Nothing gained, Nothing lost

October 17, 2006

First of all, I would like to thank David Gaffen from the Wall Street Journal for quoting and featuring our blog in Tuesday’s Blogroll Column. Since April (when I first started writing daily in the blog) the response has been overwhelming. I wanted to bring my readers an educational and worthwhile read on a daily basis and it seems as though I am moving ever closer to my original goals. I appreciate all of the positive feedback and I hope to continue to bring products and services that will help you with your trading/investing. Thanks again!

The market moved lower after a suprising core PPI was reported Tuesday morning. However, the selloff did not last long as buyers stepped in around noon EST and brought the market back to where it started the day. We typically see markets react like this when the first sell-off occurs after an extended rally, so today’s intraday reversal was not unexpected.

I still think with all of the short-term bearish indicators that currently reside in the market we could see a correction over the coming weeks. If the market continues to trade in a tight range throughout the week of options expiration we should be prepared for the possiblity of a post-expiration sell-off. This type of action typically occurs the day after expiration. If the market does happen to sell-off over the short-term watch the 1353-1355 area on the S&P. If the market breaks below this area we could be in for a nice correction over the short to intermediate-term.

The performance for Septemeber and so far, October, have been better than most analysts anticipated. So I am going to repeat what I have been saying over the last few weeks. “Another interesting (and not often mentioned) statistic that I came across was that when the market had a strong September and October during the mid-term elections (4 year cycle) every single time the market experienced a dramatic sell-off during the middle of November. The scary thing was that the sell-off averaged 5% to 10%. This is certainly something that we will be watching as we move closer to the mid-term elections.”

I know I promised not to mention it again, but I am really interested in this historical phenomenon. Also, I apologize to all of my loyal readers for not posting Tuesday’s commentary sooner. A few unexpected things popped up that could not be ignored so I was not able to post during my usual timeframe. Take care and have a wonderful Wednesday.

Please do not hesitate to email us/ leave comments. We would like to hear what you think of our daily commentary and semi-monthly newsletter.

RSI Wilder (5) for October 17,2006

SPY – 70.3 (overbought)
DIA – 78.3 (overbought)
IWM – 75.2 (overbought)
QQQQ – 58.3 (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, Crowder Investment Research, LLC

Filed Under Crowder's Daily Market Commentary ·

What to expect during the week of Options Expiration

October 16, 2006

As we all know the market has been advancing (almost uncontrollably) for several weeks now. I can’t remember the last time the Dow (DIA) has been in a “very overbought” state for this long. I went back over the last ten years and there has only been a few months during that timeframe where the Dow has had an overbought reading this high. In each instance a decent correction was in the cards several months later. It certainly looks like the set-up for the mid-term election statistic that I mentioned repeatedly last week is coming to fruition.

For those of you who are new to the blog (there seems to be a recent surge of readers on a daily basis) I stated: “Another interesting (and not often mentioned) statistic that I came across was that when the market had a strong September and October during the mid-term elections (4 year cycle) every single time the market experienced a dramatic sell-off during the middle of November. The scary thing was that the sell-off averaged 5% to 10%. This is certainly something that we will be watching as we move closer to the mid-term elections.” I like to point this out to people so at least they are aware of the potential of a correction. I encourage those of you who are new to the blog to go back and read the commentary from last week to get a better perspective of our short to intermediate-term outlook.

The week of Options Expiration is often positive, although the “Tuesday Top” can often come into play which signals the high of the week. The only historically negative day during the week is the day of Options expiration. However, as we enter post options expiration the week swings over to the bears where only the Wednesday of post-expiration is historically bullish. Obviously, these are only seasonal measures, but it is always advantageous to be aware of the seasonal tendencies that lie ahead.

RSI Wilder (5) for October 16, 2006

SPY – 88.7 (very overbought)
DIA – 92.0 (very overbought)
IWM – 85.3 (very overbought)
QQQQ – 86.3 (very overbought)

Check out our new White Paper. Learn the secrets to some of our favorite options strategies. We are very proud to announce the release of our new report “Simple Investment Strategies and Techniques: A Guide to Several Unique Options Strategies that have passed the Test of Time”.

Andrew Crowder, Chief Investment Strategist, Crowder Investment Research, LLC

Filed Under Crowder's Daily Market Commentary ·

Watch the VIX! Is it telling us something?

October 13, 2006

Have you seen where the VIX is trading lately? If you are not familiar with the VIX here is some background info from one of our favorite sites www.investopedia.com. ”The VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk.The index is often referred to as the investor fear gauge”.

Okay, back to the current status of the VIX. After today’s trading the VIX has once again closed under 11, a historically low level. Going back over the previous year whenever the VIX reached a level this low while in an “overbought” to “very overbought” position this signaled a short to intermediate-term decline. Furthermore, I looked back to see how the market reacted when all four major indices were in a “very overbought” and this was also a good signal that a short-term reprieve was right around the corner.

