Posts Tagged ‘sell off’

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Investors Intelligence suggest higher prices ?

Friday, October 23rd, 2009

Today is Thursday, October 22nd and what a rebound we had today.

I have some interesting insight into today’s market action. There was no following through to the sell off from yesterday and that does not surprise me. I tried not to form a opinion about direction today, because I thought it could go either way. initially the market continued its sell off, but found support and started its come back, up about 12 S&P points for the day, more than most people thought would happen, I am sure. The shorts tried to establish a foothold and got slammed hard. They ran for cover as the buying came back into the market pretty much all day long.

This is the volatility I thought was going to show up and it has not disappointed. There is a lot of uncertainty and money managers don’t want to underperform. They are being forced to make a decision to hang in there or start lightening up. If they don’t start scaling out of there positions as the rally continues, there is going to be a mass exit for the door once we run out of gas, but that could be from higher levels.

In the past I have mentioned the Investors’s Intelligence weekly survey of market timers. They give their opinion on market directing in there newsletters they write. They, as a whole are usually wrong and the numbers prove it, time and time again. Very interesting developments here. The sentiment numbers have been going down for the last 3 weeks as the market has been making slightly higher ground. What do you think that is saying?  Well, I will tell you what I think. These guys are getting nervous and are expecting a drop and so they have become more bearish. That is really good news for the bulls because that says that there is still GAS IN THE TANK, for higher prices. Usually, you will find the numbers at bullish extremes right at the top. If this were the top, these guys for sure as a group, would get it wrong. That leads me to conclude higher prices on the index’s for at least a little while, what do you think?

I know we will be coming into some important resistance pretty soon, (10,300 Dow / 1122 S&P ) but that is just the first area of resistance. If the market can get through that the 62% retracement area would be the next major area of resistance. I only entertain the idea and say it is possible, but we will need more time for the chart to move a little sideways, this will clear a path for higher prices if  the support holds.

I will say the next move for tomorrows open to me looks like it will start off to the downside. The S&P support should     come in at 1084 or 85 and the Dow around 10,000. “If” we get a pull back to the middle of the todays range then we will then again have a couple of key turning points established for the next move, which ever way it comes. A break of todays low and or todays high, will see big moves in the directions of the break. We may consolidate inside this range for a day or two which will only add to the built up pressure that will form. Strong positions will be established on both sides. Now all we have to do is wait.

For those playing the smaller swings inside these ranges, as I do, we will have no problem seeing which way to trade, we let the market decide and ride the emotion that builds on both sides. There were a lot of nice trades in todays market action. Some for 6-8 points if you rode any out. It is days like today and yesterday, that can get a trader to abandon his trading plan. He see’s so many available points ripe for the picking and gets anxious, saying, that today is payday. ”DON’T SAY THAT”, that is a no-no. You only create more problems for yourself.

You need to enter the day, calm and relaxed, confident but cautious. The way you start your trading session is very important. The days I rush into it, I notice I tend to stray from my own trading method. It is clear as day, but we all at times can be deceived into thinking beyond our trading plan, call it human nature. I strongly encourage you to take some extra time to get yourself in tune with the markets. Do not form to strong of a bias and just read the price action against your trading plans or method. If you do this, you will not have to fight the markets or yourself. You will be flowing with the rhythm of the price action. We see it every day.

The markets move and they rest. After the rest, often comes an assault on the move to take it down. After the assault, it to will rest, until either more troops come to continue the assault or it is overtaken by a whole new army of buyers that decimates the attackers and new high ground is taken. Be sure you are on the winning side.

Within every chart, no matter the time frame there is an equilibrium, a center point. Traders need to find the center and trade in the direction of the winning side. There are very clear and precise turning points where this happens each day. Once the decision has been made by the winning side, prices often move quickly away from that center point. These points are constantly being adjusted through out the day and battles are won and lost in these areas.

More on this another day.

http://www.screencast.com/t/GicDJVFb9H8                     Today’s turning points in a higher time frame, no sound

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Bear Market rally continues

Wednesday, March 18th, 2009

Today is Tuesday March 16th and the last hour shows strength

The market had some good moves today in both directions. I saw a couple of 5 point sell off’s and a couple of 3 point sell off’s that were very clear. The moves on the upside had more room in them, especially in the late afternoon. I saw a couple of 5 point moves to the upside and a couple of 10 point moves as well. I had some of both to pick up my daily goal plus. Todays total was over $ 2,000, but I traded a little higher contract size of 5 to 8 to get it.

