The Bears Could Make Their Presence Known Very Soon

The holiday has lended a helping hand to the bulls. Thin volume and low volatility have been the norm this week, which is historically typical the week leading up to Labor Day weekend, no surprises here. I have to admit, even with the expected low volume, I did expect some weakness this week, but with the big boys out volume has been lower than usual and has caused some of the tightest intraday ranges in years.

In the past, intraday trading ranges this tight have led to short-term declines several days out. Couple this historical precedent with an overbought situation in the four major indices and the gap from 8/16 that has yet to close and the probability of a short-term decline increases significantly. The one factor that could throw a cog in the wheel for the bears is tomorrow’s seasonal bullishness. The trading day before the Labor Day has shown a overwhelming bias towards the bulls. After the holiday, I think we could be in store for a decent move to the downside over the short-term. Nothing is ever certain in the world of trading, but given the factors I have mentioned above and our proprietary indicators I have to side with the bears, at least for the next few days. I should also point out (as if I haven’t enough already) that September is historically the worst performing month for the market. Could we test the 1280 mark on the S&P. If the gap from 8/16 is to close, you can bet the market will move very close to that level.

RSI Wilder (5) for August 31, 2006

• SPY – 74.0 (overbought)
• DIA – 74.5 (overbought)
• IWM – 78.1 (overbought)
• QQQQ – 75.2 (overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

How long will the tight trading range last?

The market experienced one of its tightest trading ranges of the year today as the S&P moved back and forth within a four point range. The last few times the market traded in a  range this tight it preceded a sharp directional move. Which direction will we go this time? Well, tomorrow is the last trading day before a very strong seasonal day, the last day of August. Historically, the last day of August/first day of September have been extremely bullish; however, the trading days following have been slightly weak. Furthermore, as I have repeated frequently over the past several posts, September is the weakest month for the market, so could the current overbought situation be telling us something. Over the short-term I am a little wary of taking any positions until the big boys move back into the market. Certainly the current overbought situation has me interested in a possible short-term contrarian move, but with low volume and strong seasonal bullishness only a few days away, I am a little hesitant at this point. I also expect to see a continuation of the low volume blues over the next few days. If the major indices move well-within the “very overbought” I admit I will be tempted to look at the short side of things, but only for the short-term. As much as I love the long holiday weekend that lies ahead, I am already looking forward to normal volume and volatility to move back into the market next week.

RSI Wilder (5) for August 30, 2006

• SPY – 76.1 (overbought)
• IWM – 79.1 (overbought)
• QQQQ – 78.8 (overbought)
• DIA – 73.2 (overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Low Volume Lends a Helping Hand

Market performance has been somewhat suprising over the past few days. Gains have been limited, which is usually the case in an overbought market. Today’s late-day rally brought the S&P back to the top of the two week trading range and also moved the Russell 2000 (IWM) and Nasdaq 100 (QQQQ) into an overbought state. The only major indice that is not in an overbought postion is the Dow Jones (DIA).

I am still leaning towards the short-side of things for reasons that I have mentioned repeatedly over the past few trading days. Let me summarize: with the S&P sitting right below the top of the recent tight trading range (strong resistance) and in an overbought with the gap from 8/16 yet to be closed I still siding with th bears over the short-term.

The rest of the week should be rather slow as more of Wall Street look to leave early for the long holiday weekend. This is the one reason not to lean to heavily to one side this week. With volume this low it does not takemuch for buyers/sellers to sway the market. This is the one thing that scares me about being too aggressive on the short-side. If volume was at normal rate I would certainly be taking a short position here, but with lower volume expected over the coming days  I want to to fairly nimble, watching short-term trades closely.

RSI Wilder (5) for August 29, 2006

• SPY – 74.8 (overbought)
• IWM – 74.1 (overbought)
• QQQQ – 74.4 (overbought)
• DIA – 67.7 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Expect the Sideways Movement to Continue

The trading week before the last summer holiday is historically slow and I do not expect to see a change in the pattern this week. The S&P (SPY)  and Nasdaq 100 (QQQQ) have moved into an overbought territory and a few other short-term bearish technical indicators are popping up on the screen. As a result, any attempt to extend today’s gains will most likely be limited and should bring the sellers out over the short-term. The next few days are seasonally bearish and given the overbought situation and the gap from 8/16 in the S&P that has yet to be closed the probabilty of a short-term decline has increased. I would also point out that Thursday (the last trading day of August) has been seasonally bullish and so has the first few days of trading in Septmeber. After the short stint of historical bullishness passes, we should be prepared to see some volatility. September is historically the worst month for the market and if we enter it with an overbought situation the contrarians will most likely be out in full force. Have a great night!

