Great stock trades based on fundamentals and technical analysis.
Friday, April 24, 2009
Moved to cash
With the Nasdaq's breakout, our trading model has liquidated the other positions to move to cash.
We're shifting our focus to developing an automated futures trading system that takes advantage of intraday volatility. Initial development looks very promising, with very high return potential on very low risk.
Open Positions: none.
Nasdaq 100 stop hit
On the breakout over Wednesday's high, our trading model's stop was hit on the Nasdaq 100 short.
Open Positions: Short 25% S&P 500, short 20% financials, long 1% May 84 SPY puts, speculative trading portion short another 25% S&P 500, and another 20% financials, and long 1% May 83 SPY puts.
Wednesday, April 22, 2009
Why we shorted the Nasdaq 100/QQQQ
This chart shows why our trading model shorted the Nasdaq 100/QQQQ today near the highs today.
While the other indices remained well off their highs of last week, the Nasdaq 100 was retesting its highs, with strong resistance keeping it from breaking out. One of the best technical sell indicators is a failed buy signal. This 15-minute chart of QQQQ shows the clear bullish cup & handle pattern that failed to break out. This market has been extremely resilient, but normally this setup at the highs would signal more downside ahead.
Shorting Nasdaq 100
With the Nasdaq 100 retesting last week's high at 1361, hitting 1359.96 so far today, our trading model is shorting the Nasdaq 100 with a stop at new highs.
Open Positions: Short 25% S&P 500, short 20% financials, short 25% Nasdaq 100, long 1% May 84 SPY puts, speculative trading portion short another 25% S&P 500, another 25% Nasdaq 100, and another 20% financials, and long 1% May 83 SPY puts.
Tuesday, April 21, 2009
Covered half S&P 500 shorts, MET
On the gap down after yesterday's big drop, our trading model has covered half the S&P 500 shorts, and has covered the MET short from 27.5 in the 23's.
Open Positions: Short 25% S&P 500, short 20% financials, long 1% May 84 SPY puts, speculative trading portion short another 25% S&P 500 and 20% financials, and long 1% May 83 SPY puts.
Monday, April 20, 2009
Big Down Day
The big down move day came today as expected
. This chart shows that today was the biggest down day since the rally started, and the second 9-to-1 down volume day:
It was actually a huge 27-to-1 down volume day, with the SPX closing at its low and breaking last week's low, meaning the S&P 500 will have its first lower low since the rally started, breaking the trend of higher lows. In this one day, the market gave back the gains from the last 2 weeks and more.
Today was clearly a trend down day, with hardly any positive ticks seen on this 1-minute NYSE Tick chart:
There was hardly a bounce during the day, with down volume vs. up volume steadily increasing, along with TRIN, indicating strong volume going to the losers. TRIN closed pretty high, near 3, so there should be a rally attempt at some point tomorrow, or a gap higher.
The updated hourly chart of the S&P 500 shows a break of the huge rising wedge along with a continuation of the PPO bearish divergences with the amazing 5th lower high on PPO (accompanying 5 higher SPX highs) and its bearish cross sell signal:
The break of the huge wedge should mean this pullback will go significantly lower, though there may be a short-term bounce back toward the breakdown area first.
If this pullback follows the pattern of the previous 5, the S&P 500 should make a lower low tomorrow, though it might bounce back short term from there.
At the open, our trading model reshorted MET in the mid-27's.
Open Positions: Short 50% S&P 500, short 20% financials, long 1% May 84 SPY puts, short MET 5%, speculative trading portion short another 50% S&P 500 and 20% financials, and long 1% May 83 SPY puts, short another 5% MET.
Sunday, April 19, 2009
Spike in Insider Sales, Newsletter Sentiment
A couple of more indicators pointing to a pullback soon are Insider Sales and Newsletter Sentiment.
This Insider Sales Ratio chart (from Barrons) shows a huge spike in insider sales:
This article by Mark Hulbert shows that bullishness among newsletter writers has increased significantly over the last couple of weeks despite a minimial increase in the market averages. He calls it a "crumbling wall of worry," which is not a good sign for market bulls for the short term.
Of course, the market could override all of these indicators and continue higher without a pullback, but the odds significantly favor a pullback starting as soon as Monday.
Saturday, April 18, 2009
Monday to start pullback?
With April options expiration, and Friday marking the end of the 6th straight up week (wouldn't have been with a decent down day), as well as 875 SPX resistance so close to being hit, yesterday was a day to test that resistance and push the technical indicators a little bit more to the extreme.
We think Monday will be a big move day. A small change in NYMO Friday indicates a big move is coming, so we expect a big move early next week. Also, the Monday after expiration has had big market moves recently.
