Gold is Getting Interesting

Looks like Gold is gearing up for a run up to the old December highs. Will it break through them if it trades up there? Probably. Regardless, gold is a good trade right now.

You hear a lot of people talk about gold being a good hedge against inflation but if you study history, gold outperforms in periods of deflation. Ahh...negative real interest rates. Sounds familiar huh. Well there's the story that might push it up. What about the technicals? Here's a weekly chart of GLD:This week GLD broke out of a multi-week trading range. On top of the break out, I like the bullish MACD cross over and that the BB Width (Bollinger Band Width--a measure of the distance between the high and low bollinger bands) is relatively low...this indicates that there is room for gold to move up.

I'm in this trade, although I'm not using GLD. I'm monitoring my trade with GLD but using one of the leveraged ETNs. I'll be looking to exit this trade when and if the BB Width kicks up to the 20-25 range or above.

For full disclosure purposes, I am not a gold bug at all. I don't get all excited about gold...you know what I'm talking about, the gold bugs that really love the stuff...always. Well that's not me. I do, however, love a good trade and this one could be good. As always, enter at a spot where you can mange risk and be ready to pull out when wrong...that's key.

Hope everyone had a great week!

TLT

Sell and Sell Short...Maybe?

The market sold off hard today and the move happened on higher than average volume...this is significant. Several things happened for me as a result of today's action. First, I got stopped out of my TBT trade, which is not a big deal as taking losses is part of trading.

Second thing that happened is that I cashed in on my single biggest one day percentage gainer ever. Yesterday I bought some Vix call options (May 10 with a 19 strike). Today those call options were up over 200%...I rang the register at the 100% mark. This was a good trade but I must admit, I got lucky on the timing. I thought that the Vix might spike between now and May 10 (obviously b/c I bought some calls) but I did not expect the Vix to spike 30% in one day! This trade more than made up for the small TBT loss.

Last but not least, I established a short in financials yesterday via SKF. This trade is showing some potential as it's already up a decent amount and I've moved my stop up to above break even. Once again, I lucked out on timing on this one too. The big question now is, "Will we see any follow through to the downside?" Dip buyers have been coming into the market over the past few months and this dip might just be another buying opportunity for them. I have a feeling that we might see a little more of a correction on this round, but you never know.

There are a couple of things that I track every day, some proprietary indicators that I've been tracking and they are looking bearish. The first indicator is called the TLT Oscillator. It's just an oscillator that represents the general market. It ranges between -60 and +60 with 60 being a raging bull market and -60 being a major bear signal. Here's the chart showing the values from March 1, 2010:As you can see, today's reading was a +8...not terribly bearish. The thing that caught my eye is the drop...it dropped 20 points from yesterday (+28 to +8). The big sell short signal will be a drop below zero, so until then, shorting will be done in a more cautious manner and very stock/sector specific.

So I've determined that I want to be stock/sector specific and I've already mentioned that I'm short financials..how did I determine financials? Because I track buy and sell signals on the daily, hourly, and 15 minute time frames for 10 sectors and 30 stocks (3 stocks per sector) every day and financials are where the weakness is at. Here's a look at today's trend sheet for the sectors and stocks..note the sell signals in financials:I've got a couple of other indicators that I'd like to share but it's late and I've got to go to bed. We'll get to some others later but for now..be careful with the longs but don't get too aggressive on the short side either.

Hope everyone's having a great week so far.

TLT

When in Doubt, Spread it Out

Spread is the operating word in the above title. Mr. Market rallied to new highs and closed strong in today's session. Both professionals and retailers seem to be nervous as the broad market moves up to new highs. How long can this buy the dip routine last? Quote a while and longer than anyone expects are both good answers. Here's a daily chart of the SPY:What a climb..it's really pretty amazing. Now back to the name of the post...what's this about the spread? Something I've been playing with for a while is spread analysis and spread trading. I haven't gotten to the point where I'm putting money on the line with a spread/pairs trading strategy, but I'm not far from it.

One pair that I think is interesting to follow is the spread between the SPY and the VIX. The way spread/pairs trading (or statistical arbitrage if you work at a bank and want to sound fancy) works is that you use statistics to measure the spread between two instruments..in this case its the SPY and VIX. When the spread gets too wide, as determined by the statistics, you buy one instrument and short the other. Then you cash out once the spread narrows or widens. This type of trading can get you into trouble if you only use the statistics (see Long Term Capital Management) and not sound money management rules combined with a little common sense.