RSI Wilder (5) for August 28, 2006

• SPY – 72.4 (overbought)
• DIA – 66.1 (neutral)
• IWM – 62.4 (neutral)
• QQQQ – 71.0 (overbought)

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com

Tight Trading Range Continues

Volatility has been absolutely horrible over the past week. Volume has declined tremendously and will most likely continue until the end of summer holiday passes. This makes setups very difficult over the short-term. However, tight-trading ranges are usually followed by sharp directional moves.

I have stated the following over the last few days, but I feel it is well worth repeating. I still think the market will move lower over the next few days testing the 1280 area (approximately) which should close the gap from last Wednesday and should move the S&P (and most likely the other major indices) into an oversold position. Seasonal weakness is upon and should last a few more days until the seasonally bullish transition from the end to the beginning of the month occurs. This phenomenon happens during most months and is rather strong during the beginning of September.

As I always state, trading seasonality, in most cases, should not be the only reason to place a trade.  However, if coupled with other technical indicators it can be a wonderful tool that can give you that added punch you might need to increase the probability of a trade. We talk about seasonal factors in our newsletter and often use seasonal factors to enhance our trading in one of our favorite options strategies the ETF Extremes. We will also be offering more seasonal info on our site over the next month or so.

RSI Wilder (5) for August 25, 2006

• SPY – 60.2 (neutral)
• DIA – 46.3 (neutral)
• IWM – 43.6 (neutral)
• QQQQ – 58.5 (neutral)

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com

Calm Before the Storm?

Sideways trading continues as the summer doldrums are nearing the final stretch which is always good news for traders. Volume over the next few weeks will most likely continue to be slow as Wall Street has a tendency to take an extended vacation until after Labor Day has passed. Surely, volume will pick up after the biggest Wall Street Holiday, which hopefully means a widely vacillating market is right around the corner.

I still think we are due for a decline that will most likely test the 1280 level (give or take a few points) on the S&P. The next three trading days are historically, seasonally weak so the probability of a move that would close the gap from last Wednesday increases slightly. Furthermore, the S&P has had difficulty with overhead resistance so conviction among buyers could be waning. If we do test the 1280 area, the major indices will most likely move into an oversold area which should bring out the bulls. If this scenario does play out there should be a decent opportunity somewhere in there.

If the market is unable to move lower over the next three (maybe four) trading days I would be hesitant to take a short position purely on the fact that the market would be entering the end/beginning of the month seasonal bullishness. However, as I stated above, if the move lower does occur closing the gap from last Wednesday and we are in an oversold position right before the last trading day of the month, well, the stars have aligned and one of our options strategies could possibly have its second signal in as many weeks. Only time will tell.

RSI Wilder (5) for August 25, 2006

• SPY – 60.9 (neutral)
• DIA – 46.3 (neutral)
• IWM – 43.6 (neutral)
• QQQQ – 58.5 (neutral)

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com

ETF Extremes

After the sharp rally last week our proprietary indicators signaled a buy alert on Monday. As a result, we bought 10 Oct06 131 puts (SFBVA) shortly after the open on Monday for $2.70. The overbought situation coupled with the gap up in the S&P last Wednesday (that has yet to close) increased the probability for success in the trade.

Today our indicators signaled a sell and as a result we sold the Oct06 131 puts (SFBVA) for $3.10 resulting in a 14.8% gain on the trade. The sample portfolio is currently worth $6,565 or 31.3% (including commissions) YTD. The win ratio in the strategy currently stands at 100%, 7 out of 7, (check out the Performance page on our site for further details).

Obviously we are pleased with the win ratio, but we are realists. We realize there is no holy grail in trading. One thing we do know for certain is that we have found a unique strategy that makes sense to us and we trade it to make serious money over the long-term. Furthermore, we realize that the less we trade, the better the strategy will do in the long run. And the long run is what matters. This is what makes our ETF Extremes strategy unique and so far, successful. Hopefully, we can continue our winning ways and extend the gains going forward.

