The Art of the Entry

Here's an example of how I like to enter trades.  This example uses the Eur/Usd.  I went long the Euro yesterday and added a piece to the trade today.  Here's a screen shot of the 1 Hour, 15 Minute and the 5 Minute charts for the pair, with my TLT Trender v2 signals:

I initially went long with the buy signal, the green bars, on the one hour chart (the chart to the left).  Because a buy signal is in place, I then will look at smaller time frames for another entry signal in the same direction.  I got one this afternoon.  The 15m chart (upper right) gave some yellow bars.  That is the equivalent of the hammer on the gun being pulled back..just needed a signal to pull the trigger.  The signal will be the next buy signal on the 5 minute chart (bottom right).  As you can see, it came about 45 minutes after the first yellow bar on the 15m chart. 

Now the positions are on and they will be trailed with stops on the hourly chart.  Notice that I didn't go into the mechanics of what the green, red, yellow and blue bars are and how they work.  It's enough just to know that Green is buy and Yellow and Red are sell signals.  The concept that I want to get across in this post is the idea of using the Buy/Sell/Buy pattern with different time frames.  Have a buy on the higher time frame, with a sell signal on the intermediate time frame and then buy on the next buy signal within the short time frame.  You can use whatever type of indicator that you like, as long as you're familiar with it and have a good grasp on how to use it.  The Buy/Sell/Buy pattern can allow you to enter long or short (Sell/Buy/Sell) positions in spots where risk can easily be managed...and that is half the battle.

Hope everyone has a Happy New Year!

TLT

I Need a Hero

Energy has been gaining momentum and I'm starting to see some substantial price action in many of the names that I follow.  One in particular is Hercules Offshore...with the ticker HERO.

I'll be waiting for a substantial pull back before looking to get in this stock.  You have to find a point where you can manage risk, and I don't see that right now.  Energy is lighting up and several names on my watchlists are really moving including:  PDC, EP, CWEI, HAWK, ATPG and GEOI.

Have a great Wednesday!

TLT

Take a Ride on the Reading Railroad: RDI

Okay, it's not a railroad but it is a fantastic trade idea.  It also happens to be a play on the Australian Dollar, but I'll let you dig into the fundamentals to figure that out.  Here's the trading plan:

Entry zone, stop loss, and profit targets are laid out.  I'm already in this one and I'll ride it to the profit targets, taking 1/3 off at each target, unless there's a close below the V-Stop..in which case I'll close the position.

Happy trading!

TLT

Risk Trade Back On

I'm back...been on a hiatus from posting for the past month.  After running my weekly numbers, it is very apparent that the "Risk Trade" is back on.  Below is the top half and the bottom half of the 30 ETFs that I run a relative strength analysis on.  This is what you want to see if you're long stocks.

Top Relative Strength ETFs

Bottom Relative Strength ETFs

As I said, this is bullish.  If you're not long, you should be looking for entries.  Find the top performing sectors (Materials, Energy, Industrials) and start watching the strong performers in these groups.  Posting will pick up on a more regular basis now so stay tuned.

TLT

Why is the Euro likely to Rise? Who cares.

The Euro's rally eased recently but it appears that it might be gearing up for another run to new short term highs.  Is it QE2?  Maybe.  Is it just the natural forces of the "risk trade" being back on that puts pressure on currencies with low rates (the dollar) as traders sell dollars as a funding currency?  Probably.  Here's the chart:

Does the "why" really matter?  Absolutely not.  Too many people get wrapped up with the "why" in the market and lose track of the goal..which is to make money.  Talking about the Fed and politicians is fun and can be profitable, as long as you keep the important questions in mind..which are "how will this affect my trading?" and "how can I make money on this idea?" 

The proper time to ask and use "why" in your analysis is when you are determining a catalyst and you are actually basing trading decisions off of various things happening or not happening in the future.  The time to determine these things is before the trade and they should be incorporated in the trade plan.  These questions and determinations should not be impromptu decisions that are made while your trade is on. As always, there are exceptions to this and there are traders that can make these determinations while trading and you know if you are one of them or not.  For the most part, traders can't do this and it is probably reflected in your P&L. 

A little bit of rant?  Yes.  Probably just pent up frustrations from dealing/working with individuals that think they know how to make money in the market.  Most don't and it is obvious from looking at their accounts.  The individuals that are the worst are the ones that know a little..they know just enough to be dangerous?  We are all at the "know enough to be dangerous" stage at some point in our trading/investing careers.  What separates the profitable from the unprofitable are the ones that either push through this stage by much work and effort and open mindedness or they turn over their investments to someone (adviser/fund manager) or some strategy (mutual funds/index funds) that performs better than their own active strategies.  The habitually unprofitable traders continue to look for the next magic formula or holy grail and they always know that they're on the verge of discovering it.  It's always worthwhile to spend a few minutes thinking about where you are in your trading/investing career. 

