Another Range-Bound Day. What Will Next Week Bring?

Today marked the third straight day of tight range-bound trading in the S&P. Historically, when we witness this type of action in the S&P, weakness typically follows. Furthermore, the S&P continues to struggle with strong overhead resistance and the divergence between the small and large caps has been notable over the short-term. The list of short-term bearish indicators goes on and on.

Next week brings the beginning of the month seasonal bullishness and October happens to be stronger than most months. If the seasonal tendencies hold true (which they haven’t lately) as I stated over the past couple of days, any spike higher will most likely be short-lived. The move could be sharp and quick so be nimble. I will only start to become aggressive if the major indices, namely the S&P, move back into a “very overbought” position. Until then I will be parked on the sidelines. I can’t say it enough but patience is the key to long-term financial success. If I happen to miss a move here, well, I am obviously disappointed, but I also know that more opportunites will present themselves in the near future. Let the trades come to you. Don’t force the issue. Let probability be your best friend. Okay enough of that, have a wonderful and long weekend.

RSI Wilder (5) for September 29, 2006

• SPY – 70.8 (overbought)
• DIA – 68.3 (neutral)
• IWM – 41.6 (neutral)
• QQQQ – 61.3 (neutral)

If you like what you read on a daily basis, you should check out our service! We offer educational tools, research, a semi-monthly newsletter and best of all, detailed trading guidelines to our strategies at Crowder Investment Research, LLC.

Andrew Crowder, Chief Investment Strategist

The Market Manages to Stay Alfoat (How Long Can It Last?)

For the second straight day the market traded in a fairly tight range. The market held steady today but how long can the bulls keep it alfoat? SPY and DIA have yet to break through the strong resistance that lies immediately overhead and three out the four major indices remain in an overbought state.

Historically, the longer an indice stays in an overbought/oversold position the sharper the reversal (at-least over the short-term). Given the poor action, by both buyers and sellers I have to think a short-term reversal is near (within the next day or two).

It would not surprise me to see a sharp spike higher that initiates the short-term wave of selling. This type of action is typical during in this type of market. If this does occur and brings the major indices into a “very overbought” state intraday I might be tempted to react by taking a small position on the short side of things. Staying on the sidelines has ben my best trade so far. Of course, participating in the recent rally would have been nice. It did happen off of the 1310 area I mentioned a few posts back, but unfortunately my price targets were not met.  Many of my readers listened to my advice and establised long postion at the 1310 area, so of course their success makes me very happy. Have a great night!

RSI Wilder (5) for September 28, 2006

• SPY – 74.9 (overbought)
• DIA – 74.6 (overbought)
• IWM – 54.8 (neutral)
• QQQQ – 72.6 (overbought)

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

Patience, Patience, Patience

Sitting on the sidelines is often the best course of action. Market action has been unseasonably strong and the talking heads have been hyping up new all-time highs in the Dow (DIA). We have all seen this before.  There is no denying the recent strength in the market, however, will the recent move be sustainable.

The S&P and Dow have moved further into overbought territory and are on the verge of moving into a “very overbought” situation. Another push higher and I will be tempted especially if we can get at least three of the indices into a “very overbought” state. We are hovering around a strong resistance area and the last two trading days of September are historically very weak. Add these and a few more short-term bearish indicators and it looks like another short-term reversal is in the cards.

This type of action has been typical recently and every time DIA and SPY reach this area they take a brief pause. The pause, whether in a “very overbought” state or a “very oversold” state, is where I like to step in because the probability of a sharp short-term move is very good. Of course, very good doesn’t mean 100% guaranteed, nothing is in the world of trading(investing) but with the odds stacked in our favor the risk/reward looks pretty nice. Couple this idea with appropriate money management and capital preservation techniques and your long-term success looks favorable.

RSI Wilder (5) for September 27, 2006

• SPY – 76.5 (overbought)
• DIA – 77.4 (overbought
• IWM – 62.1 (neutral)
• QQQQ – 69.8 (neutral)

If you like what you read on a daily basis, you should check out our service! We offer educational tools, research, a semi-monthly newsletter and best of all, guidelines to our strategies at Crowder Investment Research, LLC.

Andrew Crowder, Chief Investment Strategist

Will the Russell Catch Up?

The Russell 2000 (IWM) has been mired in mediocrity the last few days as the other major indices have move rallied higher. The lacking performance in the Russell has kept the index in a neutral stance as the other big three move firmly into an overbought position.

After the strong bounce off of strong support areas yesterday the S&P, Nasdaq 100, and Dow have not looked back. The bullish move has been quite amazing to say the least and should allow the month of September (historically the worst performing month in the market) to finish in the black. An anomaly to say the least. 

Where do we go from here. Certainly the bulls have had much of the control over the last few months. All of this bullishness has left the VIX (fear gauge) near a historically low level (closed at 11.53 today). Furthrmore, DIA and the S&P are at strong resistance right now…just a few (among several) that signals a short-term decline is not far off. I stated yesterday, that I plan on waiting until all of the major indices move into a “very overbought” position. I plan on sticking with that although I might make an acception if IWM can push firmly into an overbought position. I will have to make that decision when and if the time comes. Watching from the sidelines can be a wonderful thing sometimes.