Patience is the key ingredient to the success of this strategy and forcing a trade is, in most cases, detrimental to any strategy. Our exact words on the site are as follows: “This strategy requires patience coupled with a disciplined approach. The strategy will make approximately, on average 1 to 3 recommendations a month with holding periods of 1 to 15 days, however; there will be some months when no recommendations are made. The key to this strategy is patience. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes this strategy a success.”

Believe me, we would love to have potentially profitable signals on a daily basis, but that just isn’t reasonable with this strategy. We will never make any apologies for our system and why should we, with a win ratio of 100% YTD (7 out of 7) and gains of 31.3% YTD, we feel confident in the strategy and its ability to produce long-term returns.

As for the market, it has worked off its overbought situation; however, the gap from last Wednesday has yet to be closed. I am still looking for the gap to close over the next few days which should bring the S&P close to around 1280 level give or take a few points. This will most likely act as a level of support and could provide a decent trading opportunity. We shall see soon enough.

As always, please do not hesitate to email us with any questions or comments that you might have.

Andrew Crowder

Chief Options Strategist

www.crowderinvestments.com

• SPY – 60.2 (neutral)
• DIA – 57.1 (neutral)
• QQQQ – 55.2 (neutral)
• IWM – 45.4 (neutral)

Where do we go from here?

The S&P remains overbought and the other major indices are not far behind. Furthermore, the S&P, Dow and Nasdaq have yet to close the gap from last Wednesday. I am still under the impression that the market should move lower, closing the gap within the next few days. An overbought state, in most cases, limits the upside potential over the short-term, so if the market is to resume the bullish rally from last week it needs to work off the current overbought situation. We shall see. Also, until volume picks up it is going to be hard to see any conviction from the bulls or the bears. The short-term should be interesting indeed. Have a great night!

RSI Wilder (5) for August 23, 2006

• SPY – 70.6 (overbought)
• DIA – 63.5 (overbought)
• IWM – 62.2 (neutral)
• QQQQ – 68.2 (neutral)

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com

A Wonderful Expiration Month and Still Overbought

First, I want to say thank you to everyone for your kind words regarding the birth of our baby girl, Macey. Your good wishes were greatly appreciated.

After every options expiration I try to report on the performance of our two strategies that we comment on occasionally in the blog. This expiration period was certainly kind to our ETF Extremes strategy. As I have mentioned repeatedly over the past few months, patience coupled with disciplined trading guidlines are what make investment (trading) strategies effective and this is especially the case in our ETF Extremes strategy. The strategy went without a signal for several months and many of our subscribers were worried about the lack of trading in the strategy. My response was patience, patience, patience. We are in this for the long-term.

Well, several weeks ago our proprietary signals were triggered in the ETF Extremes strategy and it just happened to come at the recent lows. Great timing indeed! The trade lasted for roughly a week and we made ended up with a 13.3% profit after all was said and done. The trade brought our ETF Extremes sample portfolio strategy up to 23.9% YTD with a winning ratio of 100% (not a typo),  not a bad gain after 7 months and 6 trades. Hopefully, we can keep up our winning ways going forward. Check it out at http://www.crowderinvestments.com/performance.shtml.

As for our Gap Fade strategy we finished lower with a (-1.2%) for the month leading to (-3.2%) loss YTD. After a few needed revisions to the strategy we hope to get back to our highs of 35% back in April. Overall, it was a wonderful expiration period for the strategies as we had a net gain of 12.1% for both strategies.

As for the recent performance of the market we still remain in an “overbought” position in SPY and DIA with the QQQQ’s bordering an “overbought” state. The volume today was extremely low marking one of the slowest trading days of the year. Given the recent rally and overbought conditions in the S&P and Dow I would not be surprised to see a nice move lower possibly closing the gap from last Wednesday. Keep an eye on how the market reacts over the coming days, especially later in the week and early next week as the market moves into a seasonally bearish period.

Andrew Crowder, Chief Options Strategist, www.crowderinvestments.com

RSI Wilder (5) for August 21, 2006

• SPY – 70.6 (overbought)
• DIA – 70.8 (overbought)
• IWM – 58.5 (neutral)
• QQQQ – 68.2 (neutral)

 

Celebrating the birth of our first child

I will not be posting any content for the remainder of the week as we are celebrating the birth of our beautiful baby girl.

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