Monday, November 30, 2009
An iron condor consists of a bear call spread on the high side and a bull put spread on the low side. In this case, I'm long the strike price 60 call, short the 57.5 call, short the 52.5 put and long the 50 put. Maximum profit is between the two short options.
I could have also done a bear call spread, which would be profitable all the way down. However, I don't expect a protracted decline in KO -- just a pullback.
It was a pps/mfi signal that brought the issue to my attention. Then I looked at other evidence. The 20-day simple moving average is pointing upward. The Bollinger bands are expanding (generally not a sign of change).
So I'm basically neutral within the support and resistance levels I've identified, and I chose an iron condor that reflects those levels.
The trade cleared for a 1.02 credit with the stock's price at 57.25
These issues show mfi breakouts that could be set ups for confirmation of a pps signal, if one occurs:
- Bear: MRK WMT QCOM JNJ DTV
- Bull: TGT
Holdings: No action warranted on GLD, which is little changed from this morning. UNG has declined and remains profitable.
Indicators: Indicators unchanged.
My other holding, UNG, is at 9.39. A covered call on the position limits my price to 9.00, so the position is profitable by 0.38, but at the cost of giving up 0.27 in profit. I'm still ahead of the game.
Indicators (pps/mfi(rsi) analysis):
- Bear mode: SPY (blue chips) and VIX (fear index) both show price movements counter to the pps indicator
- Bull mode: TLT (Treasury long bonds), GLD (gold), EUR/USD (Dollars per Euro) and USD/JPY (Yen per Dollar). It's a somewhat unusual for the Euro and the Yen currency pairs to be in the same mode, since they are constructed as opposites. Also, the USD/JPY is showing a strong price divergence from the pps indicator.
Saturday, November 28, 2009
The gaps in the GLD price appear to have been in response to debt defaults by Dubai World. I'm always fairly unhappy to be a position that's driven by news. Rumors, I like, but once rumors because news they've become general knowledge, are instantly part of the general price calculation and of little use for my speculations.
Oh, well. Monday's another week, and events will play out. As my divorce attorney used to say (cliche alert!): "It is what it is."
Meanwhile, here is a link to the User's Guide:
Friday, November 27, 2009
I made the sell decision when the price paused in its upward movement from the open on a 1600-tick chart, which produces a candlestick every 1,600 price changes.
Liquidity will be even worse today, the Friday after Thanksgiving, with a shortened trading day. The stock markets close at 1 p.m. EST (10 a.m. PST). My possibilities at this point are to buy back the 118 calls sold as insurance, for a loss of about $1 a share, sell the hedge and the spread for a net loss of about $4.50 a share, or hang tight and do nothing until full trading resumes on Monday.
UNG remains in profitable territory. The position, a covered call, remains in bull mode by the pps/mfi analysis.
Indicators (pps/mfi analysis):
- Bull mode: SPY (blue chips) wih a gap down in price, TLT (Treasury long bonds) bull mode with a gap up in price, GLD (gold) bull mode with a gap down in price, EUR/USD (Dollars per Euros) unconfirmed by the mfi, USD/JPY (Yen per Dollar) confirmed by an mfi reversal within oversold territory.
- Bear mode: VIX (fear index) bear mode (bullish for stocks) with a gap up in price.
Wednesday, November 25, 2009
The markets resume at 9:30 a.m. EST (6:30 a.m. PST) on Friday, and close early at 1 p.m. EST (10 a.m. PST).
I'll post a market opener, the Morningline, on Friday, but at this point I don't plan post a market closer, the Watchlist. With so little volume on Friday, price actions on that day will be absolutely meaningless in terms of larger trends.
The call alone has a maximum loss of 0.65, with an infinite possibility of profit as the stock rises. In combination with the spread, there's a 0.08 loss below about 110 in price, large losses between 110 and about 121, and huge profits above that.
This combination of positions will require very active management to ensure a profit. The best way to think of the calls is as an insurance policy against the spread's loss. Like all insurance policies, it never covers everything perfectly.
GLD is up 0.8% from the open this morning. I'm inclined to take the loss rather than trying to mitigate. Final decision within the last half hour of trading.
UNG remains in bull mode with a healthy rise.
Indicators, pps/mfi(rsi) analysis:
- SPY (blue chips) shows a pps bull signal, unconfirmed by the mfi
- VIX (fear index) remains in bear mode (bullish for stocks)
- TLT (Treasury long bonds) shows a pps bull signal with an uptrending mfi.
- EUR/USD shows a bull signal from Tuesday with an uptrending mfi.
- USD/JPY, bear mode on the pps with a strong drop in price.
Buy a later-month bull call spread, for a debit of about 0.68, composed of long the February 110 strike and short the February 111 strike. This is profitable at a GLD price of from about 110.50 up, as our present bear call spread is profitable from 110.50 down. This mitigates the big loss if the stock continues to rise, and we can close the February spread for a small loss if the stock reverses again and moves down. There's a maximum profit of 0.35 at expiration on the February spread, against a max loss of 0.43 on the December spread. So, maximum loss of the combined positions is 0.12. That's vs. an assured 0.28 loss if we just close the position now.
