away. You'd think it would be up for a technical bounce at some point. Sheesh. (No position)

Well, it's only a smoking gun, as we have no victim...so let's be careful out there.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Preparation and Discipline

2012-01-12T19:35:00.000-05:00

I was speaking to a high school basketball coach today, one with a terrific team. He said that this was his most talented and athletic team ever. I speculated that there was no way that our team could have competed against them. He shook his head side to side. He remarked that while these teams have lots of ability, they totally lack discipline, which is critical.

And so it is for traders, who need preparation, proper 'vision' of what the market is actually doing, and discipline to execute.

What do the charts show us?

The SP500 is overbought by multiple criteria, BUT overbought criteria are less reliable than oversold...although nothing is guaranteed.
________________________________________________

The VIX shows some divergence...
______________________________________________

An oversimplification, but another 'divergence' from SPX price.
__________________________________________

The Aggregate Risk Tool plus copper shows risk for many, but not reversal.Copper with an intermediate-term high.
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Trade universe for tomorrow.

TKF is at trendline resistance (position in TKF)
________________________________________

VNM ETF, see TKF. (Position in VNM)

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

When You're Laughing...

2012-01-12T12:50:00.000-05:00

The bears continue to get cold porridge, with drifting up of numerous items, and just pain for the shorts. Not an editorial comment, just stating facts.

ETF/sector winners on my screen include: VNM, XLB, SMH, EEM

Individual achievers I follow (think 'The Untouchables') include Z, FLOW, VE, PBR, KMTUY, TX, SCCO

- Breadth is flat
- TRIN is greater than 1.1
- The BKX is red
- The US dollar is down

I can't say that I understand TLT here, which is greatly outperforming what I would expect under the circumstances. But I am obviously wrong, or early.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Dawn Phenomenon

2012-01-12T06:21:00.000-05:00

The market is overbought but not extremely so, and the futures suggest early strength.

Microsoft (MSFT) is a stock giving different signals in different time frames. On the 60 minute chart above, it shows a failed breakdown, negative MACD action (3,10,16), and a downturn in stochastics.
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But the "Big Picture" weekly chart shows a break of the long term down trendline and price above prior resistance (position in MSFT)
________________________________________________

Another "risk on" metric I use is the currency pair, AUD:JPY...it hasn't broken through the 200 day average, but has shown increasing strength.
________________________________________________

Finviz.com futures heatmap shows a lot of early green.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Had a Bad Day?

2012-01-11T21:43:00.000-05:00

No, I didn't have a bad medical day or investing day. Yes, my girls basketball team took a pretty good beating. But at the end of the day, whether it's basketball or trading, we have common themes, preparation, execution, and discipline.

People may or may not be happy with the economy, but the SPY daily doesn't reflect negative beliefs.
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The 30 minute chart shows the general support of the 50 period average (orange)
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The Cara RSI7 system shows who's hated and who's gotten the love. It's easy to identify a lot of short term overbought ETFs.
___________________________________________

We can apply the same approach to currencies.
______________________________________

Zillow (Z) daily...has developed some sponsorship, with a base breakout with some volume (position in Z)

The breadth oscillator.

Volatility has come in, quietly and steadily.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Waiting for What Again?

2012-01-11T12:35:00.000-05:00

I think today's the Fed's Beige book. Or something. Tomorrow it will be something else. "One pill makes you larger (ZIRP) and one pill makes you small (rate hikes someday)."

Traders twist in the wind, the US bans uranium mining (where's that uranium going to come from), and as mentioned earlier, early primaries allow us to live in the "everyone's a winner" dream. Strange brew, indeed.

- Sectors show modest strength in XLF and XLB with low volume
- The US dollar shows modest strength
- Breadth is mildly negative
- TRIN is low (0.7) and relatively flat

Interactive brokers has a new and very cool customizable overview screen..so one can chart markets, sectors, stocks, commodities, Forex, whatever...on one screen. Pretty much like the kind of screen that's readily available for any professional operation.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

2012-01-11T06:29:00.000-05:00

It's Hump Day, and the market prepares to celebrate the end of another primary. Just kidding, nothing like seeing democracy in practice, how every candidate spins mediocrity into excellence. The old we came here expecting nothing and got ten times that!

The futures are flat, a moral victory for the bulls.
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The risk on metric of the AUD:JPY is holding on.
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SPY hanging out just below resistance. Beware 'consolidation' at resistance (i.e. versus failure) goes the saying.

The breadth oscillator has pointed the direction.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Charts

2012-01-10T21:36:00.000-05:00

Trade universe for tomorrow.
____________________________________

SP500 broke above resistance and stayed there.