Here's a chart of the Density Curve for the SPY/VIX pair using the past year's data:The Density Curve is a series of numbers between 0 and 1. The closer it is to 0, the narrower the spread which would indicate that it's time to buy SPY and sell the VIX. Check out the chart around March of last year and you can see that the Density Curve was nearly at 0...buy time. On the flip side, a reading close to 1 would mean that it's time to sell SPY and buy the VIX as the spreads are too far apart, according the last year's worth of data. Although the pair is not quite at the top pegged at 1 yet (yesterday's reading was .935), the pair is much closer to the top than the bottom. This tells me that any move higher will likely slow down quickly because we are in over bought territory.

So what do I do with this? I continue to monitor readings everyday and wait for it to get very very close to one, like .995 and then I put on an initial short position in SPY and buy a little of the VIX. Then, when my trend following system starts giving me sell signals, I short more SPY and buy more VIX and then manage the trade according to my trend trading system. Note that I only put on a small position (like 1/4 a position) before I get a sell signal from my other system. The Density Curve and it's associated statistics act more like a heads up that change is probably coming.

I find this kind of stuff very interesting and thought some of you might as well. I'm currently working on a spreadsheet that tracks all of the stocks that I follow (30 stocks in 10 sectors) and correlated Sector ETFs with the broad market to expand my Spread Analysis and I hope to implement it all into one big trading system. We'll see, I'm still working on it and it's very time consuming. I'll post an update in another week or so as to the SPY/VIX readings.

Hope you all had a great trading week.

TLT

NYSE Up Volume vs. Down Volume: getting a heads up on the crowd

Today has been pretty typical of trading days lately. We had the early morning sell off that found support and then the markets headed higher. At the time of this post, there's still about 25 minutes left until the close so anything could still happen...but the path of least resistance is up.

One way to get a heads up that the selling dried up (i.e. get out of shorts) and then that buying was coming into the market was to monitor the NYSE Up Volume v. Down Volume. I keep a 1 minute chart of the up volume plotted against the down volume. Here's the chart with some annotations of what the crowd was probably thinking at the various times of the day today:As you can see, the day started out with a very bearish reading. Lately, sell offs have been swift but short, as buying keeps coming into the market when it shows red. For that reason alone, short sales are quick momentum trades at best..unless there is something very stock specific going on (see daily charts of MON, PFE, MRK for examples).

Then around early afternoon, the up volume started catching up with the down volume...definitely better cover those shorts at this point. Then up volume overtook down volume and we're off to the races. This has been pretty typical lately, probably because there is a lot of scared trading on both ends. People are watching their stocks go up and are getting nervous, selling quickly when the market shows any signs of selling off and then those same people see buying come in and are afraid to miss the move higher. This makes for some excellent day trading (ride the tide and hop off quickly) and good swing trading (fade the extremes) as well. Check out the up volume vs. down volume if you get a chance...it can be very helpful for timing entries and exits.

TLT

My Trading Screens

I was asked recently about what I keep on my computer screens while trading and I thought that this would make a good post. These are the 3 screens that I keep up while day trading...I don't think this much is required all at once while trading in longer time frames (in fact, some day traders keep less than this on their screens while trading and would hate this much clutter). This is what works for me. It may change in the future, but I've kept this general setup for a little while now and have only changed minor things like changing my Up Volume v. Down Volume chart from lightspeed to thinkorswim, etc. (see below).

Screen Number 1: The Broker Software
As you can see above, this is my broker screen. This is all information that is provided by Light Speed Trading (my day trading broker). It is fully customizable and this is what I happen to be using right now. Some key points are the watchlists, the level 2 quotes in the lower left hand corner (which is where I also enter orders with hot keys), a 5 and 15 minute chart of whatever stock that I have pulled up in the level 2 box and a ticker alert in the top right hand corner (which wasn't working yesterday for some reason) that shows new highs and lows for stocks that I have entered into an alert list.

Screen Number 2: Trading ScreenThis screen is my actual trading screen. I use it to monitor the stocks that I'm trading or looking to trade. These charts are through thinkorswim's program...a very snazzy platform, especially for a retail program. I used to have eSignal, but the firm I trade with quit paying for it so I figured I'd try thinkorswim for a bit. So far its working pretty well. On the picture above, I have numbered my different chart windows and given a brief description or name for each chart. The most important thing about this screen is that charts 1-5 are linked, meaning that when a symbol is entered in one, it gets pulled up in all of the charts. I have these 5 charts setup to show me the multiple time frames that I use for trading.

A couple of other important things in this screen are the TICK chart, the VIX chart and the NYSE Advancers v. Decliners and the NYSE Advancing Volume v. Declining Volume. Then I've got two windows that I keep 15 minute charts of either ETFs (spy, qqqq, xlf, etc.) or sometimes I'll also keep a chart of a stock that I'm constantly watching (either to trade or to help manage my current trade). One last thing that I want to point out is that the 5 and 1 minute charts are small, the smallest on the screen. That's because I only use the 1 minute for exiting a piece of a trade and the five minute for pulling the trigger once there's a setup on the higher time frames. You can go crazy watching 5 and 1 minute charts for entries.