Reversing the play and buying a late-month bull put spread, with the same month and strikes, gives us a 0.35 credit with a maximum 0.35 loss, somewhat better than with the debit spread. The combined max loss is 0.08. The risk/reward is 50:50, better than with the debit spread.
Those are the mitigation possibilities I see. I'll be making trading decisions in the last half hour of trading in the U.S. markets.
I entered on a bb/mfi bear signal at 112.30. My vehicle was a December bear calls spread, long the 111 call and short the 110 call. That spread will be profitable at the Dec. 19 expiration if GLD's price is at about 110.50 or below.
On the chart, GLD is trading at about 115.70, has blue skies to the upside (no support for the bearish position) and downside resistance at 113, 110 and 106. The price today is showing a hesistation pattern on the candlestick, but it's the day before Thanksgiving, and I don't give lack of price volatility much credence as a signal today.
To be profitable now, GLD must fall by 4.5%, a respectly large move.
So, no joy on this chart.
I have these possible actions, I think:
- Do nothing. Continue to hold the position and hope that GLD will drop after the holiday.
- Close the spread for a loss of 0.28.
- Sell a put (which is profitable when the stock goes up) and hedge my bets that way.
A 4.5% move is well within GLD's capability in the short term. It's a volatile issue, which is one reason I like it. And there's an argument to be made that GLD is due for a fall after a 25% runup since August. If I still think that GLD is a candidate for a price decline, I should hold the position, and perhaps even add to it at the higher prices of the past three days.
But there are no guarantees that GLD will decline. Sometimes, it just makes sense to take the loss and live to fight another day. By holding the present position, I lose if GLD goes up and also if it just stays put. Out of three possible directions -- up, down, sideways -- I lose on two of them. Not a good position to be in.
Or to mitigate, I could sell a put on GLD. By selling a put, I get an immediate credit, and if the stock rises to above the strike price, the put expires worthless and I get to keep the premium. Selling a put with a 110 strike now would give me a 0.65 credit, for a 1.22 credit total on the spread and the put.
The combined position -- the bear call spread and the short put -- would be profitable at expiration anywhere above about 109.35, with maximum profit at 110. The losses below 108.75 are huge, so there's risk. With this method, I profit if the stock price drops down toward resistance, I profit if shares continue their upward move, and I profit if the price goes nowhere.
What's not to like? Well, the downside risk is huge, far more than the amount in my account. Even if I could place the trade, I won't take that amount of risk.
There are other possible solutions. I don't plan to trade now and will wait until the end of the day, giving time for further study.
The mfi on GLD has reversed back to an upward direction. That eliminates the confirmation on my entry, based on bb/mfi analysis, on Nov. 19. The reason for the position is disappearing. Time to mitigate. (Mitigation discussion to come in the next post.)
UNG has gapped up to 9.29. At December expiration of the covered call I sold, I would lose 0.26 in potential profit, but would still profit by 0.51 from the call and 0.03 from the stock. At this point it would cost me 0.58 to close out the covered call, so my net profit would be 0.24 if I closed everything now. At this point, the stock price has reached a resistance point. If it pierces that point, I'll most likely close the covered call and expect more profits from rising shares. If it bounces back down from resistance, then I'll hold the shares and the call until expiration.
Indicators (pps/mfi analysis):
- SPY (blue chips): A bull mode pps signal, unconfirmed by the mfi, which is dropping out of overbought territory.
- VIX (fear index): Remains in bear mode (bullish for stocks).
- TLT (Treasury long bonds): A bull mode pps signal is appearing sporadically, and it would be confimed by a rising mfi. But it may be a ghost, and TLT remains in bear mode for now unless the ghost becomes permanent at the end of the day.
- GLD (gold): Bull mode.
- EUR/USD (Dollars per Euro): Still in bull mode.
- USD/JPY (Yen per Dollar): Bull mode on the pps, never confirmed since the Nov. 12 signal, and the mfi is now dropping into oversold territory, about 2 below the price at the time of the pps signal.
Tuesday, November 24, 2009
The valid signal is what occurs at the close of the day's trading (or a few minutes before the close). As of this posting at 5 minutes before the stock markets close, the signal is off.
No change in the other indicators: bear mode for SPY and TLT, bull mode for GLD, VIX and USD/JPY
Holdings: The GLD mfi has decisively pierced through the overbought line heading south, which is good for our bearish position. UNG is unchanged from this morning.
No scans for new trades today because it's a holiday week, with less liquidity.
Monday, November 23, 2009
The FOMC releases minutes on Tuesday, and that will sometimes produce a surprise (although I'm betting this time, probably not).
