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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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  • Wednesday, April 11th, 2012 - Short Term Update - Closing Shorts 5 comments
    Apr 11, 2012 3:06 PM | about stocks: SPY

    House Keeping:

    Sorry for the irregular posting schedule, I've been studying for CMT lvl 2, the big day is May 5th. In my last article late February, I detailed how I thought we were building a rolling top due to several extreme sentiment indicators. While many of those same intermediate term sentiment indicators remain elevated, the shorter term technical indicators I follow have become very oversold, even though we have only had a moderate decline. Still, oversold is oversold, and I'm using this opportunity to close out the short positions built during late February at a small loss. Once these indicators moderate I'll reassess the situation.

    Trading Indicators:

    A short summary of indicators I use to make short term decisions:

    Percentage of stocks above their 20 day moving average:

    (click to enlarge)

    5 Day Advance Decline Line Oscillator:

    (click to enlarge)

    5 Day Up Down Volume Oscillator:

    (click to enlarge)

    5 Day TRIN:

    (click to enlarge)

    5 Day NYSE TICK:

    (click to enlarge)

    Swing Indicators:

    A short summary of indicators I use to make intermediate term decisions:

    Percentage of stocks above their 50 day moving average:

    (click to enlarge)

    3 & 5 Day McClellan Oscillator:

    (click to enlarge)

    Conclusion:

    From my perspective, the technical picture has become very cloudy as of late. Sentiment hit an extreme several weeks ago and has moderated, as it usually does during the formation of a rolling top. That said, the advance in prices has been large enough to move my long term trend model from bear to bull (in several but not all the market indexes) so I'm not interested in holding a large short position with my long term trend model possibly switching from bear to bull. This would be the first whipsaw/false signal in nearly a decade. So it still may be a red flag. We'll have to wait and see. With sentiment, my long term trend model, and the short term technicals all giving a different message, I'm simply using this oversold market to cover my shorts, get flat, and reassess

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SPY over the next 72 hours.

    Stocks: SPY
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Comments (5)
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  • untrusting investor
    , contributor
    Comments (9973) | Send Message
     
    Good overview. Still looks like another sell in May and go away type year for 2012 to us. But only time will tell.
    11 Apr 2012, 07:13 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4282) | Send Message
     
    wow. Sentiment shifted quite quickly.
    Usually a bullish sign. Fed is jawboning rates to stay low 'til 2014 and will support the economy. These people are arrogant misguided bureaucrats who have absolutely to much power.
    UI, this year sure feels like 1987 to me. The market rallied into aug I believe before topping then crashing. As i recall few if any were buying aggressively after th fall but were worried of potential depression or slowdown. 1988 is now way the same situation today where the risks are substantially greater.
    The gold miners are itching for a strong bounce here. However commodities have taken a beating and have broken lots of technical levels so investors have run for the exits. more to come?
    12 Apr 2012, 09:57 AM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » Sentiment is mixed here, AAII survey respondents are clearly nervous, but equity option premiums, II survey respondents, short sales levels etc are still elevated.

     

    The move back up will should tell us a lot. Sentiment typically peaks 1-3 months before the indexes do. This is because many stocks are already breaking down at this point, and the major blue chip stocks that dominate the index weightings are getting most of the attention. Look how apple is affecting the S&P versus the NYSE composite.

     

    The breadth and the volume of the move off this swing low should help clue us in on whether this is a broad move or a narrow one.
    12 Apr 2012, 12:54 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9973) | Send Message
     
    TH,
    A couple of helpful articles on Barry Ritholtz's site about volume and margin interest.

     

    http://bit.ly/HDZLB5

     

    http://bit.ly/HO5cOE

     

    With regard to the Fed and world central banks, would agree that all are extremely desperate to keep the party going for as long as they can. Hard to compare current markets to past markets given the massive amount of central bank interventions, but it will end badly. The only question is when?

     

    Our view is mainly that options (puts and calls) are by far the safest way to try and play this market. The capital required is so much less and risk is clearly defined. We moved almost all of our LT investments out of equities in 2011 and 2012 and into fixed income investments. Our best guess is that there will be a significant equity market correction sometime in 2012-2013, but trying to guesstimate the actual timing is virtually impossible. Our option trades in 2010/11/12 have done very well for us and easily done as well or better than any equity long positions would have done and with much less risk from our standpoint.

     

    But that's just how we see the current market environment and how we choose to position for it.

     

    Was taking a look at gold miners but the option call prices never reached a low enough point to get us into the trade yet. Probably will not get there as GM's took a big jump today already.
    12 Apr 2012, 01:16 PM Reply Like
  • mds5375
    , contributor
    Comments (164) | Send Message
     
    A similar view:
    http://seekingalpha.co...
    12 Apr 2012, 11:54 AM Reply Like
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