Monday, January 25, 2016

Time For a Bounce?



The market fell today with SPY, a ETF proxy for the Standard and Poor's 500 index, fell 1.51% to 187.64.

I had been anticipating a harsher sell-off, testing the lows seen last Wednesday but the selling was moderate.

This is a common formation in my analysis.  I am always looking for 3 period tests of various time frames.  This is not to say that sometimes it doesn't go to four periods.  Or sometimes, the desired formation does pan out at all.  But as a trader by nature, I am always looking for some kind of pattern that I recognize to give me confidence to enter a trade.  Today's move gives me some confidence, on the short term. 

Should the rally begin, I would expect price to pierce the 20 day moving average, just as it has been doing during the past rallies.  Price could rise to 195-196.  Where we go from there, who can say? 


This indicator, which I call Size, appears to be reversing.  Still it's at a very high level but the reversal signifies that price will probably regress to the mean, which in this case, is the 20 day moving average, shown above in the price chart, and the target for price to move.

Another view that is of interest is a longer term daily line chart.


While it may not be too obvious what I am seeing here, price came down to the neckline and held above it.  A breakdown below this line will result in quite a nasty down move.  The target low should this occur would be around 160, or about 15% lower from where we are now. 

So the rule to follow in a downtrend is to sell the trendline.

Important support levels will be watched for over the next two Friday closes.  This coming Friday, the last trading day of January, I'll be looking for a Four Month test of the August low at 191.61.  The following week will be a three week test of January 15th's close at 187.81.  If we maintain support over these next two weeks, a substantial rally could happen.  But for now, longer term trends are pointing lower and frankly, should we get to 195-196, I'll be adding more Puts, expecting the market to break through the neck line and head for the 150 level.  I'll be buying more time, probably buying June or September puts.

Saturday, January 23, 2016

Oil, China numbers Rattle Markets

Who would have guessed that the markets would finish the week up after experiencing tremendous volatility during the week.  China reported slower growth than expected, while Oil kept collapsing, reaching low levels not seen in years.  But again, world Central Banks did what they could to throw the market a bone.  China added stimulus to their economy while the EU jawboned the market up with the same rhetoric we've been hearing for quite awhile now from Mario Draghi, we will do whatever it takes!



As we can see in the SPY daily chart, we hit lows low enough to cause market panic.  Then just as quickly, the market recovered to close up on the holiday-shortened week.  SPY, an exchange traded fund that replicates the Standard and Poor's 500 index, finished at 190.52, up 1.41% on the week. 

Where we go from here is a harder call.  In the above chart, it appears that the 20 day moving average can act as a magnet and pull price up to it.  The trend is falling though and we all know, or should know, that the trend is your friend. 

My normal expectation in this scenario is to loo for a drop, probably as early as Monday, that would test Wednesday's closing low price of 185.65.  Should we hold that level, I would expect a move higher.




Another reason for some level of optimism is the Size chart.  It reversed ever so slightly.  My general rule is that as long as this Size indicator is increasing, you stay with the trend.  When the indicator is declining, prices tend to drift towards the trendline, sideways.  Still as we can see in the previous move to similar levels, there were a few bumps in the road before the indicator finally turned lower.  So I'm not convinced based on this.

I do see some trend line support, on line charts



As this weekly chart shows, we may be holding a channel, albeit a downward channel.  It does provide some reason for hope that the market will provide a decent rally from current levels.

Finally, we continue to remain within the long term monthly channel.



I had been waiting for a test of the August monthly low around 191.60 but it didn't happen in December, as I anticipated.  Yet, despite daily noise that has whipped the market all over the place, the monthly view shows that we are either testing the previous lows or at worse, testing the bottom of the long term channel.

If I wasn't exposed to all the noise or various market commentators, I'd say that the market is still in pretty good shape. 

