Tradesight Market Outlook 11/24/10
The SP lost 20 handles on the day, mostly from the news driven gap. The previous fair value area of 1198 has left an island pattern and trapped the buyers from that level. Key support remains at 1170(50dma).
Naz was lower by 35, closing right at the 3 day low. Naz has a stronger pattern than the SP because it doesn’t have the island condition. The common piece in the construction is the large gap open below.
Multi sector daily chart shows the persistent weakness in the banks:
The Dow/Gold ratio is getting back near range low on the chart which illustrates the preference of gold over large cap stocks. A break to new lows in the ratio would be very bearish for stocks. In a secular bear market the ratio usually gives readings well below 5.
The 10-day Trin has recorded an oversold reading exceeding 1.35. The broad market is now oversold enough to support a multi day advance if it so chooses.
The SOX was the strongest sector but merely posted and inside day. Nothing new technically but there was notable relative strength on a weak day.
The XAU was also relatively strong vs. the broad market, posting an inside day.
The BKX recorded its 9th day down. Downside before some order of bounce or consolidation is not likely.
The OSX was the weakest sector losing a full 2%. A cup and handle is still in play unless 215 is lost.
Oil continues to have key support at 80.
Gold was the strongest asset class bucking the dollar strength.
COT 11-19-10
Hi Traders,
What an awesome weekend here in Tampa Bay. I mean, the weather couldn't be any better! 80-degrees, sunny, low humidity... geez, it's no wonder this place will be packed with out-of-state license plates next week and what normally is a 20-minute drive will take 40. Oh well. I'm not complaining. Bring it on!
Okay... the COT.
The euro and pound have come off of their extremes between the commercials and specs. And, you might have noticed both EUR-USD and GBP-USD moving south. This is because the specs are selling and commercial are buying; based on past discussions, this shouldn't have been a surprise. We're seeing the same thing with the yen, silver and gold.
The looney (Canadian dollar) and Aussie dollar are off of their extremes after beating the tar out of USD. While NZD is still at extremes, which presages a turn-around. Interestingly, the US Dollar index is sort of in a knot; but, the dollar is gaining some strength which is clearly seen in EUR-USD. Is a dollar rally coming? Maybe. Based on the current price action, it appears this is the case. We need to hold on and pay close attention, especially swing and position traders. Intra-day, there have been and I believe there will continue to be good trade setups, regardless of whether a longer-term rally materializes, or not.
View this week's COT charts here.
Be very well!
Clay
Tradesight Market Outlook for 11/22/10
The SP recouped some very large midday losses to settle for the third day at almost the same level. 1198 has been the recent draw and will be a very important level when the range is resolved. If price moves higher this will be an important support area and if price declines 1198 will be formidable resistance. Note that the MACD is negative but has not touched the zero line which could be important unfinished business.
Naz was bifurcated from the broad market. Monday the Naz gained 21, which was a 5 day high, while the SP could only mange to close even. Price remains above the April highs and could easily challenge the YTD high. The notable flaw with the current construction is the open gap around 2100.
Energy names dominate the daily relative performance chart while the financials continue to lag:
The 10-day Trin has yet to record an oversold reading of 1.35+ but has recharged and worked off the September overbought reading.
The XAU was top gun +1%. The trend remains positive above all 3 moving averages. Note that all 3 of the moving averages are pointing higher.
The SOX was the top Naz sector and is very close to recording a new high close on the move. The pattern is 3 days up into prior resistance so a measuring day Tuesday could be in the cards.
The OSX would provide excellent leadership if it can break through the current double top. As noted in previous reports, the chart may want to take some time and trace out some kind of handle here.
The financials were the laggards today. The BKX lost 1.5% settling near the low of the quarter. The pattern is 8 days down and should want to either pause or bounce.
Is gold making a head and shoulders top?
Oil was lower, settling in the previous comfort zone.
Forex Calls Recap for 11/22/10
The streak continues, and November is now officially a great trading month for us. Two new winners, very clean, to start the short week. See GBPUSD below in particular. Most pairs exceeded average daily range, which is good.
