Posts Tagged ‘education’

VWAP Discussion and ES and NFLX Examples

Wednesday, May 1st, 2013

The VWAP (Volume Weighted Average Price) is a powerful tool for traders, but you have to understand the implications of what it means to completely grasp it’s use. In the weeks ahead, we will be focusing several articles on the VWAP and how it can be a useful tool in a variety of ways.

If you don’t know, the VWAP ends up operating like a moving average, but it does so by weighting the price and size of each trade.

So for example, let’s say that we have three prices: 40, 41, and 42. An average of those three would be calculated by adding them up and dividing by 3. That would give you (40 + 41 + 42 = 123) / 3 = 41. A moving average keeps adding data in the form of price and dividing equally by the number of data points.

A VWAP, on the other hand, takes two pieces of information for each price into account before doing the math. It takes the price AND the number of shares for that print. So, now let’s say that we have three data points, which is 100 shares traded at 40, 200 shares traded at 41, and 900 shares traded at 42. Note that this is the same 3 prices that we had when calculating the average price example, but now we have size to go with each. What the VWAP does is take each price times size and divide by the total size.

So, we get:

40 x 100 = 4,000
41 x 200 = 8,200
42 x 900 = 37,800

Add those totals up (50,000) and divide by the total number of shares (1200) and you get 41.67, the VWAP. See how the number is far more skewed toward 42, which is where the much bigger print occurred?

So, what do we do with this?

Institutional traders would prefer to buy below the VWAP and sell above the VWAP. Why? Because it means that they got a better price buying or selling their big block of stock for the day than the average trader. A lot of times, that means that if a stock has been moving down and reverses to the upside, it will stall out right at the VWAP. Who wants to be the guy paying more than the average of everyone else? Of course, at some point, someone often does, but that in itself is confirmation that the dynamics of the stock have shifted for the session.

So, let’s take a look at today’s (Wednesday, May 1, 2013) action in the ES (S&P e-mini futures):

We gapped down for the session at A. The purple line is the VWAP of the day as we go along, starting with the open. Note that we opened right where the VWAP had been at the close of the prior session (even though the price late in the day had been much higher).

The market trades flat for the first 30-40 minutes and finally breaks lower on a pair of bad economic numbers. It doesn’t go far on the data, and in fact, after just 15 minutes, seems to be stalling. Keep in mind that this is an FOMC announcement day, which usually means that the market is slow early. So as the small move down fails and the market starts to head up, the ES comes back to the VWAP at B. It then gets blue to the VWAP for hours, really not leaving it either way.

Over lunch, the market starts to drop at C ahead of the Fed announcement. The sellers are banking on something pushing the market lower, and this time the move is bigger. The announcement comes out, and nothing surprisingly negative is in it. Those that were selling ahead of the announcement start to buy back, and it takes the ES once again back to the VWAP at D. Note that this time, the ES uses the VWAP very precisely as resistance and can’t close above it on two attempts. No one wants to pay over that price, and there is nothing compelling to make them.

Do individual stocks care about the VWAP? Sure, let’s take one of the current market trading favorites, NFLX. This stock sold off sharply today in the morning and spent most of the morning down quite a bit. As it starts to rise after the Fed, does any big trader want to be the first to pay over the VWAP? Let’s have a look:

Clearly not.

The VWAP has many terrific uses, but these two charts alone give you a starting point about its validity.

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The Sequester and the Markets

Friday, April 26th, 2013

I wanted to talk a bit about the sequester and its impact on the markets from a trading perspective. Before we get into the sequester itself, let’s take a look at volume and discuss some of our thresholds.

First of all, here’s volume from April 2009 to April 2010. Each of these charts is going to show the daily NASDAQ volume, with a 10-day moving average of that volume, and three horizontal lines. One will be drawn at 2 billion shares, which is really when you have a great trading environment. One will be drawn at 1.7 billion shares, which I consider to be the minimum need for a decent day or set of days. And the final one will be drawn at 1.5 billion shares.

So, here’s April 2009 to April 2010:

A couple of notes on that chart above. First of all, every year, volume drops off sharply in the week between Christmas and New Year’s to close out the year (point A), so that dip in the moving average of volume doesn’t concern me. You’ll notice that most of the year, like the 12 years prior to it, volume was above 2 billion shares (the moving average even appears to use that as support). And you’ll notice that the March/April area under point B isn’t exactly a point that volume dips, even though people do have Spring Breaks and such around that time.

Let’s look now at April 2010 to April 2011:

What’s different here? Not a ton. On average, volume was a little less, with the moving average spending more time between 1.7 billion and 2 billion shares, but we still had plenty of days over 2 billion. We had the end of year slip at A that doesn’t matter. Volume was still up in March and April under B. And we can even see that the best part of the year volume-wise was back at C in May and June. Good enough.

April 2011 to April 2012:

More of the same there, really. We’ve spent most of our time between 1.7 and 2 billion shares on average. We had plenty of days over 2 billion. The big volume was the dip in the markets in August, so we really didn’t even see the usual summer slowdown (volume can dip in August). End of the year at A, again, doesn’t matter. Good enough.

Finally, we look at the last 12 months, from April 2012 to April 2013:

Hmmm. This seems different. The whole scale is different on the right because there are many more days down near 1.3 billion, and few above 2 billion. The closest that the moving average came to 2 billion shares was in February. We can again ignore the dip at A for end of year, but look how low things got in August at B. Granted, it’s August, it can dip, but that was bad. So the overall shift here is much lower volume, very few good volume days, and look at the current move. In MARCH, the moving average dipped under 1.5 billion for a bit? This is an odd time of year for that sort of drop. We did rise the last two weeks, but we’ve had earnings season to create a little volume day to day. What happens now that that is over.

The highest point in the moving average of volume in the last year was under point C in February. And, I’ve drawn a vertical line D. What is that? That’s the sequester kicking in.

Charts don’t lie, people do. If you’re going to take the above four charts and try to convince yourself that the sequester isn’t the reason for the current state of volume and action in the markets, there is no need to read further. Facts don’t seem to matter to you.

Now let’s pivot and look at the last year on the S&P 500 index:

I’ve drawn two uptrend lines. We talk all the time about the fact that when a trendline breaks, you want to see it break, retest, and then fail, and that’s your actual break. Until all of that happens, you don’t have a break. So let’s look at the first line, which was the rally from June of last year until October. We created this line off about 5 points, and then we broke it at A, retested it at B, failed, and the rollover from there was the drop, although it didn’t last long. We then, from mid-November, created a new uptrend line off of three or four points. We broke it just over a week ago at D, but we rallied back above it. No failed retest so far. The uptrend continues, sort of. But, as we know, without volume.

Point C on the chart is the end of 2012, and you’ll notice that the first two days of the year, the market leapt higher as the government “solved” the fiscal cliff, which had been a big concern the second half of 2012. This is what had held volume back. There was too much uncertainty about tax rates and spending and more. The market doesn’t like uncertainty. It may not sell-off on it, but it makes it harder for people to commit.

I kept getting asked late in the year why the market wasn’t selling off ahead of the fiscal cliff, and I didn’t really expect it to. Here’s why: the market assumes that no matter how stupid the folks in Washington DC are, they aren’t dumb enough to let us go over the cliff. Will they take care of it sooner rather than later? No, because live in the world of Prisoner’s Dilemma anymore, and he who blinks first has to give a little. We run this country now by government by crisis. Create a crisis, take it to the end, and get the most that you can for your side. It is, honestly, not a way to run a country. Two sides can disagree. You come together in the middle for the good of the country. That’s how it has always been done.

One of the negatives though was that even though they solved the Fiscal Cliff, giving the market some certainty, they didn’t really solve the budget issues for years to come. They pushed off the sequester for a few months to try to get a solution in place.

If you go back to the chart of volume of the last year, I pointed out that the highest point of volume on the chart was in February of this year. So in other words, once the Fiscal Cliff was behind us, volume picked up. The markets also took the events of the Fiscal Cliff and felt secure that the same would happen: at the last minute or just after, Washington would figure out the sequester and not do anything stupid. That’s just how it works.

The problem is, so far, they haven’t figured it out, and volume has dropped off a cliff again because the markets are now uncertain about a lot of things.

I realize some people will say “Well, I don’t mind cuts in Defense, we got bloated there anyway since our Defense Budget is now the size of the next 13 biggest countries in the world (all of whom are our allies).” And others will say “I don’t mind cuts in domestic spending because government is bad and too big.”

Fair enough. But the sequester hits everything equally as a percentage with no regard for what matters. If you really want to balance the budget, isn’t there a process where we figure out what PARTS of defense could be cut and what domestic programs we don’t need and then bridge the gap on revenue but slashing loopholes a bit for junk that only the elite are using? Or, Heaven forbid, redo the tax code in the process to make it simpler to figure out with less loopholes for the top while lowering rates. But, all of that means both sides moving a bit.

So why is the market so uncertain just because of the sequester?

Well, first of all, in bad economic times, austerity only raises unemployment. Just take a look at Europe (26% in Spain!). I’m never clear how people don’t understand that when spending slows down, people are put out of work. The government and the Pentagon in particular went out of their way late last year to slow some non-personnel spending, hoping to be able to live through a few months of the sequester if needed, but you can’t around the fact that as the sequester drags on, it means people out of work. Higher unemployment. Less money to spend. But it is worse than that, because the market doesn’t know what to do here. Friday’s GDP number for Q1 came in under the expected number, clearly indicating that the economy is slowing again because of this, just as things were starting to get better.

But we can point to other ways that this is having a big impact. The Federal government spends a lot of money each year on scientific research. We know that on average, scientific spending gets about a 60 to 1 ROI (Return on Investment). For example, all of the spending done on mapping the human genome got about a 160 to 1 return. So in other words, if you spend $1 billion on that, you get $160 billion back in economic growth in the years after. Obviously, some scientific spending gets you no results, but ON AVERAGE, it’s 60 to 1. Because of the sequester, if it doesn’t end, we will be cutting around $50 billion out of scientific spending before the end of Fiscal 2013. Take that times 60, and you’ve lost $3 trillion in GDP in the years ahead. This is a BIG DEAL.

Right now, the market is still assuming that something will change. We’re all hoping that the solution is long-term, and not just a band-aid that lasts six months or so. The more certainty you give on this, in terms of a path for years ahead, the faster and better the economy will grow, but also the faster the markets will react. People will get back to it. No one wants to be collecting stocks here if the sequester doesn’t end. It WILL lead to a slowdown in the economy, higher unemployment, and make the US GDP growth down the road less competitive. But, the market still assumes that Washington will do what they have been doing, which is at least band-aid it, if not finally fix it, before they have taken the hostage situation too far. And that’s why the market doesn’t know if it should break the uptrend, and that’s why volume is down, which, more than anything, is not what we as traders like, because it makes things behave less technically (have you traded the futures lately?).

I always say that I don’t need or expect 5 great trading days per week with great volume. Two or three is good enough. Measure the volume, and you know which days are light, and you can try less or even not really trade those days. But we’re now living in a new reality. Just as things started to improve after the fiscal cliff ended, they’ve gotten much worse due to the sequester. From an active trader’s perspective, this is the first thing in years that is having a lasting impact on equity market trading.

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Unemployment, GDP, and the Current State of the Markets

Friday, February 1st, 2013

There has been a lot of discussion this week about the state of the economy and what the GDP and Unemployment/NFP data that came out during the week means. Certainly, from the media’s preferred perspective of “scare and fearmonger,” the headline numbers of both could be construed as bad. For the record, the official unemployment rate rose from 7.7% to 7.9%, and the annualized rate of economic growth in the last quarter of last year was a negative number. It came in at -0.1% instead of the expected 1.1%. Keep in mind that while the economy still grew at a 2% or so clip for the total 2012 calendar year, the negative number in the last quarter must imply that things are slowing down, right?

And yet, here’s the S&P today, having received and absorbed both of those data points:

So what gives? Has the market become disconnected to reality? Are the 12 people that have any money left in this country and control the markets just buying things up rub our noses in it? Or is everything as it always has been, which is to say that the market knows everything and behaves accordingly and is getting it right?

My vote is for the latter. I’m a market person. I believe in markets. I believe in trade and capitalism…with rules. Or, anyway, I like to think of them more as guidelines. But, I do believe that the market doesn’t get things wrong. It may get shocked once in a while from information it could not have had, but it prices correctly, no matter how few people are in it.

So what’s the deal then at this point? The economy is shrinking and unemployment is on the rise! Surely this is a bad indication under any measurement.

Let’s first caveat away the actual unemployment rate, because I’m in the camp that says that it is almost useless. Let’s face it, the number of people that would like to work more and make more money, whether they be unemployed, part-time employed, or under-employed, is way higher than 7.9%. But, at the same time, there is always an unemployment rate, and a higher number of “under employed.” Almost separate from the economic collapse here in the US, we were going through a process of outsourcing jobs, and between that and technological improvements, I’m not sure we’re near a place that employment will be back to numbers we are used to for a while. At the same time, when people give up looking for work, they drop off the Labor numbers, and unemployment dips. So the irony is, if people have been out of work but suddenly believe there might be jobs, the unemployment rate can rise as they put themselves back into the “looking for work” camp. It’s a survey, folks. Think about it.

So, from that perspective, since we didn’t LOSE jobs in January, the rise in unemployment at the headline level might mean that people think they have a better chance of getting a job now than previously. Little 0.1 and 0.2 percent moves in unemployment are “noise” just for that reason. Don’t get excited. Don’t get depressed.

Did the economy create jobs in January? Yes. The initial belief is about 157,000 jobs. Are those private or public jobs? Mostly private. Here is an interesting fact.

In just about every recovery in the United States in the last 100 years, part of that recovery has been due to higher levels of government employment. This was true under Reagan, Bush (the first), Clinton, and Bush (the second), just to name a few. It has NOT been true under Obama, something that is often reported incorrectly. But, facts are easy to come by if you want to actually look them up.

The Bureau of Labor Statistics has the number of employees of all areas of US government charted. It’s pretty clean and easy:

Note that the spike in 2010 was due to the usual once-per-decade staffing up of Census workers, and then those jobs were gone. So when we say that jobs are being created, they aren’t government jobs.

In fact, if you break down the report, you find that the jobs were mostly in Construction, Retail Trade, and Healthcare.

OK, fine, so how does that 157,000 number compare to historic averages? Let’s take seasonality out of it and just look at a bunch of January’s for job creation, going back to 2003:

January 2003: + 95,000
January 2004: + 162,000
January 2005: + 137,000
January 2006: + 283,000
January 2007: + 236,000
January 2008: + 41,000
January 2009: – 818,000
January 2010: – 40,000
January 2011: + 110,000
January 2012: + 275,000
January 2013: + 157,000

First of all, look at January 2009, the month where Obama was sworn in the first time. 818,000 jobs lost! In a month? Are you kidding me? OK, ignore that year, let’s average the prior 6 January’s. What do you get?

159,000.

Thing is, there is always talk from some about “I’m going to do this and that and unleash the economy and grow a million jobs per month.” It’s not going to happen, under any circumstances. That isn’t how it works. On average, the current number is a respectable number, and when you realize that it was all private sector and not a mix, like we usually would see, well, it’s pretty good.

OK, so let’s put the seasonality back into it and examine the monthly jobs data over the last five years (starting when the economic recession that led to the banking collapse started right at the end of 2007, beginning of 2008). We have that data too, including Friday’s new number:

Hmmmm. Man, all I keep noticing is how bad the job losses were in late 2008 and early 2009. So, when you compare that to the 35-months-in-a-row job creation cycle we’re on, does that look bad? No, in fact, the number on Friday looks pretty solid and the general trend is decent. And again, all of this without expanding the public sector rolls because no one seems to think that doing that is OK anymore, even though it is what helped us get out of much smaller economic dips previously.

How bad was this dip, by the way? If you’re wondering if there is a way to put the job loss from the start of the financial meltdown into perspective, it turns out, there is. These lines each represent periods of job loss in the US since World War 2. The color is marked at the top and tells you which recession started in which year. You then can see the percentage loss of jobs in the economy, and the line doesn’t end until the job numbers get back to where they were before the job losses began.

The current financial meltdown is the red line:

Wow again. Just brutal. The sad thing is, the second longest line is the brownish one, and that started in 2001 and took almost 4 years to get back to square one. This one starts less than four years later…and is worse. Not exactly the best decade for US employment. No wonder people are saving instead of investing (which doesn’t grow us either). You might even call it a Lost Decade.

Which then takes us back to the GDP (Gross Domestic Product) data that came out this week. This was the first look at the data for Q4 from last year. The top line number, as I said earlier, came in at an annualized -0.1%. If you get two quarters in a row of negative annualized growth, it is considered the start of a recession.

So isn’t that a bad number?

Again, not so fast.

The consumer side was quite healthy, growing at over a 2% clip. What knocked the number down was the dramatic cuts in Federal spending, particular out of the Pentagon. Remember that in their infinite wisdom, Congress and the White House worked out a plan two years ago that if they couldn’t come to terms on budgets by the end of 2012, there would be mass cuts equally in Defense and Domestic Spending.

What we see in this data is that the Defense Department cut back a lot of spending in Q4 (none of which included jobs, just material) to try to prepare for the sequestration (forced cuts) that might be looming so that they could spread out the damage. By doing that, it cut into the economy and knocked the net GDP number down. Now, with the end of year deal, the sequestration is delayed until April, which means that the Defense Department will probably continue the same path. In other words (and isn’t is amazing that suddenly they can cut spending), the Defense Department is trying to find ways to spend less without cutting jobs, hoping that this gets resolved, and they still have their full workforce. But of course, if sequestration does actually kick in, the next piece will not only be less spending, but layoffs, basically guaranteeing a new recession.

In other words, just like we learned out of Europe, austerity doesn’t fix a recession. It makes it worse. Instead of just agreeing to in general a minor set of across the board spending cuts and some tax increases that would point the income and spending sides of the ledger back toward each other over time, Congress is forcing a path toward austerity if they don’t work this out.

But here’s the point. The market doesn’t seem to care. Why?

Same reason that I didn’t think the market would care much about the end of year fiscal cliff situation…unless we really didn’t fix it. The market doesn’t believe that people in Congress are that stupid. Stupid, but not that stupid. It may end up being that this ultimately is one of those surprise shocks to the market when it ends up being wrong if they actually do take us down the road of sequestration. That would send us back to much higher unemployment for the THIRD time in barely a decade, and I’m not sure the economy can sustain that at any level.

So really, what the market is saying is, look, employment is growing at a decent pace in the private sector, and could be doing even better if we were adding some jobs in the public sector as well as we usually do in these cases. The economy is actually growing, although the Pentagon is being proactive and trying to offset some future massive cuts by scaling back in areas without laying people off, and those cuts had a surprise impact on Q4 GDP, although without the impact that making those cuts a permanent deal would be. And in the end, is anybody really going to be dumb enough to trigger the sequestration and really jam the country down that road, which is totally unnecessary? The market is saying that it doesn’t think it will happen, and that right now, if they get through it, the economy is strong enough and doing at least as well as can be considering what just happened a mere 4-5 years ago.

So is the market right? At the moment, I would say yes. Because the market said that Congress and the White House would not take us over the Fiscal Cliff January 1, and they didn’t. Likewise, it seems unlikely that we are going to completely destroy the US economy in the months ahead. But, is there still room for things to happen that the market is being too optimistic about? You betcha.

By the way, even if the market does pause or pull back here after the run up that it has had recently, I leave you with this analogy. If someone runs a marathon and then decides to rest, does that mean they are out of shape?

Trade well.

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Tradesight Special Market Commentary for September 2012

Friday, August 31st, 2012

Summer is ending. This is Labor Day weekend, 2012, and it is the traditional end of summer. This has a lot of implications historically for the stock market.

1) August is typically an up month for the markets, albeit on lighter volume, and we got both. It was a positive month for the indices, but it was particularly weak on volume, and got exceptionally worse in the last week of the month, with NASDAQ volume closing Friday at 1.1 billion shares, down from the much higher numbers around 1.6 billion earlier in the month.

2) September is, historically, the most negative month of the year. In fact, if you take the last 100 years of the stock market and average the returns for each month for 100 years, September is the ONLY month that gives you a negative average return.

3) There is a lot of correlation between that and the Federal fiscal year, which ends at the end of September.

This year, we have a lot of extraordinary events occurring that play a role in the current state of the market. These include, but most likely a not limited to:

1) The situation in Europe and the lack of clarity about one of our biggest trading partners.

2) Signs of a slowdown in China.

3) The Presidential election cycle here in the US.

4) The potential “fiscal cliff” here in the US in 2013 (the point at which, if something isn’t done (see below), the country could be in grave financial difficulty).

5) The “Facebook” situation, since the end of May, see below.

These are all factors that play into the markets at this point. To be clear, the economy is not slowing down. If it were, the stock market, would roll to the downside 6-9 months ahead of any correction, as it always has. That isn’t the problem. The problem is that NOTHING is occurring. Things aren’t getting worse or better. We aren’t seeing signs of strength or weakness globally. We don’t know if some of the key players are going to fix or make worse their problems. It’s a mess, but it is a mess that adds up to sideways action without volume instead of a decline on volume (such as 2008, where we could easily make money on the short side).

So let’s tick off these individual points and prepare ourselves for the last third of 2012, and I’ll do it without assuming that the end of the world is actually going to happen, as the Mayans predicted.

Let’s start with the near-term stuff.

The NDX has set up a brilliant cup and handle breakout this year for the 1400 level, and even if we do get a pullback in September, a turn up at some point in October should lead us to this breakout in the last three months of the year, and the construction is solid enough that it should be meaningful:

With that, the broader market, as measured by the S&P 500, is doing the same:

The old saying is that Banks and Biotechs lead a rally. Banks are doing good, and Biotechs are also strong:

The disappointment is maybe Semiconductors, which aren’t at an especially strong point on the charts:

Volume plays a key role in the markets, and it isn’t very difficult to analyze what we are seeing. Here is this year to date with a 10-day blue moving average line for volume on the NASDAQ:

What you see is not only that volume dropped off sharply in August, but also that it topped around May 20 (point A), which is TO THE DAY the date that Facebook came public, taking half a trillion dollars of hot trading money and locking it up in a stock.

But the other factor is that August usually sees lighter volume, and then things pick up in September. For example, 2011 (I’ve drawn a black line along the average volume line for September for each year):

Or 2010:

Or 2009:

2008 isn’t as fair because the last plunge from the bank collapse occurred there and so of course volume picked up:

But even if you go back to 2006, you see the same pattern:

It has always been the case that volume dips in August, which is usually a positive month for stocks because the professional short-players are away on vacation, and then volume comes back in September, usually taking the market lower.

The NDX in 2011, the market headed down in September:

The NDX in 2010, the market was UP HUGE in September, so you can’t just assume:

In 2008 we were down with the bank collapse:

So it all starts to fit together.

Let’s put some of the broader moves in perspective. Here’s the NDX going back 10 years with the 2008 banking collapse in the box:

What you can see is that the tech sector has already erased the plunge and gone higher.

Meanwhile, the broader market, which includes the banks, in the same period, has erased the loss but nothing more:

But since we are looking at potential breakouts in both, things seem positive, and another round of Fed easing would help.

What about if we look back further?

Here’s the NDX going back to the mid 1990s, and you can see the Y2K liquidity Internet bubble:

The S&P doesn’t look as dramatic, and in fact, the Y2K rise and decline matches off with the banking collapse in 2008 and gives us a breakout point to watch for the broad market:

Meanwhile, let’s flip the conversation for a minute to the US Dollar Index, which is also important and has been badly analyzed for the last few years. Here is the last decade on the index with the current wedge that is forming. A break to the upside would be good, but to the downside would be most likely devastating and mean that the US economy was badly mismanaged by Congress and the White House:

But, we can also back the chart out to the late 1980′s and take a look at the history of the US Dollar, which I have commented on many times in the past, especially during election years. What you see is a clear pattern based on Administration policy in the White House:

In old school economics, you want a weaker currency to boost sales of goods you produce when things get weak, but otherwise, you want a stronger currency. The problem is that we don’t produce much here anymore, especially after the last decade, so a strong Dollar is the preferred option.

As you can see in the chart above, I take the trendlines from Election Day to Election Day as the change in administration, as I believe that the currency market reacts fairly immediately to perceived policy changes. What I find interesting is that the US Dollar was not something that a network like CNBC commented on much until 2009 when Forex became a popular retail trading tool. Yet, the US Dollar hit a low in the summer of 2008 before TARP was passed, and still, in 2009, the network headlines were about weakness in the US Dollar (which had been killed for the prior 9 years and was actually lower in 2008), and I commented on this in our reports at the time. What the news focuses on and what matters and what is true are rarely the same.

The reality remains that we saw a strong increase in the Dollar based on policy under Clinton, and we saw a collapse of the Dollar based on policy under the last Bush. Under Obama, the trend may be up in general, but it hasn’t had the chance to turn enough yet because we get wrapped up in nonsense issues like the Debt Ceiling and long-term debt, when it is the short-term employment issue that is much more damaging (as Bernanke finally seems to have admitted to at Jackson Hole this week).

From a deficit perspective, if you take out TARP and the stimulus and the tax cuts that were enacted in 2001 and 2003 and extended once late in 2010 but will expire later this year if Congress doesn’t renew, most of the debt was already realized or comes into place from the tax cuts. The wars, much of which were held “off book” for the middle of the decade but are now counted under the Obama math, don’t help. Discretionary spending is way down. We will breakdown the budget itself in a post later in September, but the short version is that there isn’t enough to cut in social programs to make a difference. Defense, interest, and social security are the real games. They account for about 75% of the budget. You either cut them back or decide to pay for them, and that’s what pulls us off the fiscal cliff (and the reality is that the answer is to do a little of both, and everything will be fine very quickly).

So that is interesting and all, but what does it mean for September 2012 and our trading. Here are a few bullets.

1) Statistically, it should be a down month, but with the Fed hinting at QE3, don’t bank on it.

2) Volume should pick up.

3) The election isn’t the issue. There are much bigger things holding the market back. Whichever way the election goes, you can expect a tax increase and some spending cuts. If they are to make a difference, the tax increase will have to be bigger than a token amount, and the spending cuts will have to include Defense, the biggest single line-item of annual non-entitlement spending.

4) Anything should be better than August and the bad ranges and tight volume that we experienced there.

But, we call it day by day, and that’s why they call it a market. We’re happy to have you as subscribers, and I think it should be a good month.

