The Intuitive Trader

Furthermore.....

2011-08-30T13:00:00.000+08:00

Expecting a slow day (consolidation) today but risk reward will favor shorts I think given that we are now short term overbought and buying power looks exhausted after yesterdays extremely positive tick readings. Also good odds for fading any gap given we did not fill yesterday. To summarise a good sized pr-market up gap looks like a good trade to me. After that I'd be inclined to fade the range in the first hour........

Going to test 1250 methinks

2011-08-30T11:57:00.000+08:00

We have finally cleared 1200 and it now appears that we are very likely to test the 1250 area on the ES corresponding to the backside of the long term trendline and the 200 day MA. From looking at the various asset classes it would now appear that some sort of stimulus action is being priced into the Sept FOMC meeting (as risk appetite is back) and thus if you were short, you just don't want to hold going into it. Could be another buy the rumour sell the fact play coming up. The announcement will occur on the 22nd of September for those wondering. Over in Europe things have quietened down and there has been a rally in the credit markets so the fear has definitely subsided.

Under the hood, market internals were very strong yesterday with cumulative ticks finishing at +140,000, however volume was extremely low when compared to the 30 day median (running about 35% lower).

Pinning their hopes on the Fed?

2011-08-23T12:16:00.000+08:00

Even though the major indices finished flat yesterday, the price action and cumulative ticks indicated bearish sentiment still prevails. After a monster gap up, stocks were sold into the strength with the gap eventually filling. Cumulative ticks trended lower the whole day and finished at a very bearish -90,000. There has been lots of news about investors buying this market because the Fed will come and save the day with QE3. I would think that the probability of such an event is low as the Fed's mandate is not to support equity prices but economic growth. From a political standpoint, there doesn't seem to be much support either for another round of debasing the US currency. All in all, if traders were that positive about more QE3 then the shorts would have covered and this market would be bid much higher. I can't help but think that if we don't see some kind of surprise supportive announcement from the Fed (other than a repeat of it's last statement) then markets could head lower. Certainly the longer we hang around at these price levels, the higher the chance we break through them.

Another chance??

2011-08-19T16:04:00.002+08:00

Another chance to get long on a retest of 1100 is coming up I think. Failure to hold 1100 or slightly below and then we start looking at 1019 as next support.

Failure again above 1200 is not good for the bulls

2011-08-18T15:35:00.002+08:00

Futures trying to hold 1177 currently. Failure to hold the 1180 and we should trade back down to 1147.

Next target 1220

2011-08-17T21:55:00.000+08:00

1220 looks like much stronger resistance to me as it corresponds to trendline resistance and fibbonacci level. I was going to comment that the ability to hold the 1180 level yesterday was quite bullish and it would appear that the shorts at 1200 are now covering today as we have cleared that hurdle after the 3rd go.

First target hit at ES 1200

2011-08-16T14:43:00.000+08:00

Interesting juncture here. The bounce has hit my first target of the 1200 area and we should expect some resistance here. Odds are relatively good for fading the current down gaps (especially as yesterday's gaps did not fill) as long as we hold yesterday's open.

Looks like the bottom is in......

2011-08-10T10:38:00.000+08:00

Waiting for a daily close higher now and we should head towards 1200-1220 as the first target with the second at 1240-1250. Don't think the FOMC statement does all that much other than tell us all what we were thinking anyways ie that very low interest rates are going to be here for a while". It will be telling to see how strong the bounce is as if it fails within a few days then a retest of the lows would be imminent.

Forced liquidation time......

2011-08-08T22:26:00.001+08:00

Doesn't matter that we are oversold. We need to see all the buyers washed out here before even attempting to make a bottom. Going to get a bit more ugly before it gets better I think.

Was that the bottom??