Today's late breakdown
of the rising wedge that formed over the last 3 days, combined with some extreme indicators and negative divergences, make us think the big move will be down. Below are updates to the charts we posted Thursday:
Here's the updated close-up chart of the 10-day EMA of NYSE TICK:
If Monday starts a pullback like the last 5 times this TICK 10-day EMA peaked over 600, the market should sell hard into Tuesday at least. If the huge rising wedge below breaks on this pullback, it should sell off much more.
Here's the updated chart of the % of S&P 500 stocks above their 50-day moving average:
Before this rally, spikes over 80% preceded significant selling. Today, this indicator moved even higher, to 89.6.
Finally, here's the updated hourly chart of the S&P 500 showing a huge rising wedge along with a bunch of bearish divergences on PPO:
The PPO histogram has started to turn over, and it looks like PPO is making an incredible 5th lower high while the market makes a 5th higher high. A bearish cross of the black line below the red line would confirm the sell signal and the start of the pullback.
Many technical indicators are pointing to a pullback starting Monday. That worries us a little bit, because it seems almost too clear, especially given the exact hit at 875 resistance (like the early March exact hit on the devilish 666 support) and all the obvious rising wedges/ending diagonals with many clean trend line hits. If the market instead launches higher through 875 resistance on Monday, it could be a big squeeze move up rather than the big move down we expect. However, we think the chances of that are remote.
Fascinating action--Rising wedge to resistance
As we showed on Thursday
, this entire rally has been one huge rising wedge, and there have been a number of different rising wedges within this huge rising wedge. Here's a 15-minute chart of the SPX rising wedge since late March:
The circled area on the right is the rising wedge that formed over the last 3 days. Here's a close-up chart of that wedge:
This chart uses the SPY ETF, since that's the SPX proxy we watch during the day so we can see buy/sell action and immediate price changes. To us, this was a clearly defined wedge, and today's action indicated that there were others watching this wedge.
This one-minute chart shows today's intra-day action:
The first couple of hours were a battle between buyers and sellers, with up volume and down volume taking turns taking over the lead, TRIN fairly high (indicating more volume going to the losers), both positive and negative TICK readings, and the SPY vacillating between positive and negative territory.
The next 3 hours looked like a strong trending day up, with up volume vs. down volume steadily increasing and TICK solidly positive almost without any negative TICK readings. That's the type of action you see on the huge several hundred point rally days. It looked unstoppable. However, the declining TICK readings formed a negative divergence with the rising market, portending a change.
Then the SPX hit the 875 resistance area (around 87.6 on SPY), which has been cited by many technical analysts as a target for this initial move of the rally, as that's where the February high was (also, late January high was 877.86). 875 also was where the upper trend line was on the first chart's rising wedge. Seemingly out of nowhere, a huge amount of selling materialized, rejecting the SPX and sending it back to the lower trend line of the rising wedge at around 870. The significant negative TICK action as the SPX reached 875 contrasted sharply with the previous 3 hours. It seemed clear that there were lots of people watching the 875 level as the place to sell longs or short the market.
Over the next hour, a fascinating battle between buyers and sellers ensued over the end of day direction, with sizable TICK spikes in both directions. The buyers tried to break the market out to new highs over 875 resistance while the sellers tried to break the market down from the rising wedge lower trend line. There were no fewer than 5 distinct attempts at taking out 875 on noticeably increased volume, but the resistance proved too strong.
Finally, in the last few minutes, the rising wedge lower trend line broke down and the market sold off to end the day without too much net change. The sellers ended up winning this end-of-day battle. If this battle marked a changing of the guard for at least the short term, there should be more selling action next week.
With the Dow ending up only 6 points, on paper it looked like a boring options expiration day, but a closer look at the intra-day action revealed one of the more interesting trading days we've seen.
Friday, April 17, 2009
Added shorts at 875 S&P 500
With the S&P 500 now reaching the 875 resistance area, our trading model added to S&P 500 shorts and bought some May 84 SPY puts at 1.70.
Open Positions: Short 50% S&P 500, short 20% financials, long 1% May 84 SPY puts, speculative trading portion short another 50% S&P 500 and 20% financials, and long 1% May 83 SPY puts.
Thursday, April 16, 2009
Pullback over next couple of days?
Here are a few charts indicating that there's a good chance the market will pull back over the next couple of days.
The first one is one we've posted before, showing the 10-day EMA of the NYSE Tick:
Previous times when the 10-day EMA of TICK spiked to the 600+ area, the market sold off from there. However, this rally's been different, as evident in this close-up view of the same chart:
During this whipsawing rally, today was the 6th time this indicator spiked above 600. Each of the 5 previous times, marked with a vertical blue line, the market sold off the next couple of days, twice bouncing back up off the second day low. If this time is like the 5 previous times, the market should sell off into Monday. If it's like the times before this rally, the selling should last more than just 2 days.
This chart shows the % of S&P 500 stocks above their 50-day moving average:
Before this rally, spikes over 80% preceded significant selling. This spike has reached higher than the last few, at 88% today.