Happy Halloween!

TLT

Biggs says there's another 10% of upside

Here's a link to a great interview with Barton Biggs..check it out.

TLT

Wisdom Quote

"It would be a serious mistake to think that all the facts that describe a particular investment are or could be known.  Not only may questions remain unanswered; all the right questions may not even have been asked."

--Seth Klarman

Margin of Safety

Show Me the Value

Here are four stocks that turned up this week on my "Ben Graham" style value screen.  I run a handful of screens every couple of weeks to look for ideas and there seems to be some potential in a couple of these names.  The screen that I run is pretty basic and I use FINVIZ to run it.  This is an excellent website that offers up so many free tools that I can literally spend hours on it just playing around.  Check out the site if you haven't already..fyi, I have no affiliation with FINVIZ, I'm just an enthusiastic user of the site.


On to the good stuff.  Below, are some pictures and charts that give a brief rundown of the 4 stocks that are currently coming up on the screen.  Then at the bottom of this post is a screen shot of the settings that I use to run the screen.  If you're interested in this type of screen, just plug in the same values and then begin tweaking the values and filters.  Let me know if you find an interesting take on this screen.  Here are the current value candidates:

 My favorite on this screen is CRWS.  CRWS just broke out of a range and is exhibiting major strength.  A pullback to the 50 day moving average around $4.50 could provide a great long entry with a favorable risk/reward outlook.  ELNK is also worth keeping an eye on..it could be a good trade as well, it just needs to find some support after its recent sell off. 

As for the Value Screen itself.  It is a Graham style screen because it uses similar criteria and concepts that Graham endorsed.  These stocks have a relatively low Price/Book ratio and a low P/E.  They also have low Debt/Equity and positive earnings growth.  Furthermore, these stocks have a current ratio of at least 1.5.  The idea behind this type of screen is to find stocks that are cheap using the Price/Book and P/E but then qualifying the cheap stocks by making sure they have low debt and plenty of cash to meet their near term obligations.  Some stocks have a low P/E for a reason, and their P/Es continue to get lower and lower as the business gets closer and closer to having to shut down forever.  This is why Graham preached about the importance of the examining the "debt" side of the equation.

Here are the parameters that I use for the screen:

I hope everyone is having a great weekend!


TLT

Roasted: GMCR's Revenue Recognition is Called into Question

Anyone notice GMCR today?  What a drop, and on huge volume. 

This stock has been very strong..it will be interesting to see how this one plays out.  I'll be watching this one closely as it's entered a value area..an area that makes the stock attractively priced.  First level for GMCR to take out is today's highs..this is where I'll be looking to go long for a gap fill trade.


TLT

Keep and Eye on that Euro

Yes, gold has been all the rage and it keeps climbing higher but, you don't want to neglect that Euro.  The Euro has been incredibly strong and is continuing to show strength.  At the very least, you want to be watching the Euro closely because as long as it continues to trade higher, gold and equities should follow suit.  Here's a chart of FXE, the Euro ETF:

Note that I pointed out the volume.  Currencies in the spot market do not have volume reported, at least not legitimate numbers.  If one wants to get an idea of volume in the currency market, one has to look at futures or an ETF.  I don't watch the currency ETF volume very closesly, but I do keep an eye out for massive spikes.  You can see from the chart above the three days of massive volume the etf had.  That was a heads up that this move would have some momentum behind it and it did. 

I'll be trying to post a little more regularly now..work has been insane and I've still been trying to get caught up after my 2 week vacation.  I have recently checked my website email and there are a few people waiting on responses from me.  I sent you guys a quick email over the weekend and I will be getting back with you soon.  Your patience is appreciated.

Hope everyone's trading is going well.

TLT

Interesting Spread Trade: The Yield Curve Steepener via ETFs

It goes without saying that there's been some interesting trading in bonds lately.  We all know that bonds, especially treasuries, are in a bubble.  The big question is: when does it end?  Some pros have already called the top in bonds and others say there's no telling how low the fed will bring down yields.  What I find to be interesting is the relationship between the shorter term bonds versus the longer term bonds. 

Here's a chart of SHY, which is the Barclays 1-3 Treasury Bond fund etf:

Notice in this chart that prices took a small dip recently but have retraced most of the fall and appear to be ready to re-test their highs.  I would state that this is a pretty bullish looking chart.  Now compare that to the daily chart of TLT, the Barclays 20+ year bond fund etf:

This price action in TLT has taken a dip just like SHY, however, it has failed to rebound at all.  In fact, it appears to be testing it's uptrend and is looking dangerously close to entering the 3rd Stage of a trend which is the top prior to the Stage 4 crash.  The weekly chart of TLT looks quiet bearish, however I'm going to leave it up to you to look at it as I don't won't to overdo the number of charts in this post. 

