April Fools?

Another trade proved successful in our ETF extremes strategy. The proprieray model we created has really worked well so far this year with 5 winners and no losing trades. Hopefully, we can contiue to have good fortune in our portfolios. So far we are up 26.6% in our Gap Fade strategy and 16.5% in our ETF Extremes strategy. Not a bad first quarter.

Fundamentally, rising interest rates and energy prices were to blame for most of the problems past week. Technically, the bulls were working against a seasonally bearish timeframe (last week in March) as well as several other key technical factors. Surprisingly, the market has held up nicely in the face of some fairly bearish news over the last few weeks. April is historically the fourth best performing month with an average return of 1.25%. The historical performance of May and June are substantially lower at 0.16% and 0.17%, respectively. After a nice run for the bulls in the first quarter could we possibly see the old Wall Street adage “sell in May and go away”? If April happens to live up to its historical billing of being bullish, I think the old adage has a wonderful chance of ringing true this year.  I just can’t see the market continuing to advance at its current pace.  

• DIA - 33.3 (Neutral)
• SPY - 48.1 (Neutral)
• QQQQ - 68.3 (Neutral)

 

Something has got to give

The market surged higher this morning only to fall back hard. The strong overhead resistance I menioned yesterday was breached, but only for a brief moment. The bears decided enough was enough and around 10:15 proceeded to push the market lower. The Nasdaq was able to move fractionally higher on the day and this pushed the Nasdaq 100 into overbought territory. The recent divergence in the major market indexes could be a short-term signal for all of the bears out there. Longs, be careful. Keep a close eye on the 1305 level in the S&P. As I stated yesterday, I thought the S&P would move today and Friday. Well, so far, I am correct. Who knows how long that will last. Our proprietary straegy signaled a sell on the 29th and so far it has worked out. If all goes well and my thoughts are correct our strategy could see another profitable trade. I have to say I am more confident than usual in my prediction tomorrow, because the last day of March is historically a bearish day for the market. Of course there are other reasons as well, but having seasonality on my side is always reassuring.

• DIA - 34.9 (Neutral)
• SPY - 48.0 (Neutral)
• QQQQ - 76.1 (Overbought)

 

Is the Hibernation Over?

After a long day working on the website and following a trade placed in one of our portfolios I have decided to keep the post short tonight.

The market bounced back today after a sharp sell-off yesterday. The advance came early in the day and then proceeded to trade in a narrow range. There seems to be some fairly strong overhead resistance at the 1305 mark in the S&P, and with some recent, reliable, short-term bearish indicators making an appearance this market looks to move lower over the next few days. No one knows for certain and believe me I have been wrong on more than one occasion. The one thing that could keep this market up is that there are a few days left in the quarter and we all know how the “big boys” like to look good when the quarterly report rolls around. However, with the VIX below 11 and some decent overhead resistance in the S&P the “smart money” could join the bears as they make their way out of their winter slumber.

 

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• DIA - 45.3 (Neutral)
• SPY - 53.0 (Neutral)
• QQQQ - 72.1 (Neutral)

 

  

   

 

 

Bernanke speaks, RSI (5), and Lessons from the Hardwood

The market moved lower today after the Fed announced that it would increase interest rates by a 1/4 percentage point, marking the 15 straight increase. The fed funds rate is now the highest it has been in five years. The decline in the market occured not because of the rate increase (it was expected), but rather the lack of change in the Fed’s message, which leaves the door open for further rate hikes.

 RSI (5) as a useful Technical Indicator

Vaughn Okumura, founder of the now defunct vtoreport, outlined the RSI Wilder (5) on his site and stated that it was one of his favorite short-term strategies. He kept a record on the site, and his gains from 2/21/97 through 2/03/06 were in excess of 384%. He achieved these remarkable gains by only trading the underlying QQQQ.

 The Relative Strength Index (RSI), developed by J. Welles Wilder, Jr. is an overbought/oversold oscillator that compares an entity’s performance to itself over a period of time. It should not be confused with the term “relative strength” which is the comparison of one entity’s performance to another.

I intend on carrying on with his mission of educating the public on how to use this wonderful technical indicator by posting the status of DIA, QQQQ, and SPY. Occasionally, when other ETF’s reach extreme overbought/oversold territory I will mention them as well. I hope this helps those that are interested.

His trading guidelines were as follows:

Buy when the 5-day RSI closes below 30.0

Sell when the 5-day RSI closes above 50.0.

I have archived the RSI (5) overbought/oversold parameters to help you better understand when a given index is in overbought/oversold territory.

• DIA - 29.2 (Oversold)
• SPY - 33.3 (Neutral)
• QQQQ - 43.7 (Neutral)

Daily Article of Interest

The Final Four is upon us and what better time to help you understand the intricacies of options, and more specifically, the greeks. Bill Feingold does a wonderful job with this analogy. Check it out!

•  Using Basketball to Understand Options

Crowder’s Stock Options Blog Has Launched!

The life of every man is a diary in which he means to write one story, and writes another; and his humblest hour is when he compares the volume as it is with what he vowed to make it.

J.M. Barrie

J.M. Barrie’s quote sums up my thoughts on our new newsletter/advisory service. Our goal is to help anyone and everyone increase their financial knowledge and hopefully boost their portfolios at the same time. I have dedicated the last few years developing two strategies that will hopefully help interested investors boost their portoflio returns. Our two key strategies, in my opinion, offer some of the best alternative investment opportunities out there.

While I will occasionally mention the portfolios my service offers, my ultimate goal is to create a growing resource that acts as reference to the public on the fascinating world of options. Of course, personal finance issues will also dominate the pages of my blog.

Howver, options, one of the most important developments in the field of finance during the last twenty years, will occupy the majority of my thoughts and discussions.

Each week I will include articles of interest, market commentary, updated technical analysis, such as the overbought/oversold RSI Wilder (5) (once covered by the well-respected Vaughn Okumura’s now defunct www.vtoreport.com) and other helpful financial material that will hopefully assist you on the life-long journey to building wealth.