2011-08-06T11:35:00.000+08:00

In a market without significant fundamental news driving it, then I would say from a technical standpoint, that the low of 1163 in the ES yesterday has a high chance of marking an intermediate term bottom. However, with all this sovereign debt news (ie rumour that ECB was buying Spanish and Italian bonds that supposedly caused the reversal yesterday) flying around and credit markets in a spin, then it's really hard to say as the S&P decision to downgrade the US credit rating may have an impact on Monday morning. At the moment all bets are off for longer term trades and the markets are really a day by day proposition. I would imagine that given the precipitous sell off in the last week, that margin calls are being felt and we are already in the stage where any multi-day bounces will be met with more selling. So for now I'd stick to that MO until the market character changes (VIX below 25 would be an indication of that).

Total unwinding of leverage here......

2011-08-05T23:33:00.000+08:00

Now that the Central Bank and government punchbowl is being taken away (thank you Mr Trichet for making that clear), we are seeing a total unwinding of leverage here. Watching the ES futures price action and it's clear that the selling is relentless. So it's true then, you can't spend your way out of debt!? The Austrians were right after all......

Where to now???

2011-08-05T15:11:00.000+08:00

I'd be on the lookout for another final capitulation type move, followed by a vicious bounce similar to what occurred on Wednesday. I think we are not far off from a bottom here but as always I would wait for a confirmation ie follow through day before going long. I expect the bounce to be just as wicked as the sell off and we should test 1250 on the ES before sellers again come in and we retest the lows. From there we either double bottom or all hell breaks loose. I'm hoping for the former as I'd hate to see people losing their jobs and livelihoods etc etc. A bad NFP this morning and we may get that capitulation.

Pretty bearish price action yesterday

2011-08-02T12:18:00.000+08:00

Pretty bearish price action yesterday as the monster up gaps filled and then some. Economic numbers continue to surprise to the downside in a sign that things are slowing down again.

Technically we are testing the 200 day moving average again and also the monthly trendline from the March 2009 lows. I would bet that we will bounce somewhat for a few days off these levels (cumulative ticks did come back and finish positive in the second part of yesterday's session) but overall I'm not that optimistic about the longer term, although a fair few of my quant subscriptions are still presenting research that favours the long side in the intermediate term.

Unemployment reports could be quite a trigger coming up this Friday.

Busy busy busy

2011-07-07T00:31:00.000+08:00

Hi all,

I've been pretty busy this last week and I will be going on vacation next week so posting will be very light. Anyway, all the quant studies are overwhelmingly pointing to further intermediate strength. In the short term we are overbought but as you can see from the last couple of days action. Any weakness has been a good opportunity for bulls to get long. Until that pattern changes on an intraday level, the path of least resistance is up.

Friday pre-market thoughts

2011-07-01T21:25:00.000+08:00

ES hanging right around the 50 day moving average this morning. Frankly I expect a range bound consolidation type of day. Market is overbought but we have reasonably strong seasonals today. PMI at 10 could be a bit of a mover but I will wait to see what the internals are and how the tape action is going before deciding on what my bias is going to be.

RUT position

2011-06-30T23:49:00.000+08:00

I have now spreaded this position off so it looks like this.

I'm still bullish on the markets especially given that we were able to take out last weeks highs (ie pattern of higher lows, and higher highs) and the very strong tape readings for the last 4 days including today (currently cumulative ticks at +40,000 and trending straight up!). I just think we might consolidate here a bit given that we are very short term overbought now. So with that I had to weigh up the theta decay in my position if I didn't spread it off versus how much more the market may move in the next 2 weeks. Of course given the speed of the market in the last 2 years, I could be made to look silly. Hopefully I will gain a bit with the theta to come out for the Independence day long weekend.

I have also adjusted the OIH trade as well. I bought 2 x the 152/154 call spread to give myself a bit more upside profit. The trigger was that OIH has broken resistance on the daily down trendline. Again I'd like to see markets move a bit slower here but who knows. We've moved a whopping 10 points in just 3 days!

Current trades

2011-06-29T21:28:00.000+08:00

The other day I mentioned that I started to dip my toe to the bullish side by establishing some long option positions. Here is how they look today.