I like to see test of low levels that provides support.  First level of support would be the daily view.  A successful test of the 185.65 close would support a short-term bounce.  And, a positive close on the week would provide support on the monthly basis.  Should Friday's (12/29) close be at 191.61 or better, I expect to be buying.  Should it fail, expect lower lows.  But I'm still not convinced that a major downtrend is in place until we break below the monthly trendline just below the 180 level.



Monday, January 18, 2016

Sunday, January 17, 2016

World Markets Sell Off



Markets across the globe continued selling off last week.  Even Gold and Silver failed to rally.  Only bonds managed gains so apparently, asset allocation is working!



On the SPY weekly chart, while prices broke below the August lows, they continue to hold the lower trendline.  We shall see if they hold up.  The sudden move down though has caused the masses to quickly turn bearish.  Hard to gauge the implications.  I relish being in the minority so when I quickly find myself running with the pack, I need to stand back and reassess the situation.

There is little doubt though that the market is now trending down.


The change in the weekly 20 period moving average is trending lower and the 10 period moving average is negative.  However, as we can see from the price chart, price is a long way from the moving average.  As we know, price will always regress to the mean once the momentum eases.

Currently momentum is at a very high level.


For awhile, Size was dropping from very high levels but this past week, Size surged as the move down was somewhat dramatic.  The rule remains, as Size increases, stay with the trend. 

As mentioned in recent posts, I had been selling Iron Condors with SPY and TLT.  January options expired worthless on Friday and the third week in February is the next serial option date.  Almost all of the short puts remain out of the money however, I am holding some long Feb and March puts, just for insurance.

Due to the extreme bearish sentiment that took over the market so quickly, I'm expecting the market to hold around the current levels, but we might continue to experience extreme volatility.  I've been selling SPY call credit spreads on spikes up but it seems that I'm able to hold them for only a day or two as the market volatility quickly gives a handsome profit. 

I've also found myself buying some calls, out to September and some June spreads.  I have been holding the forecast if the market can close, on the monthly basis, at the Sep lows, 191, then I believe that the market will rally to new highs.  Kind of a bold prediction with such calamity currently in the market.




If we break the 191 level, there appears to be additional support below.  If we break through these support levels, SPY could drop as low as the 150 area.  With that in mind, I'll probably add additional cheap puts, like 175s, on any rally that appears to be failing.  But I'm not going to go crazy with it and most likely will be trading them, but keeping some in reserve, just in case the big one hits.

My gut tells me that the Fed or other Central Banks aren't quite finished yet and there will be something coming that will goose the market.  Maybe I'm just too shell shocked from recent years where whenever the market was ready to fall, there would be intervention and markets continued on to new highs.  Fool me once, shame on you, fool me twice, shame on me.  Fool me 10 times, I'll be prepared for no matter what.

Enjoy the volatility :-)

Sunday, January 10, 2016

Econonist Claims Jobs Numbers Grossly Exagerated

Noted Economist, David Stockman, writes that only 11,000 jobs were actually created in December with more than 280,000 being added as "seasonal adjustments."

http://davidstockmanscontracorner.com/newsflash-from-the-december-jobs-report-the-us-economy-is-dead-in-the-water/


Saturday, January 9, 2016

Stocks Drop 6% to Open 2016

As I had mentioned previously, the market could be up for the whole month but drop quickly.  While it didn't happen as I anticipated for the December low, it did start the following week.  Not too surprised that the chart formations don't follow the prescription anymore.  As mentioned, end of year and end of quarter market closes are important for the institutional players as many get paid based on performance.

But we close the following week and here is revealed what I had anticipated the chart to look like last week.


To me, this successful test of the low, especially a monthly test, would provide a base to rise sharply, perhaps to new highs.  So while this low is not in yet, we are only in the first week of the month, just the fact that we dropped down to the test of the low is a stunner for most.  Now, the sentiment is quickly turning bearish.  After some six years of constant UP market, any down move is a stunner. 