Thestreet.com (TST) weekly. (position in TST)

CTSH

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Early Strength

2012-01-10T06:21:00.000-05:00

Last week, son Conor, who works in risk management for a private concern and manages his own account, predicted that most gains would appear from 'gap up' openings; at least for today, that seems likely.

The Finviz.com heatmap shows bright green, but brown for the US dollar as we muddle into earnings season.

Although volatility has collapsed, the VIX is NOT particularly overextended from the 10 period moving average coming in.

From a practical standpoint, one has to presume that we will retest the SPY recent high at 129.42

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Practical Knowledge

2012-01-09T20:49:00.000-05:00

Occasionally I get it more or less right. Not high-fiving, jumping up and down right, but headed in the correct direction right.

Today, using the DeMark Range Projection (tm) approach, I had TLT lined up. TLT was projected to trade within the range of 119.47 to 118.85.

TLT opened below the projected range low, which more often than not means a change in the short-term equilibrium. Ergo, I looked to go SHORT on a retracement. TLT moved up, and I looked for a RISK-CONTROLLED entry, buying short term TLT in-the-money (121) puts at the first ellipse/lower high. Although the trade initially moved slightly against me (I was seeing patients anyway), the trade rewarded me later, and I exited shortly after the high volume bar. TLT closed below the projected range low, as predicted by the DeMark price behavior experience.

On balance, the Aggregate Risk Tool, plus copper ISN'T exuding confidence...but it's also just a clinical aid.

The 60 minute chart of the SP500 doesn't show it doing anything particularly wrong...consolidating in the 1265-1285 range. No, it's not 'ringing a bell' for the bottom but there's no siren alarm either.

The Trade Universe overview shows an important "volatility expansion" setup for the SP500 (SPY ETF), with the possibility of price expansion with a range breakout. Direction is NEVER predicted with this methodology (NR7 = narrowest range of seven days).

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Dull Market

2012-01-09T12:38:00.000-05:00

You know what they say about a dull market.

- Breadth is minimally positive (582) but firming
- The BKX is up almost a percent (favorable)
- Sector winners are SMH, BBH. XLF up about half a percent
- Strongest individual stock on my board is DNDN, which is also quite overbought (position in DNDN)
- Among the "dogs and cats", GELYF (Chinese automaker) firming (position in GELYF)
- GOOG is down on high volume
- AAPL minimally green on increased volume
- AA up 2.5 percent ahead of earnings

You didn't know the saying, "never short a dull market?"

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Wilson Phillips Monday

2012-01-09T06:20:00.000-05:00

Risk on currency pair, does failure fail?
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Two step? Recent 7 point rise in the US dollar, a symmetrical step to 82?
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Finviz.com futures heatmap.

Amazon.com (AMZN) monthly chart with RSI7.

Alcoa (AA) weekly

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

FXE off DeMark?

2012-01-08T20:47:00.000-05:00

Amibroker weekly chart of the FXE, with a DeMark "9" active.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Monday Charts

2012-01-08T18:46:00.000-05:00

I don't have any useful commentary, and will therefore only show some charts.

Weekly RSI 7 sort of some major trading vehicles (lowest values)

Aggregate Risk Tool (normalized by stochastics)...the 'safe' pair has underperformed. A change to rising stochastics is bearish for the pairs, but bullish with respect to copper...currently with twisty falling stochastics.
________________________________________

Trade universe sorted by MACD 'visual value'...at the 'zero' line is 50.
______________________________________

Trade universe (normal sort)
______________________________________
Some point-and-figure charts

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Words from Conor

2012-01-08T08:44:00.000-05:00

My son Conor has extensive market experience and writes for Minyanville.com as a "professor".

In addition to his regular job as a risk manager for a private company, he manages his own accounts and has (to date) a willingness to see both sides of a trade.

Today, he offered (us) his overview of macro and market conditions. This is offered "as is" with the usual caveats of investment risk and EDUCATIONAL USE ONLY, NEVER INTENDED AS INVESTMENT ADVICE.

As a somewhat battle-hardened 30-year old, I feel incredibly fortunate to have been born when I was. I saw the dot com bubble grow as a casual observer during the late '90s while I was in high school, and learned a few lessons in risk management playing with a small trading account during college as the market busted. From late 2005 through early 2010 I had a great seat at a hedge fund where I had access to a lot of data and experience that I wouldn't have gotten anywhere else. I got to trade credit default swaps and subprime RMBS during 2006-08 as that world was imploding. I know what it feels like to watch credit markets seize up and then bounce back, defying the cynics. Perhaps most importantly, I'm one of the oldest members of the Millennial generation, the values of which will carry us along for a 15-20 year bull market beginning over the next few years. As I like to say, a 25-year old is too young to remember the dot com days or have any real professional experience during 2006-2008, and a 35-year old may be too old and cynical to share the values, optimism, and lifestyle of Millennials. Those born between 1979-1983 are in the demographic sweet spot, the equivalent of Baby Boomers born between 1953-1956 who were too young to be drafted in Vietnam, and who were in their late 20's as inflation, interest rates, and unemployment were peaking in the early 1980's.