My short entry into GLD used bb/mfi method, and even with the rise, GLD remains in a bearish position. The price is still below the top band, and the mfi is reversing toward an exit from overbought territory. So I shall continue to hold the bear call options spread (short the DEC 110, long the DEC 111 calls).
UNG, my other holding, is up this morning and approaching 9.30. With the covered call hedge, opened with the underlying shares at 8.96, the position remains profitable. I have, however, given up potential profits on the shares as a result of the hedge.
The indicators (pps/mfi analysis):
Bear mode: SPY (blue chips), TLT (Treasury long bonds), EUR/USD (Dollars per Euro)
Bull mode: GLD (gold), VIX (fear index, bullish is bearish for stocks), USD/JPY (Yen per Dollar)
The price action on the currencies doesn't match the technical indicator.
Sunday, November 22, 2009
This website differs from other market-oriented websites in two regards: 1) It's free, and 2) it follows trades in real time. This approach reflects two core values that I have long held.
I believe strongly in the open source approach and in the duty of each of us to share our knowledge with those around us. If we pool what we know, we become better; we become awesome.
I also believe that theory without practice is next to useless, especially in the markets, where decisions are made and judged every day. So I trade, and let you watch me do it, win or lose. It's all out there for you to see, and I hope that as a result you will yourself become a better trader.
In reading Private Trader, it is important that you remember that no trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
My trading day is divided into two parts.
About half an hour after the U.S. markets open, I check my holdings to see if any need to be closed in order to preserve profits or cut losses. I also take a look at several broad market indicators. I routinely post something about this process.
About an hour before the markets close, I again check my holdings and the indicators for changes since the market opened. I also run through technical charts of high-volume exchange traded funds and company shares to see if any meet my criteria as candidates for opening a position.
My positions are either stock options spreads, or for lower-priced or less liquid issues, stocks themselves. My ideal holding period is under two weeks. Generally, I prefer to get in and out of a positions as quickly as possible.
I don't do enter and leave a position on the same day except under extraordinary circumstances. This allows me to avoid the SEC restrictions on such trades. It is for that reason that I enter trades at the end of the market day.
My analysis is done on three-month charts showing one candlestick for each day. I'm using the following technical methods at present:
If Person's Proprietary Study (pps), an indicator based on pivot points, shows an arrow then open the position if the Money Flow Index (mfi) is crossing from overbought or oversold within the last five trading days. Exit upon a reversing pps arrow. If earnings release is scheduled within a week, then the mfi need only move in the direction of the pps signal, without regard to overbought or oversold condition. The Relative Strength Index (rsi) can be substituted for the mfi in cases, such as currency pairs, where no volume data is available.
If after piercing the Bollinger Band (bb) the price both opens and closes in the inter-band area then open the position if the Money Flow Index (mfi) has reversed in or very near the overbought or oversold line within the last five trading days. Exit upon the reversal of the price from the bb moving average or upon the price piercing the opposite bb and then reversing back into the inter-band area. The Relative Strength Index (rsi) can be substituted for the mfi in cases, such as currency pairs, where no volume data is available.
The pps, bb, mfi and rsi abbreviations are used routinely in my postings, as is the abbreviation "etf" for exchange traded fund. Abbreviations are usually given in lower case to avoid confusion with stock symbols.
I also post on theoretical approaches to and the philosophy of trading, including links to books that I've found to be useful and interesting. I've found that mental attitude is an imporant part of the game.
I welcome comments and questions. Please post them by clicking on the comments link at the bottom of a post.
Friday, November 20, 2009
If it weren't for the impending holiday, I would open a bear position on the stock. It meets all the requirements of the bb/mfi analysis.
But, for the reasons I gave in the watchlist, no trade today.
One of my basic requirements in selecting a trade is liquidity -- lots of shares traded -- and liquidity tends to dry up during holiday weeks. Also, I think of a stock's price as being somewhat akin to a public opinion poll. I want a representative sample of buyers and sellers setting the price through their trades. Holiday week trading is less representative than regular business weeks.
So, I won't be opening new positions today and next week. I shall post regarding my holdings and the indicators, plus the occasional word of great wisdom.
- GLD remains in bear mode, although the mfi has flattened in overbought territory. The price bar for the day remains below the upper bb channel.
- UNG showed a rise today to 9.03, above the $9 strike price of our covered call. The pps/mfi signal remain in bull mode.
- Bear mode: SPY (blue chips), TLT (Treasury long bonds), VIX (fear index, bullish for stocks), EUR/USD (Dollars per Euro)
- Bull mode: GLD (gold), USD/JPY (Yen per Dollar)
Indicators (pps/mfi): No changes in modality.
- Bull mode: GLD (gold), TLT (long Treasury bonds), UDS/JPY (but with a price drop)
- Bear mode: SPY (blue chips), VIX (fear index, bearish is bullish for stocks), EUR/USD
Thursday, November 19, 2009
The other etf, SRS, is a short etf. It moves in the opposite direction of the underlying index. I prefer to use etfs that have a direct correlation with the underlying index. It's just simpler and easier to wrap my brain around quickly.
