Alpha Talk

How would 2015 end for SPX?

2015-12-13T10:53:00.001-08:00

I thought I would post today cause the market appears to be at an interesting position. First, below are the daily charts for SPX, NYMO and VIX.

SPX is testing a support area of 2000-1993, and on friday closed below the short term support 2019. The MACD(d) is pushing lower after the zero crossing, this is quite bearish and it looks like a big move lower is on the cards. A break below 1993 and the 1870 are comes into play, its a pretty bad scenario from the market perspective though.

VIX is at 24.39, a clear breakout bar, which tends to push it higher next stop is 30 and it could easily test the 53 high we say in August. but its a sentiment indicator and is fickle. Here id say together with SPX the outlook is quite bearish and sets up a nice bear trap

NYMO closed at a very oversold -80 on Friday and as can be seen that is a rather rare event. The sharp move we saw in August was the most recent spike below 80 and continued lower to 104, from where the heavy btfd bots pushed it higher. This is what makes the situation interesting, whether the bears can be confident about their shorts or will they get squeezed as in the past 7 years

Fundamentally, I think the HYG vs SPY spread for me is a clear indication that the market needs to pull lower. But the FOMC meeting begins Tue 15, is announcement is on Wed Dec 16, usually bullish, and quadruple witching on Friday the 19th.

So Scenario#1 that comes to mind is, we see a drop into Monday open, test 1993 and then the bots start buying given where NYMO is. we see a spike higher into FOMC anticipation, market likes what they say, rally continues into Friday and pull us above 2075 and the Santa Claus rally kicks in into EOY. who knows where it takes us, prolly back above 2100.

On the other hand we could see 1993 tested, chops Tuesday and Fed raises rates and market doesn't like it, SPX sells off aggressively towards 1870, starting a down trend, will need to see if there is a target area below that.

To remember this week is that it took just 3 days in August for SPX to drop 2075 down to 1867, -208pts being cautious is really important here.

VIX suggesting increase in downside risk for SPX

2014-05-21T10:35:00.000-07:00

VIX pattern suggesting market turn lower might not be too far away, volatility compression usually resolves with a breakout. You could play VIX seasonality with calls to hedge porfolio or take outright short positions among other things. In any case something to keep an eye on.

Near term top or just a contract roll adjustment?

2013-09-22T19:24:00.000-07:00

Friday sold off from $NYMO reading at overbought 86.76 on Thursday, its a good indicator to look at for short term setups. While the open was weak, most expected a bounce back given the recent Fed zero taper, the $TICK didn't hint at the eventual sharp decline either. Also, the declines were not broad based as Mid caps and tech didn't follow along with SPX/INDU.

SPX -12.43 -0.72%
INDU -185.46 -1.19%
RUT -2.44 -0.23%
COMPQ -14.65 -0.39%

The Fed surprising the market with zero tapering sent us higher but triple witching on Friday, and the markets distrust of this move up took us down erasing all the gains made. Whats useful to look at is that the peak on Friday seems to be approx 0.618 measured move of the recent move up. Along with the House vote on Obamacare and possible Govt shutdown (again!) may lead to some bear action in the coming few days. For the bulls, while we have closed below Aug peak we still are within range for a bounce here, and as always the Fed's got your back :)

(for the conspiracy folks, the PPT usually kicks in at critical levels unless they want to apply some political pressure by a crashing market to get the House in order ;).. enjoy the week

Emerging markets first casualties of Fed policy talk of taper

2013-08-25T22:48:00.001-07:00

Most of the time its easy to make fun of the economic collapse brigade out there and other times its really obvious how unstable the world economy is and has been since the financial crisis. Was reading up on how emerging markets and their currencies were collapsing and it seems all too obvious how the Fed taper talk may have been the reason for that.

Sometime in May the Fed started talking about taper and emerging market equities (EEM) began to tank lower, see red line. As the very mention of taper meant bond yields in the US would rally and investing at home becomes more profitable. FDI pulled out of the EM markets led to the slide and their currencies. The FDI pullout has left their markets lower by 13% while their currencies continue to slide. Some of that repatriated dollar fled back into equities and led to the 10% spike in equities on relatively no volume.

Seems indicative of some serious challenges ahead, I mean these are relatively decent size economies (India is the 3rd largest in PPP terms) and yet the impact of US policy is just beyond their management capabilities. What is more of concern is what happens to the US economy when Fed does begin to taper. If equities can move 10% in two weeks what woulds stop from a larger slide down, when everybody is a seller!