I bring this up because I remember how bad I felt about things during the spring and summer of 2008, when I thought financial markets would crash, destroying the social fabric of the country in the process. It was a terrible time, when I thought there was simply no way of avoiding a huge crash. And today, after seeing Friday's jobs report, I feel the exact opposite. For the first time in my life, when I think about investing in US risk assets I'm not worried at all.

Why?

Employment: Jobless claims and non-farm payrolls have been saying it for a few months now -- the job market really has turned the corner. The ADP employment report on Thursday was the best in the 11-year history of the data series. Unlike other headfakes, this one is real because of...

Housing: Yes, home sales are likely to remain relatively dormant in 2012, and in the aggregate and in foreclosure-heavy geographies prices may still fall a bit. But we're now seeing a relative surge in housing starts and homebuilder sentiment, with housing starts up from 585,000 to 685,000 over the past few months driven by multi-family construction. The homeownership rate for households under age 50 is at multi-decade lows, while at the same time affordability on a home price or mortgage rate basis is at multi-decade highs. Fundamentals have been supportive of at least a relative recovery for awhile now, and the data is finally confirming that it's happening.

Balance sheets: Non-financial corporation balance sheets are the best they've been in the modern financial era. Corporate profits and margins are at all-time highs. With employment and housing finally recovering, it's highly likely corporations will increase leverage in 2012, supporting both asset prices and economic growth. While households in the aggregate still have a lot of mortgage debt, much of that is concentrated in older households that aren't the marginal drivers of consumption. Also, in the aggregate, debt service ratios, given the fall in interest rates, are much closer to a trough than a peak.

Valuation: The equity risk premium, which is equal to the earnings yield of the S&P 500 (just the P/E ratio inverted) minus the 10-year treasury yield, is at 1974 levels, historic highs. In 1999 the earnings yield of the S&P 500 was 3.52% and the 10-year treasury yield was 5.65%, for an equity risk premium of -2.13%. At the end of 2011, the earnings yield of the S&P 500 had increased 420 basis points to 7.72% while the 10-year treasury yield had fallen 377bps, for an equity risk premium of 5.84%. My S&P 500 earnings per share estimate for 2012 is $105, up from $97 in 2011. At that level of earnings using current prices for the S&P 500 and the 10-year treasury yield that would signify another 42bps increase in the equity risk premium to 6.26%. Relative to treasuries, especially given the near-term visibility in economic growth, stocks are the cheapest they've been in the lifetime of anyone reading this.

The US economy has shown over the past few months that Europe and China can slow without impacting the US in a significant way. We also had the debt ceiling standoff, the US's credit rating downgraded, and state and local budget cuts, yet the US didn't suffer a recession. I continue to believe the risk/reward setup for US equities this year is a 25-35% rally on the upside and a 5-10% loss on the downside, and have positioned myself accordingly.

He can be reached on Twitter @conorsen

Risk On, Risk Off, Risk MAYBE...

2012-01-06T06:21:00.000-05:00

The AUD:JPY chart defines RISK MAYBE...as the spring coils in preparation for a big move...

Finviz.com futures heatmap.

Clues? Point-and-figure breakout on the SPX!

Volatility traders have their mouths watering...

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Accompanying Charts

2012-01-05T22:38:00.000-05:00

Without comment

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Overbought - what don't we know

2012-01-05T21:38:00.001-05:00

The bulls simply continue to say that you can't get them down. I can't refute that, but bulls might recognize the 10 day breadth oscillator has gotten quite extended. In these situations, traders sometimes look for reversals.

For example, an ogre - opening gap reversal can provide an exit. Others might look for parabolic reversals, with sharp risers on high volumes, such as 60 day highs with volume with price above the top Bollinger band and the bar extended above the band.

I think short term risk is higher.

Good trading and great risk management to all.

Education use only. Never intended as investment advice.

Diagnostics

2012-01-05T12:50:00.000-05:00

What are the markets' vital signs today?

Breadth has flipped neutral from negative and is moving up
The BKX is solidly up
The US dollar is strong (see Morning commentary)
TRIN is flat (1.04)
Sectors: BBH is up almost 2 percent, with strong action from Dendreon in the biotech field (+40%)
Other winners include TTH, XLF, SMH
Volume (winners on my screen) DNDN (postion in MBT), MOS, POT, UUP (dollar), MBT

Does the hedge fund world feel pressured?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Early Returns Are In

2012-01-05T06:18:00.000-05:00

No we're not talking about the New Hampshire primary. A weak performance (low demand, high funding costs) by French bonds spooks the futures early.