Regarding the company shares:
WMT and POT had unclear confirmations; the mfi was near the line but had not gone into over- territory.
ABX and NEM are both mining companies. I've taken care of that sector with GLD, so I passed on them in the interests of diversification.
KO's mfi reversed back into overbought territory, negating the confirmation. DTV ended up not confirming; the mfi stopped declining prior to the end of trading.
LMDIA shows the clearest signal. I didn't do it because -- well, I didn't do it. I was focused on GLD, entranced by glitter and all of that. I tend to give priority to etfs rather than individual companies. I'll be watching LMDIA closely on Friday.
My vehicle is a bear call spread. I've sold December-expiration calls at 110 and bought the same month at 111. The position is profitable beginning at 111 and fully profitable at 110 downward. The position gave me a credit of 0.57.
In favor of the trade:
It's a clear signal and confirmation, and the price really hasn't made a move yet. GLD has been trading sideways the past four days.
Also, the downside potential is large, using Bollinger Band rules. The shares are trading at about 112, giving us 5.7% downside before the simple moving average support level. And thelower band is at about 99, giving us a stunning 13.1% potential.
Against the trade:
The mfi confirmation has not yet moved out of overbought territory, which weakens my confidence in it.
There are price support levels at 110 and 108, which could make the greater potentials shown by the bands to be wishful thinking.
The bands are widening. By bb rules, it's the narrowing of the bands that indicates a change in direction.
So, a decision to make in the last half-hour of trading.
The pps/mfi combo isn't showing a signal, so no help there.
Indicators: SPY shows a pps bear signal, unconfirmed by the mfi, which is rising toward the overbought line. Otherwise, no new signals.
*** Person's PS / Money Flow Index possibilities: ***
High-volume ETFs: None.
High-volume company shares: None
*** Bollinger Band / Money Flow Index possibilities: ***
- SRS shows a bull signal on the bb with the mfi approaching oversold territory.
- GLD shows a bear signal on the bb with the mfi in overbought territory and beginning to reverse.
- WMT shows a bear signal on the bb with the mfi approaching overbought territory.
- POT shows a bear signal on the bb with the mfi reversing within a point of oversold territory (which is very near to the line on a $113 stock).
- DTV shows a bear signal on the bb with the mfi reversing within overbought territory.
- LMDIA, bear signal on the bb, mfi reversing within overbought territory.
- ABX, bear signal on the bb, mfi reversing through the overbought line.
- KO, bear signal on the bb, mfi reversing through the overbought line. (But the mfi turned back up today.)
- NEM, bear signal on the bb, mfi reversing through the overbought line.
bb & mfi
If after piercing the Bollinger Band the price both opens and closes in the inter-band area then open the position if the Money Flow Index has reversed in or very near the overbought or oversold line within the last five trading days. Exit upon the reversal of the price from the Bollinger Band moving average or upon the price piercing the opposite Bollinger Band and then reversing back into the inter-band area.
Most people -- and certainly most of the news media -- approach the markets as though they were a casino. You stride up to the roulette table, place your chips on a number, the wheel spins, and as a gambler you either win or lose.
A trader in the casino style opens a position, and sells for a profit or a loss. But there's only one simple round trip: Open the position, exit it, and tally the result. There's no difference between this approach and gambling on a lottery ticket.
Our recent trade in GE was like that: We opened a position in the shares, they became profitable, and we sold for a win.
Market professionals that I've known tend not to see their positions as a gambler would. Rather, they treat each position as a rare, tropical flower, to be nurtured in the garden until it flourishes.
If the position somehow moves into losing territory, the pros don't sell the position. That would be tantamount to seeing a brown spot on the leaves of your rare tropical plant, pulling it up by the roots and tossing it on the trash. Rather, the pros ask: How can this position be saved? How can I nurse this plant back to health?
That's why professionals trade stock options. They offer so many possibilities for mitigating a position, and bringing a loss back to a win. My recent selling of a covered call to fix an unprofitable position in UNG, is an example of the gardener approach.
I do both gambles and gardening, and my choice is usually dictated by the clarity of the signals. UNG's position was ambiguous: The signals said "Yea" and the price said "Nay". So I chose to keep the position but to also add to my likelihood of turning a profit immediately: The gardener approach. GE's position showed a clear bear signal, supported by the price movement. Since it was profitable already, I chose the gambler approach, otherwise known as "take the money and run".
Could a gardener approach to GE have also worked? Sure. I held the position as a bull put spread (long the DEC 15, short the DEC 16 puts). It would have been possible to add some calls that would convert the position into an iron triangle bracketing the trading range of the past few days, or even buying back the short put and retaining the long put to capture profit from the decline.
