Some Interesting Probabilities Surrounding Payrolls
February 2, 2012
Will the beginning of the “anticipated” correction come tomorrow?
The Nonfarm Payroll report is often a market mover and I expect to see much of the same tomorrow.
The market is wound tight and typically when that occurs we are witness to a large directional move.
I expect, regardless of how positive (or negative) the report is tomorrow, the market will push lower.
As most of my loyal readers know (and thank you all for the amazing support by the way) there has not been a shortage of bearish indicators as of late. Over the past two weeks, with volatility drying up (VIX now in the low 18’s) due to the tight trading range over the past two weeks, bearish indicators have piled up and have reached extreme proportions. I compare it to stacking pennies, eventually the stack falls when the weight becomes to great. And right now, the weight of the market overwhelming.
But back to the Nonfarm Payroll report.
Talented analyst Jason Goepfert of Sentimentrader.com recently stated that when “the S&P 500 closed at a six-month high with volume 10% off its low from the past month (as it did on Thursday), then the next two days were positive only 12 out of 46 times.”
Out of the 12 positive occurrences, only twice did it advance more than 1%. Thirteen times it closed with a loss greater than 1%.
Another interesting stat provided by Mr. Goepfert is “the last 8 Fridays when the Nonfarm Payroll report was released” all have closed lower than than te prior trading day.
In fact, if you went back to September 2009 and purchased shares of the S&P and sold at the close of the trading day you would have only made a paltry 1%.
Couple the aforementioned studies with short-term overbought readings in three out of the four major indices and I expect to see a short-term pullback over the next 1-5 days.
The two best performing days (on a historical basis) in February are now behind us and now we are entering into a period of bearish seasonality.
Just more food for thought.
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How Long Can We Teeter on the Edge
January 31, 2012
January’s rally was admirable.
It’s perseverance frustrated bears.
The infrequent single day declines maxed out at -0.6%.
And the last nine days of the month were more than mind-numbing for most traders as the market traded in a very tight range.
There’s no doubt the bears are ready. Almost every technical and sentiment measure I follow has pushed into a bearish state. Typically, I am ecstatic by the weight of the bearish measures, but it seems everyone is aware of the measures and have joined my camp. And when what seems like the herd is anticipating something it has a hard time coming to fruition.
We must remember that January is one of the strongest month of the year for the market. February not so strong with a historical return of 0.0%.
February swoon?
After three months of gains a decline seems the likely scenario. Again, almost all technical and sentiment measures have reached short to intermediate-term extremes, but will they win out for the bears or will the mighty power of the bulls push through the consolidation that has lasted nine long trading days?
If you haven’t already, don’t forget to sign-up for my :
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The Ongoing Frustrations of the Options Industry
January 30, 2012
*Just a short rant tonight. Hopefully, if time permits, I will be back later with some additional reading.
Hacks, hacks and more hacks?
I hate to say this about some of my fellow options traders, but I can’t tell you how much I abhor those in the industry (you know who you are) that absolutely ruin the true benefits of options for the self-directed investor. Claims of outlandish 300%, 400%, 500% in just a few days. Encouraging the use of low-probability out-of-the-money puts as a predominant strategy without the mention of selling premium.
It’s frustrating.
It’s frustrating to see so many so-called gurus with no real-world experience act as options traders when their services fail time and time again. Again frustrating.
Why don’t people want what’s important, realistic gains with realistic strategies. Transparency. Knowing that trading isn’t easy and is a life-long endeavor and that while the journey may be bumpy at times over the long haul it is worth all of the effort. A long-term approach to short-intermediate-term trading with high-probability trades as its foundation. Selling credit at every extreme and occasionally taking some greater risk with a few directional plays. Always talking about the importance of position-sizing. Always considering risk-management.
Why would people rather join services that tout such outlandish claims? It is beyond me. Are self-directed investors really that gullible?
It is my hope that I have carved and will continue to carve a slice of decency and transparency into the options world. I am certainly not perfect, but I know that options are a valuable tool for every investor and it is my goal to teach as many people as I can about the benefits they offer.
If you haven’t already, don’t forget to sign-up for my :
High-Probability, Mean-Reversion Options Strategy : Free 30-day trial
Theta Driver Options Strategy (limited room available): Free 30-day trial
Also, for those of you who live on Facebook. You can access my info there as well. Just click on LIKE.