One last chart that is interesting.  This is a weekly pair chart of SHY and TLT together.  So when looking at this chart, for the price to go up, SHY would continue to go up and TLT would go down, or SHY would go down but TLT would go down more.  Here's the chart:

In the above chart, you can see that I highlighted 3 different areas of price action.  The first is "Normalcy" which is where prices of SHY:TLT have been during relatively stable times.  The "Nervous Market" area is where prices have been when the market is concerned about another severe crash..where we are now.  "End of the World" is where prices went when it looked like the financial system was going to break down all together..that was as bad as things could get without a collapse of the entire banking system. 

The question is:  do we think it's likely we'll go back to the "End of the World" zone or will bonds trade back to the Normalcy area?  Short of a Sovereign default or something outrageous happening, I'm betting we trade back to normal levels and maybe even overshoot those levels if people panic and dump their treasuries.  Time will tell.

TLT

SPY Entering Bearish Resistance Zone

 It will be interesting to see how the market reacts to the levels we're at.  So far, the resistance is holding.  Anytime the market repeatedly tests the same resistance point, it's like fuel for the fire that is building and all we need is a spark. 

Lately it has paid to be skeptical of such moves and fade them or to sit it out all together.  I'm personally waiting it out as far as equities are concerned.  There's a lot more interesting action going on in Bonds and Currencies right now..such as bonds are calling for stocks to sell off from the resistance but currencies are favoring a break out.  Who will win?  More importantly, how will you be able to tell when someone wins and then capitalize on it?  These are the questions you should be asking and incorporating into your current game plan.

TLT

Close!..but not quite there yet

It's no secret that Treasuries have been hot lately..the only question is:  when will it end?  TLT nearly registered a sell signal today..coming very close to flipping the V-Stop on the daily chart.  The next few days should be interesting because TLT is also oversold on the Stochastic.  If you're in the camp that believes that Treasuries will continue to rally, this is the time to be loading up.  It is a great risk-to-reward entry point for the longs.  That being said, I'm on the other side, as I've been short via TBT for two weeks now.  I've just got beginning small position on and I will add to the position a couple of times after the V-Stop flips..if it flips.

The great aspect of this trade is the potential for treasuries to crash hard if/when they begin to fall.  Be extra careful if you happen to own any bond mutual funds or bond etfs.  I told my grandfather to consider unloading some of his bond funds into this strength (just some, not all) and his brilliat financial adviser told him that the bond funds won't drop until interest rates begin to rise.  Excellent advice!  Can you pick up on my sarcasm?  I pointed out that it's not when interest rates begin to rise that will be the problem, it's when the market begins to believe that interest rates could rise...and whenever that happens, it will happen quickly.  The important reason to unload bond funds into momentum is because there's the rush to exit scenario that could be very likely and in this day in age (post flash crash and 2008 days) we all know that you don't want to sell when you feel you have to because it will already be too late. 

Hope everyone's having  a great week so far.

TLT

9-11

A man from New Zealand, I'll just refer to him as John, recently told me a story about his experience with 9-11 and I think it's worth sharing.  During the entire year of 2001, John and his wife lived in Saudi Arabia.  The company that John worked for was doing work for Saudi Arabia and he and his wife were living in one of the western style foreigner compounds. 

John worked with people of several different nationalities, including:  Australian, British, and Canadian.  Furthermore, he worked with lots of Arabic men from Saudi Arabia and a handful of other Arab countries.  When the news of the attacks was spreading around the world, John and several of his co-workers were horrified at the reaction of some of their arab co-workers...these men were celebrating.  In fact, some of these men were talking about throwing a party to celebrate the attack on America.  Deeply disturbed, the men from New Zealand, Australia, and Britain knew they had to do something to show their disapproval, but they didn't know what to do and they certainly didn't want to raise too much of a fuss given their location. 

One of the Australians had an idea.  He noted, and this was well known, that all of the Arabic men had facial hair..all of them.  Some of the "western" men had beards and mustaches too.  So they devised a plan to all come into the workplace the next day noticeably clean shaven to stand out from their counterparts and show their contempt towards the celebratory reaction of their counterparts.  The men came in the next day without any beards, mustaches, sideburns or anything even resembling facial hair.  The plan worked.  The men that were celebrating the day before realized how upset the English speaking men were and they got quiet and never threw a party..at least in front of the English men. 

John thought it was very important to share this story and I'm certainly glad that he did.  It's amazing to hear stories of support from men that live on the other side of the world and really didn't have to take a stand in one way or another..but men that did take a stand and show support out of principle and love for their fellow brothers. 

