May 30th update and musings

Quick note on the daily charting for longer term trading of the ETFs.

The bull ETF moving averages seem to correspond reasonably well with the same period averages on the SPX chart. The ber funds, on the other hand, vary widely. It appears that the longer the period of the moving average the less correlation it has. This makes using them on the bear fund charts impossible to use. I realized some time ago that trading ETFs really should be based on the underlying index chart and not the ETF chart anyway but this is more important on the daily scale.

On the minute scale the averages are not bad and can be used, loosely, on any chart for comparison but the index should still be the main reference.

This brings me back to the trial trade in the last post. My stop of $56 on SDS was based on monthly pivot points calculated from that chart...I should have been using the index especially as, unlike day trading, a daily chart needs no instantaneous updates to determine trade management.

So, looking at the charts I see that I should have bee stopped out on SDS yesterday, even according to the SPY chart had I bee shorting I would have covered as my stop would have been based on the 200 DMA line and it was breached in both cases as the end of bay...and end of month rush, spiked SPY over a dollar, SDS dropped a bit more than that. That last push would have stopped me out, which would not have been in the plan.

So going back to the SPX chart it peaked at 920. Still short of the 200DMA at 928.60 and short of the recent high of 929.20.

Another consideration is that longer term trades really should be taken on non-leveraged funds as the leverage effect loses money over the long run as a price oscillates from day to day particularly in a sideways market move. Nice straight trending is fine but that is not always the case. In fact, a good long long term plan might be to short a bull fund and hold it as a hedge as, over time, it will continue to drop in peak value until it reaches the point where the fund manager decides to consolidate the units to bring the value back up to a workable level.

Anyone wanting to see this just run a chart with an index and the leveraged bull fund side by side or overlayed. Each successive peak of the fund is slightly lower than the peak of the index, relative to all previous peaks as the fund gets rebalanced each day whereas the index does not. I think that shorting a leveraged bear fund would result in the same effect but I haven't looked closely at it. Had I access to shorting ETFs (no shorting in my registered accounts) I might just short a handful of shares and hold them to see how effective this might be in reality.

I digress.

The point is that my SDS trade would likely be an SH (proshares S&P500 short...non-leveraged) at $66.92. Current closing price is $65.82.

That compares to $55.50 in SDS down from $57.71. Thanks to leverage.

So, we shall see where this goes. I will consider entering the next trade setup for longer term in my TFSA account. I probably will not trade in even lots so I cannot use a true stop loss, but that hardly matters as I intend to be day trading so I can easily monitor the position and close the trade at any time during the day...which also lets me aim for better prices than just the previous day's close. Perhaps even try out a VTSO to enter the trade...I wonder if that will work...

Transferring the TICK to the dailies...EXPERIMENTAL

Well, my longer term outlook was pretty close so far as the S&P500 has slipped a bit. I don't think there is a huge concern for a sudden drop off quite yet but it may be coming. There is not much more good news that can be disseminated that will push the market hard enough to stop the almost inevitable drop.

Here is the last six months on a daily chart for the SPX.



As the value approached the 200dma it lost steam and started a small drop. I have not been watching the S&P500 for long enough to know how it moves so I would not be able to call the short entry based on the chart and the price proximity tot he moving average, so let's take a look at an unorthodox method that I have started using for day trading and apply it to this timeframe and see what happens. It is worth noting that I have not managed to use this successfully in my daytrading as it is still pretty fresh and I am doing some fake trading yet. I tried it on Friday but a tight ranging day requires some different angle than what I am using here. I haven't nailed tight range trading yet.

Here is the chart of the S&P500 with the latest long term trading noted.



The stop line is based solely on the price passing the next monthly pivot point, support or resistance then moving the stop price up to just below that point. One case I used the 50SMA as the pivot point for April dropped and I don't think I would drop my stop setting to suite, just use the next reasonable resistance line.

Now this is the kicker, here is the daily TICK chart that was used to set these trades up...in hindsight right now but I will start tracking as if I did place the trades in "real time"...or as close to that as I can get with daily chart bars.

SMAs are red = 5, blue = 10, green = 15 and yellow = 20...the dotted are somewhere in between and are not really necessary.



The 30 / 50 crossover needs to be confirmed by some upward (or downward for shorting) trending no matter what the price chart looks like. I have run these in backtests by marking the minute TICK chart and only afterwards referring to the price chart. Using the TICK data for exiting the trade is not as good as using the stops, so far as I can tell now. Interesting to note, and something I didn't expect, as the TICK indicated it was time to get short I may still be in the long position...depending on how tight my stop was set to the 1/2 R1 line. According to my chart I would still be in. Using ETFs is an advantage here as I can enter a regular one, SPY, SSO, to play the long trade and use a short ETF like SDS for the downside. Simultaneous long and short positions which are not possible in a single issue...although I have multiple accounts so I could manage this if I REALLY wanted to.