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The Current Market Doldrums

Friday, June 15th, 2012

I’ve been getting a lot of questions about market volume and the resulting lack of action in the markets, especially the last month. I’ve written enough pieces on volume in the past that I will skip that here, but I did want to address a few things about the current market and where some of the problems may be. No, I don’t think this is the typically “summer doldrums” where volume drops a bit as kids get out of school and families go on vacation. This is a symptom of several bigger issues that are going on all at once.

Remember that markets don’t like uncertainty, and when we say that, what we usually mean is that they go DOWN when they don’t know what to expect. If this were just about concerns over the European situation (Greece in particular, but Spain and Italy behind), you would think that the market would be heading down sharply ON volume, not floating sideways without volume, so this has to be viewed differently.

There are at least primary factors in play here: Europe, the US budget situation, and Facebook.

Let’s start with the situation at home. We’re seeing the economy slow again. Before I address the European component of this, we know what is causing much of the problem. The lack of a plan by the Federal government, the lack of a budget, of a tax policy that starts to put us back on the track of balancing our books as they were just getting to back in 2000…that is part of what is preventing businesses from hiring and manufacturing. This was discussed in Dimon’s testimony to Congress last week, where he heavily requested that a budget that gives certainty to the business community be put forth not after the election, when we are walking up to the financial cliff again, but before it. Don’t fool yourself. The inability to come to a basic accord, as Congress and the White House always have in the past, to get things back in line is weighing on this recovery. It isn’t about spending or entitlements. It’s about whether our credit is going to get downgraded further next year because we failed to take steps to balance our books. And if there is a component of that that is driven by waiting out the election in hopes that one side or the other pays a political price, that is an extremely high game of chicken to play with this economy in this state.

The second factor is, of course, Europe, and frankly may have a bigger impact on our economy than anything going forward, which could mean that whether we come out of this Great Recession anytime soon is more out of our control than in our control. We are trading partners with Europe, of course. We rely on them to sell us cheap goods where they can produce them cheaper and buy our goods. Trouble and uncertainly slows spending, and that hurts our chance at selling goods abroad. In this case, it also increases the chance of inflationary factors if production in Europe dips not because of a lack of demand for certain goods, but because of currency uncertainty and instability within countries.

So what does this mean for the US? To the extent that the unknown in Europe has been slowing us down, it also plays a role in a general lack of trading volume and market movement here. It’s too big of a bet for major players to sell and assume that things in Europe will go that wrong (although they could), but there is no real incentive to boost long positions in funds. From this perspective, obviously, this weekend’s vote in Greece is a first big step toward seeing what lies beyond the Looking Glass. If this gives us some clarity in the next few days, one way or the other, it is possible that this will be the catalyst to get things moving and volume back…into all markets.

Finally, there is a third factor that hit in the middle of the rest of this nightmare that is so precise in its timing as it relates to the market going flat that it cannot be ignored: Facebook. Here’s a look at FB stock since it came public a few short weeks ago on May 18:

Obviously, a disaster of epic proportions. That’s a lot of money buried in a single stock since it was such a large market cap. That’s a lot of disappointment. That’s a lot of eye-raising concerns about the regulatory framework in which our markets work.

Now, take a look at this chart of daily NASDAQ volume that I put up in the Tradesight Trading Lab this week. I’ve put a 10-day moving average on the chart (blue line). You can see that volume was back on the rise in late April and early May, and we were seeing several days a week of very nice trading activity with consistent moves that led to more than small partials on our trades. But, notice that the moving average peaked and has since dropped very sharply…and the peak day was May 18:

And since then, volume has dropped so quickly that we have brought the moving average to lows of the year.

And what has the market done since May 18 when Facebook came public and collapse subsequently, and market volume died with it?

The S&P, with the “Facebook launch date” drawn vertically:

This is more important than you might think. A lot of money came out of hot companies like AAPL and GOOG and AMZN to go into Facebook for a “quick pop,” and it is not stuck. People are disillusioned about how the IPO process works at a time when not many companies are going public. It creates not economic uncertainty, but market annoyance. People are disgusted.

The economy needs a dose of cooperation and common sense from the global leaders to get things going again, and that will lead to volume and activity.

Can Europe either clean itself up quickly or take a direct and fast step to something new? We may find that out this week or soon after.

Can the US government get a budget that includes spending cuts (including to defense, which is where the biggest bloat is), tax reforms (closing of some of the more ridiculous loopholes), and some mild tax increases at the top put together so that the uncertainty can be lifted a bit and businesses can move forward and produce and hire? My concern is that this won’t happen until after the election, which will lead to another market plunge in the coming months that didn’t need to happen.

Can we clean up Facebook? That one is probably a no.

Have a good weekend.

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The Magic Number on the ES: 1312.50

Monday, May 28th, 2012

Let’s talk a little bit about the cosmic importance of the number 1312.50 on the ES front month futures contract. This level, what we call a tri-star level, has been a magnet point for the market many times in the last 13 (yes, 13) years.

We consider tri-star levels to be key points that the market has touched many times from above and below. Typically, once the market approaches a tri-star level, it is drawn to it like a magnet. The 1312.50 is one of the most used of the tri-star levels. Let’s have a look.

Here is a monthly chart of the ES front month futures contract going back to the late 1990′s:

Those of us that have been trading a while remember the level dominated the market throughout much of 1999. The level was first hit in January of that year (point A on the chart above), and it was touched in 8 of the 12 months of that year, but even more interesting was how often the level was used intraday throughout the year. The market accelerated up in late 1999 for the Y2K run-up, then came back to the 1312.50 level on the way down during the liquidity unwind that occurred after, hitting the level again late in 2000 (point B) and then using it from both sides over the next six months. We wouldn’t see the level again until 2006 at point C, but then again, we played around that area for months. In 2008, on the way back down, 1312.50 was support twice (D) and then used for several months again.

In the process of QE1 and QE2 and the economic recovery that has been occurring slowly since 2009, the market made its way back to the level in early 2011 at point E. The number came up over and over in our trading throughout 2011. The market then reached up to a key “Static Trendline” on the monthly chart (the green line at F), found resistance there, and then made it’s way back to 1312.50 this last month.

Zooming into a daily chart of the last year, you can get a better feel for how momentum swings the market around this level like a magnet each time it comes into range:

That view gets even more interesting when you scale down to a 65-minute chart (6 equal bars per day), as you can clearly see that each time the market reaches this area, it plays around it for a few days:

Now, let’s zoom in one final time to a 5-minute chart, which will give us the most clarity about the importance of this level. After the market rallied up and hit the Static Trendline on the monthly chart that I showed above, we had reached as high as 1360. In the middle of May, the market headed sharply lower, dropping over 40 points in five days, ending with a bounce off of the 1312.50 level on May 17 at point A on this chart:

So in a decline in the market of over 40 points in a handful of days, the market was drawn straight to 1312.50, and then got a small bounce before recoiling and breaking under that level. What have we seen in the 7 days since then? Have a look:

Just about every single day (except May 18) has touched the level. In fact, it’s basically the mid-point of this period, and the swings around it have gotten smaller and smaller as the market sticks even more to the tri-star level. In fact, in the last hour of Friday’s light-volume action heading into this Memorial Day weekend, the market looked like it might even close right at that level. There would have been some irony in closing at the number that the market has remembered most over the last 13 years for Memorial Day.

Be aware of these key tri-star levels (there are others) as a lot can be learned from monitoring the market behavior around them.

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My Current Trading Rig

Friday, May 11th, 2012

Once a year or so, I update my trading machine, and I typically give a write-up about it for our subscribers. The current state of technology is really great. It’s important to have a clean and powerful pipeline from outside your house all the way to your machine and screens to trade effective. One bad component can make it hard to be a successful trader.

Let’s start outside the house. If you have the option in your area, use cable modem service and not DSL or satellite. And pay for one of their top two tiers of data speed. Remember, if you are trading and following a lot of charts and information, you don’t want a bogged down pipeline. It’s true that at the top speeds, you rarely run into a situation where you need most of what you are paying for. But if you have ever had your charts freeze up on news, it might not be your broker or charting company. It could just be Internet speed.

Inside the house, get yourself a good Wireless-N router and make sure that the hard ports pass information at a gigabit level. I currently use the Netgear WNDR4500 N900 Dual Band Gigabit Router, which can be found here on Amazon.

The mistake that people make next is a big one, though. Having a fast cable modem and a great router doesn’t mean anything if your computer can’t receive that information at top speeds. If you are using a hard port, it needs to accept the data at the gigabit level (this is typically something built into a motherboard and something worth checking when you buy a computer). If you are getting a wireless card, I suggest looking into the higher end chipsets for Wireless N cards, like the Intel Centrino Ultimate-N 6300 AGN. This will guarantee that even over wireless, your machine gets the smoothest reception of data for what  you are pumping to it.

For the machine itself, I always prefer to install a fresh Operating System and not upgrade versions of Windows on one machine. Most people that had issues with Windows Vista, for example, had upgraded from XP. This leaves a lot of files and such that cause conflicts and problems. Currently, you want Windows 7 64-bit Ultimate. Windows 8 is on the horizon and I have heard great things, but it will probably be a bit before companies like e-Signal are fully compatible.

I am a big fan of solid state hard drives, at least for a primary drive. I have been using them now for three years. My machine boots in 10-15 seconds, which is important in the rare cases that I feel that I need to reboot in the middle of the day. I put a 120 GB solid state Intel hard drive as my primary drive and run most of my main applications from there. Everything loads instantly. I have a 2 TB secondary drive for everything else, like data, documents, and lesser-used programs.

You can get away with 8 GB of RAM, but I put 16 on my machine. This allows me to run a lot of programs with no slow down at all. Only 64-bit applications really take advantage of the bigger RAM number, but it is quite a useful thing to have in my opinion.

The other change in technology that I love is the video card technology. I currently run 3 separate 27″ monitors at high resolutions off of one ATI graphics card with their Eyefinity technology. The exact card is the Radeon HD 7900. Works great. Keyboard and mouse technology has also come a long way in recent years, and I finally felt comfortable cutting the cord and using the wireless versions of these. I tried them previously, and they would disconnect from time to time, which obviously can’t happen when you are trading.

I run e-Signal across two monitors. I’m currently in the process of creating my layouts for e-Signal 11.4 while using 10.6 as my primary charting. There are still some issues with 11.4, although there are certainly things about it that make it faster and easier to use and watch more things (i.e. the new pages system of tabs). You can run both 10.6 and 11.4 on your machine at the same time as the Data server serves both from a single login. I then use my third monitor for other things, such as email, the Lab, and instant messaging and more.

Don’t screw around when you are getting yourself a trading rig. This is your primary tool for making money. You’re fighting for executions against everyone else in the world. One bad link in the technology chain, and you might be disadvantaged. Have a great weekend.

 

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Trouble on the AAPL Horizon?

Friday, May 4th, 2012

Let’s get a few things out of the way up front. We love to trade Apple’s stock at Tradesight. We trade it just about daily. We go long. We go short. I love the stock as a trading device. I’ve made more than 600 points on the stock over the last few years, which, by definition, means that I have a better “cost basis” than anyone that just buys and holds Apple. When you trade it both ways, you can do extraordinary things.

I also hate AAPL products. I want to be clear about that. Can’t stand iTunes (too limiting). Hate the computers. Hate the phones (never owned one). Had an iPad when the first one came out because I wanted to see if I thought it would be a form factor that I would use. Turns out, it was. Got rid of it as soon as a good Android tablet came out. Currently using a Motorola Xyboard on Verizon 4G contract. Love it. Great device, everything a tablet should be.

Don’t take my negativity above to mean that we have a “negative outlook” on AAPL stock in general. Like I said, as a trading stock, it is one of the best. Very technical, very predictable with our tools. Now, it isn’t the only trading stock that works well for us. GOOG, AMZN, NFLX and others have been and/or still are great traders. I just wanted to be very clear before I continued. I love AAPL’s stock. I don’t love Apple’s products. The two are totally separate things to me. Frankly, I think AAPL is a better marketing company than they are a tech company. They’ve stolen and settled out more pieces of tech than they have designed (right down to the original iPod touch controller, which came from Creative Labs, who got a hefty check after the fact).

Apple has a decent vision. They know where technology currently is and what it can realistically fabricate in large quantity. The beauty of Apple as a company is not that they “innovate.” They know what is capable of being produced, and they do whatever they have to to get there first, and then they market it up into a package that makes people feel like they are a good and cheerful person if they own one of the products.

Let’s take Siri, for example, the new feature where you can say just about anything to the phone, and it will come back with an answer that is about 90% relevant. Android folks have had this for years. It’s called Voice Search, which isn’t a very inviting name, but it does most of what an iPhone does, and it did it before the most recent iPhone and iOS did it. But when Apple does it, they give it a name, and they make cute commercials of people having positive moments throughout their day with their phone. Heck, if that isn’t enough, let’s get that cute new girl from New Girl (Zooey Deschanel) to make commercials of her all happy walking around her house using Siri.

See the point? The tech isn’t new. AAPL didn’t have it first. I still don’t think they even have it better. But the MARKET it better, for sure. And marketing goes a long way.

Anyway, the point of all of this is not that I’m up or down on AAPL’s stock. I’ve been very bullish on the stock in the past. I approach stocks completely neutrally to whatever the company does. The two are not related, typically. So when I come here to tell you that AAPL’s stock could be in some trouble, I don’t do it because I don’t like their products. I do it because there are bad signs in the charts.

Before we dig into said charts, let’s consider one other key point about AAPL. The stock has run from $400 to $650 since January 1. That’s 62%. Most of the best (and recently upgraded) analyst forecasts for late 2013 put is in the $700-800 range. From 600 to 700 is only a 16% increase. That’s not really worth holding onto for high-growth funds that already caught a big move of 62% in five months. Even if they still like the company’s future prospects, the reality is that owning it up here isn’t as necessary as it was back at $400. It might be AGAIN, if it gets back to $400.

So, let’s move to the charts.

Here’s the AAPL daily chart over the last year. There is a very clear channel that it was moving along, and then it exploded out of that channel to the upside this year and went crazy:

It even left a key big gap as low as $425 on the chart, which you can see here, and which an AAPL fanboy will say will never fill:

That doesn’t even count the one around $560 after earnings two weeks ago, which is already about to fill.

The thing that you have to focus on is that the funds can’t just snap their fingers and be out of their AAPL positions in a day. They have to do it over time. And if you understand that the upside risk/reward is no longer very solid, you might assume that they would want to get out while all of the hype of recent earnings, the NEW iPad, and other factors, have the stock in the stratosphere.

So what would that look like? Well, it would look like a lot of volume trading with no real progress being made at some point. Do we see that at all recently?

Here’s the last six months:

Ooooops. Anyone that bought the stock two months ago is even. We have a massive head formation on heavy volume despite the earnings, which they allowed to cause a 60 point gap up in the stock…and then proceeded to dump it hard for 8 days so far.

This doesn’t even take into account the forward-looking concerns about the company after the unfortunate and untimely death of Steve Jobs. When the analysts look down the road at AAPL, they see about three years of “Jobs” still at work. After that, it’s on someone else’s shoulders.

Bubbles are bubbles. They happen in all markets. They don’t affect traders that are good traders who watch market direction and the futures carefully. They do affect investors. When a stock goes parabolic like AAPL and then fails to make progress over an extended period on the heaviest volume it has seen in a long time, gravity tends to take hold.

Just remember that the NASDAQ broke out of a channel in the late 1990s and looked like this:

Right before it looked like this:

And yeah, there was a gap to fill back there that no one thought ever would.

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The NDX Floating Island

Thursday, April 26th, 2012

A “Floating Island” is a very specific technical setup on any chart. Essentially, the stock or futures contract must be heading in one direction (trending), then gap IN that same direction, trade sideways in a range, and then gap back out of that range in the opposite direction. The concept of a Floating Island is that you get a bunch of players at a range high or low that are now trapped out of the market, having no chance to exit at their desired stop. This then creates a mechanism that pushes the market away from the island.

The NASDAQ 100 (NDX) formed a 2-day Floating Island on Monday and Tuesday, after having a downward trend for weeks before it, then gapping down Monday, trading sideways Tuesday, and gapping back up Wednesday. The confirmation is when you take out Wednesday’s high on Thursday, which we did. That is the buy signal and the point where those who had been selling or shorting down on those two days are now starting to panic. It tends to lead, in this case, to more upward movement. Here’s a look at the raw chart with the Floating Island in the black box:

The one caveat at the moment is that we have a huge economic number coming out in the morning, which is the Advanced look at Q1 GDP, which the market is focusing on. That could beat or disappoint and cause another gap. A gap down here from news would lessen the impact of the Floating Island, but anything else means we’re probably bullish in the short term.

On top of it, this particular floating island formed at a very important technical location on the chart when you have more information. Our Seeker tool, which uses a 9-bar look-back mechanism to spot turning points in the market, had a 9-bar up move back in March that formed a key static trendline, which becomes a “trade to” target, if you will, on a reversal. That is denoted by the red line on this chart:

As you can see, the market rolled, headed down, gapped to the static trendline, which we identified as a target and support area, and formed the sideways action for two days there, then gapped up. We were warning people against selling further at that red line, and now you have a Floating Island set to penalize those that did.

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A Discussion of Forex Ranges

Thursday, April 5th, 2012

I get a lot of questions about the bad ranges that we are experiencing in Forex right now and what that means and whether the Forex market is now dead forever because of the regulations that have come about in the last few years, some of which protect consumers, but others cut leverage and do things that some people believe affect the market negatively in terms of range.

Let me start by shooting down those theories.

1) All markets have dull periods and wild periods.

2) The Forex market moves based on global economic events and money flows. Just because the average retail daytrader can now only trade on 50:1 leverage instead of 100:1 doesn’t mean that the EURUSD can’t move. In fact, it will.

I hope by the end of this article, you’ll see that.

We track what we call “Average Daily Range” in the Forex pairs. Basically, we’re looking at the last six months of data on each pair. A “day’s range” is the high minus the low of the day. So let’s take the EURUSD. If the high is 1.3164 and the low is 1.3035 on a day (which it was Wednesday at 5 pm to Thursday at 5 pm EST), that’s 129 pips of range for the day. We then take that number for the last six month’s of trading days, add up the ranges, and divide by the number of trading days. This tell us the six month average.

It is VERY important to use 6 months and not less in these calculations. First of all, we use them as a trading support and resistance point when hit each day, and our research and backtesting showed that if you used less data, such as 2-3 months, the number swung more wildly and wasn’t used by the market. Anything over 6 months seems to have diminishing returns in terms of practical use.

So at this moment, the EURUSD 6 month ADR is 139 pips. That’s down from 168 pips, which was the 6 month trailing ADR at the end of 2011, just a mere three months ago. What does that mean in practical application? It means that in those three months, we saw a lot of days well under 139 pips that have brought the number down.

We make way more money when the market moves under our system, so lower ranges generally mean a few things:

1) Higher chance of stopping out of a trade
2) Less chance that even if a trade is profitable, it goes far or turns into a big winner

So, what’s the net importance? Periods of bad ranges mean lesser results from our trading. We’re going to make the most money when the ranges are good.

Now that we understand that dynamic, obviously it becomes important to know whether the Forex market is truly seeing worse ranges forever and is in a permanent decline or not. Even though the movement of the market is not about the leverage factor or how much retail money goes into daytrading, that seems to be a discussion among daytraders (who seem to give themselves too much credit for being the primary factor of market movement).

So let’s look at this graphically and see if we should be concerned.

Here are the last 12 months in the EURUSD, and I choose this because it is the most commonly traded pair:

I’ve boxed in two periods of a couple of months or so where the movement was limited, and thus the average daily ranges in there were smaller, bringing down the averages. Now, let me point out that even at the end of that first box, which is around September 1, 2011, the 6-month average range on the EURUSD was still 155 pips. So basically, even though there are 2-3 months of fairly flat activity there, the average for the first half or so of 2011 was 155, which is still 16 pips better than the current 139, and believe me, 16 pips off of a SIX MONTH average is a big deal. But, as I’ve already said, even after that cycle, we were back up to 168 pips on the average by the end of 2011.

2-3 months at a time of narrow ranges happens in Forex. It usually happens at least once a year. Also, a common time is July/August when the world is on summer break, especially out of Europe. Big decisions aren’t being made. Note that that first box in the chart above ended at the end of August, and remember that as we start going backward in time in a few paragraphs.

Now, let’s look at the same chart (last 12 months on the EURUSD) with boxes drawn around periods of good movement, which also raises average ranges by definition (it would be rare for the market to move over the course of a month in one direction fairly well, but for the range of each day to get worse in the course of that move):

What do we see here? I would say last May and into June had good range, and September through the end of January in general did, although I put a secondary box around three flat weeks, which was the end of year Holidays (also common, but you’ll see soon, not always the case).

If you go back and look at our results, we had some killer months in there. But those summer months were awful, and the current environment is even worse based on the ADR being 139 pips. And while it doesn’t correlate exactly, note that the EURUSD is exactly here at the start of April where it was at the start of October, six months ago.

Next, let’s start going back in time year by year, showing the full calendar year, starting with 2010, with boxes drawn around the periods where trading was good and ranges were good. That means that the areas between the boxes were dull. Here’s 2010:

What we see here is that mid-February through mid-April was boring, most of August was boring (on average, it’s the slowest month of the year), and December was slow, especially the back half (nothing unusual). So I would call 2010 a good year that saw less slow periods, and certainly nothing extended for more than about 6-8 weeks. The EURUSD cover 2500 pips that year.

2009:

2500 pips from high to low again, most of it in one direction. Three solid months (12 weeks) of doldrums in the summer. End of the year wasn’t bad. The funny thing here is that even with the movement, since July and August were so slow and the rest of the back half of the year wasn’t too wild, the ADR on the EURUSD at the end of the year was 132 pips…LOWER than it is right now!

By the way, you can log into our site and go to Forex Levels and go back to any date you want and see what the 6-month trailing ADR was at that time.

2008:

A great trading year. Some slowness in November for 4 weeks, and yet, still, we had a bad period from April through mid-July (strangely, the rest of July and August were great, so never STOP trading just because you hit August). The main point, though is that we saw a full 3 months of bad activity in 2008 also. I’m going to surprise you with the EURUSD ADR at the end of 2008 in a few paragraphs.

2007:

Another great trading year. Nothing to complain about except that period from mid-April to mid-June. This is really a dream year for traders. Trust me, there were no points where people were whining about the ranges being bad.

But here’s where the real point comes in. 2006:

While the back end of the year (starting the weekend of Thanksgiving if you were here and remember) and into 2007 were great, the prior 6-7 MONTHS were awful. The bulk of trading for that whole period was almost in a 200 pip range. I like days that hit that in a single session!

Trust me, everyone back then was proclaiming the death of Forex, which had really only come into the public eye about 4-5 years prior. People were saying “Everyone is trading Forex now, so the market can’t move” and “Now they are going to regulate it and ruin it.” Stuff like that. I had started trading Forex in 2005, but then again, I have been trading markets since 1989, so slow periods, I know, are part of the game, and we said that here at Tradesight at the time. Note the comment above the box on that 2006 chart. The ADR on the EURUSD on Thanksgiving Day 2006 was 91 pips! Today, we’re still at 139. And between here and there, scroll up and look back through all of those years and see all of the movement.

And then here’s the real doozy. What was the EURUSD ADR on December 31, 2008? 227 PIPS. That’s not a typo. Why? A little thing called the banking collapse of 2008. The markets went crazy…all markets.

So remember, in late 2006, everyone was proclaiming the death of Forex trading. Look at how 2007 went and 2008, and think about the change in ranges from that dull six month period in 2006 to the peak at the end of 2008 (227 pips of ADR is almost not tradeable from the other perspective…too much fast movement equals too much risk).

The driving factor of Forex isn’t regulation of the retail trading houses or lower leverage for the retail trader. It’s global economic forces, and believe me, maybe right this moment, with interest rates near zero globally and the problems we are still experiencing here from the real estate bust and banking collapse and the issues of debt in Europe…it’s a little bit frozen. But those are the reasons, and at some point, one way or another, something’s going to break. Could be a collapse of a country or someone starting to grow. Either one will get things moving.

Having said all of that, that’s why we trade stocks and futures here as well. They have trading just great even as Forex has gotten a little slow the last few months. But I don’t expect to go all the way through 2012 without some better periods for Forex too.

Have a great weekend.

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A Classic Look at Window Dressing

Tuesday, April 3rd, 2012

One of the features of the end of a quarter is known as “window dressing.” Funds and institutions are measured by their performance and holdings from quarter to quarter, more than they are from month to month. What this means is that as we approach the last few days of the quarter, the funds have to do final adjusting on their positions so that they show the number of shares that they want. For example, if a stock has performed badly during a quarter, they want to show less on the books. If a stock has performed well, they want to show more.

But the funds have such large positions that they can’t just buy and sell enough shares on the last day to get themselves where they want to be. They spend the days and even weeks leading up to the end of the quarter positioning themselves. Once they have done this, there is less buying and selling to be done until the quarter actually ends and statements print. In addition, they want the prices to be stable after they have set their shares.

What we have seen over time is that this leads to a 3-day phenomenon known as “window-dressing.” The net of these three days is often nothing at all as the big players have nothing left to do.

Here is a look at the last 3 and a half days of the quarter, ending last Friday, on the S&P 500 index, in 5 minute bars. Note that I’ve drawn a flat line from the close on Tuesday, and we closed almost exactly at that same price on Friday:

Classic window dressing. Something to be aware of next quarter if you weren’t already.

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An Outlook on the USDJPY: Dual Exhaustion Signals

Friday, March 23rd, 2012

We had an interesting set of events last week on the USDJPY. Both our Seeker and Comber tools, which use different techniques to give exhaustion signals after large moves, but gave separate 13 bar sell signals on the daily chart of the USDJPY…at the same time! This is extremely rare for this to happen and add to the power of the potential reversal. Let’s take a look at the two tools separately and then discuss how the USDJPY has reacted so far.

First, we have our Seeker tool, which gives a reversal sell signal with a red “13″ above a bar. It also draws a pink risk line, which is then used as a stop out point for the short if we close above it. If the pair closes above it, the pink line becomes dashed instead of solid to show that it is broken. We commonly see a signal and then the use of the risk level as strong resistance, which is exactly what we see here:

So far, the risk level has not broken, and the USDJPY is starting to roll.

Even though the Comber counts exhaustion differently, in this case, it got the exact same signal, which means the exact same risk level, so even though the numeric count that gets to 13 is different than the Comber, the sell signal and risk level look the same:

When these two signals line up at the same time, or even one or two bars apart, it creates an even more probably reversal point.