The weekly view:


While we broke out of the pennant formation that I had illustrated in past posts, there are a couple of new trend lines the can provide support.  The first is the line extended from the August-September lows and the second, a few points lower.  I normally don't made a big deal over these trend lines, the tests of the highs and lows are more significant to me.

Volatility upticked from an already high level.


Whether this volatility will continue to grow next week, I can't predict, as I said, it is already at a high level but the fact that it did increase requires that I still maintain a down trend bias.

I continue to hold on to the Iron Condor positions however, I closed out the call sides of both the February and March positions, paying a few pennies.  While the conventional wisdom is to let these positions go to expiration where they, theoretically will expire worthless, I have seen Central Banks intervene too often, aborting downtrend moves, with intense velocity.  While the Fed has recently raised interest rates slightly, the market will press them hard.  I think the market wants to see if the Fed will once again give in to the bankers.  So that being said, there is probably more downside but if the Fed does give in, look for a dramatic rebound. 

When I see some evidence of a decent rebound, based on my daily numbers, I will post an update.  Stay tuned.

Overall, virtually every market was hit this past week.  It reminded me of a cycle low that I used to track years ago.  When you see everything down at the same time, it's a cycle move with the good stuff getting thrown out with the bad stuff.  This often is a good time to buy high quality stocks.

I was surprised to see that in my stock universe, more stocks were up this week than last.  Some stocks that I checked to follow up on were:  UNP, CMCSA, DVA, INT, LUV, MO, PX, SRE and WTR.  Not saying that this is a buy recommendation, but I'm going to look more closely at them and see if there's anything there.  Other stocks that closed up were AAPL, which has been beaten down significantly late; BBBY, which has gotten massacred, and MSFT.  Sometimes it's interesting to watch this as some stocks might be under accumulation under the guise of the market massacre.  By the time the market recovers, the stocks that you wanted to buy cheap have already moved. 

If the old days when I used to write a publication called the TRENDSETTER, we identified such quality stocks and then waited for the cycle low to occur.  Almost every time, the stocks we picked at cycle lows popped a good 10% in the next couple of weeks.  If I see any opportunities such as this, I will also post, especially if I decide to buy anything.

For now though, I'm focused on the Iron Condor strategies.



Wednesday, January 6, 2016

Could Go Lower


The market sold off quite hard today with the SPY closing down 2.54 points to 198.82.  For the year, SPY has been down 5.05 points.  Not quite what most expected as the year opened.  Normally, there is lots of new money coming in as investors position themselves for the new year.  This year, however, opened down due to turmoil in Chinese markets, keeping buyers at bay.  As the chart shows, we rallied just slightly yesterday but price did not even hit the shortest (4 day) moving average and then price continued down sharply today.  This does not look like a pattern that will soon reverse course.

Looking through the various standard deviation readings over a number of time periods, I noticed that the 50 day standard deviation closed today at -2.57.  I was curious to see when was the last time we were this oversold and what happened next.  The following is the chart of the 50 day standard deviation.


The occurrence happened at the beginning of the chart.  You can't see the negative 2 reading because the over the next three trading days, standard deviation dropped to nearly -5!  That was back in August when the market broke.  It was one thing to be right in positioning oneself to take advantage of the down move, the problem was that you couldn't cash in and take profits.  The option spreads, the difference between the buy price and sell price of the option, was so wide that securing a profit was impossible. 

Not saying that the same thing will happen in the coming days but the momentum is down.

I remain holding some March puts as well as the Iron Condor positions spread out through June to take advantage of time premium. 

Good luck on your trading

Saturday, January 2, 2016

No Change in Outlook



SPY closed the year at 203.86 after struggling to close positive for the year.  Possibilities exist to break out in either direction n the future but for now, my outlook remains the same as before.

I had expected weakness in December with prices testing the August/September lows.  My target may have been postponed due to end of year window dressing, when institutional traders take advantage of low volume to move the market to their desired levels.  One must be aware that many receive bonuses based on how the markets close on the year, so there might have been some serious interventions, in both directions.  Certainly, the "Santa Claus rally" two weeks ago caused many to wonder if the market might make it to new all time high territory.  But other forces stepped in during the final hours of the trading year to bring prices down, closing the year negative.

