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Bill L.
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Methodology: setups require certain criteria to be met before trades can be executed, which include weighted statistical studies on several indicators of price, breadth, volume, and sentiment . Amount of risk taken is proportional to how many indicators are aligned. I mainly trade market... More
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  • Monday, October 17, 2011 - Short Term Update 14 comments
    Oct 17, 2011 3:40 PM | about stocks: SPY, DIA, QQQ, IWM, UUP, TLT, VXX, FXE, XLF
    Short update tonight.

    Friday Recap:
    A quote from Friday's update: "The sell setup is here, I am just waiting for a convincing reversal in price. Owning stocks while everyone is celebrating may feel good, but probability dictates that this is actually the very high risk play."

    Monday:
    After Friday's close the put call ratio dropped to about to about -1.5 standard deviations below 1 trading month's mean; the rally had finally convinced traders to start buying calls and take their hedges off. The XLF produced a hugely bearish non-confirmation, which I highlighted here. Usually that type of behavior bookends rallies.

    The trading indicators reached extremes last week and started showing bearish divergence since about Wednesday/Thursday. Today they stand between "high" and "average" indicating to me that the downside move is not yet finished. The one risk here that I see to the bearish case: the shortest time frame Walter Bressert cycle study is showing a possible short term cycle bottom, indicating there could be one more pop higher. I doubt this however since the other longer term cycles are topping and will probably override the short term cycle. The majority of the other evidence I look at argues against it as well. If it does occur however, it would produce a pretty clear head and shoulders pattern on hourly charts. But that is conjecture, what we have in front of us is a severely overbought market, and price momentum is down. I believe it is best  trade the market we have and not the "what ifs."

    Summary:
    Traders:
    Trading indicators are coming off very high levels, swing indicators are suggesting that the next big swing is down, cycles are topping = short. Moving back above 121 would be the first indication I'm wrong. A close above 121.85 would produce a stop.

    Investors:
    We are in a bear market, continue to use overbought readings to reduce all long positions to cash (or even get short if you are less risk averse).

    Next update tomorrow after the close,
    -Bill L.
    Stocks: SPY, DIA, QQQ, IWM, UUP, TLT, VXX, FXE, XLF
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  •  
    A link to Friday's update if you wish to get a look at the where the trading indicators stand: http://seekingalpha.co...

    -Bill L.
    17 Oct 2011, 04:50 PM Reply Like
  •  
    Thanks for your research, Bill!
    17 Oct 2011, 04:53 PM Reply Like
  •  
    Good job, I got conviction on the call and held on to my Nov SDS 22/24 call spreads even through terrible Friday, now back to break even and looks like tomorrow will be a great day for it.
    17 Oct 2011, 05:41 PM Reply Like
  •  
    This morning, a threat to the short thesis: the XLF and $BKX are rallying today off BAC, and somewhat by GS. This has the XLF breaking out to the upside on a 15min chart. The higher beta Transport index is also doing well. While the more volatile indexes give more false signals, they also give first warnings. Get ready to bail if their gains spread and move to the other indexes.

    While I still don't have faith in a rally here, when in doubt, don't lose money!

    -Bill L.
    18 Oct 2011, 10:39 AM Reply Like
  •  
    Thanks for this update!
    18 Oct 2011, 10:43 AM Reply Like
  •  
    Out for now. Maybe a mistake, but the rally in the transport index is huge. Taking a wait and see. If the $SPX come right back to below 1200, I will take another test short out.

    -Bill L.
    18 Oct 2011, 10:54 AM Reply Like
  •  
    BAC in focus, so goes BAC today, so goes the market.

    -Bill L.
    18 Oct 2011, 11:23 AM Reply Like
  •  
    I don't see anybody holding BAC today with conviction. I think they'll sell their positions at the close and take their very nice profits with them.
    18 Oct 2011, 11:27 AM Reply Like
  •  
    Tip toeing in, that may have been a bull trap. Earnings have definitely made the trading environments a bit more volatile than usual.

    Firm stop remains 121.85.

    Bill L.
    18 Oct 2011, 11:29 AM Reply Like
  •  
    I believe we are setting up for the head and shoulders pattern I mentioned.

    -Bill L.
    18 Oct 2011, 11:38 AM Reply Like
  •  
    XLF, new highs, market is going higher. I'm looking to fade it higher, when price momentum reverses. Until then, side lines for me. A frustrating trading day so far. Good luck!

    -Bill L.
    18 Oct 2011, 11:39 AM Reply Like
  •  
    A tough day indeed. I'm still short from this morning. When you say Head & shoulders, what time fram are you referring to?
    18 Oct 2011, 12:16 PM Reply Like
  •  
    Pull up an hourly bar chart, you should be able to see the first shoulder form last Wednesday. It looks to me were are forming the right shoulder now.

    Don't trade in anticipation of a break down though.

    -Bill L.
    18 Oct 2011, 12:43 PM Reply Like
  •  
    I see it now, thanks!
    18 Oct 2011, 12:52 PM Reply Like
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