QLD opened at 74.30 today and that is the price I will use to track this trade. As mentioned before, I would definitely place a stop loss order on this trade around 71.00 and even up to 72.00ish because I don't think that we have seen a bottom that will hold for weeks. There is potential for further sharp declines.
Pete
Monday, June 30, 2008
Friday, June 27, 2008
QLD Trade, SRS Update
In my last post I mentioned that there were signs of a potential short term bottom in place. More of those signs came on Friday, at least as far as I am concerned. While I also mentioned that I didn't plan to recommend many bullish trades in this downtrend, I think now may be a good opportunity to get a bit aggressive. I have ignored the last 3 or 4 oversold readings in the short term indicator, but this one looks better.
Both NYSE and Nasdaq had very heavy volume today. Volume was heavier in the Nasdaq than at the March bottom and only a bit lower than a few days in January and last August which were very high fear sell offs. Also the volume on DXD, which is the 2X inverse fund of the Dow/DIA, spiked to its highest level since the inception of the fund. I believe these are indications of a short term climax bottom.
The Nasdaq and QQQQ ETF nearly completely filled a large open gap up from April that I had mentioned a couple months back. Then price reversed intraday to close near the open to form a hammer/doji candle stick. These three factors (gap retracement, high volume, reversal candle) create what I think is a good bullish set-up.
I suggest purchasing QLD on Monday at a limit price of 75.50. While I haven't suggested specific stops on past trades I would definitely place one on this trade. 71.00 may be a good stop level that could allow a little more downside but keeps the risk within reason.
Also, move the stop on SRS up to 92.00.
Pete
Both NYSE and Nasdaq had very heavy volume today. Volume was heavier in the Nasdaq than at the March bottom and only a bit lower than a few days in January and last August which were very high fear sell offs. Also the volume on DXD, which is the 2X inverse fund of the Dow/DIA, spiked to its highest level since the inception of the fund. I believe these are indications of a short term climax bottom.
The Nasdaq and QQQQ ETF nearly completely filled a large open gap up from April that I had mentioned a couple months back. Then price reversed intraday to close near the open to form a hammer/doji candle stick. These three factors (gap retracement, high volume, reversal candle) create what I think is a good bullish set-up.
I suggest purchasing QLD on Monday at a limit price of 75.50. While I haven't suggested specific stops on past trades I would definitely place one on this trade. 71.00 may be a good stop level that could allow a little more downside but keeps the risk within reason.
Also, move the stop on SRS up to 92.00.
Pete
Thursday, June 26, 2008
It's Scary That Traders Aren't More Scared (also SRS update)
As the Dow is making new lows below the January lows, it is tempting to start looking for a market bottom. I find one of the simplest and most reliable tools to gauge whether the market is bottoming is a moving average of the equity or total put/call ratio. I like to look at both 5 and 20 day averages and then look for crossovers of the averages after they get to historically extreme points. I also like to see the data in relation to standard deviation bands as that will help to locate relative extremes. In my estimation, we are a ways off before those get extreme enough to call a bottom.
Also, I am not an expert on the VIX but I am astounded that the Dow was able to forcefully break its January low, and the VIX is not even close to a relative extreme. I don't think there is enough fear in this measure to anticipate a bottom yet.
On another hand, it is helpful to look at volume on the indices and ETFs to help see the activity at recent market bottoms. One thing that struck me was that the volume on DXD which is the 2X inverse ETF of the Dow was very high.....higher than March, but not quite as high as January or last August. Volume will swell near market bottoms on an ETF like this because people are scared and are hedging other holdings or are trying to speculate on more downside. Based off the surge today, I think it is possible that we are very close to the completion of a first wave down in a much larger decline. So maybe we will get a couple weeks of relief, but I wouldn't bet on a multi month bounce from here.
The short-term model is oversold now, but I don't plan to suggest bullish plays when the market is in a clear down trend. I will be very selective on those.
As an aside move the stop on SRS up 90.81.
Pete
Also, I am not an expert on the VIX but I am astounded that the Dow was able to forcefully break its January low, and the VIX is not even close to a relative extreme. I don't think there is enough fear in this measure to anticipate a bottom yet.
On another hand, it is helpful to look at volume on the indices and ETFs to help see the activity at recent market bottoms. One thing that struck me was that the volume on DXD which is the 2X inverse ETF of the Dow was very high.....higher than March, but not quite as high as January or last August. Volume will swell near market bottoms on an ETF like this because people are scared and are hedging other holdings or are trying to speculate on more downside. Based off the surge today, I think it is possible that we are very close to the completion of a first wave down in a much larger decline. So maybe we will get a couple weeks of relief, but I wouldn't bet on a multi month bounce from here.