I was hesitant to post this story because I don't want it to be taken the wrong way.  In no way am I trying to come across as anti-Muslim, anti-Saudi, or anti-Arab in general.  The story is told as one of support and courage, not condemnation.  I don't believe that all Muslim and Arab people support the 9-11 attacks and I think the majority of them are very fine people that are just going about their own lives.  Just like any population or country, there are always some bad apples...and America is certainly no exception (just check out that crazy guy in Florida).

I want to offer up a big thanks to everyone around the world that supported our country in a time of need.  Please keep all the victims and their families in your thoughts and prayers.

TLT 

So What's New with the Market?..not much

Prices have literally chopped back and forth for months now.  This has been a very difficult market environment for lots of traders and investors and I've not been an exception.  That being said, there are still plenty of people that are actually making money in this.  They are the ones who have adapted to the volatility and lack of follow through.  They are suspicious of any rally or sell off and  book profits quickly into momentum..something that's easier said than done.

Personally, I've found the swings in the currency market to be easier to track and trade than the stock market.  I am holding a couple of longs and will put on some shorts if this market breaks down but other than that, I'm letting the stock market play out and prove itself a little before I get committed to either side of the market.

Good luck out there.


TLT

I'm Back: Been on Vacation

Been traveling for the past couple of weeks and obviously I haven't updated the blog in a while.  It's just as well since the market continues to chop back and forth, which doesn't really work well for my trading.  My wife and I were in Greece and a handful of other countries and it was a very interesting trip.  It was especially interesting to speak with Greek people about their country's problems and get a feel for their views and perceptions of the issues their country is facing. 

I'll start regularly posting again in a couple of days..I need to get my feet back on the ground here at home and then dig into what's been going on in the markets while I was away.  Fortunately, I was able to loosely keep up with the overall markets via BBC and sometimes Bloomberg TV, but I was not able to get on the internet very much. Be back soon with some thoughts on trading and market commentary.


TLT

Looking for a Bounce in the Eur/Usd

The dollar has rallied over the past week as the risk trade was clearly taken off the table.  Equities finally worked off their Overbought levels and so did the non-dollar currencies.  Today's action in the Eur/Usd was particularly appealing and I took a small position in the pair this morning.  Here's a Daily, Hourly and 15 Minute chart:

As you can see, the pair is in oversold territory on the stochastics and the v-stop on the hourly has flipped to a buy.  What I really like about the pair right now is the bullish swing low (higher high and higher low after the sell off) that occurred right at the 50 day moving average.  I drew a couple of lines above the price action (and forgot to mark them..oops).  These lines are my price targets.  I will trail my stops up to the targets using the V-Stop on the hourly chart. 

Notice that I'm booking partial profits early and using the hourly to trail stops...this is  because the market has been choppy lately and to make money, you really need to be nimble.  I've been adjusting my expectations on each trade that I place because this market can turn on a dime and when it turns, it moves quickly. 

Hope everyone's having a great week so far.

TLT

A New Short Squeeze: PFE

I'm back from my short vacation and there is quite a bit of interesting market action to digest.  One notable event is the massive break out in Pfizer (PFE).  PFE has been a great short for most of spring and summer but it has recently shown some signs of improving price action.  Then PFE released earnings on Tuesday and there's been no looking back so far.  Check out the daily chart:

As you can see, there was a big gap up and then follow through strength.  It has the look of a good old fashioned short squeeze...somewhat reminiscent of MON, another recent short squeeze that has had follow through.  As always, both time and price will tell.

TLT

Don't Fight the Tape

Well, my short position that I posted about was taken out when the resistance did not hold..this market is on a roll.  6 straight days of higher highs and higher lows.  Lots of traders got excited about the "Death Cross" and as it turns out, that was the point right after the short term lows that we have yet to see again.  What's the point?  The point is that if CNBC is talking about a major technical point, like the Death Cross, use caution. 

 Now I was short like lots of others, but not because of the Death Cross..I was short because my system was calling for shorting the market.  Now I'm out because the market is on a bull run and staying short through this action is merely fighting the tape..good luck with that.  What will be interesting is to see if we're still in a range bound market (likely) or if prices will continue to climb the wall of worry (2009 style).

I'll be traveling for the rest of the week and will return home next Monday.  Posting will resume then. 

Have a great week.


TLT

Wisdom Quote

"Little else is required to carry a state to the highest degree of opulence from the lowest degree of barbarism, but peace, low taxes, and tolerable administration of justice; all the rest being brought about by the natural course of things.  All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."

--Adam Smith

Bears Beware?

We saw a wicked rally yesterday and a substantial gap up this morning but, unfortunately for the bulls, prices plunged this afternoon.  That little rally was enough to inflict some pain on the shorts, me included, as I got to watch prices gap right through some of my stops and take me out of some positions that ultimately would have been great to have at the end of the day...kind of an insult to injury but that's part of the game.  

