Saturday, February 28, 2015

Low Volume in QQQ Suggests Rally Will Falter

Click on Chart to Enlarge

The chart above is the volume of QQQ with some moving averages and standard deviation bands.  The 8 day average of the volume is the lowest since August 2013, at which point it went very slightly lower.  The next lowest reading in between came at the beginning of Sept 2014 as stocks pushed towards the highs and then corrected sharply into October 2014.

In general waning volume on a rally is a bearish leading indicator meaning that it will occur in advance of a top in price.  So my interpretation here is that near multi year lows in volume as the other indexes are trying to make breakouts of the December highs (and in the NYSE highs back in July 2014), is probably not a good sign for bulls.

I have analyzed current Commitment of Traders data for the major stock indexes, and a major selling surge came in in mid December.  There is not the same level of extreme in selling currently.  That could be interpreted as a bearish divergence, but it also could be interpreted as the smart money just not being extreme, and so there may be room to move higher before they create another extreme selling effort.

Shorter term measures of the total put/call volume ratio and equity put/call volume ratio came towards the lower end of their recent range this past week.  And so in conjunction with market volume waning, it appears that some complacency is setting in for this rally.

Given stocks are at new all time highs, a trailing stop behind the market may be the way to proceed from here, but another possibility is to exit part of long positions at these levels, with the idea to consider rebuying on the next correction.

Pete

Thursday, February 26, 2015

Sell Signal For SPY Call Option

Yesterday my index option trading system registered a sell signal for the recent call option purchase.

The first sell signal does not tend to be right at a top of a leg up, but may often be right near the end of a directional portion of a move.  So I would suggest exiting at least part of a position at this signal.

The SPY option I purchased is currently up around 80%.  I have a market order to exit at the open today.

The hourly VIX chart is displaying what I consider a short term extreme configuration in the bollinger bands, and so a brief pullback here would be reasonable if not expected.

Sunday, February 15, 2015

CHK, OAS, SPY and The Possibility of New Highs for the Nasdaq

Just a quick note here on a few of the stocks/options that I have noted in recent weeks.

CHK and OAS report earnings 2/25/15 before the open.

The sentiment backdrop on CHK is showing considerable pessimism in that the near term put/call open interest is almost at an annual high and the short interest is at an annual high and has increased by almost 29 million shares since 12/1/14 at which time the closing price was similar to the current price level.  This seems like a scenario where the bearish backdrop could lead to considerable continued buying interest if prices push higher.  I am still holding an 18 strike April expiration call option on CHK with plans to hold through earnings.

On SPY where I had mentioned a call purchase on 1/28/15, price has moved to new all time highs.  There are bearish divergences present in several areas, but there are few extremes to suggest that the current move up is overdone.  When price moves to new highs in the stock market, often times price is able to advance steadily on low or declining volatility.  Given the apparent upside breakout of a large contracting triangle, it will be interesting to see if prices are able to sustain a major advance.


Click on Chart to Enlarge

The Nasdaq Composite is only about 5.5% away from a new all time high currently.  It seems likely to me that price will exceed that high before a major correction occurs.  An ideal scenario may be a rather directional move up from here to eclipse the tech bubble highs with a good bit of fanfare.  Then that may be followed by a correction, or at least a pullback several % below the highs to punish the breakout buyers.

Pete


Monday, February 9, 2015

NYSE Still in Stuck in a Contracting Triangle

Triangle in NYSE yet to break out
Click on Charts to Enlarge

I recently posted about the SPY being in a contracting triangle and ready to breakout, probably to the upside.  Well now SPY has broken to the upside of the triangle boundaries, but in very weak fashion with no follow through.  Price has now retraced back to the breakout point.

If you look at the broader index of the New York Stock Exchange composite, you can see that it is still within the bounds of a contracting triangle.  There are 3 touch points on either boundary, so from a charting standpoint this is very significant.  The price and time bounds have both been repeatedly respected.

As of the end of this week, we will be at the 50% mark of the time from beginning to apex of the boundary lines.  As we pass beyond that point, a breakout becomes more imminent.  With the size of this pattern, I would infer that the coming trend will be very significant.  The only question I really feel will be important is whether it will be a "clean" break, or whether there will be a brief false breakout and then reversal into the true new trend direction.  As price unfolds I think we should be able to catch whichever scenario occurs.

From an ideal Fibonacci perspective, the 0.618 time point from the high to the apex point will be at the end of the first week of March.  So maybe we see price continue to respect the boundaries for another several weeks and then breakout.  If so one could consider a straddle trade at the equivalent of 10,750 on the NYSE as we approach the 0.618 time division.  I would think that a June expiration or Q2 expiration would be sufficient to capture the lion's share of the probable move to follow in such a scenario.

