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Are We Going to Make New Highs?

5 Jul

Back in May we felt that all signs lead higher however we were just a bit early. Let’s take a closer look at the monthly, weekly, and daily charts of the S&P500 to see why 1431.50 is the new target.

Is the Market Headed for a Breakout?

21 Apr

The inverted head and shoulders that we talked about last week is fulfilling its end of the bargain, did you get long? Here is a look at the top line figures over the past few years. Notice that the NASDAQ and Russell are leading the way higher. This makes sense as a technology and small caps are where the most entrepreneurship and growth comes from as we work our way out of a recession.

S&P 500

Dow

NASDAQ

Russell

The VIX is about to rip, which way is it headed

The VIX is in store for a big move. Checkout the image below, it’s at the apex of a descending triangle. If we get a breakout in the market above this year’s highs watch for a confirming breakdown in the VIX.

Volatility Index

Buyers, Sellers vs. Bulls, Bears

31 Mar

You’ll notice the term buyers and sellers used in lieu of bulls and bears when talking about market moves. This is the correct way to relate to an up or down move in the market because we really have no idea whether it’s bulls or bears moving the market.

Allow me to explain…

  • John is bullish on the market, you could call him a bull, but he puts on a short position in the ES futures to hedge his long stock positions. At the end of the day John decides to cover his short position in the ES therefore he must BUY back the amount of contracts he shorted.
  • Sue is bullish on the market and get’s long ES futures at the open. At the end of the day she wants to exit her position and decides to sell. Sue SELLS her ES position to John who BUYS from Sue. John is a buyer, Sue is a seller, both have a bullish outlook on the market, but used the same vehicle in two different ways.

This is just one example, but the notion of buyers and sellers versus bullish and bearish bias in the markets can bee seen on many different levels and should be taken in account when looking at time and sales data. A green buy print on time and sales could be a bull putting on a new position long, or  a bear covering and buying back their short position.

Identifying Market Trends

14 Mar

When doing market trends analysis you are looking to identify not only the direction the market is moving, but whether or not it is moving in any direction at all. These are some things we look for when identifying the market trends.

Questions to ask when Identifying the Trend

  • Are we in a trend or counter trend on the monthly, weekly, and daily timeframes?
  • Are we in a trend day or choppy day on the 15-min?
  • Is volume on the 15-min chart constant or advancing/declining?
  • What is volume for the first 30-minutes of trading?
  • Are we within value?
  • Are we within the last 3 days high and lows?

Trend Day Characteristics and Setups

In a trend day the market will trade to a pivot, consolidates and move higher.

Wait for a break of a pivot level and trade in the direction of the trend break at a retest and 50% level.

Trends tend to reverse after 3 days.

After 6 or 7 days in a trend they tend to lose steam.

Choppy Day Characteristics and Setups

In a choppy day the market will move to a pivot and reverse.

Fade pivot levels at 50% levels once the market approaches them.

How to Tell if a Rally is Real

2 Feb

Needless to day, I am a bit skeptical to this last break of highs on the S&P500 why might you ask? Because of the VIX. The VIX is a measure of volatility in the markets, when volatility is high the VIX rises, when volatility is low, the VIX falls. As the old saying goes, “when the VIX is low, lookout below.” This is because we see the biggest crashes in the context of a bull market (low VIX) and the biggest rallies or short squeezes, in the context of a bear market (high VIX).

If we look at a chart of the VIX as compared to the S&P500, we see that the S&P made new highs, but the VIX has not come close to making new lows. If we cannot make new lows on the VIX, then this rally in the S&P will not hold.

SPX

How Do You Know When to Stop Trading for the Day?

28 Jan

We’ve all asked this question, so what’s the answer?

Should you stop when a specific $ amount is reached? When a specific # of points have been tallied? When you have 2 losers in a row? Well I can’t tell you what’s right for you, but I CAN tell you what I do. Over the years I have noticed that there are a handful of great days in the month and the rest are simply average. Therefore when I begin the day and I have a winner, followed by another winner, and setups continue to hit targets, I will continue to trade all the valid setups until one fails. This way, I take the most out of a highly technical day which may only happen 5 or 6 times in a month. When they come, mike them for all they’re worth!

Somethings to help…

  • Identify the type of day (trend or range bound) ASAP.
  • Determine if the setups are technical and providing reduced risk trades.

If both these criteria have been met and I continue to have winning trades late into the morning then I take advantage!

Options Expiry Week

17 Jan

Week 3 of 2011 kicks off remembering Martin Luther King Jr. We have a shortened week this week and options expiry on Friday along with some big earnings from AAPL on 1/18 and GOOG on 1/20. For those traders who play gaps, options expiry Friday is a day to skip. Trader’s who usually trade the first 30-mins, be extremely cautious on option’s X as market orders are higher than usual during this time. We’re expecting a fairly volatile week for intraday trading. With the VIX being so low, make sure to bring your armor.

Filing for ‘Trader Tax Status’

16 Jan

“In this world there is nothing that is certain except death and taxes” – Benjamin Franklin

The government provides it’s biggest tax breaks to business owners and investors. As a self-employed trader, there are many ways to limit your tax liability along contribute to retirement plans and deduct additional business expenses. I am not a licensed tax professional, so I refer all my trader friends and colleagues to Robert Green over at Green Trader Tax.

Green and his company are the leading CPAs in this niche and has a phenomenal book on the subject of taxes for traders appropriately titles, The Tax Guide for Traders. I highly recommend picking up a copy to educate yourself on the tax breaks that are out there for traders as most CPA’s do not fully understand these laws.