The market was in a similar situation last month. I stated in the blog “Historically, this usually precedes a short to intermediate-term decline and with all of the info that seems to be piling up on the bears side we should expect the same result this time around. We must remember the week of options expiration can be extremely volatile and can often fool many into adding positions that ultimately fail. Will this time be different? No one knows for certain, but with all of the information that we have sitting in front of us I can only side with the probabilities and this time (at least over the short-term) they are leaning towards the bearish camp. Only time will tell.”

The market traded sideways during the week of option expiration only to move lower the following. I was able to take advantage of the situation (as reported on our performance page) as we entered into a two day trade which reaped profits of 10.4%.

The upcoming option expiration promises to be an intersting one. Have a wonderful and safe weekend!

RSI Wilder (5) for October 13, 2006

SPY – 87.2 (very overbought)
DIA – 91.2 (very overbought)
IWM - 82.6 (very overbought)
QQQQ – 85.9 (very overbought)

Andrew Crowder, Chief Investment Strategist, Crowder Investment Research, LLC

Filed Under Crowder's Daily Market Commentary ·

Still sitting on the sidelines?

October 12, 2006

Yes, I am still patiently waiting for an entry. Over the past week or so I have stated that several short-term technical and indicators have moved into bearish territory, yet our proprietary indicators are still telling us to patiently sit on our hands. Of course, I would love to be participating on the long side of things right now, but conventional wisdom (and my style of trading) will not allow me to move into long positions when the market is “overbought” to “very overbought”. I did expect to see a move lower by now which is why I always stick to what my indicators are telling me. If the bulls continue to reign supreme throughout October it could be advantageous to be aware of the set-up that I mentioned a few days ago. I stated the following:

“Another interesting (and not often mentioned) statistic that I came across was that when the market had a strong September and October during the mid-term elections (4 year cycle) every single time the market experienced a dramatic sell-off during the middle of November. The scary thing was that the sell-off averaged 5% to 10%. This is certainly something that we will be watching as we move closer to the mid-term elections.”

The major indices have once again moved into “very overbought” territory on today’s move that broke the six day, range-bound market. Could today’s move be a fake breakout? Oftentimes, when the market trades in a tight range for several days the initial spike outside of the range is met with a sharp reversal a few days later. Just remember that “oftentimes” doesn’t mean that it is a certainty. As we all know, over the long-haul not every trade is going to be a winner (and you have to be prepared for losing streaks), but by minimizing your losses by staying disciplined to established capital preservation techniques you will never reach the “hope” (and sometimes pray) situation that many novice traders go through. The novice trader who hasn’t gone through this is definitely the exception and believe me I am not the exception. Like most experienced traders I learned the hard way, which is why I always stress the importance of establishing money management techniques, and more importantly sticking with them, before you decide to invest/trade. Always know your limitations. Let the market guide you, not your emotions.

Trading solely off “overbought” and “oversold” measures can be tricky, especially when the market is “overbought”. ”Overbought” measures are not nearly as reliable as “oversold” measures which is why I am always somewhat hesitant to blindly sell rallies. All of my indicators have to line up before I take the plunge which is why I have remained on the sidelines while the S&P and Dow have been in an “overbought” position for 7 straight trading days. Our ETF Extremes strategy has managed to reap a 35.7% gain YTD by remaining patient and disciplined and we have no intentions to place a trade strictly to place a trade. In most cases, the less you trade the better.

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 will obviously be 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 friend.

RSI Wilder (5) for October 12, 2006

SPY – 85.2 (very overbought)
DIA – 90.1 (very overbought)
IWM – 78.8 (overbought)
QQQQ – 83.7 (very overbought)

Andrew Crowder, Chief Investment Strategist, Crowder Investment Research, LLC

Filed Under Crowder's Daily Market Commentary ·

Range-bound trading continues

October 11, 2006

For the fifth straight day the market has traded in an extremely narrow range (less than 10 points to be exact). The index hasn’t seen a trading range this tight, for this long, in quite some time. As I have stated over the past few days, extended, low-volatility trading typically leads to sharp moves. My stance hasn’t changed over the past week or so. Given the recent short-term bearish indicators that have piled into the market, the seasonal bearishness that occurs during the middle of October and what seems to be very strong resistance that lies overhead, I can’t help to side with the bears over the short-term. Low-volatility leads to a boring market and repetitive commentary so I will spare you with all of the details that I have mentioned over the past few days. I encourage those of you have not my two prevoius posts to go back and read them. I think you will find them quite useful and interesting during this time of monotonous trading. Also, check out my our new White Paper. Learn the secrets to some of our favorite options strategies. We are very proud to announce the release of our new report “Simple Investment Strategies and Techniques: A Guide to Several Unique Options Strategies that have passed the Test of Time”. Topics include:

Brief description of Greeks
Black-Scholes option pricing model (includes Excel model)
Risk management – Capital Preservation/Position Sizing
Step-by-step trading guidelines using RSI Wilder (5)
Step-by-step trading guidelines to our Gap Fade strategy
Step-by-step trading guidelines to our Short Iron Condor strategy (learn the strategy used by many options professionals and online advisory services)

RSI Wilder (5) for October 11, 2006

SPY – 71.0 (overbought)
DIA – 80.7 (very overbought)
IWM – 62.6 (neutral)
QQQQ – 70.0 (overbought)

Filed Under Crowder's Daily Market Commentary ·

Tight range-bound trading (low volatility) often leads to sharp moves

October 10, 2006

Since the October 4 rally the major indices have been stuck in a quagmire of tight, range-bound trading. The S&P and Dow have struggled to break through what seems to be an area of strong resistance but have failed with each attempt. Typically, this type of low volatility trading leads to a sharp move outside of the range. Given the short-term bearish indicators that are piling up as well as the bearish seasonality that the market is entering I can’t help to lean towards the bearish camp, at least over the short-term. However, as I have stated numerous times keep a close eye on how the S&P reacts to the 1340 area. If the index tumbles through this area without pause we could see a nice move to the downside. However, if the market begins to consolidate around this area we could get a bounce higher. Keep a close eye on this area!

I would like to reiterate the statistics I mentioned yesterday as I think they are quite interesting and you should always be aware of the upcoming historical trends. I apologize to those of you who have already read through this but I do think it is important for those of you who have not had a chance to look at seasonal trends ahead.

Overall, October has been positive, but most of those gains (94% to be exact) have come during the first/last three days of the month. The middle of the month has been weaker than normal. Historically, 9 out of the next 13 trading days have shown below average returns. The question is will the seasonal bears come out to play this time around. The market is still “overbought” to “very overbought” and our proprietary indicators are still leaning towards a short-term sell off. If the market does sell-off watch the 1340 area as this could act as a decent area of support for the S&P.

Another interesting (and not often mentioned) statistic that I came across was that when the market had a strong September and October during the mid-term elections (4 year cycle) every single time the market experienced a dramatic sell-off during the middle of November. The scary thing was that the sell-off averaged 5% to 10%. This is certainly something that we will be watching as we move closer to the mid-term elections.

As I always say, seasonality, in most cases, should never be the sole reason to place a trade, but it does pay to keep a close eye on seasonal tendencies to further assist you in your trading.

RSI (5) Wilder for October 10, 2006

SPY – 79.5 (overbought)
DIA – 80.9 (very overbought)
IWM – 71.0 (overbought)
QQQQ – 75.8 (overbought)

Also, check out my our new White Paper. For those of you who are intersted in learning alternative investment strategies, namely options strategies, you should find the step-by-step guidelines to our favorite strategies a wonderful complement to enhance to your investment objectives. Learn the secrets to some of our favorite options strategies. We are very proud to announce the release of our new report “Simple Investment Strategies and Techniques: A Guide to Several Unique Options Strategies that have passed the Test of Time”. Topics include:

Brief description of Greeks
Black-Scholes option pricing model (includes Excel model)
Risk management – Capital Preservation/Position Sizing
Step-by-step trading guidelines using RSI Wilder (5)
Step-by-step trading guidelines to our Gap Fade strategy
Step-by-step trading guidelines to our Short Iron Condor strategy (learn the strategy used by many options professionals and online advisory services)

Andrew Crowder, Chief Investment Strategist

Filed Under Crowder's Daily Market Commentary ·

Will the market experience the seasonal bearishness that typically occurs during the middle of October?

October 10, 2006

Tuesday kicks off the seasonal bearishness that typically occurs during the month of October. Overall, October has been positive, but most of those gains (94% to be exact) have come during the first/last three days of the month. The middle of the month has been weaker than normal. Historically, 9 out of the next 13 trading days have shown below average returns. The question is will the seasonal bears come out to play this time around. The market is still “overbought” to “very overbought” and our proprietary indicators are still leaning towards a short-term sell off. If the market does sell-off watch the 1340 area as this could act as a decent area of support for the S&P.

As I always say, seasonality, in most cases, should never be the sole reason to place a trade, but it does pay to keep a close eye on seasonal tendencies to further assist you in your trading.