SPY Daily

 Technically, stocks still registered a higher high and a higher low, so there's still some hope for the bulls, but I think we're heading lower.  My indicators are calling for lower lows and fortunately, I've still got some shorts on the table...I got knocked out of my TZA (3X small cap bear) position but I'm still in the slightly tamer SDS (Ultra Short S&P). 

So should the Bears Beware?  Obviously, I don't think so and I've got my money where my mouth is.  That being said, there's always the chance of being wrong which is why using stops (even when you get whip sawed) and proper position sizing is so important.  The best trades tend to be at inflection points, where the market looks like it will go either way, because those are the spots that offer the best risk to reward.  The key is to have a reason (indicator, system, guru to follow, etc) that helps you determine which side to be on and  is right often enough to make money.  So my system is pointing down..we'll see how it plays out.

Hope everyone's having a great week so far.

TLT

Wisdom Quote

"If you want to change your experience of the markets from fearful to confident, if you want to change your results from an erratic equity curve to a steadily rising one, the first step is to embrace the responsitiblity and stop expecting the market to give you anything or do anything for you. ... Taking responsibility is the cornerstone of a winning attitude."

--Mark Douglas

Trading In The Zone

What a Day, Glad I was Short

What, did he just say he was short?  Didn't the Lawyer Trader just post something about the intermediate trend being up and that the path of least resistance would continue to be up...?  Although I did say that, I also said that this was subject to change and change it did.  I've been short for 2 days and I piled into TZA (Triple Short Small Cap) this morning at the open...an etf that gained 10% today!

So what happen to change my mind and give me the conviction to pile on the shorts this morning?  Well something occurred over the past couple of days, especially yesterday, that over rode any bullish bias.  That something was in bonds, and bond spreads to be exact.  I've posted about my Treasury Spread Indicator before and it gave a glaring sell divergence yesterday.  Here's the chart: 

So what's the significance of this divergence portrayed on the chart?  Well it basically boils down to the stock market and the bond market disagreeing on the state of the economy and the state of the stock market.  Stocks were flat and bonds indicated that stocks should be sold off.  When that happens, it pays to bet with bonds. 

Have a great weekend.

TLT

Eur/Usd Update

The Euro has continued to rally..the only question now is how long will it last? I don't know and will look to price action to get me out of my current long position. Here's the current daily chart:

One thing that I find interesting about the Euro right now is that the correlation between the Dollar rising when the stock market declines seems to have been decoupled.  For example, this morning when stocks slid more than 1%, the Euro rallied.  What does this mean?  It could mean that the currency market has merely changed it's relationship with stocks.  It could also mean that the currency market is not worried about Europe anymore..the worry is with the US.  Not a far fetched theory.

It's too early to tell, but it will be interesting to see how this plays out.  The only thing that I can say is that according to my system, the right trade is to continue to hold the long Euro position. 

TLT

And The Beat Goes On...

Markets had a good day today, as they continue their recent winning streak.  AA and CSX gave the markets something to rally over and it appears that INTC is contributing fuel for tomorrow since it's up 7% in after hours trading today.

Here's a quick look at some of my indicators that I update and maintain myself.  First up, the TLT Oscillator:

As you can see, the Oscillator score is positive (bullish) and the moving average just crossed into positive territory today (very bullish).  This indicator tells me that the intermediate trend is up for now..time to look for longs if you're not long already.  Of course this is subject to change as a couple of good down days could provide a negative score and drag the moving average back down to negative territory.  So I'm not saying that we should all pile on the longs and hold them right now, I'm just saying that this indicator (one that has been pretty reliable but subject to it's own set of limitations) says that the path of least resistance right now is up.

Another indicator to check on that I've posted about before is the Overbought/Oversold Indicator:

The Overbought/Oversold Indicator just crossed over the 4 mark into overbought today.  This means that I'll will be waiting for the market to back out of the overbought territory before entering any longs (assuming the trend is still bullish when we pull back).  I guess it's just a wait and see type of thing now.

TLT

New Zealand Dollar Benefits From What?!: File this one under whoops

That is just plain funny!  Good job Yahoo and Daily FX.  Also, good job to Mish for posting this..gotta give credit where credit is do.

TLT

Wisdom Quote

 "Economic history is a never-ending series of episodes based on falsehoods and lies, not truths.  It represents the path of big money.  The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."

--George Soros

Interesting Action in Monsanto

Just look at chart of Monsanto's price action for the past 6 months or so and you can see that it's been relentlessly sold..fortunately, I had a little bit of that action.  Taken to the woodshed would be a good way to describe the beating that MON took.  Well this week, it put in a potential reversal.  Monsanto was up over 7% alone today and it registered a Bullish U-Turn on the weekly chart:

It will be interesting to see how this one plays out as this stock could rally a bit simply because of how far it has dropped recently.  Short covering is undoubtedly gonna be fuel for the fire..gotta love a good old fashioned short squeeze.