Recap 8/22/2013 - Choppy ahead

2013-08-22T20:40:00.000-07:00

It's been interesting since the last post, we had a declined on talk of QE taper then ramp up sharply on the Fed calming the markets on tapering. Then bulls seemed exhausted and the SPY moved sideways for a while until the exhaustion played out. In a rather sharp move lower. Seems like price lately is about jumping levels and then consolidation at those levels. We did the grind near the all time highs above the 5/22 peak the jumped lower and for the last four days price has just hugged the 6/18 high. Also, look at the measured move targets, price almost exactly matches.

I posted this chart on TV earlier, price broke 0.38 fib and has bounced higher. Its at an interesting level near the 6/18 high and if tomorrows open isn't higher the bounce gets cancelled and we should move lower towards the 162 target on my chart, we'll find out.

Recap 6/17/2013 - Consolidation looking to resolve

2013-06-16T22:23:00.000-07:00

Looking at daily candles for hints into the week ahead. Two short term levels are important here. One is around 1634.8 near the market open on Friday, its same as breakout level "A" market on chart. The other level is near 1646.87 which was the doji reversal level and the break down marked "B" on chart. You can see that prices failed at "A" and must break above it to continue higher. The index closed lower on Friday, confirming a higher low up trend. We are consolidating here in a triangle looking to break out. Two scenarios seem possible -

First is that the rebound continues higher and prices break level "B" tomorrow, I have a preference for this outcome. On the day trading side breakout of "A" would make a good entry for a long position, to close near "B". Break above should give us the second entry as sellers might try to test the bulls resolve near "B". Breakout should also take us further to retest the recent high in the days to come. Failure would create a wedge reversal.

Second scenario is bearish in which case the red close on Friday continues with a break down below, would require a 30pt move or so, now thats possible as volatility is back. But would require some bearish news unless we are reading the price action incorrectly and the bears are charged up. Two news items to watch is the developing story from Syria which could throw us a surprise and off course Economic data, although the latter isn't all that interesting tomorrow.

6/4/2013 - Muni's in focus again, sell off round the corner?

2013-06-04T20:07:00.002-07:00

6/4/2013 - "Jefferson County, Ala., took a big step toward resolving its historic bankruptcy case .." reports NY Times (http://dealbook.nytimes.com/2013/06/04/a-county-in-alabama-strikes-a-bankruptcy-deal/?hp) prompted a look at some Muni bond ETF's. The theme is quite clear on all of them and very bearish, a precedent might set off a bunch of others counties to get out of their situations.

Here is a look at the weekly chart for CMF, – iShares S&P California Municipal ETF. It broke support and has ways to go before the next decent support is tested..

Recap 5/31/2013 - Short term bearish

2013-05-31T20:47:00.000-07:00

We've been seeing some weakness on the daily candles for the peak bearish reversal bar near ~1780. Today was a bearish close, the daily bar closed below short term support and it seems we have more downside in the short term. Near term target is about 1.5% lower down to support line drawn on chart around ~1595.

HPQ near term target 29.21

2013-05-29T14:04:00.002-07:00

Was looking at HPQ since is bounce from the dismal lows. Seems the measured move target and the resistance make a confluence target around 29.21. I'm guessing this is reachable here.

Also, I've been using www.tradingview.com and its a good charting system, unfortunately uses javascript but works both on Linux and windows.

Switching to a systematic approach to trading

2013-03-14T07:09:00.000-07:00

For a few years I have been day trading using technical chart patterns together with an understanding of the fundamentals of the US economy and using discretionary entries. Lately, CB interventions (verbal and actual policy actions), rumors, HFT runs had been making it challenging to read the markets and control open trade positions, so I decided to try algorithmic approaches. My endeavor has kept me busy over the last 6-8 months, building a system and coding the strategies is quite frankly a tiresome exercise. I shall be writing about some of my findings as we go along, at the moment I am finding quantitative work quite exciting.

Recap: QE3 price not value or dodging a bullet?

2012-09-16T14:45:00.002-07:00

This week, 9/13 Fed announced QE3 $40b of MBS purchases a month until further improvement in Labor market condition is visible. So that's it, detractors have been shouting about the breakdown of the transfer mechanism or saying flat out that money printing doesn't do anything for the economy, while Keynesian think even this action is bit too small. I don't think QE has done much for the improvement in the labor situation, and I just dislike this kind of manipulation, not saying anything about the politics of it. Also, I'm getting a bit concerned about the way both ECB (Draghi's bazooka) and now the Fed have touted unlimited intervention. They're moving a lot of bad assets onto their balance sheet which only makes me worry about the banks going BK.