One cannot underestimate the significance of the negative performance for the year.  When one considers all of the tools and manipulations that have been used to push the market ever higher, year after year, the fact that it could not eke out minimal gains may indicate that true market forces are taking over.  It's my basic philosophy to make sure that I am always holding some puts to protect against the ultimate flash crash that is sure to come, without any notice and without any time to react. 


 
 


This next week, I'll be looking for SPY to test the recent low at 200.02.  The market may open up positive though on Monday, possibly testing the recent high three days ago.



We can see the similar three period test here as well, on the upside.  So it's possible that first we test the Tuesday high and if we fail, then we head down to test the three week low.

It's quite possible that there will be buying to open the year.  New money will be coming in as usual. 

I'm still favoring more downside though, staying within the parameters defined in the first chart.

I think that while there will be volatility within the 190-210 band, prices will be confined.  With that in mind, I have been selling Iron Condor spreads (credit call spreads and credit put spreads) to take advantage of the declining volatility.  I also am long some puts, out to March, just in case we do get a major selloff. 


This chart shows the change of the 20 week moving average.  As seen, the moving average is more or less neutral, with a slightly downward bias.  This also is favorable for the Iron Condor strategy as the market is not really trending.

Another important consideration is that the volatility level continues to decline.



 

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Saturday, December 12, 2015

Markets Await Fed's Rate Decision


As discussed last week, the market has been topping here with a three week test of the high failing two weeks ago.  Then last Friday, we witnessed a THREE DAY test of the high that failed.  The signal was a perfect success as the market opened on Monday down, continuing down throughout the week with a brief bounce on Thursday.  It was a very sellable rally and I added to puts in anticipation of the three month test of the lows, expected this month.

As we can see in the following table, stocks across the globe were decimated.






































US markets fared quite well actually as some countries were down up to 7%!

I am expecting further weakness as my monthly count shows the possibility of a three month test of the low at 191.

Even though the prospects appear grim, I still don't see lows below the August/September lows, at least not at this point.


If we view a weekly chart with Bollinger Bands, bands that mark over bought and over sold levels, we can see that oversold levels would occur close to the previous lows.

Looking at the weekly line chart, it appears that volatility might in fact even decline.


With this in mind, I have been selling options at the marked high and low levels to generate income.

While there is lots of room for trading gains within the parameters seen on the previous two charts, my other indicators confirm that volatility, while it may seem extreme based on the current daily moves, is still declining.  This is because the volatility levels caused by the big down move in August/September caused volatility levels to rocket.  Since then, volatility has been muted.

If the next week's moves mirror anything similar to the Aug/Sep moves, then it's possible to see the market drop to the lows in the next couple of days as markets anticipate the Fed's rate hike decision.  Interesting days ahead for sure. 

Sunday, December 6, 2015

Markets Mark Time


A good week for short term traders this week as the market broke down sharply on Thursday but then quickly recovered its losses on Friday.

It's unfortunate that the Central Bank manipulation is not even disguised anymore.  All eyes were focused this week on Mario Draghi, the head of the ECB, Europe's Central Bank.  Markets were expecting the ECB to add unprecedented stimulus to the market as Europe's economy continues to flounder.  Minutes before the announcement regarding ECB's intended actions, the Financial Times released a story saying that the ECB would hold rates steady instead of moving them even more negative than they are.  pre-market action saw the markets drop sharply.  When the actual announcement revealed that the FT story was not true, the markets rallied but then during Draghi's press conference, when it appeared that the stimulus would not be as powerful as first thought, markets cracked.  The biggest loser was the Euro Currency.


As can be seen in the chart above, the Euro currency soared against the dollar.  This was the opposite that Draghi wanted to happen.

