Weekly Review - back above water again

It was a wild week that tested my nerves, patience and emotional control. It was all about how to hedge PCLN after I added on the dip. Unfortunately, I chose a super strong, straight-up, no pull back whatsoever BMS and kept averaging up till the gap down today, which also refused to break even 1 freakin' horizontal support level on the way down:

So since I expect a reversal next week or the week after that, I had to find hedges for more downside in PCLN:

and here are potential shorts for the next 2 weeks:

As for potential longs, they are plentiful, but mostly in the technology and services sectors.

Cumulative new highs-new lows signaling rally might be over very soon

Cumulative new highs subtracted by new lows has been signaling the green light to start going short again. Since July 2007, or the peak before the '07 top, this indicator has not generated even 1  consecutive multi-day  "rally" in both the Nasdaq nor NYSE issues. The pattern looks like multiple waterfalls with no bottom in sight.

Even though the signal is not accurate at spotting the exact day of the intermediate-term tops, it does help identify a specific range that turns red again at or very near the top.

Unbelievably overbought

We have reached the fib retracement in the SPY at 82.7 and new lows are extremely low, forming consecutively high red bars in the histogram of my SPX divided by NYSE new lows indicator.

How much more pump is there before some decent retracement to the mid 75-76 range in the SPY? it's getting ridiculous here.

New low buy target for SPY

We have an Bearish Evening Star on the weekly SPY chart. Not exactly encouraging for the bulls.

WMT - call selling strategy

Time frame for this strategy is 3-6 months since it takes it so long for gravity to pull it down to a double bottom level at 41. It's a solid outperformer of SPY after all.

AXA short idea

Found this bear meat on Finviz after looking for a screen of financials that are at least 20% over 20D SMA. Looks like a promising swing trade set up so far.

3 weekend Links

Our Engineered Meltdown: End of the Beginning - gamingthemarket

Learning How to Trade: Managing the Psychological Risks - traderfeed

Financials that are 20% over 20D SMA - finviz

I survived this Quadruple Witching Stew

After a brutal Wednesday that wiped out 2 weeks of hard earned profits, I gained 80% back by the end of the week but also gained some gray hair as well.

I'm still convinced we will head lower but untill I see some real break downs I will keep being fully hedged with FAS even though it underperforms RKH and PNC on the way down but way outperforms on the way up.

It seems /ES is pretty much confirming a begining of a short term bearish trend so far:

If we did get the sell-on-the-news intermediate term top yesterday then I expect very little retracements on the way down, but will not add to my shorts unless we break the green line shown above and break the 76 support level.

If we do get another leg up I will add to RKH above 56 for a potential double top and a drop back under the broken peak to peak trend line while adding to my FAS hedge on dips. now even though the trend line is broken, it was broken once before and came right back in after a 1 week period of low volatility. 

I allow myself to add on weakness while staying hedged to protect gains.

Commitment of Traders Analysis for 3-10-09

OK so tomorrow we get a new COT report from the CFTC, so I know i'm late, but this is my first time analyzing a COT chart, so here it goes:

Large drops in open interest always happen at or very close to tops or bottoms. We are approaching a level of very high open interest and a sharp drop is imminent, from what this chart looks like anyway. another dose of 20,000 contracts and we're at the same level of Nov' 08 low's open interest. All this is happening while we supposedly already "bottomed" at the very evil 666 level. So does this mean the bottom happened near the upcoming open interest drop or is there another drop in price to coincide with open interest?

Also noticeable from this chart is the shift from net long to short net of large specs right at the top of Sep.' 09 (at least so far). (in blue) Hedgers (commercial) have been trading along with large spec as well.

And small speculators like myself, even though I don't touch the futures, are just buying all the way down to the abyss the full sized contract, SP, while following the large specs in the full sized SP by going net short at the Sep. '09 top as well:



It seems like ES contracts are used for hedging for large specs and for speculating for hedgers. ES Hedgers are aggressively increasing their shorting exposure near tops as well.

My head is spinning now, I think i'll give this one a rest.

There's something fishy in Divergence Palooza

OK so I made the mistake of taking off my partial hedge today before the 7-8% jump in RKH.

I lost yesterday's gains for todays odds defying almost 6 days in a row gains in the SPY. blagh.

Can't beat the odds every single time, but man is it painnful seeing those hard earned profits being seperated by market makers.

I'm still convinced this rally is just market maker bullshi+ like in January's very long stretch, which shook me out because back then I went short half way into the rally too early as well.

The difference now is that I hedge on dips so I keep some of my gains from these nasty shake outs.

There are many elements that are missing in this rally, too much stuff really. This is especially true for Nasdaq:

Average new lows in the naz are diverging with VXN, its implied volatility index.

A downtrend in both is a solid bullish trend and vice versa. None of that happened today but we had a supposedly "broad" rally across all sectors.

52W lows are diverging as well. Some extremely bearish signal in the NYSE is not as bearish in the Nasdaq:

The sentiment in the options arena is also very confusing:

We are stuck between a downward trending channel in the PUT/CALL ratio yet we made a new low in the SPX AND in CPC ratio. Tops in CPC are common for bottoms in SPX and vice versa. This time the intermediate term trend is converging.