I had a little misstep in the early going but was able to recover. It was a mis-trade that cost me, but I was able to make up for it in the late afternoon in one of the nice rallies upwards that we had. I had manually put my stop in, but placed the order in the wrong direction adding to a loss, I traded my way through it and had some nice returns at the end of the day.

I have posted a chart of the hourly S&P and daily Dow. Yesterday I called the initial resistance top of the S&P and it was good for a very large move to the downside. Today’s open took the market up, back to the middle of yesterday’s range, selling off a couple of times on the way up. It wasn’t until the last hour that the market decided to advance up through the overhead resistance and push its way higher, it did not take me long to figure out that the market was strong and decided to go with it for some nice gains.

It is only in reading the charts that we can make a true determination on the current market direction. That is day trading “one O one”. It’s nice to call big directional changes and a lot of times they work out, but to place all of your market calls on what has not happened in the future is not wise, while day-trading. We are only trying to capture a few points in either direction with the prevailing direction being of no consequence. Trading up is just as good as trading down.

I will point out that the sentiment numbers did come out last week and they were only 26% bullish at -3% and 47 bearish at +3%.  So last week people became less bullish and more bearish. I think that is adding to the rally we are having. These readings are currently very bullish for the market and we are seeing some of that played out. A reading of 35% or lower is typically good for a move up on the markets and the last reading is 9% below that. So over all, don’t be surprised with the current move up. If the market does come back in the middle of the last rally and then overcomes the last pivot point high, it will have a lot more power behind it. On the other hand, if it can push through the current outside resistance and move up, it will have a higher failure rate, when it starts to drop. So I am all for a pull back, but when it comes to trading the markets, I don’t really care. I know we will find moves in both directions.

Let’s take a look at tomorrow, and see if the Dow can break through the outside resistance, it is coming up on it now. The Dow closed the day matching yesterdays high, while the S&P closed slightly higher than that. I have seen many times the indexes go slightly past their previous highs, only to fall back and fail, thus taking the late comers down.

http://www.screencast.com/t/AUgxJSONYx      Some of today’s trades “Live”

http://www.screencast.com/t/LRwBANuN          Still shot of hourly S&P and daily Dow

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Called Live, Short Term Top In Today’s market.

Tuesday, March 17th, 2009

Today is Monday March 16th and I posted another good day on the e-minis.

While Trading the S&P e-minis today, I called out the short term top in the market before it happened. You can hear me make the call before it happens exactly at the the high of the day. Then you can hear me make the call, on how we will be pulling back from that high point down to lower levels. At the close of the day, the S&P pulled back off of my short term target, by 20 points. That is a lot in two hours, with the Dow off 190 points.

This is going to lay the ground work for a continued pull back. I suspect that, at the open, we will get a small reactionary rally, but I would definitely be watching for short trades. We have had some technical damage and the path of least resistance should be to the downside.

With this being said, the market can do anything it wants at any time, there is no guarantees. All I can tell you is that when I see a pattern like the one I am looking at right now, a pull back is what usually follows. I will be watching for short trade setups and will stagger some of my exits. That does not mean all of them. I always watch price action to tell me what to do and that is what I will be doing.

I try to not have a strong bias for direction too far in advance, but it is something I will be looking at. It may be that the big sell off does not come until the afternoon session, or it could come early on. Price action is what will influence my decisions at that time. I only lay this out for you because I am looking at the daily chart, just like I am looking at a 5 minute chart or tick chart for that matter. The price action is the same and currently looks bearish.

The day was really pretty smooth. I had the time to trade, so I just kept at it. I started out with some nice gains and within a few minutes I had my daily goal. I cut my size back but kept on trading and added to earlier gains. I mostly traded small all day, 2’s and 3’s were the most common contract size. If I had some draw downs it was not going to eat into earlier gains with the small size. I did have some good runners today and captured some of them on video below, so be sure to take a look.