At this point, the USDJPY is just starting to rollover and has established the first 2 bars of a green “setup” count to the downside, which we will monitor to see if it can approach the key 9th bar. At the same time, two targets are in motion. One is the 50% retracement of the move, which is the black line at B. The second, which should not be discounted although it looks extreme now, is the red line C, which is the static trendline of the count itself. Let’s watch for both in the coming days and weeks.

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GOOG Trade Call Summary

Wednesday, March 21st, 2012

Coming into the week on Sunday, we posted a swing trade idea (meaning a trigger with a stop that is meant to be held over time if needed, not just daytraded). The call was a long on GOOG, and you can read the original posting that we Tweeted and sent out via the Blog. The posting can still be read here as it was posted Sunday night.

When you enter a trade from a daily chart, looking for a multiple day “swing,” you can’t just use a 5-minute chart to determine how you will manage the trade. You need something wider, such as the 15-minute chart. Let’s take a look at how the GOOG trade worked. The exact call was to buy it over $625.91 with a stop loss if it closed under $625 on a closing 15-minute bar basis. The target was the daily chart gap fill at $639.57.

Here’s the 15-minute chart, with the trigger line where the trade was entered on Monday:

Now, there are several important points on the chart. First, the trigger was clean and easy, no gaps at the time, just a clean move through the price. Second, the stock clearly never went back under $625 to stop out. Third, if you held it over the next three days (or at least part of Wednesday), it easily hit the target of the gap fill at $639.57 for almost a $14 winner, but then proceeded higher, and the HIGH BAR OF THE MOVE was the 13-bar sell signal using our Comber tool, which should have been a final exit. Note that that bar is the top for the week so far, and as we say at Tradesight, on to the next trade. What happens next doesn’t matter to us, but we had a clean trigger, no risk against the price, met our first target and final target both established in advance, and had a tool that gave you the ultimate sell.

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First 10-Day Trin Sell Signal in Months?

Wednesday, March 21st, 2012

The 10-day Trin has flashed the fist overbought warning signal of the year. When the 10 day simple average of the NYSE Arms index (TRIN) goes below 0.85 the market has become sufficiently overbought for a change in trend. Below is a chart of the SP500 that has a sub chart showing the 10-day Trin. Note in the chart how the high extreme readings of the 10-day average have preceded important upside reversals for the SPX. This indicator works the same way at extreme low readings only in reverse where the extreme low reading precedes a downside reversal in the SPX. For the first time in months the SPX is setup for a reversal:

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Tradesight Stock Call: GOOG

Sunday, March 18th, 2012

This week, we will be watching GOOG as a long idea above the price of $625.91. This assumes that the stock does not gap ABOVE that price in the morning. There is some nice construction in the stock and a key breakout over that level, and we are currently only 5 bars up on our 4-bar lookback methodlogy, as the chart shows in green numbers. This means that there is still several days room to the upside, and in addition, there is a gap above that needs to be filled at $639.57. Here is a look at the chart with both the breakout entry line and the gap fill target:

We will manage this trade via Twitter if it triggers. Our first goal is to sell half at $627.10, and our initial stop is a close on a 15-minute bar basis under $625.00. Have a good trading week!

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Tradesight Rolls Out Latest Futures Levels Service

Thursday, March 15th, 2012

Effective this evening, Tradesight is updating the Futures Levels service, as previously announced. The new service will cover the following contracts:

ES, NQ, YM, ER/TF, QM, YG.

The ZN contract has been dropped from the service for now.

The Levels have been expanded to include the following information each day (new items in bold):

Previous Day’s Open, High, Low, Close, UBreak, LBreak, VAH, VAL, R4, R3, R2, R1, Pivot, S1, S2, S3, S4, UPT, LPT, and 4 Starred Levels.

The printable version of the page, which subscribers can reach by logging into the website and going to Subscriptions…Futures Levels, will be available later this evening showing tomorrow’s data.

The latest versions of the e-Signal tools are available here. If you have a prior version installed, the best course of action is the following:

1) Close e-Signal and data manager

2) In Control Panel, uninstall Tradesight Suite for e-Signal

3) Download the new version for either e-Signal 10.6 or 11.x here and install it

4) For any chart that had the old version, you will have to remove the Formula, then right-click on the chart and hit Formulas, Tradesight, Futures Level 1.4.

This tool has more options and is editable in more ways than the last version, including backtesting of data. You can see the options by right-clicking on the chart and hitting Edit Studies.

The new Levels service is the basis for the Futures course that will be taught this weekend.

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Today’s Use of the Tradesight Upper Pressure Threshold

Tuesday, March 13th, 2012

Almost every trading session begins with some degree of a price gap. Depending on overnight news, the performance of overseas markets, and many other influences, markets tend to gap from session to session. Small price gaps tend to fill very quickly, usually in the first third of a trading day. Larger gaps tend to take longer to fill and gaps that are big enough will have to wait until subsequent trading days to fill.

So when is a gap large enough that it won’t fill in the same trading day? Tradesight is launching an enhancement to our Levels service that will give traders objective levels to determine the probability of a gap fill or gap and go environment. The Levels will be automatically plotted on the futures that we follow. There will be an upper Pressure Threshold and a Lower Pressure Threshold.

When price gaps but is contained between the Upper Pressure Threshold (UPT) and Lower Pressure Threshold (LPT), the expectation is that the gap is not large enough to stay open and will fill during the current trading session. However, when price gaps beyond the Pressure Threshold then the gap is significantly large enough to stay open for the entire session.

On Tuesday 3/13/12, the ES futures gapped above the Upper Pressure Threshold which defined that the gap was large enough not to fill in the current session. Not only did the gap not fill but the objectively plotted level was key support when price broke under the opening range and was threatening to make the gap fill move. The gap fill never happened and traders that were aware of the key level were empowered to stay on the long side of the tape for a spectacular afternoon explosion in price as short scurried to cover.

Below is the 15 minute chart of the ES futures with the Upper Pressure Threshold (UPT) shown as a bold green line:

You can learn more about how to use this key Level and many others in this weekend’s all-new Tradesight Futures Levels course.

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Tradesight Launches New Futures Levels Tool for e-Signal and Tradesight Pressure Threshold Levels

Sunday, March 11th, 2012

Tradesight is pleased to announce the launch of the latest version of the Tradesight Futures Levels Tool for e-Signal, which includes the introduction of the new Tradesight Pressure Threshold Levels. In addition, the Futures tool and Futures Levels service now covers the ES (S&P e-mini), NQ (NASDAQ e-mini), YM (Dow e-mini), ER/TF (Russell 2000 e-mini), YG (gold e-mini), and QM (crude oil e-mini) contracts. Additional contracts are coming soon.

The tool now includes exciting features such as backtesting, Value Area shading, on/off toggles for each line, and more. In addition, the Pivot series Levels, which we calculate based on contract settlement and not market hours, have been expanded from R2, R1, Pivot, S1, and S2 to now include R3 and R4 and S3 and S4.

The key starred levels have changed from three tri-star levels and two dual-star levels to four tri-star levels.

Therefore, each contract now has a value for each of the following:

Breaks (UBreak and LBreak) – Key Murrey Math levels that bracket the market above and below each day, considered by many to be the most important number to know coming into the session.

Pressure Thresholds (UPT and LPT) – Threshold levels that serve as support and resistance, but are also a proprietary calculation from Tradesight that shows the likelihood of a gap fill.

Value Areas (VAH and VAL) – Market profile values that indicate the high and low of where 70% of the trading action occurred in the prior session based on volume.

Settlement-Based Pivot Series – R4, R3, R2, R1, Pivot, S1, S2, S3, and S4 for each contract. These are traditionally support and resistance points for trade management.

Tri-starred Levels – These four levels are “magnet” points for the market and also serve several purposes during trading when hit.

The tool now allow you to plug in any date and view the key levels for that date for back-testing purposes in e-Signal. Dates after 3/1/2012 show all levels. Dates prior to 3/1/2012 show only the Breaks and Value Areas.

The tool is available later this week on the site and will be used extensively in the new Tradesight Futures Course.

Here are two examples of the tool with the Value Area shaded in, first on the ES:

And then on the NQ:

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The Ultimate AAPL Short Signal

Wednesday, March 7th, 2012

This last week, there has been a lot of attention given to the stock price of AAPL, which was largely running up ahead of the launch event for the iPad 3 (or iPad Next or The New iPad, depending on what you want to call it).

One of the things that we teach as traders is that you can marry a product that a company makes, but you should never marry the stock of that company. They are not one and the same.

Conventional wisdom would have you believe that AAPL would run up all the way to the announcement, and then possibly sell-off. The problem is that this run over the last two months was parabolic and extreme. We’re talking about a stock that went from $410 to $550 in 60 days in anticipation. So I would suggest that there is more to the “top” than just the event.

In this case, we had what I consider to be a near 100% sell signal on AAPL…five days ago. And we called it on Twitter and elsewhere. And we bought puts and shorted. And over the next week, we had more short trades than long trades each day on AAPL (there was one day for a long, which I will explain below).

AAPL remains one of the most technical stocks out there. It behaves by certain technical rules…not by news.

Let’s start with a look at the beginning of the run in AAPL two months ago. We have a tool that uses a specific lookback methodology to count momentum, called the Tradesight Seeker. I’ll skip the details, but there are two phases to the count. First, we have a 9 bar green number count that must be consecutive. Once one of those reaches the ninth bar, then we have a separate 13 red count that uses a different counting method that does not have to be consecutive. In general, a 13 is a sell signal (in this case, works as a buy in the other direction too). We find that this is about 75-80% accurate when these signals are generated, but I’ll show you in a minute where they become more valid.

So here’s the daily chart in AAPL where the run started in late December/early January:

You can see that the 9-bar setup count completed above point A with the green 9. This led to a new count, which is the red 13 eventual sell signal at the beginning of February. In this particular case, AAPL flattened out a bit after that signal for a couple of days.

You can see a dashed line above that level. That is the “risk line.” If you close above that, you cover your short.

Remember that we see this tool work about 75-80% of the time, which isn’t 100%, of course. That’s why you have a risk line, to tell you where to get out.

But, what is unique about this AAPL chart is that immediately following that point, it broke above the risk line and created another 9 bar setup:

It then proceeded to generate another 13 bar sell signal after the close on 2/28/12, which was a Tuesday. Here’s a look at the next move leading up to that point, with the 9-bar setup at A and the sell signal at B:

What’s important here, however, is to remember that this tool measures energy in a stock. Failing once just means that it falls into the category of the 25-30% that are losers. To immediately then proceed through an entire count of both the 9-bar setup and 13-bar Seeker sell…I don’t know that I’ve ever seen that signal fail. At this point, the stock has clearly made a huge move to throw that second signal. The word “exhaustion” doesn’t begin to cover it.

Here is where it gets interesting in learning about the market and how it behaves from a technical perspective.

From that 13 sell signal on the daily chart on 2/28/12, the risk level is $545.06. Now, once the sell signal is in place, the easy thing to do is short any gaps up. Gaps tend to fill anyway, but with a major sell signal in play, they become higher probability.

Here’s the next two days intraday on a 5-minute chart of AAPL:

You can see the gap up that surged over the risk level “intraday.” That was a shorting opportunity for us, our first entry in the mix. This led to an abrupt 10 point roll in AAPL. More importantly, look how the $545.06 risk line that I’ve drawn played out against the price action for the next two days. Another attempt to break it late in the day led to another sharp sell-off. Then the next morning, we were given another gift of a gap over the risk level, another shorting opportunity. Keep in mind, this is now Friday, still a couple of days ahead of the iPad 3 launch meeting on the following Wednesday. At the time, I kept hearing all of the chants of $600 on AAPL for the announcement from the trading community. Meanwhile, while they held, we had racked up 25 points of gains on the short side.

What happened next? In the above chart, you can see that the stock opened up the next day right around 545 again and headed down in the early minutes. It ended up selling of Monday down to the $530 level. Then here are Tuesday and Wednesday (the day of the iPad 3 rollout):

Note that we aren’t particular about our direction. We may have a general short bias currently on AAPL, but we’ve traded it plenty on the long side as well. On Tuesday, you gapped down to A on the above chart, and note that even in a sell-off environment, AAPL still does the technical thing and rallied up to fill that gap at B (which was the high of the day, and another shorting opportunity after that long side move).

And then another gift…a gap up Wednesday morning, the day of the rollout, which can’t possibly beat the hype. Another shorting opportunity.

In the end, here’s the final look on the daily with today’s close:

The top was predicted by the second 13 bar sell signal in a row, something that rarely happens, but you have to be aware of it when it does because the opportunity to make money is so great, no matter what product is launching.

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Introduction to the Tradesight Seeker Market Timer

Monday, March 5th, 2012

The Tradesight SEEKER has been designed to warn traders of high probability inflection points. An effective market timing tool such as the SEEKER has many benefits. It may keep a winning trade in position longer and increase profits or it may spot a reversal point to enter a trade.

All traders are familiar with both the price and time axis on a chart. Unfortunately, many traders under-utilize the horizontal time axis. The SEEKER is a pattern recognition tool that evaluates both time and price.

There are two main components in the SEEKER that represent different phases of a move. The first is a Setup ‘9’ which is momentum based and then followed by a Countdown ‘13’ which is trend based.

The momentum setup ‘9’ evaluates the bars on a chart that first show organized construction. In an uptrend, when a momentum move begins, the first recognized bar will be labeled with a green ‘1’ above the bar. Each successive bar that continues in the momentum move will be numbered until at least 9 bars have been consecutively labeled. Once 9 consecutive bars have been counted, price will typically either pause or retrace. This is useful information for either managing open positions or evaluating levels for entries.

After a momentum move has been identified by the 1 through 9 bar count, the second phase of evaluation may commence. The countdown ‘13’ phase will begin to evaluate the trend and look for construction that will terminate when a total of 13 new candles have met the trend criteria for both time and price. After the 13th bar of the trend phase, traders will be on high alert for significant price reversal.

The two distinct phases of the SEEKER are the setup momentum 9 bar move and then the subsequent trend countdown 13 bar move.

Below is a 65-minute intraday chart of Lululemon (LULU). At the left of the chart there is a 9 bar momentum move (green numbers above candles) that ran for about $2.00 before retracing, consolidating, and resting. After the completion of the 9 bar run, the second phase of the tool began numbering the 13 trend exhaustion move with red numbers. This part of the study ran for about $4.50 before marking the chart with the red ‘13’ and red exhaustion arrow. The ‘13’ trend exhaustion phase reversed price and produced a wave of profit taking. The value of the Seeker here is that it kept traders long and correctly identified the reversal candle on the chart:

Both the 9 bar momentum phase and the 13 trend exhaustion phase of the SEEKER study provide real time objective information. Not only does the study do on the fly intraday reconnaissance, but it works in all time frames all the way up to the large weekly charts. The SEEKER study produced a daily time frame sell signal on 3/1/12.

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Getting Back in the Game After Striking Out with a Loss

Sunday, March 4th, 2012

by Mark Likos

Getting back into the Game after Striking Out with a Loss …

Striking out with a loss is never fun but striking out on your first trade of the day has always been worse for me.  Many traders have a hard time getting back into their game after an initial loss.  They let their emotions take over and are hesitant or worse yet ‘can’t’ pull the trigger on their next trade.  They end the session in the red on a day they should have seen profits.

To help avoid this, focus on only the strongest trade opportunities to start your day.  Not all trades are equal; those with strong directional bias as evidenced by the current trend with solid momentum in the direction of your proposed trade will have the high-degree of probable success.  Avoid taking setups that trigger against the current directional bias.  One way to evaluate this is:  IF your normal trade size is 500 shares, would you still feel strongly about taking the trade with 3000 or 5000 shares?  If so, you probably have targeted a strong play.)  I like to play enough size so I can take a partial profit on the initial run (pay yourself from the first fruits!) then move a stop to breakeven or better, and let the remaining lot play out for the swing or term play IF you are lucky enough to have picked a trade with that kind of a move in it.  Remember, it’s nice to hit a homerun every once in a while, but veteran players know the game is won with base hits.  The homeruns will come with your frequency at bat, they are rarely planned.

This way, you will have a higher probability of starting the day with a profitable trade that will do wonders in keeping those evil emotions out of your trade decision process.

So what happens when your best analytical efforts don’t work and you open with a loser?

It happens.  Astute traders know losing is part of the game.  Successful traders also know that all large losers start with small ones and take their stops as they materialize without hesitation.

It happened to me today with in an ES Index Futures trade.  I felt the ES was setup well for an upside continuation/breakout IF it could move above near-term resistance.  Soon after the open, with solid volume the market moved higher triggering my entry.  That was as far as it went.  I didn’t panic.  I double checked the technical factors that lead me to the trade initially and they were still supporting my ‘technical argument’ for this long-play decision.  I hadn’t made any mistakes there.  I then checked the market internals I track that help verify the directional bias of the overall market and they were still bullish; I hadn’t missed anything there.  There was NO technical indication of a bearish condition.  I held tight.  The market moved no farther than my entry, triggered (a sweep) and took me out with my 6-tick stop loss.  Not good when you feel you’ve analyzed the market direction technically correct and you lose…

I took a small loss (all losses are painful) but a technically managed loss for my first trade of the session.  You know what happened.  The market changed character, gave me a technically supported short setup just under the opening range low, triggered and then dropped like a rock for more than 20-ticks (5-points).

Trade Summary – After taking that first loss, I continued to monitor market conditions which changed to technically bearish and I found a good trade to short on the low of the morning.  Playing the same size as my first play, I entered my short, took my initial partial profit (that wiped out my first trade’s loss), moved my stop to breakeven and trailed my stop just behind the downside run with my remaining position, for a nice second trade ending the morning in the green.

The primary goal, is to avoid an initial strikeout.  The best way to do that is to wait for the strongest trade opportunity.  If you should lose on your opening trade, continue to look for the strongest trade setups (those that are supported by current directional bias with volume) and stick to your tried and proven approach.  Don’t miss out on strong trade conditions because of your emotions, stick to looking for the best plays.

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AGO Seeker Sell Signal Trade

Wednesday, February 29th, 2012

Tuesday our Seeker tool flashed a sell signal for silver. This was the first sell signal since it correctly identified the top in August last year. A short was called and delivered via our messenger to alert traders to short triple leveraged AGQ<70.67 or the 1x SLV<35.47. The trade triggered and over the course of only about 60 minutes the AGQ moved $10 in our favor.

Here is a 15 minute chart of the AGQ with the trade trigger and subsequent price action:

Below is a look at the daily chart showing the Seeker sell signal generated Tuesday for the AGQ. The candle with the red number 13 and red arrow is the sell signal that alerted us that the trend was ready to change from bullish to bearish:

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The New Volume Read

Friday, February 24th, 2012

One of the most important keys to success in trading is volume. When the market is trading average volume or better, things happen. Technical triggers and technical behavior work. It’s easier to make money. When the market doesn’t trade good volume, things are less likely to work.

One of the things that we teach is that traders need to recognize days that are likely to be light on volume, such as Holidays, Holiday weeks (Christmas, etc.), summer break, and more. During those periods, less people are trading, which means fewer trades are likely to find the support of traders and the “counter” players such as market makers and banks will stop trades from working.

Success in trading is about doing the high probability things at the points where they are the most likely to work. Without volume, they are less likely to work.

For years, we measured volume in a simple way. If the NASDAQ volume after 30 minutes was over 250 million shares and after 60 minutes was over 450 million shares, then you had at least an average volume day or better. That increased your odds of success. Now, the same rules apply. A few weeks ago, we had five days of above average volume and tons of trade triggers and most of them worked. Compare that to this last week, where we had light volume, two good trading days, one that was unexciting, and one where volume was so bad that I didn’t even trade.

However, the point of this article isn’t that trading is better with volume. We already know that. The point that I want to make here is that in this year, 2012, we’ve seen volume play out a little differently, and traders should take note.

It used to be that if volume was around 250 million on the NASDAQ after 30 minutes, it would probably be fairly close (plus or minus) 450 million after 60 minutes, and that was good for trading. That would take us somewhere near a 2 billion share day. So the idea was that if volume was over 250 million on the NASDAQ after 30, you would probably get confirmation of good volume by seeing a reading over 450 million after 60, and that would put you over 2 billion shares for the session, which increased the odds that our trades would work.

This has changed recently.

The difference lately is that we have actually seen several days where volume is close to 250 million early, but comes in nowhere near the 450 million share mark after 60 minutes. We then end up way short of our 2 billion shares for the day mark. This means that checking volume after 30 minutes isn’t representative enough of what we need to know. The 60 minute check is more important.

Here’s the last week (Monday was a Holiday, so Tuesday through Friday) in NASDAQ volume:

I’ve drawn a black line at 250 million shares. So after 30 minutes those four days, we were at 246, 223, 243, and 204 million shares. Three of those numbers are solid number, but we never got above 1.8 billion shares for any day of the week by the close.

In fact, the 60 minute checks were: 402, 386, 410, and 350 million. We consider anything under 400 million shares after an hour a “volume warning,” which means that the number is so bad, traders should be concerned. But here we are with three days during the week that looked fine after 30 minutes, but those same three days saw 402 (barely over the minimum for a warning), 386 (a warning), and 410 (best of the week and barely over the minimum). Friday was so awful that I dubbed it “XMAS VOLUME WARNING” after 60 minutes because we were only at 350 million, which is horrible.

Something has changed. What this means is that even if we get a “retail push” for market open, it doesn’t last past the first 30 minutes. What does this mean for trading? Is this the new norm?

No, it isn’t. When you look at the markets today, you’ve got the Yen not moving (until the last week) since the earthquake, you have the Euro in trouble due to the situation in Greece and beyond, you have the US Dollar in trouble since the downgrade of our debt since we couldn’t make an attempt to balance our long-term budget, and you have too much wealth in the hands of too few. There is a consequence for all of these issues, which is that the rich can’t make the market active on their own.

Volume requires participants, not just a handful of people with a bunch of money. When we see activity drop off as we have, we have to understand that there are broader implications. Will it last? No, markets come and go in terms of excitement and activity. Long-term traders (meaning people that make it in this industry, not people that buy and hold) understand that when volume isn’t what you want to see, you have to back off. You can’t force things to happen when they aren’t there and aren’t going to work.

Volume is critical, and the fact that we are seeing this strange behavior of near-decent volume after 30 but nowhere-near-decent volume after 60 minutes should be a lesson for professional traders not to overtrade and kill themselves until things normalize.

Have a good weekend.

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Small Cap Picks Recap for 2/3/12

Sunday, February 5th, 2012

The Russell 2000 had a great week, and so did we.

Top pick MIPS, which we had been in early in the week as well from the prior report, triggered again and kept going:

KERX worked:

AFFY worked:

XIDE worked:

Good stuff, hopefully it keeps going.

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Tradesight Technology Outlook 2012

Thursday, January 5th, 2012

Once or twice a year, I write a report (now we call them Blogs) about technology and what I’m using and what my trading computer systems look like.

Since 2012 just started and I hadn’t written one in a while, I thought I would. But let’s be clear. This isn’t about trading, and here’s why. I think the next great leap in trading systems is a year or two away. Right now, frankly, you still need a computer or laptop and more than one screen to do it all correctly unless you are just trading Forex. I’m going to pause briefly here and talk about my trading computer technology and also give a brief comment about what I think is coming. But the reality is that right now is not an evolutionary moment for trading. But it IS an evolutionary moment for mobility, business management, and even secondary trade management. I have done quite a bit of trading from mobile apps in the last few months, and I rather like it.

Let me also say that we are in the process of helping iVocalize (the software that powers our Trading Lab) create mobile versions of their software through HTML 5.0, which will mean that you can listen to us and view charts while on the move. Frankly, I get now why this is so important. While it might not be clear in the Lab each day, over the last six months, I have spent a great deal of time “managing” trades from my Android tablet and not from my computer midday. I still have to be in front of my machine for the first 90 minutes or so to see everything that is going on. e-Signal is NOT on the verge of solid iPad/Android 4.0 apps. But in the middle of the day, once you have positions on or are focused on some key entries and stops, trading from mobile apps such as what MB Trading offers is plenty good.

So a quick note on technology. We are in the process of moving to e-Signal 11.3. This is not something that we take lightly. We are big e-Signal fans, but the fact remains that 11 got launched before it was ready, and it is just now getting there. Expect an update later this year to all of our EFS scripts for 11.3. What’s nice about 11.3? On a 64-bit OS, the pages are seamless and fast. You can flip between them easily. There’s no slowdown at all. The charts are steady and clean. What’s not to like? Some ease-of-use features are gone, although most of them are things like screen capturing and stuff that we use for Tradesight, not for trading.

My home trading machine remains an i7 processor with 16 GB fast RAM and a 128 GB solid state hard drive backed up with a 1 TB regular hard drive. I have dual SLI video cards that aren’t the latest at the moment, and I run two 24″ monitors. In reality, I expect to replace this machine once Windows 8 comes out, which looks to be a gigantic shift in Operating Systems. I’ll be looking at a bigger Solid State hard drive, more RAM, and stuff like USB 3.0 ports, but that is for later in 2012 assuming the world doesn’t end.

I also have a laptop for trading on the go. Currently, that has an i7 chip as well with 12 GB fast RAM, Windows 7 64-bit Ultimate (just like the other); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and a 256 GB solid state drive, which is now almost two years old with no issues. I have a second monitor that attaches to this machine when I need it.

So from a trading machine perspective, even though I typically update every year, these machines are both about 18 months old (same as when I last described them); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and I expect to update them later this year.

But the reality is that e-Signal isn’t out ahead of this tech and probably won’t be, so we’re good. I expect e-Signal 11 to get better and then I’ll get new machines with Windows 8 and more RAM and bigger SSD drives, but that might be the end of that. In 2-3 years, I’m thinking tablet to do everything along with Twitter.

So what else am I doing right now from a technology perspective.

If you know me at all, you know that I hate Apple and all things iPhone and iPad. I did buy the original iPad just to see if I would like the form factor because it was the only thing on the market, but I sold it once other options came along and haven’t regretted it at all.

From a tech perspective, my phone is an HTC EVO 3D on Sprint, although I am in the process of dropping my Sprint account and moving to Verizon with most likely an HTC Rezound. That or the Galaxy Nexus are simply the best phones on the market right now. One (Nexus) is pure Google, so it ships with the stellar Google 4.0 Operating System (also known as Ice Cream Sandwich); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES while the other has been specs but has HTC’s Sense overlay, so it will be a little delayed in getting Android 4.0.