That said, it is the world we live in and we trade prices and let investors (missing in action so Fed then?) decide on the value. SPX broke a major resistance level this week. I'll start with the monthly chart: 5/31/08 high of 1440.24. If you look at the chart, that peak doesn't look too prominent in the scheme of things, the move down was huge, 1576.09 to 666.79. If you look at the chart since 1997 onwards, we've moved into the monthly ATR of 100pts, So breaking up to the peak of May 08 doesn't seem too far fetched, given that we've moved 76pts this month and we've had QE and a major resistance has been broken. On the other hand I would have been happy to have SPX turn lower into the lower price channel support from here. So the market must turn lower this week or it would confirm my upward target however incredulous it may seem.

Weekly chart below you can see that the move above was on good volume and the fact that we had a second day continuation only makes us believe that it might have legs, only time will tell. With that said, maybe first ever bullish view, I'm not positioning long here. Also, I think Friday's price action of giving up mornings gains, might be hope for the bears of a possible return to sense.

Recap 8/13/2012: SPX weekly moving higher

2012-08-13T18:45:00.001-07:00

Last post was a while back, I have been investigating some quantitative approaches, but I thought I would update the SPX weekly chart and my thoughts on the market.

First, in April the market was on the upper channel resistance and we dropped about 10% from there the possibility of Central bank intervention kept us from moving any lower. At this time the bounce off that low seems to have formed a bullish flag which targets the near term highs in the SPX. Now, thats a bit too bullish for my taste but I have a few participants that I believe are better at this than me who believe that might be were we are headed. So take a look

Right now i think the markets have the bulls wondering why they should buy and the bears worrying about getting stopped out of their positions. Everybody is waiting for news to clear the air a bit, last couple of days the volume has been pathetic and I think might continue to be so. (Maybe the volume has been this pathetic all this time, we just don't have Knight Capital fooling us anymore?)

Anyways, near term targets seem to be the 1440, 5/08 high and it that breaks then we're going all the way up to 1600 (I doubt this level will be reached this year)

On the Central Bank front the Fed's next meeting is in September and will probably decide on a mortgage twist type intervention and while Europe is on vacation now, more news or decisions on the Euro front will be forthcoming in September. And it seems likely that news would support the market with some kinda of Greek exit which is already priced in. I heard a comment "Lehman has taught us that loosing a few billions in bailout is better than 100 or more times that in case of bankruptcy", that makes sense and after all paper money has no limits on capacity. Anyways, its the world we live in.

Market Recap: Major US market indices bearish outlook

2012-04-29T18:42:00.000-07:00

I wanted to present four weekly charts of the main US market indices SPX, DJ, NASD and RUT. What is common to all are the parallel channel and that we are bouncing off the upper resistances on them. Which makes my near term market outlook bearish.

First up: SPX, market hit the channel trendline resistance and bounced off it mostly on some earnings (ref AAPL) shrugging off the not so great economic data, pattern seems clear although we never know which Fed official would prop us up.

Next: DJ Industrial: The channel is roughly over the same period over a longer term channel, DJ has been lagging somewhat lately on the lower time frames.

NASDAQ: This index broke resistance trendline and has been leading all other indices but it too might have to take a step back as AAPL is feeling some pressure lately, in spite of the blockbuster earnings last week. On AAPL my view is the risk reward isn't as appealing as an long term investment going forward, but I'm in no way a sector or AAPL specialist.We'll have to watch what the tech sector does from here on.

Russell 2000: This midcap index is forming a bearish head & shoulders pattern, not in a channel but is bearish nonetheless. Its bouncing off an important support ling and the right shoulder could form higher but if this breaks beware.

I think these charts convey my outlook for the months ahead, we may trade range bound or lower, I'm worried about what happens in Europe with the French elections and the never ending PIGS debt. Stay nimble.