On Friday, Draghi made further comments reiterating that they would do everything they could to stimulate their economy.  Markets reversed and went crazy on these comments. 

When asked by a reporter if he revised his comments to curb the markets' reactions, he responded, 'of course.'  http://www.zerohedge.com/news/2015-12-06/when-super-mario-becomes-gun-shy-draghi

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My outlook remains unchanged from last week.  Last Friday, we failed to take out the previous weekly high close of 210.04.  That triggered a sell signal for me.  While it's possible that Thursday's sell off could be all that we get on the downside, I still think not.  In fact, the daily action from Tuesday through Friday only provide still yet another three period test sell signal.  Tuesday's closing price (SPY) was 210.68.  Friday closed well below at 209.62 although price did flirt with the 210 level.  I was trying to execute some trades at this point but there was not enough upward conviction at this level to push prices higher or for put sellers to meet my price. 

My week was fortunate as I entered with a range of SPY put positions.  The sharp drop however, resulted in my taking profits when SPY hit 207 and later when it hit 205.  At that point I noticed support at the 10 week moving average and bought some calls.  I was targeting the 208 level and sold the calls there and latter added some more December 31 puts in anticipation of a month-end test of the 191 level.

For the next week or so, I expect little to happen as market attentions turn to the next Central Bank activity which will be the Federal Reserve meeting December 16.  It is widely expected that the Fed will raise rates 1/4% for the first rate increase in ages.  The interest rate markets price in a high probability that the rate increase will occur.  Employment data, also released this past week, also 'appears' strong giving further credence to the rate increase.  

The stock market may think differently though.  We saw the severe reactions when Draghi's comments did not meet expectations.  If the Fed were to start tightening, I can't imagine the market continuing to rally.  In the past, the markets did rally for some time after until a trend in the tightening process emerged.  The bottom line though is that there are too many emerging market economies that would be decimated if rates were to rise and that would surely have a ripple effect throughout the whole world.  When the Fed was expected to raise rates last time, they held off citing foreign market turmoil as an excuse.

My guess is that any reduction of accommodation will signal that the party is over.  There will be a lot of pain ahead.  It's a given.  The only question is when will it occur?  How long can they keep the party going?  Will they try to continue until the next election so that the blame will fall on the new president?  That seems to be how it has worked in recent cycles. 

Sunday, November 29, 2015

Holiday Blues . . .


Major markets flatlined this week as Thanksgiving Day in the US apparently even shut down the computers resulting in little change.

As mentioned before, I was anticipating the three week test of the high on Friday so I for one was paying attention.  Throughout the week, SPY approached the 210 level but each time was repelled.  So while I can shrug off the possible test as a non-event due to lack of market participation, I did see the test and until the very end of the trading day on Friday, was watching to see if the machines levitated prices through the 210 level.  It did not happen.


Now, the weekly line chart looks like a setup for a three week test of the low!

Anything could happen in this crazy "data-dependent" market.  Friday's main even will be the Employment Report, the final report prior to the Fed's meeting later in the month of December.  The Fed has strongly hinted that it would raise rates in 2015 and are on track to do so at the December meeting, IF the inflation numbers are job numbers cooperate.


Rates hardly seemed convinced of the pending rate hike.  This chart is the TNX or the ten year rate on a daily basis.  Rates, after quite a rally, have been easing off for the past two or three weeks.

Do rates really matter?  Past market action shows that markets generally continue to rise even after an interest rate hike or two.  The Fed has made clear that even if they do raise rates, it would not be the start of a trend.

The Fed is truly between a rock and a hard place though as their ZIRP (zero interest rate policy) has distorted market prices in nearly every asset class.  In the old days, risk was priced based on the risk free asset, government bonds.  But no longer are government bonds priced through market interaction but based on Federal Reserve policy.  Quantitative Easing (QE) throughout the world has resulted in central banks printing money and buy up assets, resulting in higher bond prices and lower interest rates.  It appears that central banks are also buy up stocks to boost the stock markets.  This has been seen in Japan as well as Switzerland.  I read not too long ago that the Swiss Central Bank had bought more than a billion dollars worth of Apple stock. 