This OEX position consists of two BWB's at different strikes (565/560/550 & 560/555/545). It can also be thought of as an unbalanced condor by being long the 565/560 put spread and then short the 555/550 and 555/545 put spreads. This is a weekly position and both BWB's were initiated for $0.50 and $0.30 credits respectively. Here's hoping for some fireworks today with the Greek votes as this spread is likely to finish well out of the money.

This position again was originally 2 BWB's at different strikes (780/770/750 & 770/760/740). Since then I took some risk off by buying the 750/740 put spread for $0.65 debit. I have also bought the 835/845 call spread for July for $2.35 with the intention of spreading this off by selling an out of the money call spread eg. perhaps the 2 x 855/870 call spread for at least $1.25 such that I have a quasi unbalanced condor again and the call spread is totally financed by the short call spreads.

Again this OIH position began as a BWB. Since then I've spreaded that position off with an unbalanced condor. The strikes chosen coincide with previous swing highs at 155. This position is for July expiration.

The only other trade I have on are some VXX puts at the 24 strike for Sep expiration. This trade is working out nicely having bought them for $3.25 (now trading at $3.75).

Thoughts for this morning are that this gap will probably fill given the buy the rumour sell the news play is likely (institutions love doing this!)

Huge turnaround

2011-06-24T07:06:00.001+08:00

Quite a prescient call at about 11.30am ET when I called out that we were likely to have a large move up or down just by the amount of business that we were doing at the 1260 level on the ES. Fortunately for me, going long was the right call. The reasons why I went long was because:

Market internals were improving (cumulative ticks finished at +35,000 on the session).
ES was holding the 1260 trendline
Divergence between small caps & technology (relative strength) versus the Dow and SPX

On the trade front, I ended up buying broken wing butterflies on the OEX, RUT and OIH. I had wanted to get more long by buying RUT call spreads but my fear or prudence held me back. This is something I need to work on as it's kinda of holding me back to transition to the next level (ie even though I could see that going long was the right play in terms of probability for the reasons above I managed to wuss out). Anyway something else to note down in my trading diary!

Holding the daily trendline support on the ES @ 1260

2011-06-23T23:20:00.000+08:00

Big fight going on at this area. SPY volume is running extremely high (80% above 30 day median) whilst cumulative ticks have been oscillating up and down. Whatever the next move is, it will be either a very sharp move up or down. I've decided to take a dip to the long side by establishing some longer term positions using BWBs on the OEX, OIH and RUT. Stay tuned.....

Tuesday and Wednesday recap

2011-06-23T20:54:00.000+08:00

Cumulative ticks finished up at +80,000 and +50,000 respectively on both Tuesday and Wednesday. We had the pre FOMC bias up till 2pm and then we sold off after there was no QE3 mentioned by Bernanke. Nothing like buying the rumour and selling the fact as always on FOMC day. This morning we have had weak unemployment claim numbers and are see monster gap downs below yesterday and the day before. Not a pretty situation and it could get ugly as these types of days usually turn into gap and crap (ie go with the gap trend days). I wonder if Goldman knew this was going to happen (they had a big sell order in the pit yesterday at the 1291 level - sold well over 1000 cars (just poking fun here)). Anyway they took away my blogging rights at work so expect later posts than normal.

Powering ahead

2011-06-21T23:41:00.000+08:00

Anyone that was still short today is getting squeezed! Cumulative ticks are trending straight up, internals are strong. Classic trend day. The moves up in the futures has been nothing short of breath taking since the open.

Short covering rally?

2011-06-21T12:41:00.000+08:00

Pre-market weakness was bought yesterday and the down gap we had was filled within the hour. It looks to me that that was a retest of sorts for Thursdays lows. We did manage to break the 30min trend line and hold the 1260 area which I was thinking was a good spot to get long. We'll have to see whether we get continued follow through as I suspect the buying was also due to a bit of short covering and some new longs taking a stab before the Greek Confidence Vote later tonight and the FOMC announcement on Wednesday (positive seasonality heading into it). Certainly no one wants to be on the wrong side of either of these potentially market moving events (especially if Bernanke mentions or implies that QE3 might be on the cards).