See the finviz.com futures.

And the AUD:JPY

AUD:JPY weakness

There's not much more to say. Trade 'em or fade 'em.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Limited

2012-01-04T22:44:00.000-05:00

Late night between being on call and coaching hoop.

RSI Matrix (weekly)

Trade universe

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

How Do You Blow Out?

2012-01-04T12:45:00.000-05:00

We know how it can be hard to win, but is it equally hard to lose? Everything has its time and season, but even so:

How do you blow out?

If you have no edge
If you have no discipline (see 5)
If you average down
If you find that you sell winners and keep losers all the time
If you have no risk management
If fraud bites you (had Cendant in the day)
If you have no diversification (asset class, country)
If you're excessively greedy (nah!)
If you don't pay attention when the 'ride' ends (e.g. new highs on light volume, failing at key moving averages, etc)

It's just a hard game to learn and I'm still learning.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Pancaked

2012-01-04T06:44:00.000-05:00

Maybe a flat day would be the best possible. We'll see.

Risk on model looks more negative today early.

Finviz.com futures.

Watching the dollar, breadth, beta, and the banks.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Fast Start to New Year

2012-01-03T21:55:00.000-05:00

Hedge fund managers continued to be frustrated as the domestic markets jumped out fast.

Stochastics turned down for most of the lower risk pairs, so it was still risk on.

Trade universe for tomorrow.

and a couple of weekly charts...

VNM

UNL

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Charlie Sheen Day (Winning?)

2012-01-03T13:10:00.000-05:00

First day of the trading year, and if you're a hedge fund, you say, "what, I'm already down?"

Don't discount the psychology of the participants, as in CAREER RISK.

From a sector/market perspective, the winners so far are RKH (up over 3.5%), EEM (almost 3 % green) and XLF (up over 2.5%). "As go the piggies (banks), so goes to poke." - Todd Harrison

Favorable economic data haven't hurt either.

The US dollar weakening hasn't hurt either, and PMs and miners have gotten some love.

The TRIN isn't spectacular (0.92 as I type) and the market breadth has been slowly eroding.

Individual 'names'?
- VXX is down over 4.5%, MA off 1.5% in increased volume, and of course, TLT is off, down over a percent.

- I discussed MED with my son today, and had no conviction (or position) as MED rallies almost 8%
- VALE, in the commodity space, is up over 7 percent (sold my position)
- IBN up over 6 percent in the banking space
- SLV up over 6 percent with the hedgers very long on the COT
- The evil empire, vampire squid, whatever, GS is up over 5.5%
- Another non-swing (miss) was TEVA
- FCX up over 5 percent and POT up almost 5%

Beta? GOOG up 2 percent with volume, and AAPL up just over a percent (a little heavy), while AMZN off rumors of Christmas buys is up about 2.25%.

All in all, nothing wrong for the opening session. TLT at session highs and the .382 retrace from Friday's high to today's lows...

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Welcome to 2012

2012-01-03T06:04:00.001-05:00

2012 comes in with mixed action.

The finviz.com futures.

Unlike the Dow Industrials, the SPX point-and-figure chart has yet to flip positive. It would make a triple-top breakout at 1270.
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One correlate of 'risk on' metrics, the AUD:JPYcurrency pair tries to break out from a triangle indecision pattern.
__________________________________________________
This commentary hits it out: It means PMs selling positions that they like, and buying the ones that they hate. If everyone is doing this it makes for the market of Bizzarro World, where down is up and up is down.

Is trading so different than basketball?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

New Year, New Challenges

2012-01-01T19:43:00.000-05:00

As we prepare for the New Year, can we take anything to the bank?

Interest rates. At least concerning short-term rates, the Federal Reserve wants to force money off the sidelines and into the economy. Some might argue that's the policy of trying to reflate the debt bubble. Of course, nobody can say with confidence how the mess in Europe turns out.

Valuations. Stubbornly high unemployment isn't the same as overvaluation for numerous companies. You can find companies with pristine balance sheets, dividends, and reasonable earnings. Projecting growth prospects for the Microsofts of the world isn't quite so easy.

Consider MSFT. The net income listed according to Yahoo is about 23.5 billion, on an enterprise value of 175.5 billion (about 13.5%), and trades at about 9.4 times earnings with over 6 1/2 dollars cash per share!. MSFT also has a dividend just over 3 percent at this time.

Compare that to a Dow Chemical with about 2.8 billion net income on an enterprise value of about 51.5 billion (about 5.5 percent) with a dividend of about 3.5 percent. If you were buying the whole business for the income/cash flow, which seems cheap? Obviously, one's growth assumptions mean a lot, too.

Relative strength. I can't argue that technology is better than industrials now as tech has made lower highs.

