HCPG Blog

Map going forward

2012-01-30T15:53:00.001-05:00

Slight sell-off today making today’s candle completely below the Standard Deviation 1 on the Bollinger Band, first time since Jan 03. However, we’ll err to the bullish side (buying dips/break-0uts) as long as we stay on top of this trend-line. If we break it, then it would be time to re-assess but until then ball in bull court.

Quite possible that the “easy money” has been made as we have broken the Standard Deviation 1-2 trend but as said — as long as we are on top of the trend-line the bulls have the advantage $SPY

The re-test market

2012-01-27T21:48:00.001-05:00

This last month has been one of the best markets for break-out traders we’ve seen in a long time. Everything works: not only the first break-out, but also the re-test, which is a sign of how generous the tape has been this month. What do we mean by successful re-test? Take a look at these examples:
We gave the first trend-line alert on $AMZN a while back as a freebie on the stream– first buy was trend-line break. Stock ran, then was faded back to trend-line and then ran again up to our next alert (this one was for HCPG subs only) at 185. Again fantastic run, and again re-test and a break-out of our third pivot which was trend-line break. Great trading stock.

$POT 44 was another freebie for the stream — nice break-out on original break and look how it came back to test the number and bounce this week.

$X 29 was HCPG newsletter alert for weeks — it finally went, re-tested the number and bounced yet again. Usually each of our alerts is good for one trade. We’re now finding that the alert is giving us multiple trades — a sign of an extremely good tape for traders.

One last example in $SLW — 32 was our buy spot in the newsletter. Worked great first time through, but look how it came back to re-test 32, find support on the number and bounce like a rocket.

All traders with similar strategies to ours want this tape to stay like this for as long as possible. Of course it never lasts for too long but as traders we have to milk it for what it’s worth. We’ve written a few times this week in the newsletter not to overthink the market. Yes we’ve come straight up, yes we’re overbought, but in this tape you have to put that aside and focus on the individual set-up. If it’s good, take it, if it’s not, pass. Today a good example as $SPY was flat yet there were break-outs galore left and right in momentum stocks.

Our strategy going forward is the same — we’re not going to hyper analyze strategies – whatever sets up on our list we’ll take a shot ($NUS $LNKD were the two HCPG break-outs for today — fantastic moves in a flat market), and if nothing sets up then it’s usually the sign that market wants to pull-back. One step at a time.

The chosen ones

2012-01-18T14:45:00.002-05:00

Our readers know that we like to find big spots on our favorite stocks and then focus on them until they break-out. The longer they’re on the newsletter often the better the trade. Why? Because we have watched the stocks for sometimes weeks and know their behavior very well. When the break-out day comes and we see the action/volume fall into place our conviction is strong. And once you get the basics down (strategy, risk management, etc) what’s left, at least for our type of trading, is all about conviction.
Two recent examples from 2012. We saw $POT 44 in early January and wanted that break-out. It was highlighted in our newsletter on Jan 4, 5, 7, 9, 11 until it finally broke out on the 13th.

The same happened finally with $AMZN today which had been highlighted as 185 breakout in newsletters sent out on Jan 7, 9, 11, 15, 17 with a 5 point break-out today.

Every trading style is different but for us it pays to watch the big spots like hounds, learn the stock’s behavior, and then hit it hard when the big day arrives. The disadvantage to this method is that there are fewer opportunities compared to strategies that constantly scan for volume, moves, etc, but the advantage is that the win rate (which in turn helps one’s confidence) is relatively high compared to other strategies.

It’s common wisdom that a trader’s strategy should synch with his personality — we’d rather trade less (relative to day-traders that is) and be right most of the time than trade more and be wrong most of the time, even if the PnL is equal. Why? Over the years it’s what has evolved naturally for our type of trading due to our desired levels of confidence, stress-level, and quality of life.

It's not the charts, it's what mood the market is in

2012-01-15T13:53:00.001-05:00

Almost every break-out we had in our newsletter last week worked, from copper stocks, fertilizer, biotech, oil, tech, no wonder what sector, it ran. They were the same patterns we had in second half of 2011 which often didn’t work. Same charts, very different success rates.   Why?   Sentiment of course. We wrote a few times in the last few weeks how this has been one of the most “benign” markets we’ve traded in for a long time (since earlier parts of 2011).    Even the gap-ups would offer opportunities, as stocks would be faded to alert numbers, and then spring like a rabbit up for fantastic moves.   Dips are shallow, buyers are aggressive, and everyone is a genius.       Indices go to resistance, stall, digest and then go higher the next day. Enjoy it while it lasts because it never lasts for too long.
We’ve never been interested in mechanical strategies exactly because of this — in some markets the exact same chart pattern fails 80% of the time, while in other markets the same pattern works spectacularly for 80% of the time.    Figuring out how benign/generous a market condition is for us is integral to our way of trading.     In easy markets like this mistakes are forgiven, as long as they’re on the long side.   You chased up? No worries, after a shallow dip stock goes right back to the highs.   What is essential for us now is to look for signs of when this mood starts to shift — the first will be a dip that is not bought, i.e. a trend-day down.   That could start shifting the psychology.
We watch our favorite tells all the time, the Euro ($6E_F), silver ($si_f), bonds, copper, etc, but in the end, all decisions defer to price-action. How does a stock act at support and resistance is ultimately the most important piece of information for our type of trading.
On a different note some of you have noticed that we’re not “tweeting” that much during session hours — this was part of our 2012 resolution, to keep our focus on trading during trading hours and make appearances more during after-hours.    If things get less busy we’ll probably tweet more but trading will always be priority number one.    We’re grateful to be part of such a wonderful community but after the honeymoon stage of social media is over, the next pivotal stage to conquer is finding a work/life balance.

Don't get frustrated by the gaps

2012-01-11T13:45:00.002-05:00

Our readers know that if a stock gaps above our alert we either a) let it go b) wait for an intraday set-up to form or preferably c) wait for a fade back to our alert to enter. Happily, the fade is happening a lot. If you see a gap above the alert, don’t delete it and walk away with frustration. Keep watching — what we’ve found in recent days is that the stocks are fading back to the important break-out zones, testing it, and then rallying again. This of course happens frequently in the market, but we’re finding it happening more often than usual this week. Let’s take a look at the examples just from the last 2 days:
We’ve had $OXY 98 in our newsletter for days — and it finally broke out yesterday morning with a gap above our number. And then two perfect fades/trades for those who waited patiently for the entry with 20 cent stops and 1 point rewards:

$SLW 31 interested us long — again, gap up, but fade to number with excellent risk/reward day-trade entry.

$CLF 68 break-out from this weekend’s newsletter — same thing, gap up,and then fade back to our spot, and rally.

$FCX 40 from this weekend’s newsletter — yesterday it gapped above and wasn’t faded back to our spot, but look at today’s action. Great pull-back to 40 and rip higher.

And lastly $DECK 87 from last night’s newsletter — again a gap above, and then quick fade to our spot for excellent risk/reward entry.

We’re currently experiencing a very benign market — don’t worry about the gaps, just watch your spots and wait for the pitch. Almost every single alert we had this week that gapped above gave an excellent entry later in the day at the original alert.

Place your bet

2012-01-06T14:44:00.002-05:00

We’ve posted these charts on the stream in the last 2 days but wanted to bring them in together to show what is at stake:

We’ve spent all week digesting, but not filling, Tuesday’s gap on the $SPY. This is bullish digestion above the 200sma on daily.

$XME is boxed in by major moving averages– it bounced on the 20sma yesterday but is having trouble with the 50/100 from above. Make or break time coming up next week.

$SLV repelled by the 20sma today — note trending slope down. Very clear line in sand.

$GLD repelled by the 200sma — we had this as a short resistance spot all week but alas took it off radar yesterday. Again, clear line in sand.

Nice tight bars under 200sma on the $XLE and has refused to fill the gap — again, roll down or break-out coming soon.

As we wrote yesterday divergence between Euro ($6E_F) and market is deepening — one of them will give in soon and there will be some reversion to mean. Place your bets on which horse will fall first.

Stay Cynical

2011-12-26T12:50:00.002-05:00

After a few days off from the market we came back refreshed and energized and happy to see the Santa rally. But then we looked through our charts and one thing really stood out — silver action, or in this case, non action.

$SI_F chart — dead in the water. Silver is a “risk-on” metal, what’s happening here?

Here’s a chart of the gold/silver ratio overlaid with $SPY. As you can see they usually have an inverse relationship but have recently begun to trend higher together (meaning that market is moving up while gold outperforms silver). It’s too short a time-frame to draw firm conclusions but it’s something to keep in the back of your head.

SPY chart near resistance zone from V move from 120 support — needs to digest this move. We’re in short-the-rally mode until the V formation is worked through. In bullish markets this means pops are faded intraday but support buyers show up before the close- – and this happens until the move is digested. In bear markets it means complete reversals.

Remember that 2009 trendline

2011-12-19T17:51:00.001-05:00

We wrote about the $SPY 2009 trend-line on this blog at least a dozen times earlier this year — it was for us the only chart that counted. Take a step back and take a look at what the market has done since we broke it– churn. Like a dumb old fish bobbing its head up and down in the water. A bunch of nothing.

Market looks like it’s establishing a new trend-line range:

Taking that into account with what we wrote about yesterday, it looks like we’re in for some interesting times.

Bonds and the case against a market bottom

2011-12-18T21:28:00.001-05:00

A quick look at the March 2009 bottom versus our current position at the end of 2011. Note how the inverse correlation between bonds and equities started to crumble in the three months before the S&P 500 market bottom. $TLT topped 3 months before equities (just one more piece of evidence that equities are the last to know after bonds, currencies, and futures). If history is to repeat in this 2011 Euro crisis then we’d expect the inverse correlation bond/equity to also start to falter, something that hasn’t occurred yet. Something to keep on radar.

Metals trying to hold support

2011-12-14T13:01:00.002-05:00

Gold ($GLD), silver ($SLV), and our favorite junior miner ETF ($GDXJ) all are attempting to find footing (bouncing intraday before the market) today as they hit major levels of support. If these levels crater then it would be a major blow for reversion-to-mean strategies that have worked well so far this year.

Major weekly level on GDXJ

SLV bounce near 100 SMA on weekly

GLD first touch of 50SMA on weekly since 2009

Even if you aren’t interested in trading these keep an eye on them as a greater market tell.

For relevant commodity quotes check out Jet Fuel Prices, Coal Spot Price, Crude Oil Price, and Electric Power Maps.

Houston: We have our base

2011-12-10T14:23:00.002-05:00

We’ve talked about the 200SMA wall for months — every time the $SPY got close to this major resistance in it did so from an exhausted V-type move. But not this time. We hit it again this week and just like always, retraced, but on Friday the market came right back up to base under it — we’re at the cusp of breaking through this coming week. It hasn’t paid to anticipate now for 5 months and we held off from doing so but we’re on break-out watch mode and have a list of decent candidates as our go-to stocks.

Furthering the bull case is the bar down below the 50SMA for $TLT

On the worry side we’d like miners to act better– but we’d defer to the actual metals ($SI_F and $GC_F) and if they break-out that’s good enough for the bull case.

Copper has broken out of the range and now is basing nicely. $HG_F

Euro on the other hand is just following the trend-line down — Note however that one good day would break it out of the pattern.

The same can be said for this risk-on metal — silver right now has a bearish pattern but one good day would take it above the trend-line. Many charts to us look the same — we’re not anticipating but we do understand that they could be on the cusp of a break-out and it’s good to have that possibility in your trading plan come Monday.

So to recap — we’ve seen this scenario before where things are lining up, bulls are excited and bang bears pull the rug out. So yes we approach break-out possibility with cynicism but at the same time we do see that this is the first time $SPY has approached the 200 SMA from a decent base which increases the possibility that yes, this time will be different.

200 SMA wall

2011-12-08T12:47:00.001-05:00

We posted this chart yesterday showing the few times we’ve been above the 200sma on the $SPY since the August sell-off. To be exact we were above it for 2 days on Oct 27-28 before reversing, then one day above on Nov 8 before again reversing, and yesterday we closed above the 200SMA for the fourth time since the summer sell-off. If the bulls can manage additional closes above it in the near term ( we’re a point below it right now) then it likely will shift the sentiment away from the current “sell-strength” environment.

The most bullish scenario for us is for the market to flat-line and base near the 200SMA and then break through which is exactly what has been missing from previous break-out levels is the base — we’ve approached it every time from exhausted V -moves. Churn baby churn, indeed.

On the bearish side of the argument, the 200sma is a wall until it isn’t, the Euro ($6E_F ) acts like death, and silver/gold can’t find any traction.

The recent randomness of news/rumors has diminished the edge for our type of trading strategy and as we’ve posted on the stream — we’ve pulled back from being active in this tape. We’re ok with giving back on trades that simply did not work, but we’re not ok with getting chopped up in a tape that offers no good set-ups for our strategy. All that being said, things can change in a heartbeat and it’s still important to stay involved and watch price-action, looking for hints of change.

Gap fill magnet?

2011-11-30T13:15:00.002-05:00

It’s not really our job to be bearish or bullish, our time-frame is too short. Our job is to go through charts the night before and come up with actionable alerts for the next day. This has been very difficult lately due to the (more so than usual) randomness of the market via gaps. However, we think it will get easier soon for our type of trading based on the charts we see (as @todaytrader says, fingers crossed). Let’s take a look ahead:

Huge gap — will it act as magnet? We’d love to see a fill on this gap and our style would dictate a buy on the 50SMA. We’re not betting on it but it’s definitely a possibility for which we want to be prepared.

The junior gold miner ETF ($GDXJ) is one of our favorite trading vehicles — and it illustrates some tough slogging ahead for the bulls. We posted this chart numberous times in November — we had bought a test of the trend-line on November 10 but had warned that another test of the trend-line would probably cater through. Technically this is still a bearish chart and for our time-frame the first test of the 50SMA (blue line) is a short.

Note that bonds are still not rolling over yet — $TLT bounced on 50SMA today. Keep today’s low on radar for rest of week.

A win for the bulls here as copper ($HG_F) loved the China lowering reserve requirement news — through trend-line with a blast, bullish.

It’s hard not to get excited over today’s action but stay cool — bulls still need to prove their mettle going forward. There are a lot of potential new spots we found today on daily but all of them need a bit of basing ($CAM 54, $GD 66.5 to give two examples). All we care about are opportunities, long and short, and it looks like we should get many of them in the coming days.

Weave your way

2011-11-21T17:14:00.002-05:00

The only sense we’ve made out of this market is to go reversion to mean.    At the bottom of the range today we had many support longs trigger — and they worked.   Last week bulls excited for break-out got killed on the reversal.    Range trading at its best.
For tomorrow we have a nice mix of resistance shorts and support longs – traders are confused, investors are confused, politicians are confused, everyone is confused.   And when everyone is confused they become weak holders, thus reversion to mean reigns.     One day we’ll leave this large multi-month range but until then either stay in cash or shorten your time-frame.

$SPY broke the range lower only to reverse into the afternoon and close over trend-line.   Ball is still however in the bears camp until the bulls distance price away from bottom trend-line.

Bear Trap?

2011-11-21T14:36:00.001-05:00

Usually if $SPY is trending down our support alerts don’t do well. Today there has been an astounding divergence as our support alerts have ROCKED while SPY has done nothing but trend down.

These are the support long alerts that triggered from our weekend newsletter (QCOM COP gapped below):

$XOM 76.3
$USO 36.8
$VMW 91.2
$APC 74.25-74.6
$CLR 64.6 — if base, 64 were instructions
$ALGN 26.8
$ULTA 64.4-64.5
(and two shorts $EOG 96 and $WLT 70) Take a look at how well they worked for bounces.