I also recently got myself a 64 GB Motorola Droid Xyboard tablet, which is a 10-inch tablet thinner than the iPad that will shortly have the Android 4.0 update and is a simply superb device. I got this on the Verizon 4G network with a data contract, and I have been moving my world into this device since mid-December. It is truly remarkable.

So from a trading machine perspective, there’s nothing new to update. From a trading software perspective, expect to hear a lot about e-Signal 11.3 in the next few months. From a Tradesight perspective, we’re going to be shifting to Twitter for content delivery, which is going to be amazing once you see it.

But if you are like me and like to push the envelope, here are a few things that I suggest from a tech perspective right now.

1) Get the Xyboard from Motorola or the Transformer Prime from Asus (Wi-fi only). The Xyboard on a 4G contract from Verizon gets amazing download speeds away from the house but flips to wi-fi when you come home.

2) There are apps that can change your life. Here’s a few: Springpad, Dropbox, Amazon Kindle Reader, QuickOffice Pro HD. Let’s discuss those.

Springpad is a great app for organizing your life. Switch your computer browser to Chrome and you can easily sync everything you need from events and calendars to shopping lists over your phone. Runner-ups in this category are Evernote and Wunderlist, but Springpad is the king at the moment and it can literally change your world once you get used to it.

Dropbox is my friend. I can’t live without it. From a business perspective, I did a bunch of stuff in line for rides at Disneyland that previously I could barely have done from the office, much less home. It’s a killer app that cloud-saves your work and works brilliantly on Android phones. Depending on your needs, you should check out box.net and sugarsync.com, but the reality is that Dropbox is still the best for most people.

Forget the Nook and anything Barnes and Noble throws your way. Amazon has been content by far, and the Amazon Kindle Fire is great for a dumbed down tablet experience (both my kids and my wife have them, which isn’t supposed to be a reflection on them). If you read books, the process has never been better than over the Kindle app. Read a few pages on your phone waiting in a parking lot, and your tablet or actual Kindle knows where you left off when you turn it on. Great stuff.

QuickOffice Pro HD (for Android tablets) gives you 80% of the power of Microsoft Office on your Android phone or tablet, and frankly it is amazing. I’ve edited Powerpoint slides and Word docs and then shared them back via Dropbox a few minutes later with others. Great stuff.

While this isn’t business related, check out HBO GO and Hulu Plus as well.

The shift to Android 4.0 is a seismic leap in tablet Operating Systems. Apple is losing the battle, and more people are registering Android devices, as I always figured. They are more flexible and people can write better apps for them, in my opinion. While I can’t run my TRADING through a tablet, I do believe that 2012 is the year that I can run my BUSINESS through my tablet. Expect trading to follow by the end of 2013, which will come despite the Mayan calendar’s prediction.

Can you do most of this for now also on an Apple device such as iPad 2 or an iPhone? You can. But I don’t expect it to last, and the numbers are better for Google. I’ll show you that chart later, because charts don’t lie, people do.

For now, consider this your tech update for the start of 2012.

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Tradesight Stock End of 2011 Summary

Tuesday, January 3rd, 2012

Tradesight has been around for 10 years now. Amazing.

Before Tradesight was a website and subscription service, it was an email newsletter to my managed money clients as early at 1997. Each year since 1997, I write a summary report about the markets so we can all look back and remember what the year was like from a trading perspective. In prior years, I have made a single report covering the Forex, Futures, and Equity markets. This year, with much of our non-trade call stuff going into the Market Blog on the site and with a stronger split between Forex and Equity traders, I’ve broken the report up into two. This is the Equity/Futures review here.

Ten years ago, at the end of 2001, my end of year report stated that I felt that we were in for a Lost Decade, as Japan had seen in the prior 10 years. I took a lot of flak for that comment. Remember, we were just coming off of the Internet bubble bursting and the Y2K liquidity run-up wasn’t too far behind either. Everyone else thought the bottom was in and we were good to go. Interest rates were low. Etc.

Well, keep some of those thoughts in mind as we review not only 2011′s market action, but we look back at the last 10 years in the key indices.

Note that on these charts, I’ve drawn horizontal black lines from the opening of the chart to the end, so if you’re looking at a daily chart on the S&P for 2011, the black line is an easy way to see if the index was up or down for the year. If you’re looking at a 10-year weekly chart, well, you’ll see.

Let’s start with a look at the major indices and how they fared in 2011.

The flagship is, of course, the S&P 500, and this is pretty amazing. It closed 2010 at 1257.64 and closed 2011 at 1257.60. It’s hard enough for an index of 500 stocks to be “unch” (unchanged) for a day, but wow, lost 0.04 points for the year, amazing:

NDX did a little better, actually gaining about 30 points:

Biotechs were up:

Banks were down (the old expression is that Banks and Biotechs heading in one direction lead the market, but clearly they weren’t in sync this year, so the market did nothing):

Semiconductors were down:

Perhaps the most disappointing action was in the Russell 2000, which is an important index for me because I love to play the sub-$10 liquid stocks when they are jumping a couple of points a week, but that didn’t happen either. Note that the Russell 2000 usually gains the most from October to April, and it’s been stuck since August:

Every day, we analyze the volume in the market after the first 30 and 60 minutes of trading. The reason is simple. When you have good volume, trading works better. Our threshold is that we like to see numbers that typically project out to over 2 billion NASDAQ shares on a day to be “above average,” and those are typically the days where trading is solid. Let’s take a look at the day-by-day NASDAQ volume data for 2009 to give us a starting point in this conversation:

See how most of the days, volume was over 2 billion? Granted, you always get the volume drop-off for the last two weeks of the year because of the Holidays and end of year tax junk, but 2009 was solid for having trading volume over 2 billion shares most of the time.

How about 2010? Here it is:

Remember that? The first half of the year was great, then summer hit, which sometimes brings us a drop in volume, but it never really came back. We had just as many days under 2 billion NASDAQ shares as over from June until the end of the year, with the usual drop again the last two weeks.

So, how was 2011 then?

Ouch. Except for a spike for a few days at the start of August when the European situation looked bleakest, volume was pretty bad all year. I’d say less than 33% of the days over 2 billion NASDAQ shares. And December was horrible completely.

This is significant. We ended up having a great trading year, and I’ll cover some of the numbers in a bit, but we did it without the usual factor that drives good trading: good volume. Interesting.

We always have certain stocks that we play over and over. That’s because they are solid movers and good technical traders. However, it is important in trading not to get attached to a symbol and not notice when it’s better trading days are behind it. We lost a few favorites this year, so let’s have a look.

RIMM dropped off the list. Let me know when it loses marginability too:

GS was in a steady decline all year too and isn’t the trader it used to be:

NFLX was a favorite of mine in 2010 and early 2011, but they shot themselves in the foot and probably aren’t going to regain the glory days of trading:

What still works? AAPL, despite the passing of Steve Jobs, was up:

GOOG was great:

AMZN closed red but is still a strong trading stock:

We will be adding new common traders to the group in 2012 for sure.

Gold continued its climb this year (here’s the last decade) but came back a bit in the back end of the year, the biggest drop it has seen in a while on a percentage basis:

Bonds made new highs this year as well:

Here’s 10 years on oil with a clear trendline (even if it has been all over the board during the decade):

Speaking of trendlines, the weekly charts of the S&P and NDX show that we broke multi-year uptrends late in 2011. Here’s the S&P:

And NDX:

Finally, as I alluded to at the top of this report, let’s have a look at the last decade on the S&P and NDX. These are actually 11-year weekly charts, but I’ve drawn horizontal lines showing the last 10 and 11 years of action on each.

Here’s the S&P 500. 11 years = down 30 points or so. 10 years = up 50 or so:

Here’s the NDX. 11 years = unchanged. 10 years = up a few hundred at least:

I would call that a Lost Decade. Class dismissed.

This year, we posted our daily stock trading picks…every single one that triggered…into the Market Blog on the site. You can read them all here. From that, I actually tracked our results.

We averaged just under 5 trades per day that triggered with market support at the time. That’s 1238 triggers. 32% of them lost. 36% of them worked enough for a partial and that was it (basically washes out the losers); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and the rest were all bigger winners. Not a bad result at all. That’s how we teach people to trade. You don’t need to run 50 trades a day, and if you do trade management right, you don’t need to win 80% of your trades (because no one does) to have a solid year. Obviously, the better volume periods are the better trading periods, and this year was a little lighter on those days, but it didn’t have a serious impact.

I’m not going to do forward projections about the indices here. That’s for another article. This one was just about recapping 2011 and putting it to rest. It was a solid year for Tradesight again. No complaints.

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Tradesight Forex End of 2011 Summary and Results

Monday, January 2nd, 2012

2011 was an interesting year for Forex trading. The earthquake in Japan put a damper on trading of the JPY, and the situation in Europe kept the rest of the world watching to see what would happen, although in the end, not much did. We will start by reviewing the current state of the US Dollar from different timeframes, then discuss what this meant for trading month by month in the year, then look at the various pairs and how they moved, and finally wrap it up with our trading results for the year. I’ll give you a quick preview. Our trade calls for the year using our strategy of entry, stop, first target, and stop adjustment for final exit resulted in 3096 pips in net gains.

Before we get started, I just want to point out that you can review every trade call that we made during the year by clicking here and scrolling down as far as you want. You can also view our month by month net results by clicking here and doing the same.

Let’s start by looking at the US Dollar Index in 2011, which formed a giant cup formation, which is extremely bullish. The construction is outstanding and bodes well for a breakout if it happens. That move should lead to something nice for the bulls. Here’s the chart, and you can see that we ended the year about where we started:

Let’s also note how some of the months fared in terms of range of movement during the month. You can line this up later with our month-by-month trading results. The best ranges were April, May, June, July, October, September, January, February, November, March, December, and August, in that order. Most years, we see that August is a slow month as much of the big players are on summer vacation, and 2011 was no exception as you can see. December was also slow, as often happens.

If we back out the chart and look at the last 3 years on the US Dollar Index, we get a different view. Early in 2011, we actually broke the two-year uptrend line that had been in place, which looked dangerous at the time, but the years “cup” construction got us back above that line by the end. From this perspective, the low on the US Dollar Index occurred in the middle of 2008 (this is a weekly chart):

Now let’s back the chart out even further and look at the monthly chart going back over a decade. Several things are important here. First, the US Dollar collapsed sharply during the decade, especially from 2001 to 2008. The bottom so far is clearly in 2008. In addition, the primary downtrend line (A) broke in October 2008 (point B on the chart). With the low in place and the construction of the “Cup of 2011″ as I refer to it, we have two keys to watch in 2012. First, will the US Dollar break out of that 2011 cup, and second, the next major resistance is the line that begins in 2006 but connects through C and D on this chart:

Forget for a moment that this is the US Dollar that we are charting. Any chart that has a breakdown as sharp as that one did over the better part of a decade will take a lot of work to get it turning back up. Whether 2012 is the year that the Index can turn up and breakout after the decent construction of the last few years will have to be seen. If it does, expect better volatility than we have seen this last year, which will be even better for our trading. But again, it could take more work before the real breakout resumes.

Just remember that while further troubles out of Europe might be bad for the US economy in the short-run, they would be positive for the Dollar, and ultimately, that will be a plus for the US, which is no longer anything close to a manufacturing economy and thus doesn’t benefit much from a weak Dollar.

I have taken the 2011 charts of each of the ten pairs that we provide Levels for each day. I drew a flat black line from the start of the year, straight across, so you can easily see if the pair was up or down for the year. Let’s go through them with some additional comments.

EURUSD, our most commonly traded pair this year, ended up almost exactly where it started, which is interesting considering all of the troubles in Europe all year long. It basically just looks like the inverse of the US Dollar Index:

GBPUSD, our second favorite trading pair, was a little wilder but still ended up close to where it started. Note the Seeker 13 bar buy signal on the weekly chart right at the low of the year, which is amazing:

The USDJPY had some volatility early, but look how flat it became after the earthquake hit the island nation mid-year. It was untradeable after that, with many days of only 20-30 pips of range:

USDCAD:

AUDUSD became a better trading pair this year as the daily range improved sharply, but you wouldn’t know it from this daily chart which was pretty flat overall and ended up where it started:

About the same for the NZDUSD:

USDCHF:

GBPJPY:

EURJPY:

GBPCHF:

Finally, let’s get to some trading results.

From January 1, 2011, through December 31, 2011, we had 432 trade calls trigger. 219 of those led to winners, which is a 50.7% win ratio. Some months were better than others, obviously, but our system targets a win ratio in the 50-60 percent range, so we hit that number (just barely). The losing trades are always kept to around 25 pips.

So we average about 36 trades that trigger per month. Out of the twelve months, only January resulted in a loss. The other 11 months were all positive, although months like December, where the market was slow, were barely positive. The best month of the year was June with 645 pips of net gains, but October also had 600 pips. Working our way down from there, other good months were August, June, April, and February. The slowest months for results were January (negative), November, and December. It’s interesting that we managed to have a decent month of August despite the typically horrible ranges in that month.

Our total net gains including stop outs (losers) selling half at first targets, and managing the trade calls as we did in the Messenger to final exits when they worked was 3096 pips. Not a bad piece of work.

I still feel like we can do better in a year that isn’t so net flat, but we have seen worse years when the ranges dip for several months in a row instead of just August and December, so I have no complaints about how this year played out.

According to the Mayan calendar, the world comes to some sort of end in 2012, so I would expect that would cause some volatility. We shall see, but I’m looking forward to 2012 and trying to improve on this years results from the Tradesight Forex service, which is now entering it’s seventh year.

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NTAP Comber Wall Addendum, The Seeker Variable

Thursday, December 15th, 2011

The other day, I posted an article (which you can read here) about the Comber wall of resistance over a couple of days on NTAP. There was actually another piece of the story that I’d like to point that makes the wall even stronger on the second signal.

Here is a look again at the Comber tool on NTAP, with the second signal in three days marked at B, as discussed in the prior article:

What I didn’t share in the first article is that our Seeker tool produced a 13 sell signal on the same bar, as seen on this chart at point A:

While the Seeker and Comber both share the same setup mechanism on their 1-9 green counts, and while the 1-13 countdown phases can have some similar characteristics, the fact that the Comber 1-13 count reaches back to the start of the setup phase while the Seeker does not means that they rarely give a signal at the same time. In this case, they both did, giving more power to the play and making it more likely to work, which it did that day.

Even more telling is to look at the chart two days later and see what that signal meant to the market:

The power of the Seeker and Comber together at work.

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The NTAP Comber Wall

Tuesday, December 13th, 2011

Something that I’ve come to call a “Comber Wall” is when our Comber tool repeatedly gives sell signals near the same price area on a chart (or buy signals, as the case may be) over the course of several days. This is especially more powerful in cases where there are no signals in the opposite direction in between.

Let’s take the case of NTAP over the last 3 days. I typically focus on a 5-minute chart as it gives you a small enough time frame to work without being impractical.

Here’s the chart of NTAP that I’m referring to:

Now, the Comber counts that matter are the pink (or magenta) counts. When you get a 13-signal in pink, you have an ultimate buy or sell signal. In this case, there are two sell signals over the last three days. One was on Friday, in the latter half of the day. The setup phase for the tool was the black box under the letter A. This led to a Comber count and sell signal at B, which clearly was a top as the stock rolled and then gapped down Monday morning and spent the day at lower prices.

Note that on Monday, even though we had a couple of setup counts, we did not have any of the pink Comber counts complete. Then today, on Tuesday, NTAP rallied again. We got back to the price levels from late Friday and formed another setup box to the left of C. This led to a Comber count and sell signal at D, which led to an even sharply roll.

Note that in this case, the stock had returned to a sell-off point from Friday, tried to get higher, and then got the Comber sell signal. This is what I mean by a Comber Wall. It’s a lot of resistance that keeps showing energy sell signals.

The Comber and Seeker tools remain the most powerful tools for trading out there as far as I’m concerned. They work in all asset class (we teach stocks, futures, and forex) and on all timeframes. The ultimate signals are extremely accurate.

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Tradesight November 2011 Forex Results

Friday, December 2nd, 2011

Before we get to November’s numbers, here is a short reminder of the results from October. The full report from October can be found here and you can get the last several months in a row vertically by clicking here and scrolling down.

Tradesight Pip Results for October 2011

Number of trades: 43
Number of losers: 20
Winning percentage: 53.5%
Worst losing streak: 4 in a row (around October 25)
Net pips: +600

Reminder: Here are the rules.

1) Calls made in the calendar month count. In other words, a call made on August 31 that triggered the morning of September 1 is not part of September. Calls made on Thursday, September 30 that triggered between then and the morning of October 1 ARE part of September.

2) Trades that triggered before 8 pm EST / 5 pm PST (i.e. pre Asia) and NEVER gave you a chance to re-enter are NOT counted. Everything else is counted equally.

3) All trades are broken into two pieces, with the assumption that one half is sold at the first target and one half is sold at the final exit. These are then averaged. So if we made 40 pips on one half and 60 on the second, that’s a 50-pip winner. If we made 40 pips on one half, never adjusted our stop, and the second half stopped for the 25 pip loser, then that’s a 7 pip winner (15 divided by 2 is 7.5, and I rounded down).

4) Pure losers (trades that just stop out) are considered 25 pip losers. In some cases, this can be a few more or a few less, but it should average right in there, so instead of making it complicated, I count them as 25 pips.

5) Trade re-entries are valid if a trade stops except between 3 am EST and 9 am EST (when I’m sleeping). So in other words, even if you are awake in those hours and you could have re-entered, I’m only counting things that I would have done. This is important because otherwise the implication is that you need to be awake 24/6. Triggers that occur right on the Big Three news announcements each month don’t count as you shouldn’t have orders in that close at that time.

You can go through the reports and compare the breakdown that I give as each trade is reviewed.

Tradesight Pip Results for November 2011

Number of trades: 33
Number of losers: 17
Winning percentage: 48.5%
Worst losing streak: 5 in a row (around November 28)
Net pips: +75

It was a much tamer month. We had two Holidays plus the Friday after Thanksgiving, so less trading days and 10 less calls that triggered that October. There was a lot of back and forth and we essentially won half of the trades, which is fine and sometimes all you get. Having said that, we still netted out around 75 pips in the pure data including partials, stops, and final exits. Nothing like the last two months, but nothing to complain about. One more month and then we will put the entire year into perspective.

The ranges stayed very average, with almost none of the pairs changing their six-month average daily ranges by more than a couple of pips. AUDUSD was the only pair that posted a gain here of 7 pips, which is nice. Because of the wider ranges in the AUDUSD, I have been looking at it for trade setups as well, but haven’t seen a ton that I like. We also had some key Value Area plays during the month.

Have a great last month of the year and Happy Holidays to all!

On to December…

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NFLX Trade and our GFT Levels

Thursday, December 1st, 2011

We had a fun trade today in NFLX, but I wanted to walk our subscribers through the play and why it was such a high-probability winner, which I kept emphasizing in the room before it went.

Let’s start with this chart about an hour into Thursday’s trading session. This is 5-minute bars on NFLX going back two and a half days. From this chart alone, do you see anything special:

I would say that there is nothing special to look at here.

Now, let’s instead add a proprietary tool that we have at Tradesight, which are some key support and resistance points known as Gap Fill Threshold levels. We have these each day AHEAD of the market open. You get one Upper level above the prior day’s close and one Lower level below the prior day’s close. If you overlay these lines and look back to the prior session, we had gapped up at A to this level and immediately came in, and then we moved down EXACTLY to the lower level at B and held:

We later broke that level at C, which led to a trade. The key here is that on the new session (today); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES we rallied up to that level early and stalled right at it at point D.

From there, we proceeded to form a cup and handle formation against the level, which is always a great pattern for breakouts as the market consolidates against resistance ahead of the move. This is even more meaningful when it lines up against a key level like this:

Over lunch, it proceeded to wind the energy up by trading flat against the Level, which made the trade potentially more and more powerful:

When it finally went, we have a $67 trigger that ran $1.50 in ten minutes on heavy volume:

This is because the professional technical traders are watching this pattern for exactly all the right reasons.

Thursday was a huge trading day for us, as you can see by clicking here. NFLX was one part of the reason why.

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Current View of the Markets on 11/5/11

Sunday, November 6th, 2011

The best trading months of the year are typically from mid-October through mid-April. We’ve just entered that period with a lot going on in the world, much more than usual economically.

Let’s take a broad look at where we are at in the overall markets. We’ll start with a shorter-term look at some of the key indices.

The NASDAQ 100 (NDX) is barely off the highs of the year at this point, which is extremely impressive given the minor meltdown that we had just over a month ago, plus everything still going on in Europe:

The broad market S&P 500 (SPX) is a little lower in the year’s range, about at the mid-point, but has also rallied nicely off of lows:

We follow the VIX primarily to show us where “panic” bottoms occur. A number over 40 rarely lasts for more than a couple of days and often leads to a reversal in the markets to the update. The lone exception to this was the banking crash in 2008, where the VIX reached 80 and held over 40 for weeks. But, if you look at the VIX recently and compare to the S&P and NDX above, you can see that 40 was the key number and that once we really broke back under 40 for good at the beginning of October, that was the bottom in the markets:

Now, let’s have a look at some of the key sectors. Despite the fact that the NDX is near highs, the SOX (Semiconductors) are still in a downtrend:

The biotechs are fairly dull and mid-range, which, typically, they lead runs in the market:

The Small Cap sector, as measured by the Russell 2000, took a bigger beating two months back than the rest of the market, but just like everything else, it is showing signs of recovery so far. Also, the Small Caps in particular tend to do well in the October-April timeframe:

Here’s a quick look at Gold, still in an uptrend:

And oil, which recently broke a downtrend, but also gave us a 13 count buy signal on our Seeker tool at the lows that is currently in play (note that the green line is the operating static trendline of the move down, so that may be a target):

For reference sake, here’s the weekly S&P showing 10 years of data…and we’re exactly where we started. That’s the definition of a “lost decade” if you ask me, right here in this picture:

The weekly NDX going back just two years shows a nice cup and handle breakout through the black line, but then we had a 13-bar Seeker sell signal back in April that is still essentially the high:

And if we back things out even further, here is 15 years of NDX monthly data. What’s amazing is that the uptrend line is so precise (and in place):

We should also take a look at the last few years on the US Dollar Index, which is now in an uptrend on a longer term (longer line) and shorter term (short line) time frame, after breaking the intermediate term downtrend line recently:

The low on the US Dollar was back in 2008, which came after about 8 years of steady weakening. But, things tend to swing back over time, and while the EURUSD was a mess in the late 1990′s and came roaring back over the last 10 years, the situation in Europe is the primary factor in all of the uncertainty out there right now. Here’s four years of weekly data on the EURUSD:

That may be the chart to watch as we see if Europe can collectively get their house in order, or whether the currency itself might dissolve, which is something that would certainly be a negative for short term economic growth here in the US, but would probably be a positive for the US Dollar.

Remember, a weak is great when you are a manufacturing economy. It makes it easier for others to buy your products. We are not a manufacturing economy. For a service based economy, you want a stronger currency, which is something that I have been saying for ten years now in these reports. It may very well be the case that what hurts Europe the most is the most beneficial option for us in the long run.

We will continue to monitor the markets daily, but one thing is certain. Our trading opportunities have been extremely good for the last couple of months, and we’ve had at least 3 days per week of solid triggers and gains, which is all you can ask for as a trader. Volume and movement, please.

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Tradesight Twelve Month Forex Calls Track Record

Monday, October 17th, 2011

We recently posted the net results of our trade calls for September. At this point, we have officially posted monthly results for 12 months. Our forex service launched in 2004, and we have all of our trades archived, which are still available to subscribers, but they were not broken down monthly for net results.

You can now review every day of trading for the last year by clicking on this link and scrolling down as you go. These blog summaries don’t include our full forex reports for each day, but they recap our official trade calls that we gave for the session.

In addition, you can view the twelve separate one month summaries by clicking here and scrolling down as you go.

Today, I’ve put together net results of the service, and I wanted to make some comments about what it means for our methodology. Let’s start with a couple of different looks at the data.

For the year, we had 427 calls THAT triggered. That means we likely had about 700 official calls in total. Our win ratio on those 427 calls was 52.46%. That means we lost on 203 out of 427 calls. Our goal is a 50-60% win ratio, so we fell into that range, even if it was on the low side of the range.

We had only one month of negative results, and that was January 2010. Our win ratio there was only 34.29% and we lost 40 pips net.

The other 11 months were positive, and our win ratios in those months ranged from 42.5% through 70.0%.

The total net gain in pips accounting for stops, partials, and final exits was approximately 3446 pips. That’s a pretty solid number for a year.

Our system doesn’t rely on you magically catching one or two trades that accounted for most of those pips. In fact, there probably were no winners over 150 pips net (partial and final) in the year. But, it shows the importance of a net strategy of maintaining tight stops and letting the winners ride. Even though we only won 52.46% of our trades, the gains speak for themselves. And yes, you can have losing months. We had one. We also had three months where the net gains were barely over 100 pips, including August, which is typically the slowest month of the year. None of this analysis accounts for adjusting size to account for slow periods, holidays, or news. These are just the raw numbers.

When we get through October, November, and December, we will post net numbers for 2011, but it isn’t likely that the average overall will vary much. I think it demonstrates clearly that the Tradesight Forex system works and does not require a lot of time. This is not our active trading service that we teach separately where you need to monitor the market. This is our “set and forget” strategy where you get the calls in the evening, put them in, and check at key times of day to make adjustments. It requires about 30 minutes of your day, and I think it’s worth the time.

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Tradesight Seeker Example on Daily JCOM

Thursday, September 29th, 2011

I’ve been doing daily highlights this week of the Seeker tool in action in our Market Blog. The last two were about the Seeker in Forex on a 5-minute chart (one FX pair, and one the US Dollar Index).

Today, I wanted to back the tool out a bit and show it on a longer term timeframe, which is the daily chart. We’ll use JCOM, which is a short idea today from a breakdown perspective, but already did a lot of great work with the Seeker.

Let’s start back in August when a new Seeker upward count began. Here it is only 2 bars in so far:

Now, we achieved 9-bar status 7 days later:

The red line is thus the “Static Trendline” of the Setup count, which means that it is the lowest point during the setup phase, and it can be a “trade to target” if the stock reverses. The red line is $27.18.