Whether tending trades as a gardener or whipping through them as a gambler, the result can be a loss. Gardening in no safer than gambling in the context of the markets. But the goal of both approaches is identical: Turning a profit on each trade.
- GE closed for a profit
- UNG remains in bull mode with falling prices.
- SPY (blue chips) shows an early pps bear signal, unconfirmed by the mfi. However, with the mfi in overbought territory, a simple downturn in the indicator would give confirmation.
- VIX (fear index) has flipped into bull mode on the pps, confirmed by the rsi, with an 11% increase at the market open. This is bearish for stocks.
- GLD (gold) remains in bull mode, but with a falling price.
- EUR/USD remains in bear mode, and USD/JPY in bull mode, with the price of each in a range.
Wednesday, November 18, 2009
- UNG was discussed in the previous post.
- GE remains in a price stall, with no pps signal and with an mfi tweaking downward.
- No new signals.
- The mfi for GLD has moved into overbought territory, so a pps signal would make it possible bear trade.
- S shows a pps buy signal, but I'll most likely pass. It's on news of a legal settlement, and I have an aversion to buying into news, since the stock has already made its move.
- AXP, SBUX: The mfi has moved into overbought territory, and a pps bear signal would make it a possible trade. Same, almost, with DOW--the mfi was 0.16 shy of reaching the overbought line when it reversed.
- SPY, GLD, VIX, TLT, EUR/USD, USD/JPY: No change from the 11/18 Morningline.
Ambiguity is the enemy of profit, except when it's not. And this may be one of those occasions when we can turn ambiguity into cash.
UNG, which I opened Tuesday as long (bullish) shares at 9.31, promptly turned around this morning and is trading at the 8.96 level, a 3.9% decline.
The mfi has tweaked down (as of an hour and 45 minutes prior to close), but the pps isn't showing a bear signal. In the fundamentals, we know that we're entering winter, we know that winter increases demand for natural gas, we know that industrial production is s-l-o-w-l-y improving and that increases demand for natural gas.
Yet the price is below the 20-day simple moving average, and that MA is moving down.
So, everything points us to a "beats me" position on this stock. How to deal with it?
One thing that can be done is to buy more shares at the lower price, thereby lowering our basis. I've done that, at 8.94, making the new basis 9.13. That reduces the loss at the current price to 1.9%.
Another possible mitigation is to sell a call option against the shares I own. The December $9 strike call is selling for about a 0.50 premium per share. So, I sell the call, and that makes my new basis essentially 8.63, and I'm profitable again.
What can go wrong? The covered calls will expire worthless if shares remain below $9, and I get to keep my 50 cents, but if shares continue to fall, however, below 8.63, I'll still lose money.
If shares rise above 9.00, which I expected based on yesterday's signal, then near expiration I'll have to sell someone my shares at 9.00, and I shall have lost potential profit.
I can always close the option position at any time, but I'll have to give back some of my premium for the privilege.
One thing for sure: If I simply close the position, I've taken a loss. If I sell the covered call, then I'm still in line for the possibility of profit.
An interesting dilemma. I'll decide in the last half hour of the trading day.
- SPY (blue chips), GLD (gold) remain in bull mode, but with the mfi reversing.
- VIX (fear index) remain in bear mode, which is bullish for stocks.
- EUR/USD remains in bear mode, with with a strong hesitation pattern. The price has been trading in a narrow range for about eight days.
- USD/JPY remains in bull mode, but the price, considered alone, looks bearish.
Tuesday, November 17, 2009
Indicators: SPY, GLD, and USD/JPY remain in bull mode, TLT, the VIX, and EUR/USD in bear mode. No new signals.
- UNG, the natural gas ETF, shows a bull pps signal confirmed by an mfi breakout of oversold territory. It's trading at about 9.30, with a decline today, and shows support at 9.00 and resistance at about 11.00.
- DELL announces earnings during trading on Wednesday. I'll be monitoring near the close today for a signal to generate a possible earnings play.
pps & mfi:
If Person's Proprietary Study, an indicator based on pivot points, shows an arrow then open the position if the mfi is crossing from overbought or oversold within the last five trading days. Exit upon a reversing pps arrow. If earnings release is scheduled within a week, then the mfi need only move in the direction of the pps signal, without regard to overbought or oversold condition.
Since our indicators measure money flow, this would suggest a fairly delicate balance between inflows and outflows amid a great deal of uncertainty about where the dollar will go.
The smart money, at this time, seems to have much in common with the dumb money.
Super-quant David Brown writes this morning about the "Strange Dance With the Dollar"
"Money flow", by the way, is one of the more unfortunate terms in the game. In any market transaction, $1 flows in for every $1 that flows out. Money flows always balance out to zero. What "money flow" indicators really measure is the eagerness of sellers to sell as against the eagerness of buyers to buy. The more eager the sellers, the lower the price they're willing to take, and the more eager the buyers, the higher the price they'll happily pay. But the money, rather than flowing, is more or less just sloshing around.