The aggregate risk tool (ART) plus copper. The AGG:NDX and VIX:SPX charts (normalized by stochastics) lean towards "risk off" behavior. We'll see.

The Cara RSI7 sort shows who's been naughty and who's been nice. If one is a mean reversion adherent, then it may be time to depart areas with too much sizzle. I've shown a weekly sort.

Same type of analysis using solely foreign ETFs.
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I'm kind of a believer in more of the muddle for now.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Snooze-a-Thon

2011-12-30T12:32:00.000-05:00

The pros? The dollar is down, and breadth is slightly positive.

The cons? Banks are red, TRIN is greater than one, and breadth is weakening.

Sectors? Winners are VNM, TTH, EEM (barely)...losers, IFN, XLF, XLP but nothing much.

Do you want excitement? I don't, just winners.

Good trading and great risk management to all...

Educational use only. Never intended as investment advice.

2011 Ends. Who Will Miss It?

2011-12-30T06:46:00.000-05:00

The good news is that 2011 ends; the bad news is that the Presidential election circus will go into hyperdrive...good for advertisers and bad for the sentient.

I'm biased to believe that the financials are the key. So far yet to make higher highs.

The WSJ warned that money flow was going into PMs yesterday. The futures are showing that today.

Risk on? More like risk maybe so far.
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Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

End-of-Year Markup?

2011-12-29T21:58:00.000-05:00

In a year that has been something less than spectacular, wouldn't you want a few extra pennies?

Aggregate Risk Tool (ART) plus copper. It could turn for the better. Or not.

trade universe for Friday

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Advanced Scouting

2011-12-29T12:45:00.000-05:00

I'm looking to upgrade the overall quality of my holdings, to complement the 'discovery' stocks that have underperformed recently.

Goals to get companies that have outstanding balance sheets, viable products, and preferably some dividends as well. Types of stocks that can fit in this approach include MSFT, AMAT, UNM, VALE, VECO and others. Positions can change at any time.

I totally 'get' the notion that Europe is going to zero, but still see the earnings yield on the SPX relative to the ZIRP 4EVA concept as meaningful.

Today, breadth is reasonable (plus 1400), the dollar is flat, TRIN is low and relatively stable, and financials (e.g. XLF and RKH) are up on light volume.

For the most part, the ETF volume is meager, with the exception (on my board) of UTH and IFN). I find VNM intriguing but am not catching the falling knife at this point.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Year Ending with a Whimper

2011-12-29T06:21:00.000-05:00

The point-and-figure chart of the DJIA is positive.
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The futures aren't doing much favorable, with the AUD down, the USD up, but a couple of key commodities (cotton and lumber) up.

Does the US want the dollar up? Can it do much about it? Will it?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Not Happening

2011-12-28T23:19:00.000-05:00

Wanting it to be positive doesn't make it so.

The AUD/JPY has turned down (a negative for the risk on crowd)
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Trade universe for tomorrow
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Aggregate risk tool (plus copper) not so great

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Haters Out Today

2011-12-28T12:26:00.000-05:00

Love it or leave it. No, I'm not talking about the US, just the stock market. Part of our collective 'problem' is the CONDENSATION of market groupthink, that is the 'here and now' mentality that information transfer (especially blogging) produces. And as a blogger, I can only say, "mea culpa".

It's the Janet Jackson phenomenon, "what have you done for me lately?"

The monthly representation of the SP500 shows the acceleration off the 1075 lows and more recent indecisive action.

The weekly chart shows the overhead resistance now dominating.

And the action, Jackson, shows up on the sixty minute chart. So more than anything else, do we allow our emotions to be swayed away from our 'concept' of fair value by today's action? Clearly, the three people trading today do.

All sectors are down, XLP and XLU are the least bad, and XLB the worst so far. Breadth is poor, -1800, and the TRIN had spiked over 4 and has come in some.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

The Edge of Gory?

2011-12-28T06:44:00.000-05:00

Son Conor wrote a piece for Minyanville.com yesterday. Talk about generating hate e-mail. I guess the glass really is half empty or half full. It's easy to understand why many people feel that things will never recover and/or that a robust recovery will NEVER come.

I'm more in the muddle along camp, that we're in a very long process, where savers will be relentlessly punished (zero interest rates) and that some creditors will have to take pain (yeah, that is spelled E-U-R-O-P-E).

US Sectors, forward looking, overbought, both?
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Finviz.com futures.
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It's easy to understand nihilism EVEN if we get a low volume rally during a holiday week.

Are expanding new highs confirming the broad bearish sentiment? Or are we simply looking at the wrong metric, while sentiment is actually getting more bullish?

If you're a big hedge fund, performing poorly, what is your six-to-twelve month outlook? I don't know, I'm just asking.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Light Holiday Week Trading

2011-12-27T21:18:00.001-05:00

There's not much to say.

