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

Eur/Usd: Heading to New Lows or a Double Bottom?

Here's the daily chart of the Eur/Usd:I'm long the dollar (actually UUP via call options) so I believe that the pair's heading lower and that there's still room to go. We'll see.

TLT

Quick Glance at the World

Here's a screen shot from a spread sheet that I've started keeping up with. It ranks 25 Country ETF's based on Relative Strength and then it also has a temperature score for each county (Temp. scores are based on a stocks ability to make higher highs and higher lows combined with where it's trading relative to its 52 week highs and lows). A couple things to note, Russia is the strongest today and it clocked in an impressive 91 temp. score...that's cookin! What I think is really interesting on this sheet is how all of the Asian countries are at the bottom...concerns over China maybe?..I don't know. I'll have to keep an eye on this.

I just started this spread sheet last weekend and am looking forward to watching the macro view of the world stock markets and seeing how this sheet helps keep me abreast of the global picture. I'll post an update on it soon.

Hope everyone's having a good week.

TLT

Trender Nailed the Short

What a crazy week. We saw history in the making on Thursday and now it will be interesting to see the effects of that sell off...attacking the algos etc. I haven't posted about my TLT Trender v2 in a while but I still follow it. Check out it's recent chart of the S&P 500:As you can see, the Trender nailed the exit on this one...sometimes it's a little early or late but every now and then it's spot on. So, obviously, short is the way to be for the time being but the big question is how much follow through will we see? Every sell short signal I've seen over the past year has been a very short momentum trade at best. One thing that I noted on the chart is that the Fisher Transform MA is still positive...until it gets negative, I am skeptical of the follow through to the downside.

We'll see, maybe Greece and Europe is a big enough catalyst to send the market down some more. As always, time and price action will tell.

TLT

Current Trade: Short MON via Puts

I've been short MON for about a week now. I purchased some Jun 10 puts with a $60.00 strike price. This position is up substantially in my swing trade account...although it hasn't broken the $60 barrier yet. Here's a chart:I'm not anticipating pulling the trigger and taking profits anytime soon with this trade (as in the next week or 2), but it is nice to see it going in the right direction. One scenario that could take place would be for the market to really sell off hard, harder than it is right now, and see MON tank down to $55. If this happens, which it could, I'll be ready to take profits quickly. This is probably the best trade that I have on right now. I still like gold but it's taking a little dip with the market...the dollar is probably the main driver affecting both of those.

Hope everyone's off to a good start this week.

TLT

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