Finally, this hourly chart of the S&P 500 shows a huge rising wedge along with a bunch of bearish divergences on PPO (similar on other indicators):
Each spike to a higher high over the past month has made a lower high on PPO. If this one does the same thing (it's still on a buy signal), it will be an amazing 5th lower high on PPO while the market makes a higher high. Such bearish divergences usually lead to selling, but this rally has been very resilient.
We'll see if the market pulls back the next couple of days, and if that pullback (if it comes) gets bought up quickly like the 5 previous ones. It should be interesting to see how this plays out.
Bought May SPY puts
On the afternoon bounce, our trading model has bought some May 83 SPY puts at 2.12, for the speculative portion of the portfolio.
Open Positions: Short 30% S&P 500, short 20% financials, speculative trading portion short another 30% S&P 500 and 20% financials, and long 1% May 83 SPY puts.
Added to shorts on gap open
On the big gap open, our trading model has added to shorts, adding to the S&P 500 short and starting a financials short.
Open Positions: Short 30% S&P 500, short 20% financials, speculative trading portion short another 30% S&P 500 and 20% financials.
Tuesday, April 14, 2009
Covered half of short positions
With a nice 2% drop today, our trading model covered about half the short positions at the close to lock in gains.
Open Positions: Short 20% S&P 500, speculative trading portion short another 20% S&P 500.
Added to shorts
On the bounce back from early weakness, our trading model has added to S&P 500 shorts, while the speculative trading portion of our trading model is also shorting the S&P 500.
Open Positions: Short 45% S&P 500, speculative trading portion short another 45% S&P 500.
Monday, April 13, 2009
Reshorted S&P 500
With the rally over S&P 500 864 late in the day, our trading model has reshorted the S&P 500 with a partial position.
Open Positions: Short 25% S&P 500.
Took BAC profits
On the rally to near 10, our trading model has taken the quick 10%+ profit on BAC and is back to cash.
Open Positions: None.
Thursday, April 09, 2009
Long BAC breakout
On its breakout to a new high, our trading model is now long BAC from the upper 8's. The double top didn't hold, so it's now a breakout.
Open Positions: 5% long BAC, speculative traders long another 5% BAC
Back to Cash
With the market holding its gap, and the holiday weekend coming up, our trading model's moved back to cash. Back to focus on taxes...
Open Positions: None.
Reshorted MET, covered BAC
With MET back near 26, our trading model is reshorting a 5% position.
Also, our very tight stop on BAC was hit at 8.55 from the 8.4's
Open Positions: 25% short S&P 500, 5% short MET, speculative traders short another 5% MET.
Covered WFC short
With WFC dropping to its previous high area in the mid-17's, our trading model has covered the WFC short for a nice, quick gain.
Open Positions: 25% short S&P 500, 5% short BAC, speculative traders short another 5% BAC.
On a possible double top, our trading model shorted BAC in the 8.40's with a stop at 8.55.
Open Positions: 25% short S&P 500, 5% short WFC, 5% short BAC speculative traders short another 5% WFC and another 5% BAC.
On the huge opening gap, our trading model shorted WFC in the high 19's with a stop at 20.
Open Positions: 25% short S&P 500, 5% short WFC, speculative traders short another 5% WFC
Wednesday, April 08, 2009
Took long profits, started short
With the S&P 500 up over 1%, our trading model has taken the quick profits on the long position and started a partial short position.
Open Positions: 25% short S&P 500
Tuesday, April 07, 2009
We're still taking a break from active market trading, but started a long position at the close on this dip.
Open Positions: 25% long S&P 500
Thursday, April 02, 2009
Taking a break
The below chart shows why we closed out our positions:
We had anticipated a breakdown from this Head and Shoulders pattern, but the breakout this morning above the head nullified that pattern. It was a nice setup, but it didn't work this time.
We're going to take a break from the market for a while to focus on taxes.
Back to Cash
On the break of last week's high, our trading model has moved to cash.
Open Positions: None.
Wednesday, April 01, 2009
Rebuying SPY puts
With the failure to take out yesterday's high, our trading model has rebought the April SPY 77 puts around the same level where we orginially bought them before taking a nice profit.
Open Positions: Short 40% S&P 500, short 30% financials, short 5% MET, 1% long SPY April 77 puts, speculative traders short another 40% S&P 500, short another 40% financials, short another 5% MET, long an additional 1% SPY April 77 puts.
Adding to Shorts
On this morning's gap fill, with the market turning green and testing 800 S&P 500 again, our trading model is adding to S&P 500 shorts and reshorting MET in the 23's.
Open Positions: Short 40% S&P 500, short 30% financials, short 5% MET, speculative traders short another 40% S&P 500, short another 40% financials, short another 5% MET.
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