There are different ways to approach the trading market based on price action. If we are in a choppy market and you are trying to go for bigger moves, you are going to struggle. One way that I overcome some of that is to first identify what kind of market we are in. If its choppy, don’t even think about going for more than 4-6 ticks. You will have another trade in just a couple of minutes to capture additional profit. If in a trending market, you can set yourself up for a few more ticks, but you have to know how to play it and not get greedy.

Again, in today’s market, I had quit a few of these. If you have the time, take a look. If short on time, you can always come back later. The bottom line is that I try to get myself in a break even situation first, then a small gain, locked in. After that, if the market runs, it’s all gravy.  By only trading small, I was still able to post some nice gains because of the runners.

I closed out a long position that I got stuck with over the week end for a profit of several points. That gain did not count towards today’s numbers below. Today, I took 32 trades, 25 gainers and 7 losers and my total scaled out percentage was 77%. The total equity gain for the day was just a little under $2,500 dollars on mostly small size.

During a couple of the videos I am calling the intermediate term direction and as the next video progresses you can see it come to pass. We hit the short term top in the market today and pulled back 20 points, take a look.

http://www.screencast.com/t/oPiqTiFG6              Today’s equity chart

http://www.screencast.com/t/P9iiuTUPd              Some of  Today’s Live Trades

http://www.screencast.com/t/Bna8H6Oe              Some of  Today’s Live Trades

http://www.screencast.com/t/NAik15UUR           Some of  Today’s Live Trades

http://www.screencast.com/t/y7YeoTIZC            Some of  Today’s Live Trades

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Sentiment numbers stronger than expected

Sunday, March 8th, 2009

This is for Friday’s market March 6th, and the sentiment numbers are out.

I had talked about the investment newsletter writer’s poll out for this week, expecting them to be a bit weaker than last week was, adding to a more negative environment, which would set the stage for a bigger rally. It did not work out that way.

We may still get a rally but when is the big question? The numbers changed in the positive direction, which is a little bit of a surprise. They were 28.6 bullish last week and they moved up to 29.7 bullish this week. A reading below 35 is typically a bullish sign, with a rally potentially at hand. With this sell off, extremes are difficult to time and it can take longer for the signals to have their usual counter effect. The reading only went up by 1.1%.  That may help in prolonging the coming rally. We will have a rally, that is for sure, but we don’t know if it is going to be from 1,ooo dow points lower. These numbers are just something to watch and keep in the back of your mind.

Most people who write investment newsletters have their opinion taken each week and some of them became a little more bullish this last week as of  the Tuesday reading. The point is they are usually wrong when polled as a group. It is just like so many other investors, they follow the trend and as the trend continues in the initial direction for some time more and more of them become bullish or bearish, whichever the direction.

Basically, they are late to the party and become bullish at the top of the market, when it is only then apparent to them The herd mentality. The same is true during a market sell off, they then think it is going to continue down, since that is the direction of the current trend. Last week 45 percent of them thought the market was going down. This week only 44 percent had those same feelings. That lets up the pressure a bit for the market to continue down possibly, but I would say, not by much. It is not a science. I have posted and explained this before, but for the benefit of those who are not aware of it, there you have it.

There is another point to all of this. Learn how to read the markets for yourself and you won’t be victimized by other people’s opinions. There is a way to do that. It is kind of like a language. If you don’t know it, you will be lost, wandering from place to place, looking for your way. I am not the only person who knows how to read the markets, for sure.  But I would say, there are very few who can do it effectively and consistently. I will be talking more in the future about just reading the charts themselves, with no indicators at all, just the price action.

This is a great way to start understanding what is happening on the screen. There is a struggle going on, constantly. A change in ownership, from weak hands to strong hands. Those that want to sell to others who want to buy – but at what price. It is their price, the price that they are willing to pay. In the case of a sell off, it is people who cannot handle the heat (weak hands) who sell to those who can assume the risk and are at that moment strong (hands). It usually takes only a short while of seeing lower prices until those strong hands soon become the new weak hands and begin to offer their shares and/or contracts to other stronger hands, but at their price (the new strong hands). This is how a sell off is carried on and how we get continued lower prices.

There is always someone buying, all day long, but again at their price, which often times does not hold and then the selling continues. This process stops when there are no longer a majority of sellers left to sell to and the buyers are taking the upper hand, taking all of the available supply the market has to offer and the struggle continues. There is always someone selling and there is always someone buying – but at adjusted prices. That is how and why the price changes.