It’s ridiculous how well they worked (and so is the divergence from our PnL and the opportunities in our own alerts as we didn’t have the faith considering SPY action).
We can’t even remember the last time we saw such divergence. Not sure it’s enough evidence to call it a bear trap but it sure is one point for the bulls to see dip buyers under the surface buying with such conviction.

Slaughterhouse Won

2011-11-20T13:56:00.001-05:00

Last Friday as the market was heading back to the top of the range we wrote about how it was do or die time — we would either break-out of the range or fat pigs were going to the slaughterhouse.   On Tuesday we really didn’t see an edge for swing longs and wrote Not Good Enough Risk Reward which indeed was true since the market proceeded to dump later that week.
Our tells of Euro ($6E_F) lagging, combined with lack of good set-ups, and Ags ($POT $MOS $AGU $CF) underperforming helped us and our subscribers stay away from swing longs BEFORE the down move.
For the last 4 months the golden rule has been — the more the bulls get excited, the more you go to cash. We broke the mini triangle down but we’re still in the bigger channel which has support around 119-119.5 on the $SPY.   Note that the trend-line moves every day and target needs to be adjusted.

Our favorite “tell” sectors are completely broken.    However, SPY will probably offer a decent short-term trade on the bottom of this channel.   We like the idea of an overshoot of the 50SMA (120.8) to bring in some panic, and then a bounce around 119 zone on bottom blue line.

If the bottom line of channel breaks (currently around SPY 119-119.5) then it’s going to get a lot dicier to navigate. However, we’ll worry about that if/when it happens. Have a good week.

Scum and Reversal

2011-11-16T14:10:00.002-05:00

Three charts we’re watching closely for bullish confirmations are $GDXJ $MOS $GS. What do they all have in common? Possible break-down failures which would be bullish. Scum and reversal (go through the breakdown zone and then reverse higher) trap the bears and inspire the bulls. We need the closing price to make any kind of price-action judgement but keep these 3 on radar:

We wrote earlier today that $MOS was offering decent risk reward on 55 break-down reversal (was around 55.4 at the time) with stop at 55. A close near 56 would be bullish.

$GS 98 we posted last night we would be short but that a scum/reversal would make us bullish. The short worked for a point and now it’s hovering under 98. A close over 98 today or tomorrow could help bottom this financial. It trades heavy today (too heavy for us to go long) but keep on radar.

We posted this last night as action spot — look how it scummed the lower trend-line and then reversed to stall at higher trend-line. A move through the upper trend-line could get $GDXJ going and would be nice win for the bulls.

To inspire the bulls you need the closing price to have some distance away from the break-down zone. A close near the break-down point would not really yield any information/edge. Two hours to go until the close – keep these 3 on your radar when doing research tonight.

Not good enough risk/reward

2011-11-16T00:24:00.001-05:00

We sent this off to our subscribers (in the newsletter) after the close today:

Usually we’d be in anticipation swing mode right now — that is, putting on positions that we think will hit tomorrow. We held off as we didn’t like the risk/reward as we found good arguments for both sides.

For the bears:

1. We don’t have enough set-ups we love — it really is still slim pickings. However, once we break through the range this will change fast.

2. The volume is atrocious. Note how the Euro ($6E_F) is doing nothing (i.e. not confirming today’s rally) — and currency traders (also bond and commodity) tend to be more “right” than equity traders. Equity traders running up the market on no volume for a Thanksgiving rally.

3. One of our favorite “tells” , the Ags ($POT $MOS $AGU) , are doing nothing and look terrible.

4. The “solution” to the Euro mess will likely involve money printing so why are gold/silver stalling?

For the bulls:

1. The resilience of this market is astounding. No matter how bad the news, and yields surging in France this morning was pretty dismal, the bulls buy the dips. This is a huge point.

You take all these arguments together and what happens is it puts us on the side-lines. The risk of a break-out head-fake we believe is too high for us to anticipate anything right now. There will be easier markets to trade and this certainly isn’t one of them.

Bulls need to prove it this week

2011-11-13T17:54:00.001-05:00

This week should be pivotal — we’re right against resistance in many sectors and it’s up to the bulls to take the ball.
$XLF through this down-trend could cause a squeeze (that being said the first attempt on it could be a nice opportunity day-trade short –all about time-frame) .

$SPY going back to the top of the handle — needs to get rocking if it wants to get the juices going for a year-end rally. Thus far every attempt has been squashed – again, up to the bulls to prove different.

$XME lagging — still under the range.

Copper $HG_F still the weak link even though no one seems to care about it anymore. Needs to get going above that trend-line and 50SMA to get the bulls excited.

Best looking in the commodity region is the $OIH — right at resistance, looks like it wants to be the first to break-out.

Should be week full of opportunities, be it failed break-outs (resistance shorts) or finally some continued bull follow-through. Buckle-Up.

Fat pig to slaughterhouse or breakout of range?

2011-11-11T12:58:00.001-05:00

We’re basing and filling in the handle — the more we test it the greater the chance of a break-out. That being said everytime the bulls have been excited for a break-out they’ve been smashed over the head, but seasonality is bullish and patterns are looking better. $SPY 127.4 zone/top of channel/200sma will be the test for the bulls.

Support Long example GDXJ

2011-11-10T17:04:00.002-05:00

Excerpt from our newsletter tonight:

We had on a few ideas yesterday for support long ($OIH 120, $GLD 168, $SPY 120, $GDXJ 30.5-30.8 trend-line) and the only one to hit was GDXJ 30.5-30.8 trend-line bounce.

GDXJ trend-line bounce on 30.5-30.8 – sometimes when we have these zones instead of exact numbers it’s difficult to find one hammer to go off of and instead we start partialling into the zone with a pre-set stop (say 30-40 cents). This is what we did today with GDXJ buys starting at 30.87 and adds at 30.8, 30.6 and 30.57. Once it hammered at 30.53 and bounced we had an exact stop (30.47) but before that we were looking at a “bail point” of around 30.4-30.3.

Of course you use smaller size when you are partialling into a zone because your stop is often wider (we rarely have a 50 cent + stop on a $30 stock). We use these “partial in the zone” type entries also more often with ETFs which tend to chop around more than stocks and also when market is more nervous as panic often means overshoot.

S1 (dotted blue line) was 30.8 and we were looking for overshoot into trend-line 30.5 (daily trendline on last night’s chart), hence the zone. Start at S1, add all the way to trend-line, and if that didn’t hold, cut the loss on the whole position at a pre-defined number.

You need a pre-defined number before you enter the trade so you don’t freeze and talk yourself out of taking the stop.

To repeat: adding lower within a pre-defined zone is fine as long as you have a pre-defined stop. When we started at 30.87 we were hoping very much it would go down to the bottom of our buy zone of 30.50 (but not any further than that .

Extended from EMA right into S1 intraday support/ and trend-line support from daily. This is what you want in a support long. Note that GDX was also hitting 50sma at the same time — the more stocks hit support from same sector at same time, the better the chances of success.

This bounce on trend-line is what we were looking at and happily, other traders noticed it too which is why it worked – you want spots to be obvious enough to be on other trader’s watch-lists but not so obvious to be a crowded trade. Fine balance.

Nice bounce but we won’t get long on any other moves back to this trend-line as next time will probably go through.

New Normal in Currency Movements Charted

2011-11-02T19:45:00.001-04:00

Note how previous resistance of ATR (Average True Range) of Euro Futures ($6E_F) has now become support – wild moves really are the “new normal”.

EURUSD rip/death

2011-11-01T19:34:00.001-04:00

Picture says it all — click to enlargen $6E_F Euro Futures

This is how we trade reversals

2011-10-30T23:19:00.002-04:00

We’re all about looking for a tradable spot for reversion to mean trades, and then waiting for it to hit.    Sometimes it hits, sometimes it doesn’t, but it’s how we trade.
An hour ago we wrote:
What do we mean buy “buy on reversal, stop under”?   This means that you wait until the stock/future hits your support level and reverses — you buy your number with stop at the low. In this case the buy was the reversal back to 1710 with stop just under 1707.7
Our first target usually is the 9EMA (in this case 1718 as we posted).    8 point target trade for just over 2 point stop. Good risk/reward.
That’s exactly how we trade support long/resistance short reversion to mean trades. The up-side is that it gives you a defined stop and good odds at a win. The down-side is sometimes the stock doesn’t hit your level and you miss the trade.

What started as boring night

2011-10-30T22:51:00.002-04:00

Yen intervention causing lots of fun and games in the overnight session — here are some levels we have on our radar:

Let’s start with gold ($GC_F): first support to come is around the 1710 zone.

Next support comes up on daily on trend-line near 1640

Euro Futures ($6E_F) has lots of stickiness in this 1.40 zone.

And last but not least the “widow-maker” as @stockjockey refers to it, $SI_F has minor support — blue line near 33.15 zone.

And on daily more substantial trend-line support — blue arrow near 31.5 zone.

The most common pattern

2011-10-30T18:54:00.002-04:00

Looking through charts this weekend really brought home the new “correlation 1″ meme constantly written about these days in the finacial blogosphere. Patterns look very similar across the board. Here is the most common one we can find:

V type moves like #1 often retrace and have high failure rates. Moves from more based/rounded bottoms like #2 have much higher break-out success rates. $XME right now (#3) is very V-sh/extended, stalled near 60 resistance. Any basing (handle for the V at least) would be bullish and set this up long. However that being said the momentum is so strong right now that nothing would surprise us but at these levels we’d rather buy the pull-back than new strength.

We’ve entered a very forgiving bullish tape — Euro bailout rumors were everwhere for the October rally and yet when news came out on Thursday, it was bought. $AAPL missed. $AMZN missed. $GMCR and $NFLX massacred. Yet no one cares. Bulls are in control and it’s their game to lose.

We’re extended and for us the most bullish scenario would be just to hold the line/or even pull-back but not any further rippage, at least early in the week. And in the unlikely event the bears really start to push then the big gap to fill of course is $SPY 124.5 as the first signiciant support on daily.

Gold and Silver: Helloooo I'm Back!

2011-10-25T18:18:00.002-04:00

Silver ($SI_F) looking like it wants higher as it’s poking out of its range — has room to the 200SMA.

Gold ($GC_F) reversed at 1705 resistance — but looks like it has room until 50SMA.

We wanted $SPY at 126.2 for short and went to 126 in pre-market before reversing. As for support it’s all about gap fills — 122 and 117.5.

We had $IWM as a short on our newsletter at 74 for days (and tweeted several times)– today it hit the level pre-market and reversed hard. We see that happening a lot lately — hitting resistance overnight futures/pre-market and not in regular session. Note that was first test — next test will likely break-out of the range.

Copper ($HG_F) failed break-down last night through 3.50 but through there and has room to 50SMA and daily resistance near 3.65. Copper has been wild lately and we’ve been staying away — massive death days followed by rip days. Lots of things going on in the background there and too volatile for us to get involved.

Huge move in crude ($CL_F) that stalled at the 200SMA today. Lots of congestion ahead — further upside should be tough as lots of stickiness around 95.

MoMo getting murdered left and right ($GMCR $NFLX $AMZN), market extended into resistance: we’re happy to hone those intraday trading strategies.

Updated Game Plan

2011-10-17T16:16:00.002-04:00

Our resistance short spot was taken out in the overnight session. Our $SPY 123.5 short roughly corresponded to ES_F 1230-1233 zone which we wanted to short last night :

The most frustrating part about futures is that some of the best spots are triggered in the middle of the night. Perfect reversal at our 1230-1233 resistance short zone — we loved that spot and contemplated putting in offers at 1230/1233 with stop at 1235 in case it triggered during the night but alas didn’t, and were left with a gorgeous chart that justified our call but no trade.

Note that ES_F fulfilled the SPY trade we were looking for — 100SMA/daily resistance test and roll. This makes the SPY resistance short more complicated and we’ve lost interest in the trade due to it being a second test– but let’s cross that bridge later.

Trend-day down today — and bulls got lots of little cuts trying to buy the dip. Our rule of not going contra-trend on first day of sell-off has saved us countless dollars over the years. The first day of a sell-off often is a trend-day — and going mean-reversion on a trend-day is often a frustrating and losing experience. Stick to the direction of the EMA on trend-days, which meant today shorting the rallies back to the descending EMA.

Bulls were shot down on every touch to the EMA except for the last one, which in turn reversed against underside of S2/15 min-20EMA. Typical trend-day action which kills reversion to mean traders.
We have a lot of decent longs now that are getting ready if/when market regains strength; and $SPY 117-117.5 will possibly offer decent opportunity as a day-trade long. In between those two scenarios, howeve, we will be mostly chilling.

Game Time

2011-10-14T17:22:00.001-04:00

Very bullish close for the market as it easily closed over 122 resistance on the $SPY. Next up is 123.5 which also coincides with 100SMA, daily resistance and as a bonus, $TLT will likely hit support at same time. Game time!

Thus far from the October 04 bottom there have been two good day-trade short opportunities; the first was the jobs data pop last Friday, and the second was Wednesday’s 122 reversal. Will the third be 123.5? We’ll definitely try it short (we usually wait for 10 -20 cent reversal before we enter and then stop on high — and it often takes 2-3 tries to get it right but we always have stop on high –no hero trading).

As for longs we’ll be focusing in the basic material sectors for new opportunities even though the close of the $OIH extended into 50SMA makes us think we’re not going to find too many good set-ups without some further basing. Melt-up market indeed.

Have a good weekend everyone.

Our time frame is short

2011-10-12T20:05:00.001-04:00

We’re realizing, through comments left on our previous post, that there are readers of our posts who do not know our time-frame.   We are primarily day-traders.    If we short a stock at 100 and it goes to 98 we call victory.   If it reverses and then goes to 200, great. Hopefully we caught some of that too.   Our job is to trade against levels which we believe will offer good risk/reward, be it short or long.   If we have a 20 cent stop on the $SPY and we bank 1 point then that’s the same to us as traders who have 2 point stop and bank 10 points.
Day-traders who shorted against 122 resistance on $SPY, a level we’ve written about for days, did very well — (after-hours sitting at 120.5).    Number one rule for financial blogs/social media — know the time-frame of the writer.
We have no idea which scenario plays out (hoping for the late year rally one – but will trade accordingly to whatever happens).     As we posted before the most bullish scenario would be a pull-back/base under 122 and then rip higher.

Watch who you fade

2011-10-12T17:22:00.002-04:00

We can’t remember a time where levels worked so well – anecdotally speaking — it seems to us that market just keeps getting more technical.   Praise HFTs? Since this rally started we have had only 2 fade spots on our newsletter (and both were posted also on stream) . The first was to fade the jobs number pop last Friday, and today was 122 $SPY resistance.

Pretty amazing how these “obvious” spots are working.   Also a note of caution for those who we have heard like to use the stream as a contrarian indicator — we were pleasantly surprised to see the short bias today.    Watch who you fade!

First gap fill is near $SPY 120 and second support is near 50SMA (and second gap fill near 117.25).   Let’s see how much the bears can push.       The most bullish scenario for us would be a fade to around 117.5 to put some fear into the bulls and then a reversal higher out of this range.

Hysterical Market Needs to Chill

2011-10-10T13:03:00.001-04:00

V type markets can be tough as they don’t let the “wrong side” traders out to breathe — when we went down the poor longs couldn’t get out on any bounce, and now the shorts didn’t have a chance to cover as we ripped through the 50SMA. These can be vicious markets for contra-type traders.

Perfect V in $SPY — looking for mini Ws to come next.

However, that being said we had 8 out of 9 alerts (all long) trigger today from our newsletter– often when that happens and we run out of alerts it also coincides with a consolidation period in the market. V type moves never last — the healthiest thing for the market would be to enter a consolidation period near the 50SMA. Any such basing would set up many new longs, while continued running would create a higher probablity of a sharp move down.