Cumulative ticks finished at a very respectable +50,000 yesterday and breadth indicators were ok. SPY volume was a little bit below the 30 day median average so make of that what you will. It really is a wait and see kind of market now and I don't really expect a major move early in today's session until the Greek Vote goes through (I'm expecting and the market is expecting that the confidence vote will be ok and Greece will get access to further funds). As for FOMC Wednesday, I'm not sure if Bernanke will talk about more stimulus but we shall see. At this stage, I would think the bias has to be to the long side for now but expect things to be choppy. One noticeable thing is that yesterday was the first day in a while, where we did not get some type of afternoon sell off and we held into the close (which is a good sign for the bulls). More days like that and you might say the tide is beginning to turn.

Important levels on the ES are 1277, 1284 (resistance), trend line and pivot support at 1270. Further downside support is at 1260 with S1 at 1264. I'm expecting a pre-market pull back to the 1270 area which should set up a good long trade. Gap fade looks ok as long as we don't open below the open from yesterday.

Pre-market thoughts for Monday 20th June 2011

2011-06-20T14:47:00.001+08:00

As I write this (2am E.T.) U.S. index futures are already showing large gaps down below Friday's lows (on ES). This is a situation that usually does not favour gap fill and certainly the data I have seems to support this.
With no clear resolution on the Greece situation all eyes will be on the unfolding situation in the Greek parliament where we have a debate and no confidence vote later in the week. The EU has put off any further discussion of payment for loans until early July. This leaves the market in a tough spot as it hates uncertainty thus it will likely be a very news driven and volatile market until such time things are sorted out.

More support for some bearish action today is the fact that there has been a tendency for mean reversion post OpEx. Thus given the slightly positive action on Thursday and Friday then we would expect weakness today. Therefore my bias today is to look to sell any rallies. 1260 shapes as an important level on the ES and if we can hold and break above the short term down trend line, then I would likely go long. Weakness below 1260 and I will think we will retest last weeks lows. At this stage it seems quite clear that we are going to retest the 200 day moving average again (on the SPX cash). Best bet is that we undercut the 200 day and perhaps close below it, going for the March lows of 1243 on the ES (this would also shake out a lot of the weak hands and reset us for perhaps the next leg up). Remember we have still to tag the weekly trend line on the ES yet. Interestingly most gurus and sentiment quants are advising that this is a good area to start building longer term bullish positions (1-3 months) with the caveat on watching how weak the price action gets (bail if it looks like cascading down lower). Myself personally I would probably want to see some follow through before establishing significant longs though but then again I'm an intraday trader so I don't really take longer term positions (I may put on some speculative bullish spreads using options though).

Noon update

2011-06-18T00:11:00.002+08:00

Cumulative ticks somewhat choppy but the overall trend is up. It would appear that Merkel's earlier statement has managed to calm the markets for now. Still things are on a knife's edge and Greece's fundamental problems regarding it's inability to pay off it's debt is not a short term fix but a long term one. There are definitely more spanners in the works here. For more on this read this link here.

Forgot to add....

2011-06-17T17:13:00.000+08:00

Yes I forgot to add that yesterdays price action in the ES (and indeed most of the index futures) is bullish. This is the same pattern at Monday and the theory is exactly the same as stated in Monday's post. However the caveat remains that we have external events (namely Greece) that is casting a dark shadow over normal technical patterns (there is a saying that technicals rule in the absence of significant fundamental news). From a gap guide probability, so long as we don't open below yesterday's low in the ES, the win rates are neutral (coin flip setup) but profit expectancy is pretty good. Ok but not really great to be fading in my opinion. I'd rather wait and see what happens today.