- SPY (blue chips), GLD (gold) remain in bull mode, although hesitating in early trading this morning.
- The VIX (fear index) remains in bear mode, which is bullish for stocks. (Bearish on fear in bullish on prices.)
- TLT (Treasury long bonds) remains in bear mode, despite Monday's gap up, and the mfi has turned down again after a four-day rise.
- EUR/USD: Still in bear mode, with the dollar dithering.
- USD/JPY: Still in bull mode, with the prices moving strongly contrary to the pps and rsi signals.
Monday, November 16, 2009
You know, after running through 200+ charts in the past hour, the impression I'm getting from the market is a crowd of people rushing around a room speed-dating. It just feels rather frenetic. There are a lot of oddball signals (or lack of signals) like that on DIA.
But, as rational private traders, we go where our charts and signals lead us. Trite analogies have no part in our strategy.
(But can add "speed dating is the enemy of profit" to my enemies of profit collection of aphorisms?)
Not the switchback the last few days (to the right).
Reminds me of the old Peter, Paul and Mary Song: "Where have all my options gone...." I'm seeing very few signals, buy or sell, which in the past has indicated a looming trend change. No guarantees, of course.
Currency strangeness: The EUR/USD is in bear mode on the pps, bull mode on the rsi, with prices up to last Thursday's levels. No reversal signal yet. The USD/JPY shows bull mode on the pps, bear mode on the rsi and a price drop to levels not seen for a month.
This shows the great truth that all momentum indicators have moments of madness. are trailing indicators. DIA is an extreme example. The etf received a bear signal on the pps (unconfirmed by the mfi) on 10/22, when the price closed at 100.74. It dropped to a close of 97.06 on 10/30, then started climbing, and today reached 104.58 (as of 70 minutes before closed) with no bull signal in sight. We have to go back to 3/11, at 69.48 to get a bull signal (or any signal) confirmed by the mfi, and that would have carried us up to a confirmed bear on 8/11, at 92.58 (if we count exit or reversal signals using the same rules we use for entry). Since then, we would have been out of DIA according to the rules.
SPY, TLT, VIX, GLD: Same modes as this morning.
No new high-volume etf signals.
No new signsl in high-volume shares of companies.
SPY, for blue chips, and GLD, for gold, remain in bull mode, both capping up this morning. The VIX remains in bear mode (which is bullish for stocks).
TLT, for bonds, is in bear mode (prices down, rates up), and the mfi has reversed so it now matches the pps again.
Currencies: EUR/USD in bear mode, USD/JPY in bull mode, with prices stalling on each.
Friday, November 13, 2009
This Time is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Ken Rogoff.
The authors make the case that this time ("The Great Recession", as Paul Krugman likes to call it in his New York Times columns) really isn't all that different, and they lay out a scenario of what we can expect as the economy recovers from the latest collapse of capitalism.
Around the time of the breakup of Yugoslavia, I heard a commentator exclaim, That's what the Balkans do, after all. They Balkanize! Capitalism, like the Balkans, has a certain inevitability. That's what capitalism does, after all. It collapses!
As a private trader, I like collapses. Each crisis in capitalism creates opportunity for the nimble and brave, because each creates huge volatility in prices.
And that's a good thing. Volatility is the mother of profit. Without it, there would be little point in trading.
And with that happy thought, Enjoy the weekend!
The price weakness in GE appears to be news-driven, based on reports concerning negotiations with Comcast to divest NBC.
HD earnings will be announced pre-market on Monday. Although it is still in bull mode, the price is stalling and the NYSE is reporting an imbalance on the sell side. Buy on the rumors, sell on the trumpets, is the conventional wisdom. Monday morning is trumpet time.
No change from my earlier analysis of JNPR. I think it has already made it's move, and I won't take the trade.
- RF has gotten past the ghost signals of this morning and remains in bull mode.
- GE remains in bull mode, but prices are showing topping behavior. I may exit.
- HD remains in bull mode.
Stocks trading above 10 million shares:
- JNPR, a confirmed bull signal at 26.13, with resistance at 26.50 and support at about 25. I don't like the risk/reward ratio, and the price hit 26.50 at one point today. Most likely I'll pass. $1 spread on the options strikes for this issue.
- SPY (blue chips) and GLD (gold) remain in bull mode.
- The VIX (fear index) remains in bear mode (bullish for stocks).
- TLT (long Treasuries) remain in bear mode (but check out the mfi).
- EUR/USD remains in bear mode.
- USD/JPY remains in bull mode (although the price has retaced all of yesterday's gains).
I entered the trade based on the tech analysis mix that I'm using these days: Persons Proprietary Signal (pps), which is a black box indicator developed by John Person, confirmed by a bounce of the money flow index (mfi) out of oversold territory.
