This week had its high points and low points for me. I must say, the market's direction is much, much murkier right now for me, which drove me to scale back my positions and adopt more of a wait-and-see attitude. In any case, here's Friday's bar………please drink and comment responsibly.
The BIG picture of the SPDR Gold Trust (NYSE: GLD) continues to exhibit a series of higher lows and higher highs since the March 24 low at 106.34. My near-term work argues that the decline from new all-time highs at 122.45 to yesterday's low at 118.83 represents yet another pullback to a higher low.
If, indeed, a minor correction was completed yesterday, then a new upleg is in progress that should propel the GLD to higher all-time highs that projects next into the 125-26 zone. Although my protective stop at 118.70, just beneath yesterday's low, is very tight, my near-term work indicates that if yesterday's low is violated, additional weakness will be forthcoming.
Originally published on MPTrader.com.
I went from posting-and-commenting-constantly (Wednesday) to disappearing-altogether (last couple of days). The reason is simple…….my all-short portfolio got hit hard in the face yesterday, and I've been thinking and repositioning ever since.
It was hardly a knockout punch. Due to my relatively conservative nature (compared to late '08 Tim, at least), I was down about 3.7%, but that is a very nasty loss for me on a daily basis, so Thursday was not the least bit pleasant.
As I mentioned earlier, I have acquired a number of badly-battered stocks, and I've gone even lighter on the bear side. The unsettling reality I am accepting is that the knock-em, sock-em, bear-blast of May has sputtered out, and we may be back to the pain-in-the-neck waiting game of before. Similar to Springheel Jack's post from this morning, I'm thinking we might be in for something like this:
Yes, I know this is the oh-so-obvious H&S everyone is talking about, but frankly I have no problem with obvious. What's important for me is not to get seduced into the attractive notion of a quick and brutal bear market. I get the sense more than a few people on the blog share my impatience, and that impatience can lead one to a bias that is unhelpful. I'd rather open my eyes up to the possibility of a market that calls for a lot more patience than is typical for me. Judging from how quickly the market recovered from this morning's wretched retail report, it seems altogether possible to me that the bulls are starting to wrest control away again.
There are as many methods as there are trader. I wanted
to share with the Slope a fairly simple method that allows me many high
First some background.
I trade to pay the bills (all of my business capital/profits
are tied up long term), and I trade using options. To generate cash flow using my speculative account, I am in and out of my trades within 1-3 days.I like to trade big, liquid stocks and indices.I look at about ten big high beta, liquid stocks to trade, so there are almost always a set up every day. I usually buy 25 to 50 options and
trade only up to 2-3 at any one time; I have tolerance of 15% loss on my
initial position and will reenter if the trade still looks good at a higher or
lower price. I enter one strike ITM and
front month or one behind that month.
My two favorite indicators are MACD and %D slow and % D, using a ten minute increments. I set the indicators up as
MACD 12, 26, signal line 9 | %D slow 17, 3, 3 | %D 17, 3
Entry: For my initial sell/short signal/entry, I look for the crossover of the % D crosses below %D slow and the following two conditions apply:
- MACD is in a downtrend
- %D is above 80
I will add to my position when MACD crosses its signal
Exit: I cover (set a trailing sell stop) when MACD crosses back up above its signal line on the five minute. If the stochastics are still below 20 or
above 80 and have not crossed each other, I may wait for them to cross first. I
will also set a stop at a profit number once past it ($500). For a buy signal
it is %D below 20.
I also use the sell signal method to sell covered calls on
my gold miner positions, as I do not trade them and cover on a cross on the ten
Let's take a look at a couple of examples.
UPS is a stock I write options on a
lot. It behaves well for trading, so I am comfortable holding long
overnight. I've marked on the graphic where I placed these trades. On
the third day's signals, had I been in the office, I would have faded the open rather than going long—once the signal hit, it was too late in the trading day.
Trading ISRG, on the first trade, I
bought calls. When the Stoch crossed over above 80, I set a trailing stop. Positions were closed where highlighted. It was slightly
profitable. I did not reenter the trade as Stochastics did not fall enough for
me to be comfortable.