Screen Number 3: Futures and Forex Screen I keep this screen up at all times while trading. On it I have 15 minute charts of the ES futures contract (S&P emini), the NQ (Nasdaq 100) and the YM (the mini dow jones). I monitor these three markets to give me confirmation on break outs and just to keep an eye on the overall market. I also have down in the bottom left corner, a 15 minute chart of gold (YG). This is used the most when I'm trading a gold stock. Next to it is a 15 minute chart of the Eur/Usd pair as it's always good to know what this currency pair is doing. And finally, I keep the 30 year bond contract up in the bottom right hand. This isn't always up though, sometimes I'll put up oil or natural gas if I'm trading a stock that is involved with one of those commodities.

There you have it. Three screens that give me a lot of information with a quick glance.

Hope everyone is having a great week trading so far.

TLT

Wisdom Quote

"Who looks outside, dreams; who looks inside, awakes."

--Carl Jung

A Couple Things To Keep An Eye On

Here's a quick look at some of the good performers from today...maybe this will give us an idea of what to look at for potential trades for tomorrow and possibly the rest of the week. To begin with, here are the 3 ETFs with the highest Relative Strength Scores (a proprietary measure that weights recent price action to the S&P 500) with their corresponding Thermometer Temperatures (proprietary score that measures a stock/etf's ability to register higher highs and higher lows):As you can see, Semiconductors led the pack today (#1 out of 30), with Consumer Discretionary not far behind (#3 out of 30). Lets take a closer look at the Semiconductors. Here's the Market Thermometer Temperatures for the three individual stocks that I follow in that sector:Not surprising that they are very strong. So far we have established that the Semis were strong today, but how have they been trading lately. For that I look at what I call the cumulative temperature score. This takes the past 5 day's trading action and comes up with 2 scores: an average and a total. Here's where they stand: Out of the 30 stocks in 10 sectors that I track daily, only 9 of them managed to have thermometer scores above their 5 day average today...and all three of the semiconductor stocks turned out to be part of those 9 stocks. Furthermore, the 5 day totals are in the top 25% rank of the 30 stocks, this shows that the stocks have been bullish for several days, not just one. These are both very bullish signs.

So what does all this mean? It means to watch the semiconductors! I track and trade (in my personal account) these three (INTC, TXN, AMAT) and I also watch and trade (for the firm account) SNDK. I'll be looking for long trades in these as long as SMH continues to show strength.

What else is looking interesting right now? The quick answer is GE...and maybe industrials in general. To begin with, GE has a phenomenal Temperature score today..see below: Also, there was some interesting volume in the industrials today..GE included. Only 1/3 of the stocks that I track (10 out of 30) traded volume today that was above their 20 day average volume and all three industrials were in this group. This alone makes them worth watching...at least worth keeping an eye on GE for a potential day or swing trade.

This is the type of analysis that I do on a daily basis. I've admitted that I love spreadsheets and this is how I use them. Going through these exercises on a daily basis helps me keep on top of market action and it gives me trading ideas.

That's all I've got for now..hope everyone's having a great week so far.

TLT

My New Valentine

Valentine One that is. I've wanted one for a while and I finally bit the bullet and ordered a Valentine One Radar/Laser detector. I've heard great things about this model and this company in general and I'm looking forward to seeing how well it works.Recently I got a new car (new used car) that is quite a bit faster than what I'm used to so I figured this would be a great investment. With a price tag of roughly $400, this thing will pay for itself if it saves me from one speeding ticket. The Valentine One is supposed to be the best for early detection and it has a couple of cool features. For one, it tells you how many different signals it's picking up, like multiple cops, it tells you what type of radar is being picked up and it even informs you of the direction the signal is coming from (like front, behind, side). All very cool sounding features that seem practical and useful.

I must admit, I was out driving at speeds up to 115 mph within an hour of getting this yesterday..although I'm not recommending that to anyone...just wanted to open up my car a little and see how it does at those speeds.

One last thing about this detector and company that I like is that they provide a very informative booklet with the detector. The booklet does a great job of breaking down what radar is and is not and what the detector will and won't do. This box is not a magical device that saves you from all speeding tickets and this company does not present it in that manner. I like that and I think that the way this company provides a great and easy to follow booklet to teach what is practical and what is unrealistic lends the company credibility.

I'll post an update in a month or two to follow up with a review of the radar/laser detector.

It's been a crazy market..hope you guys have traded well (and I hope you've been watching/trading LVS..wow).