Thursday, pre-market, AMD announced it had settled a legal dispute with Intel (INTC) for big bucks, and the share price gapped upward. Now, the pps and mfi are designed to track money into and out of shares. Clearly money was flowing into AMD for days prior to the settlement announcement. (I don't allege insider trading.)
My problem with the pps, no matter how good its signals are, is that it is a black box. I don't know how it is derived, and so I don't really know what a signal represents. Would any other set of indicators have given us a signal?
Money flow index: The mfi, used alone, is prone to head fakes. It gave a bull signal on Nov. 4 when it bounced off the oversold line. But then it turned downward on Nov. 6, the day before the pps signal, and turned bullish again on Nov. 10. Using the mfi alone, we would have captured the upward gap, although at the cost of an extra exit and re-entry.
Relative strength index (rsi): Think of the rsi as an mfi without volume. The rsi tends to turn more quickly than the mfi, so it's more head fakey. Used alone, the rsi gave a bull signal on Nov. 3, turned bearish on Nov. 10, then bullish again on Nov. 11, in time to enter the trade and capture upward gap.
Bollinger bands (bb) + mfi: This combination gave a bull signal on Nov. 4, when the price opened well above the lower band, a move confirmed by the mfi's bounce off the oversold line. These indicators would have kept us in the position through the gap upward.
20-day simple moving average (sma20) cross: Useless. The price reached the sma20 on Nov. 11 and traded on either side of the line. However, the bull signal -- a decisive cross of the sma20 -- happened with the upward gap on Nov. 12. By the time the signal came, the price had already moved.
Stochastic (sto) + moving average convergence / divergence (macd) + 30-day simple moving average (sma30): This is the classic Three Green Arrows method used by InvesTools, a large American investor education company now owned by TD Ameritrade. Under this method, for bullish signals, the sto gets a green arrow when it crosses the 25 line moving up, the macd gets a green arrow when it pierces the zero-line on an upward trajectory, and price crossing above the sma30 produces the third green arrow. Under this method, the sto and macd green arrows were in place by Nov. 9. The third green arrow, off of the sma30, came with the gap upward. A sto+macd system, without the sma30, would have given a valid signal. Two green arrows are golden.
So, the signals were there, not just in the black box world of pps, but in the open source indicators as well.
The rule on the pps signal is to wait until the bar showing a signal is complete, or nearly so, before acting.
SPY for the blue chips and GLD for gold remain in bull mode (albeit with soft prices).
The VIX remains in bear mode (which is misleading -- a bearish VIX means less fear and so is bullish for the markets. Go figure!).
TLT for the Treasury long bonds remains in bear mode (price down, rates up), although the mfi has turned contrary, that is, upward.
Turning to the currencies, the dollar is strengthening. EUR/USD remains in bear mode, and USD/JPY bull mode.
Maybe not. Last Friday the 13th, in March, the S&P 500 traded within a 19.25 range, ending up. Before that, on Friday, February 13, the index traded within a 21.75 range, ending down.
So, possibly a day more boring than scary lies ahead.
Thursday, November 12, 2009
GLD remains in bull mode, but with a price drop.
The long Treasury bonds continue to show bear mode.
In the currencies...
- EUR/USD is showing a strong price decline with a bear signal confirmed by the RSI.
- USD/JPY shows a bull signal, confirmed by the RSI, amid a price rise.
That points a great weakness of my current signalling system. The primary signal, the Person's Proprietary Signal, is --- well --- proprietary. It's a black box, I don't know what's going on, and so I can't assess what a brief ghost signal like I just saw really means.
Perhaps RF is haunted. Who knows.
If you look at a one-year daily chart, you'll see that the stock has been flat, moving in a $3+ wide range since last spring. All in all, I'd call it a bit riskier than my normal play, since the downside risk on an one-year chart is around $3.50, the low last summer and spring.
But I haven't rejected the play out of hand. Risk is good.
Among high-volume issues, RF shows mfi confirmation a few days after a bull signal. The NYSE reports share imbalances on the buy side. Trading now at $4.78, the price shows resistance at $5, $5.20 and then blue skies up to $5.90. Support stands at about $4.70.
Holdings GE, HD and IWM remain in bull mode, although IWM is showing a price reversal.
No new entry signals among the high-volume ETFs. (Entry signal meaning a Persons Proprietary Signal confirmed by the MFI bouncing out of overbought or oversold territory.)
No signals yet on the two symbols on watch from Wednesday, UNG and PALM.
Among our holdings...
- GE and IWM show price stalls but no exit signals, with the mfi still rising
- AMD and HD remain in bull mode
- USD/JPY shows a bull signal, although the mfi is not bouncing out of oversold territory. So, by my rules, no entry.
- SPY, QQQQ, GLD and the EUR/USD currency pair remain in bull mode.
- TLT and the VIX remain in bear mode.
Wednesday, November 11, 2009
Our holdings -- AMD, GE, HD and IWM -- remain on track with no new signals.
UNG and PALM show bullish reversals of the mfi from oversold territory, but no entry signal. Good to keep on eye on.