Another note is that even though we got the 9, the lookback criteria for the setup phase continued for two more bars. Once that fails, the tool draws a dashed box around the whole Seeker setup, what I call “box completion”:

The concept from here is that potentially, the high of the range of the box with a Setup complete is resistance. Energy has run out. You’re looking to get short up in that area. There are a variety of methods to pick the exact entry (wait for a retest of the highs, go short if the stock breaks the low of a prior day, etc.). Any of these gets you short up in this area, and the stock continued to find resistance up there for two weeks:

Finally, it starts to rollover:

Note that in the process, a 9-bar setup to the DOWNSIDE is forming, which means that if we are short, a place to cover might be if we get the 9 bar down move, which would then suggest exhaustion to the downside:

What’s amazing and shows the precision of the tool is what happens in the next few bars. The 9 count completes, and the stock reaches down to $27.20, two cents above the red Static Trendline, before bouncing:

Talk about a “trade to target.”

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Another Tradesight Seeker Tool Example

Wednesday, September 28th, 2011

I’ve talked to a lot of people lately who are impressed by the Value of the Tradesight Seeker tool. Although it is ultimately the red 13-bar counts that give solid buy and sell reversal signals, the reality is that you can often find key market inflection points from the green 9-bar setup phase.

Let’s talk about the US Dollar Index. If you are trading Forex pairs, it’s typically useful to watch the US Dollar Index. Our courses teach a variety of tools to watch the Index and monitor it’s direction, which offers a “top-down” look at what to expect from USD-based Forex pairs at the time.

But how does the Seeker tool work on the US Dollar Index intraday, let’s say on the 5-minute timeframe, which is my most-used timeframe? Let’s have a look at the price action from Tuesday night going into Wednesday on it with our Seeker tool (and market directional tool, which are the various green and red lines):

Remember, green numeric counts, which must be in sequential order, are the Setup phase of the process. If you don’t meet the look back criteria for all 9 bars, the count is erased, so on that chart, you only see the completed setup phases for the session. There were three.

At point A, the market had bounced a bit off of lows and approached the mid-point (red line) of the session. That completed count was exactly a top.

At point B, we had extended sharply to new lows. That completed count was exactly the bottom.

There were no more completed counts for seven hours until late in the Forex trading day around 11 am PST (charts in PST). Then we had another 9-bar setup count, which topped at C and was the high.

It is extremely hard to suggest that this tool isn’t something that can put money in your pocket when you see it work like this on so many symbols in all asset classes and all timeframes.

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Profitable GBPUSD Seeker Sell Signal

Tuesday, September 27th, 2011

We’ve had a lot of interest in our Seeker tool lately, so I wanted to take some time to walk through a 13-bar Signal on today’s GBPUSD 5-minute chart to show how the tool can be used.

We’ll start with a look at the GBPUSD around 6:00 am PST / 9:00 am EST this morning (charts are PST). It is currently 7 bars into the SETUP phase of the Seeker tool, which are the green numbers. Once you get to 9 (see recent course for the count methodology); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES the setup is complete and in place:

A few bars later, we get the 9, so the Setup is in force. The red count is the actual Seeker Countdown using a non-sequential 2-bar look back from close of the bar to low of the bar two bars back. Note that the red count begins as soon as the green 9 is complete:

Also, understand that the 4-bar look back count that is used to generate the 9-bar green setup phase can actually continue beyond the 9th bar. Although you don’t need those additional bars (i.e. they are not labeled 10, 11, etc.) for the red Countdown to begin, our tool draws a box around the setup count once the 4-bar look back is broken. So in this case, the Setup count methodology continued for four bars after the 9, and then the box is drawn:

Moving forward, we now see the red count underway. Remember that this count does NOT need to consecutive. Also the red line D is the Static Trendline of the setup count, which is the low of the range of that count:

Seeker signals are a test of patience. This one proceeds fairly quickly but still takes over an hour to get to the 10th red count. 3 to go at this point:

Finally, we get our 13 signal, which is a sell signal by default. You’ll also see that the pink risk line begins to draw after that. Basically, the trade is to sell short at the 13 (or if you want to be conservative, sell when you break the low of a 5-minute bar after the 13) with a stop over the risk level:

The risk line is F, and the GBPUSD starts to roll without touching it:

Over the next 30 minutes, it works nicely as we shuffle into the end of day:

Ends up being about a 50 pip winner at that point. Hard to complain, and very easy to follow if you have time to watch. Note that this tool works on all asset classes and all timeframes equally.

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Our Stock Screens and How They Happen

Friday, August 26th, 2011

Tradesight has been around for about a full decade now, and every day since we started, we run our scans and deliver 5-20 stock entry points with stops in both the long and short side of the market. The process of doing this is fairly refined now. What used to take two hours each day (and couldn’t be started until two hours after the stock market closed when the data was fully available) now takes less than 30 minutes.

For those that don’t understand the process, we have about 10 screens that we run on the daily charts of the entire database of US stocks based on different underlying technical parameters. These screens (5 long and 5 short) generate a list that can be anywhere from 30 to 300 stocks a night, and then we go through these manually, looking over the charts, and make decisions about which 5-20 qualify to be on the report for our subscribers.

The reason that I’m writing this today is to discuss the impact of wild market fluctuations, such as what we have seen recently, on these screens. In a stable market, ideally we like to find long and short ideas each night. Obviously, you can wake up any day, and the market moves up or down, so you want to have plays in both directions. As the market remains generally stable overall, we do tend to find picks both ways. We prefer to short weak stocks on the premise (and a correct one, I might add, statistically) that they might head lower and to go long strong stocks because they tend to continue higher. We then use market direction during the day to support our entries.

When markets fluctuate wildly, it has an impact on what our screens generate, and the reason is somewhat simple. When the S&P and NASDAQ take a 15% hit in a short period of time, almost everything gets hit. There are very few stocks that are left in the top end of their range that could be considered for breakout formations and upward movement. Two weeks ago, I literally ran all 5 of my long screens and got a total of 2 stock ideas…and both were stocks that were so thin that I would never list them even if their patterns were perfect, which these weren’t. We have a lot of subscribers trading big money through Tradesight, and they don’t appreciate being directed to stocks that trade so little volume that they can’t get in and out for size at will, especially at our specific triggers.

Likewise, after the market bounced sharply off of the lows after the VIX spike over 40, we quickly ended up in a scenario where several of the screens on the short side weren’t generating picks.

There is a reason that we also deliver trade calls during the trading session. When markets gap, it can ruin our calls from the report. We had a few days over the last month where we only had long ideas or only had short ideas because the market was too strong in that direction and plays in the other were non-existent. If I list 5 long ideas and the market gaps down 30 points on the S&P, those calls probably are useless. You have to “call it from the tape” as they say, which is something we do every day anyway. We keep subscribers focused on market direction and find intraday pattern setups.

In an environment such as this, with so much uncertainty in the world and the market wildly swinging, the one constant is that my screens are only turning up a limited number of calls…in EITHER direction. That means that until things stabilize and stocks can get back into better basing patterns to establish entry points, we will have less calls on the report and look for more intraday.

We’re entering the 10-year anniversary of Tradesight, just over six months away. We will be sharing some of these insights here in the Blog along the way. Check back frequently or follow us on Twitter to stay updated. Also, please note that if there is a specific topic that interest you daily, you can come to this blog and click on a keyword in the word cloud on the right and just pull up the articles that relate to that topic. Topics that are covered frequently show up as bigger fonts in the cloud.

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US Dollar Index Update

Friday, August 26th, 2011

So, let’s discuss the US Dollar Index. From a broader perspective, we stuck in what I call the “back side of a wedge,” which is denoted on this 9-month daily chart by the break of both the intermediate and short term trendlines:

Meanwhile, despite everything that is going on in the world today, which people constantly tell me should be moving the forex market right now, there is a reality that I think some people like to try to ignore. August really is a time where the big money players, specifically out of Europe, take a break. It’s almost always the slowest, most meandering month of the year. Only one year out of the last decade was this not the case. When you think about it from that perspective, let’s zoom in on the more recent chart data over the last four months or so:

First of all, clearly, we’re in a pretty narrow range now for FOUR MONTHS. That is an important note to make. At some point, when we break this either way, things will get going. But, specifically look at May, June, and July, where I highlighted some decent moves with black trendlines. Those allowed us to make decent money in those months…in fact, pretty good money in some cases.

Now focus specifically on August. No trends for even a week. Lots of back and forth bars. Narrowest range of the four months.

Despite what is going on in the world, you can’t trump one thing. The big money players vacation in August.

From a trading perspective, what this means for us is that I have been half size for most of the month and will continue to do so until ranges improve for a couple of days (at some point after Labor Day) or we break out or down from this four month area on the Dollar Index.

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The Global Meltdown

Sunday, August 7th, 2011

So, will the US stock market break hard on Monday? Let’s analyze the pros and cons and try to figure out what is most likely to happen.

First of all, as I write this at 2 am EST / 11 pm PST Sunday night, global markets are down. Asia is down 2-4 percent across the board. Europe is about to open. S&P and NDX futures here in the US are indicating a 2.5% down opening. Let’s also realize that 2.5 percent on the Dow Jones is about 200 points. The breakers don’t shut down the market until 1000 points on the Dow. We’re not in that territory yet.

Factors in favor of a breakdown:

The S&P downgrade certainly has implications for US Treasuries and entities that hold US Treasuries. There will probably be long-term ramifications of the downgrade for months.

Margin calls. We’re in margin call territory in the US, although the Asia markets have much higher margin levels than the US stock markets. If this puts firms at risk due to margin, you won’t see it in the opening action. It will hit the most over midday lunch activity and the last hour.

Overvalued to begin with. A lot of people are making the argument that pricing in US stocks due to QE2 puts prices at beyond reasonable levels if you ignore the S&P downgrade, and even morese if the economy contracts.

Destructive behavior in Washington. If you read the S&P downgrade statement carefully, it doesn’t say that it feels like the US can’t pay its debts. It basically says that Washington is so irrational today that it has zero faith that it will take the proper steps to finish the business that it left on the table. It even goes as far as to say that the expiration of the high-end Bush tax cuts are necessary to stabilizing the markets, and that it no longer is certain that this will occur. In other words, the inmates are running the asylum, and here’s the penalty and extended punishment. Go back to what I wrote last week. Contracting an economy in the middle of 9% unemployment is just dumb.

That’s actually a fairly short list, to be honest.

Factors against a breakdown:

Two other ratings agencies DIDN’T agree with the downgrade. This is a key point that is being overlooked. Not everyone is sure about this.

We’re not close to August options expiration. The great crashes in stock market history occur when there is no options protection (including 1987, 1989, and 2000); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES but this isn’t that point.

We sold off sharply last week, at least part of which was in anticipation of the downgrade. This doesn’t mean that Monday will be a bottom, but it suggests that Monday won’t be as bad as it could be.

The active sellers don’t own stocks anyway. Frankly, most of them got wiped late in 2008 at the end of the largest drop in market history when the VIX spiked to levels it had never seen. They’ve missed the run, they don’t believe in it to begin with, so they don’t have stocks to sell.

The US Dollar has been strong in the FX market since the open.

So what does that leave us with?

Never underestimate how much selling pressure gets factored into the markets before we get to the US session. My general view is that this does NOT lead to a sharp sell-off in the US markets after the open on Monday. Washington may have made a lot of mistakes in their efforts last week. Let me give you the version of how this should have worked. The stimulus back in 2009 should have been $1.5 trillion bigger (or more) and not in the form of greater tax cuts but in the form of job-creating spending like we did in the early 1930′s. When unemployment and the economy improved, it should have been a long-term debt/deficit agreement that included bigger commitments to debt reduction funded by 75% spending cuts and 25% tax increases, mostly on the rich, who haven’t felt any of this comparatively. But, we did the stimulus wrong, and we did the debt reduction too early and even more poorly. So are the markets going to punish us as I said they might last week if they felt that the spending contraction would lead to a recession in 6-9 months? And I think the answer is that the downgrade is probably factored in in the short term and the rich got short last week on the heavy volume that we saw, and there will be buyers Monday, but after that, the sky’s the limit.

And either way, we’ll trade it the way we see it, based on market direction, which is great since we’re giving a free webinar at noon EST tomorrow on that very subject that was already planned. Non-subscribers, access the Lab here for free with any username and password “august” without the quotes.

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What the Debt Ceiling Deal Means for the Markets

Sunday, July 31st, 2011

As I write this, it appears that leaders of both parties have agreed in principle on a debt ceiling resolution. While the deal isn’t done until the votes are cast (and you can expect the Tea Party members to probably vote against this); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES it does appear that there is a reasonable framework in place that can be passed. Neither party was going to get the votes to extend the debt ceiling without compromise. On the surface, some will say that the Republicans or GOP won this battle because they got about 2.5 trillion in spending cuts over ten years most likely. However, having looked through the deal, I think that the winners here are actually the middle-of-the-road players in both parties, including President Obama. This will certainly boost his chances of re-election if you understand all of the pieces.

Since this will have a dramatic impact on the economy and the markets, I’m going to walk everyone through what the deal means moving forward.

First of all, let me state that this is a terrific deal for a booming economy. If this had been passed in 2001 when we had surpluses and low unemployment, this would have made the last decade much better. This is the exact type of deal that a government should move toward when things are going well.

Sadly, however, that’s not the current state of the economy, and the reality is that this deal will do significant damage in the intermediate-term in particular to the middle class…the primary drivers of spending in our economy. In the short run, it is a win because default is off the table, the markets may like that there is a resolution, businesses may like that the uncertainty is gone (which, because this has dragged out the last few months, has actually CAUSED the employment data issues that we have seen the last two months in particular) and rates will stay low. Gold should come down in the short-term, and if we see oil come back as well, this will ALL be good news in the months ahead.

In the long term, as I said above, this is a good deal because it means that we are moving closer to more balanced budgets, just like we did after the 1994 impasse. Despite what some people might want you to believe, the markets don’t really care much about the size of government. Markets care about whether government is paying for itself as it goes. That’s the reason that many European economies (Greece aside) do well with near socialism…they have a tax base that pays for what they do. Last time I looked, Canada was chugging along nicely as well. When you get a combination of a government that doesn’t “guide” the economy and also doesn’t pay for itself, that’s the worst case scenario, and that’s what we’ve been having here in the US for a while.

So as a general framework for government, this is not a bad deal. As a short-term solution to the gridlock/impasse of Congress and the White House, this is not a bad deal. From the perspective of fixing the economy and creating jobs, this is definitely a bad deal. We’re signing on to cutting a lot of spending (about $100 billion per year out of the gate for the next decade) that will have a direct impact to the states and cost jobs. If you firmly believe that all businesses need to start hiring people is smaller government, you’re about to learn a basic lesson of economics. This is not going to be pretty, and in some ways, this MIGHT, depending on how some of the later factors of this deal (stuff around Christmas) play out basically guarantee that the Great Recession is going to double dip and turn into a lost decade…and to be clear, we just had a Lost Decade: No net job creation since 2000. This is a great deal that you do once the economy is fixed. This is not a deal that fixes the economy.

So what are the terms of the deal?

First, we have an immediate cut of $1 trillion in spending played out over ten years (so $100 billion a year). The Tea Party won’t be happy with this, as $100 billion per year is nothing. That’s why this is truly a bipartisan deal. The bill that the Speaker of the House put up to get 218 votes on Friday was a Tea Party bill with little in terms of cooperation between the parties. That put a bill on the table that the Senate could work with, and they adjusted the bill after significant negotiations between both parties, both houses of Congress, and the White House behind the scenes. This will pass the Senate, which is a moderate body looking to get things done and not rock the world markets. There is still a chance that this won’t pass the House, but the interesting thing is that the House vote will look NOTHING like the Friday vote. I would bet that a lot of the Tea Party members of the Republican party will vote against this. A lot of them didn’t want to increase the debt ceiling at all (which is reckless and shows a lack of understanding about markets, economies, and the world in general). They certainly didn’t want to settle for a mere trillion in guaranteed cuts and then promise of more down the road after a 12-member bi-partisan Super Congress has a look at it. While the Super Congress will not be allowed to raise tax RATES (they have to play within the existing laws and code); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES they will be able to recommend closing loopholes (i.e. for corporate jets) and even allowing certain exemptions to expire.

What does that last bit mean? Well, this is where we need to talk about the Byrd Rule.

What is the Byrd Rule? Let’s ask Wikipedia to get the best answer:

The Byrd Rule is a Senate rule that amends the Congressional Budget Act of 1974 to allow Senators, during the Reconciliation Process, to block a piece of legislation if it purports significantly to increase the federal deficit beyond a ten-year term or is otherwise an “extraneous matter” as set forth in the Budget Act. It is named after West Virginia Senator Robert Byrd.

So, basically, the Byrd rule doesn’t allow Congress to pass things that will long-term hurt the ability of the government to maintain a balanced budget (something the Republican Party should be a fan of). It doesn’t mean you can’t pass stimulative legislation in the short-run (which the government needs to do from time to time to help fix banking and financial problems). It is the role of government, in fact, to do this. But this rule, effectively, says that if you are going to spend extra money OR cut tax rates to stimulate the economy, it has to be a short-term (meaning a few years) item. You can’t make it permanent because it would lead to long-term financial problems.

In other words, let’s do simply made-up math to explain it.

Let’s say that the government takes in a $100 per year and spends $100 per year. Let’s say that the economy slows down and the government decides to LOWER taxes so it takes in only $90 per year to give people more money to spend to save the economy. Or, let’s say that the government decides to still take in the $100 per year but it wants to spend $110 per year to put more money in the economy for people to spend. Either one has essentially the same result…$10 extra in the economy. It doesn’t matter, ignore the people that suggest that it does. Because either way, what it does is create a scenario where the government is taking in $10 less than it is spending.

And that’s where the Byrd Rule comes in. The Byrd Rule says that you can do either of these things, but only for a maximum of ten years. MAXIMUM.

Now, let’s take one more minute to discuss what a Balanced Budget Amendment is (something that will be voted on under the terms of the new agreement and something that the “Tea Party” members want). A Balanced Budget Amendment says that the government must balance its books EVERY year. So if things slow down, it can’t do either of the above items in my simple examples (lower taxes by $10 per year or raise spending by $10 per year). It always has to spend equal to or less than it takes in.

This is not the way to run a country. That means that if we were invaded or went to a serious war (toss this Iraq nonsense out, but something where we were attacked by a sovereign nation); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES we couldn’t ramp up spending on the war, at least without raising taxes. Now, I will be the first to tell you that I think one of the biggest mistakes that this country has made over the last decade has been that we bought into the notion that we could run multiple wars in Afghanistan and Iraq without paying for them. In a general sense, a Balanced Budget Agreement would mean that if we all agree that we need to ramp up military spending for a war, we would have to raise taxes to pay for it. Had we done that back in 2003, we wouldn’t be in the nasty economic boat that we are currently in. However, having said that, a Balanced Budget Amendment is a bad idea, and here’s why. If you are a business or an individual, when you want to make an investment in your future, you often do it with a loan or credit line. To think that the government should be handicapped differently is nonsense. Let me give you an example, going back to our $100/100 example above.

Let’s say that the government takes in an spends $100 a year (both). We get attacked and determine that to fight World War three, we need to raise our defense spending at a level that means that we will spend $130 the next year, which is a 30% increase in total spending. A Balanced Budget Amendment means that you have to then raise taxes that equal 30% to pay for it. You can’t raise taxes 10% a year for 3 years (again, in a simplified example) so you take in $110 this year, $110 next year, and $110 the year after to pay off the $130 you spent this year to win the war.

It is a reckless and irresponsible way to run a country. No one would run a business or their personal finances like that.

So the Balanced Budget Act is a bad idea, but there will be a clean vote on it (that will never pass) as part of this Agreement.

The Byrd Rule is about as close to the Balanced Budget Agreement as Congress should ever get, and it already exists.

So, let’s bring these points back home. Why did the “Bush Tax Cuts” (there were two sets of them) come up to “expire”? Here’s a tidbit many people don’t get. Tax cuts cost money and throw the budget out of balance. Just like our example above, government is taking $100 a year and spending $100 a year. A tax cut that makes the government only take in $90 a year puts the government at a deficit. The Bush Tax Cuts were passed at a time when the economy wasn’t really hurting (yes, it slowed down a bit post-Y2K but nothing like this). Because it throws the books out of balance (i.e. the Bush Tax Cuts could NEVER have passed if a Balanced Budget Amendment was in place); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES it qualifies under the Byrd Rule. You can’t make it a permanent part of the tax code. At the time, Congress was controlled (both houses) by the Republicans and Bush was in the White House. So they passed the tax cuts as nine year options because they had to fit under the Byrd Rule. Letting those expire fixes a lot of our budget problems.

Of course, when they were passed, they were sold as the idea that lower taxes create jobs. To be blunt about it, our taxes are currently at 100 year historic lows. If lower taxes meant job creation, our economy should be thumping right now, and really for the last decade. It has not. It is a bogus argument to make. Tax cuts for the middle class to more for the economy than tax cuts for the wealthy. There are really two tax cuts, one for people making under $250,000 and one for people making over. Let the one for the wealthy expire and it means about a 3 percent bump in their taxes and solves about 33% of our budget problems. Think about that.

So with this new deal, the Super Congress will get to work within the current tax code. Their recommendation, which must be acted on, by the way, on the same day that the “renewed” Bush tax cuts (from last year) are set to expire, could include allowing them to expire as part of the deficit reduction. Think about that carefully.

The media in the short-term is going to say that this bill is a win for the Tea Party because it significantly lowers Federal government spending, to the tune of trillions, over the next decade. The irony, of course, is that when the bill goes to the House on Monday or Tuesday at the latest, it may be that none of the Tea Party members of the Republican Party even vote for it because they feel it is too small or because it allows for an increase in the debt ceiling at all. This bill will be passed with equal votes from the Republican and Democratic Parties, probably without the support of the Tea Party members or the Progressive Democrats. This is a win for the middle of the road, which is fine. It’s a compromise bill.

The funny thing, I think, is that this is how it will be spun. The right-wing of the Republican Party probably won’t vote for it, but the media will say that they got their way anyway because it is mostly spending cuts. That’s the short-term analysis, but I think the fact that they won’t vote for it says everything you need to know about whether that is true.

The left wing Progressive arm of the Democratic Party will not vote for it and can just continue to say that they didn’t like anything about it, so when it doesn’t fix our problems, they are free to say it wasn’t due to them.

Middle of the road politicians from both parties will be able to say that it takes us down a more responsible fiscal path and was the best solution you could get given the deeply divided government.

And the President? He gets to say what he has been saying all along: That he didn’t create most of the debt (true); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES that he wanted to do something more like we did back in 1994 (true and somewhat what we got) that led to the prosperity of the 1990′s, that he really wanted a bigger grand deal that was closer to the tune of $4 trillion (which the markets also wanted…watch us still get downgraded) but that would have had to include some new revenues because you can’t find the cuts at that level (true and true) but he couldn’t get a bigger deal because the Tea Party wouldn’t allow for the tax increases on the rich (which we might still get if those cuts are allowed to expire late in 2012 as part of the Super Commission’s recommendations); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and that he did this whole thing while protecting Medicaid, Medicare, and Social Security, none of which are directly touched in the final deal (true). They may be addressed still in the next year.

As I said up front, I like this deal if our economy was strong. I think it’s a mixed deal to try to put forward now, and it will NOT create jobs. I think the big winner here is not the Tea Party at all, as everyone with a brain knew that once things improved, we needed to get back toward balancing the budget. I think the big winner here (though this won’t be reflected in the media or polls out of the gate) will be Obama, who probably just about guaranteed himself re-election here by taking away most of the arguments his opponents on both sides of the aisle would try to make against him (that he would cut benefits for entitlements from those on the Left or that he doesn’t believe in balanced budgets from those on the Right).

Is the country a winner here? Again, I think not really. The markets will undoubtedly be happy in the short run, but whether that means days or weeks is unknown. But this doesn’t grow GDP or fix the unemployment problem, which now sits just as much on Congress after passing this as on Obama. We care about markets here at Tradesight, and remember that the stock market doesn’t get anything wrong. It leads the economy by 6-9 months. Just like we predicted the bottom in early 2009 after Obama took office and made everyone a lot of money by staying focused on the long side because we recognized what QE and the stimulus would mean in terms of fixing one of the largest economic busts EVER, I would suggest that from a trading perspective, we remain very focused on direction here because I suspect that this deal means economic weakness in 2012, and that means that the market will be heading lower 6-9 months ahead of those numbers. But as traders, we just like to see it moving and see volume, and the reality is that volume in the markets has dropped badly the last few months because everyone was concerned about this item and Congress and the White House took so long to act. August is still part of summer, but I would bet the daily trading volume on average is higher for the last five months of the year, no matter which way the market goes, than it has been for the last five, and that’s good for us for making money.

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Using Gap Fill Threshold Levels

Thursday, July 21st, 2011

Let’s take a look at something that we call the “Gap Fill Threshold” levels. The simple version of these calculations is that when a stock or futures contract gaps past them, it becomes much less likely that it will turn around and come back and fill the gap. There are two calculations that we provide each day, one for a gap up (the Upper Gap Fill Threshold, a dashed green line on the following charts) and one for a gap down (the Lower Gap Fill Threshold, a dashed red line on the following charts).

Not only are these crucial for determining if the market has gapped beyond a certain threshold, but the exact numbers themselves can be support or resistance levels.

Each of the following four charts are of the ES contract, 5-minute bars, showing each day so far this week (Monday through Thursday) and the LAST bar of the prior day, just so you can see if there was a gap from the prior close to the open.

Let’s have a look at Monday to start, where the ES gapped down under the Lower Gap Fill Threshold (meaning it was less likely to head up and fill the gap); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES retested the line exactly, and then went lower and never looked back:

Now Tuesday, where we gapped just over the Upper Gap Fill Threshold and kept going:

Wednesday opened between the GFT levels and never touched either…in fact, a dead flat session in the middle of earnings season:

Thursday, we opened above the Upper GFT, pulled back to touch it exactly, and then turned up, so once again, the market telling us that it probably wasn’t going to fill and then testing the exact level as support:

As you can see, when you get a gap, these GFT levels can give you a lot of information. Commonly, if we get a gap but it is NOT beyond the GFT in that direction, the gap will fill.

As a side note, the GFT levels exist on individual stocks, which we can provide you by request in our Trading Lab. Here is an example today of NFLX, which didn’t gap at all at the open on Thursday, but note how it used the Upper GFT (solid green line here) as resistance early and then the Lower GFT (solid red line here) as the low later in the session:

Had it gapped past either one, the odds are high that it never would have come back.