So it's evident that central banks will print more money, if necessary, to defend the market prices of bonds and stocks lest their balance sheets turn to dust. 

I'm sure that I'm not the only one who sees this.  Can the big firms with tons of resources available to research the markets not also see this and be lightening up on risk?  Who is absorbing all of the stocks and bonds that countries and firms are dumping?

Can you imagine why the Federal Reserve would fight to the death not to be audited?  I can.  The game would quickly be revealed.

It's interesting to see that the SPY weekly standard deviation chart has remained in its downward sloping channel.


Whether this past week's market action was an anomaly based on the holiday, is yet to be seen but the three week test of the high on price and standard deviation is a SELL for me.


Just as the weekly chart is a good setup for a three week test of the low, the monthly chart also reflects the same setup with September's closing low marking at 191.

Keep in mind that anything can happen in between December 1 and December 30 and price can still wind up testing the low on December 31 (or do we have again the holiday conundrum?).

For now, this is my tradable setup.  While a breakout to the upside above 210 would bring me in on the call side, I've gone ahead and bought some December 31 puts to play this opportunity.  While some sites I look at are looking at the current market move as a fifth wave of the six year bull market and expect SPY to run from 220 to 250, I have been skeptical from the start.  While I did call the three week test of the low and successfully exploited the signal, I was expecting a move down to 170 or even 150 before we resumed the move to higher highs. 

A move down in December would be great.  If we held up at the 191 level, I would be ringing the bell for a big move up to new highs.  Should we break down below 190, perhaps there would be much further to fall.  I try to be flexible in any case and usually have a protective position going the other way just in case I'm dead wrong in a big way. 

I think that if you are a long term stock holder, then you need to look at your assets just as you would your home, your business or other major assets.  You have some form of insurance on all.  Same thing with stocks.  If you want to stay long, you've got to figure out your "deductible" and then buy protective puts below the market. 

Wednesday, November 25, 2015

A Moment of Truth


The SP hourly chart shows resistance at the 2095 level. 

Could be an expanding diagonal that will resolve itself on the downside at the 2050 level.  That would be the fifth wave of the diagonal with 1 - 2065, 2 - 2095, 3 - 2070, 4 - 2094 and 5 - ?

While I'm looking for a close above this level on Friday, I've been a bit concerned with dwindling volatility levels and apparent resistance at 2095 (210 SPY).  210.04 is the Friday close of three weeks ago, that I expect to be testing Friday. 

Thought that we might blast on through this level but nope.  It's not happening.  Could be that we will go through on Friday on extremely light, holiday volume, when the powers that be can whip the market around to their hearts' content.

While many are suggesting that we are in the final wave up in this long-term bull market, and the wave counters can show that yes, we are in wave 5 of the 5-wave bull market that began in 2009, I'm cautious and added some Dec 31 puts. 

A breakout above the 210 level on SPY would cause me to react with some call buying but what I'd like to see is a three-month test of the low at 191 in December.  A successful test the lows on the three-month basis would get me very bullish and prepare for a move to all-time highs.

As we stand now, it is possible that we will break through the 2095 level and go higher.  Momentum suggests that this will happen.  There is still too much inconsistency though.  As one looks at interest rates and commodity prices, being at multi-year lows, one must think that one of these days, the stock market bubble and bond bubble, will burst and stocks and bond charts will also look like the commodity charts.

But we have seen, Central Banks have done everything that they can to prevent this from happening.  Unfortunately, they will also have to be crushed if this scenario is to unfold.  It's inevitable, or so it seems.  But it also seems that they can continue the charade indefinitely.  Perhaps IMF will come out with a new global currency scheme before this happens.