RSI (5) Wilder for September 26, 2006

• SPY – 75.2 (overbought)
• DIA – 73.8 (overbought)
• IWM – 53.5 (neutral)
• QQQQ – 72.4 (overbought)

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

Strong Support in the S&P – Be Patient

Three out of the last five trading days, the S&P has held 1310. At this level, support looks “very strong”. Every time the bears try to test this level the market bounces sharply higher. This scenario was reflected in today’s trading as the market tested the 1310 area early this morning only to rally significantly higher.

Now the market is once again back near the May highs. This could pose a problem for the bulls over the short-term, however, given the recent action (strong bounces off 1310) the probablity of move to new highs looks much better. If the market can break above this area of resistance and hold over the next few days we could be in for a nice move over the intermediate-term. But, keep an eye on how the S&P reacts at its current level. There are still a few bearish indicators out there so be nimble.

During times like these I prefer to sit on the sidelines until the next significant move. As we move closer and closer to an overbought area, especially in QQQQ, a short trade looks more enticing. Although if we do move to new highs and into an overbought area I think waiting until QQQQ moves into a “very overbought” might be a more prudent choice for a trade set-up.

We could get a strong rally (breaking into new highs) and overbought rallies have a tendency to last a few days, taking out the shorts one by one. As always patience is key. It only takes a few decent trades to significantly beat the market so wait for those opportunities where the set-up looks great. Let Mr. Probability be your friend. I hate to keep harping on this, but we use this same disciplined approach in our ETF Extremes and the results have been outstanding so far this year. up 35.7% YTD with a 100% win ratio and best of all we have only traded in the strategy 8 times YTD. We offer this strategy and one other for auto-trade or if you just want to learn the strategy yourself or trade on your own you can follow our real-time alerts. Keep in mind that we offer a semi-monthly newsletter as well, with educational articles, seasonal and technical information, and strategy updates and much more. Check it out www.crowderinvestments.com.

RSI Wilder (5) for September 25, 2006

• SPY – 63.2 (neutral)
• DIA – 58.8 (neutral)
• IWM – 53.0 (neutral)
• QQQQ – 68.7 (neutral)

Andrew Crowder, Chief Investment Strategist

Will the bulls step in here?

I stated yesterday that the chances looked good for a continuation of the short-term bearish move. Will it continue into next week? Weak seasonal conditions remain for the reasons stated in the past few posts and there are still a few bearish technical indicators that remain. However, we are reaching some important support areas, 1310 on the S&P to be exact.

The bulls were tested several times at this area today and were able to hold each time. As I stated yesterday, how the market reacts over the next few days should give us a better glimpse as to whether or not this recent move will continue. If the second half of September lives up to its historical billing then we could see the gap close in the S&P and QQQQ from 8/16. I still think reaching 1280 is possible on the S&P and then the true test comes. Until then we will take advantage of every trading opportunity that comes our way. So far this year has been very kind to our ETF Extremes strategy and we hope we can extend the gains in both of our strategies over the last quarter. Have a great weekend!

RSI Wilder (5) for September 22, 2006

• SPY – 43.0 (neutral)
• DIA – 44.0 (neutral)
• IWM – 37.5 (neutral)
• QQQQ – 50.0 (neutral)

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

Want to see how our strategies are performing this year? Check out our Performance Page!

The bears finally made an appearance. How long will they stay?

The market moved sharply lower today. The bearish indicators that I have mentioned over the past week were just too much for the bulls to overcome. An “overbought” market, weak seasonality, historically low VIX, strong overhead resistance…, the list goes on and on.

The major indices have moved back into a neutral state and I still think there is room to continue the move lower over the short-term. There are quite a few bearish factors out there that can’t be ignored. The Nasdaq 100 is still hovering around the overbought territory so I think this particular indice will lead the charge lower. The next few days should give us a better idea if todays move will be sustained. We are back in the trading range that was established on 9/13. Typically, the longer the market trades in a short-term range the larger the move once the market exits the range. So, be nimble and always use appropriate money management techniques (capital preservation) if you happen to get caught on the wrong side.

Articles of Interest

• Top Saving Mistakes

• A Savvy Investment for a Tough Market

RSI Wilder (5) for September 21, 2006

• SPY – 52.0 (neutral)
• DIA – 53.3 (neutral)
• IWM – 53.3 (neutral)
• QQQQ – 63.4 (neutral)

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

Want to see how our strategies are performing this year? Check out our Performance Page!

Where are the bears? Will they step in over the short-term?

The bulls continue to control the ticker as the major indices have managed to stay in overbought territory since 9/12 when the SPY closed the day at 131.69. September has certainly not lived up to its historical billing so far, although I would not count out the bears just yet. The second half  of September is far weaker historically than the first and given that the “big day” has passed we shall see if the bulls have enough steam to keep the market moving upward. 

I still believe the market will sell-off over the short-term before the bulls can push this market substantially higher. It is hard to ignore all of the bearish indicators out there right now. The major indices continue to be “overbought” to “very overbought”, the VIX is nearing historical lows, the market is in the midst of a very weak seasonal period, just to name a few.

