$HERO: Follow Up on a Winner

Back in December I posted about HERO and said that it was blasting off.  Here's a quick update on this play.  It has continued on its uptrend tear since the announcement of it taking over $HAWK, which now makes HERO the only shallow water driller in the Gulf of Mexico.  Although its in a major uptrend, HERO is a little overbought on both the Weekly and Daily time frames.  That means that it's most likely prudent to wait for a good pullback before entering a long position.  Here's an updated chart:

I'll continue to keep an eye on this one because I don't think it has fully played out.  Hope everyone is doing well.

TLT

A Look at Tomorrow's Trading: $AAPL and its Implied Range

Would it be nice to know the range for Apple's trading tomorrow?  It could be useful.  Here's a cool indicator that I coded and have been playing with quite a bit lately.  It's a band of the trading range for tomorrow that is derived from the implied volatility of Apple's options and I call it tomorrow's "implied range".  Here's a screen shot:

A crystal ball?  Not quite.  But it is a cool way to see which direction that tge market has a bias for.  I run these numbers for the entire S&P500 on a daily basis to see what tomorrow's implied range and what next month's implied range is for every stock.  I track these number in a spread sheet.  I'm still figuring out how to incorporate this into other aspects of my trading..it seems to have some good potential.

So, for what it's worth, the options market is predicting that $AAPL will trade down tomorrow.  Since Apple is a Leader in the market, this might drag down the entire market.  It might be nice to know how many stocks in the S&P500 the options market is predicting will trade higher or lower...that could provide a nice edge going into the trading day.

I hope everyone's ready for another great trading week.

TLT

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As someone was nice enough to point out...today is president's day so the markets are closed.  This range would be the implied range for the next trading day which is Tuesday.

Using a Correlation Indicator in Trading--Plus the TOS Script

I've recently been utilizing a correlation indicator with my intraday trading.  In particular, I like to use a correlation indicator with Think or Swim when trading the Eur/Usd...I like to follow the correlation of the Eur/Usd to the E-Mini futures contract (/es).  This can be beneficial when you like to use market internals while trading.  For instance, I'm always watching NYSE Advance/Declines, NYSE UpVolume vs. DownVolume, the TICK and the VIX.  These indicators are great for trading stocks but are sometimes useless when trading a currency pair or commodity.

The answer?  Watch a correlation chart of the pairs.  When the correlation is strong and rising, the market internals are more useful for trading the Eur/Usd and when the correlation is weak and falling, I know to ignore them.  Here's a chart:

So as you can see, the Blue Line is the actual correlation and the Blue and Purple histogram is the spread between the 20 period EMA of the Correlation and the Correlation.  The histogram helps with the determination of whether the correlation is growing stronger and weaker and the actual correlation line is helpful to know how correlated the securities are.  This type of strategy is helpful with currencies, but it can also be applied to all types of trading:  stocks, sectors, commodities, and futures of all sorts.  For instance, you can watch the correlation between the gold contract and Gold Corp (GG) when day trading GG.  Or the correlation between gold and equities in general could be helpful too.  Just food for thought. 

In case any of you out there like to dabble with Think or Swim scripts here's the code for this indicator.  It is just a modified version of the correlation indicator that comes stock with think or swim.  Here you go:

 ######################################
declare lower;

input length = 50;
input correlationWithSecurity = "/ES";
input MAPeriod = 20;

def Correlation = correlation(close, close(correlationWithSecurity), length);

def correlationavg = ExpAverage(correlation, MAPeriod);

plot data = Correlation - correlationavg;

plot data2 = correlation;

data2.setdefaultColor(color.blue);

def data3 = 0;


data.SetPaintingStrategy(paintingstrategy.histogram);

data.assignvaluecolor(if data>0 then getcolor(1) else getcolor(0));

addcloud(data2, data3, getcolor(1), getcolor(0));
###################################################

Hope all is well with everyone!

TLT

A Glimpse at the TLT Trender v3

Haven't posted in a while, I've just been really busy with work and life in general.  All though I haven't posted much, I have still been very active in the markets.  Also, I've been working on the next generation of my trend following system--The TLT Trender, which is now on its third version.  This version is taking a little while, mainly because I've been coding it myself and I've been coding it for Think or Swim, as opposed to MetaTrader 4 on the last version.  Here's a screen shot of what it looks like right now: 

As you can see from the chart above, the bars on the chart change color based on the current signal.  The bars are changing color based on the reading of the Thermo Adaptive indicator down in the second indicator window.  The Thermo Adaptive indicator is the heart of the system and the ATR Average Compare indicator in the third window acts as a confirmation of trend (2 is a strong uptrend, 1 is weak uptrend, 0 is neutral, -1 is weak down trend and -2 is a strong downtrend). 