The easy trade, the fade, and now what

2011-10-09T13:12:00.002-04:00

We always regret not calling ourselves “Base Trading Group — BTG” instead of HCPG. Everything in our strategy circles around how we trade around the base. Friday was as text-book bread and butter HCPG trade as they come — short the first touch of the descending 50SMA after extended run. We’ve written about this for years and we imagine most of our subscribers were involved somehow in this trade.
We wrote on Thursday on our stream to “fade the job’s number pop” and we wrote emphatically in our newsletter to short 118. The jobs number came at 8:30 – short the 50SMA on the $ES_F at 1174, or short the pop to 118 on the $SPY pre-market. For our way of trading–this was as “easy a trade” as they come — what comes after is a bit more complicated. Is the rally over or are we just basing for higher run? We have some decent set-ups long that just need a bit of time (3-4 days would make them look fantastic) so we’d be in the camp that would argue that the rally is not over yet — but we wouldn’t put any swing money on that either, we’re still in daytrade mode.

Perfect ES_F touch and fade from the 50SMA. Very extended run straight into first touch of the descending 50SMA. This is as essential HCPG type trade as they come and hopefully a lot of our readers/subscribers nailed this trade.

Here is the 5 min chart — note how extended it was from the 20EMA — again, lay up as it follows everything we teach — extended from base on every time-frame we follow.

And $SPY in pre-market short against 118, text-book. These are the types of opportunities that don’t come often — when they do they deserve much more aggressive type of size positioning.

For weeks we wrote in the newsletter that we were looking for a bounce scenario in which the August $SPY lows would be broken and the 1077 $ES_F overnight lows would be tested, hold, and bounce. That’s exactly what we got with a 10% bounce that was sold into the 50SMA. Both these trades, in one week, were easier to predict (because of their extreme oversold/overbought nature) than the range we have experienced for the last two months and we imagine what will come in the next several months. What we are looking for now is a flattening of the 50SMA — a multi-day base under the 50SMA would be ideal– and then a rip higher (and we have multiple long set-ups already setting up giving some credence to this scenario) out of the range. Note the taking of the 50SMA would be quite important technically as 1) it has not been overtaken since the correction started and 2) it is steep slope descending, making it quite strong.
(If you want to learn more about fading first touch of 50SMA, and waiting for flattening of the SMA –again, critical to how we trade—- google “flattening” or “first touch” in the search box of our old blog at www.highchartpatterns.blogspot.com )
New lows of course are always a possibility — and the action in the banks are probably the biggest argument for this scenario. Long term visibility is low meaning conviction for longer time-frames is low — we’ll be sticking to day-trading until we return to a trending market.

Miscellaneous thoughts including market talk, strategies, and a defense of dip buyers who didn't get their heads bashed in

2011-10-02T00:39:00.002-04:00

We're short-term traders and probably a good 50-60% of the people we follow in our stream also share the same time-frame. It's our nature to always want to yearn for resolution of ranges even though our rational side tells us that we could be in this trading environment for a good while longer. Take a look at the following chart -- we left on the 50SMA (the black line) and simply drew arrows with every big move up and down. The range was basically established between two trading sessions: Friday, August 05 (rumors of US downgrade) and Monday, August 08 (first trading day of confirmed US debt downgrade).
We have not trended the last 2 months, we've been completely range-bound. On Friday even with the incredibly bearish close we still are above where we were on August 08.
If someone presented us with this chart we would say: Wow, ugly chart. Steep, descending 50SMA that hasn't even been tested once since the sell-off began. Usually what happens in these situations is that the stock remains in range until the descending 50SMA starts to catch up and then price is pushed down, thus transforming from a range-bound price-action to a down-trending one.

Just as buying the dip worked well for a long time (ceased to work as well once we broke 2009 trend-line) the motto is short every rip until it stops working. Shorting break-downs in broken charts also work (witness $NFLX through 125 support this week) but it's not our preferred strategy (shorting resistance is our prime strategy for this type of market). One day it will stop working -- but likely not until we break the range and/or 50SMA.

When the market was above the 2009 trend-line and traders were buying dips (successfully) many would say "one day buying the dip won't work and they'll get their heads bashed in". We never understood that thinking. The idea of buying dips is to do it on shorter-time frame within a larger trend. That is, buy pull-backs if longer time-frame trend is intact. We were known as consummate support buyers and over last two years made many live calls buying support. However, on August 02 in "Time to Re-assess" we wrote that:

"We have written for months that we would buy the dip until we broke the 2009 trend-line.   Well, today we broke the 2009 trend-line."
In our outline of "How to catch a falling knife" written in May we wrote about the three errors traders often make in "catching falling knives".   Error number two we wrote in this post was:
" Buying a broken stock instead of buying oversold into support on longer-term bull trend.     We would never get into a broken stock just because it’s “cheap”. In our business nothing gets cheaper faster than an already cheap stock.    When we say we’re buying on “support”, it automatically means that the long-term bull trend is intact.    If it’s a broken chart, by definition, there is no support."
Once the March 2009 trend-line broke then the game for buying support was essentially over.   The 2009 trend-line for us was "the big kahuna" and we wrote a dozen posts before the break referring to it as the big level that would change everything. Traders like ourselves, and many that we respect on the stream, did not get their heads bashed in -- they realized the trend was broken and they shifted strategies.
Of course we speak about ourselves and about other professional traders like us -- it's likely many retail investors who did buy the dip for the last two years and kept on doing it in the last two months in fact did get hurt.    However, the accusations about dip buyers were often made against traders making support calls on the stream, not the average Joe buying dips from his E-trade account.
Now we're on the other side and in a bear trend meaning that the modus operandi is to short resistance until it's proven otherwise (break of range/break of 50SMA).      In our experience this has been the best combination we have found -- trend-trade, and employ counter-trend strategies (reversion to mean), but always in the direction of the longer time-frame trend.     Not always easy to execute, but that's the foundation of how we trade.

No Balls to the wall here

2011-09-30T12:46:00.002-04:00

We’re trading shy thanks to the amount of confusing information that we are seeing. The most confusing of all is why the hell are we still above August 05 lows?   Commodities/China started this sell-off and normally we’d want them to bottom first yet US markets are holding firm while they keep grinding lower.   We’d prefer to see the opposite: US markets make new lows, get panicky, while commodities firm up and show strength — that would get us interested in long trades.
There’s obviously two issues at hands, Europe and China, and they are making the lines somewhat hazy.    On one hand it looks like the S&P is pricing in Europe, while commodities are pricing in China.

We were waiting this week to short the 50SMA — we didn’t even make it there as the 20SMA on the $SPY served as enough resistance.   The range is now tightening short term.

Copper ($HG_F) still above the crazy Sunday commodity night but threatening it every day it seems

$CLF used to be one of our favorite trading stocks. Now it trades like a dead internet stock from the bubble days. Amazing.

$WLT was another super-star, one of our most loved trading stocks. Again, trades dead. Bid-less. We want these to come back to the realm of living again before we start feeling the urge to go long.

We’ve noted our frustration this week on our stream. Every night we send out our plan for the next day to our subscribers. The plan has worked well (early in the week buy commodity to gap fills which all filled, later in week, short to support targets, which again worked) — basic range-bound reversion to mean strategy. But our execution has been anything but stellar. The gap between the plan and the execution is the hardest part of trading — when trading is bad the gap is wide. When you are in the Zone, then there is no gap. Right now we’re in the gap area. Why? Because of all the mixed signals we can’t feel conviction about anything, thus we trade nervously. We’re going for singles. But maybe that’s not a bad thing.

Remember this chart we posted a few weeks ago under the title “How not to trade” — well update it at your own pleasure. We’re still stuck to the range. Peter L Brandt has an excellent post out today which covers this (lesson #3). Don’t miss it.

Tough tape and people are getting impatient to see the range resolve. It might happen next week or it might not happen for months. If there ever was a time to be zen-like in your approach to the market and accept whatever the market brings, it’s now.

Dead cat bounce or the real thing?

2011-09-27T11:38:00.001-04:00

he Euro-tarp rumor came out on Saturday and commodities were thrashed Sunday night before they bottomed. We don’t think the rally has anything to do with a Euro Tarp rumor (since the real selling in for example copper came a day after) but a simple squeeze continuation from yesterday’s commodity bottom. Tech, which has held better than any other sector we follow, is not surprisingly underperforming today as it stands aside and let’s the commodity squeeze take place. Take note that $AAPL is only up 1%, and for example $CMG $AMZN are both red. This has all the makings of a vicious dead cat bounce, something we wrote about yesterday.
So how can one tell the difference from a dead cat bounce and the real thing? Well we can’t. They both start the same but the latter bases and then keeps making higher lows while the former gives it all back. If you feel like the leaders should lead the bounce, well, it’s not that simple either since “leadership” is dynamic in the market. It’s too soon to tell what this market wants to do (the reaction against the 50SMA should yield some information) but we do respect the fact that commodities, which started this whole sell-off, have now short-term bottomed.
Charts are in a world of chaos and there’s not much to do today for new positions if you trade off patterns. Don’t fall into the other side of the fear of loss which is the fear of missing: if this rally is for real then there will be many excellent risk/reward set-ups in the near future.

A feeling of safety

2011-09-26T17:31:00.001-04:00

The market has held the August lows admirably, while commodities all broke down through August lows, and today hammered from incredible overnight sell-offs.    This to us is a very positive first step — but continuation will be key.   What will be necessary is a “feeling of safety” as traders who have had their limbs blown off by the sell-off start to come back into the market for “fear of missing the rally”.    Once that happens we could get a monster squeeze.

Right now tech is a lightweight — as noted this weekend we wanted $AAPL to be hit before we saw signs of a bottom. We saw that today.   The real soldiers in the trenches right now are the four horsemen of commodities, crude ($CL_F) , copper ($HG_F), silver ($SI_F) and gold ($GC_F).     We’re keying off these for the immediate future.

The hammers in the four horsemen today are exceptional — but as we all know one day hammers don’t have much significance — it will be all about continuation. We think this week will be the most important week since this sell-off started this summer.    The market held the range, the commodities bottomed — now if traders feel the fear of missing a rally and step up we could have a vicious bear market rally.    If today was a one day wonder and market pulls back tomorrow then fear of losses will outweigh fear of missing profits and we will go lower.   As said, this week is pivotal.     Bring your A game to the table.

Some positives

2011-09-26T14:49:00.001-04:00

It's hard to get an edge on this market as computers trade to each other from one rumor to another but there are a few positives we'd like to point out today. The most obvious of course are the reversals on silver ($SI_F), gold ($GC_F) and copper ($HG_F) from their overnight lows. We also like the action on the refiners (which have been good tells lately) with $HFC $TSO $WNR holding gains.

As we noted this morning we think the rally could take us to the first target of gap fill near 116.5 on the $SPY -- that first test will likely be faded. The reaction to the fade will give out short-term direction information.

We noted a gap fill trade on $OIH in our newsletter this weekend and we have the first positive step towards that target today. We expect the first test of the fill to be faded.

Visibility is low and traders are flying pretty blind -- taking it one day at a time and trusting only moves short-term is our motto right now.

Market Thoughts

2011-09-23T13:01:00.001-04:00

The market rallying while silver and copper get raped makes no sense to us — we see it as Friday version of musical chairs. The bulls are trying to keep the range ($SPY August low 110.27 still hasn’t been breached) and traders are nervous that they will miss out on a potential rip due to weekend fiscal intervention headlines. That’s definitely a possibility but nothing we’d want to bet our money on (short or long)– especially if the recent past is any example.

We don’t think holding the lows now would be a good thing for the bulls — it would just extend the range-bound tape. We want a flush, new lows, and a cleansing. And most importantly we want the commodities to show strength first — they started the down-fall and we want them to start the rally, whenever that may be.

If you are an investor/swing-trader who got clipped this week — remember — the more you try to make it back the harder and more dangerous your trading will become. The market doesn’t care about your PnL. Get involved whenever there’s good risk/reward set-ups, whenever that may be, regardless of how much you have to “make up”.

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Russell Divergence

2011-09-20T17:32:00.000-04:00

We’ve been writing about the divergence between the Russell and the Nasdaq for a while now but wanted to put out a few figures out there:

The $QQQ is 2.19% over its 50SMA

The $SPY is 1.96% under its 50SMA

The $IWM is 5.96% under its 50SMA

Here’s an update of the chart we posted yesterday showing divergence between the Nasdaq and the Russell:

We have no idea what’s going on — is this some new paradigm in which small-cap stocks, financials, coals, oil stocks, and copper all sit dead in the water while momentum “decouples”? We don’t think so. One will soon revert to the other — that is either the laggards start to stabilize or the momentum stocks will start to fade. We’ve been through markets where tech/momo take the lead and commodities/more conservative sectors grundgingly follow but we can’t remember a time where copper (fresh new year lows again today) was an inverse indicator for the market.

For short-term traders it’s business as usual (we had six successful momentum daytrade alerts from our newsletter trigger in last two days) but it has been keeping us even more short-term than usual, constantly worrying about sudden reversals and death traps.

It is not the critic who counts....

2011-09-19T12:56:00.001-04:00

Too long to tweet – what a fantastic quote.

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly; who errs and comes short again and again; because there is not effort without error and shortcomings; but who does actually strive to do the deed; who knows the great enthusiasm, the great devotion, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement and who at the worst, if he fails, at least he fails while daring greatly. So that his place shall never be with those cold and timid souls who know neither victory nor defeat.” – Theodore Roosevelt

Which one is telling the truth?

2011-09-19T12:20:00.002-04:00

The divergence between tech/consumer discretionary and almost everything else has been a recent theme for a while. When tech started rallying last week we were looking for basic materials to catch up (and didn’t have much luck there as very few broke-out of our set-ups). Here’s a nice little chart $AAPL overlaid with copper (via $JJC) to show you how surprising this divergence is becoming:

AAPL at year high while copper at year lows.

We’d be happy with a market led by tech/momo names but the other sectors still usually go in more or less the same direction. A real up-trend is not going to happen with a dying basic material/financial sector. So which one is telling the truth? Will the momentum names pull up the whole market or will the laggards anchor down the healthy sectors?

Trading and washing toilets

2011-09-15T22:06:00.001-04:00

The constant evolution of a trader comes from the attempt to minimize the distance between what one should do (strategy) and what one actually does (execution). The endeavor to close the gap between these two is a career-long challenge. After multiple years of trading your tool-box of strategies should be brimming, your risk-management skills solid, but what constantly differntiates the mediocre traders and the great traders is this distance between what they know they should do, and what they actually do. Ideas are a dime a dozen, but it’s the execution that will make or break you.

Treat trading as a job. Imagine washing toilets for 8 hours straight and then your boss coming to you and saying, well actually I’m going to take back the last 5 hours of your pay and will only pay you for 3 hours. Losing in trading is inevitable, but it has to hurt you — if you’re going to lose money it has to be on a trade that set up great but just didn’t work. Those are the losses that we like — they don’t put us in a bad mood. A loss from a trade that you would not hesitate in taking again. Most traders like trading, for them it’s a great job, much better than for example, washing toilets. And the money can come in fast — the normal correlation between time spent working and income occurs at a much different rate than in other jobs (at least from an hourly/daily point of view for daytraders). And maybe because of this they act fast and loose.

This is the reason we like having a pre-defined plan from the night before — it helps us execute well. A pre-defined plan gives us conviction and conviction and good execution (trading tight and disciplined) go hand in hand. Every single trade should count — and you should take the money earned from the job as seriously as the guy counting the hours washing the toilets at the city park.

The Game Plan

2011-09-15T13:06:00.000-04:00

This morning the market reversed at 121 $SPY resistance (and $ES_F 1200). Day is still young and we could base intraday and take out 121 before the close –even though we’d prefer a close under 121, a few days basing, and then a breakout of 121 and into next resistance of 123.5 which would be top of channel/50SMA.