The aggregate risk tool (ART) plus copper, starting to look a bit worrisome.
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Trade universe for tomorrow.

Better to just go sledding or watch basketball maybe?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Flat and Thin

2011-12-27T06:39:00.000-05:00

Finviz.com futures

expect thin trading, but flat opening?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Thin and Thinner?

2011-12-26T18:03:00.001-05:00

We'll probably have thin trading during the holiday week; with the market overbought, will that mean anything?

Daily values, Cara RSI7, most oversold is the VXX
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Using RSI2 overbought, AAPL qualifies.
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Trade universe, volatility expansion candidates. Plenty by narrowest range of seven sessions.
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Trade universe with DeMark Range projection (tm) values. When this bumps up against price expansion setups, I tend to favor the range expansion.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Charts and More Charts

2011-12-24T14:27:00.001-05:00

Just for fun, charts!

First, the Aggregate Risk Tool, plus copper. Still in risk on mode, but getting longer in the tooth.
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Next, some weekly charts.

A lot of tax loss selling and/or weak performance out there.

Only 3 SPX stocks had increased volume Friday, only one up.
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Merry Christmas and happy holidays.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Santa Claus Came to Town

2011-12-23T17:34:00.000-05:00

The markets gave traders an early holiday present.

We've bounced strongly off the lows from 1075, and have the 1370 highs as one resistance...

From a Gann perspective, we could approach it in a few ways. The square root of 1075 is about 33, and therefore a full turn (360 degrees) around the square of nine would be about 1075+(4 x 33) = 1209.

If we look at the difference between the 1370 high and 1075 low (295), then we can look at 50% retracements (1075 + 147 = 1222) or 61.8% retracements (1075 + 182 = 1257). Today, the SPX closed at 1265. So, we're in the ballpark.

The VIX has collapsed...to the point of overextension, but seems to be slowing.

Shorting is best accomplished during 1) weakness including 2) expanding new lows. Not really seeing that.
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In fact, the Mamis-Meisler breadth oscillator recently gave an upcross 'buy' signal.

Ergo, we remain with seasonal favorability, few lows, a Fibonacci retracement achieved, and overbought conditions as viewed through the lens of an oversold VIX. Something's gotta give.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Saving Your Bullets?

2011-12-23T12:24:00.000-05:00

As we race toward Christmas (and speed through Hanukkah) I hear about traders saving their bullets for another trade. I only hope that they're not saving 'em for themselves...

Sectors:
---TTH, XLU, and XLY are the early leaders, but nothing spectacular, IYT is the lowest of the mainstream on my board

Stocks:
--some love for BAC, as the megabank has bounced off 5 and stands at 5.63 (no position)
--best on my board? SNT, AVL, VE, TLM, PDS (not exactly household letters)
--worst on my board? BQI, OPXA, DNDN, DEXO, JO, TLT, GS

Tells:
-- The BKX is up, leaving GS behind though
-- Breadth is positive at +1000, but nothing spectacular
-- TICK is bouncing around like Blake Griffin on a dunk, mostly BELOW the 8 period average of the high on the five minute chart
-- the Buck (US dollar) is flat

-- sixty minute chart of the AUD:JPY...a little rangy today

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Christmas Green

2011-12-23T06:47:00.000-05:00

finviz.com futures

good trading and great risk management to all

educational use only...never intended as investment advice

Construction Paper

2011-12-22T21:15:00.001-05:00

I'm constructive on the market for now.

The Aggregate Risk Tool continues overall favorable to bulls.
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The VIX is oversold short-term, extended more than 10 percent from the ten period average. It has not yet reversed.

Trade universe for tomorrow. Expanding list of volatility expansion (NR7) trades.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

New Year's Resolutions

2011-12-22T12:18:00.000-05:00

Just thought I'd take a few moments to jot down a couple of thoughts for the end of the trading year:

1) Use discipline at all times. Have a reason for taking positions based on your methodology, whatever that might be. If you swing at better pitches, you have a better chance of getting hits.

2) Study. You can always learn more, but recognize that more knowledge won't always translate into results. Knowing how to shoot a basketball doesn't make you a great shooter. Practice counts.

3) There is no substitution for preparation. What is the fundamental backdrop, sentiment, and technical landscape as applied to your approach? You might not need any fundamentals if you trade solely on technicals, but is that working for you?

4) Be flexible. Things change. Who expected HFT and ETFs to dominate the landscape?

5) Achieve balance, with your career, your family, and most important with yourself. Can you see the good in people if the market is bad?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

All Over the Map

2011-12-22T06:27:00.000-05:00

My son argues that charts aren't the economy or a company. I agree, but they still provide a framework for decision-making.

I'm more constructive on the market than I have been in awhile, although it's in the context of sideways drifting upward.