I think that the TICK trending is a very strong indicator for the S&P index and comes very close to being a leading indicator. I am working on a method of using this in conjunction with some sort of sector rotation to be in the ETFs that are moving the most consistently. That may take some time to get going though. One project at a time for now.

In order to track these trades I would, for now, use the previous day close price as the next day entry price. So for the trade entry on the 19th I will use the 18th closing price of $57.71. My stop will be just above the monthly R1 point...taking this over to SDS, well, this would be not as easy to manage as the price and averages for bear funds are not the same as they are for bull funds, leveraged or otherwise. Shorts are easier. I'd say the stop might be about $56.00 for now.

Enter = $57.71 ( I might have set a lower limit order to get in expecting a down day though)
Stop = $56.00
Last close = $60.54

For curiosity I checked the gain from SPY for the long trade.

March 11th entry at $72.17
Current stop at about $88.10

Nice tidy little paper gain. I may run some of these in one of my accounts to see how it goes...only I have to wait for the next good setup before placing a trade...the whole reason, or most of it, for me going back to day trading, I didn't have the patience to wait for a setup to setup on a daily chart. Maybe use part lots and not worry about the lack of stop loss orders for the smaller risk profile as a result. Just enough to prove a live system.

Jeff.

Shorter term look at the S&P 500

I decided to take a shorter term look at the S&P 500 index. I am not convinced, by a long shot, that this bear is dead yet. I know that a chart can be spun in almost any manner to demonstrate a clear outcome in any direction... I am not trying to spin, I am just looking at the facts. My opinion can be as wrong as the next person's.

Here is the chart from my last post:

The positive convergence looks convincing given that the price trend SEEMS to be broken.

and here is the more current shorter term outlook:

On the zoom there is a whole new set of lines to study. I think the most important is the reduction in volume and the increase in price. The MACD really does not fall into my studies anymore but it was on the default so I used it. I think that the slow creeping up of the price on lower and lower daily volume leads one to consider the market sentiment at work here. If everyone were in the groove of a full on bull move here, even though it has been a good rally, I would expect the volume to be increasing or at least quite high The price is still in the high volume price zone but with volume lessening there may not be enough buying pressure in the underlying stocks to drive this move higher in the long run.

I must admit that the volume is still higher than it was a year ago, but a year ago the market was still in decline, here is the chart for that particular move:

If this were a minute chart for intraday trading I would be getting ready for a short as the price approached the 200sma... or perhaps long if the price should break that line.

Note here the MACD in this example is STRONGER than the current one.

Here is how that period played out:

Trading is all about pattern recognition...this one is pretty clear as everything is very close to repeating itself.

Let's see what happens as it happens.

Jeff.

Few and far between

My posts have been exactly that here in the medium term realm...primarily due to the fact that I am entrenched in the daytrading timeframes. Recently I started trading the NYSE instead of the TSX due to the lack of real stop loss orders in the Canadian exchanges.

I have found a great wealth of additional indices and data streams that are not available for the Canadian markets as well. I will be using some of these here and there.

I keep swaying from and to ETFs and lately I have been concentrating on the S&P500 index and related ETFs, SSO, SDS, SPY, SH... various shades of leveraged and non-leveraged ETFs. All work fine in an intra day basis as there is a direct correlation between the leverage factor (1, 2 or 3X) and the ETF price movement. The larger priced SPY moves well enough and it is tradeable as is the leveraged lower priced SSO.

For the purpose of longer term trading SPY and SH (1X ETFs) would be the only issue that makes any sense to use. The problem lies in the price as buying either would tie up enough capital that I would not be able to continue daytrading... so I give up on the one to do the other.

Having said that I will likely be setting up a direct automatic deposit into my margin trading account as they have lowered the margin requirements. It will take a while to build up enough capital for the planned trading but it's got to start somewhere.

No cool charting or forecasts here, although the SPX is at an important price level and anyone trading it should be paying close attention to the next move, I suspect that it may be fast and furious when it breaks.

Well, I couldn't resist. Here is the SPX index for the last year. Note the nice convergence of price with the MACD and the jump the the MACD levels as the price crossed that high volume level around 850. I would be watching closely as the index approaches teh 200dma around 925. Some are saying teh May is a typical selloff month, something about seasonal trading...it may work out that way but he volume is averaging higher as the level rises slowly which lends itself to the thought that there may be some support for a continued rally.

Yes, I still use the stockcharts.com as they have a few things that esignals do not have.

Jeff.