We step in now and then and help them out. We create liquidity for the market place. When a mutual fund manager is faced with selling a large portion of his portfolio to meet redemption requests, but feels the drop is only short term, he can sell futures contracts by the thousands and give himself the insurance that he needs from a large market drop. If he had to sell all of the shares in the open market, he may be pushing the market down with his large size and thus adding fuel to a down market. If the drop comes, he is protecting his portfolio ( a kind of insurance ) from a market decline. When the market comes back up, the original value comes back into his portfolio but he has made a big profit from the decline. If the market does not come back, his portfolio has taken a big loss in the drop in value, but he has large gains in selling the futures contracts so he has offset his portfolio and has not lost money for his clients. If there was no one to take the other side of the trade, when he wanted to sell thousands of contracts over time, he would not be able to do what he did in the example above.

Traders and yes, day-traders, provide an essential part to the process. We make it possible for so many to buy the insurance they need to protect themselves. The market would have so much more volatility to it if we traders were not there to help smooth out the process. So there is a purpose being served here.

It is the same for the farmer growing corn or the company selling orange juice or coffee beans. By them selling futures contracts in the future, they are agreeing on a price they can live with, a set price in the future. If at that time the current price is much higher, they do not get to enjoy that higher price. Their contract says they agreed on xyz price and that is the price they will get 2 or 3 months from now when the crop come to harvest. By same token, if the current price at the time of harvest is 20% lower, they will still get the agreed price of xyz at the day the contract was agreed on.

Traders take the other sides of those trades and speculate that the price will be higher or lower in the future. The farmer is guaranteed on his price and he is happy to get it. If he came to market in the future and received  30% lower than current price, he may get financially destroyed and he can’t afford to take on that risk. But others are able to.

Those are just a couple of examples in the financial and commodity markets of the functionality of the instruments that we trade and why. On a personal note, most traders trade for personnel profit and that is understandable. They are taking a risk, and for that risk they can be rewarded when they are right.

The trading day was good today, picking up 1 & 1/2 times daily goal. I have some of those trades in a small recording from the session. I think it may be helpful for some to see the market trade in a live environment. I have had technical problems in posting my equity chart so this is the next best thing and probably better for most. As soon as I can get it fixed, I will post them again.

http://www.screencast.com/t/m8FOo2HQwNj       some live trades from Friday’s session

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At last, an up day

Thursday, March 5th, 2009

Today is February 4th, and we finally got a move up.

It has been a long time since we have had a move up and it sure is welcomed. I had gotten that feeling that we would rally today, when I heard Obama say that Americana’s with the means should consider to buy stocks. It is not very often that you will hear a sitting president, to buy stock in the market. I think he got tipped off by Goldman Sacks. If we do get a rally, everyone will be saying, “see, Obama told us the bottom is in and we should buy stock”.  Knowing how people think, heard mentality, people went out like good little citizens and did what they were told, buy stocks. I am being a little sarcastic and maybe I should not be, but I can not help myself right now. I do not ever remember a president making a market call like this today and I have been following the markets for 25 years. Oh well, there is a first for everything.

The rally was welcomed, I am sure by all. I thought yesterday, that as the market closed close to the low of the day and Tuesday is the day that the sentiment numbers come out by the news letter writers, that the numbers must have dropped again, which is good news for the bulls. I will post those numbers tomorrow, because I get them two days late. I am not a subscriber so the best I can do is a little delay, I will take it. My guess is that it dropped 3-4 % to 23 or 24, with a reading under 35 as a traditionally a bullish signal. You need to remember, that all of the times we were in more or less, normal market conditions, these readings were very very accurate. But as we find ourselves in this massive sell off, which has happened before, like in 2000, sometimes the readings get stretched to extreme levels before the market reacts. This is such an environment currently. When the numbers got to the mid 20’s, we had a big market bounce off the bottom in November of last year. Since then the numbers started to rise and are now getting back to what they were before, pending Thursday’s reading. So, I am thinking that we may be in for a bounce up for a few day’s. In addition, I heard a lot of people starting to say that much lower levels are coming, like now. When you hear people on TV and Newsweek, Time, etc. saying the same thing, look for a move in the opposite direction. Those people are rarely right and it usually can pay to bet against them. With all that being said, the current trend of everything is still down. Let hope we get some follow through this week.