Here's EURUSD:
USDJPY:
GBPUSD:
Triggered long nicely at A, hit first target at B, stopped second half under Pivot at C unless you were awake to adjust (I wasn't). Triggered short at D, hit first target at E, still holding second half with a stop over LBreak red line:
AUDUSD:
Check out the clean Value Area play (from top light blue line to lower one):
GBPJPY:
Value Area worked here as well:
EURJPY:
And another Value Area that worked:
Stock Recap 11/19/10
With each stock’s recap, we will include a (with market support) or (without market support) tag, designating whether the trade triggered with or without market directional support at the time. Anything in the first five minutes will be considered WITHOUT market support because market direction cannot be determined that early.
ESRX triggered long (with market support) and worked fine:
MXIM triggered long (with market support) and worked:
OVTI triggered long (with market support) and worked:
In the Messenger, Rich's BIDU triggered short (with market support) and didn't really work:
His FCX, however, triggered long (with market support) and worked great:
GOOG triggered short (without market support) and worked:
Rich's CRM triggered long (with market support) and worked:
His NTAP triggered late in the day without market support and only went a dime, so it's a wash, no harm, no good.
In total, that's six triggers with market support, and five worked. Several worked really nice. Very good for options expiration.
A Lesson in Options Unraveling
Most traders are aware of the process known as "options expiration." It occurs on the third Friday of the month. All puts and calls on stocks expire, and at the close, either you sell the contracts if they have value, or they expire worthless, or you end up long or short the stock for Monday. A LOT of money trades in options and it is a big factor in market movement.
What many people aren't aware of is the process known as "options unraveling." However, options expiration is usually a bust, meaning that the Friday of expiration is usually fairly flat from a trading perspective. On the other hand, options unraveling is typically fun to trade.
Over the years, I have refined the definition of options unraveling for our Tradesight subscribers. Basically, it is the process by which traders exit their options positions in the days AHEAD of options expiration before the get stuck close to their strike prices with the largest open interest. In other words, the big money is smart enough to get out of options before they expire and roll their funds to the next month's contracts. And the dirty little secret is that they typically do this collectively.
The average trading day in the stock market looks pretty much the same. You have the most volume in the first 90 minutes and then sometimes you get a pick up in activity for the last 90 or 120 minutes of the day. Everything in between tends to be lighter volume and more risky, and movement is less likely. Professional daytraders trade the opening 90 and the closing 90 mostly. They want the volume and the action.
When the big options traders want to exit their options positions, it takes the better part of a day, and they typically do it AFTER the first 60-90 minutes of the day to get the daytrader volatility out of the way first. So, this is what you typically see for unraveling:
1) It happens most commonly on the Wednesday of options expiration week, but it can also happen on Thursday or even Tuesday.
2) Market volume will continue to be strong AFTER the first 60-90 minutes of the day as options are unwound.
3) The market will pick a direction after the first 60 minutes and move in that direction through the close, meaning the chance of coming back is light.
4) Once unraveling occurs, the energy has been taken out of the market until options expire on Friday.
So this week was options expiration, and we had a classic options unraveling experience. Here's the 10 minute ES chart of the week:
So Monday was a decent trading day, with range and movement in both directions. Tuesday morning, we gapped down and the first hour (in the square) was flat. Note that after the first hour, volume held up (in fact, unlike other days in the week, the heaviest volume bar is not in the first hour) and the market headed lower, making a decent move down. We had several great shorts work for us. That is clearly an options unraveling move.
Then have a look at the rest of the week. The market moved up in the first hour Wednesday (when the daytraders play); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES but look how flat the rest of the day was.
Then Thursday, we got a big gap up and moved higher in the opening hour. Then look how flat it went again!
With the big options players already out through expiration, there's no energy left in the market. Overall volume was light Wednesday and Thursday.
And that takes us to today, Friday, options expiration. The volume is heavier because options are being converted and sold, but it doesn't create movement. It's a wash. And it will all be over after today. Stocks are glued to their strike prices with the biggest open interest, but the story of the market this week happened on Tuesday, and it virtually guaranteed that Wednesday and Thursday would be flat beyond the first hour.
It's a very useful set of information for a trader to have, and the reality is that most have no idea that this occurs.
Forex Calls Recap for 11/18/10
Back to decent ranges, and we had some great technical activity. I've reviewed several of the pairs below, including our call that worked in the GBPUSD. New calls tonight and Chat, but it could be a little light due to options expiration and Friday.