TLT

LVS: A Look at the End of Day Execution Chart

I traded LVS a little today. Wish that it was the only thing that I traded because I managed to rack up some losses early on but was fortunate enough to make them up and then some with LVS. This stock was an animal today...it just kept charging higher. One thing that I do on a daily basis is take screen shots of the execution charts for all the stocks that I traded that day. I have this setup through LightSpeed, the broker, with a 5m bar chart that shows all of the buy (green dots) and sell (red dots) for the day. My LVS chart for today is interesting. Reviewing these charts is helpful to me both on good and bad days.

As you can see from the chart, I made 5 trades in LVS today. I had more than 5 positions because I scaled into or out of some of the trades but I'll still consider this 5 total trades. Trade number one was a good start. It made money quickly and hit small profit target right off the bat. I usually book profits quickly when I trade within the first 15 minutes of the day because it's hard to get a feel for the market as a whole with such a short amount of time trading.

Trade number 2 was my big money maker. The reason that I found this execution chart interesting is because it really puts my trades in a good perspective in relation to the price action. I loaded up for this trade and I tried to hold as long as I could. It felt like a huge move that took forever, but it wasn't that big in relation to the rest of the day's action. Goes to show that one or two well managed trades that offer up a .30-.40 profit can make good money for a day trader.

This is what a good day's worth of trading one stock looks like for me. Sure I booked profits a little soon and I would have come out way ahead if I'd a just bought the open or the opening range break out and walked away or closed my eyes until the close, but this trading is what works for me. I can look at this chart and say that I should hold longer after the fact, but if today would not have offered up much follow through, these trades would look like solid gold. Obviously I'm still learning to gauge follow through but overall I'm happy with today's trades in LVS.

Hope everyone had a good Monday.

TLT

Trading To Know You're Alive

This is an excerpt from Picking Winners by Andrew Beyer. In this paragraph, Mr. Beyer is attempting to explain why someone would choose to be a professional horse handicapper and gambler. I'm sure he's reflected on this quite a bit because he dropped out of Harvard after nearly obtaining his undergraduate degree to pursue his passion of handicapping. Now that's a bold move to say the least. Here's the excerpt:

The capacity to enjoy: so few people have it. Most citizens live lives of such routine and drudgery and are so concerned about security that they cannot imagine how delicious uncertainty is. A gambler may have as many periods of pain and frustration as he does of exhilaration, but at least he knows he's alive.

I think most traders can relate to this. Please don't misunderstand, I'm not endorsing trading for the rush. Trading for the excitement and an adrenaline rush is a problem for many traders and I do not mean to imply anything positive about that problem. I think the above excerpt applies to the overall personality that most gamblers and traders have. You have to enjoy and thrive on uncertainty to make a living doing either.

I've talked to many traders who have been through many rough periods that make normal people wonder why someone would want to go through it. Their families wonder why they would suffer through months and months of losing to learn how to do something that may or may not work out. Many periods of pain, frustration and exhilaration, but at least traders know they're alive.

TLT

Not a Good Week of Trading..at least for me.

I was on a roll for about 3 weeks. We've all been there..the times when you don't have to take many losses because almost everything you touch goes your way. Well that finally ended for me and it ended this week. I traded 3 out of 4 days (was stuck in court all day Wednesday) and lost money on all three of those days. Fortunately I'm not down a whole lot, but it's still rough to have that kind of a losing week.

Times like this are when a trader has the opportunity to become a good trader or at least a better trader. Continuing to follow a plan, take trades, and stay confident that profits are on the way are the types of behaviors that set apart good traders from regular (loser) traders. As I was reviewing today's and this week's trades, I pulled up an hourly chart of the S&P Emini futures for the week. Upon looking at this chart I thought, "no wonder I got chopped up this week, the market has done nothing but chop around." I knew it had been choppy but it really sunk in when I looked at this chart. So what now? I continue to trade but note that I've been out of tune with the market lately and adjust my trading accordingly by booking profits sooner and trading smaller until profits pick back up. For the most part, my bread and butter trades are intra-day break outs. The best money makers are usually within the first 45 minutes of the trading day. On days or weeks when there is very little volume and follow though, break out trades either fail or they don't offer up as much profit. Although I recognized that it was a poor break out trading week, I failed to alter my trading to minimize my losses...I did cut back some but now that the weeks over I realize that I should have cut back much more. Recognizing these types of things through journaling, blogging, or record keeping is how we learn and grow.

Despite it not being a profitable week of trading, I feel like there was something to be learned and I'm taking advantage of that because that is all I can do. As traders we must strive to improve or else we have already lost.

Have a great Easter weekend!

TLT