The market did sell off just at the close, by 100 Dow point and 10 S&P points, in just a few minutes. That sure was not good, so for tomorrow, look for a continuation of the pull back initially and watch for a rally back up. It is possible that we could get a few days of consolidation at these levels to give us a better footing for an up move, but we will just have to wait and see.

Yesterday, I made a comment about the Pension Funds being underfunded and I found a chart of just such a story, explaining the facts. Below I will post a chart of some of the underfunded companies that are having the most problems. Over all, I hear there is a $ 409 billion dollar shortfall in the pension funds right now. Last year there was surplus and now, a big underfunded liability. These companies have some time to make up the difference but if things do not improve soon, it is really going to hurt. They are regulated by the government to make these pension contributions to cover future retirement obligations. They are currently only funded to 60%, which leaves them 40% short. They are going to have to take more of there earned income and kick in a bunch of money to make up the difference and that is going to hurt earnings potential. On Wall Street, its all about the earnings. “What have you done for me lately”. That is an old saying in my family and is appropriate for the current situation hear. Oh, the reason for the big shortfall, is that a lot of these companies invest that money in the stock market and with valuations going down so much, it is putting a big strain on there balance sheet. This can turn into the old snow ball effect, if things do not turn around soon, lets hope. Just reporting the facts here.

In my day-trading effort, I only had a limited amount of time to trade and did so for only 15 minutes in the morning. I did get my daily goal with all gains. I placed 5 trades with 8 exits in the morning and as I said all were gains, nice. I found a few minutes in the afternoon session around 11 am and traded for about 25 minutes and added nicely to my gains. I posted around $1,300 for the day with 22 pieces of profit and 3 losses, 88% . I started out with a 1 point gain on 5 contracts for $250 profit, then started to reduce my size, played it safe, because I had a limited amount of time. If I had draw downs it would be harder to come back, not having the time. It worked out just like I wanted and so, I chalked up another days worth of gains. I think I am now about 30 days in row of posting solid profit every day, no loosing days. I had many days of profit before that, but in the last week of January, I started to post every day, no exceptions and it has been going great. I have had struggles and came close to my daily loss limit, where it is, that I will have to stop for the day, but my streak is alive and I plane to keep it that way, by trading smart and following my rules as best I can. Below is an equity chart of the days gains and a chart of some of my trades in the 233 tick. I am taking these trades in the 100 tick, but I am looking at other time frames to give myself a larger view and perspective.

 http://www.screencast.com/t/E8oNvlEsc6r         Today’s equity chart

http://www.screencast.com/t/KTX51dkd               Some of today’s trades in 233 tick

http://www.screencast.com/t/dOBUnSMx              Chart of, some company pension shortfalls

http://www.screencast.com/t/MAWnN1pts7b     Day trade chart of IBM, my promise from yesterday

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Market continues sell off & Nice smooth day of gains

Tuesday, February 24th, 2009

It is Monday February 23rd and the markets continue their sell off.

We did not get a bounce, but a sell off today. I checked the exact number on the S&P bottom of November and  I see that the market went right down to it, at 742, and stopped. The Dow continued it’s slide falling 250 point to 7,114. I may have been a day early, but I still think we are in for a bounce.

The whole economic picture is pretty bleak. It has been said that the more the government does, the worse things get. I would agree with that, but that is just my opinion. Actually, I take that back. The facts would say that this is true – so far.

I do not want to be a downer to my readers, but I have been ”Bearish” on the market for some time, as many of you know. I have been hoping the slide takes a break and gives us all a little more time to get things together. But again, the market does not listen me.

A while back I had posted on the daily chart of the S&P that this market needed to stay above the 800 level – or else. Well, it is looking like the or else is happening. The daily chart has been in a solid downtrend since the purple line of support was broken on a daily basis. It has been confirmed by the indicator as well and nothing at this time has changed. The Monthly is down, the Weekly is down, the Daily is down and even the Hourly is down. It has been that way for the last 5 days now.  That is what I had to tell myself in looking at the slide today. Everything is down, don’t fight the trend.