All I know is that buying treasuries that yield nothing doesn't feel 'smart'. Or as Jim Grant says, you get return-free risk.

Conversely, for a digression, at least I know something about basketball.

The finviz.com futures heatmap looks not so bad.

And that shows up on the AUD:JPY currency pair, too. Hourly chart.

And on Baby Buffett (BRKB)...position in BRKB (hourly chart)
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But my coffee consumption hasn't stimulated the coffee market (hourly, Finviz.com)....although I'm postulating an inverse head-and-shoulders (no position)

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Sleighbells Ringing

2011-12-21T20:56:00.000-05:00

The Aggregate Risk Tool (plus copper) continues (on balance) to show more RISK ON behavior, assessing risk pairs with stochastics normalization.

Trade universe for tomorrow
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Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Doing Nothing

2011-12-21T12:51:00.000-05:00

Why act when it's not clear?

US dollar is slightly down (positive)
Banks are mildly negative (negative)
Breadth improving but negative
TRIN below intraday averages (positive)
Euro off lows (positive)
Leaders (sectors) XLU, XLP are conservative
Betas as in AAPL and AMZN are negative (especially AMZN)
Other - IBM getting whacked (-3.8%)

On balance I'm more (a lot more) constructive, but overall today it's a snoozer.

Long-shot? TEF (yeah, I get it, European, debt, dividend at risk)...position (risk-controlled) in TEF

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

A Clinical Aid

2011-12-21T06:23:00.000-05:00

Twenty five years ago, I attended the Tuberculosis (TB) course at National Jewish Hospital in Denver. One of the first points made was that the PPD test (TB test) was "only a clinical aid". So are charts. They help us in the process of price discovery. But of course, price changes moment to moment, while "value" does not.

Value could come from a variety of sources, including intrinsic assets or growth potential. But I think most of us consider "value" the relationship between price and some less tangible concept of what we think we should pay for a company.

Similarly, the relationship between "the economy" and the stock market gets, in the word of Norm Crosby, misconscrewed.

You can see a lot of green on the Finviz.com futures heatmap today.
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And at least so far, the US dollar makes a second consecutive lower low on the daily chart.
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The US Ten year yield jumped the ~~shark~~ trendline and is closing in on both price and Fibonacci 50 percent retracement on the 60 minute chart. Yes, they are only "lines", but represent DECISION AREAS for traders. After all, they are only a clinical aid.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

The Worm Has Turned

2011-12-20T21:08:00.000-05:00

It was rally time today. We'll see whether it's a one hit wonder or more.

The Aggregate Risk Tool plus copper gave the hint.
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Trade universe for tomorrow.
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Euro 1.31 seems to be a point worth watching.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

I Believe in the 1 Percent*

2011-12-20T03:04:00.000-05:00

* No I don't believe that they are better than you or I am, and I certainly don't believe that they are more honest, forthright, or necessarily more intelligent. But I believe that their savoir faire and avarice will help prevent the republic as a whole from failing, simply because it is in their interest to do so.

Here's the recent take from Doug Kass of Seabreeze Partners

Let's put our cards on the table.

I get it, the world is flat. I have read Tom Friedman.

I recognize that no nation is an island and we are all economically interconnected, but, seriously? A bunch of Europeans are upsetting a stabilized-to-improving situation in the United States' economy, creating a real threat of a worldwide economic double-dip and hurting our stock market.

Like I give a crap about a bunch of German leaders who are intransigent and dogmatic in policy and are dangerously bullying the rest of the EU?

As for the French, they are governed by a bunch of socialists in the Senate -- they don't believe in capitalism to begin with.

German and French leaders and central bankers should all be given an ultimatum by our leaders: Immediately reverse your "tame and timid" approach to your debt crisis and replace it with "shock and awe" before the debt contagion spreads to others' shores.

There. I said it.

I and a lot of other Americans are getting really pissed off the other day.

There's no doubt that we know what uncertainty looks like.

Bank of America (BAC) certainly GRAPHICALLY represents among the worst that the banking system has to offer.

The Cara RSI7 representation of the major US sectors shows where the trust has been (XLU, XLP, XLV) and where it has not resided. It doesn't take a genius to see that the fear and the angst live on 'Financials Street'.
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It also graphically represents where the market has run (bonds) and where it has fled, and the in-between (position in MSFT).
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Kass and others (including my son) argue that in the face of an improving US economic picture, some GDP growth and nascent (although unacceptable) gains in the job market, that reasonable US valuations in the setting of INDEFINITE zero-interest rate policy, make investing in the US relatively more attractive (then in a long time).

Sure, one can take the other side of the coin and postulate that even if you buy a value-oriented cash generator (like MSFT), the decline of individual stock ownership and rise of the ETF can drive your stock price down. Of course, it can. But if one believes in the correcting mechanism of the long pull, long time horizon, then one might ask "when will it get better?"