EURUSD:
Notice the use of the VWAP with the R1 retest around 1 am my time on the chart. There was also a Seeker 9 bar box completion right there to the downside, and the resulting bounce topped out exactly at the upward box completion:
USDJPY:
Not much here to discuss, spiked through the Value Area on US news:
GBPUSD:
Classic trade here. Our call yesterday evening was to go long over the R1 level, hit R2 as a first target. It came up perfectly and addressed the R1 level at A, triggered at B, hit first target at C, and we raised our stop and stopped out at D for a 45 pip or so total winner. Also, it later extended up to E, which was exactly the Average Daily Range move. All very technical behavior:
USDCAD:
AUDUSD:
NZDUSD:
Note the perfect use of VWAP and R2:
GBPJPY:
EURJPY:
One thing we see with the VWAP is that if you get some movement early so that the VWAP is heading up or down and then bounce off of the VWAP, if the next move takes out the high or low, you usually get a run, and you did exactly that here between midnight and 1 am:
Next week, we will have Levels and calls Sunday, Monday, and Tuesday nights only.
Market Index Preview for 11/18/10
The SP posted an inside “measuring” day. This is very typical action following an impulsive move such as the prior candle. Just like 2 days ago, the pattern has energy stored in the pattern and can move forcefully when the range is resolved.
Naz also posted an inside day which has the same implications as the pattern in the SP. The static trend line (red) and then the April highs are the nearby support levels.
Below is the very long term monthly chart of the NDX100. There is a very key area just overhead. This is both resistance and a major breakout level. Set an alarm for 2239.
The financials remain very weak vs. the other major sectors.
The OSX was top gun up 3 on the day. If things play out the pattern could be setting up a cup and handle.
The XAU was little changed, posting an inside candle. The GDX etf closed at $58 which could be the strike peg for expiration and trap price.
The SOX used yesterday’s low for support. Set an alarm for a break under 372.25 which would be a bearish continuation.
The computer hardware index, the HWI, settled below the 50dma. With the SOX weak, this needs to be watched closely.
The BKX was the last laggard. Price is back below both the 50 and 200dmas likely just basing.
Oil suffered further liquidations. 80 was the low of the prior trading range so look for support there.
Gold did very little but notably outperformed most other commodities (cotton was limit down). Keep an eye on the key support around 1320 (static trend line).
Stock Picks Recaps 11/17/10
An amazingly dull day after Tuesday's excitement, which leads me to believe that we did, in fact, see options unraveling on Tuesday. Hard to see how else the market goes from 2.2 billion NASDAQ shares to 1.7 billion in a day with CPI and options expiration due.
ES with Tradesight Levels:
NQ with Tradesight Levels:
ZN (10-year Treasury Note) with Tradesight Levels:
ES with Tradesight Market Directional Tool:
With each stock’s recap, we will include a (with market support) or (without market support) tag, designating whether the trade triggered with or without market directional support at the time. Anything in the first five minutes will be considered WITHOUT market support because market direction cannot be determined that early.
In the report, CSIQ triggered short (without market support due to opening five minutes) and worked:
In the Messenger, RIMM triggered long (without market support) and didn't work:
Rich's BIDU triggered long (with market support) and didn't work:
His BIDU short triggered (without market support) and worked:
That gives us only the 1 trade that actually triggered with our measurement of market support on a dead flat day, and it didn't work.
3 to 5 Bar Pullback
One of my favorite high-probability plays (in any market) is the 3 to 5 bar pullback in a strong trend. We spotted a great setup for our Tradesight subscribers last night. DECK has been in a strong uptrend (as evidenced by a daily ADX reading of over 27). It’s shown us an expected technical relief ‘pull-back’ of 5-bars the last few days closing yesterday with a ‘doji-like’ bar. I posted today’s play a few cents above yesterday’s highs at $60.80 with an intraday target of $61.70 based on ½ its current average daily range. We’ve taken a healthy partial and now have a Stop/Loss at our entry for a ‘free-trade’ while it continues to run for us.
These pull-back setups are easy to spot in evening scanning, be sure to look for the same up or down.