Pete


Saturday, February 7, 2015

USO Oil Chart Analysis

Click on Chart to Enlarge

This chart is an hourly of USO which is showing a MACD indicator in the lower pane.

I have a retracement of the the recent thrust higher on the chart as well as a simple time cycle projecting forward multiples of the time the recent thrust higher took.

A few points of note:
  • The hourly MACD has not yet formed a bearish divergence with price on the rally.  This suggests to me that this rally robust short term move has not topped yet.
  • Since the high earlier in the week, price has traded sideways below the high, suggesting to me that a correction of the initial thrust is occurring.
  • As we move into next week, the time since the recent short term high will be greater than the time of the rally, increasing the possibility that the correction will complete and price will break higher.
I am also showing the b? possibly forming back toward the middle of the recent thrust, creating a more classic abc type look.  That is just an estimate of a typical "flat" type abc move in Elliott wave term, and may be a short term possibility.

Also for those that understand the concepts of overbalancing in price and time, note that the recent thrust off the lows in oil has created a larger move than any rally since the high in June 2014.   So, it appears logically that at least a correction of that decline is underway, if not a major bottom.

I have suggested recently that I think that oil may likely come down to test the lows or make a new low after this rally before bottoming for a longer time.  I still feel from comparisons to past oil bottoms and to the typical weekly MACD divergence present at major lows, that this could occur.  If so, I think next week would likely be the high for this thrust.  But, for now I am just closing tracking this hourly chart so that I can get a better gauge as to when this thrust is running out of steam.

Pete



Thursday, February 5, 2015

DDD Technical Analysis and Short Interest Analysis

DDD with heavy short interest
Click on Chart to Enlarge

This chart is a daily chart of DDD.  I bought a May 29 strike call on it yesterday.

The technical position of the stock is compelling for a rally here in my opinion.  Price has under cut a low from March 2013 (not visible on this chart) and reversed higher here.  Stochastics is showing a weekly and daily bullish divergence on the low Tuesday in conjunction with a very high volume gap down and under cut of the January lows only to reverse and close in the upper end of the range and above the January lows.  This has the appearance of a failed break of support which often provides a high quality long entry.

There is money flow index bullish divergence on the recent leg down, indicating that the downtrend is running out of steam.

The stock is heavily shorted with 33% of the float short as of 1/15/15.  The short interest ratio is 12.5 which is rather high and indicates plenty of short covering potential on a rally.  While I don't have detailed data on the underlying short squeeze trigger price, I am estimating that a rise to the $35-38 level will likely cause some short covering based on the short interest increase from October to December.

Another factor here is that earnings comes out 2/26/15 before the market opens.  Given the oversold technical position of the stock with bullish divergence, I would give better than even odds to a bullish response during this earnings period.

Pete


Tuesday, February 3, 2015

OAS Short Covering Underway......And Likely to See Further Gains?

In a recent post on OAS I talked at some length about the recent accumulation of a large amount of short interest in the stock and gave an estimate of the average price at which that new short interest may have been accumulated.  I estimated that the 15.00 level or 34 day simple moving average may be a short squeeze trigger price.  This is the theoretical point at which the short interest becomes a net loss.  Any further gains from there really create a forced buying to cover situation on the short position and can lead to significant price advances, often times in explosive fashion.

So here is an update on the current chart of OAS.

Click on Chart to Enlarge

Notice that as price moved to the blue 34 day moving average yesterday we saw a large price move occur, creating a 15% gain or so yesterday.  Then today we saw another 15% move or so.  So part of the equation is that oil has rallied as I have recently suggested would be the case.  But why has the range expanded so much in the last couple days, and why is it outpacing oil gains so much?  Well I think that the short interest has a lot to do with that.

Currently price is now right at the 12/23/14 high which from a charting basis is a likely buy stop point for shorts.  So it may be hard to gauge how rapidly the short interest is being covered, but I think it is logical to assume that there will be more short covering as price breaks through that 17.75 high.

The stock traded huge volume today, way higher than any day in the last 2 years.  I think that also adds evidence of frantic short covering.  How long will it last?  I don't know.  There were 16.9 million shares sold short as of the new year.  The total volume traded the last two days is 37 million shares.  So a significant amount of the potential covering may be done, but I think between new potential buying interest as oil turns up and OAS breaks through chart resistance, and some further short covering potential, this stock may have a good ways to go before it makes a significant high and pause in the buying pressure.

I currently have an order to sell the current option I have on it as the stock price approaches $25.  The option I have is February expiration, $15 strike.  So I am hoping for some more rapid follow through here and a fill of the gap down from Nov 28th prior to Feb 20th expiration.

I may not update further on this one unless someone has a position in it.  But I thought the educational value of the underlying dynamics was of value to follow on an intra trade basis here.


Pete