Of course in this market you have to be open to all options — and reversing back down is also one of them. However, this scenario is looking less likely in light of recent market action.

Tech, retail and trannies are acting well, but basic materials and financials have to start pulling their own weight soon if this rally is going to have any standing power. The daily chart is technically still in the bear camp until we break out of this range but short-term the price action is with the bulls. Our focus into the next few days will be the catch-up sectors (especially basic materials) as tech takes a rest.

Rip or Die

2011-09-14T17:27:00.003-04:00

We’ve written before that this range-bound market seems to only know how to rip up or die down. There’s very little chilling in between. If we do want to finally leave this range then the market needs to digest the moves and start to build bases — something that has been missing since the correction started in August.

Note how we keep bouncing off the lower range and reversing off the higher range (and today no exception as market screeched to a halt and reversed down as we hit the higher range in the $ES_F, and the 50SMA in the $SMH).

Who do you believe?

2011-09-14T00:59:00.004-04:00

Listening to the CEO of Societe Generale one can’t help but to feel re-assured that all will be well:

And just when you’re lulled into complacency this report by Jeffries’ market strategist David Zervos smashes any sense of calm:
In most ways the excess borrowing by, and lending to, European sovereign nations was no different than it was to US sub prime households. In both cases loans were made to folks that never had the means to pay them back. And these loans were made in the first place because regulatory arbitrage allowed stealth leverage of the lending on the balance sheets of financial institutions for many years. This levered lending generated short term spikes in both bank profits and most importantly executive compensation – however, the days of excess spread collection and big commercial bank bonuses are now long gone. We are only left with the long term social costs associated with this malevolent behavior. While there are obvious similarities in the two debtors, there is one VERY important difference – that is concentration. What do I mean by that? Well specifically, there are only a handful of insolvent sovereign European borrowers, while there are millions of bankrupt subprime households. This has been THE key factor in understanding how the differing policy responses to the two debt crisis have evolved.
In the case of US mortgage borrowers, there was no easy way to construct a government bailout for millions of individual households – there was too much dispersion and heterogeneity. Instead the defaults ran quickly through the system in 2008 – forcing insolvency, deleveraging and eventually a systemic shutdown of the financial system. As the regulators FINALLY woke up to the gravity of the situation in October, they reacted with a wholesale socialization of the commercial banking system – TLGP wrapped bank debt and TARP injected equity capital. From then on it has been a long hard road to recovery, and the scars from this excessive lending are still firmly entrenched in both household and banking sector balance sheets. Even three years later, we are trying to construct some form of household debt service burden relief (ie refi.gov) in order to find a way to put the economy on a sustainable track to recovery. And of course Dodd-Frank and the FHFA are trying to make sure the money center commercial banks both pay for their past sins and are never allowed to sin this way again! More on that below, but first let’s contrast this with the European debt crisis evolution.
In Europe, the subprime borrowers were sovereign nations. As the markets came to grips with this reality, countries were continuously shut out from the private sector capital markets. The regulators and politicians of course never fully understood the gravity of the situation and continuously fought market repricing through liquidity adds and then piecemeal bailouts. In many ways the US regulators dragged their feet as well, but they were forced into “getting it” when the uncontrolled default ripped the banks apart. Thus far the Europeans have been able to stave off default because there were only 3 borrowers to prop up – Portugal, Ireland and Greece. The Europeans were able to do something the Americans were not – that is “buy time” for their banking system. And why could they do this – because of the concentrated nature of the lending. In Europe, there were only 3 large subprime borrowers (at least so far), so it was easy to front them their unsustainable payments – for a while. But time is running out. Of couse, the lenders (ie the banks) have always been dead men walking!
At the moment, the European policy makers – after much market prodding – have finally come to grips with the gravity of their situation. And having seen the US bailout movie, they know all too well what happens when a default of this caliber rips through the financial system. The reason the EFSF was created in the first place was so that there could be some form of a European TARP when the piper finally had to be paid and the defaults were let loose. Certainly many had hoped the EFSF could be set up as a US style TARPing mechanism (like our friend Chrissy Lagarde suggests). The problem of course is that there are 17 Nancy Pelosis and 17 Hank Paulsons in the negotiation process. And while the Germans are likely to approve an expanded TARP like structure on 29-Sep, it increasingly looks like it may be too little too late. The departure of Stark, the German court ruling on future bailouts/Eurobonds, the statements by the German economy minister and the latest German political polls all suggest that Germany is NOT interested a full scale TARPing and TLPGing process across Europe. They somehow think they will be better off with each country going at it alone.
The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly – wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs – one for each country. That is going to require a US style socialization of each banking system – with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks – even though it is probably a more cost effective solution for both the German banks and taxpayers.
Where the losses WILL occur is at the ECB, where the Germans are on the hook for the largest percentage of the damage. And these will not just be SMP losses and portfolio losses. It will also be repo losses associated with failed NON-GERMAN banks. Of course in the PIG nations, the ability to create a TARP is a non-starter – they cannot raise any euro funding. The most likely scenario for these countries is full bank nationalization followed by exit and currency reintroduction. Bring on the Drachma TARP!! The losses to the remaining union members from repo and sovereign debt write downs at the ECB will be massive (this is likely the primary reason why Stark left). It will require significant increases in public sector debt and tax collection for remaining members. And for the Germans this will probably be a more costly path. Nonetheless, politics are the driver not economics. There is a reason why German CDS is 90bps and USA CDS is 50bps – Bunds are not a safe haven in this world – and there is no place in Europe that will be immune from this dislocation. Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. Picking winners and losers will be VERY HARD but let’s look at a few weak spots –SocGen 12b in market cap (-70% this year) with assets of 1.13 trillion BNP 31b in market cap (-55% this year) with assets of 2 trillion Unicredito 13b in market cap (-70% this year) with assets of 1 trillion Intesa 14b in market cap (-70% this year) with assets of 700b Compare this with the USA where we have – JPM 125b in market cap with assets of 2.1 trillion BAC 70b in market cap with assets of 2.2 trillion
Importantly, France GDP is only 2 trillion and in bank balance sheets are some 400% of that number. The banks are dead men walking with massive leverage to both home country income as well as assets. The governments are about to take charge and Europe as a whole is about to embark on a sloppy financial market socialization process that has been held back for nearly 2 years by 3 bailouts. The weak links will not be able to raise enough Euros/wipe out enough private sector equity to get this done, so there will be EMU members that need to exit and use a reintroduced currency for this process. We put a Greek drachma on the front cover of our Global Fixed Income Monthly 20 months ago for a reason.

Who do you believe?

Source/ h/t: Reformed Broker via BloomBerg, ZeroHedge

SPY US downgrade range

2011-09-13T16:55:00.001-04:00

The blue rectangle represents the price range for $SPY between Friday August 05 (downgrade didn’t come until that evening but rumors were already flying) and the Monday/Tuesday reaction. Three days carved out the range for the next 6 weeks (+).

Cry Wolf Market

2011-09-12T17:03:00.002-04:00

A fantastic squeeze into the close to end the day with a gorgeous green candle. It’s hard not to get excited by such action, especially considering we gapped down below the trend-line. But we’ve heard this story now multiple times in the last month. Take a look at the following chart of the $SPY and the blue circles and note how many close at high candles there have been in this period:

Note that there was even follow through on some of these green candles, only to get it whacked down again and again. We have no idea whether this is IT, and for day-traders it doesn’t really matter (we’re long $ES_F overnight ourselves), but if we were swing traders we’d put out a few tester longs, have a lot of dry ammunition (cash), and accept that we would pay up in price in exchange for more evidence/confirmation.

For you Fib lovers out there

2011-09-12T14:32:00.001-04:00

We bounced in August on the important 61.8% retracement, next support is at the 50% retracement which also happens to be major daily support near $SPY 102. We have no idea whether we’ll actually pull back to that area but we’re open to the idea and believe the possibility is definitely on the table. However, it doesn’t really affect our type of trading as our time-frame is too short (i.e. even if we get there it won’t be a straight line and will give lots of opportunity short and long). But for you longer time-frame position traders — keep an open mind.

Backing Off

2011-09-12T12:37:00.000-04:00

In the conclusion of the newsletter this weekend we wrote, “We have been pretty active since this whole correction started but we are stepping back now for the first time and seeing how Monday shapes up”. We basically couldn’t think of any plan coming into today: we weren’t interested in buying the bottom trend-line test this time (too many tests in short period of time) and we felt like we were too oversold to initiate shorts. Basically, we had no conviction in either direction coming into today.

We broke the flag today — next support is 112 on the $SPY. Breaking that bottom trend-line removes a lot of our edge as we were trading against that for the last month. We mentioned in our post The Big Road Map the possibility of creating a new range and it’s quite possible we’re in the process of carving out new pivots for that scenario.

August was a good month for us as range-bound strategies ruled supreme. However we feel now (and hope that we’re wrong) that we are entering a more difficult stage of “slim pickings” and are backing off and going into more defense mode. Basically, we are protecting recent profits and refuse to give them back in what very well could be an edge-less trading time. To be continued….

All about the levels

2011-09-09T10:28:00.000-04:00

We are bouncing from one gap fill to another. Yesterday we reversed off 120.8 resistance, and today we bounced (thus far anyway) on 117 support. If your time-frame is short, this isn’t chop, this is excellent opportunity. Here are the important, short-term levels on the $SPY:

#1: gap fill resistance we reversed on yesterday. #2 support gap fill that held today. #3 next support which is around 115.9 . #5 trend-line support near 115. Bulls don’t want to go to trend-line support so soon as one more test this early would probably break it this time. Soon one of these range-bound levels will stop holding (next trip to either side of the flag will probably do it) and then strategies will have to be shifted, but for now, enjoy the range.

Middle of Nowhere

2011-09-08T15:30:00.001-04:00

We rallied almost 7 points in the $SPY in 3 days from support, hit resistance today, and reversed. Nothing too surprising here — and also nothing to draw conclusions from except that range-bound strategies are still ruling supreme.

120.8 gap fill — our short alert from yesterday’s newsletter:

We’re in the middle of the flag/channel, basically in no-man’s land for anyone who is not a day-trader (for new positions anyway). Next support in the SPY near 117-117.2.

How NOT to trade

2011-09-07T13:39:00.001-04:00

Some things never change in this business and panic/euphoria will always be one of them. Click to enlarge $SPY

Bulls won a mini-battle today but the war is still raging

2011-09-07T00:32:00.001-04:00

We wrote this weekend to our subscribers that the first test of the bottom of the bear-flag, $SPY 115 zone, would likely be bought. The first test of support/resistance coming from extended daily is usually good for a trade. The second test, not so much.

We gapped slightly below the bear flag and then went up all day almost closing the gap. Well done bulls. Small victory, but important one. Today’s action takes us one step closer to a scenario we laid out this weekend, that instead of a bear flag break down to next support (102-104 on the SPY) we would carve out a new range. If we base around these levels then the bottom of the flag will lose some relevance.

To put it bluntly, we’re still deep in bear territory, but it could have been worse. The bottom and top of the flag are the big areas to trade against, everything in the middle is no man’s land belonging mostly to day-traders. Bulls need to get away from bottom of range as soon as possible and bears need to break us down through $ES_F 1136 weekend low. For our type of trading, it’s one day at a time with no anticipatory trades.

The Big Road Map

2011-09-05T13:18:00.001-04:00

Here’s our road-map for what we imagine will be the next quarter:
Let’s start out with the most basic line, A, which was as we called it this summer, the Big Kahuna, the March 2009 trend-line (we posted around a dozen posts on this) .   Once we broke that line sentiment changed and traders like us who had confidently bought the dip for 2 years now ceased to do the same.
B represents the current $ES_F low of 1077 and the bear flag we find ourselves in — too early to see how this resolves. A break-down to the next big level of $SPY 102-104 is of course one possibility (lower blue box at C) but so is the idea that we will create a new trading range (upper blue box at B).    Note that on the $QQQ the recent rally went all the way to test the underside of the 2009 trend-line — one that was immediately sold by traders fading resistance.
D represents the hope of the bulls which is the possibility of the creation of a new range and eventually a break of the recent trend-line down.

Click to enlarge.

Now What?

2011-09-02T13:00:00.001-04:00

In the last two weeks we rallied over 10% off the lows straight into resistance ( see our posts earlier this week Don’t Get Complacent, Resistance is Futile) where we urged our readers to go short at resistance (the first test of resistance short on extended move is a bread and butter HCPG type short strategy). Not surprisingly we reversed at resistance but today hit support. Now what?
Look at where we gapped down to this morning — exactly at support:
$QQQ reversed at 50SMA and gapped down this morning right at gap fill. We came in with the plan of buying an intraday reversal off of 53.3 but backed away once we got the gap down on the horrendous job report. We like buying sharp intraday reversals with stops on low — gap downs to our levels usually get us on the sidelines.

$SPY filled gap — and 20SMA right below. Do or die territory.

$IWM filled gap and opened on 20SMA, again do or die territory.

The leader of the bounce has been the Nasdaq — let’s review

1. Rallied off the bottom all the way back to 50SMA. Check.

2. Reversed exactly off 50SMA. Check.

3. Held gap fill area at 53.3. Check.

Now what? There’s some further support near 53 (20SMA and short-term trend-line from bottom) but that’s about it — through there and we probably revisit the lows. And if we rally, we have the 50, 100, and 200SMA walls right above. The lines in the sand could not be more clear.

Resistance is Futile

2011-08-31T11:54:00.001-04:00

Resistance against the first touch of resistance in an extended move up is usually futile, especially if you have a short time-frame. A bit of a pushed title but always wanted to fit something in from the Borg. Anyway, we hit and faded from major resistance today on multiple sectors. This isn’t necessarily bearish but typical price-action in which an extended move hits supply. Bears would gain upper hand if we reversed hard and fast away from these zones while bulls would win the hand if we can base near resistance and digest the move. Longer trend we’re still in bear territory but shorter time-frame bulls have been printing better price-action.

We came in with several short spots on the $QQQ (50,100 and 200SMA) and the first one, 55.7, hit and is currently working (today’s high 55.74)

$IWM hit resistance and faded:

$XME hit resistance and faded. Again though this could become a bullish set-up IF we can base under and digest the move.

Disclosure: short QQQ

Update: covered 3/4 on move back below weekly 50SMA, and last partial stop now under break-even at 55.5

Don't get complacent

2011-08-30T16:35:00.001-04:00

The leader of the bounce, the $QQQ is now in difficult, uphill waters. No chart illustrates this better than the weekly:

We bounced on the 100SMA and today stalled into the 50SMA. Very nice move but we imagine things will slow down now and more range-bound strategies will again come to the fore.

To further the argument note the triple resistance just above us on the daily chart — we think the 55.7-56.4 zone will offer excellent resistance shorts for our type of active trading.

Any basing at this upper range would further strengthen the bull argument. However, a further move up in a quick manner into major resistance would likely fail.

Usain Bolt DQ at 2011 Finals

2011-08-28T15:13:00.001-04:00

Brutal to watch as Usain Bolt gets disqualified from 100 M 2011 World Finals. Contrary to what the sport announcers are saying though we had to respect how he didn't protest it and took it like a professional. Mistakes happen.

The end is near

2011-08-26T12:25:00.001-04:00

As crazy as this market seems it’s actually acting technically perfect IF you are trading it range-bound. We came into yesterday telling our readers in the previous night newsletter that our game plan was to short $SPY 119 resistance. We gapped a bit over and then ran straight down for many good shorting opportunities. We came into today with 114 $SPY support — the last chart we included in last night’s newsletter.

114 was trend-line support and it held like a champ as we are now 3.5 points higher on the intraday bounce.

Now the plot thickens — with two clear trend-lines above and below the current print. One more time through the 20SMA on the daily could do the trick and nullify this bearish pattern. On the other hand one more trip to 114 and 112 is next stop.