As for the market in general, I'm seeing short term bullishness.  Nothing worth getting too excited for yet, but there is potential.  Here's a chart of the TLT Oscillator with the SPY plotted over it:

As you can see from the chart, there have been 2 successive positive readings, which is a bullish sign but not bullish enough to go fully long.  The 5 day moving average is still negative which tells me that any buy signals right now have a high chance of being a whip saw because we are still in a downtrend.  However, all bull moves have to start somewhere and this one could be a bigger bull move..we have to be open to possibilities, especially if they don't seem likely to happen.  So for now, there's a slight bullish bias for the next week or so but I'll be keeping my eyes out for short signals as down is still the path of least resistance.

Hope everyone had a great week.

TLT

Overbought/Oversold Indicator Update: Back Into Neutral

Here's an update to my Overbought/Oversold indicator. This indicator is constructed by taking readings from 30 different stocks in 10 sectors and averaging their current readings over a couple of different time frames. As you can see, we just went from oversold to neutral.At this point, I am patiently waiting for it to reach the "Buying Pressure" levels and then I will look for short signals to initiate new short positions. The short positions will be premised on the market still being in a downtrend overall, which it is right now.

TLT

Andy Kessler Interview

If you have 30 minutes to spare, this interview video is well worth your time. In it, Andy Kessler (author of Wall Street Meat, Running Money, The End of Medicine) is interviewed by Howard Lindzon..check it out.

TLT

Buy Signal On the Euro/Usd

I don't really like it, but I'm in it. The Euro rally that occurred last week on July 1st triggered a buy signal in the Euro/Usd. Personally, whipsaw comes to mind when I look at the chart but, only time will tell...you never know which signal is going to be the beginning of a huge move. Here's the daily chart:As for the stock market, I'm in cash right now and waiting for a fresh short signal or a buy signal. I can tell you that the path of least resistance is still down, so a new short signal will most likely be next..but you have to stay open to different scenarios playing out.

Hope everyone's having a great week so far.

TLT

Overbought/Oversold Indicator

I've been tracking my own overbought/oversold indicator that takes an average of all 30 stocks that I track every day. Here's a shot of today's reading of 1.575:No surprise that it registered an oversold reading today. What does that mean for me? It means that I will not initiate any new shorts while we are oversold. I am short right now and am carefully trailing a stop in TZA. We'll see what tomorrow brings.

TLT

This Really Says All You Need To Know About Today

Here are two charts that I keep at the bottom of my trading screen. Like the title of this post states, they pretty much tell you everything that you need to know about today. They're pretty self explanatory. All I can say is that fortunately, I was out of all my longs and short going into today.We'll have to watch and see what tomorrow's reaction to today's trading will be. Have a good night.

TLT

Potential Trade: Short Copper via JJC

Copper has been in a confirmed downtrend for a couple of months (like the general equity markets) and it's now at a good spot to enter a short position. For the purpose of this post, I'm using JJC as the vehicle instead of Copper Futures just because the etf is easier and more accessible to most people. Here's a daily chart of Copper (JJC) with some annotations: As you can see, JJC is overbought according to the stochastic while in a downtrend. This is the ideal point to enter a short. The prior lows from earlier in June make for a great initial target. There's one other factor that supports a short in copper--the Commitment of Traders Report. Here's a chart of Copper Futures with the Commitment of Traders plotted under the chart:
This chart shows that the large traders have been reducing their positions while the commercials (hedgers) are adding to their positions. In fact, the lines representing the two opposing groups has converged and is ready to cross--a bearish sign for Copper.

As an FYI, the direction of the large traders generally correlates to the direction of the underlying instrument..i.e. if hedge funds are selling, the price is likely falling. The opposite tends to happen with commercials as this group is mostly made up of large companies that use the futures market for hedging. Since these companies are hedging, they are generally going against the grain and prices tend to go in the opposite direction. Here's a great website if you're interested in playing with the Commitment of Traders charts for various futures.

Just some food for thought. As for the overall market, I'm still bearish right now and I am positioned for a further decline. We'll see. Hope everyone's having a great week so far.

TLT

Down, Down, Down, Down, and Up Just a Tad: Pretty Bearish Week

This week, the market literally pulled a 180 and made lower lows and lower highs every day this week. In fact, today was the only day that the S&P managed to close up and it was barely up. It did however close in the middle of it's daily range which shows a little bit of indecision but I'm gonna keep my shorts on (pun intended) for now. Here's a look at the SPY daily chart:
I think at a minimum the market will test the recent lows, approx. 104 for SPY, and if that support holds again we will continue to be range bound but in the mean time we can trade this market down. So why am I bearish again? Treasury spreads (here's a recent post that explains the treasury spread indicator), which have been spot on, are pointing lower. Here's an updated chart of where we stand according to the spreads:As you can see, spreads are making new lows which means that my money will be fading strength in the market. That is why my shorts will remain on the table. Now all of this could change and I'll be watching for more divergences but for now, the path of least resistance is down.