Sunday, November 22, 2015

Market Strength Building


SPY surged this week, rising 6.77 points, 3.3% to close at 209.31.  I wasn't too surprised to see the upward momentum and was anticipating a buy signal on my very short-term indicators.  They turned up at the open and again added to my bullish position as price moved through an expanding wedge formation at the 206 area.

As one can see, we are well on track for making the three-week test of the highs next week.  It will be a holiday week so whether the market will continue surging as we move into holiday season, is still yet to be seen.  With this past week's surge, it's possible that the strength will continue.

Although my daily indicators are not showing increases in volatility, the weekly indicators are. 


A simple weekly chart with price moving against the 4, 10 and 20 week averages show the 20 week average (red) moderating and starting to turn up while the 10 week average (green) is ready to cross over the 20 after price tested this level a week ago.  The four week average is rising smartly.  Looling at these strengthening trends, it would hard to be putting too much on the bearish side, although I do have some longer-term puts in place as insurance, and a possible three month test of the low in December.


Another indicator I am starting to watch is the relationship between the 4 day average and the 20 day average.  I haven't back-tested this thought but am looking at it to add to an Algorhythm should it show some promise as an indicator.  The indicator is just starting to signal positive now, close to a point where I would normally be thinking about taking profits.  As we know, a key to profiting in the markets is cutting losses early and letting profits run. 



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So as mentioned above, I also see the possibility of a three month test of the low occurring next month.

Who knows what words might come out of the Federal Reserve.  I saw some news that they will be having some kind of non-scheduled meeting tomorrow regarding bank reserves.  Something new, revealing the true state of the credit market could change everything in a blink of an eye.  And I suppose that is why I generally do not position myself 100% in any one direction.  While the market sentiment is bullish and the markets continue to rally, the underlying reality of the economy may not be as rosy as some believe. 


The Oil and Gas stock index is well off its highs as the price of oil remains suppressed.  Little discussion has been made about the debt situation of producers, especially those who require oil prices to be in the $100 range to be profitable.  For much of the decade, low interest rates have enabled bad businesses to continue on instead of failing, as they would if the cost of capital was at a realistic rate.

As rates are starting to rise in anticipation of the Fed's possible interest rate increase, capital is becoming harder and harder to come by for marginal producers.  Even Saudi Arabia itself is on watch by the rating agencies as they are facing continuing deficits to finance their society. 

There are certainly interesting times ahead.  As some question, should the market start going down, where would all this money move to?  One way to solve the problem is to open the market some 20% lower, destroying much of the wealth.  This would also destroy much of the debt that is supporting these elevated market prices.  In the end, where could one turn in an age of defaults?  Obviously, the goal of governments and central banks is to not allow this to happen.  Can they hold it off indefinitely?

And then what???

Anyway, have a very Happy Thanksgiving holiday all.  Enjoy the good times while we have them.

Saturday, November 14, 2015

Markets Have Weekend to Mull Over Paris


Markets around the globe sold off this week with the Dow and SPX averages losing around 3.6%, ending a strong winning streak of six weeks.

While the market has provided great short term trading opportunities, especially with this week's downside action, I have not seen any signals on my momentum indicators to get me too Bearish.  The Stochastics indicator on the weekly chart above, shows that it's prudent and at least be adding some put options to any rallies, just in case.

I generally like to see three-period tests of tops and bottoms before I get secure in taking positions.  With that in mind, I would be looking for some opportunities to add call options to possibly test last week's closing price of 210.01 (SPY).

On the longer term, we can see that on the monthly chart, prices have come down to test the 20 month moving average.


Positive momentum still remains on the longer term so it will be interesting to see if this moving average holds.  One must be prepared for some kind of sell off to open the day Monday morning in light of the massacre that occurred in Paris. But more preferable would be a positive rally led by defense and bank stocks. 


As we look at the monthly chart, we can also see that there is a three period test of the low setup forming here as well.  September's close of 191.61 could be tested at the end of December, right in line with the execution of a Fed rate increase.