Days like today are quite rare. QQQQ gapped up and finished up 1.5%. Historically, when this occurs during a fed announcement this does not bode well for the market over the short-term. Furthermore, fed day trends have typically seen a short-term reversal going forward. As you can see I am still bearish over the short-term, but if we can move decisively higher and hold I will officially accept defeat on this one. Our strategies have not suffered at all as we have actually made money during this period. Our trade yesterday is looking better and better as we are now up 35.7% in our ETF Extremes strategy with a 100% win ratio (8 out of 8 trades YTD). If all of the major indices reach a “very overbought” state I will once again be tempted to take a short-position. Conversely, if the market sells off and we reach an “oversold” position you can better believe the bulls will come back in and I will be tempted as well. Lets see what happens first.

RSI Wilder (5) for September 20, 2006

• SPY – 71.2 (overbought)
• DIA – 80.3 (very overbought)
• IWM – 73.8 (overbought)
• QQQQ – 77.0 (overbought)

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

• Check out our Performance page!

The Pullback and Trade Results

 I normally do not do this but I have decided to post our trading results today. The perforamnce of the ETF Extremes strategy has been outstanding so far and by the response we could be closing out the strategy to new subscribers very soon. I thought all of my loyal readers should know this ahead of time just in case you planned on signing up with our service. We will have to add subscribers to a waiting list once our subscriber limit is met.

Another signal was issued in our ETF Extremes strategy on Monday. Several of our proprietary indicators were in “extreme” territory, so as a result we sent out the following trade alert to our participating subscribers: Buy to Open SPY Nov06 133 puts (SFBWC) for $2.40.

We were anticipating a sharp move lower shortly after the alert was sent. The market traded sideways for remainder of the trading day so we decided to hold as a result. The market finally moved lower on Tuesday and we were able to close the position for $2.65 or a 10.4% profit on the trade. By staying diligent and sticking with our guidelines we have had a 100% win ratio (8 out of 8 winning trades) YTD for a total YTD return of 35.7%. In most cases, we would have held the position longer, but given the Fed meeting tomorrow and the sharp move that typically follows we decided it was best to take the strategy’s gain off the table. Furthermore, for the last several years the market has traded in an extremely tight range ahead of the fed announcements. It is always prudent to stay flat ahead of any market moving data. No one knows for certain how the market is going to react. We did not want to test what has been the historical norm so this was just one more reason to close the position out.

 

Shortly after we exited the position the market began to rise and then Yahoo came out with an earnings warning that reversed the short-term trend of the market and moved it sharply lower. Obviously, had we held our position we could have made more on the trade, but our strategies are in it for the long-term so we did not want to take any unnecessary risks. The news could have easily been positive and we would have missed out on the 10.4% profit. Anyway, at the end of the trading day the Nov 133 puts worth $2.50, well below the price at which we closed the position out.

 

Of course, we do not expect to keep the 100% win ratio going forward, that would be unrealistic, but we do know that with our money management and capital preservation techniques this strategy can be extremely profitable over the long-term. With a total YTD return of 35.7% we are extremely enthused about the strategy. The combination of our two strategies, Gap Fade and ETF Extremes, has led to total YTD return of 17.5%.

www.crowderinvestments.com.

Please do not hesitate to email us with any questions or comments.

 

Kindest regards,

 

Andrew Crowder

Chief Options Strategist

www.crowderinvestments.com

RSI Wilder (5) for September 19, 2006

• SPY – 57.5 (neutral)
• DIA – 65.9 (neutral)
• IWM – 58.0 (neutral)
• QQQQ – 61.5 (neutral)

Filed Under Crowder's Daily Market Commentary ·  

Where is the pullback?

September 18, 2006

As I stated last week, “oftentimes, sharp moves during expiration week can be deceiving. Will this past week’s move fall into that category? Not sure. But, I can tell you that the technical picture is pointing towards a short-term move lower. The Nasdaq 100 and Dow are now in a “very overbought” state, just another feather in the bears cap going into next week. When the indices reach this type of level the probability for a short-term pullback starts to look very good.

Well, I have been talking about a short-term pullback for several days now and we continue to trade in the top edge of the current trading range. Bearish indicators and tendencies continue to pile up, yet the market has been able to hold its current position.

The second half of September is one of the weakest periods during the trading year. As we enter the second half of the historically weakest trading month of the year, almost all of the major indices are in an “overbought” to “very overbought” state. If the bears are going to make a move this is the week to do so.

The next two days should be interesting to say the least. There are quite a few economic reports due out tomorrow and the Fed is to report on Wednesday. I am still leaning towards the bearish side over the short-term as I always have to side with the high-probability setups. But that does not mean that I can’t implement tight-stops. Money management is always key in this type of market or any market for that matter. Just ask Amaranth.

RSI (5) for September 18, 2006

• SPY – 70.1 (overbought)
• DIA – 76.7 (overbought)
• IWM – 68.3 (neutral)
• QQQQ – 75.0 (neutral)

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

Filed Under Crowder's Daily Market Commentary ·  

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