Seasonal Bullishness Kicks In

Sorry guys I have to keep it short tonight.

The bulls are hoping today’s performance was a positive sign going forward. They might be right, but I think after the seasonal bullishness wares off on Friday, we could see some sloppy trading for a few weeks with the Bears having a slight edge. A test of the recent lows would not be out of the ordinary. After that, well, could it be another summer of range bound trading? Many seem to think so. There is still lots of uncertainty surrounding, inflation, geopolitical , etc., but unless some of these issues are resolved I would not be surprised to see a new trading range carved out this summer.

RSI Wilder (5) for May 31, 2006

• SPY - 51.5 (neutral)
• DIA - 48.1 (neutral)
• QQQQ - 37.7 (neutral)
• IWM - 49.1 (neutral)

 

A Temporary Setback??

After a short rally last week, the seasonally bearish post holiday blues hit the market and all four major indices participated. Last week, I mentioned a bearish reaction like we witnessed today was typical the trading session following the Memorial Day weekend. However, the bearish seasonality is typically short-lived as the seasonal picture for the rest of the week is historically quite bullish. There are a few other bullish biases that I mentioned in the last expiration report that will be working simultaneously with the seasonal picture. One, the markets are once again nearing oversold territory, a good indication today’s sharp decline doesn’t have much more room to move on the downside. Two, the VIX. I mentioned the VIX a few times over the past month (when it was hovering between 11-13). Well, the VIX moved 30.7% today. We haven’t seen a move like that in years. In most cases, a sizable move in the VIX is another bullish sign for the short-term.

Will the market respond favorably over the coming days. Is the bullish seasonal picture and its indicator cohorts enough to mover this market higher. Hmmm, chances are certainly in the bulls favor. Ultimately, I hate to say it, but only time will tell.

Daily Articles of Interest

• Robert Kiyosaki

• Transfer Less Taxing

RSI Wilder (5) for May 30, 2006

• SPY - 38.1 (neutral)
• DIA - 40.0 (neutral)
• QQQQ - 31.2 (neutral)
• IWM - 35.1 (neutral)

Bullish Seasonality Ahead

The pre-holiday trading session left much to be desired. Typical low-volume trading occured as most market makers were starting the long holiday weekend a little early. Certainly, nothing out of the ordinary.

The day began with a gap opening and a trade was signaled in our strategy. Shortly after the open we were able to close out our position for a decent 9.3% gain. Coming off the heels of a losing trade, today’s success in the Gap Fade strategy was certainly a good way to enter the holiday weekend.

All of the major indices are back in neutral territory and the upcoming bullish seasonality (Memorial Day) could push the indices into overbought territory. However, the trading session after the holiday is quite bearish. So we might have to wait until Wednesday to see the strong seasonal bullishness kick in. How the market responds once (and if) it reaches an overbought state should be quite telling for the intermediate future.

Daily Articles of Interest

• Trading Options in an IRA

• A Short Snippet on Options. Some decent entry-level tech studies here as well

• Warren Buffet’s Auction Success

   

 RSI Wilder (5) for May 26, 2006

• SPY - 59.7 (neutral)
• DIA - 60.3 (neutral)
• QQQQ - 51.7 (neutral)
• IWM - 57.0 (neutral)

 

 

How long will it last?

Over the past week almost everyone has called a short-term rally. Well, the rally has come and conveniently the market is entering a period of bullish seasonality. Most of the short-term rally participants are still way under considering they called the short-term bottom at the same time the bottom was falling out.

On the heels of a two-day advance the question is now “can the positive seasonality keep the market afloat for a few more trading sessions”. If the market can manage to move above what looks like strong overhead resistance and sustain those levels we could see a continuation of the advance for possibly a week. One thing is for certain, it looks like the 200 day moving-average acted as (what could be) a short-term bottom. If the Bears decide to come out and play over the next week or so we could see the 200 day MA tested once again. In most cases, this is expected, especially coming off the heels of a sharp decline.