Either way we believe we’ll be leaving this range soon which will likely coincide with the end of summer trading. Gun to head we like the long break more than the short break, but at same time we’re not willing to ancitipate an edgeless pattern with hard-earned money. Once the range breaks we’ll go into the closet and grab back the swing-trader’s hat but for now all cash by EOD is our modus operandi.

Resistance Shorts are all the Fad

2011-08-25T11:44:00.001-04:00

The theme of the day was the reversal of the 20SMA on daily . Let’s take a look:

Crude ($CL_F) reversed on the 20SMA

$ES_F and $SPY reversed on the 20SMA ($SPY 119 short was our game plan spot)

$IYR reversed on the 20SMA (another HCPG pick resistance short from our newsletter last night)

And the freebie we put out yesterday on the stream $LNKD 73.2 short which set up great at 74 today for a nice smooth ride to 70.

Range bound strategies rule right now — we’ll see if that changes post Jackson hole.

Market Road Map

2011-08-23T17:23:00.001-04:00

A good start for the bulls today as the rally is still holding (3rd time indeed was the charm) but we have tons of resistance coming right up — ideally we base near the top of the range and then break-out. Red line is resistance and the hard zone is 1146-1153 on the $ES_F.

Note how this re-test is much smoother than the first — less wide as bulls trying to hold the fort. If we can close over the red-line then we could get some continuation to the up-side. Expect backing and filling around these levels. And for the bears — if we go through dotted red trend-line and most likely we’ll go back to test 1077 $ES_F

Bulls doing good job keeping bonds and gold down today but a pop in the trannies ($IYT), which are lagging today, would also give the bulls some more confidence. The animal spirits are there — the missing piece is bank stabilization. If financials can get their act together we could be in for a decent counter-trend rally up.

Random Thoughts

2011-08-22T18:51:00.001-04:00

We’re looking for a few possible “tells” to give us indication of when to enter for a tradable rally. Here are some thoughts and possible action scenarios:

Gold ($GC_F) keeps ripping, going through $2000 while equities hold stable. Gold then starts to reverse, market rallies. We want the gold/equities correlation to break-down. Today was a good start as market closed flat while gold again rallied hard.

Is Gold $2000 like Silver $50? We were all over the silver short but don’t have strong feelings about a potential gold short. Not yet anyway.

We sell off and take out the $SPY low of 110.27 but make a higher low over the overnight $ES_F low of 1077.

There was whiffs of panic into the close as $GS got machine-gunned but we liked how tech held green and stable. That’s a good start. Small step, but in right direction.

We would prefer an intraday reversal 10x over these gap ups that are so often faded in bear trends.

We have a number of breakdown shorts on our list — we want them to all be taken out and THEN reverse. If they don’t trigger we think the pain will only be postponed.

This action reminds us not of 2008 but of 2002 where we grinded down every day in a market that didn’t scare out the bulls, but wore them out.

Without conviction, we're nothing

2011-08-15T23:31:00.001-04:00

We felt edge-less today. We didn’t like longs as there are no good set-ups within our strategy parameters (need more base, moves are too Vish from 1077 $ES_F) and yet we were hesitant to short into a good-breadth trend-day (we did try a few scalps but only managed to churn).    The close we thought was silly and spontaneously decided to put on a decent sized short right into the highs for a swing into tomorrow. Then we started second guessing and thinking well, next resistance is at 1219 and maybe we’ll get there.    We hesitated, second-guessed ourselves, and ended up just taking 1 point profit on a very good entry on decent size ( currently ES_F is 5 6 points more in the money).
For our type of trading we need full conviction.    Our whole strategy is built around very clear patterns. Basically, if it’s not a lay-up, we don’t trade it. And when we do get into a trade that we’re not sure about, like today, we don’t execute well.

For further reading on the subject see    http://highchartpatterns.net/daytraders-hang-with-your-own-kind/

Now the hard work begins

2011-08-15T12:23:00.001-04:00

The panic last week took us straight to the 200SMA on the monthly chart of $SPX. The resulting bounce took us back up to close the week off back to the 50SMA:

Today we stopped dead on at 1200 resistance:

And to end the symphony even the intraday set up today at resistance at R2:

We’re now up 10% from the $ES_F 1077 bottom in a very short time. Our best case for the bulls is to start basing near the upper side of the range (without giving up too much) and thus a) negate the bear flag pattern and b) set up longs that are much too V-ish to work right now.
The more we rally from here in an extended form the higher the chance of failure. The bounce from extremely oversold levels is always the easiest bounce. What comes after in a completely broken market, the slow healing, is the difficult part.
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Post 2008 international bank performance

2011-08-13T12:36:00.001-04:00

Here’s the legend of a small sampling of international banks but interesting nevertheless:
Black: Bank of Montreal ($BMO), Green: TD Bank ($TD), Blue: JP Morgan ($JPM), Purple: Banco Santander ($STD), Red: HSBC ($HBC), Orange: Bank of America ($BAC), Yellow: Citibank ($C), ,
Note how they look like they converge near the bottom of the 2008 crisis and how differently they rebound (especially the top two Canadian banks).

The more volatile the market, the better the weekend reading

2011-08-13T12:14:00.001-04:00

Some of the best articles we’re read in a long time came up this weekend. Grab a coffee and go through these:

We’re big fans of Jeremy Grantham (even though not actionable in any sense for traders of our time-frame we find his writing brilliant) and this interview did not disappoint:
Can Jeremy Grantham Profit from Ecological Mayhem?   A few of our favorite excerpts:
“Phosphorus makes up 1 percent of your body weight,” he said, looking up from the page to catch my eye. “It’s a basic element, the residue of exploded stars. You can’t just make more.” He also pointed out that most economists see global trade as a win-win proposition, but resource limitation turns it into a win-lose, zero-sum contest. “The faster China grows, the higher grain prices go, the more people in China or India who upgrade to meat, the higher the tendency for Africa to starve,” he said.
“Grantham believes that the best approach may be to recast global warming, which depresses crop yields and worsens soil erosion, as a factor contributing to resource depletion. “People are naturally much more responsive to finite resources than they are to climate change,” he said. “Global warming is bad news. Finite resources is investment advice.” He believes this shift in emphasis plays to Americans’ strength. “Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan,” he said, “but they respond to a market signal better than almost anyone. They roll the dice bigger and quicker than most.”
“Grantham, who says that “this time it’s different are the four most dangerous words in the English language,” has become a connoisseur of bubbles. His historical study of more than 300 of them shows the same pattern occurring again and again. A bump in sales or some other impressive development causes people to get excited. When they do, the price of that asset class — South Sea company shares, dot-coms — goes up, and human nature and the financial industry conspire to push it higher. People want to hear good news; they tend to be bad with numbers and uncertainty, and to assume that present conditions will persist. In the financial industry, the imperative to minimize career risk produces herd behavior. As John Maynard Keynes, one of Grantham’s heroes, put it, “A sound banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.” All these factors contribute to a surge of what Keynes called “animal spirits,” which encourages people to convince themselves that this time prices will just rise and rise.”
“When prices go up and stay up, it’s not a bubble. Prices may always revert to the mean, but the mean can change; that’s a paradigm shift. As Grantham tells it, oil went first. For a century it steadily returned to about $16 a barrel in today’s currency, then in 1974 the mean shifted to about $35, and Grantham believes it has recently doubled again. Metals and nearly everything else — coal, corn, palm oil, soybeans, sugar, cotton — appear to be following suit. “From now on, price pressure and shortages of resources will be a permanent feature of our lives,” he argues. “The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.”
Here is the full text of the GMO letter. Not exactly “merry” reading but definitely worth your time: (thanks @radenmasbowo for the links)
Part I
Part 2

Two articles focused on the stink bombs coming our way from Europe:

Can Germany defend the Euro?
Global Jitters Gather Over State of Société Générale

Post from Barry Ritholtz at the Big Picture who is our Go-To guy for times of marco crisis:

How the Fed Got Itself Boxed In — fantastic article that gives light to our current situation.   Even this week you could hear traders/investors complaining about the lack of Fed intervention into the crash.   We expect the Fed now to get us out of trouble everytime the market crashes, and that mentality is problematic. Read the excellent post.

John Maudlin’s “The Beginning of the Endgame” (via The Big Picture)– very stark letter by John Maudlin, great read.
And of course as traders we need to end off with a trading link. As usual, good stuff from Trader Ken:
Bear Flags Everywhere by IndependentTrdr: great quick review of major sectors and the bear patterns. Woof.   As he writes, we either break down the bear flags or negate the patterns. Stay tuned.

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Daytrader Toolbox, EMA talk

2011-08-11T14:20:00.001-04:00

We wanted to go a bit further into how we trade futures and use the EMA. A couple of points:

The reason we watch 3 min, 5 min, 15 min, and 60 min simultaneously is because we always want to know which time-frame the market is keying off. Our golden standard for 10AM to 1PM is usually the 5 min chart with 9/20EMA. But we also often have an eye on the 15 min chart.

Most times the market responds to the EMAs/ pivot points on the $SPY, but not always. Lately we’ve found the $ES_F has been leading. Note that Pivot points on SPY/ES_F do not correspond with each other.

We’ve also often found that the ES trades better when we have no daily spots (stock alerts), which of course works well as a complement. Volatility in stocks makes things very messy, but often gives excellent ES opportunities.

We try to only trade futures when the EMA is smooth ascending/descending. For our way of trading if we only trade the ES_F when the EMA is non-wavy our consistency rate is excellent, and the exact inverse is true when it’s wavy/flat.

We were keying off the 15 min on the ES_F today — note the perfect Indy set-up. We run up fast to 1150 zone, base until 9 EMA catches up, and then rip up. Excellent long risk/reward trade.

—————-

————-

SPY 5 min was also decent pattern, but not as clear. Note how SPY constantly hammered on the EMA refusing to close under it, finding support on R1 – very bullish sign.

—————

Second clear trade came at shorting R2 with a very tight stop on the ES_F for a decent scalp. The only way though to take a short like this is when stock rips up from base extended from base, and into resistance. If EMA had caught up we would never go short this pattern.

——————-

————-

More Random Thoughts

2011-08-10T18:09:00.001-04:00

We’re deeply oversold and we feel it in our bones that the US market wants to rally (be it even a few day dead-cat bounce) but it can’t until there’s some semblance of order in Europe. You can hear the collective sigh of relief at 11:30 EST every day as Europe markets close. We rallied on what was perceived to be negative news yesterday and even bad news that is not catastrophic could get this market going.

That coffee stocks are rallying today shows us there is some appetite for momentum, which is bullish ($JVA $GMCR $DNKN). Again though we need the European stabilization before this can mean anything substantial.

Rumors need to dissipate (no France downgrade would be nice start) and French banks need to stabilize. (If you have Interactive Brokers you can watch Societe General via GLE once you subscribe to Europe data feed)

We’re itching to pick up some names but just can’t do it with the current overnight risk. Our swing-trader hat is in the closet and we’re only daytrading and barely that right now. Today thus far it’s been edge-less chop.

We live by charts and make our living via charts but charts aren’t going to help us if Europe implodes. Our rational side tells us that Europe won’t let France go down as the stakes are too high, similar to”knowing” in the back of our heads that the idiot politicians wouldn’t actually let US default. But at same time we don’t want to risk our hard-earned money on that either.

This leaves us to hitting singles and forgetting about home runs for now. When things stabilize we’ll pay up for it — in no rush to get into anything right now as it’s beyond our risk tolerance. Everything we do is vis-a-vis risk and the risk right now is too high for us to try to find the bottom of a news-driven market.

Random Thoughts

2011-08-09T17:43:00.002-04:00

Historic range today as we are now 9% higher than the overnight low ($ES_F). The only way to interpret the close was that it was very bullish — FOMC was perceived as a negative for the market in that there was no QE3– market sold off, paused, and then ripped higher finishing on the highs.

As the trading maxim goes: going up on bad news is always very bullish. Of course we also to have to keep in mind that the best rallies come in bear markets. However, as active traders, let’s not worry about that one yet and enjoy some possible short-term moves up for the immediate future.

The big test for us as to whether this is a bottom, or nothing more than a dead cat bounce, is what happens on the test of the underside of the 2009 trend-line:

—-

Trend-line on the $SPY currently near 128 – still a long way off but definitely something that is on our radar. Unless there’s some new events coming out of Europe our thinking is that the short-term bias is long for the next few days at least. 1077 short term bottom.

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Orderly Panic

2011-08-08T19:34:00.001-04:00

As we wrote last night $SPY had significant support at 115.2 and 113.2. Today’s bounce came at 115.28. Nice to be right (daytrade 115.2 to EMA at 117 was the typical HCPG strategy day-trade which is now finished), but on days like this we don’t expect perfect, text-book bounces, we expect messy overshoots.

Bounce on 115.2, rally to EMA, and base. This is the kind of chart we expect on a normal support trade on a typical day. Not after the day the US loses triple AAA status. If indeed we bounce from these levels we think it would just be a pause for further selling in the coming days. This is orderly selling, no fear. No overshoot, no mess, no blood. This is what we meant earlier when we wrote that we were “non-believers” on this 115.2 bounce. It’s too clinically perfect. We go through today’s lows though be it today or later this week and things will get hairier. And if we’re wrong, well then we just missed a bottom by being in cash. Worse things have happened.

Too Perfect

2011-08-08T12:22:00.001-04:00

Going Forward

2011-08-07T21:48:00.001-04:00

From our newsletter this weekend:

It really all started to fall apart after we broke the big 2009 trend-line that we have been talking about for months. Our motto was, as long as we hold the trend-line, bias is long. Once we break it, then re-assess. If you haven’t already please read our post http://highchartpatterns.net/technicals-meet-fundamentals-again/.

We expect some sort of oversold bounce but after that most likely the most frequent set-ups will be a) resistance shorts and b) breakdown shorts. If the market starts to heal itself (which occurs when bounces are not automatically sold) then long set-ups will appear in our scans.

————–

Next significant support levels for the $SPY are 115.2 and 113.2 but the technical case for the bull market — which we have always framed against the 2009 trend-line– was over on last Monday’s break of $127.5.

For the shorter time-frame Sunday night futures $ES_F are holding the Friday lows — no panic yet, just a give back of the last few hours of the Friday afternoon rally.

That’s the first short-term line in the sand for tomorrow.

————

It feels like we’re lurching from crisis to crisis these days — prepare for some crazy times. Our game plan is to go for consistency, playing defense, hitting singles, and not looking to become heroes.

Technicals meet fundaments, Again

2011-08-05T00:27:00.002-04:00

If you’ve been a reader of our blog you know that for months our argument was to stay long/buy dip as long as the “big kahuna” March 2009 trend-line on the $SPY held. We broke it on Monday and it’s been a free fall since then — but then it’s also coincided with a lot of negative fundamental news.

For traders who trade off charts, we’re actually very much on the non-religious/cultish side of the powers of technical analysis. But once you see this “coincidence” of charts lining up with news happen a thousand times you have to become a believer. There was fundamental bad news all the time for months (Japan nuclear disaster anyone? Greece anyone?) But we started going into 2008 type crash mode ONLY after we broke the trend-line. Yet another point for chart-chompers.