Have a great weekend.

TLT

Wisdom Quote

"If you don't know who you are, the stock market is an expensive place to find out."

--Adam Smith
The Money Game

Treasury Spreads Indicating a Possible Buy Divergence

Yep, treasury spreads might be indicating a further move to the upside. I've been tracking the yield curve for a while now and have recently been playing with some potential treasury spreads as indicators. There are several standard spreads that some people use, like the 30 year-3 month and the 10 year-3 month. I've come up with a composite of the 30, 10, 5 and 3 month that seems like it might be useful. Here's the most recent chart:Note that there was a considerable sell divergence back in April as the spreads began making new lows (converging) before the SPY topped out. Now there is potentially a buy divergence forming, although it is a less obvious divergence than the previous one..not sure if that gives it more potential for follow through or less. Regardless, it will be interesting to see how it plays out.

It seems that everyone (including yours truly) is expecting another sell off and markets generally play out in a way that confounds the most people. How could it do that right now? Well, we had very bearish technicals yesterday, as the market stalled out at the 200 day moving average, but (drum roll) it rallied today instead of following the obvious signals. So from here, it might rally a little more, just to make more of the shorts throw in the towel (yes they are scared right now). After a little more capitulation from shorts, we could see a massive drop...leaving previous shorts to wonder why the lost money on the short side. Just one scenario that I could see playing out.

The problem is, that it's hard to tell how many others out there are thinking the same thing. If that's the case and we're all holding our shorts waiting for "the others" to capitulate, then the market could end up just trickling up higher and higher, slaughtering the greedy (stubborn?) shorts. As always, time and price action will tell.

TLT

A Look at the Big Picture: SPY Monthly Chart

About once every month or two I like to pull up the monthly chart of SPY with a MACD indicator attached to the chart. This helps me keep things in perspective and the MACD on the monthly chart does a good job of alerting you to potential changes in trend. Here's the chart:You can see on the above chart that the MACD never got above zero with this past year's rally...and now the distance between the signal line and the moving average is converging. These things are a very bearish indication to me but the market could go up.

The MACD is great for putting current price action in proper context but it does not tell you where price action is heading. This bearish looking MACD could turn very bullish if the market rallies for the next week or two. That being said, it still appears that the path of least resistance is down and that's the direction that I will continue to put money to work.

Have a great weekend.

TLT

Indicator Update: TLT Trender and TLT Oscillator

After another down day, lets see where my indicators stand. The TLT Trender v2 is still giving a sell signal on the Daily S&P 500 chart. Here's the chart with some comments:
And here's the TLT Oscillator, which is still very bearish down in extreme negative territory. This indicator ranges from 60 to -60 with below 60 being bearish. I plot a 5 day average over the bars to smooth out the data. Here's the chart:Well, both indicators are still very bearish and there is some evidence that the selling will likely continue. Even Trader Mike today pointed out that his Trend Table that he keeps up with is the worst that its been in over a year in this post. What's the take away? Expect more selling and hold onto the shorts.

TLT

Wisdom Quote

"For a lot of traders, it doesn't matter so much whether their first big trade is successful or not, but whether their first big profit is on the long or short side. Those people tend to be perennial bulls or bears, and that is very bad. Both sides have to be equally OK."

--Richard Dennis
Market Wizards

Markets are Moving Today: Check Out the Eur/Usd

If I could only watch one thing to make all of my market decisions right now, it would be the Eur/Usd pair. This should not be surprising to anyone that follows the markets on a regular basis as everything has been following the dollar..and the euro. This pair represents a gauge on the overall fear involving Greece, Spain, and Portugal and it also gives you a heads up on what the risk appetite of the market is...dollar still rallies as a safe haven currency when the equity markets tumble.

Today the Eur/Usd has made new lows and the stock market is falling which is confirmation to continue to hold shorts. Here's a daily chart of the Eur/Usd:
I've made a few notes on the chart relating some of the more important things that I'm taking from it. The 2 most important things that I see, things that give me conviction to hold positions, are the fresh lows and the leveling out of the BB Width. I've found that the BB Width indicator is one of the best tools for determining continuation of a trend. When volatility kicks up, the short term BB Width rises above the 5 period average and more times than not we see follow through in the direction of the trend. When the BB Width is declining and below the 5 period average, we generally get consolidation with the potential for a short term reversal, which is what we've had lately.