Market Recap: 4/4/2012 - Bears have more work to do

2012-04-04T22:20:00.001-07:00

Some technical damage today with a decent size selloff and no bounce off the lows. After the FOMC minutes and Europe bond sale. I think what was interesting today was that the longer term trendline from Nov ( 3/28 post ) was retested and somewhat broken. Thats a bearish sign and if that breaks we will have some sharp moves lower but not so sure that happens yet. First its a short week with a holiday on Friday, usually day before is seasonally bullish. Also, if you look at the 30m chart below we have channel support that has held near close, so the uptrend is intact.

As of writing this, Asia is trading lower so we'll have to see how Europe does overnight, we might just drag sideways in indecision too. Short term support from 2/29/2012 is at 1378 about 20pts below close today so thats to keep an eye out for.

Market Recap 3/31/2012: And that was Q1 2012

2012-04-01T19:36:00.002-07:00

I wanted to post the long term weekly chart of SPX to get an idea of a longer term level that I think will be reached soon thanks to the Fed. The resistance line at 5/23/08 high at 1440.25 is my near target. We'll have to wait and see if its met, only roughly 2% away.

The market has shown some intraday bearishness but the trendline support from 3/28 post held up and SPX is trading in a sideways channel as in the 30min chart below, we may retest either of the channel lines although the stochastics are overbought and I'm a bit bearish into the open Monday.

There was some interesting action in the treasuries, 20yr treasuries sold off sharpy yesterday, given the negative correlation with SPX this is could be bullish and may have been behind the bounce off the low on Friday. This would be something to keep an eye on tomorrow.

Market Recap: 3/28/2012

2012-03-28T21:40:00.004-07:00

Well one day move on Bernanke's statement all nearly wiped out two days later. So here are some thinks I'm looking at. The daily chart below shows long somewhat of a longer trendline support.

The pink line from the Nov 25, 2011 low shows the Santa rally when we thought the market was about to take a turn for the worse. The Fed came to the rescue. Now two days ago when we thought the market had run its course a bit yet again Ben B talked easing. And while we're at it, the dip 3/6 was again supported by another Feb chief calling QE4,5,6 ... So that's really whats been driving the markets. We see a similar long term trendline support on the ES mini, and clear bounce off the support line.

Over the last few days we've definitely seen an inclination to move lower and only dragged higher. The chart above is the hourly candles. The short term trendline support makes for a rising wedge which I'll be watching tomorrow. If the trendline breaks we could move to retest the 3/23 support near 1389. But that seems a bit too drastic, especially given the overall bullish moves (not to mean fundamentals IMHO)

Market Recap: 12/22

2011-12-22T21:35:00.000-08:00

Short post today. We did finally touch the upper trendline target my downside target would be the MA(200) for the trend to have better structure and if that fails I'd be looking at a possible reversal. So in wait and watch mode. Also tomorrow is the last trading day before Xmas so trade light

Market Recap: 12/21

2011-12-21T21:53:00.000-08:00

Dislocated equity index moves today with SPX +0.19%, DJ +0.03% and COMPQ -0.99%. Its almost like pairs traders are shorting COMPQ and going long SPX. Algo's or not I remain looking for cycles in a trend. So if yesterday was a break out, today's move isnt as convincing to me as a strong trend up. Overall chart posted yesterday is the same, we haven't yet reached the upper trendline on the daily. Take a look at the 30m SPX chart. The regression line with 1.5 sigma deviations capture the downward channel I posted yesterday sort of statistically. Stochastics are getting overbought and on a 30 minute timeline tend to predict cyclic moves better. So not a lot more higher before we correct a little, although the dip and move up (higher low) is somewhat bullish.

Market Recap: S&P week before Xmas

2011-12-20T16:50:00.000-08:00

So we stabilized a little after the SPX downgrade in August (See ROC), in terms of intraday volatility but are not out of the woods yet. We've been trading sideways ever since and might continue to do that as we stay within the bearish channel. We've had four retests of the upper trendline and are due for another as today we moved above the MA(50) and its santa rally time and the stochastics are slightly over sold. Will we break through the trendline? I have my doubts about it.

Above daily chart, see the rising wedge in a downward channel, thats bearish, and the stochastics have more room to move lower. Next chart is the weekly

Tradings been rough as you can see, from the chart but the Fib target high to low (Pink lines) is much lower.

The same actors persist, Europe and Mr Ben B and US politics. Any resolution for each not in sight. It seems that the Fed has decided to wait on the European roslution, read breakup, before it gets involved with QE3. No point in inflating when a crisis will undo the impact would be the logic. So short term we may move a little higher but longer term I'm still bearish.