We had another Gap Fade trade today. Unfortunately, the strategy could not continue the two trade winning streak as the market moved away from the gap opening soon after the trading day began. One thing is for certain, our stops have kept us from experiencing severe losses. Hopefully, the momentum we carried through the first few months will start up again very soon. Both strategies are still above the performance for the major market indices on the year and ultimately that is our goal. However, I would like to see us get back to the levels we reached last month and then some. As we all know options are quite volatile so things like this are expected. Onward and upward.

 Daily Articles of Interest

• Enron

• The Successful Investment Journey

 RSI Wilder (5) for May 25, 2006

• SPY - 54.1 (neutral)
• DIA - 50.2 (neutral)
• QQQQ - 47.5 (neutral)
• IWM - 51.8 (neutral)

More Whipsaw Action

 The bounce that everyone has been expecting came today. If all goes well tomorrow with the GDP release the market could further the advance. QQQQ and IWM remain oversold so we definitely have some room to move on the upside. Anyway, I have to keep it short tonight, although I have included a few good articles for your enjoyment. But before I leave one more note; as I have mentioned over the past few days keep a close eye on the 200-day moving averages for the major indices I list daily. This could prove valuable over the coming days and possibly weeks. We could be hovering around range for a while. Until tomorrow.

Daily Articles of Interest

• Gasoline Cards

• , Not Inflation

RSI Wilder (5) for May 24, 2006

• SPY - 35.2 (neutral)
• DIA - 33.0 (neutral)
• QQQQ - 27.1 (oversold)
• IWM - 27.6 (oversold)

Have the Bulls given up?

Extremely oversold, again! The large reversals that we have seen over the past few days (especially after large directional moves) usually precede a low. Couple this with the “very oversold” condition of the market and with a bullish seasonal picture ahead (Memorial Day) and things start to look a little brighter for the bulls, at least for the short-term. SPY is now officially below its 200-day moving average for the first time since last October. The last four times the 200-day was breached it led to a bouce that eventually broguht the index higher over the coming months. Hopefully, we get a similar reaction this time around.

RSI Wilder (5) for May 23, 2006

• SPY - 17.9 (very oversold)
• DIA - 13.2 (very oversold)
• IWM - 15.2 (very oversold)
• QQQQ - 14.1 (very oversold)

Bearish Post Options Expiration Strikes Again

Historically, the day following options expiration is seasonally bearish. Today was no different as the market, once again, moved decisively lower. As we move ever closer to Memorial Day the market should start to move higher. Historically, the day before and the week following Memorial Day are quite bullish (with the exception of the day following the holiday). As most of the major indices move back into “very oversold” territory the bullish seasonality ahead could increase the probablity of a successful trade. The 200-day moving average seems to be an area of strong support. As I have mentioned over the past few days keep a close eye on that level.

 Daily Articles of Interest

• ETF Options Strategies

• Guide to a Great Summer Vacation

 RSI Wilder (5) for May 22, 2006

• SPY - 22.5 (oversold)
• DIA - 16.2 (very oversold)
• QQQQ - 18.1 (very oversold)
• IWM - 19.8 (very oversold)

Can we expect the modest bounce to continue next week?

The market finally got bounce, albeit modest, today. SPY bounce hard off the 200-day moving average and was able to stay above it all day. My guess is that this level will be tested again early next week, as post expiration has a historical tendency to trade lower early in the week, especially the Monday following options expiration. DIA and QQQQ seems to be the laggards of the major indices and if we do test the lows again and can hold, a trade to the long side could be in the cards. You can never be too careful in market llike we have witnessed over the past week or so. Sometimes, sitting on the sidelines is the best answer. If you are investing for the long-term why take the unnecessary risk by placing a trade. As I always say, patience, patience, patience. Traders that were not patient this week and tried to go long really had it handed to them almost every day this week.

Once again, suggestions and comments on the blog are more than welcome. If you would like to see anything different please do not hesitate to email. And please feel free to forward the link to the blog to anyone that you think might find it useful or interesting. Have a wonderful and dry weekend! (The rain is relentless right now in the NE)

Daily Articles of Interest

• Make You Money

• Risk is Back…4 Rules for Coping

• Options Education – The Ultimate Resource for Options Education

   

 RSI Wilder (5) for May 19, 2006

• SPY - 28.4 (oversold)
• DIA - 19.2 (very oversold)
• QQQQ - 23.2 (oversold)
• IWM - 25.2 (oversold)

 

 

 

Where’s the bounce?