Among the broader indicators, TLT (Treasury long bonds) shows a bull signal, but the reversal doesn't come from oversold territory, so it's no entry by my rules. Otherwise, no new signals for SPY, GLD, EUR/USD and USD/JPY.
Buy and hold investors, who watched their 401(k)s evaporate over the past year, are victims of a great fear that they might miss the upturn, and therefore they ride their positions down to the depths. They lack the will to act.
Institutional traders may want be nimble and quick (like Jack with his candlestick chart), but they can't. Their positions are so huge that it's like trying to do a tight U-turn with an oil tanker. It can't be done.
Private traders, by contrast, have the will to act, and are driving little Honda Civics, so they can turn fast to meet changes in the marketplace.
Some private traders are called to be day-traders, but not me. I hate sitting at a computer seven hours a day watching the tick-charts. I have better things to do -- read the New York Times, write poetry for my website at www.daypoems.net, read books, hike in the Tualitin Mountains or along the Willamette River.
I use the daily charts to trade, and my positions generally will last a few days, maybe even a few weeks. Perhaps I'm giving up gains with such a slothful routine, but what good is the freedom of a private trader if it can't be savored?
I like to use unambiguous technical signals for my trades, and in a later posting, I'l talk about how I construct my signalling systems.
In the broad markets, SPY, tracking the blue chips, remains in bull mode, as does GLD for gold and TLT for long bonds. All are confirmed by the money flow index (mfi).
In the currencies, the Euro remains bull mode, confirmed by the relative strength index, against the dollar (EUR/USD), and the dollar remains in bear mode against the yen, but unconfirmed by the rsi, which has turned up this morning.
Our four current holdings -- AMD, GE, HD and IWM -- remain in bull mode confirmed by the mfi.
Tuesday, November 10, 2009
- AMD and IWM show price stalls, but the indicators remain bullish.
- GE shows a price stall and an MFI reversal.
- HD is going great guns, but the day is showing a spinning top candlestick pattern, which indicates a chance of reversal.
The earlier sale of CSCO and NVDA broke the exit rule -- neither had a Persons bear signal -- but they were earnings plays, and that fundamental factor overrode the rule for me.
Note to self: Change the rule.
To be a private trader is to be infinitely flexible. They're your rules. You can change them. Or not.
I'm thinking to close the two earnings plays of last week, CSCO and NVDA, simply because they're aging. The reason for the trade is gone.
No signals on the high-volume ETFs or individual company shares with strikes a dollar apart. (I mean, no signals, not no valid signals.)
So, bottom line: No trades opened today. Possibly a couple of closures in the last half hour.
Monday, November 9, 2009
Sunday, November 8, 2009
Fundamental analysis as practiced by Warren Buffett: "Buffetology", by Mary Buffett. My style of days-trading differs wildly from his buy-and-hold, but he has a useful perspective on what it is that underlies the symbols that we trade.
"Short-Term Trading in the New Stock Market", by Toni Turner. Good for perspective on trading the way I do it -- open a position, close it and don't hang around for sad farewells. Some nice introductory material on technical analysis, as well.
When you feel more comfortable getting deeper into technical analysis, this book is a good survey of the many methods used: "Technical Analysis Explained", by Martin Pring.
All of those are books that I've read and used in my study.
Friday, November 6, 2009
I also trade Gorilla Trades recommendations, ThinkOrSwim's Red Option tips and several high-yield issues, none of which are covered in this venue.
Have a great weekend, everybody. Remember, although next Wednesday is Veterans Day, the U.S. stock markets will be open for business. Hooray!
On the bear side, USO, an energy-sector ETF, is showing a bear signal on the Person's PPS, confirmed directionally by the MFI. However, the MFI moved off the overbought shelf 10 trading days ago, while my rules allow only five days, unless there is another reason, such as earnings, to take the trade. I probably won't take this trade.
(The MFI for BAC and INTC, previously on our watchlist, has turned back toward the oversold line.)
Thursday, November 5, 2009
NVDA, Nvidia Corp., showing bull mode confirmed by an MFI bounce off the oversold line. Earnings announcement scheduled for after market close. Currently trading at 12.16, below a downward-trending MA20, with upside price resistance at 13.55 and downside support at 11.56. The Risk: A downside earnings surprise, but the technicals suggest current money expects an upsider.
HD, Home Depot Inc., showing bull mode confirmed by an MFI bounce off the oversold line. Now trading at 25.01, below a downward-trending MA20.
AMD, Advanced Micro Devices Inc., showing bull mode confirmed by an MFI bounce off the oversold line. Now trading at 4.79, below a downward-trending MA20
Also watching: BAC INTC GE on MFI oversold bounces without an entry signal.
Wednesday, November 4, 2009
Also watching: BAC, INTC, IWM, GE, AMD. These issues are showing an MFI oversold bounce, but lack the bull signal.