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A Value Area Walkthrough

Wednesday, July 20th, 2011

A Value Area play is a trade based on the “market memory” of the prior day’s trading activity. It is a specific range from the prior day’s action that the market uses in a certain method with a high percentage of success. One of the main ways that we use the Value Area is to look for wide open Value Areas where a pair starts outside the Value Area, then enters the Value Area or breaks through a key support/resistance point just inside the Value Area, and then targets moving across the Value Area without breaking back outside of it.

On Wednesday, we had a Classic Value Area play on the GBPJPY. We focused in the Trading Lab on the break under the LBreak, which was just under the line blue (cyan) Value Area High line. The dark blue Pivot was also right there. So the goal was to go short under LBreak with a stop over VAH (in case it came back outside the Value Area) and a target of the cyan VAL. It triggered short at A, retested EXACTLY the VAH at B and didn’t stop out above it, and hit VAL target at C for a perfect Value Area trade:

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The Debt Ceiling Debate

Tuesday, July 12th, 2011

Here’s a little report that no one will want me to post, but I’m going to anyway.

Do you want to know the best way to prevent job growth and kill market volume in one move? Simple. Mess around with raising the debt ceiling.

I don’t tend to hold back, so let me be clear. There are too many idiots that don’t understand what the debt ceiling is, much less the Federal debt and deficit (separate issues, some don’t even know that). You want to fix the Great Recession? You don’t do it by crippling the economy, which is exactly what happens when you mess with the debt ceiling.

There are a bunch of people out there that want us to think that the US Federal Government should be run like a business.

I happen to agree and be one of them. That’s 100% up my alley. When I see the Department of Defense spending thousands of dollars on toilet seats, I think, whoops, not being run like a business. If I had a business worth even a few hundred million dollars a year, I wouldn’t spend that. Have you seen the new $800 toilet seats out of Japan and what they do? Who in the world needs to spend $20,000. Enough said.

But here’s the problem. 90% of the folks that say that government should be run like a business…don’t mean it or understand it. And that’s just plain dangerous and uneducated.

Imagine the CEO of a business saying: “Here’s how we’re going to grow. I’m going to cut all R&D (that’s Research and Development) and Marketing costs. I’m going to lay off 25% of the employees. Then, we will be more profitable.”

Think that through. Be thoughtful and think it through. Instead of saying, “I want to spend more to make a better product and more on marketing to sell our product to the world,” a CEO said, “Let’s stop trying to grow what we do and stop trying to expand our pool of customers.”

Does that sound like running a business? To me, that sounds like the opposite. Do you think you can beat Apple or Google or even RIMM by shrinking up to nothing?

But it is funny, because the same people that tend to think government is wasteful and “isn’t run like a business” are the ones that want government to only address spending and not revenue and only cut but not be thoughtful and smart.

The problem isn’t government. It’s the dumb saps that don’t understand any of it. The proof is in the events of this last weekend.

After weeks and weeks of the Republicans saying that we should cut billions and billions from the Federal government over the next decade, to the tune of $2 trillion over a decade, when Obama proposed $4 trillion in savings to fix the budget via a combo of spending cuts that Republicans wanted, plus spending cuts in Defense that they didn’t want to address, plus spending cuts in Social Security and Medicare that Republicans have wanted for decades, plus HIGHER TAXES for the top 2%, suddenly, Republicans changed their tune.

Why?

Because Obama was suggesting that we should address the spending AND revenue of the corporate entity that is the US Government. And the Republicans have pledged never to do that. They will only address spending, or, to be clear, from a corporate perspective, they have promised that they will never try to grow the company or make it better. They will make it profitable through only one means: cutting costs. No more roads. No more healthcare. No more food safety. No more education. Cut whatever can be cut and whatever it takes to make the “company” not lose money, just don’t return us to the days of taxation that Ronald Reagan and Bill Clinton and George H. W. Bush had us at. That was a horrible world. Make sure there are tax loopholes for corporate jet owners and more.

So what does this mean to current day America? Well, let let explain it this way. If I’m a small or medium or large business trying to understand if the US is going to pay its obligations or not, going to spend within its means or not, or going to pay back its debts or not, I’m at a loss. There’s talk that for the first time in 240 years, the US government might default on its debts, even though the current debt to GDP ratio is far lower than we saw in the 1940′s and 1950′s. In other words, we aren’t close to being at a point of crisis…unless we decide that we are not going to make payments. This is something that the US government has NEVER FLIRTED with doing in the past.

We raised the debt ceiling 12 times under Reagan, twice under the first George Bush, 6 times under Clinton, and 8 more times under the second Bush. The concept of raising the debt ceiling has never been in doubt…until now.

Under Reagan, we raised taxes 10 times. Under the first Bush…once (he might have lost his job because of it). Under Clinton, 16 times (and I made a FORTUNE in the Clinton years in the stock market). Under the second Bush, almost never did we raise taxes. Job growth was the worst in history over 8 years. We borrowed from China to pay out bills, or to be blunt, we borrowed from China to pay for the tax cuts for the rich, so the rich got richer from China and the rest of the country suffered and went into debt.

And what are the consequences of this new game? Simple. No jobs. What employer, large or small, would hire in the face of this junk? Let’s set aside tax loopholes for corporations that hire overseas instead of here in America. Let’s set aside technological improvements making many jobs unnecessary. Let’s just focus on the key factor: Since the government has even started to flirt with the idea of not raising the debt ceiling and not meeting our obligation…job growth in the recovery has slowed, and for good reason. Too much uncertainty about whether the Dollar and markets and economy are going to tank when we default…why would businesses hire? Congress’ inability to do what it has always done is causing the recent employment problems…period.

So if we don’t hire, what happens? Well, the unemployment data will suck. Non-farm payroll jobs created will suck (see last Friday). People will be out of work. And then, after weeks of delay in getting this moving, someone might try to say, “Well, clearly, the government programs aren’t working, and taxes on the job creators, those in the top 2%, should be LOWER.”

LOL. Terrific.

And also, you might hear, “we should lower taxes on the rich so that they hire.”

There is ZERO, and when I say ZERO, what I mean is ZERO, evidence that when you lower taxes for the wealthy, they employ more people. The years 2000 to 2008 prove this.

If you go state by state today, you can fish out the BS from the reality.

For example, my state of Arizona is a mess, but we are trying to deal with the mess through cost cutting and more.

Meanwhile, California is a disaster because it spends so much money, but the budget gap in California is tiny as a percentage of GDP. In other words, you don’t need to do anything in California if the GDP grows by 2.9 percent versus the current non-growth. It’s problems will self-correct.

Meanwhile take a state like Texas, where the Legislature meets only once every two years, and suddenly, there are issues.

The state is in financial trouble, and its employment rate, which is applauded by many, isn’t so hot. In fact, Texas has one of the highest job creation rates in the country…and of that, it has the single highest temp job creation rate in the country. In other words, the state has one of the biggest budget deficits that was disguised by the fact that the state government met…never, and it’s job creation rate is all temp work with no long term security or benefits. The state government is in shambles. Nothing but trouble ahead.

Meanwhile, Amazon continues to operate without sales tax, which is costing all of the states hundreds of billions in revenue. But I digress.

What we care about most, however, as traders, is the market, and we’ve seen for about six weeks now the same thing…light volume. The big players ran the market up for the last few days of June to peg their end of quarter statements to higher prices, but volume was weak then and it remains weak as things start to head downward. It’s a bad situation for traders, but we aren’t the only ones hurt.

Congress needs to act and act now. This isn’t one way or no way. Everything has to be on the table and everyone should get a little of everything. Cut some costs in discretionary spending, cut some costs in the Department of Defense, tinker with some longer term changes to Social Security, and let the Bush tax cuts for those making over $250,000 a year expire. Problem solved. The market will like it and we can get back to trading.

But more importantly, getting this behind us like big boys and girls will get people back to work. The idea that it won’t just because the government also expands its R&D number over the next decade while cutting other costs is nonsense.

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How the US Dollar Got Here

Wednesday, July 6th, 2011

There are benefits to having a weak US Dollar…up to a point. Weak currencies are supposed to encourage exports. Other countries see our goods as cheap when adjusted for currency exchange and buy our products. That’s a solid economic theory…assuming certain factors are held steady.

This theory implies that we are a producing society. We are not anymore. We produce very little. Most of our manufacturing has been outsourced to Asia and countries near Asia. We maintain, for the most part, a technology industry and a defense industry, although the technology industry in many ways manufactures abroad.

The economics and politics of the US Dollar rely on certain assumptions, and I would argue that in the last decade, the assumptions were faulty. The old rules don’t apply. We used to manufacture and sell goods to the world. When that was the case, in times of slowdown, a weaker Dollar would spur sales. That doesn’t work in today’s global realities. Let’s take a look at the US Dollar Index from three different timeframes and comment both on what it is doing and what the charts mean. And remember…charts don’t lie, people do.

Here is the last year and a little more on the US Dollar Index:

If you looked solely at that chart, you might make a few assumptions. It shows clearly that we are in a very short term uptrend, have recently broken the intermediate-term downtrend line, and are struggling with the longer-term downtrend line (at least on this timeframe). This chart certainly makes the US Dollar look weak, which would be the result of either bad or intentional policy to drive it lower on our part.

Having said that, let’s now back out the picture to a weekly chart that shows several years of data and see what that indicates:

In this timeframe, things don’t look as bad. We have a clear 5-6 year downtrend, but the trendline is fairly flat. We have a clear 2-3 year intermediate-term uptrend line that was recently broken to the downside. And we have a clear short-term downtrend (which was the longer-term line on the prior chart) that is resistance. From all three angles, we are in a downtrend, but it certainly doesn’t appear as steep as it looked on the prior chart. In fact, we haven’t made a new low since early 2008.

Now let’s back the chart out to a monthly chart that dates back to the 1980s:

Here we get a very different view of the US Dollar, but what happens is that the really long-term picture clarifies how much our Federal government policy matters. Here, I’m not worried about trend lines. I’m more focused on the highs and lows. Remember that in the 1980s and into the early 1990s, we followed Republican economic politics, which cut taxes while increasing spending and accruing huge deficits. This was clearly a negative for the US Dollar, but it also came at a time where the US manufacturing sector was much stronger and more prominent than it is today. If you look at the end of 1992, the US Dollar bottomed right at the election (on Election Day, no less) of President Clinton. This led to an 8-year rally on the Dollar that was driven by lowering the annual deficit and topped out in annual surpluses. The only blip in that run was the period where the Federal government almost shut down over a budget impasse (in fact, it did for a few days). Other than that period (ahem…sound familiar); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES the Dollar got stronger and played a major role in our prosperity.

The chart then almost tops out on Election Day 2000, although it makes one additional push that is capped at 9/11. The next eight years is a solid decline as the country returned to the notion that we can spend on wars and everything else while lowering taxes and paying for nothing. The difference is that in the two decades since that policy had been implemented the previous time, we outsourced our manufacturing jobs and had nothing to sell. The combination proved deadly for the economy, the stock market, and employment. As I said at the top, a weak Dollar has its benefits, in a certain scenario. We aren’t in that scenario.

What the Index has said since 2008 is that we’re trying to get back on track. We need to get the economy moving again, bring jobs back home (a step that isn’t really being addressed); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and only after that, get our fiscal house in order. The fact that the US Dollar bottomed in 2008 suggests that the market believed that that would be the direction that we would take. But here again, at a crucial junction, instead of looking to get our house in order and get our spending AND revenues in line, we’re flirting with the debt ceiling and shutting down the government, something that nearly killed the recovery in 1995.

When you really examine the long-term chart of the US Dollar, it becomes clear that it is about fiscal policy and not just the ebb and flow of the economy. The reality is that today, we don’t have an economy that thrives on a weak Dollar, and we’re in trouble if we don’t recognize that and prevent it from going much lower.

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How Can Options Unraveling Make You Money

Friday, June 17th, 2011

We just completed options expiration week, and triple expiration at that (options, index futures, and commodities).

On item that I try to point out every options expiration week is the importance of options unraveling, which typically occurs mid-week, most commonly on Wednesday. What is unraveling? It’s the point where the big players close out their options positions that are in the money as time is running out. This has big implications for moves in the market, and it therefore often causes the biggest move of the week.

The key to making money off of this phenomenon is to understand what it is, then to know when to expect it, then to identify when it is occurring, and then to take advantage of it by increasing your odds.

The secret to unraveling is the following: when it happens, the market picks a direction sometime after the first hour of play, heads that way on volume, and never really reverses. In other words, if you see unraveling happen, you know what direction to stick with all day long.

So, that’s what it is.

When do we expect it? Usually mid-week, most commonly Wednesday, of expiration week, after the first hour. So, that’s when I watch for it.

How do we know we get it? A move will start, and VOLUME WILL REMAIN HIGHER THAN NORMAL midday.

What do we do once we spot it? Have great confidence in sticking with that direction into the close.

Here’s Wednesday with the first hour boxed off on the broad market futures after a gap down:

So from this point, if we’re going to get unraveling, we should see a move begin to occur and volume stay up. Do we get it? Here’s the shot after another 30 minutes:

Note that we are breaking lows at a time of day where things are usually slowing down, and volume is up. But, that could be just one bar of volume, does the volume hold? Let’s jump a little further ahead and compare the volume midday to what we saw the prior two days:

Yes, indeed, volume is staying up as the market is selling off.

So, we expected it on Wednesday, now we have it, what do we do with it?

Well, the unraveling move is down. Most other days recently, we have seen a return to the midpoint of the session after lunch on light volume. I wouldn’t expect to get that move now. I would focus on any rally failing and looking for shorts.

So as we come back from lunch, the market starts to tick up. I told subscribers that I didn’t think we’d get back up to the midpoint with the rally:

And, in fact, we did not. Everything failed as expected:

What does that do for me? It keeps me looking for short entries throughout the second half of the day with little concern that that is the correct direction. I focused on AMZN:

And SINA:

Both of which worked great.

Sometimes, trading is that easy, and you need to focus on those easy moments. Unraveling only happens once a month (and sometimes, it really doesn’t happen at all in any convincing fashion). Still, when it happens, we expect, identify, and then act with confidence.

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Tradesight May Forex Results

Friday, June 3rd, 2011

Before we get to May’s numbers, here is a short reminder of the results from April. The full report from April can be found here.

Tradesight Pip Results for April 2011

Number of trades: 26
Number of losers: 14
Winning percentage: 53.8%
Worst losing streak: 2 in a row (twice)
Net pips: +140

Reminder: Here are the rules.

1) Calls made in the calendar month count. In other words, a call made on August 31 that triggered the morning of September 1 is not part of September. Calls made on Thursday, September 30 that triggered between then and the morning of October 1 ARE part of September.

2) Trades that triggered before 8 pm EST / 5 pm PST (i.e. pre Asia) and NEVER gave you a chance to re-enter are NOT counted. Everything else is counted equally.

3) All trades are broken into two pieces, with the assumption that one half is sold at the first target and one half is sold at the final exit. These are then averaged. So if we made 40 pips on one half and 60 on the second, that’s a 50-pip winner. If we made 40 pips on one half, never adjusted our stop, and the second half stopped for the 25 pip loser, then that’s a 7 pip winner (15 divided by 2 is 7.5, and I rounded down).

4) Pure losers (trades that just stop out) are considered 25 pip losers. In some cases, this can be a few more or a few less, but it should average right in there, so instead of making it complicated, I count them as 25 pips.

5) Trade re-entries are valid if a trade stops except between 3 am EST and 9 am EST (when I’m sleeping). So in other words, even if you are awake in those hours and you could have re-entered, I’m only counting things that I would have done. This is important because otherwise the implication is that you need to be awake 24/6. Triggers that occur right on the Big Three news announcements each month don’t count as you shouldn’t have orders in that close at that time.

You can go through the reports and compare the breakdown that I give as each trade is reviewed.

Tradesight Pip Results for May 2011

Number of trades: 36
Number of losers: 18
Winning percentage: 50%
Worst losing streak: 5 in a row (May 16-19)
Net pips: +266

I much better return to form as we had 10 more trades trigger in May than April and things went pretty well and were spread out again. The interesting thing is that the Average Daily Ranges (6 month) dropped 2-4 pips on most of the pairs (except the AUDUSD and NZDUSD) during May, which is again a pretty sharp drop on a number based on six months worth of data when only 23 days are new. Still, the system works because holding winners into the next session pays off, and this time, there were several nice gainers scattered throughout the month. We ended up with a total net gain of 266 pips, which is much better than the last few months. As long as at least 3-4 months of the year are 250 pips or higher, we’re in good shape since we keep such tight stops.

It would be more interesting to see the average ranges gain for the first time in a while, which should only provide us with better results. Late summer isn’t the usual time to see that, but you never know, and we have early summer to deal with first. On to June…

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The Importance of Ranges and Volatility in Stocks and Futures

Sunday, May 8th, 2011

I get asked all of the time what the secret is to making money trading. The answer is simple, though not something people typically want to hear. If I had to pick one thing to teach new traders, I would say this: “Markets ebb and flow, but you need range, volume, and volatility to make money. The secret to success is that you have to stick around for those periods.”

When it comes to Stocks and Futures, success comes from volume in the markets, which typically leads to better volatility and ranges. Since these markets do measure volume, it becomes a fairly straight-forward process to analyze what is happening. This is why we analyze volume after 30 and 60 minutes each day…it tells you so much about your chances for success for the rest of the session.

Now, another way to view this from an “end of day” perspective is to look at NASDAQ volume daily. We like to see volume over 2 billion shares per day on the NASDAQ. Those are typically the “good” trading days. If you go back to the start of the year and view our “2010 Summary,” you’ll see that most of the last year so volume over 2 billion NASDAQ shares. However, this year, we’ve been hit or miss in that arena.

Here’s NASDAQ volume daily, and I’ve put a box around anything UNDER 2 billion shares since January, and you’ll notice that most of the days fall into that category:

So, even though we have had days well over 2 billion shares, they aren’t the norm, and this is a complete departure from what we are used to seeing. Having said that, markets aren’t always what we want or need them to be, and you have to trade what you get. The last month in particular was weak until this last week. As the chart above shows, the last week was the first week in a while that was consistently over 2 billion shares of daily volume, and we had some extremely easy trading, from futures to stocks to ETF calls. Lots of nice winners on those days.

Why is the volume back? Well, in prior weeks, we had concerns about the economy, the debt ceiling, unemployment, the US Dollar, the Fed, and quarterly earnings. With several of those items passed us this last week and gold and oil tanking, the markets picked up their volume (even though much of it was to the downside, which is fine for us as traders).

So let’s see what that means to range and volatility.

Here’s the intraday 10-minute bar data on the ES in the days PRIOR to this last week. I’ve drawn boxes around the ranges for each day because it makes it easier to see. Without volume, things were pretty flat overall, even if the market trended for several days:

Meanwhile, look at this week. With volume back, ranges were big, there was back and forth movement, and we did well:

Look at the last day on that chart, for example, and note that the move from the green dashed line at A to the red dashed line at B was AVERAGE DAILY RANGE, and then we exceeded that to the downside by a lot. In other words, with volume, we’re trading more than the averages.

This is very important to recognize and understand when putting together an annual trading system.

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The Importance of Ranges and Volatility in Forex

Sunday, May 8th, 2011

I get asked all of the time what the secret is to making money trading. The answer is simple, though not something people typically want to hear. If I had to pick one thing to teach new traders, I would say this: “Markets ebb and flow, but you need range, volume, and volatility to make money. The secret to success is that you have to stick around for those periods.”

When it comes to Forex, there isn’t really a true volume measure, but we can look at daily ranges to understand whether people are trading. We look for certain averages. When those averages occur, then things are good. It’s easier to make money, for example, when the GBPUSD moves 180 pips in a night than when it moves only 110. At 110 pips, by the time you spot a setup, a support or resistance point, and an entry, once that triggers, you don’t really move far enough to make good things happen. The reality is, you don’t make money in Forex trading for 20 pips. You have to look for something bigger, and that requires range.

Last June and July were great for ranges. Last October (late in the month) and November were great for ranges. In those months where ranges are good, you need to make good money, because the reality is that in average months, you’ll tread just above water, and in poor months, if you miss just a few trades that end up being the big winners for the month, you’re in trouble.

This is why we push so hard on the 6-month average daily ranges that we calculate. It’s important to understand that if the GBPUSD’s six month average daily range is 160, then that means that over the last six months, it’s traded above and below that level, but that your expectation can be around 160 pips. If that runs up to 200 pips, then the GBPUSD ranges have expanded wildly, almost to the point of being too crazy on some days. On the other hand, if it drops to 130 or 140 pips, you’ve got trouble because the market isn’t moving. That probably means that you have days where the GBPUSD is trading under 100 pips of range. No matter what anyone wants to believe, there is no success in a 100 pip range, especially if it ends up meaning 100 pips per day and 200 pips per week. That means you aren’t moving in one direction either.

But you can’t expect markets to be exciting all of the time. Granted, the drop-off that we have seen in Forex the last two months is pretty bad. I haven’t seen it like this since 2006. But there will be more exciting times ahead. Just remember, you make your money in those more volatile times, and you hopefully have a system that treads water or doesn’t crush you when everyone takes a break.

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Current View of the US Dollar Index

Friday, April 29th, 2011

Let’s discuss the broader view of the US Dollar Index. Let’s start with a fairly short-term look at the daily chart, which broke down over the last two weeks:

That chart shows a clear downtrend in place, with a trendline that we can follow easily. Also, Friday’s close would be 8 bars down on a new Seeker count. The 9th bar is typically where we start to see exhaustion.

The goal here is to measure the exhaustion from multiple timeframes and see what it gives us.

If you back the daily chart out a bit, you can see the inverted cup and handle over the last year or more that broke down, which is a significant technical break:

More importantly, however, we will back the chart out to a weekly chart, which shows more of the chart going back in time as we approach the true lows for the US Dollar Index. The key here is that we are within striking distance of the all-time lows, but also, with Projection Mode on with the Seeker tool, you can see that this week that just ended also gave us the 12th bar of the actual Seeker count (not the 9-bar setup count). A 13 would be a strong reversal buy signal on a longer-term timeframe, and if we were able to dip down and hit the prior lows in the process, that would be a double bottom, which would be interesting.

Even more interesting, take a look at the monthly chart. Here, you can see almost 2 decades of data, with the highs back in 2000-2001, and the low in 2008. But the Seeker setup count on the monthly is now 8 bars down, meaning that April could give us a 9 and be a short term energy flip:

In all timeframes, the US Dollar is heading toward significant reversal signals as it approaches the prior lows. The bounce could be interesting.

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NZDUSD Signal with the Seeker and ADR

Friday, March 25th, 2011

Let’s have an educational discussion about the importance of lining up key tools where we can measure turning points in the market from energy construction and really apply them when the market hits a major support or resistance point. We view the start of the Forex session as 5 pm EST, which is 14:00 on these charts on Pacific Time. Here is the first several hours of the NZDUSD action Thursday evening from the start of the session through the first few hours of the European session:

Clearly, the activity picks up with the European session start. We like to see volume and activity for the purposes of spotting trade setups. One of key tools, the Seeker, measures market energy by using a specific bar counting mechanism. After we get 9 bars that meet the counting criteria in one direction, we then look for the counting mechanism to terminate. When that happens, the tool draws a dashed box around that area of the chart. This represents a potential exhaustion point in the market. So let’s see how this plays out now that activity has picked up for a few hours with the European session:

At this point, we’ve already had one box completion where the NZDUSD met our count criteria and ran in to R1 from the Pivot series (blue line). You can use this as a short entry in the market, and for several hours, the market doesn’t head higher, so the energy was exhausted. Then, the market starts to head up again and we get another 9 bar count that leads to the completion of another Seeker box. This time, it is lines up against the dashed green line. What is that green line? That is the Average Daily Range high boundary for the NZDUSD. What that means is that the NZDUSD currently has traded an average of 93 pips per session over the last six months. At that green line, the distance from the low of the session (back near the start at 5 pm EST in this case) to the green line is 93 pips:

It often matters by itself, but in this case, we’re also hitting that key area that means that the market has covered the range that it covers on average at the same time that the Seeker tool is getting an exhaustion signal. Again, that gives us a short entry with a stop a little bit over the highs. And how does this work? Let’s see the rest of the session:

A 50-pip move back to the VWAP. The combination of the Average Daily Range line with our Seeker signal gave us two trades. One stopped for a small loss, and the other worked for 50 pips.

If you haven’t yet taken a 2-week trial to our services, you can do so here for only $2.97. This includes our Trading Lab with 5 analysts that trade every day for a living, so you can get top-notch guidance, trade calls, and ask questions regarding trades in all asset classes.

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A Word About Browsing

Tuesday, March 22nd, 2011

At Tradesight, we like to keep our subscribers updated from time to time on major technology upgrades. While browsers might not sound like an important component from a trading perspective, let’s face it, we all use them. Given the fact that the big three (Internet Explorer, Firefox, and Chrome) have pushed out big updates in the last week or two, I thought I’d take a moment to highlight them.

Keep in mind that you can easily install and uninstall and run Firefox and Chrome separately. If you don’t like them, just don’t use them, or uninstall. That might not be true for Microsoft’s IE, which is much more integrated into your computer experience.

Internet Explorer 9. You can download it here. Microsoft has done a lot to its latest release to compete with the likes of Chrome and Firefox. The user interface is fast and scaled down. The menus are mostly gone. You can get everything done from the URL line or from a couple of key buttons for settings. Load times are much faster. And, to compete with the other two, Microsoft now offers a much more open system for plug-ins that should encourage users to make the product better and add features that Microsoft doesn’t build in. If you have IE on your machine, you should upgrade. It won’t take long and it is definitely worth your time. If you have a 64-bit computer and 64-bit version of Windows running, a 64-bit version of IE 9  will show you some significant speed enhancements.

Who is it primarily for? People that have computers and browse and don’t want to view a browser as anything more than that. Upgrade to 9, don’t stay on an older version.

Mozilla Firefox 4. You can download it here. Firefox was written as an open-source community project as competition to Internet Explorer. By version 2, it was enticing people that wanted a faster browser than IE 7.0 was offering at the time. By version 3, it had taken a considerable amount of market share from IE. The big secret to the success of Firefox, beyond some terrific social media marketing, has always been it’s plug-in/add-on ability. Just about anyone can write a plug-in that does something in the browser (weather tracking, themes, spell checks, you name it); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES and if you want it, you download it and add it to the browser. It has always been a fast browser, but the new 4.0 increases speed even more. It’s easy to download and install and get started. Strangely, while the other browsers are dropping the menu systems that traditionally come with software, Firefox just added a main drop down menu with several submenus.