Below is a chart of the S&P cash and my equity chart for the day. This is the start of week #4 and I have been posting my equity gains and losses every day.  I have not posted a losing day as of yet, and I don’t plan on it, but it could happen. My daily loss limit is two times my daily goal of 2 pts per day, so that would be a total of -4 points. If I am trading 5 contracts, then that would be 1,000 before commission. As I said yesterday, I came up to that point only one time and was able to turn it around for several times positive daily goal. Most of the trading days have been met with 2, 3, 4 times daily goal and up, so overall, I am pleased with my performance.

http://www.screencast.com/t/B7sIbT9SjS7                          Some of today’s trades

http://www.screencast.com/t/mQP1X38U7s                        Today’s equity chart

http://www.screencast.com/t/tOxsYylTb                               S&P Daily chart

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Big drop in the market today

Tuesday, September 16th, 2008

Today we saw a 500 point decline in the Dow Industrials and 57 point drop in the S&P 500.  Yesterday afternoon the futures market opened up about 3 pm in the afternoon (that’s when it reopens after being closed for the weekend) and saw the S&P down 30 points in the first moments of trading.  Wow, that is a lot. 

This is one of the reasons I never hold positions over the weekend.  At 1:15 pm on Friday the futures markets close, and reopen at 3 pm Sunday.  During this time, anything can happen - economically, politically, and so on.  So if you had a position in the futures market, say in the S&P, and had a protective stop, say 1 or 2 points under the price you paid, your first moment of trading on Sunday afternoon you would have lost 30 points before your stop would have been activated.  Thats crazy.  Too much risk and it should never be done no matter what the situation. 

I do not hold a position over night, but with a certain strategy, it could be done.  You would close the position before 1:15 pm, then at 1:30 pm, 15 minutes later, you could reposition yourself with a new protective stop above or below your current position, depending if you went long or short (up or down).  At this point you have not left yourself unprotected from the unexpected.  Even in the 15 minute reopening period, a lot can happen.  Most of the time it reopens very close to the closing prices, but it only takes one time to get hurt.  Imagine being unprotected for over 2 days! “Not going to happen.” 

Back to the day’s action.  I didn’t start trading until 8:30 am today and need I say that I missed a lot of good market action. But the beautiful thing about my system is all I need is about 30 minutes or so to get my points for the day.  I say “points” because that is what I trade for, two points is all I need to make a living at this.  4 increments of movement make up one point, so 8 increments make up 2 points.  When trading 10 contracts (each contract equals $12.50 per increment movement) and targeting only 2 increments or ticks is the strategy, you would be profiting 10×12.50×2= $250 dollars per 2-tick move.  We need only do that four times to have our 2 points. 

Sometimes the market presents a better opportunity to catch 3 or 4 ticks per trade in which case we need only 2 or three trades to make our goal. Today, within the first hour of trading, I had over 30 trades of these 2-tick varieties and only a few losses, was up over $2,000 dollars, and was only trading between 2 and 4 contracts.  I will post some of these trades when I get my “web publisher” to find a way to show a few screen shots.  It is coming soon. 

It does not matter where the market goes - up or down - as long as it goes somewhere and it always does. That is why I don’t need to look for any other trading vehicle because it is all wrapped up in the EMINI’s. 

I have been pushing myself lately to see what mistakes I may make while under extreme market conditions, which can happen.  Many of the trading mistakes I made could have been avoided by not over trading.  I seem to be able to trade very well with about 85-90% winning trades for about 2 hours. After that I start to lose some concentration and slip up here and there, getting in too early or fighting a trend (going against it). Although with my target at only 2 ticks, it is very easy to achieve that if your timing is good and you follow the indicators. 

I may have mentioned in a earlier post that I have two other programs that I trade, when conditions are right.  One of the others is a split target with two exits usually set at 3 ticks and 4 ticks.  If the market is really flowing, I will move the second target to a high stop on the chart, say 6, 8, 10, or more, and hit that easily.  This puts me in a no lose situation when I hit the first target. Break even is the worst I can do.  The third is just a standard protective stop with no target.  This is for special situations where the market is making a nice consolidation pattern and is ready to break out big.  This lets me capture a large move, say 5 or 10 points, which can still happen in 5 or 10 minutes.  The morning is the best time to catch these big moves, but they can be had at any time of the day. 

That’s it for now, until tomorrow we post again.

Vince

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