MadScientist

Today in Commodities: Keeping Your Powder Dry

Other than your atypical prediliction for NatGas, I pay close attention to your suggestions. Keep it coming.

Tracking Volatility Using Bollinger Bands and Rate of Change

Bill:

Great article. I use the VIX as a key indicator in trade entries and exits, finding it to be both timely and consistently accurate in signalling imminent market reversals.

A suggestion - I have found that using Bollinger Bands at (10,2) directly on the VIX is another highly reliable indicator. I like the idea of using ROC as well, and will look more closely at this strategy.

Thanks!

Down Fridays

Slight correction: Of the two Fridays where the VIX spiked up more than 20%, one following Monday was down fractionally, the other was up fractionally. Therefore, no bias for this to occur on a Friday.


On Nov 01 11:22 AM MadScientist wrote:

> While I am not challenging your statistics on this, they are far
> from compelling - half the time it goes up, the other half it goes
> down a little bit more?
>
> I look instead to volatility as a good measure of the market's likelihood
> to move in one direction or the other. On Friday the ^VIX went up
> 23.95%. This percentage increase is very uncommon. In fact, it has
> only happened 10 other times since 10/01/2007.
>
> So what was the next day performance of the SPX? In 7 out of 10 times,
> it was up the next day, by an average of +2.24%.
>
> Two days out, the SPX was up 9 out of 10 times, with an average gain
> of +2.52%.
>
> Perhaps most interestingly, three days out the SPX was down 9 out
> of 10 times, with an average loss of 3.03% from the close on the
> day of the VIX spike.
>
> What this tells me is that Monday represents a great short term buying
> opportunity. In fact, I picked up shares of TNA right at the close
> on Friday.
>
> By the way, of those 10 instances only two occurred on Fridays, with
> both having the SPX down fractionally on the following Monday. If
> this occurs, I'll be adding to my positions with confidence that
> they will pay out before Thursday.

Down Fridays

While I am not challenging your statistics on this, they are far from compelling - half the time it goes up, the other half it goes down a little bit more?

I look instead to volatility as a good measure of the market's likelihood to move in one direction or the other. On Friday the ^VIX went up 23.95%. This percentage increase is very uncommon. In fact, it has only happened 10 other times since 10/01/2007.

So what was the next day performance of the SPX? In 7 out of 10 times, it was up the next day, by an average of +2.24%.

Two days out, the SPX was up 9 out of 10 times, with an average gain of +2.52%.

Perhaps most interestingly, three days out the SPX was down 9 out of 10 times, with an average loss of 3.03% from the close on the day of the VIX spike.

What this tells me is that Monday represents a great short term buying opportunity. In fact, I picked up shares of TNA right at the close on Friday.

By the way, of those 10 instances only two occurred on Fridays, with both having the SPX down fractionally on the following Monday. If this occurs, I'll be adding to my positions with confidence that they will pay out before Thursday.

ResMed: One of My Favorite Stocks (That I Don't Own)

Nice DD. My screens just picked up ResMed this morning, and this has provided a very nice synopsis of the company and its fundamentals.

Why STEC's Pullback Is Buyable

I absolutely agree. I did get in a little sooner than I should have (in at $31.95, ahead of two more days of dropping prices), but this is still is very good position for this stock, which should rebound up 20% from where I got in.

Bollinger Bands by David Waring

Nice synopsis. I am convinced, however, that Bollinger bands have more untapped potential than most people realize. The challenge is to optimize their parameters against aset of well-vetted stocks.

As an example, I have used the IBD top 100 stock list as a "microverse" from which to trade, then optimized both the MA and St. Deviation parameters to find the most profitable combination to trade over the past two years (simple rules - BUY when the price closes below the lower band, and SELL when it agains closes above the upper band).

Works like a charm - 80.1% win rate, average yield per trade of 9.25%.

Kevin

Citadel Does an About-Face on E*Trade

ETFC got a smack-down yesterday after a wild ride on Monday. The call/put ratio on 201,872 contracts is currently 98.3% calls and 1.7% puts.

Bullish or contrarian play? Trade as you see fit.

Crucifying Inverse Leveraged ETFs: Why Now?

Finally a good visual representation of why this happens - I had not thought of volatility as the main "culprit" here, but it makes sense. Thanks for posting this.

Some Thoughts on Leveraged ETFs

This discussion will never end, will it? If you don't like the tracking performance of leveraged ETFs over an extended period of time, then don't hold them that long.

I would challenge the assertion that these suffer from unacceptable decay - anyone who has been in SSO, QLD, or DDM since 7/15 would argue that these ETFs perform quite nicely thank you.

Decay is a real phenomenon, but it is irrelevant when you are on the right side of the trade with these guys. Like any other investment, use good money management practices, include stops to protect yourself, and trade them, not invest in them.

The UNG Dilemma: Doing What's Right vs. Making Money

One could turn to FCG if you want to keep playing nat gas, but given its sensitivity to the overall market rather than NG as a commodity, it is also a risky bet.

Why Everything You've Heard About Leveraged ETFs Is Wrong

To sum up: "Trade these, do not invest in them."

Gold to $980 or Bust?

UPDATE: Well, I am thinking now that I was too clever by half. Should have just stayed pat with my long position - gold seems to be range-bound between about $925-$975. Very hard to play the movements when they are as fast as they were this week.

Good luck to all.

ProShares: An All Out Defense of Leveraged ETFs

I have been trading these for about 9 months. At the start, I got whalloped by my own ignorance, believing that I was right even when the market said otherwise. At 2x the downside, it hurt a lot.

Was my failure the fault of the ETF I was trading? Of course not. My own behaviors were at fault.

More recently I have been doing quite well with these same ETFs. Why? I now better understand how they work, and am more careful about applying good money management practices (never risk more than 1% of your capital, use trailing stops correctly, pay close attention to your trading indicators rather than your emotions).

Used correctly, these are great trading vehicles. I sincerely hope that they remain available to average investors like me.

Gold to $980 or Bust?

Cameroni:

Good call - I made the same assessment (bounce back down off the $975 resistance level). It didn't even get that high, mostly because the USD had a short power rally this week.

I got out of my long position in UGL on Monday with only a loss of -0.25%. Now shorting via GLL. Still think that longer term gold is a good buy, but I'm not going to fight the short term trends.