A new indicator that I've come up with is a relationship between total PUT/CALL ratio and Equity-only PUT/CALL ratio:

This indicator can sometimes be extremely wrong on timing, which is why it needs to be taken with a pinch of salt. As of the 666 bottom in SPX it signaled a bearish reversal signal of bearish sentiment by showing a lower peak than the one in January. Just another tool in the tool box for market timing, but its not the sharpest obviously.

Now for a sentiment indicator that visualizes the relationship between flight to safety vs. flight to risky sectors. XLU is considered one of the more stable sectors out there, at least more stable than other sectors, maybe even healthcare, but that would be controversial.

XLF is obviously the most risky sector.

When actual sectors and their bullish % indexes are divided, certain trends can be seen converging with the broad market, like SPX.

We have a very big spike in the bullish %'s ratio and its staying up there. That could be because of the sharp drop in Utilities lately which could mean that there is really a flight from safety or just sector-specific trouble like in healthcare, which is also a safety sector.

Only when looking back to this post much later, I'll really be able to tell if this is was the needle in the hastestack that revealed if 666 was the bottom of 2009, another intermediate bottom. or just another short term bottom.

VIX:New lows signaling end is near for this artificial rally

OK I had doubts this morning about the direction about the next 2-3 weeks.
Initially I went short a lil bit too early into yesterday's short covering/oversold spike rally, but financials and banks retraced low enough for me to reduce exposure and risk and be moderately short for a 1st of 3 entries swing trade.

Now that I've seen this lovely indicator:
I now have a much better picture of the topping range for this upward retracement, which is:
SPY tops between 75 and 78.5 range and then crashes back down to where it came from under the nefarious 666 level.

I'm short regional banks and PNC because of the very strong downward trend lines:


and I'm also short TTC because of the great set up if it finishes red today:
Since the up and down multi-day periods are so stretched out in the past 3-4 months and VIX is just really "apathetic" of dumps or rallies, so to speak, since its just consolidating within a tight range compared to october-november range - then I'm fully prepared for very little retracements down on the way up to worst case scenario of top at ~78.5 in the SPY.
FAS will be my hedging tool until then.

Also, AVB now looks like a tempting short but I rather stick with what I got now.

PCLN

So I haven't been blogging as often as I used to lately. Maybe its laziness. Maybe its cuz of the exams even though last semester I blogged everyday exams or no exams. Lately I just feel comfortable with my risk management. Not an excuse, but still.

Anyway, PCLN has been very volatile today and I think its a shake out before another wave up.


It looks like there was a pretty good accumulation zone today at 75, which is where my fill was on the 2nd try. First I thought 75.75 was good, then realized it wasn't, so I didn't panic and waited for a bounce then got out. It retraced gradually and I originally expected to get in at a 61.8% fib retracement from the LOD to the top of the retracement, but then figured that wasn't going to happen so I raised my buy target above the 23.8% fib level which was 24.70.

If this was a 1$ scalp, It would of been a great trade. But its only the 1st of 3 expect buy targets:


But I'll probably just sell at the closest resistance since I expect another EWT wave 5 down in the S&P, so it all depends if today was the low for the next 2 weeks or not.

My gut feeling is that even though PCLN is long term bullish technically, it looks too good to be sustainable - what? its gaining more market share at double digits percentages every year?

The stock is really volatile and it has sharper rising angles than 30 degrees, which is what I'm comfortable with for sustainable rallies. This always leaves me with the finger on the trigger when buying for longer time frames than a few days.

Maybe this stock is one of the very few stocks left in the "hyped up more than what the true picture really is" category with fake figures and celebrity endorsements kind of deal. I don't know but this is why I won't ever get aggressive with PCLN for swing trades.

BBY short idea and Weekly Review

OK we finally got a jump... halleluja for the bulls, right? WRONG!

So the question is, where are the buyers? ...MIA.

CNW made a new 52W low so I had to cut it. The lesson from this loser is that it was a fibonacci level 1 day bounce trade and the party ended there. I should of known that's what would happen since the angle of the multi-week sell is so steep:
And Since I expect even lower prices next week, BBY broke a good support level and would be a good short on a bounce back up to this level:I originally got the idea to short BBY from the great Howard Lindzon, who hates them. hehe.

Over 25.25 is my entry target and my exit depends on how bearish next week gets - the more bearish, the lower the support level to pick from.

I shorted some SPY afterhours to remain partially hedged.
BVN almost broke the 50EMA and that was my stop if it closed below, so it was an intense close.

SPY Potential 162% fib reversal level

67.30 is where I'm covering my SPY hedge, just a heads up. If it really bounces there, I'll use this level in the future.

FDIC insolvency warning and regional banks tanking on an up day

FDIC going bankrupt? HAH! 113 points down (since '07) and 37.23 points to go!

Hedging portfolio with total average ATR

So SPY is up a few points and volume is really high, but only towards the end of the day will we know how great volume really is.

So its not capitulation yet. Time to protect whatever gains I got from the gap up and hedge everything. How? adding up all the average ATRs of every stock and then the ATR of the stock you're hedging with and then multiplying by number of x100 shares.

So my total porfolio has a total average ATR of all 8 stocks x 1100 shares is 13.8
SPY is my hedging stock and its ATR is 3.3 so dividing 13.8 by 3.3 is approximately 4.2

So 400 shares of SPY would hedge, approximately, my total portfolio.

Here's all the stocks and SPY's charts and ATRs: (image is really huge)