For further reading on our mentions of the importance of the March 2009 trend-line from the last few months please see:

http://highchartpatterns.net/march-2009-trend-line-sirens-calling/

http://highchartpatterns.net/like-a-zombie-that-wont-go-down/

http://highchartpatterns.net/it-is-what-it-is/
http://highchartpatterns.net/time-to-re-assess/
http://highchartpatterns.net/two-bullish-scenarios-and-one-bearish-one/
http://highchartpatterns.net/technical-symphony/
http://highchartpatterns.net/i-promise-you-i-will-punch-you-in-the-nose/
http://highchartpatterns.net/countdown-to-trend-line/
http://highchartpatterns.net/multiple-bull-advantage/
As for our plan going foward please read from earlier today: Now we wait
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Now we Wait

2011-08-04T23:49:00.001-04:00

We wrote yesterday that “The bounce is no surprise — the big question is whether it’s sold or not as we re-visit the underside of the March 2009 trend-line and whether we can close the weekly bar over the trend-line.” Yesterday the head-fake option of a daily break, but not weekly break of the 2009 trend-line was on the table. Today, not so much, not unless we rally 5% before Friday close. Possible, but not likely.
Everything we wrote on Monday in our “It is what it is” post still applies to today. The trend-line is broken, and bulls have to accept that. The remaining and last standing support now is the horizontal support which held today:

The last two days we’ve sensed real fear — gold and USD ripping at the same time is often a good indication. Today it was even more palpable as the miners were being blown out while silver and gold futures were green (they reversed later). Market is waiting for some type of intervention from Europe. So what do traders like ourselves do now?

1) We wanted to buy the blood on the last-standing support on $SPY which we did yesterday and today (tweeted entries and exits). That was the last support long on $SPY for a while and we’re done with that trade.

2) If we base around here and build on the 122.5 base with some upward momentum we will find new long set-ups and trade those next week. If we base around here and do not build any type of upward momentum then we will switch to short alerts.

Either way after today there’s not that much to do but wait for direction. So far the bulls are holding but it’s by a thread, and distance away from 122.5 will be needed to build any type of confidence. That being said the first test of the underside of the 2009 trend-line and 200SMA will likely be shorted. Lots of action for a normally quiet and boring August.

No positions, all cash.

Headfake?

2011-08-03T14:29:00.002-04:00

The weekly bar closes on Friday meaning bulls have 2 more days to close that bar over the trend-line on $SPY. This would make it a head-fake on daily but just a test on weekly. Next few days will tell the tale.

Position, long SPY.

It is what it is

2011-08-02T23:32:00.001-04:00

We’ve written for months about the big kahuna, the March 2009 trend-line, and how we would stay bullish until market proved otherwise with a break. Well guess what, it’s here. We believe we’re at the most important inflection point since the March 2009 bottom.     Here are our thoughts:
1. $SPY is just a chart, like any other chart. Leave emotions out of it.   We’ve been talking about the possiblity of the trend-line break in our last 5 posts and here it is. Now we’ll re-asssess and trade accordingly. We won’t change the plan or make excuses to deny the possiblity of the end of the bull market.   It is what it is.
2. As we wrote before today is day 1 of the break and head-fake is still an option on the table.    We want to see how the weekly bar closes on Friday.   The next few days will be absolutely pivotal.   A head-fake break down and a continued move up is definitely an option (and our most preferred one as we invariably make more money in bull markets).
3. We’re extremely oversold and way out of the Bollinger Band so a bounce is likely.   That’s not that important. What is important is whether the bounce is sold (making it a dead cat bounce).

We look at this chart and at best we can be neutral due to the lack of close of the weekly bar but we cannot by any means feel bullish. This is THE trend-line we were trading against for months and now that it’s broken we’re not going to change our story. Sure we’d be happy to trade long for a bounce (especially $SPY 123, but if we bounce before that tomorrow we’d try to ride that too) but if you ask us our intermediate term opinion we’d say, neutral to bearish, at best, with a hold on judgement until weekly bar finishes on Friday.

A break is a break, and denial is a river in Egypt.

Time to re-assess

2011-08-02T23:31:00.001-04:00

We have written for months that we would buy the dip until we broke the 2009 trend-line.   Well, today we broke the 2009 trend-line. Our last support idea was a break of 2009 trend-line and overshoot to 50SMA weekly, which worked well for a small day-trade today. However, the lack of buying on THE break of the big 2 year bull-market and 50SMA on weekly is without a doubt a red flag.     Today is day 1 of the break.   Head-fake is still an option and definitely on the table — the tale will be told not by just today’s action but by the next few days.
Our biggest focus now is whether dip-buying mentality has changed. If today is any indication then yes, indeed, dip buying has changed dramatically. But again, one day not enough to make a judgment and we’ll see how the rest of the week plays out.
For our trading we’re back to more defensive trading.     If this is just a head-fake then we’re fine with missing any bottom and playing it safe.   Our plan all along has been reversion to mean trades against the trend-line. Today we lost that strategy edge and again, as per the plan, we’re stepping back.

Clean break of $IYT two year trend-line.   If it’s a head-fake, great, but we’ll wait and pay higher prices on long set-ups than buy the blood on a clear break.

Two bullish scenarios, one very bearish one

2011-08-01T13:49:00.001-04:00

We wrote this AM that the 2009 trend-line was at 127.5 on the $SPY — look where we bounced, at 127.53 with $SPY (currently at 128.1). We can think of two bullish scenarios and one bearish scenario:

1. We hold today’s low and distance ourselves ASAP from the trend-line test (currently at $SPY 128.1)
2. We break the trend-line, hit stops, reset, and bounce on the weekly 200SMA at 126.5

And the bearish scenario is to base on the trend-line, break down, and for the first time in 2 years, not bounce as the dip-buyer mentality finally changes. Then we’d have to deal with the first important technical break-down of the year on the March 2009 trend-line failure.
We perform better in bull markets and thus are rooting for #1 or #2, however considering how close we are to a major inflection point we’ll be looking to have a plan in action also for #3. We scalped the $SPY today for some dinky profits (i.e. small) and are happy to be on sidelines in this news tape. Next time we’ll get involved is on any reversal of 126.5 or pay up for a bounce on any stocks that set-up long.

Technical Symphony

2011-08-01T10:45:00.001-04:00

$SPY is wedged right now between the descending 50SMA (where it reversed today) and ascending 200SMA (where the selling paused).

As an added bonus we have the all-important 2009 trend-line just over 127 and then the weekly 50SMA at 126.50. Inflection point indeed. As per our post on Friday we’re looking for a break of the 2009 trend-line — ideally a head-fake through and then bounce on weekly 50SMA at 126.50 zone.

I will punch you in the nose!

2011-07-29T14:22:00.001-04:00

The last time we tested the $SPY trend-line (in June) we lifted off perfectly, ran to the top of range, but now have come straight back down. We came 1% from testing it today. For us that March 2009 trend-line now is like negative pressure, we actually now want it to break and get it over with instead of the constant threat hanging over the technical market. It’s like a big bully coming up to a 10 yr old kid and saying “I promise I’ll punch you in the nose but I’m not going to tell you when, but soon!” The actual waiting for the kid is worse than any punch the bully could come up with.
We feel it’s similar like that in the market right now — all trend-lines eventually break and we’ve come close enough now that we think the threat of a break is very real, but we just don’t know when. We’d rather just get the punch in the face now and get it out of the way instead of this constant waiting.
Our ideal scenario is a break, hit stops, put some fear in market, and then new highs. That would be awesome. And incidentally, it would also follow Joshy’s plan perfectly.
In terms of trading though it’s still the same status quo for us — buy the dips until it stops working. Again, it worked today.

Please don't preach

2011-07-27T16:46:00.001-04:00

We give advice in our newsletters all the time and often write about what we’re thinking on our stream.   Our subscribers know our style and anyone who has followed us for a few weeks on StockTwits knows what kind of traders we are — active traders who trade around support and resistance with an emphasis around intraday/daily bases.     However, we respect all types of trading and it drives us crazy when we see others express contempt for other types of trading strategies.
Why? Because talking about how bad a certain type of trading behavior is to a general stream just doesn’t work.    The only time this type of “education” works is if everyone who follows you has the same strategy as you. If we are trying to teach a guy who wants to know how to trade like us “our strategy” then sure, we’ll say do this, no don’t do that, but that’s our strategy and the advice is focused to someone trying to learn this exact strategy.    Posting on a stream is different — you’re automatically talking to traders who use hundreds of different types of strategies.
Our style is to follow and trade liquid stocks that trade usually between $30-$100.   We don’t trade small-caps but you would NEVER find us talking about why trading small-caps is inferior.     We only buy blood on support but we don’t talk smack to traders we see buying what we consider completely broken stocks.   If they ask us, sure, we’ll give our opinion, but otherwise, we’re very much in the “live and let live” camp.     Any strategy can work — some are harder than others (for example contra-trend trading we find difficult) but they’re all possible.   Never add to losers?   For the most part sure but again we’ve seen traders who make more than us year in and year out do it all the time.    If you want to give advice, explain your strategy and educate people about how you trade but for the love of God stop talking about how you cannot “believe” how traders are making this and that mistake.
The market gives each type of trading its turn — right now this is an amazing market for active traders who trade around support and resistance.   However, it’s not so friendly to trend-following swing traders.   Soon the market could revert to drip-up trend style and leave us underperforming. That’s just how it is and how it always will be. It works in cycles — and just because our style works well now we don’t assume that other styles are inferior because we know 2 months down the road the “sit tight and hold the leaders” a la Livermore could be laughing in our face.
What “best traders” have in common belong to the realm of psychology and risk management not to details of strategy.
On another note — as we have said repeatedly in our posts, we will stay in the bull camp until a) we stop bouncing where we should bounce (even today even though we closed near lows, we first bounced perfectly from trend-line to 20EMA, where we posted daytrader target had been met) and b) March 2009 trend-line is broken. Basically we won’t get worried until stocks stop bouncing where they should bounce . Then we’ll step back and wait it out.
For those who think that one day dip buyers will get blown up — again, we don’t understand that.   Retail Mom and Pop investors? Sure. Professional traders? No. We assume that we are talking to traders and by definition a trader works on some risk/reward notion, whether they buy penny stocks, trade a la Livermore, are value investors, etc.      If we have bought the dip with 2 point stop for 2 years and it has worked the majority of the time — why would we stop now?    Sure, one day it will stop working and we’ll lose 2 points. We would probably try again and lose another 2 points. Then we’d say, wow things have changed, and we’d step back and re-assess.   That’s what traders do — adapt, assess, and re-assess.

Not Scary Yet

2011-07-27T11:34:00.001-04:00

We wrote a few times about the trend-line/50SMA this morning as the first line of defense (and later as “line in sand”) this morning and lo and behold look where the artillery stepped in:
Right on cue — trend-line/50SMA was defended on $SPY as we’re bouncing from it now :

First daytrader target of 20EMA already met:

When we will get worried? When market stops doing exactly what it should. The bounce on previous support at 129.6 again was perfect (and we had telegraphed it for our readers beforehand) and now the trend-line test again is perfect. Bear markets don’t bounce where you think they will bounce, they go right through. Until that changes we’re in the bull camp.

Goldman Sachs COO advice to young college graduates

2011-07-25T23:48:00.005-04:00

Passionate commencement address from Gary Cohn , the Goldman Sachs ($GS) COO, filled with great advice to the young graduates at American University. I recommend that anyone either graduating from college or who is taking online college classes read it. Dude can hustle and some fantastic quotes.