On the second trade, I entered puts
and called this one out for the group to short. It was a very profitable
trade, and I closed it EOD, as I do not trust overnight at the moment.
On the third day, I was unable to
trade due to other business commitments. Nevertheless, I've marked the signals so that you can see where I would have placed my
trades. You might ask, "Why not fade the early rally?". Because the cross was not about above 80, it wasn't overbought enough for me.
I am sure there are many variations on this theme, but it
works pretty well for me, especially when VIX is rising. Check it out and see for yourself, but you
must take the trades when they present themselves.
I’ve been AWOL the past 36 hours, trying to turn my tanker ship of a portfolio around. I’ll probably be AWOL to some degree the rest of the day.
As anyone acquainted with federal statutes knows, if an American male is flipping through the channels, and The Godfather is on, he is required to watch it, no matter how many times he’s seen it already, and no matter what part of the movie he’s missed. It’s the law.
One of the best lines from the movie states that you should keep your friends close, but your enemies closer. I am adopting that attitude with stocks. The securities below I consider my “enemies”. They are junky issues; I don’t think they have a good future; and I think they are in for a silly bounce. So I bought them.
I’m going to keep a much closer eye on these than I normally would, since I own them, and I consider the fact that I own them to be the perfect tonic for my bad attitude toward them. When I think their profits have peaked, I can take comfort in those profits, and I can use that opportunity as a time to get aggressively short again. Until then, benefiting from the profits will make the rise much more bearable. Here are the symbols and their stops:
I have a model bear scenario for the summer, and to deliver it we needed
to put in the low for the first wave down at the Feb low near 1040. I
think that the chances are strong that we have done exactly that, and
though there are a number of obstacles still in the path of a serious
wave 2 rally, which is counter-trend at the moment, the positive
divergences I am seeing on USD currency pairs and many indicators
suggest strongly that the short term bottom is in.
My model bear scenario for the summer is a chart I've posted a few times
before and here is the updated version on the SPX daily chart:
Among the positive divergences I'm seeing are from CADUSD, AUDUSD,
GBPUSD, which have all already peaked near or over their highs before
the fall from 1107 PX last week. EURUSD is lagging as ever recently, but
broke up through a very important resistance area yesterday.
Of the indicators I'm watching we have strong positive divergence
between the last two lows on NYMO, which has also broken up to +20 for
the first time since March. :
Vix made a much lower high on this recent SPX downswing, and is close to
support. For a serious rally to get going, Vix needs to break down
through 29.50 with some conviction. In the short term we have a possible
small H&S indicating to 21.50, and if we see a pullback today
as I am expecting, then we can put in a right shoulder on that pattern.
This H&S pattern would obviously be a continuation pattern
though, and though Arthur Hill was defending these patterns as
continuation patterns on his post last night, I am more doubtful, though
I have seen them play out before.
I will be watching USD very closely for confirmation of any rally, as I
don't think equities can sustain a rally in the face of a strong push up
in USD. On the DX chart I've identified the new rising channel
established since USD broke up from the original rising channel from the
2009 low, and we are close to the bottom trendline. A break of that
trendline would most likely signal that USD has topped for the moment:
In the short term we are hitting both a key resistance level on ES and a
key declining trendline on ES at the close yesterday and overnight, and
given that we have also only had one instance of two consecutive
positive close days since April, I'm leaning bearish today, though I do
have a possible bull scenario.
I favor the bear scenario as long as we can break overnight support
at 1078.5 ES with some conviction, and my possible bull scenario may play out if we see a break of 1084. That's the September ESU0 for
anyone still trading the June futures, currently 4.25 points lower than
The bear scenario is a rising channel from the recent low with what
looks like the first two drives of Fujisan's three drives pattern. If
this plays out then we should fall to the support trendline in the 1060 –
1065 area before a third 35 point move up towards the very strong
resistance in the 1100 area:
If ES does break up through 1084 that may just be to make another touch
at the top of the rising channel, but there is a valid IHS with a broken
neckline that has provided interestingly strong support overnight. The
target is 1110 ES, though short term H&S patterns have been hit
and miss over the last three weeks. A more realistic target would be to
the strong resistance level in the 1100 – 1103 area: