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Chris Vermeulen
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Chris Vermeulen the founder of AlgoTrades.net Algorithmic Trading Systems. This automated investing system is designed for individual investors and traders. He is also the editor of the TheGoldAndOilGuy newsletter which is designed for gold market traders providing quality ETF Trade Alerts,... More
My company:
AlgoTrades Algorithmic Trading Systems
My blog:
TheGoldAndOilGuy - Gold Market Traders
My book:
Technical Trading Mastery - 7 Steps To Win With Logic
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  • Option Skew Points To More Downside Potential In The Nasdaq

    By now it is no secret that equity markets continue to deliver solid gains for 2014. In fact, all of the major U.S. domestic stock market indexes are higher for the year. U.S. equities have benefited from an accommodating Federal Reserve, massive corporate stock buy-back plans, and solid earnings growth. The bullish trend which began in early 2009 has pushed equity indexes to several all-time highs. QQQ DIA, SPY, IWM

    However, when we focus our attention on 2014 one index is showing major relative out performance. The Nasdaq Composite and the Nasdaq 100 indexes have blown away every other major index in terms of overall returns in 2014. The chart shown below illustrates the returns of each major U.S. equity index year-to-date.

    (click to enlarge)

    As can be seen above, when looking at the corresponding ETF for each major index, the Nasdaq 100 (NASDAQ:QQQ) is running away from every other major index in terms of performance. As a contrarian trader, I am of the opinion that now may be an excellent time to consider looking for a possible short position to hedge against the bullish trend.

    The equity markets in the United States are becoming frothy and prices are at the very least fair valued if not overvalued depending on which methods are used to calculate current prices. When we consider the major out performance in the Nasdaq 100 Index, it would only make sense that if we see downside in the future we could capture some big potential profits.

    As an option trader who focuses primarily on probabilities for trade executions using a variety of implied volatility calculations and Delta assumptions, the following observations regarding the Nasdaq 100 Cash Index (NDX) were derived based on data points on Friday, August 29th.

    Based on the September NDX option expiration date, the current skew in the NDX option data is to the downside. In fact, as I am typing this NDX is trading around 4,075. A 2 standard deviation move to the upside (90%) is around the 4,200 call strike and the same measurement to the downside is around the 3,900 put strike.

    (click to enlarge)

    When looking at the same data based on the October NDX option expiration date, the current skew in the NDX option data demonstrates more aggressive downside Skew in October versus September. A 2 standard deviation move in the October series to the upside (90%) is around the 4,275 call strike and the same measurement to the downside is around the 3,755 put strike.

    (click to enlarge)

    While I realize this is somewhat technical, the main premise is that the option market in the Nasdaq 100 Cash Index (NDX) is skewed toward more potential downside risk. This data lead me to place a new trade earlier this week which was next short the Nasdaq 100 Cash Index (NDX) using an October Call Credit Spread as a trade structure.

    Recent results for the service have been very strong for the options alert service. The last 4 trades have produced a 13.95% winner in Matador Resources (NYSE:MTDR), a 17.05% winner in the S&P 500 Cash Index (SPX), a small 1% loss in the Nasdaq 100 (QQQ), and a 21.95% in the Russell 2000 Cash Index (RUT). The options newsletter service is priced super affordable at just $29.99 per month with new trade alerts sent out almost daily.

    Ultimately time will tell if the skew in the NDX proves to work. For now, I like the near 75% probability of success that the NDX Call Credit Spread is offering with a nearly 20% potential return. In the future readers can expect a recap of this trade. Happy Trading!

    Chris Vermeulen

    www.thetechnicaltraders.com/options/

    Tags: QQQ, DIA, SPY, IWM
    Sep 02 9:11 AM | Link | Comment!
  • Gold And Oil On The Verge Of Something Big – Hero's Rarely Win

    Everyone has been calling for a bottom in Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.

    A lot of newsletter and analysts are calling a bottom. Technically it's just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation. GLD, GDX, GDXJ, DUST, NUGT

    goldbear

    If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.

    Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I'm just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.