I’m a 1982 graduate of the Kogod School of Business. I understand what you are going through. I understand what you are feeling.
There’s a striking resemblance between what you are thinking and what you are going through today and what I was thinking and what I was going through then. In fact, in April of 1982, unemployment in the United States was 9.35 percent; on its way to 10.8 percent by the end of the year. Today, April ’09, unemployment in the United States is 8.9 percent. GDP in the United States Q1 – while I was sitting there in 1982; minus 6.4 percent. Today Q1 GDP, minus 6.1 percent. Interesting. Interesting, that we— you and I—sat in those seats in a very, very similar economic environment.
That said, when I graduated 27 years ago in the dark ages, little did we know how much was going to be accomplished in the next 27 years. All of the things you as students that you depend on and rely on and think of in normal course of business did not exist when I sat out there 27 years ago. Think about that. I did not have a personal computer. I did not have a cell phone. I did not have a fax machine. I didn’t even have Federal Express. I don’t even know how we survived. In fact, one of my favorite activities at American University was spending late nights in the Mary Graydon Center on the second floor programming Fortran through, you got it, keypunch cards. I was great at punching cards.
Upon graduation, believe it or not, I had no job. I had no interviews. I had no prospects. I had no worries. What I did have, I had passion. I had enormous passion. I had passion for financial markets. I had fallen in love with financial markets. So, like every one of you, I did the only smart thing to do, I moved back home and started having a great time enjoying my life, until that one, early Monday morning at 6:30 a.m. when my father walked into my room and turned on my lights. I had been in bed for about an hour, I think, and said, ‘what are you going to do with the rest of your life.’ I ironically told him, ‘you’re looking at it.’ That did not go over very well in my house.
So, I went through what I consider to be the formality of trying to go out and seek a career and seek a job. I ended up luckily landing a job with a division of the United States Steel in Cleveland. Not a job that I had any aspirations for, not a job that I really wanted, but I had to appease my father and I had to go out and get a job. The only good news is that I was at that job from July 1st to Thanksgiving my graduation year. By Thanksgiving I had found a way into the financial markets, by pure drive and perseverance. I’ll tell you a little story about how I got my first job in the financial services industry.
As I said, I was working for the United States Steel in their home products division. I was in Long Island for the week working with one of the sales offices. I made sure that I worked very hard Monday through Thursday and got all of my work done and convinced the gentleman that I was working for that I had never been to New York City and I wanted to go see the city and could I leave early on Friday. He agreed to that. I literally took myself to the commodities exchange center which at that point was in Four World Trade Center, went into the commodities exchange center…found my way up to the visitors’ gallery and realized that everyone in the visitor’s gallery was just like me, trying to figure out what was going there. I figured out that if I go down one floor, I’m actually down at the trading floors. I got down to the trading floors and I don’t know what I thought I was going to do. I stood at the security entrance to the trading floors and stood there for about three or four hours, trying to figure out what to say to someone…trying to figure out how to get a job and trying to figure how to introduce myself.
About four o’clock, I literally gave up. I walked to the elevator bank. I dejectedly hit the down button to go down to get a taxi cab to go to the airport to come back. And, I hear a gentleman say, ‘I gotta run, I’m going to the airport.’ I jump in the elevator with him and say, ‘I overhead that you are going to the airport. He said, ‘yes, I am.’ I said, ‘what airport are you going to to?’ LaGuardia. I said, ‘Do you mind if I share a taxi with you? He said, ‘Sure, by all means.’ I didn’t know him, he didn’t know me. I said, here’s my shot. I’ve got 45 minutes, in traffic on a Friday afternoon to convince this guy that I’m hirable and need a job. He literally went through and grilled me on my knowledge of financial markets, grilled me on my knowledge of certain aspects and I think I moderately passed. By the end of the taxi ride, he says, ‘what do you know about options.’ I said, ‘everything.’ He said, ‘great, I want you to come back Monday, I want you to interview. I’m trading options, it’s a brand new market that’s opening and I don’t know how to trade it and I need someone to stand behind me and tell me exactly what to do.’ I said, ‘no problem, I’m your guy.’ I literally got home Friday night and my first stop on the way from the airport was the bookstore. I bought the McMillian Options is a Strategic Investment book and read it four times–as I said, dyslexic guy read it four times over the course of the weekend and came back in and interviewed and was offered a job. That’s how I started in my financial services industry.
So, in my answer to my first question here from the students on career advice let me make it simple. Have a goal. Know where you want to end up. Knowing where you want to end up is a lot easier than figuring out how to start and how to get there. You will figure out how to get there. Do not chart your career. Trust me; you do not want to chart your career. In fact, I worked on the floor of the commodities exchange and everything in my life was perfect. My wife was pregnant with our first child and we could not have been happier. At that point, I got an interview…I wasn’t really looking, but Goldman Sachs at the time was trying to draw me into their organization, something that I had no intentions of doing and I really sweated the decision, do I want to leave what I’m doing now and go to Goldman Sachs or do I want to stay at what I’m doing. In fact, I went home and talked to my wife and my wife said, ‘you got to be crazy. That would the craziest decision that you ever made.’ I said, ‘you know what. It’s one of these opportunities that may come along only once in your life; I know that going back to the floor exchange is always there.’
So, be flexible, have a goal, don’t chart your career and most importantly understand your competitive advantage. Understand what differentiates you from someone else; make sure you have a way to distinguish yourself from everyone out there.
Number two: How to stand out. I thank God that President Kerwin did not read my resume from Goldman Sachs because it reads like I’m a guy that can’t keep a job; every two years it seems like I seem to be doing something else in the world. So, I’ve worked in a variety of jobs, I’ve worked in a variety of locations. Every time you get into a new job, new location, you have an amazing opportunity in front of you. You get to play dumb for as long as people will allow you to play dumb. You get to ask all the dumb questions, you get to ask multiple people the dumb questions, and you get to make mistakes. That’s how you stand out in the crowd. You stand out by asking the questions, whether they are smart, whether they are dumb, but you have to have that desire to learn. Those that have the desire to learn will stand out. Those that work hard will stand out. The old adage that hard work will get you what you want is 100 percent true. Work hard, ask questions, and take risk. If there is one thing out of this on how to stand out, it’s take risks.
Everything I’ve done in my career and everything that most of you have done to this point is to take risks. You may not have quantified it as a risk decision, but believe me it was a risk decision when you choose to come to Kogod, it was a risk decision, you’ve could have gone somewhere else. When you chose to get up and come to work this morning—never mind, you didn’t come to work, when you came to graduation this morning, you made a risk decision. How were you going to go? Was there going to be traffic? Was there not going to be traffic? Understand the decisions that you are making and try to wave them in your respect. Failure is not a problem. In fact, I always saw, that 95 percent of my great decisions started out as bad decisions. It’s one thing that I learned when you trade and you trade your own capital for a living is that you are usually not right, it’s recognizing when you are not right and correcting it is when you take the biggest advantage of the opportunity.
Keep yourself motivated. You’ve got to be motivated, you’ve got to wake up every day and understand what that day is about; you’ve got to have personal goals—short term goals, intermediate goals, and long term goals. Be flexible in getting to those goals, but if you do not have goals, you will not achieve them. You are competing. Every day you are competing and every day you are playing to win. So remember, wake up every morning and figure out how to win.
Next question I was asked quite a bit about is how to balance my career and my life. I will tell you, for those of you that asked this question, and it’s a great question, it’s clearly the single hardest thing that I do. I am the father of three teenage daughters and it is a very demanding group of young ladies that I have in New York. We somehow seem to balance those decisions. Like today, making the right choice…I think its Mother’s Day. Congratulations to all the mothers in the audience. My mother’s in Cleveland, Ohio; I will call her when I land in some other continent in about 14 hours from now. My wife is in New York with our daughters and I’m here. Of course, I make all the right life balances. These are tough choices and you should always make sure that you’re thinking about those choices.
Now, a couple of more points that I want to make here. And, this is probably one of the most interesting questions that someone posed to me in the questions here. If you listen to one section of this speech for those of you in the blue garments like myself, this is the important part. The question goes something like this: What do you know now that you wished you had known when you graduated. How long do you have? Let me start with the basics.
You have the skills. You have the education. You’re education is virtually the same as everyone that you are going to compete with. I know, we hire six to ten thousand kids a year. I must interview, conservatively 1,000 different kids a year; and I will tell you this: You’re education and their education is exactly the same. Most likely you have the same textbooks, you have the same books in your library, you’ve got the same access to the same data on the Internet today that they do and you have the same education as they do. You might not be as confident as them. Trust me; you might not be as confident; some of you may be as confident. Confidence is the easiest single thing to fix, so remember that. I got the same, the same education that I am competing with. I have to make sure that I walk in that room, walk in that interview, and walk in that first day at work with the confidence that everyone else has. Just because you went to an Ivy league school doesn’t mean you are smarter, doesn’t mean that you got a better education; it may mean that you got a little bit more confidence because you think you got a little bit of an edge going in there. That is the easiest thing to overcome.
Let me tell you a little anecdotal story here. This is probably the easiest way to drive this point home. Every summer at Goldman Sachs, we bring in about 1,500 student interns; most of them are juniors going into their senior year. The highlight event in our summer experience in the division that I was running at the time which is the securities business, which is all equities and fixed income trading, is that we have the entire summer class sit down and we do an interview question and answer session with the operating committee of the securities division. So, we get the five or six leaders of the division on a global basis into a room in front of the students and we let the leaders introduce themselves for about three to five minutes and then we open it up for about three hours of questions. I will tell you the most striking part of that day and it’s always my favorite part of the day. We ask each of the operating committee members to introduce themselves, tell the group of students to tell them a little bit about themselves and we ask them to tell where they went to college and what they’ve done. I will tell you that the last time that I chaired this group, of the five individuals sitting in front of the room—and I will admit that the vast majority of our summer intern class comes out of the Ivy League schools—I will tell you that the five individuals that introduced themselves the last time I chaired; me as the division head, American University; one of my other partners, Bucknell University; one of my other partners, Hamilton; one of my others, Rutgers; and then we had this weird guy at the end that went to Yale University. But, that to me was probably the most striking moment of the summer for the kids to come into Goldman Sachs and it really tells you about having the desire, having the drive, having the need and having the want to succeed. It is a level playing field out there. It really is.
As far as being good alumni, I think all of us want to be good alumni. As you sit there today, thinking about your experiences at American University, I’m sure you all think you’ll be great alumni and that American University will have a place in your heart forever. It will have a place in your heart forever, every time you are introduced, every time you are in a crowd, every time you are making a presentation, people refer to your academic background. I will tell you this, as a Board of Trustees member, as involved in some of the Capital Campaigns around here, not all of you will remember that you went to American University when we ask for you to give back to the university; whether in time, effort, money, any of the ways you can give back. Being a great alumni is being proud of your academic university…being willing to tell people where you went to school, wanting to tell people where you went to school, recruiting potential students. This is a competitive business. Running an academic institution is a competitive business. We need your help. You are our biggest advocates; you are our biggest recruiters out there. And, if you want to be a great alum, just partake in any one of the activities that I mentioned here.
On a few a final thoughts, tying back together the 1982 scenario when I was sitting out there with the economic scenario of today which are very similar, this is truly historic times. You are watching history write itself, or rewrite itself. In the financial markets, in the business community, in the political community, in the regulatory community, the world that we have known since literally the 1930s, which was the last time that we really saw the regulatory community in the United States change. We saw the business community in the United States change, we are going through a complete revamp of the world. You have a front row seat. You need to get involved. You can make a difference. You will see things that will surprise you, you will see things that will shock you. But I will tell you this, that said, in times of fear, times of uncertainty, times of confusion and times of turmoil, there are the greatest opportunities to contribute and succeed.
I know most of you feel like, oh my God; I am two to three years too late in graduating and I wish I had been there a few years earlier. It would have a hell of a lot easier….there were an abundant jobs, there were an abundant opportunities. That is the farthest thing from the truth. For those kids that were graduating into the workforce two to three years ago, they had a very short-lived experience; they saw the top of the market and they really didn’t have the time to learn because the environment was so chaotic. You are entering at the optimal time, like I did in 1982 to enter the work world and to really get long lasting real experiences to drive you for the rest of your career. The world needs you to be great citizens and great leaders.

Pretty good right? I think this is a great read for anyone who's just graduated college, who's looking at the job market today and feeling a bit hopeless.

Full transcript here
h/t Business Insider for link

Pretty Spot Worked

2011-07-18T16:51:00.001-04:00

We wrote this afternoon near the bottom:

“This would be a pretty spot to bounce – if bulls want it, this is the place to defend ”

And once again dip buyers won the day.

We find it astounding that no matter how ugly the market support keeps working, for a trade. If we want anything more than that then bulls will need to give the all important confirmation move tomorrow. This also applies to all the sweet hammers on the financial stocks today. Also recall that we tested the support last week in overnight session and we finally had regular session test that many had been waiting for today. Bottoms are never made in one day — confirmation is always needed.

As noted before we’re swing long partial $SPY. Why? We got off decent entry and have cushion, we like how market acted post low, we like copper holding, and we like the financial bounce off the lows. Stop now break-even (maximum, we’d probably bail at 130 break) at $SPY 129.66.

Even with all the red, there still is very little fear in this market (note $AAPL all time highs today — as an aside great trading there by our buddy @gtotoy )

Until we get smacked in the face our modus operandi will be to buy dips. It’s been working for 2 yrs, and we’ll keep doing it until/unless we break 2009 trend-line or we get hit. Whichever comes first.

SPY talk

2011-07-18T14:03:00.002-04:00

We tested the top of the previous range last week at 3AM in the futures and we finally tested it in the regular session today. If there was ever a place for the bulls to push — and not just a good close but a continuation tomorrow, it is now.

Position long $SPY and will swing on any close over 130

Trading Screen Configuration

2011-07-18T14:03:00.000-04:00

HCPG trader screens are more or less configured in a similar fashion — emphasis is on a layout which gives us a quick idea of what is happening in the market in terms of sector strength and breadth. Let’s take a detailed look:

The following configuration can be done with 3-4 monitors, our ideal size. We’ve basically had this configuration for our entire trading career (and have sent versions of it over the years to our subscribers). It’s basic, and it works for our style.

On one monitor we have our trading broker and a range look on an Interactive Broker page with some of our favorite trading stocks/etfs gives us a quick read during any time of the market:

We use E-Signal for our charting platform. Even though HCPG hammered out a partnership with E-Signal in May (HCPG subscribers who transfer over to E-Signal are eligible for significant discount) we started using E-Signal even before that date as they are the best charting service that we can find for our trading needs.

We follow our “core” stocks in loose sector groups in one monitor. Note that we have different pages on E-Signal that we flip through — but this is the main one.

On another monitor we have different time-frame charts of any stock we pull-up. Note that we use 20EMA, 9EMA and pivot points. These are the only intraday indicators we use and find them invaluable to our style.

We follow 3 min, 5 min, 15 min and 60 min.

On another monitor we have our StockTwits desktop and Tweetdeck.

——————————-

We’d like to thank everyone who sent us screenshots of their configurations — included below. Enjoy.

@joeyfishface I mostly employ a VWAP reversion strategy, supported by OHLC, Volume, T&S, and Volume Profile.

————————

From @IndependentTrdr

I have been doing a lot of trading lately on a laptop. It’s not a big laptop either. 11.6″ screen, running at a resolution of 1366 x 768. When I started day trading full-time back in 2005, I had 6 monitors going. Over time, I have found it to be more of a distraction than anything else to have so many screens. I do have another computer that I use for net browsing, TweetDeck, etc..

My setup is simple, Esignal and my broker platform. The broker platform is mostly hidden behind Esignal. Starting on the bottom left there is my position monitor, showing symbol, position size, and avg price. Then to the right, I have two order entry windows. All the rest of the windows are from Esignal.

This screenshot shows the daily chart in front, behind it are two intra-day charts. One for 60-min/120-min charts that is zoomed out pretty far so I see a lot of data, and one for lower time frames (1-min, 2-min, 5-min, and 15-min) that is zoomed in closer. Switching the bar interval in the Esignal 11 is simple. When a chart window is active, just type the interval number you want, then press enter. For example, if I’m currently viewing a chart with 2-min bars, and want to see 5-min bars instead, I just type 5 and then enter.

To the right of the charts are my quote/alert windows, called “Watchlists” in Esignal 11. I’ll start with the first column to the right of the chart. On top is my Focus List for the day. These are the stocks that I’m most interested in for that session. Below this is my Alert List.

All of my Watchlists that are for alerts have the following columns.

pPrice = shows the price of my alert
ExtHtsL = last traded price for that symbol
%Ret = how far the last price is from my alert price (this is the field that the Watchlist is constantly sorted by)
Vol % = shows the current days volume as a percentage of the average of the past 30 days volume

The final column of Watchlists contains 4 different windows. On top are my support long alerts, and directly under are my resistance short alerts. Like all of the other alerts, they are sorted by distance to the spot. The third Watchlist down shows my Key Stocks. Just a group of about 20-30 stocks that I want to always keep tabs on. I also sometimes switch this Watchlist to display my ETF sector list. The bottom most Watchlist contains the 3 index ETFs that I follow, SPY, QQQ, and IWM.

That’s pretty much it. Keeping my setup simple helps me maintain calm and focused while trading.”

————–

From @alfietrade

I’m not sure how best to capture it cleanly because I have limited screen space so with many charts open at the same time, I tend to just move charts to the forefront when I need to look at it.

I always have the following open:

- IB TWS

- IB option trader

- IB charts (ES, NQ (two days and one month timeframes), and about 12 other names I trade regularly displayed in the 2 days, 5min bars configuration), other charts I need I would open and close as needed.

- Freestockcharts.com

- Tweetdeck

————

From @steelertrader

My Screen Real Estate has changed over time but here is what I am currently watching on a daily basis:

Center Monitor: Upper Left is my main QuoteTracker Window that shows my core watch list for the day. The columns in all my watch lists are Last Price, Net Change, % Change, stock’s current % within daily range, % of average daily volume. Just underneath that is a list that is populated from stocks that may have fresh news that morning that pop onto my radar and below that is a watch list of index and sector ETF’s.

Next to those are my futures charts (NinjaTrader Platform) for the 3 main Indices- They are usually set on 5 minutes but can be changed easily. Those charts contain 8 and 34 Ema’s along with a parabolic SAR.

I also have ThinkorSwim platform open with two quote windows (Indices/Futures) and charts for the TICK and Advance/Decline Line. The red and green dots on the AD Line chart are for extreme tick readings.

The remaining ThinkorSwim Charts on this Monitor are USD futures, TLT, TNX or /ZN and Copper Futures. All of these are 5 minute charts with 2 trading days of data.

Underneath those are 3 Quote tracker charts are for the 3 Sector ETF’s that I watch most closely- IYR, OIH and IYT. All my quotetracker charts contain the 9/21/34 EMA’s, VWAP, Pivot Points and the prior day’s Hi/Low/Close. I start the trading day using 1 minute charts, switch to 3 minutes around 9:45 and eventually sync them all to 5 minutes as the day goes on. In late afternoon they are sometimes changed to 10 minute candles.

Left Monitor: Upper Left is a Notepad where I do my best to write down some thoughts on entries and exits which help me with my trade review and journal.

Next to that are 4 quote windows each containing approx 20 tickers: Retail/Casino’s/Misc Momo, Tech, Financials/REITS/Industrials and Commodity. Several come and go but probably 70% of these tickers will typically stick around with the most change coming from the left most watch list. I also have one “bellweather” quote window (12 stocks) for giving me a quick read of what I consider the markets key stocks. I also have one list for levered ETF’s and for Alerts

Below the watch lists are room for 6 equities charts that I am keeping an eye on at that particular moment and one space for one random Futures chart (/GC, /SI, /ZC)

Right Monitor:

Ninja Futures charts for Euro and Crude

ThinkorSwim 6 window linked Multi-Time Frame Grid (5 min, 15 min, 30 min, hourly, daily, weekly)

Browser with FreeStockcharts and Stocktwits

Chatroom from @gtotoy’s daytraderbootcamp, where I hang out during the trading day.

GChat windows for traders that I rap with throughout the day.

TweetDeck

Laptops: On one laptop I run my Lightspeed Trading Platform. It has 4 separate linked windows for order entry, level II and Time and Sales and on my other Laptop I have a newsfeed

Screen Configuration Bonanza

2011-07-16T20:44:00.002-04:00

There are lots of threads out there on traders sending in snapshots of their workstations — that’s fun to look at but what is more useful for a trader is how they actually configure what’s on their screens. We’re doing a post on how we configure our screens and would like to add other trader configurations. Please e-mail us at info AT highchartpatterns DOT com with snapshots/(and if you wish explanations) of how you configure your trading software and we’ll add it to the post including your StockTwits/Twitter handle.