The Thermo indicator is based on the previous thermometer that I've posted on before.  Although it is similar, this version is much different and far more sophisticated.  This indicator constantly tracks a stock's ability to make higher highs and higher lows and trade around significant levels (like 52 week highs or 20 day highs) and then the indicator tracks current prices verses different averages of these thermo readings.  The different averages are actually adaptive averages (hence Thermo Adaptive) and they will tighten up when trending and loosen up when price action is choppy and inefficient.

I'll post more about these new versions of my indicators soon and maybe post some of the code for other Think or Swimmers out there.  One neat way that I've recently (like a week ago) began implementing this indicator is by taking current readings of every stock in the S&P 500 on three different time frames on a daily basis.  This is allowing me to track the trends in different sectors on different time frames to get a feel for the orderflow in the market.  It's still early and there's much more work to be done.  I'll post more soon.

TLT

Kaboom!..Look at MRO

I've been liking MRO for a month now, and this morning it exploded.  Great fundamentals with an excellent technical pattern.  I haven't had a chance to read the details on the split up that was announced this morning, but I'd be willing to bet that there's still some value left in this one.  Check out today's volume:

Keep an eye on this one.

TLT

C.O.T. Spells Continued Trouble for the Euro

The Commitment of Traders Report is not the tell all "perfect indicator" but it is something to keep an eye on and use as part of the mix in your analysis.  It gives you an inside look into what the big boys are doing and right now it spells trouble for the Eur/Usd.  Here's the daily chart with the C.O.T.:

If you're interested in using the C.O.T. here is an excellent website that you should check out.  So, as much as I want to fade the move in the Euro because I believe that it will trade higher, the trend, the recent break of resistance and the C.O.T. readings all say that buying the Euro right now is a very bad idea.  That means I will fade my subjective feelings and follow the charts and the objective factors listed above. 

TLT

Is $ATPG on Your Radar?

If it's not already on your watch list, you should add this one.  $ATPG has been a powerful play and it's picking up momentum.  I believe there's still room for this stock to run as it is slowly trending higher, as opposed to a parabolic rise (i.e. HERO, MPET, GEOI).  I know some value guys that were scooping this up in the sub $10 levels and most of them are still holding and buying on dips.  I've been waiting for the signal to get in and will likely hop on this trend with the next significant pull back.  Here's the chart:

As you can see, the weekly chart has been consistently heading higher and with the political mess surrounding drillers like ATP, there's likely going to be explosive up moves with any news that is percieved to be favorable.

It is important to have a good watch list of some potential energy and commodity stocks that you can follow on a daily and weekly basis.  Mine consists of:  HAWK, ATPG, GEOI, MXE, HERO, , CWEI, MRO, XOM, SLB, EP, ABX, NEM, FCX...and a few others.  Over the past couple of weeks, we have seen the dollar strengthen quite a bit which is significant.  Why?  Because stocks are slightly overbought in general, commodities have risen quickly, especially coal, aluminum, gold and silver and longer term treasuries have fallen substantially.  This sets the stage for a pullback in general but with the Eur/Usd falling below 1.2950, market participants will likely cut their exposure to risk and commodities, bonds and stocks will react to this.

I don't believe that it will be a huge reversal and will likely be a healthy pullback that will be percieved as a good buying opportunity.  That's just my opinion and if some substantial global macro shift occures (like the EU splitting up) then all of this is null and void and I'll have to adjust my analysis.  But without a substantial event like a sovereign default, a wave a municipal defaults, or some horrendous economic data any dip will likely just be a dip.  That's why having the watchlist of good pre-planned trade candidates is so important.  When everyone else is panicking, you can go in a sweep up ATPG at a good price that allows for a lower risk entry. 

Time and price action will tell.  Hope everyone's having a great start to the new year!

TLT

Excellent Excerpt

Here is an excellent excerpt from a book that I'm currently reading.  It's amazing to think that in 1991, Ed Thorp called it, saying that Madoff had to be a fraud.

He [Ed Thorp] also worked as a consultant for pension funds and endowments.  In 1991, a company asked Thorp to look over its investment portfolio.  As he combed through the various holdings, he noticed one particular investment vehicle that had produced stunning returns throughout the 1980s.  Every single year, it put up returns of 20 percent or more, far outpacing anything Thorp had ever seen--even Princeton/Newport [Thorp's hedgefund].  Intrigued, and a bit dubious, he delved further into the fund's strategies, requesting documents that listed its trading activities.  The fund, based in New York's famed Lipstick Building on Third Avenue, supposedly traded stock options on a rapid-fire basis, benefiting from a secret formula that allowed it to buy low and sell high...

It took Thorp about a day to realize the fund was a fraud. ... He told the firm that made the investment to pull its money out of the fund, which was called Bernard L. Madoff Investment Securities.

 

The above excerpt is from The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It  by Scott Patterson.

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