    Oil Outlook

    Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern. SCO, UCO, USO

    oilbear

    It's important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.

    The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.

    Crude oil's previous trend was up, but it's been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.

    A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.

    My Gold and Oil Conclusion

    Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall. UUP

    Automated Trading System

    Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.

    It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.

    This will catch most investor's off guard. It's human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.

    I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.

    Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don't be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.

    Would you like my trade alerts CLICK HERE

    Want my SP500 trades executed for you in your brokerage account CLICK HERE

    Charting your way to financial freedom,

    Chris Vermeulen

    Aug 22 9:38 PM | Link | 1 Comment
  • Keeping It Simple, Why Short Traders Are Losing Money This Week

    One thing I have talked about several times which cannot be understated is that is the tendency for investors to believe that complex trading ideas and automated trading systems are better than simple, logical ones.

    At first thought this notion is completely understandable. After all, if an idea is fairly simple, how could it possibly be "a secret" and investors not using it yet?

    Successful trading and investing is not about how good you look or how impressive you sound in videos. It's about what, when and how you do it. It does not matter if you are placing the trades yourself or using an automated trading system. What, when and how the investment is traded is all that matters.

    It's known that highly intelligent people struggle with the markets because they believe intelligence will improve their trading results. The reality is, they do not thing simple trade setups and strategies that look like they will make easy money, will work. Why? Because they think that the market is complex and thus trades should not be simple to spot and time, therefore the simple ideas should not work.

    In all fairness "simple trading" is not really that simple. Successful trading requires the right kind of simplicity, in the right amount at just the right time. This is what creates the highly profitable investors and automated trading systems.

    Why The Short Traders Are Losing Money This Week:
    They are fighting a bull market which is still pointing to higher prices.

    Take a look at the chart below of the SP500 futures index. You will notice the bars are color coded; this is done by my automated trading system which identifies the market trend which trades should be trading in line with.

    The stock market remains in a full blown bull market. Investors should remain long for time being. On ther other hand active investors should be trading with the current market trend which is shown on the chart.

    Market corrections within a bull market are sharp and short lived. As an active investor you will be luckly to catch one or two short trades during these pullbacks before the uptrend is retaken.

    It is imporatnt to know that eventually one of these bull market corrections will be the staw that breaks the camels back, and kick starts a new bear market. This his why I always move to cash and look to short each of these corrections. We just never know WHEN a full blown bear market will start. If you are holding your positions through these corrections and think you're a great investor, just wait until the market does acutally breakdown and most of your gains are gone before you realize it. I will admit, its very easy to get lazy with investments after years of rising prices. Lazyness and a the lack of a trading strategy for a falling market is what causes 99% of investors to lose their money.

    I believe in trading defensively. Sure it's more work, takes time to follow, and there are extra trading commission fees, but its a small price to pay to keep the majority of your gains.

    (click to enlarge)

    SP500 Monthly Big Picture Analysis

    Here is the big picture and trend of the SP500 index. Simple fact is, eventually things are going to get really ugly. By stepping back and looking at this chart, it's clear the market must still fall substantially in value to break below its critical support trend line and before we can confirm a true bear market is in place.

    Do you want to see your nest egg drop 20-30% before you decide to exit? Or do you want to profit from this initial correction when it does happen, and make even more money when the stock market drops for a year or two after taking your account to new all-time highs.

    (click to enlarge)

    Keep It Simple Conclusion: Automated Trading Systems?

    The good news is that if you keep things simple by following the intermediate trend, like the color coded chart above, you can keep making money as the market rises to ridiculous new highs, and avoid market corrections, and possibly even profit from them.

    In my next article I will show you a simple trading strategy that I have used for many years to time stock market bottoms and tops for swing trading. Best part is that the data I use is available online for free.

    One final note, there are automated trading systems that does all this for you. I also use it and have it trade my own investment capital for me. You can learn more about it and join my mailing list here:http://www.algotrades.net/automated-trading-system-2/

    Chris Vermeulen

    Aug 18 12:40 PM | Link | Comment!
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