Who is it primarily for? iPhone and iPad users that have PCs will typically want Firefox for two reasons: 1) They have Microsoft and 2) They hate Google. The other nice thing about Firefox is that there are now Mobile versions of it for various phones and tablet apps, and you can sync your bookmarks via the cloud to all devices with 4.0.

Chrome 10, Build 648.151. You can download it here. Like just about everything Google offers, the webpage where you download it is minimalist and boring, but the app itself is outstanding. Even leaner and meaner than Firefox, Chrome has really come into its own in the last few releases. The Favorites/Bookmarks system is the best of the browsers, and it loads everything quickly. The big selling point on Chrome is the outstanding amount of plug-in content that goes beyond just “plugs” and “add-ons” but actually allows you to run freeform applications from the browser. While Chrome is strangely not yet available as a built-in browser for Android phones or Android Honeycomb tablets such as the Motorola Xoom, you have to think it’s coming. In the meantime, there is an application that you can use on those devices to sync your bookmarks to the phone/tablet and then touch to run the page in the default browser.

Who is it primarily for? Anyone that wants a browser that can give you diverse applications that sync over multiple devices for daily tasking and organization, plus anyone using Android-based phones or tablets.

Which is best? Hard to say. It depends on your needs as a user. If you just want to browse the web, any of them will do and IE 9.0 is certainly attractive. If you want to move away from hard software applications like Outlook and Word and move to more cloud-based applications, Chrome is the one. If you just want a highly customizable tight browser offering, Firefox. Or, install them all and you might find different benefits and uses from each, as I do.

In addition, click on these respective links to have a look at some of the applications that I find extremely useful, especially connecting your phone/tablet (Android) to each other or to your computer: Springpad, Dropbox, Evernote.

Takes the work out of staying organized once you get used to them.

By rating each of these about the same, we hope to keep all of our corporate sponsors happy. We’d even like to throw in a shout out to Apple for providing us with a stock that is easy to trade and has paid us so well over the last four years.

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Trend Changes, Trading, and Choosing Sides

Friday, March 11th, 2011

One of the key learning experiences if you want to become a professional trader is how the market changes character at “trend change” points. I wanted to spend a little time this weekend talking about that.

Here is a look at the S&P 500 daily chart with the key uptrend line that we have been tracking:

When you have an obvious uptrend in place, there are a few things that I try to teach people to focus on. First of all, it isn’t our job to guess when the trendline will break. Stay with the trend until it does. Second, a lot of the easy money will occur late in the trend IN THE DIRECTION of the trend. In other words, if you start trying to “get short” as the market pushes up like that, you miss a lot of big moves by leadership stocks that are continuing to base and breakout or rallying late in the day often.

The difference between being in an uptrend and in a downtrend is pretty simple. In an uptrend, you want to be buying the strongest stocks coming out of key patterns. The market will more often gap down and rally. The late day action will more often be pushes to the upside as mutual funds continue to buy. In a downtrend, the opposite will be true. You want to be shorting weak stocks. You’ll see more gaps up with sell offs. You’ll see more rallies fail and late day selling.

Remember that it really won’t be until you have firmly established the downtrend that you can expect to see consistent and nice short patterns to use to make the easy money shorting the market. Just like it takes a while after an uptrend begins for the new leadership to become clear, it also takes a while in the downtrend before the patterns are there where you can say “Here’s a stock that has been basing near relative lows for 4-6 weeks, let’s short it on a breakdown.” But that’s where the easy money comes in.

However, it’s usually right around the time that the market is truly going to break the uptrend (and vice versa) line that trading becomes a little less consistent overall compared to what we see during the trend. For example, if you look at the dip that occurred at the end of January on the chart above, the reality is that after two days of pullback, the market was already ready heading back up, and the leadership stocks gave you great opportunities. That’s why you don’t want to get wrapped up in the short side prematurely.

Meanwhile, the last two weeks, we saw a lot less consistency on the long side and more trades than usual not work even with intraday market directional support. If you go back through the logs, in January and most of February (and even before that); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES we barely had any days where less than 50% of our trades that triggered with market support worked. And more than 70% of the trades that triggered were on the long side. In the last two weeks, we’ve seen a couple of days where less than 50% of the trades that triggered with market support (granted, in BOTH directions) have not worked. I think I counted 3 out of the last 10 days under 50% winners. That’s not what we’re used to, but it is a sign that the trend was weakening and that the market battle from both sides was leaning into neutral territory more, instead of a situation where the bulls were dominating.

Quite simply, trend changes are battles, and the easiest money in the market isn’t made when the two camps (if you will) are battling and the previous loser is starting to gain strength. The easy money is when one side is in charge as long as you stick to the rules and trade in their direction. Remember, when it comes to being a successful trader, “We’re Switzerland,” as they say. We’ll join either side that’s winning. Not my job to be either camps biggest fan or treat them like the home team. I am my own home team, as you need to be as well.

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Identifying New Ideas in a Weak Tape

Friday, March 4th, 2011

The rally off the September 1st follow through day in the market has been nothing short of relentless , and in recent weeks, the market has come under significant distribution (Institutional Selling) exacerbated by headlines of Middle East unrest. While the short and long term fate of the rally may still be unknown, when the market comes under pressure, it can be a great opportunity to search for stable fund flows and individual investment and trading ideas in the areas of the market that are holding up.

While many of the stocks in the tech sector have been under distribution and trading down toward their respective support levels, one of the exceptions in the tech sector has been Omnivision Technologies which is traded on the NASDAQ under the symbol (OVTI). They design digital image sensors for compact cameras used in Mobile phones, Notebook computers, Automotive, and Medical Markets. The company released quarterly EPS last week on 2/24 that beat expectations with a +320% surge is fiscal Q3 earnings vs. year ago numbers and topping analysts’ estimates by 44.8%. The stock produced a gap within its base the next morning which fulfilled the right side of a choppy Double Bottom like pattern with a Long Trigger of $31.37. A few sessions later it tested that area in a period of general market weakness before advancing to a new price high of $33.49 just 4 trading days after its breakout. It’s important to keep in mind that with any position you should always adhere to a strict maximum 7% stop loss from your purchase price.

Despite a current market environment where the uptrend is suffering from so much short term distribution, this is an example of one type of idea we look for at Tradesight.com. Sometimes it is better to wait out the cross currents that frequently tend to occur around potential trend changes. However, you should always have a watch list of potential buy candidates that is constantly being maintained like a well-kept garden because when opportunity knocks you must have a plan and you must trade your plan.

This is only a brief summary of some of the things we look at in our stocks and general market selection process. If you would like more information about our process and to learn how we may be able to enhance your investment results, visit us today and use the offer code below.

David Nesson

Analyst

Tradesight.com

This newsletter is a publication dedicated to the education of online stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell stocks of any kind. We are not licensed or registered in the securities or futures industries. The information presented herein and on the related web sites is presented “as is” without warranty of any kind either express or implied. The newsletter selections are not to be considered a recommendation to buy any stock but to aid the investor in making an informed decision based on technical analysis. It is possible at this or some subsequent date, the editors and staff of Tradesight.com, may own, buy or sell stocks presented. All investors should consult a qualified professional before trading any stock. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. Tradesight.com staff makes every effort to provide timely information to subscribers but cannot guarantee specific delivery times due to factors beyond our control.

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GBPUSD Target Update and US Dollar Index Analysis…

Friday, March 4th, 2011

Time to analyze the US Dollar Index, as we are getting to a “make or break” point here conceptually. While the chart certainly looks weak overall, it is important to recognize that from an energy perspective, it is sitting right on a static trendline (red line) of the last 9-bar move up, which could be support as these often serve as trade targets:

If that breaks, it isn’t far to the lows of the year, and if that breaks, look out. Meanwhile, let’s review what this means to our GBPUSD wave analysis conversation from last week, which you can read here. Here’s the updated daily chart:

The comment we made was that even though a breakout looked like it could be pending, the MoB line (blue and pink) target represents the likely goal of the move, and typically, you would expect to get it between the black lines at A and B.

Notice that because it took its time, the GBPUSD is now on a path to hit the MoB between the black lines, right on target. This suggests that, at least in the short term, the US Dollar Index will break lower.

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GBPUSD Breakout Projection Using MOB

Thursday, February 24th, 2011

MOB (Make or Break) Projection for GBPUSD Breakout

There is a lot of focus right now on the fact that the US Dollar Index looks extremely weak and is breaking some key technical indicator levels that threaten a potentially big downside move. One part of that equation is that weakness in the US Dollar would likely lead to a breakout of the cup and handle formation over 1.6299 on the GBPUSD, which is a multi-month and clean cup and handle formation, as seen here:

If we look at the chart with our 9-bar Seeker energy counting mechanism, we see a few key points. First, the beginning of the cup formation starts back at point A, which was a 9-bar move to the upside that topped the GBPUSD:

Second, on that same chart, the low is formed at B at the end of a 9-bar move down from the Seeker calculation. Third, the pair paused at C, another 9-bar top. So we have to say that the GBPUSD daily chart is very in tune with the 9-bar counting mechanism. What does that mean for now, where a cup and handle is set up at the end of that chart above at D, but we are 7 bars up on the daily? Is the breakout looming or should we pause after we get a 9 bar top signal?

Our analysis suggests that we could easily pause here ahead of that breakout and still meet the objectives of the breakout. If we draw a MOB (Make or Break) line in Elliott Wave theory from the last top, we get this line:

The most likely point of hitting the line is between the black vertical points, which means that we are still early. That means that we could get a 9-bar count, then pause for a bit to absorb that energy, and still breakout and hit that MOB line in the right place. Just something to focus on.

Take a trial of our services in your asset class here. Have a look at our Video Lesson of the Day on the home page here. Follow us on Twitter here.

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Trendlines, Earnings, the Fed, and Staying Away from Predictions

Saturday, January 22nd, 2011

The week ahead has some interesting features, so I wanted to discuss that but also through in the context of the current state of the stock market.

Our of the guiding principles of what we teach at Tradesight for the last decade has been that we try to keep people focused on shorter term market direction. It is definitely not a part of our strategy or focus to try to call highs and lows in the market. The market doesn’t care what you think. In fact, that market doesn’t care about you at all. It doesn’t matter how many people think that the market needs to top and head lower. It only matters when it does head lower.

One of the differences between a trader that squeaks out a 10-20% annual return and a trader that makes between 50-150% a year is that one of them spends too much time looking for shifts in the macro picture and the other does not. It’s that simple. Stocks continue higher long after most people think they can’t. Market turn most often when no one thinks that they will. Until a market has actually turned, you better be ready to push in the prevailing direction.

We keep people focused primarily on the short term (intraday) market direction because it means that we have the force of other money behind us when we take a trade in that direction. Intermediate direction and longer term direction don’t tell you what AAPL is going to do today, but they will tell you which direction AAPL is more likely to make bigger moves.

From that perspective, therefore, we still like to watch what the bigger picture of the market is telling us. The reality is that a good trader doesn’t look for tops or shorts at what he/she thinks is a top. Do you see why? To look for the second, you have to have a guess at the first, not facts that demonstrate that it is occurring. The reality is that the easy money on the short side of the market occurs after the downtrend is IN PLACE, not on the first days off of the highs. And, even to the extent that the turning point can look extreme looking back, it still is higher risk to try to trade because a lot of days will have looked like it and not turned into it.

So let’s consider some of the intermediate-term charts here on the daily of the indices just to be clear about what’s happening.

The old saying is “As goes the Banks and Biotechs, so goes the market.” If new science and general funding are strong, they lead the market higher. When they are out of favor, everything tends to suffer.

So consider the Banking sector, which hasn’t come close to breaking any uptrend line:

However, take a look at Biotechs:

It isn’t our job to have necessarily caught the decline of the last two days in the sector. But it will be more of our job to catch the bigger shorts as they occur later IF this trendline breaks, and if it does, that often leads the rest of the market.

You can also consider the S&P, which has held this uptrend for six months now and had an up day on Friday:

Nothing wrong there yet, although gold and oil and banks help hold up the S&P.

What about the NASDAQ 100?

Here’s the first real sign of trouble as it has already broken the trend. That’s an interesting tidbit because we saw that the Biotechs haven’t yet, and neither have the Semiconductors, which look like this:

So the tech sector is leading the way down even though those two key components haven’t broken yet.

Is oil in trouble? It isn’t always related to stocks, but there is a similar uptrend to watch:

One sector that is starting to tell me that something is wrong is the small cap arena, as pictured by the Russell 2000 index:

This is usually a good time of year for Small Cap money because pre-April 15 IRA funds often go to little stocks where they are perceived to have more “bank for the buck.” But clearly, that index has already broken.

With the NASDAQ and Russell 2000 through their uptrend lines and the Biotechs and SOX looking weak, we are getting actual signs of actual confirmation that a turn is occurring.

As this happens, I start to see less and less stocks appear in my long screens, but it typically takes a week or two before stocks start to appear in my short screens. The reason is that I screen for patterns where downtrends begin and then a support level is set and then after some basing, that support level threatens to break.

So this week is very interesting for a few reasons. First, we have a two-day Fed meeting, which usually means that things will be slow until Wednesday. Second, we have the three biggest days of earnings releases for the quarter on Tuesday through Thursday, which tends to make the market “gappy” and a little tougher on traders that aren’t used to the environment, but also can represent turning points in the market as corporate conference calls give guidance for the quarter ahead.

But third, we have these trendline breaks occurring, which usually leads to a little less in good daily chart patterns for a bit, although it certain doesn’t mean we’ll have trouble finding intraday calls if the market breaks.

I would be cautious this week and make sure that the rest of these indices break their intermediate term uptrends before committing completely to the downside.

By the way, why do I say “intermediate-term” and not “long-term”? Simple. Back the S&P 500 chart out to start at the low in early 2009 and draw the trendline:

That isn’t in danger or even close at this point. The 1200 level will be a factor there.

And finally, anyone remember this chart from almost two years ago of the S&P 500 monthly going back to 1970, when I said that the trendline need to hold or the economy would really come to a crashing halt?

Turns out, it did, in a big way. Long term trendlines are stronger and more important, and the reality is that from the longest term point of view, we’re still in a massive uptrend. Just consider that next time you whine about the economy or start trying to convince yourself that things should be heading down. The thing to absolutely recognize is that the flip to a downtrend is starting to occur just now, and whether that turns into a two-week, two-month, or two-year downtrend once it is confirmed is also not ours to guess at.

Have a good weekend.

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Day Five of Stocks/Futures Revised Course

Monday, January 3rd, 2011

This will be the fifth day of the newly-revised Stock and Futures course. It will be given on-line and will cover the Futures Levels and how to use Futures in your trading. Times are in EST. This is part of the $1497 course.

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Using The 24-hour VWAP Tool for Forex Trading

Thursday, December 16th, 2010

There are a variety of ways to use the 24-hour VWAP (Volume-Weighted Average Price) as we teach it. This is a unique tool to Tradesight in the FX arena (although commonly used in stocks and futures). The importance of the VWAP level as it moves throughout the session can never be overstated.

One of the ways to use the tool is to wait for the market to start to get a move and have it bounce once or twice off of the VWAP. Once that happens, you know that the market has addressed the VWAP for the evening and is using it. This happened last night fairly early on the GBPUSD. Keep in mind that these charts are MST time zone, so two hours earlier than EST.

As you can see here, the GBPUSD got two bounces precisely off of the purple VWAP line at point A, just as it was starting to curl up:

From this point forward, each TOUCH of the VWAP can be traded by then buying if the pair trades above the high of the 5-minute bar that touched the VWAP or shorting if the pair trades below the low of the 5-minute bar that touched the VWAP. So, here’s the next touch of the VWAP an hour later, and I’ve drawn black lines at the high and low of that bar:

In this case, it turns up, and the buy point is the black line, but you can see how it played out, running up about 30 pips and stalling at the Value Area Low level:

About an hour later, we roll back to the VWAP and get another “touch” bar, and I’ve marked off the high and low again:

The next move takes out the high of that bar:

And that leads to…another run up just over the highs of the prior push and another winner:

SIX HOURS later, the GBPUSD comes back down to the VWAP and touches it. This charts shows the “touch” bar and then the next bar, which triggers to the short side by moving under the black line:

This leads to about a 25-pip move downward to the LBreak level. Note that we get a 9-bar Seeker setup on that move down against the LBreak red line, which coils the spring for the move back up:

And that move back up looks like this:

Very technical action all night on the GBPUSD despite light ranges.

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Volume, Holiday Volume, and Volume Warnings…

Thursday, December 16th, 2010

Volume in the broad market is a very important measure of market interest. On days when you don’t have enough volume, a lot of stocks will have a difficult time behaving technically, and we need them to behave technically to trade them properly. Therefore, it is extremely important that we have a measurement to look at early in the trading session that gives us an idea of whether a lot of people are trading or if we’re alone.

Since we trade a lot more technology and NASDAQ stocks than listed stocks, I have always used the NASDAQ volume as a guide to my trading. I look at the 30-minute and the 60-minute mark of the session to see how volume is going. Over time, I have made minor adjustments to the numbers that I like to see, but currently I use 250 million after 30 minutes and 450 million after 60 minutes as my guides. Those are average numbers, meaning you can expect average activity in the markets if you hit that level or higher, and that is good enough for trading purposes. Anything significantly under those numbers is trouble, and your trade size should be lowered accordingly.

If you hit 250 and 450 at the 30- and 60-minute marks, respectively, the market is typically on-track for a 2 billion share day of NASDAQ trading, which is good, average volume over the last several years.

What are examples of days that tend to have less volume than usual? Summer Fridays. Days before key news. Holiday periods.

Because this information is so important, we post notices to the Stock feed of the Tradesight Messenger right at 10:00 am EST and 10:30 am EST to let our subscribers know how volume is tracking. In addition, these items are posted to our Twitter feed.

The last few weeks of the year are typically characterized by lighter-than-normal volume due to the variety of Holidays around the globe. The last week of the year, in particular, typically sees a 20% drop-off in volume and many traders take that week off. However, even earlier in December can see lighter volume, so it is important to pay attention and track this number. We are currently experiencing light volume, despite the fact that this is triple expiration week in December. Usually, volume drops off AFTER this Friday, but we saw only 1.7 billion NASDAQ shares the last two days, which is very light.

If the volume after 60 minutes is less than 400 million (which is not close to the 450 million average number that we like to see); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES we try to post a humorous title for the volume warning in the Messenger, just to give people a little something to chuckle about since the market isn’t that interesting.

Be sure to track volume and adjust your trading accordingly. The market doesn’t care about you, but you should care about the market if you want to be successful.

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What Lies Ahead for December…

Friday, December 10th, 2010

As we head into the end of the year and the Holiday season, I wanted to give an overview of what the last three weeks of the year will look like from a trading perspective. One of our main focuses as traders is to apply ourselves the hardest when there is volume and activity. Without those, the chances of trades working diminishes. December has a lot of components, especially in the last three weeks, so let’s talk about some of the broader points and then we’ll paint the picture.

1) Fourth quarter triple-expiration. Next Friday, December 17, is final expiration for the year for commodity, index futures, and options. Many people underestimate or don’t understand the impact of expirations in general, particularly options, but a triple-expiration (quarterly) is always a big deal. Being the end of the year, a lot of hedge fund money will be playing out their endgames leading up to expiration.

2) End of year tax considerations. The last possible trading day of the year, even if it is December 31 during the week, is a full trading day. This was originally done because the exchanges needed to make sure everyone had a full day to close their positions for the year. In today’s world, it is unnecessary (if Christmas Day is a Thursday, we get Thursday off and a half day Wednesday, but not the same for New Year’s). Still, regular rules apply. Stocks that are up a lot for the  year tend to keep rising into the end of the year because the sellers don’t want to lock in the tax gain until 2011.

3) Vacations. People tend to take them starting December 23rd. Some last through the 26th, some last through the end of the year.

This year, the last day of the month is Friday the 31st, so we have exactly three weeks left. Let’s go through how they will likely play out.

Week of December 13-17. Next week should really be more interesting than the last two. Hannukah is behind us, which often slows down volume for a bit. This will be the week of triple expiration. That means a lot of position unraveling will occur between Tuesday and Thursday, with one of those days (statistically, Wednesday) seeing the biggest range of the week because of it. We also have the last Fed rate announcement of the year on Tuesday (so Tuesday could be a little light, and everything gets packed into Wednesday and Thursday); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES plus CPI, PPI, Industrial Production, Capacity Utilization, Philly Fed, and Leading Indicators, just to name a few. I know that I will be paying a lot of attention on Wednesday and Thursday in particular. Friday will see a lot of volume, but probably not much movement, as options and everything expire near their strikes.

Week of December 20-24. This is where things start to slow down. All of the economic data for the week is coming out Wednesday and Thursday, but none of it are critical numbers. Monday will be a dud as it is the first day of a new options cycle. If there is a high point to the week, expect it to be Wednesday. People start to head out Thursday. Since Christmas Day is Saturday this year, we get the whole day off Friday (Christmas Eve). In a lot of ways, I would expect Wednesday, December 22, to be the last day of the year that retail traders make “position decisions.” Then they head out for the Holiday.

Week of December 27-31. The last day of the year typically sees a 20% drop in volume on average. A lot of professionals take it off. At best, you should expect to play “hit and run” in the first 60-90 minutes. Our analysts don’t always come back for the second half of the day. This is also where end of month, end of quarter, and end of year “window dressing” takes place. The funds already have their positions to show and their stocks in place where they want them. They don’t let them move much, and there isn’t enough retail activity to make that happen.

That should help you plan a trading road map for the rest of the year. Obviously, anything can happen, but that’s the most typical expectation.

By the way, since New Year’s is Saturday, January 1, and the stock market has to be open in full on December 31 (Friday); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES even though no one shows up, there is NO OFFICIAL stock market Holiday for New Year’s Day this year. The stock market is open on Monday. However, banks are not, so it will be a dud first trading day of 2011. And in a later Blog, we’ll discuss the “first three trading days of the year phenomenon.”

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Stock Calls Recap 12/07/10

Tuesday, December 7th, 2010

With each stock’s recap, we will include a (with market support) or (without market support) tag, designating whether the trade triggered with or without market directional support at the time. Anything in the first five minutes will be considered WITHOUT market support because market direction cannot be determined that early.

VECO gapped over the trigger, no play.

JDSU triggered long (without market support due to the first five minutes, also you don’t want to chase big gaps) and didn’t work:

ENTR triggered long (without market support due to the first five minutes, also you don’t want to chase big gaps) and worked some:

In the Messenger, RIMM triggered short (with market direction) and didn’t work:

Rich’s SLW triggered short (with market direction) and worked:

GOOG triggered short (with market direction) and worked for a couple of points:

NFLX triggered short (with market direction) and worked:

Overall, that’s four triggers with market support, and 3 out of the 4 worked.

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USDJPY Value Area Play Discussion

Thursday, December 2nd, 2010

Last night, I pointed out the Value Area on the USDJPY. Let’s be clear on one of the Value Area concepts. If you open below or above the Value Area in a session, then if you break into the Value Area, you typically move across. On our charts, the Value Area is represented by two light blue lines. The top one is the Value Area High (VAH) and the bottom one is the Value Area Low (VAL). Last night, the USDJPY opened above the VAH line. So a pure Value Area play would be to short under VAH and expect the market to head toward VAL.

However, there are additional support and resistance tools that you can use to improve your entries and chance of success. In the case of today’s action, we had the Pivot (dark blue line) just under the VAH. The Pivot is almost ALWAYS a key level that the market doesn’t just break through. So, instead of looking to short under VAH, we let the market break the Pivot, and it gives us a higher percentage chance. Let’s see what it looked like:

So the USDJPY bounced off of the Pivot, just inside the Value Area, and A and B perfect, then broke many hours later in the US session at C. That’s the short you want to take. It went 40 pips down to the dark blue S1 level, although it didn’t quite make it to the VAL, but close enough, and definitely enough to make some money. Meanwhile, note that the dashed red line represents our Average Daily Range expectation boundary, and that stopped it also.

Either way, a profitable trade that behaved very technically.

We look forward to seeing many of you at the first of our 5-day Stocks and Futures course this weekend, which has been redesigned from the ground up. A Limited Trial of our services is always available by clicking here. For the latest news and information and market education from Tradesight, follow us on Twitter.

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A Lesson in Options Unraveling

Friday, November 19th, 2010

Most traders are aware of the process known as “options expiration.” It occurs on the third Friday of the month. All puts and calls on stocks expire, and at the close, either you sell the contracts if they have value, or they expire worthless, or you end up long or short the stock for Monday. A LOT of money trades in options and it is a big factor in market movement.

What many people aren’t aware of is the process known as “options unraveling.” However, options expiration is usually a bust, meaning that the Friday of expiration is usually fairly flat from a trading perspective. On the other hand, options unraveling is typically fun to trade.

Over the years, I have refined the definition of options unraveling for our Tradesight subscribers. Basically, it is the process by which traders exit their options positions in the days AHEAD of options expiration before the get stuck close to their strike prices with the largest open interest. In other words, the big money is smart enough to get out of options before they expire and roll their funds to the next month’s contracts. And the dirty little secret is that they typically do this collectively.

The average trading day in the stock market looks pretty much the same. You have the most volume in the first 90 minutes and then sometimes you get a pick up in activity for the last 90 or 120 minutes of the day. Everything in between tends to be lighter volume and more risky, and movement is less likely. Professional daytraders trade the opening 90 and the closing 90 mostly. They want the volume and the action.

When the big options traders want to exit their options positions, it takes the better part of a day, and they typically do it AFTER the first 60-90 minutes of the day to get the daytrader volatility out of the way first. So, this is what you typically see for unraveling:

1) It happens most commonly on the Wednesday of options expiration week, but it can also happen on Thursday or even Tuesday.

2) Market volume will continue to be strong AFTER the first 60-90 minutes of the day as options are unwound.

3) The market will pick a direction after the first 60 minutes and move in that direction through the close, meaning the chance of coming back is light.

4) Once unraveling occurs, the energy has been taken out of the market until options expire on Friday.

So this week was options expiration, and we had a classic options unraveling experience. Here’s the 10 minute ES chart of the week:

Options Unraveling

So Monday was a decent trading day, with range and movement in both directions. Tuesday morning, we gapped down and the first hour (in the square) was flat. Note that after the first hour, volume held up (in fact, unlike other days in the week, the heaviest volume bar is not in the first hour) and the market headed lower, making a decent move down. We had several great shorts work for us. That is clearly an options unraveling move.

