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My post of January 10th made reference to a 10-Day 30-Minute chartgrid of the YM, ES, NQ & TF. I mentioned that any repeated attempts to advance convincingly beyond last week's high will need to be accompanied by higher volumes. The updated chartgrid below shows, firstly, that the YM has not been able to sustain a breakout above that high, while the ES, NQ & TF advanced today after re-testing this level. Today's initial drop occurred on higher volumes, with the bounce on lower volumes. My prior comments still apply…I'd be looking for higher volumes on any sustained breakout to validate a bullish setup.
Regular readers know that I am neither a Bull nor a Bear. I take trade based on expected market direction. Most of the time the trades give positive results fairly quickly. However there are times when I have to sweat it out a bit. Sometimes bad karma hands out a loss. Now is the time for sweat. As I wrote yesterday, I took the short trade 4 days ahead and now 16 SPX points wrong. Out of many parameters, few key parameters gave an early signal of market turn and I think I was impatient. Lessons learned and system strengthened. But I am fully committed to the short trade.
In the morning post (http://bbfinance.blogspot.com/2012/01/now-is-not-time.html) I wrote that now is not the time to close the short on equity. Remember the saying; “Be fearful when others are greedy and be greedy when others are fearful”. Now is the time to be fearful. In the early morning when Emini futures were flying past 1300, was there someone dreaming of SPX 1400 very soon. Obviously retail is chasing the rally. VIX is in 20s and for 2nd day running, index only put/call ratio is at 1.25 and equity put/call ratio is at 0.57. In other words, retailers are super bullish and why not. SPX 1400, here I come!
Oil is considerably higher today, as geopolitical tensions continue, and despite despite yesterday's larger-than-expected inventory build in oil and gasoline, and unseasonably warm weather across much of the nation. (Editor's note – obviously this was written earlier today before the embargo announcement!)
Increasingly, it appears that all of the action off of the Jan 4 high at 103.74 into this morning's price at 101.94 in NYMEX crude oil futures has carved out a high-level bullish coil pattern. When complete, this pattern should resolve into a new up-leg that propels nearby NYMEX oil to new highs projected into the 106-108 area.
At this juncture, only a decline that breaks yesterday's low at 100.55 will compromise the pattern.
While this is bullish for crude oil and its associated ETFs like the US Oil Fund (USO) and ProShares Ultra DJ-AIG Crude Oil (UCO), the equity energy names like Exxon (XOM), Chevron (CVX) and Schlumberger (SLB) look weak, making the ProShares UltraShort Oil & Gas (DUG) an attractive ETF.
A while back I had the pleasure to speak with a gentleman from a prominent newsletter service. It was interesting to see just how he traded options and how his newsletter service and others that he was affiliated with used options in their services.
As I suspected – he uses options irresponsibly in his service - as most people do. And I told him so.
His response – “You sound like an idealist.”
An idealist? Why? Because I do not allow marketing efforts to control my options strategies? Because I do not gamble with options by attempting to guess which way an earnings call will go? Because I do not buy out-of-the-money options in hopes that an option will move towards my chosen strike price?