RSI Wilder (5) for October 9, 2006

SPY – 76.9 (overbought)
DIA – 84.0 (very overbought)
QQQQ – 74.3 (overbought)
IWM – 69.8 (neutral)

Andrew Crowder, Chief Investment Strategist

Filed Under Crowder's Daily Market Commentary ·

Approaching Short-term Seasonal Weakness

October 6, 2006

The market held steady again today. The move lower on a lower than expected unemployment number was rather paltry and conitues to leave the shorts frustrated. The bearish indicators keep trickling into the picture yet the market continues to perform admirably. I stated yesterday that a short-term reversal seems imminent and I still think we will see a thisa occur over the next few trading sessions.

Seasonal weakness is right around the corner. Historically, the middle of October is a weak period for the market. The 7th trading (Tuesday) of October is typically one of the weaker trading days of the month and kicks off the middle of the month seasonal bearishness. The ”October Blues” lasts until around the 19th trading day (26th of Oct.) and then seasonal bullishness kicks in once again. I must point out that October is also the most volatile month for the market. However, as we all know, seasonality did not live up to historical precedence last month. As I always say, seasonality, in most cases, should never be the sole reason to place a trade, but it does pay to keep a close eye on seasonal tendencies to further assist you in your trading.

Our indicators didn’t move much today. The market remains “very overbought” to “overbought” and typically, the longer it stays in this state the sharper the reversal. If a reversal does occur, pay close attention to 1340 area on the S&P (give or take a few points). This was the top for several days last week on the S&P and will most likely act as an area of support if the market moves lower. Next week should be interesting to say the least.

One last note of interest, during mid-term election years the 4th quarter is positive 87% of the time. An astounding number. If the market does move lower, the reversal could launch a bull rally to end the year. Just some food for thought.

RSI Wilder (5) for October 6, 2006

SPY – 76.2 (overbought)
DIA – 82.9 (very overbought)
IWM – 64.6 (neutral)
QQQQ – 71.4 (overbought)

Andrew Crowder, Chief Investment Strategist

Filed Under Crowder's Daily Market Commentary ·

Patience Pays

October 5, 2006

The market trickled higher today ahead of the closely watched Unemployment report for September. Typically, the market vacillates widely the day of the unemployment numbers are announced. I expect to see the same tomorrow.

I continue to sit on my hands. I have mentioned over the past few days how a short-term reversal seems imminent. In most cases, given the “overbought” to “very overbought” nature of the major indices and the end of seasonal bullishness I would have placed a trade at the end of the day. However, with the Unemployment report coming out tomorrow before the market opens I am somewhat tentative. An overbought market has a greater tendency to continue its current trend than an oversold market and I do not want to be stopped out if we see a large gap up tomorrow. I still think I sharp sell-off will occur over the next few trading days and I hope to be a part of the short-term move. This is where many traders get into trouble. They anticipate a move and then are unable to get the ideal price so they start to chase. One of the many things I have learned as a trader is that more opportunities are always right around the corner. So if you happen to miss a move, try not to dwell on it, because it is going to happen over and over during your life of trading/investing. Remain disciplined and stick to your trading guidelines. As I always say it pays to be patient.

RSI Wilder (5) for October 5, 2006

SPY – 82.2 (very overbought)
DIA – 87.1 (very overbought)
IWM – 72.3 (overbought)
QQQQ – 75.6 (overbought)

Andrew Crowder, Chief Investment Strategist

Filed Under Crowder's Daily Market Commentary ·

Back in “Very Overbought” Territory

October 4, 2006

The Dow (DIA) and S&P (SPY) moved back into a “very overbought” position which, in the past, has signaled a short-term decline. Over past year, the Dow was lower 7 out of the 8 times over the short-term, when the Dow reached a “very overbought” level equivalent to where it stands today. Furthermore, the market is moving out of the seasonally bullish, beginning of the month period and a few other short-term bearish indicators are in “extreme” areas.

Yesterday, I stated that “I still think we could see a breakout to new highs in the Dow which should bring the index into a “very overbought”. Most likely, this would also bring the S&P into an “overbought” state. Additionally, once we reach the latter part of the week the beginning of the month bullishness starts to wane. This could be around the time a short-term move begins. Of course, I do not know this for certain (no one does), but this is the move I will be looking for, and if it occurs I will most likely react.”

Well, the set-up I was looking for came to fruition and now it seems (according to my indicators) that a short-term decline is imminent over the next few trading days. I must point out that in an uptrending market overbought readings are not as accurate as when an oversold reading occurs. Be that as it may, I always have to trade high-probability setups and it looks as though we are in the midst of one. As always, be nimble, and use stops appropriately. Money management and sound capital preservation will help you succeed over the long-term, so it pays to be well-informed of your trading intentions before you decide to place a trade. I will talk about money management and capital preservation techniques further in our upcoming options expiration report. Have a wonderful night (and Go Mets!).

RSI Wilder (5) for October 5, 2006