Then have a look at the rest of the week. The market moved up in the first hour Wednesday (when the daytraders play); INSERT INTO `wp_posts` (`ID`, `post_author`, `post_date`, `post_date_gmt`, `post_content`, `post_title`, `post_category`, `post_excerpt`, `post_status`, `comment_status`, `ping_status`, `post_password`, `post_name`, `to_ping`, `pinged`, `post_modified`, `post_modified_gmt`, `post_content_filtered`, `post_parent`, `guid`, `menu_order`, `post_type`, `post_mime_type`, `comment_count`) VALUES but look how flat the rest of the day was.

Then Thursday, we got a big gap up and moved higher in the opening hour. Then look how flat it went again!

With the big options players already out through expiration, there’s no energy left in the market. Overall volume was light Wednesday and Thursday.

And that takes us to today, Friday, options expiration. The volume is heavier because options are being converted and sold, but it doesn’t create movement. It’s a wash. And it will all be over after today. Stocks are glued to their strike prices with the biggest open interest, but the story of the market this week happened on Tuesday, and it virtually guaranteed that Wednesday and Thursday would be flat beyond the first hour.

It’s a very useful set of information for a trader to have, and the reality is that most have no idea that this occurs.

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The AUDUSD with Average Daily Range and the Seeker 9-bar Tool…

Thursday, November 11th, 2010

Even with the Veteran’s Day holiday, there were still opportunities for great setups leading to small winners in the Forex marketplace today. One such pair that saw a classic setup was the AUDUSD.

At Tradesight, we like to look for combinations of key technical tools creating a confluence of events that lead to high-probability play. We use the Average Daily Range tool to determine the extension point that is often a pause or reversal point for a pair. For example, the AUDUSD trades 134 pips per day, based on the average range of the last six months. That means that once the high to low of the day reaches 134 pips across, you often get a pause or reversal.

Another tool that we use is our Seeker tool, which seeks out 9-bar extension criteria using a special counting technique. Often, once a forex pair, futures contract, or stock reaches the ninth bar of the count, it is extended and needs a relief move in the other direction.

When you combine the Average Daily Range concept with the Seeker tool, if you can get them to line-up, it gives you a high-probability entry. So let’s look at the AUDUSD in 5-minute bars over the last 24 hours.

AUDUSD

AUDUSD

Notice the spike at A on news that set the high of the session. The dashed green line anchors to that high as the Average Daily Range high of the day. That then causes the dashed red line to draw 134 pips lower, which gives us a potential exhaustion point based on the range. If the AUDUSD can hit that line, it will often make some sort of move back the other direction.

It does eventually hit that line at B, which is also a 9-bar move down from the Seeker tool (note the green count below the candles). This also represents a shot at reversal.

Going long off of that level based on the combination of the ADR and the Seeker led to a move higher, as we would expect. In addition, with the Holiday, it is even less likely that the AUDUSD could have moved further than the ADR.

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Globex Boundaries in Index Futures Play

Wednesday, November 10th, 2010

Globex Boundaries in Index Futures Play …

One of the first things I do when preparing for Index Futures trade ahead of the regular session open, is draw in the evening sessions upper and lower price limits (the Globex high and low).  Then I look for where the pre-market price action ‘is’ and where ‘it’s been’ and see IF I can determine a trend bias.

In today’s pre-market evaluation the Globex price action was contained roughly by the Key Level Pivot (1213.92) and the Globex Low that had been challenged early in the session at (1208).

Soon after the bell the market bias turned recognizably lower, so the first order of play was to see if the ‘tested’ Globex Level would breakdown for a short.  It did giving us our first ES Index Futures Short play for the morning with a nice profit following Tradesight management guidelines.

It pays to plot the Globex boundaries and use them as any other Key Level especially when they work in combination with other Key Levels…

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Stock Special Weekend Report Topic Log

Sunday, December 26th, 2004

10/09/2010 – The Final Tradesight Special Weekend Stock Report and the Launch of Tradesight 4.0
10/02/2010 – End of Quarter Window-Dressing
09/25/2010 – Stops and Partials
09/18/2010 – The Current State of the Market
09/11/2010 – Rich’s Discussion of 9/11
09/04/2010 – No Report for Holiday Weekend
08/28/2010 – Ipads and More
08/21/2010 – How the Lightest Volume of the Week Translated into No Action
08/14/2010 – Checking Volume Measurements
08/07/2010 – A Value Area of the Last Week on the Markets
07/31/2010 – Updated Discussion of Usefulness of Futures and Data We Track
07/24/2010 – The Current State of the Market
07/17/2010 – Rich’s Discussion of the Flash Crash
07/10/2010 – Market Support Even on Gap and Go Days
07/03/2010 – No Report for Holiday Weekend
06/26/2010 – The Summer Volume Game Has Shifted
06/19/2010 – Intro to Futures
06/12/2010 – The Current State of the Market
06/05/2010 – Why Market Direction Matters (A Reminder)
05/29/2010 – No Report for Holiday Weekend
05/22/2010 – Money Supply (Part 2 of 2)
05/15/2010 – Unemployment Discussion (Part 1 of 2)
05/08/2010 – The VIX and the Strange Crash
05/01/2010 – GDP and Corporate Earnings: Post Earnings Season Analysis
04/25/2010 – Tradesight Tools New Sound Alerts
04/17/2010 – Recognizing Dullness
04/10/2010 – The Current State of the Market
04/03/2010 – No Report for Holiday Weekend
03/27/2010 – Post-Healthcare and the Market
03/20/2010 – Rich’s Trading with Clean Charts and a 10-period Exponential Moving Average
03/13/2010 – How We Count Winners and Losers in the Review Section of the Reports
03/06/2010 – Tradesight Comber in Action on a 1-Minute Chart for Trade Management
02/27/2010 – Comparing Three Trading Styles
02/20/2010 – Rich’s Dow 10k and The Bond Market
02/13/2010 – No Report for Holiday Weekend
02/06/2010 – Coming Back From Lunch – The Last Two Hours
01/30/2010 – The Current State of the Market
01/23/2010 – Technology Update (Trading Computers)
01/16/2010 – No Report for Holiday Weekend
01/09/2010 – How to Mentally Enter Your Trading Day and Make Adjustments
01/02/2010 – 2009 End of Year Report
12/26/2009 – No report for Holiday weekend
12/19/2009 – A Profitable Trading System
12/12/2009 – Outlook on Gold (The Bubble)
12/05/2009 – Rich’s Using the VIX and Advance/Decline Figures for Intraday Trading
11/28/2009 – No report for Holiday weekend
11/21/2009 – The Current State of the Market
11/14/2009 – End of Year Tax Run-ups
11/07/2009 – How to Handle Gaps on the Main Trade Calls
10/31/2009 – No report for Holiday weekend
10/24/2009 – Indicator Overdose
10/17/2009 – Trade Exit Rules
10/10/2009 – The Current State of the Market
10/03/2009 – Introducing the Tradesight Seeker and Comber
09/26/2009 – Rich’s Tradesight Comber Opening Discussion
09/19/2009 – Which Way Did They Buy Options Protection?
09/12/2009 – The Jobless Recovery
09/05/2009 – No Report for Holiday Weekend
08/29/2009 – The Current State of the Market
08/22/2009 – The MOB (A Terrific Indicator)
08/15/2009 – Rich’s Tradesight Seeker Opening Discussion
08/08/2009 – The Health Insurance Conversation and What It Means to the Market and the Economy
08/01/2009 – Some New Things at Tradesight
07/25/2009 – Market Guidance versus Stock Picking
07/18/2009 – The Current State of the Market
07/11/2009 – Review of Eight Days of Core Earnings
07/04/2009 – No Report for Holiday Weekend
06/27/2009 – Mid-Year All-Market Update
06/20/2009 – Outliers: Manager versus Stock Picker
06/13/2009 – Current Time of Day Beat of the Market
06/06/2009 – Rich’s Kondratieff Waves Report
05/30/2009 – New Page Layout for e-Signal
05/23/2009 – No Report for Holiday Weekend
05/16/2009 – Gap Fills
05/09/2009 – Workshop Session
05/02/2009 – The Current State of the Market
04/25/2009 – Futures Average Daily Range Tool
04/18/2009 – Rich’s Discussion of Gap Fill Thresholds
04/11/2009 – No Report for Holiday Weekend
04/04/2009 – Tradesight’s New E-Signal Tools
03/28/2009 – Technology Update
03/21/2009 – The Current State of the Market
03/14/2009 – Stock Settlement Versus Futures Settlement
03/07/2009 – Prioritizing Trade in This Market
02/28/2009 – The Three Parts of a Day
02/21/2009 – Current State of the Market
02/14/2009 – No Report for Holiday Weekend
02/07/2009 – Stimulus versus Spending: The Employment Factor
01/31/2009 – Rich’s Discussion of Rotational Rallies
01/24/2009 – What You Want an Up Market to Look Like
01/17/2009 – No Report for Holiday Weekend
01/10/2009 – 2009 Sector Update
01/03/2009 – 2008 Year in Review
12/27/2008 – No Report for Christmas Holiday
12/20/2008 – Rich’s 2008 Year in Review
12/13/2008 – The Current State of the Market
12/06/2008 – Ranking Chart Patterns
11/29/2008 – No Report for Thanksgiving Holiday
11/22/2008 – Tops and Bottoms
11/15/2008 – The Triple Bottom
11/08/2008 – Discussion of Two Trades: AAPL and BIIB
11/01/2008 – Election 2008 Report
10/25/2008 – The Early Entry
10/18/2008 – Market Bottoms
10/11/2008 – Rich’s Intermarket Analysis
10/04/2008 – The Current State of the Market
09/27/2008 – A Reminder of What We Do
09/20/2008 – The Federal Bailout
09/13/2008 – Margin Calls
09/06/2008 – Setting and Retaking a Trigger
08/30/2008 – No Report for Holiday Weekend
08/23/2008 – Preview of the Last Four Months of 2008
08/16/2008 – The Current State of the Markets
08/09/2008 – Rich Derrick’s “Tops Are Different Than Bottoms”
08/02/2008 – Firefox 3.0, Web 2.0
07/26/2008 – Chris’ Comments on Rich Derrick
07/19/2008 – Trading Technology
07/12/2008 – Afternoon Play and July Earnings
07/05/2008 – No Report for Holiday Weekend
06/28/2008 – What “Return to the Mean” Means
06/21/2008 – The Current State of the Markets
06/14/2008 – No Report for Holiday Weekend
06/07/2008 – More Market Directional Analysis
05/31/2008 – Update on Market Directional Tool
05/24/2008 – Trade Management: AMZN
05/17/2008 – Rich’s Calculating Measured Move Targets
05/10/2008 – A Perfect Chart Study: FFIV
05/03/2008 – Current State of the Markets
04/26/2008 – Tradesight Messenger 2.0 Release
04/19/2008 – Discussion on Earnings Releases
04/12/2008 – The Important of Volume
04/05/2008 – Q2 and Tax Season
03/29/2008 – Value Areas
03/22/2008 – No Report for Holiday Weekend
03/15/2008 – Update on the Market Directional Tool
03/08/2008 – Two Key Fibs in One Conversation
03/01/2008 – Rich’s Introduction to His New Market Reports
02/23/2008 – What Counts in the Trade Summaries
02/16/2008 – President’s Day Weekend (no report)
02/09/2008 – A Refresher on Market Direction
02/02/2008 – Tradesight 4.0 – New Changes to the Site and Reports
01/26/2008 – Current State of the Markets
01/19/2008 – Martin Luther King Weekend (no report)
01/12/2008 – Trade Execution
01/05/2008 – The First Three Days of a Year
12/29/2007 – 2007 End of Year Recap
12/22/2007 – Christmas Weekend (no report)
12/15/2007 – End of Year “Run-Up” Analysis
12/08/2007 – Current State of the Markets
12/01/2007 – Calling It From the Tape
11/24/2007 – Thanksgiving Weekend (no report)
11/17/2007 – Rich’s Pressure Signal Differential Indicator
11/10/2007 – Interest Rates, Oil, and the Fed’s Tough Spot
11/03/2007 – Current State of the Markets
10/27/2007 – The Factors in Buying Strength and Shorting Weakness
10/20/2007 – Volume and Holding Over During Earnings
10/13/2007 – Stops: The Basics
10/06/2007 – Construction
09/29/2007 – Fourth Quarter Discussion and Current State of the Markets
09/22/2007 – Triple Versus Single Expiration
09/15/2007 – Rich’s Discussion on The Repeal of the Uptick Rule
09/08/2007 – Mentality of New Traders
09/01/2007 – Labor Day (no report)
08/25/2007 – Current State of the Market: Into September and October
08/18/2007 – The VIX and the Market’s Future
08/11/2007 – The Global Credit Crunch
08/04/2007 – 3-Day Margin Calls
07/28/2007 – Current State of the Markets
07/21/2007 – NDX Floating Island
07/14/2007 – Tradesight Services Overview
07/07/2007 – Fourth of July Holiday
06/30/2007 – Rich’s Mid-Year Review: Things to Do More and Less Of
06/23/2007 – A Few Things You Might Not Know About Tradesight
06/16/2007 – Clean Charts to Skip
06/09/2007 – Volume Without Movement
06/02/2007 – Summer Doldrums
05/26/2007 – Memorial Day Weekend
05/19/2007 – Current State of the Markets
05/12/2007 – A Good Example of Automated Volume
05/05/2007 – NYSE vs. NASDAQ
04/28/2007 – Rich’s How to Stay in a Position
04/21/2007 – Risking Your PnL
04/14/2007 – Technology Update
04/07/2007 – Easter Weekend (No Topic)
03/31/2007 – The End of a Quarter
03/24/2007 – Factors in Determining What is Bold in the List
03/17/2007 – Current Look at the Market Heading into Tax Day (One Month Out)
03/10/2007 – Is Shorting More Risky (A Personal Story)
03/03/2007 – The Wake-Up Call
02/24/2007 – A Look Back at AAPL and the End of Year Tax Run-Up
02/17/2007 – President’s Day Holiday (No Topic)
02/10/2007 – Get Involved When the Trading is Good
02/03/2007 – Fed Funds and Tradesight Fed Funds Calculator
01/27/2007 – The Current State of the Market
01/20/2007 – The Windows Vista Factor
01/14/2007 – Different Types of “Range” Breakouts
01/06/2007 – Leveraged Instruments
12/30/2006 – End of Year Summary of All Markets
12/23/2006 – Discussion of Trading in the Last Week of the Year
12/16/2006 – Rich’s CPS Discussion (Continuation Pressure Signal)
12/09/2006 – What It Takes to Begin Trading
12/02/2006 – The Mental Bliss of Never Being Buried
11/25/2006 – Thanksgiving Holiday
11/18/2006 – The End of Year Tax Avoidance Run
11/11/2006 – A Trading Day
11/04/2006 – The Election and Ramifications
10/28/2006 – Rich Derrick’s Report on Daily Market Preparation
10/21/2006 – Triple Volume
10/14/2006 – Inflation and This Week’s FOMC Minutes
10/07/2006 – Size Parameters
09/30/2006 – Examining a Trade – YHOO
09/23/2006 – How a Win/Loss Ratio Factors into Your Returns
09/16/2006 – Current State of the Market and “Looking Back” on a Bottom
09/09/2006 – Volume is on the Other Side of the Trigger (example)
09/02/2006 – Rich Derrick’s Labor Day Top Ten Tips for Becoming a Successful Trader
08/26/2006 – The Fruit Stock (AAPL)
08/19/2006 – Sixteen Years
08/12/2006 – Current State of the Market and Overall Thoughts
08/05/2006 – Patience
07/29/2006 – August
07/22/2006 – Subscriber Q&A
07/15/2006 – When to Make Money in Which Direction
07/08/2006 – Rich’s QQQQ Position Challenge
07/01/2006 – Vacation
06/24/2006 – Tips on Trading A Light Volume Market
06/17/2006 – Rich’s Pattern Recognition – The 7/11 Candle
06/10/2006 – Priorities
06/03/2006 – High Beta Stocks
05/27/2006 – Rich’s VIX and What It Means To Your Personal Trading Plan conversation
05/20/2006 – Trading with Indicators
05/13/2006 – Current State of the Market: Bubbles and How Crashes Start
05/06/2006 – Viewing Gaps
04/29/2006 – Trading All Markets
04/22/2006 – How to Use Scalp Ideas
04/15/2006 – What Do You Think I Can Make?
04/08/2006 – Current Market Outlook
04/01/2006 – Rich’s Trading Reversals Discussion
03/25/2006 – The No-Danger Trades
03/18/2006 – Mapping Out a Quarter
03/11/2006 – Treating Longs and Shorts Equally
03/04/2006 – Targeting Money Goals Daily
02/25/2006 – The Back Side of the Wedge – Current Market View
02/18/2006 – Self-Contests
02/11/2006 – Viewing Risk/Reward in Terms of Odds of Success
02/04/2006 – Rich’s Beta and Volatility lesson
01/28/2006 – Current market setup
01/21/2006 – Lock in the Gain or Play the Rules?
01/14/2006 – Volume, Volume, Volume
01/07/2006 – Saving Money on Triggers by Watching the 5-minute Bars

All Reports Prior to January 1, 2006, can be found by clicking on the Stock link under Report Archive (Pre-2006) in the Navigation Menu on the left of your Tradesight screen and then going back to these dates:

12/31/2005 – Year In Review…2005
12/24/2005 – Rich’s Wave Analysis Intro, Part 2
12/17/2005 – The Learning Curve: Identifying Your Trading Style and Making It Work – Part 2
12/10/2005 – The Learning Curve: Identifying Your Trading Style and Making It Work – Part 1
12/03/2005 – The Current State of the Market
11/26/2005 – Rich’s Wave Analysis Intro, Part 1
11/19/2005 – Limit buyers/sellers versus active buyers/sellers versus hidden buyers/sellers
11/12/2005 – Why You Shouldn’t Use Hard Stops Unless You Have To
11/05/2005 – QQQQ Strangle concept
10/29/2005 – When to Take Early Entries
10/22/2005 – Rich’s ADX discussion
10/15/2005 – Why Volume is So Important in Trading
10/08/2005 – Taking a Little extra size to improve your trading
10/01/2005 – Optimizing Tradesight
09/24/2005 – Partial entries and Overcoming the “shorting” hurdle
09/17/2005 – The Current State of the Market
09/10/2005 – Trading for a Living
09/03/2005 – Rich’s Discussion on Setting and Testing Levels
08/27/2005 – What Makes the TSR Go to 5 or -5
08/20/2005 – Relying on the Chart
08/13/2005 – Risk versus Reward
08/06/2005 – Current State of the Market
07/30/2005 – Building Positions on Active Stocks
07/23/2005 – Preparing for the Trading Day
07/16/2005 – Rich’s Time Frames Discussion
07/09/2005 – Current Outlook on the Market
07/02/2005 – The Intent to Swing and Size Part 2
06/25/2005 – Swing Trading
06/18/2005 – Oil, Interest Rates, and the Market
06/11/2005 – Rich’s Reciprocal Range Play Examples
06/04/2005 – Subscriber Q&A
05/28/2005 – No report, working on lengthy subscriber Q&A
05/21/2005 – The Meaning of Options Expiration
05/14/2005 – The “Noise” Zone
05/07/2005 – Size and Percentages
04/30/2005 – Rich’s Four-Bar Termination Candles
04/23/2005 – Chart Pattern Discussion Part 2
04/16/2005 – Chart Pattern Discussion Part 1
04/09/2005 – Building a trade log
04/02/2005 – Current Market Overview
03/26/2005 – Panic Selling and the Big Picture
03/19/2005 – Rich’s Absolute Fibs
03/12/2005 – MB Trading order entry modules in E-Signal
03/05/2005 – Chris’ Screen Layout
02/26/2005 – Mark’s Value Area Description
02/19/2005 – Trade Management
02/12/2005 – Rich’s “Market Internals”
02/05/2005 – The Coming 24-Hour Marketplace
01/29/2005 – How much do specialists and market makers mess with your orders?
01/22/2005 – Trends, Confirmation, and Your Trading
01/15/2005 – Rich’s Nine-Bar Runs
01/08/2005 – What you should and shouldn’t do without market support

Prior to the Beginning of 2005, the weekend reports are in the Recap Archive after the Friday closing report

12/31/2004 – 2005 recap
12/24/2004 – No report for Holiday, preparing for end of year report
12/17/2004 – Charting and the pivot series
12/10/2004 – Rich’s VWAP discussion
12/03/2004 – The Tradesight Eyeball and a discussion of the three questions used at Tradesight to determine market direction for trading
11/24/2004 – Top Ten Things Unsuccessful Traders Say…Link to this Weekend Report Log for easy reference (posted Wednesday due to Holiday)
11/19/2004 – Current market environment and Fed comments about interest rates, inflation, and the trade deficit
11/12/2004 – Subscriber Q&A, about 25 questions
11/05/2004 – Rich’s description of different trade types, including time of day analysis for counter-trend trade calls
10/29/2004 – Advance comment on Election 2004 and its impact on the market
10/22/2004 – Report skipped in preparation for the lengthy Election report the following weekend
10/15/2004 – Why trading during the 8 days of core earnings is harder than any other time of the quarter
10/08/2004 – Rich’s report on market price gaps, gap fill thresholds, and market on close orders and their usefulness
10/01/2004 – Mozilla Firefox as an alternative to Internet Explorer
09/24/2004 – Combining trade management with the use of the Tradesight Messenger
09/17/2004 – Out of town, no report
09/10/2004 – Purpose of Tradesight: What it does and what it doesn’t do and how to learn the top-down approach to the markets
09/03/2004 – Short selling and covering part 2 – Naked shorting
08/27/2004 – Short selling and covering part 1 – What it is and how it affects chart action
08/20/2004 – August doldrums…why market volume matters for breakouts and breakdowns
08/13/2004 – Why do markets often rally into Presidential elections?
08/06/2004 – How rallies suck people into “buying dips”
07/30/2004 – Month-end window dressing
07/23/2004 – Current market outlook and commentary
07/16/2004 – All trades are not created equal…combining market action and chart patterns to adjust trade size and stop levels
07/09/2004 – No report…FOREX report launches
07/02/2004 – How to overcome the fear of increasing trade size
06/25/2004 – Analyzing market volume
06/18/2004 – A good example of how market volume affects trading intraday
06/11/2004 – Patterns that seem to work with a high degree of success don’t always translate into winning trading strategies
06/04/2004 – Why sloping trendlines don’t always help pick winning trades
05/28/2004 – Different types of trading that people do with the Tradesight reports
05/21/2004 – Tradesight introduction to FOREX
05/14/2004 – Why is volume getting lighter?
05/07/2004 – Oil prices and my Toyota Prius
04/30/2004 – Current market outlook and commentary
04/22/2004 – Why the market rally with the Fed announcement? (Report posted on a Thursday because of holiday)
04/16/2004 – How do you trade something like TASR?
04/07/2004 – How does Tax Day affect the market (Report posted on a Wednesday because of holiday)
04/02/2004 – Follow-up Q&A from subscribers…5 extra questions
03/26/2004 – Subscriber Q&A including retriggers, the three questions to determine market direction, and “clean” trading days
03/19/2004 – No report…prepping for the Q&A next weekend
03/12/2004 – Playing the short side after a period of long side play
03/05/2004 – Troubles with the unemployment number
02/27/2004 – Gap fills
02/20/2004 – A discussion on part of the mental aspect of becoming a trader
02/13/2004 – Brief discussion about options (Part 2)
02/06/2004 – Brief discussion about options (Part 1)
01/30/2004 – Share size versus account size…a conversation
01/23/2004 – Current look at some of the “bigger name” stocks in the market…the Generals
01/16/2004 – How long do you follow a pattern that never triggers?
01/09/2004 – Size needed to make a living trading
12/31/2003 – End of year report combining two weekend reports into one
12/19/2003 – End of year economic discussion…deficits
12/12/2003 – Year end tax-selling
12/05/2003 – Current market outlook and commentary
11/28/2003 – Why I created Tradesight
11/21/2003 – Chart discussion for breakout plays
11/14/2003 – Analysis of recent economic numbers
11/07/2003 – Swing trading breakouts
10/31/2003 – Top-notch chart patterns

Before this point, the weekend reports were attached to the beginning of the Monday Today’s Picks

10/27/2003 – How to analyze your results
10/20/2003 – How “late” you can take an entry
10/13/2003 – How “early” you can take an entry (cheating)
10/06/2003 – Why we started offering “first targets” instead of just “swing targets” in a changing market
09/29/2003 – Why you want to pay taxes as a trader
09/22/2003 – Is this another market bubble?
09/15/2003 – Charting (Part 2)
09/08/2003 – Charting (Part 1)
09/01/2003 – What is the Tradesight Swing Rating (TSR)?
08/25/2003 – Real estate
08/18/2003 – No report (out of town for seminar)
08/11/2003 – Average volume requirements for trading
08/04/2003 – Current market outlook and commentary
07/28/2003 – Trade size on small caps
07/21/2003 – Pure discussion about the three questions for determining market direction
07/14/2003 – Current market outlook and commentary for Q2 2003 earnings
07/07/2003 – 2003 Mid Year Update and Analysis
06/30/2003 – Economic data analysis
06/23/2003 – Subscriber Q&A session
06/16/2003 – Top FIve Things Successful Traders Never Think
06/09/2003 – Learning to trade yourself
06/02/2003 – VIX (Old VIX)
05/26/2003 – The psychology of selling winners early and holding losers too long
05/19/2003 – Current market outlook and commentary
05/12/2003 – The “retail rush” at the open
05/05/2003 – A few trading notes, including the importance of partial profits
04/28/2003 – A critical “area” of the market
04/21/2003 – Options trading for “less risk” than stocks
04/14/2003 – New traders and trade size
04/07/2003 – Comments about general use of the site for new subscribers
03/31/2003 – Current market outlook and commentary
03/24/2003 – Monday Morning Quarterbacking in the market
03/17/2003 – No report (out of town for a seminar)
03/10/2003 – Being a market maker
03/03/2003 – Purpose of Tradesight
02/24/2003 – Taking losses to make you a better trader
02/18/2003 – Macroeconomic influences on the market (on a Tuesday because of the Holiday)
02/10/2003 – The pre-war market…volume troubles
02/03/2003 – My trading system, circa early 2003
01/27/2003 – Answers to questions about the “trading learning curve” and “option size allocations”
01/21/2003 – Top-down approach to trading the market (on a Tuesday because of the Holiday)
01/13/2003 – Trading the small cap stocks
01/06/2003 – Discussion of the “fiscal stimulus package” proposed to Congress

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