Trading in volatile markets

2011-11-06T12:22:00.000-08:00

Take for example YM (DJ mini futures), on the 1 min candlestick the ATR spikes to 6.8 and has been in 4-5 pts range lately. So what does that mean. You enter a trade say 1 contract and odds are you would make say 5 pts or loose 5 the next minute. If its trade good you would be making 2 ATR the next minute or get stopped out at 2*ATR stop loss. Now if you traded 10 contracts that stop loss would cost you $1000.

Now a tight stop loss in this market would almost always get called, so in a high vol market stop losses are say 4*ATR thats putting 2K at risk every 2 minutes assuming 10 contracts. While we tend to look at the positive side, trading discipline requires that we look at the worst case more often.

So why this example? In this environment you should lower your trade size and increase your stop limit.

Next is, try to enter trades where you are more confident about getting it right. Scalping will lead to ruin unless its an automated system. Thats my 2cents .. trade on!

Market Recap: An analogy - Germany to buy Greek houses that pay no rent

2011-09-28T23:28:00.000-07:00

My view on the direction remains the same and we are still working the flag downwards. Tomorrow is an important vote in the German parliament and might give us a more decisive move in either direction. The last weeks have been filled with rumors of a Eurozone fix, I'm not sure what that might be.

At the moment, as an analogy, it seems to me like German taxpayers are being asked to purchase Greek homes that don't pay any rent (read bad bonds). Thats probably an oversimplification but catches the jist of the situation. The chart below is an updated version of the one posted earlier, be careful in case the vote fails that would result in aggressive selling, much stronger than we have seen these last few weeks.

Market Recap, Look at the bear flag now

2011-09-07T00:48:00.000-07:00

Well sometimes technical charts are too accurate, below is an example of how things played out. So am not posting much other than the daily chart.

We know the euro-zone noise is picking up we could easily see the flag post length down move from here.
The stochastics are overbought region and can stay there but its to be watched and the candlestick has a long tail, as we closed much above the lows of the day, which is a sign the bulls might be stepping in here. Lets watch out which move is next.

Market Recap and potential price target

2011-08-31T23:22:00.000-07:00

Some S&P levels from its monthly chart.

6/30/2006 - 1219.29 - low point

4/30/2010 - 1219.80 - high point

Anyway, the monthly was only to look at long run support/resistance and it seems that today's S&P peak of 1230.71 and the close below the level 1219.29 at 1218.89 would indicate the near term high is set.

The inverted flag looks way better than the one on the earlier post, along with the resistance level 1219 (green line) and the fact that the closing was below it seem to suggest a lower move from down here.

For the bulls, look at the low of the 1249.05 3/16/2011 (march) and the SMA(50) seems to be a future confluence region around that level, current SMA is at 1256 and a possible price target. While tomorrow may indeed be a down day but a move higher to bounce or break off is still possible. Also the future level would be withing the flag so the pattern wouldnt be broken.

We shall see how it turns out

Market Recap and S&P target to watch

2011-08-18T20:01:00.000-07:00

Its been a tough trading market lately, unless you got it right. Here is what I'm looking at. The first chart is the daily with an inverted flag/pendant marked on it. It looks like a decent setup but the pole goes really far lower. We would have to see what may confirm such a drastic move lower. I'll try and explain all the lines drawn on the chart next.

First see the monthly chart below. In order of the levels. The two green support/resistance lines are from the peaks of April (1219.8) and Feb (1044.5). The red line was intermediate support at 1131 but was broken easily recently, except today where the sell off held on to it. Now look at the larger Fibonacci lines drawn in yellow and pink from the peaks in in 07 and May 11, It seems that there is confluence at the 50% retrace on the larger fib and the 38% on the recent fib levels, this level is near 1010.3 and is also the near term low of Aug,2010. This might be the level the markets might look for. Below that is 950 which is a longer term support and would also be the pattern completion.

Some commentators have set targets for 8%-10% decline from current levels at or before Labor day which is Sep 5. What can take us there is the Eurozone crisis which would require a separate comment at this point. Also, the economic news and downward revision of the GDP that will be out next week. From the high to low, this year we are down 16%, and it could be that Ben Bernanke starts acting on QE3 if we dip below 20% or more. All this does appear to point to a the chart pattern target of 1040 or near. We shall see.

Some not-so-simple rules to follow while trading

2011-06-06T15:59:00.000-07:00

I found these interesting rules for trading descipline online

DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.