So, right now, it's looking like the sell off of the Euro will continue and we'll also see the stock market sell off with it. Note that the BB Width hasn't risen above the 5 period average yet..but it has leveled and looks like it will likely cross. For now I'll be holding my long dollar and short equity positions and if the continuation is confirmed, I'll add a bit to the positions.

Anticipating what will happen and then having plans and contingency plans is the name of the game. If you make the proper plan, then it's likely that market action will not surprise you. Then if you add the ability to cut losses to the equation, you've got what it takes to trade successfully. Simple, yes. Easy to do, not exactly!

I hope everyone has a great weekend.

TLT

Swing High Formed In MRK Today

I've been short MRK for a few weeks now and the position was beginning to look like it might get closed out soon as MRK has shown a little bit of strength lately. Well, that strength is more likely just some consolidation after the sell off that it's suffered lately.

Today MRK formed a swing high on the daily chart, which means that it failed to make a higher and and it made a lower low from the previous day's bar. This is a bearish sign and it is a pattern that provides a good entry for shorts because it offers a good risk to reward entry.

Here's the chart:For those looking to enter a short position, this pattern is a good one for it...the first profit target will be the previous lows down around $31 and the stop is placed above the prior day's high at $34.15. I'll be looking to add to my short tomorrow.

TLT

The Dollar is Still Heading Higher..For Now at Least

Yes, posts are a little far and few between right now. I've been incredibly busy and had to abruptly move offices (my old office suffered a fire). Needless to say, things have been crazy for me lately.

One position that I've been holding on to is being long the dollar via the UUP etf. Here's an updated chart from this morning:As you can see, the position was nearly stopped out last Friday, as it approached its ATR trailing stop. There's been a lot of chatter about the dollar moving so far so fast...I don't listen to chatter, I just exit my position when my PRE-DETERMINED exit point is reached.

Hope everyone's having a good start to the week.

TLT

Book Profits in Gold...ehh, not so fast!

A couple of weeks ago, I pointed out that gold was beginning to look interesting in this post. I think it's safe to say that gold got interesting, as it has continued to go up and make all time highs. So far, so good...this is what it's all about...you notice something interesting, buy it and it goes up. Now for what I consider the tricky part of a good trade...when to sell.

I must admit, my natural instincts of seeing a profitable trade in an instrument that's making all time highs started telling me to book profits. I even considered it on Friday. Then something interesting happend. I was watching CNBC and I kept hearing the talking heads speak about traders booking profits in gold or selling gold at these new levels. That's when my thinking changed back to how it should be. I realized that a lot of traders were feeling like me...looking at these high prices...seeing how far above the moving averages it's trading...thinking about the paper profits. This is when it pays to fade your feelings. Sure, I might see some paper profits go up in smoke, but I'm trading for big profits, not smaller profits and that's just part of the game. When "everyone" is selling out of an instrument that's making all time highs, it usually pays to hold on just a little bit longer because what nobody thought would or could happen sometimes does happen.

Will gold continue to go up? I don't know, but I'm willing to let a position ride on the premise that it could and that there has not been any good signal for me to sell gold. Sounds simple enough, yet many (most) traders don't step away from a trade and think about these things. You've got to ask yourself, "Why do I want to sell right now?" Then write that answer in your trading journal. If you do that over and over, and you're like me, you'll start to see a pattern of selling winners too early. That goes against Livermore's advice of , "Cut losses and let profits run."

Ok, back to gold..here's an updated weekly chart that I'm looking at:The most important aspect of this chart, aside from the bullish trend in price, is the rising BB Width that's still at relatively low levels. I said in my earlier post on gold that I was looking for the BB Width to reach between 20 and 25...it's at 15 right now. It may not rise to the 20-25 range, but it's likely that it will. This would mean that volatility is still expanding (Bollinger Bands are increasing in width) which I know is a sign of a trend continuing to gain strength. So for now, my analysis says HOLD.

Hope everyone's having a great weekend.

TLT

Trade Idea: Buy XLV and Short MRK

One cool feature that thinkorswim offers is the ability to pull up pairs charts. We'll use the daily spread chart of XLV-MRK to show this potential spread trade. Here it is:This chart represents the spread between XLV and MRK...as the price rises, that indicates that XLV is stronger relative to MRK and vice versa for the downside. As you can see from the chart, it appears that XLV bottomed and MRK topped back in January and now XLV is getting stronger relative to MRK. Right now the spread is roughly at -3 (XLV's price is $30.38 and MRK is 33.31). From this chart, I've set a price target of +1 spread...XLV would rise and MRK would continue to fall.

I've been tracking and playing with spread trades like this..especially trading single stocks against their sector etfs. This potential trade is standing out to me right now and I though it would be worth sharing.

TLT