QLD Exit (Stopped Out)

Today QLD went below 77.00 which is what I suggested as a stop loss. That is up from 72.88 on 7/23/08 for a 5.65% gain. The SSO short-term trade is still open. If tomorrow is an up day, then it may be close to overbought and ready to exit.

Pete

10 Day Put/Call Ratio Average and Updates

First, the SSO trade and the QLD trade are still active. SSO tested last weeks lows but did not close beneath them. The short-term model is still very near oversold.

I would take any short-term long side trading with caution. The 10 day equity put/call ratio is at an extended low point relative to statistical averages in recent months. This indicates too much complacency. This is one of the simplest and best contrary indicators in my book. Sentimentrader.com plots 5, 10, and 21 day moving averages and standard deviation bands on the same chart. I like that methodology because it will account for longer term trending in the data to highlight relative extremes. I used to just create my own charts on Excel and look for both absolute extremes in the data, and also look for crossovers of the 5 and 21 day averages to indicate intermediate trend change. The short of it is, that this indicator is sending a warning, and the break of the rising wedge pattern off the July lows is another warning that upside potential may be limited. Also, Investor's Business Daily notes several distribution days in the Dow since the recent follow-through. Historically those are not the most successful rallies.

Also, the DMI indicator is used to track trending versus non trending price action. It has not signaled a new uptrend during this rally yet. That indicates to me that this is just counter-trend corrective activity before the next declining phase.

A number of Dow 30 stocks are showing patterns that I would short or buy puts on. Two that look very good are DIS and DD. I would expect the July lows to be broken to the downside.

Pete

What I'm Watching in the S&P 500

Click on the Chart to Enlarge

I'm sure there are many other people looking at the trend line of the August lows as an important support line. If that line gets broken, my particular view would be bearish. Multiple overlapping highs and lows like we are seeing off the July lows is not typical of a strong market that is reversing trend.

Looking forward, I would suggest exiting the SSO trade if it closes below last weeks lows. However, I will still use the short-term model to track the exit price.

Pete

SSO trade entry

SSO opened at 61.66 on Wednesday and that is the entry price I will use for tracking this trade.

Pete

Update and New SSO Trade

I wanted to update the QLD trade entered on July 23rd. That trade is still active and doing great. However, I see some signs that the trend may be ready to shift. Move the stop loss order up to 77.00. 72.88 was the entry price, so that is still good profit. Also, I am going to suggest using a limit order to exit this trade at a price of 85.00. So if the market continues to rise the next day or so, I would get out by 85.00.

There is an unfilled downside breakaway type gap around that level. In fact, I'm sure most people wouldn't notice it on the chart because there is no visible gap, but it is there and is unfilled. I would suspect some downside reaction if/after that gap is filled. I would look to enter an inverse ETF at that point, probably QID.

That being said, the short-term model on the S&P is oversold. So I recommend entering SSO tomorrow at the open, but I will be much more cautious about long trades after that.

Pete

Exit GLD options for 278% Gain

The current price of GLD is a little above 84.00 which was may target price for exiting this trade. The 93 put option I suggested is currently at 8.50 up from 2.25 at entry for 278% gain!!!

I am suggesting an exit now, if there has not been an exit yet. So this is the price I will use to calculate the return on the trade.

Pete

QQQQ Update

Click Chart to Enlarge

Click Chart to Enlarge

Today the short-term model became overbought. It is tempting to suggest an inverse ETF at this juncture, but there are a couple reasons that am not going to.

1) There has been a recent follow-through day indicating uptrending market until proven otherwise

2) Breakout of tight trading range to close above Bollinger Bands

3) Bullish cross on Aroon indicator indicating trend shifting to up


As side notes, I believe that FRO is offering another entry opportunity today after a low volume advance. That would be good for 60 or 55 put options.

Also, I have a couple different strike priced put options on GLD that expire in August. Both are up about 100% or a little less. I have limit orders to sell if price gets to 84.00 on GLD.

Despite the herd mentality to once again look at the pullback in commodities as a buying opportunity around the 200 day MA, I think it is more likely to fail. In my eyes there has been a clear shift in the severity and pattern of price action.

Pete