US sectors graphically
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Insomniac futures heatmap from Finviz.com.

Latest from Sentiment Trader.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Everything is Worth Nothing?

2011-12-19T21:18:00.000-05:00

Sometimes it feels that way. The last time I checked, the percent of US GDP attributable to European sales is...tiny. Obviously, there's more to it than that, particularly in a leveraged banking world.

All that being said, expensive and cheap stocks (e.g. MSFT) continue to get punished.

Russell 1000 'crushed' stocks for tomorrow.
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The Cara RSI7 equivalent, more or less, for the Trade Universe. This is delayed a day, so some of the numbers are, in fact, even worse (more oversold)
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Trade universe for tomorrow.
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Aggregate risk tool, stochastics normalized.
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Among some major players, here are some of the most crushed. RSI4 sort. For the most part, below RSI4 10 is better.

SPX with RSI7 and RSI4 overlays.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Hints at Improvement

2011-12-19T06:35:00.000-05:00

Maybe not the edge of glory, but maybe the edge of improvement...

The Aussie dollar/Japanese yen is one currency pair worth watching for speculation frenzy. Within the range, the oscillators are starting to turn; but will they turn and burn?

I can't say the same about the SPY, as the MACD histogram went south and got reinforcement from the MACD lines (within the small circle). Of course, whatever happens in Euroland has a big role short-term.
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Three pushes to a top for TLT? Weekly chart.

Bonds from the prism of the Cara RSI7 system. Bond, shames Bond?

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Weekend Summary

2011-12-18T19:00:00.000-05:00

I haven't lost interest, just been extraordinarily busy among medicine, coaching, and broadcasting.

First, the lesson of MF Global is that neither the Federal Reserve, the SEC, or the Congress have acted seriously, definitively, or convincingly to contain systemic risk. Almost nobody goes to jail or gets serious punishment for criminality. How can you worry about return on capital when thieves steal your capital? The investors with MF Global weren't neophytes.

The Aggregate Risk Tool (plus copper) is starting to look more constructive.
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The Volatility Index (VIX)...isn't exactly screaming fear. In fact, I'd feel much better if the VIX showed at least of modicum of reluctance.
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Can I believe my "lying eyes" that say both the Vampire Squid and the BKX are positive by point-and-figure?
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As far as the sectors go, consumer staples, utilities, and healthcare have outperformed and live (marginally) above well-watched moving averages.
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Are traders embracing more citizens to be covered by healthcare?
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Trade universe for tomorrow.
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Very few items appear on my 'hammer' screen. Generally, more is better.

At least for now, the questions are 1) does greed into the end of the year dominate and 2) does the mess in Europe constitute the overhang that limits participation?
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Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Mixed Drinks

2011-12-16T12:58:00.000-05:00

It's quite a mixed bag out there today, expiration Friday.

Best on the ETF board I track, VNM and RKH, worst XLV.

The US dollar is flat. TRIN is creeping north (negative). Breadth is below the intraday average I follow on the five minute charts.

Both sides can make good arguments. One side argues deflation WILL happen at the intersection of austerity and angst. The other side argues that many companies will continue to prosper with productivity, low interest rates, and attractive capital structure (financing) alternatives. The risk premium for corporate America versus bond yields remains attractive.

I tend to agree with the latter argument. Not a lot of name brands on the 26 week low list, but RIMM heads it.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Rope a Dope

2011-12-16T06:32:00.000-05:00

Traders have been up against it, taking body blows and waiting. But the bears haven't tired of delivering punches.

Aussie dollar: Japanese yen, 60 minutes. Will the risk on trade come back?
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Finviz.com futures.

As always, you can watch the B's, banks, breadth, beta, bonds.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Updated Lists

2011-12-15T21:04:00.000-05:00

It hasn't been a bowl of cherries for traders lately.

Trade universe for tomorrow.
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The Aggregate Risk tool shows predominantly "risk off" activity.
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RSI7 weekly sort for selected ETF-type trading vehicles.
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The RSI7 monthly scanning of Metals and Mining
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RSI7 monthly (moanthly) screen of the most hated items.

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.

Watched POT

2011-12-15T12:42:00.000-05:00

A watched POT never boils. That must go double for Potash (bottom 2 percent of year). Position in POT.

- Best sectors: PPH, SMH, RKH
- Worst - VNM
- Breadth, + 1000 and resting
- BKX is off highs
- TRIN is 0.6 and below intraday averages I monitor
- The SPX remains oversold by criteria I use

A lot of stuff flashes "technical bounce" so a technical bounce it is. HA!

Good trading and great risk management to all.

Educational use only. Never intended as investment advice.