Here’s a random one found on google image. Go $GOOG!

Like a Zombie that won't go down

2011-07-15T22:46:00.001-04:00

Like a zombie that won’t go down this market keeps getting hit with bullet after bullet and yet refuses to roll. Many are looking for a regular session test of the $SPY 130 test (we already had that test in the overnight session on Tuesday $ES_F).

The market is absorbing bad news well. Let’s take a look the afterhour action of Wednesday and Thursday of the Moody and S &P rating news. The market immediately went down 10 points on Wednesday after the Moody’s review news and then recovered within hours:

Next on Thursday came the after-hour news of S&P possible downgrade PLUS the little detail of the agency asking for 4 Trillion deficit reduction deal in order not to get downgraded. Again, ES plunged and recovered.

Dip-buyers have now been rewarded for two years. There will come a time when the dips cease to be bought — we think it will come if/when we break the March 2009 trend-line but until then we’ll keep doing what has worked so well now for so long.

Note that range-bound strategy rules supreme in the current market hence the other side of the equation has worked equally as well (at least this year) which is sell the rips. However as long as we are holding above a 2 yr trend-line we prefer to focus on the long side as we believe the force is stronger in the bulls.

SPY areas to trade against

2011-07-15T22:45:00.001-04:00

We’re at the close here and bulls held the 20SMA/50% retracement of recent rally/ $ES_F AH low.

So what if doesn’t hold? Next support comes in at 1295 on the $ES_F which is the top of the previous range (corresponds to around 129.8-130 on the $SPY) which also is around 61.8% retracement of the rally.

As to our position, we’re all cash. If market rips then we’ll pay up for it and trade whatever sets/triggers. However, we won’t be looking dark until we lose that 2009 trend-line — so far all we’ve had are mean reversions up and down as rips have been faded and dips still have been bought. Until that changes we’ll be trading the status quo.

Big beat by the $GOOG machine in AH — ball is in bulls’ court now as they need to hold this technical level and rally from it using the earnings beat as a catalyst. A push from this 20SMA/50% retracement area would be a great start which in turn could bring in the “fear of missing” mentality.

Watch that Tuesday night low on the ES_F

2011-07-13T19:59:00.000-04:00

Remember this line in the sand we posted yesterday? It’s baaaaack:

Tuesday 3AM futures tested and passed the top of range test. We’re getting close to it again now. Click to enlarge:

And on the $SPY it corresponds to 129.8-130 range.

Fun times.

Thank You

2011-07-12T20:21:00.003-04:00

First of all, we completely forgot about our 5 yr business anniversary mark (June 13, 2006).    However, a belated note hopefully is better than nothing.   Opening the HCPG business forced us to step up our game — and for that we’d like to thank our subscribers, many of them who have been with us for years. We may have many faults but lack of loyalty is not one of them — we always remember the people who have helped us over the years and want to give a quick shout-out on this 5 yr mark.

A year and a half ago we joined the world of StockTwits/Twitter and for that we’d like to thank @downtowntrader for giving us the initial push to join, @howardlindzon, @ppearlman and @ldrogen for welcoming us aboard and getting us started via the Suggested Stream and later with a partnership with StockTwits.    Working with Dr. Phil has been a fantastic experience — he makes you feel you’re on his team and like a good coach, he’s always looking out for you, pushing you to take it up a notch, and take that next step in becoming better.

We’d also like to thank all those that have given us increased visibility, too many to mention, but especially early RTs from (now) buddies like @gtotoy @traderstewie, @szaman @chessnwine , The Reformed Broker and the WSJ links, @DinosaurTrader for links to his early blog and the RO, Charles Kirk for early links over the years on the The Kirk Report, and @abnormalreturns for links on his fantastic site.    Being part of the community of such a young and growing company such as StockTwits is very exciting — for us it’s a great win-win. We’re happy to contribute value to the community, grateful for the friendships we’ve made, and for the fanastic exposure we’re experiencing alongside the growth of StockTwits.
Looking forward to the next five.

Look what happened while you were sleeping

2011-07-12T20:21:00.001-04:00

We bounced right at the previous top of the range on the $ES_F — click to enlarge:

Too bad it happened at 3 AM… Anyway, that’s the line in the sand going forward and the line that the bulls will have to defend against all lehman-cello type events.

News tapes are our least favorite tapes, add the fact that our beloved semis are getting clocked today, and you’ll find us mostly chilling today. We have numerous alerts that could trigger but the market would need to firm up before anything like that occurs. As for being a bear — not until we close under the March 2009 trend-line on the $SPY.

In it for the long term

2011-07-10T14:45:00.001-04:00

We’re active traders (probably 80% day-trade, 20% swing) and quite aware that the burn-out (and blow-out) rate in our business is quite high.   It’s a given that trading is stressful, probably more stressful than many jobs out there, and because of this there are certain measures we’ve taken which have helped us avoid burning out (so far anyway, going on 14 years trading, and 5 years since we founded HCPG).

1. The most important decision for us was to become trend traders. For the most part we’re breakout traders. Even when we do support longs we’re buying oversold markets bouncing on longer-time bull-trends.   We sometimes engage in contra-trend trades but rarely for long stretches of time.   Why? Because going contra-trend for extended periods of time is exhausting.
Have you ever noticed those that are bears in bull markets cover way too early when the tide finally turns? Or perma bulls in bear markets who sell into the first real rally when things are just getting started and go into cash very early in the rally? It happens all the time.   They’ve been underwater in their positions for so long that when they finally go green they’re psychologically burnt out and running on empty. They take meagre profits when the run has just started.     This isn’t to say that contra-trend traders don’t make any money. We’ve always said that there are many ways to make money in the market and for the most part it’s a personal preference.   But it’s not for us –we find contra-trend trading too exhausting. Kudos to those who can do it long-term.    In life often the easy path is the wrong path. In trading the easier path (trend-trading), we’ve found, is the right path.
2. We’ve accepted the idea that we don’t have to catch every turn.   There are times, for example, when we feel the market is very bullish but extended. Instead of looking for break-out failures the next day we instead chill and wait for the long-setups to get ready.   In the beginning of our career we weren’t like this — we were hungrier and wanted to catch every turn up and down.   As the years passed though we slowly decided the extra stress of constantly switching directions didn’t warrant the extra profits.   In the end it’s all about risk (stress)/ reward (trading profits).     In extreme choppy range-bound markets we still go back and forth but in strong trending markets we try to stick to one direction.

For example, as you can see in this chart of the $SPY it was smart to trade range-bound while in the box, but once we broke out of the range we were happy to stick to the trend and not try to go long/short at every small opportunity.

3. Trying to find a balance between work/life is always a juggling act. Our goal now is not to maximize profits but to find some form of balance between a good income and a good life. A good life for us is one that consists of retaining a certain economic comfort while still having enough time to spend with family, friends, on leisure, and exercise (post on home gym relevant to this point). To state the obvious, consistent balls to the wall will wear you out. There’s a time for intense work but there’s also a time to step back and balance out the work/life equation. One of the most useful points taught in any ECON 101 class is the concept of the law of diminishing returns. Our thinking is not to maximize PnL but to find that sweet spot between work/life that will most efficiently allow us to maintain a good life-style (money coming in via trading) while having enough free time to enjoy life.

Easier said than done of course but finding the balance between work and life is one that we’re constantly trying to achieve.
Follow us on StockTwits and Twitter

Market Talk SPX

2011-07-08T10:26:00.002-04:00

After a 100 point rip on the no-Greek default bottom $SPX finally seeing some fatigue in the market. That being said the market held the gap today which is very impressive in itself considering how much it has already run. Our general rule is to always sell the gap up after a large run.

We are looking for a consolidation phase now and a fill of the gap (blue rectangle). This would aid in setting up new longs and be bullish going forward.

March 2009 trend-line, linear versus log

2011-07-05T17:17:00.002-04:00

If you were watching for a bounce on the 2009 trend-line you would have had two very different conclusions if your chart was set to linear (as ours are) or log. Here’s the linear version that we always use:

$SPY sat on the 200SMA long enough for trend-line to catch up and bounced.

Log version shows complete break (interestingly enough we’re testing the underside of trend-line now). Bears were very excited about this break.

What’s the difference? In a linear chart there is no adjustment for a percent move. A chart moves up 2 points if its a move from $20-$22 or $100-$102. Of course a 2 point move in a $20 stock is worth a lot more percentage wise than a 2 point move on a $100 stock. A log chart adjusts for that by moving same amount on chart based on percentage, not points in price. For us, this is meddling we don’t want in our graphs. We want pure price and time, not adjusting for percentage. However, there is no “right or wrong” in this argument, more a preference. E-signal uses linear as default for example while other charting platforms often use log as default (including stockcharts).
The 2009 trend-line for us is the big kahuna — it was THE focus for us in June as you can see in these four posts March 2009 Trend-Line Sirens calling, A visit to the Nasdaq Trend-line, Buy the first test not the second, and The only chart that counts (hint, it’s the 2009 trend-line chart
For further cool insight follow us on StockTwits and Twitter

Daytrader Toolbox: anticipating breakouts

2011-07-05T15:29:00.001-04:00

In benign momentum markets such as the one we have enjoyed for the last week a lot of break-out moves start before the alert. Two of our day-trade strategies, base and break, and The Indy, were created to take advantage of this phenomenon. A quick glance at two triggers from last night’s newsletter in $OPEN and $YOKU.

We wrote in yesterday’s newsletter “OPEN 85 not bad for a squeeze — type of stock that sets up before on base and break/Indy” and indeed the set-up before the alert today — on the lift-off from the 9EMA near the open 1 point under. Best way to catch a move like this is if you were stalking it — yet another reason why we like small watch-lists.

Second entry if you missed 84 was after it had based on 85/R2 for second lift-off from actual alert at 85.

YOKU 37.5-37.7 we wrote yesterday to look for set-up which was a good spot to enter for a quick 1 point run. Another entry was off the 3rd/1 minute bar off the open gap. You will see this pattern quite often in benign momentum markets — gap up, 2 x1 minute bars that are fairly tight, and 3rd bar lift-off. The highs and the lows of the first 2 bars were within 25 cents which is great risk/reward. When you see a tight stop like that buy the 3rd bar that takes out the high with stop on any reversal into new low.

As extended as the market is right now there are some very good momo moves for day-traders. We’ve had two extremes since the beginning of the summer — complete bear sentiment where every rip was faded and now the complete opposite in a true momentum tape. It should be an interesting summer.

My best purchase in a long time

2011-06-22T13:45:00.002-04:00

With that title you would think I (have to use “I” here, this one is all me, not from my partners who work in offices) I am talking about a stock purchase, but no, I’m talking about a home gym.    I’ve had exercise equipment in our rec room downstairs for years but never took it too seriously, maybe I’d use it once in a month. Maximum. Aside from that I’d try to get some exercise at least 3x a week but a lot of times it was a time-struggle fitting it in.    I often wanted to get some exercise during the trading day but being away from the computers, even for 1 hour, often made me hesitate.
About a month ago I decided to change things up — I knew very well that as per the HCPG trading strategy there would be chunks of time where I would be doing nothing, just waiting for alerts to set-up, or targets to be hit. At the same time I knew I would always hesitate leaving the office for too long.   I decided to build a quality home gym in our rec room.
First purchase:   a quality dock/speaker for the music via iPhone.    I went for the Bowers and Wilkins Air Zeppelin which is one of the only systems that allows AirPlay.   It also has formidable sound.   I’ve been using it almost every day for a month and couldn’t be happier with the quality.

We already had an Elliptical machine in there but I never really took to it — but I do like running, so I bought a LifeFitness Treadmill. I did some research into treadmills and thought LifeFitness was a good fit. Again, very happy with the quality thus far.     The Air Zeppelin can be controlled via my iPhone on the treadmill and I have my Interactive Broker app running on the iPad to monitor my positions/market.   The only pain here is that you can’t have two running at same time so you have to log-out of the main office TWS and log into the one on the iPad.

In order to add some variety I bought a free-standing bag for punches and kicks.   I went with the WaveMaster but that was the only one they offered — didn’t put too much research into this one but no complaints, works great.

A couple of yoga mats for sit-ups, etc is a must for the room.

A few medicine balls for strength-training.

And so far that’s about it — there’s nothing I want to immediately add.     It’s been the best material quality of life jump purchase I have made in a long time — I am working out now around 6x a week, I feel better about trading, and I’m much less tempted to trade for trading sake (one of the most common errors for day-traders).   If I’m bored, I’ll go downstairs, blast some music and go on the bag. Today was a very good example.   I came into the day with no alerts and just nursing a few swings.    There was really nothing to do (even though my buddy DinosaurTrader did get me involved in a nice little miner short for an hour, thanks dude). I worked out for 45 minutes and feel great.
This is my first foray into giving non-stock advice but it’s one I feel strongly about — if you already have a home gym think about upgrading/sprucing it up so it becomes more attractive to you and if you don’t, think about it setting one up for your next purchase. I think almost more than any other profession, having a home gym is a great asset for home-office traders.

Charts are never enough

2011-06-21T18:53:00.001-04:00

We rarely trade only on what we see in charts, nor in fundamentals. We always defer first and foremost to price action (especially to divergences), and a lot of times to “feel”.     Yesterday was a good example — we went long late in the day on a basket (tweeted before close) of $ANR $CMI $SMH $GDXJ $OIH $XME and it certainly wasn’t what we saw in the charts (even though we liked the potential of trend-line breaks in CMI ANR) but price-action.    We started to sound more bullish in our tweets yesterday and finally purchased the basket — why? Two reasons:
1. We had $UA 70 in our newsletter for a few days and it finally triggered and worked very well. Appetite for momentum was coming back into the market as retail stocks ripped.
2. Market refused to die no matter how much bad news it was bombarded with from overseas.    As our readers know we don’t like to buy support when there’s basing — because often what happens after the base is the stock craters. But on the flip-side when a stock refuses to die even though it’s basing on support then there’s a chance it will rally hard, which is exactly what we saw yesterday.   We didn’t think the 200SMA would hold but it was holding — and that was enough to flip our bias and to initiate a position long.
We’re out half of the basket ( up on the worst position SMH 2%, and 4.7% on ANR, our best position).   Stops are on lows of day on everything but will be updated after the close.
It’s still hard to trust this market as these one-day rallies have consistently been sold, however this is a good start with the break of trend-lines.

Long $CMI 93.38 (posted real-time yesterday) and made it in our newsletter for trend-line break long.

We’re playing it tight enough (already out 1/2 and stops over break-even is tight in our books) but also leaving some room (might swing 1/2 but at least 1/4) in case today’s bounce has some legs.

We posted this yesterday as our SPY road map –$SPY now has passed several short-term resistance areas but still has to deal with the big kahuna resistance of 130.

March 2009 TrendLine's calling

2011-06-18T12:28:00.001-04:00

An updated “The only chart that counts” posted 8 days ago — trend-line’s still holding and still calling our name. We’re not fans of making longer term bets as a few contra-trend days down the road can completely change the picture but the obvious look is test and bounce on the trend-line, and then through for lower prices. Short-term is our game though and we’ll be looking to play day-trade bounces on the trend-line, currently at $SPY 125. Note we’ve become much more cautious than we have been in buying support and are picking our spots very carefully. This is an unforgiving tape and one has to adjust accordingly.

$QQQ trend-line near 53

The Russell is hanging on better than the other two and trend-line farther away here on the $IWM at 74.5

The Russell has the added advantage that the trend-line coincides with horizontal support (the other two horizontal support are further down) and for this reason is our favorite: