SDS Trade Exit

The S&P short-term model did just reach oversold territory, triggering an exit for this SDS trade. The current price is 57.75 which will be the blog exit price, up nearly 4%.


Trade Action:

Exit the current SDS trade today with a market order, or ASAP next week with a market order.


Pete

SDS Update

There is a decent chance that the short-term model may become oversold today after the pronounced weakness so far. It will probably require some more downside, but that certainly could happen. If anyone is away for the afternoon, then I would put in a limit order of 58.00 to potentially sell SDS on further market weakness. However, I will post if/when the signal actually comes and use that price for the blog exit.

If not, then have a nice holiday weekend!


Pete

SDS Trade Update

Click on Chart to Enlarge

The chart above is a screenshot of the short-term models I use from Sentimentrader.com for blog trades. The left side is the S&P model with the heading STEM.MR MODEL. The right side is the Nasdaq model. Also underneath the models are the cumulative intraday TICK for the NYSE and Nasdaq respectively. The cumulative TICK is the sum of the closing TICK values of the last thirteen 30-min periods.

Notice that as price has pushed into modest new highs on those indices since our entry on Thursday, both the short-term models and the TICK data are not reaching new highs. This is setting up a bearish divergence. Divergences work in this model in a similar way to traditional technical analysis.

With the long-weekend coming up, I would guess that tomorrow will be a lackluster mover, so there will probably be no potential exit until next week. There were a few subtle but notable happenenings from a charting perspective the last couple days in regards to recent down gaps being filled, and the high of the possible left shoulder being exceeded intraday on the S&P. This was followed with selling to bring prices back down a bit from those levels.

To sum up, I don't see much underlying strength in this move at these levels, and I doubt there is much upside left in it before a significant pullback occurs.


Pete

Equity Put/Call Chart Update

Click on Chart to Enlarge

This is just a quick post showing that the equity p/c ratio averages that I have discussed and shown before have clearly turned up. This has been good confirmation in the past that a market correction is underway.

TICK Divergences

Click on Chart to Enlarge

The chart above is the TICK. I usually don't go into much detail on this, and there are several different ways I have seen to measure the TICK, to gauge whether it is confirming a trend or diverging. I am going to briefly present one simple way to look at it without having to get too complicated with spreadsheets, etc.

First off the TICK is a measurement of how many stocks traded on an uptick vs a downtick. I believe it is calculated every 6 seconds during the day. So if more stocks traded on upticks during those 6 seconds, then the TICK will be positive, and vice versa. Obviously, when stocks are trading largely on upticks relative to down, that would suggest buying interest, and vice versa. Since most trading these days is computerized "program trading", following the TICK will help you understand what direction these programs are going. For a day trader, they basically just want to go with the prevailing trend of the TICK on any given day. Short-term swing trading like I do for the blog, will want to go with the intermediate trend (10 or 20 day avg.) generally, but also may fade extremes moves away from the averages.

One thing I look for is whether some moving averages of the TICK make new highs when prices do, or if there is a waning TICK, creating a divergence. In the chart above each TICK bar is 30 minutes of trading. Then I have two moving averages which represent the 10 day average of TICK (blue) and the 1 day average (red). In order to spot divergences I typically just look at the red line (1 day avg) and see whether it makes a new high as prices do. I have two nice examples shown recently (with pink trendlines) where the TICK failed to make new highs as prices was moving to new highs. The prior one to today was June 11, which was the rally high thus far. Today there was a very similar TICK divergence, even though prices were up.

While it is yet to be seen whether this will lead to a decline, these type of divergences often lead to some degree of reversal in the following days. At any rate, you are able to objectively gauge that the program buying is less enthusiastic at this higher price than it was a day ago at a lower price. One component of the short-term model I use for the blog trades is a variation of TICK analysis. At times just an extremely high or low average TICK for the last trading day will provide a good time to go against the trend, but divergences after recent extremes are even more powerful in my experience - and that is what we are seeing right now.

So we are in the midst of a Holiday shortened week that is likely to experience low volume and we are also right in the window of the seasonal low in volatility. That may dampen any potential for big moves over the next few days, but it is hard for me to see the market marching much, if any, higher for the rest of the week. We'll see.

Possible Head and Shoulders Forming on Daily Chart

Click on Chart to Enlarge

I don't have a lot to say and may not for a couple weeks as far as the larger context of what is going on. I always try to give that context because it will help to give confidence when the short-term is set-up favorably with the longer term picture. Also, I assume most everybody is interested in the longer term market picture for investment purposes.

What I do feel pretty strongly about is that the market is unlikely to see new highs above this month's highs. This correction is taking too long and clearly has a different quality (less healthy) to it from a number of angles. However, I really don't know what to expect the next 2 weeks particularly. If a head and shoulders top on the daily chart is forming, then I would expect another decline followed by another tradable bounce up from the neckline area.

If that does occur I think it will be very difficult for most technical analysts to initially view the following/expected decline as part of a new leg down that will take the market to new lows. I assume that most will, yet again, be looking for a "retest" of the lows to form a larger head and shoulders bottom with the Nov and March lows. I would also have that in the back of my mind as a long-shot secondary scenario for the long-term picture.

From a short-term trading perspective, in times like these, when the market is trading in a range and the 20 day moving average is flat, I tend to be willing to take bullish or bearish trades on short-term extremes. As shown in the chart, if the main support at 88ish holds on the next oversold signal, that would probably be a good bullish opportunity. If/once that support is broken by a market close, I don't anticipate myself having any interest in bullish set-ups for a while. Unless the market tips its hand over the next few days, the blog posts the next couple weeks will probably be limited to entries and exits for existing or new trades.

On a separate note, I have created an options trading blog, but am unsure exactly what direction I want to go with it. I used to at times post trades that I was making on this blog, but I have tried to focus solely on equities, on only one methodology, and basically one time frame for the last year. I think that has been beneficial in a number of ways, so I don't want to digress. However, I do believe the next several months may be a great market period for directional options trading, and so I think this could be an exciting time to learn about or participate in the options market. I will probably require some feedback to decide on how to organize that blog, so I may post a poll with a few basic questions, but anyone interested may want to drop a comment with any thoughts.

Pete

Further BGZ/BGU Info

Here is a link to the Prospectus for the Direxion Funds.

Keep in mind the funds rebalance daily and are only really intended for day and short-term trading. The prospectus says they are not suitable or intended for long holding periods. The funds will perform poorly when the markets are range bound. The funds will be at their best in steady directional trends.

Pages 4 and 7 will be helpful to look at in understanding that increasing market volatility will hurt the long-term performance of both funds (BGU, BGZ).

Pages 58 and 59 explain a bit about taxes and distributions and says that the fund will announce ahead of time the div date. However, I couldn't find one posted anywhere as of now.

If anyone finds the dates or when it is made available I will place the dates on the blog so that it is easily visible for everyone. Similar for the Proshares funds (SSO, SDS, etc). Please comment if you know the div dates.

Pete