Our indicators have kept us out of any long trades and we are thrilled about it. Normally, we trade once or twice a month in our ETF, but we haven’t had a trade in well over a month. As I mentioned last week, given the extremely oversold nature of the market a trade is imminent. At these extremes our indicators are moving ever closer to a signal. SPY is quickly approaching its 200-day moving average  and given the “very oversold” condition and the nature of the decline, we should see some strong support at this level. SPY’s 200 day MA is 125.87, so keep a close eye on this level and how the market reacts if it is reached. The techical indicators are certainly pointing towards a short-term bounce. Bollinger bands have been breached for days, put/call ratios are at extremes,etc and all of the major indices are in very oversold territory. The list keeps piling up day by day as is becoming exhausted at this point. Tomorrow’s option expiration should be interesting to say the least. 

Daily Articles of Interest

• Can You Afford To Retire - The Frontline special should have been an eye opener for many, but how many of you are watching Frontline. Anyway, for those who didn’t catch the show do yourself a favor and please check out this link. We need to become more educated on this topic as Americans.

• : A Worldwide Wave of Change

• That Look Set To Rally – A mentioned a lot of this information yesterday, but it is still a good look at the technical situation of these ETFs

• Slump Continues The Fed Will Start Juggling Asset Classes

 RSI Wilder (5) for May 18, 2006

• SPY - 11.3 (very oversold)
• DIA - 18.0 (very oversold)
• QQQQ - 6.8 (very oversold)
• IWM - 10.0 (very oversold)

 

Don’t try to be a hero when trading options!

Money management, capital preservation, stop-losses, and position-sizing are (in my opinion) the keys to options trading success. Trying to be a hero when a position moves uncomfortably away from you can (and often) leads to disaster. All traders at some point have experienced this at some point. Almost every trading text out there decribes, in great detail, the authors great epiphany after a disastrous, account depleting journey in trading. These one or two failing experiences seem to create that “ahhhh” moment where, as a trader, you ”get it”.  The reason I mention this is that so many times in a market like we have experienced over the past week traders that are long, continue to be long, in the face of a sharply declining market. Why? Losses are going to happen. It is what you do to avoid taking large losses that keeps you in it for the long-term.

Options trading seems to create a “get rick quick mentality” that attracts the “speculative gamblers” out there. To me this approach seems short-sighted, unless that is your goal and you are willing to take the risk. I prefer to take the “long-term” approach that attempts to beat the market over an extended period of time. Admittingly, I “go for the gold” sometimes and place a highly speculative trade. But those are few and far between and I would never allocate a large portion of my portfolio to a trade like this. It is just too risky for my blood after what I have experienced as a trader. Take the loss and move on. Think in terms of probablities. Use a scientific approach. Losses are a cost of doing business. It is how your account compares to the benchmarks after a long-period of time that defines your success. Any Joe options trader can make a bundle on a trade. It is how Joe performs over the long-term that defines his success.

The major market indices (except DIA) are currently are in “Very oversold” territory. SPY, QQQQ, and IWM haev not seem levels like this in well-over a year. As a contrarian (at heart), my intuition tells me to buy into this market for the short-term and I just might do so. Fortunately, my indicators have not lined up accordingly and have kept me out of this market. I do think a decent attempt at a bounce is coming over the next few days and I hope to be a part of it. I mean, come on, enough is enough, with the QQQQs at 8.0 (RSI) do we really expect this market to move much lower before at least a short-term rally attempt.

And I almost forgot to mention, in the face of the declining market today, the Gap Fade strategy was profitable today! A small profit by options standards, but I will take a profit of 8.3% any day. Until tomorrow. Have a great night.  

RSI Wilder (5) for May 17, 2006

• SPY - 13.1 (very oversold)
• DIA - 20.1 (oversold)
• QQQQ - 8.0 (very oversold)
• IWM 12.1 (very oversold)

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