So my preferred scenario is that we moderate this coming week and make a push to take out the highs.  I had some short-term puts (11/13 and 11/20) that I closed out on Friday and started to nibble at some 12/4 SPY and IWM calls.  As mentioned last week, I will be looking for a higher level to make some longer term put and SDS/DXD positions.  If markets test the high on 11/27, and fail, then I would be more comfortable in loading up for Bear, establishing a position that would be closed out should we appear to be holding the 191 lows but also holding a longer dated put position targeting much lower price levels.

Current buy target, SPY 200 area.



Sunday, November 8, 2015

Market Climb Continues


SPY continued it's upward climb this week despite a much stronger than expected Non Farm Payroll report that showed upwards of 270,000 jobs added to the labor force last month.  SPY closed at 210.04, up 2.11 (1%) on the week. 

Precious Metals collapsed nearly 5% on the news while TLT, a proxy for the long term bond, fell more than 3%.

SPY weekly price continues to ride the four week moving average higher, so it's hard to see a case for any downside correction at the moment. 



Over the past several weeks, we've been watching the weekly line chart and noticed that it was facing resistance at the head and shoulders neckline.  This neckline was breeched this week and now we are at a slightly higher resistance level, the line connecting weekly high closes.  As market patterns generally mirror up and down moves, it's not inconceivable to believe that should price break through this resistance line, it could rally to the 230 level.

At the moment though, I don't see this breakout as likely.


As mentioned previously, volatility, while still at high levels, has reversed and continues to weaken. 


Also, the weekly rate of change moving average chart continues to hold at the 0 line showing that the moving average has stopped advancing.

This shows me that on the weekly data, the market, while continuing to eke out small weekly gains, is losing steam. 

For me, the biggest kicker is the view of the monthly chart.


I always like to look for the three period test pattern.  September's monthly close was at 191.61.  We advanced in October and should we maintain current levels throughout November, it will be a perfect setup for a December test of the 191.61 low.  That would coincide well with a possible Federal Reserve Rate Hike, which is now becoming more widely expected.

My best guess is that a rate hike would be crushing for the markets, even a token hike. 

Currently, I have no positions in the market but will be looking for an opportunity to position myself for next month's potential three month test of the low. 

Saturday, October 31, 2015

Market Makes Little Progress



Major US markets made little headway this week, advancing just 0.1% on SPY to close at 207.93.

While momentum appears to be slowing, price is still holding the 4 day moving average. 

As price has changed little, so have my observations, on the weekly basis.



The standard deviation chart still remains within the channel I've been watching for the past couple of weeks. 





Price continues to respect the head and shoulders neckline as seen on the weekly line chart.  It might have been testing the neckline during the day however, price broke down in the final hours dropping from 209.44 to close near the lows of the day.

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The data shows price continuing to muddle along to the upside with no real evidence that a top might be near other than the possible resistance areas demonstrated above.  One other observation that might add to a downside case is the short term monthly chart.



I'm always looking for three period tests of something, and often they prove to pan out.  If we look at October's monthly close, it failed to take out the close of three months ago, 210.45.  That's not really a lot to go on though.  Monthly momentum has been strong so does it reflect genuine strength for the long term?  Or is it one of those "bear market rallies" that are short and swift?

The daily data shows that even as prices have stayed elevated, momentum is quickly dwindling.  Yet on the very short term, price continues to hug the 4 day moving average even on the quick move down at the end of the day/week/month. 

I closed out my November long calls Friday and established an initial position in SDS, a 2 time inverse ETF on the SPX index.  I'm still maintaining the long January 200-215 call spreads acquired when SPY was below 195.  Not really sure what will happen next.  My gut tells me that we are near the end but seeing how markets often react sharply to any Central Bank activity, anywhere in the world, and how it tends to ignore seemingly important negative situations, it's hard to totally commit to the downside.  I suppose that if the Fed read that comment, they would be thinking
MISSION ACCOMPLISHED!