The short-term model is oversold now, but I don't plan to suggest bullish plays when the market is in a clear down trend. I will be very selective on those.
As an aside move the stop on SRS up 90.81.
Pete
Wednesday, June 25, 2008
Sugar, Corn, Ethanol, and Other Stuff Too
Anybody following the grain markets (or buying boxes of cereal) knows that prices are up. Why? and how do you take advantage?
I am not a fundamental expert, but I can rehearse to you some of the underlying supply and demand factors.
CORN (yellow didn't show well so I used blue font, because there is also blue corn)
There is relatively new legislation forcing our country to use more ethanol in fuel. This demand has been met mostly by using corn starches to make the ethanol. This has driven up corn prices for a while.
SUGAR (this is the color of sugar in the raw)
Sugar is probably the most efficient and least socially harmful way to create ethanol, though this has not been used as much. I suspect with the effects of world hunger from less corn for food, and with the increasing price of corn, there will be increased demand for sugar in coming months/years.
I have tried to take advantage of both these markets though I do not trade commodities. For a person who does not trade commodities, you depend on companies with exposure to the underlying market or to ETF's that track commodities.
DBA is an ETF that tracks corn, wheat, soy beans, and sugar. I have options on this ETF which expire in October. IPSU and CZZ are companies that produce and refine sugar. I have options on IPSU which expire in October. I feel that those securities will give a person a chance to benefit from these trends. I think both could have a ways to go before saying they are too high to purchase and still expect good gains.
If anybody wants further analysis of these markets or trading/investing ideas, please post a comment/question.
Pete
I am not a fundamental expert, but I can rehearse to you some of the underlying supply and demand factors.
CORN (yellow didn't show well so I used blue font, because there is also blue corn)
There is relatively new legislation forcing our country to use more ethanol in fuel. This demand has been met mostly by using corn starches to make the ethanol. This has driven up corn prices for a while.
SUGAR (this is the color of sugar in the raw)
Sugar is probably the most efficient and least socially harmful way to create ethanol, though this has not been used as much. I suspect with the effects of world hunger from less corn for food, and with the increasing price of corn, there will be increased demand for sugar in coming months/years.
I have tried to take advantage of both these markets though I do not trade commodities. For a person who does not trade commodities, you depend on companies with exposure to the underlying market or to ETF's that track commodities.
DBA is an ETF that tracks corn, wheat, soy beans, and sugar. I have options on this ETF which expire in October. IPSU and CZZ are companies that produce and refine sugar. I have options on IPSU which expire in October. I feel that those securities will give a person a chance to benefit from these trends. I think both could have a ways to go before saying they are too high to purchase and still expect good gains.
If anybody wants further analysis of these markets or trading/investing ideas, please post a comment/question.
Pete
Monday, June 23, 2008
SRS update, GLD Puts, OSG exit
Move the stop up to 86.69 on SRS. The real estate stocks are getting hit pretty hard, so this inverse ETF is off to a good start. I will continue to provide updated stop loss points.
I bought July 87 puts for 2.25 on GLD and will track this trade on the blog.
I exited the July 85 OSG puts for 3.50 which is 50% loss. The trade got profitable quickly, but then made a recent sharp rally to the stop loss point on entry. One strategy on a profitable trade is to put a breakeven stop loss after some predetermined % gain. I probably don't do this often enough, but it is always easy in retrospect to say that when a winner turns to a loser. But if you get stopped out in a sharp flucuation before the stock goes your way again, you don't look as smart.
Pete
I bought July 87 puts for 2.25 on GLD and will track this trade on the blog.
I exited the July 85 OSG puts for 3.50 which is 50% loss. The trade got profitable quickly, but then made a recent sharp rally to the stop loss point on entry. One strategy on a profitable trade is to put a breakeven stop loss after some predetermined % gain. I probably don't do this often enough, but it is always easy in retrospect to say that when a winner turns to a loser. But if you get stopped out in a sharp flucuation before the stock goes your way again, you don't look as smart.
Pete
Sunday, June 22, 2008
A Golden Triangle
Gold appears to be forming a triangle pattern before another leg down. It looks to me like the triangle is complete or extremely close to it. I will be purchasing some put options on GLD which is an ETF that tracks gold and has recently become optionable. From looking at the time length of the downward moves in the triangle as well as the time of the first leg down off the March high, I would anticipate a move lasting about 3 weeks and moving down to the 78-80 dollar range. I have included a link to a chart in the next post.
If gold is declining, does that have implications that the inflationary period of rising commodity prices and expanding credit (currency devaluation) is ending?
Pete
If gold is declining, does that have implications that the inflationary period of rising commodity prices and expanding credit (currency devaluation) is ending?
Pete
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