Tradesight Market Outlook for 12/1/10

Tuesday was a typical month end mess. Gap down, then recover and the ultimately lots of white noise and nothing much to show for it. The market is bending but not yet breaking. The daily candle was both a downside CPS and also a camouflage buy signal which means that neither side has full control. The 50dma remains the key nearby technical level. Note the key neckline (aqua) that has been added to the chart.

Naz was much weaker than the broad market losing 28 on the day. Key support remains at the static trend line and 50dma.

Multi sector daily chart:

The XAU was the only sector green on the day, up 1%:

The XBD broker-dealer index is 9 days down and finding support at the 200dma. Look to this sector for upside continuation opportunities if the market starts higher again.

The OSX continues with the handle like price action.

The BKX remains in the recent range, nothing new until this area is exited.

The BTK is leaking and close to the low of the recent range.

The SOX is finding support at the 10ema. The April highs remain the level to take.

Gold was higher on the day by about $20 which is the high of the left shoulder.

Oil diverged from the OSX and was much lower on the day. Keep in mind that at this stage in the cycle, the underlying stocks should lead crude futures not the other way around.


Tradesight Market Outlook for 11/30/10

First touch—Monday was the first interaction with the 50dma (red) since the first trading day in September. This will be an important area of interest for days to come. The 50 should provide support when it’s first tested and would be a strong confirmation of a change in trend if lost. There are a couple of ways to look at the recent trading action. The bull case is that price is consolidating in the area of the prior high (April) possibly making a handle to breakout. The bear case is that the “look see” above the April high was a failure and the price pattern is making a head and shoulders supported by the MACD sell condition. Time will tell but for now the 50dma is the big man on campus.

Naz closed the gap from last week and was unchanged on the day. Note that there is still one open gap open just under the 2100 level.

The NYSE cumulative A/D line took a pretty good whack last week. The current area of interest is the breakout level at about 1525. This is key support and the loss of 1525 would indicate a failure.

The 10-day Trin remains oversold at 1.36 which implies that the market has available energy for upside movement.

Multi sector daily chart:

The OSX was the top sector on the day. The pattern still has cup and handle potential so set an alarm for a break over 230.

The BKX was stronger than the market, finding support near the old lows. Price has been boxed up for about 4 days so a breakout of the pattern could be strong.

The SOX was slightly higher on the day gearing up to challenge the old high. Note the maturity of the current SEEKER countdown at day 10.

Oil was very strong and will surely breakout if the OSX makes new highs:

Gold continues to hover perhaps tracing out a head and shoulders. The first clue will be the loss of the 50dma.


Forex Recap for 11/29/10

EURUSD made a bigger move than the GBPUSD, but we still had a winner with nice use of the Levels and more. See GBPUSD below. Very technical use of the Levels in general.
New Levels will be out after 5 pm EST.
EURUSD with Levels, exceeded average daily range (dashed lines represent average daily range or ADR):

GBPUSD:
Very nice the way that it came up and hit the long trigger (which was over the Pivot) exactly at A without breaking through, then triggered short at B, never stopped quite at C (note the use of VWAP, but stop was over 1.5599); 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 hit first target finally at D, and still holding with stop over LBreak:

USDCAD, classic Value Area move from one light blue line to the next:


Stock Recap 11/23/10

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.
PDCO triggered long (with market support) and went enough for a partial on a spike, but that was it:

REGN triggered long (without market support) and worked great:

OPEN triggered long (without market support) and didn't work the first time, worked great later:

In the Messenger, NFLX triggered long (with market support) and worked:

BIIB triggered short (with market support) and worked:

AMZN triggered short (with market support) and worked:

Rich's AAPL triggered short (with market support) and worked enough for an easy partial:

In total, five for five with market support.


Tradesight Market Outlook 11/24/10

The SP lost 20 handles on the day, mostly from the news driven gap. The previous fair value area of 1198 has left an island pattern and trapped the buyers from that level. Key support remains at 1170(50dma).

Naz was lower by 35, closing right at the 3 day low. Naz has a stronger pattern than the SP because it doesn’t have the island condition. The common piece in the construction is the large gap open below.

Multi sector daily chart shows the persistent weakness in the banks:

The Dow/Gold ratio is getting back near range low on the chart which illustrates the preference of gold over large cap stocks. A break to new lows in the ratio would be very bearish for stocks. In a secular bear market the ratio usually gives readings well below 5.

The 10-day Trin has recorded an oversold reading exceeding 1.35. The broad market is now oversold enough to support a multi day advance if it so chooses.

The SOX was the strongest sector but merely posted and inside day. Nothing new technically but there was notable relative strength on a weak day.

The XAU was also relatively strong vs. the broad market, posting an inside day.

The BKX recorded its 9th day down. Downside before some order of bounce or consolidation is not likely.

The OSX was the weakest sector losing a full 2%. A cup and handle is still in play unless 215 is lost.

Oil continues to have key support at 80.

Gold was the strongest asset class bucking the dollar strength.


COT 11-19-10

Hi Traders,
What an awesome weekend here in Tampa Bay. I mean, the weather couldn't be any better! 80-degrees, sunny, low humidity... geez, it's no wonder this place will be packed with out-of-state license plates next week and what normally is a 20-minute drive will take 40.  Oh well. I'm not complaining. Bring it on!
Okay... the COT.
The euro and pound have come off of their extremes between the commercials and specs. And, you might have noticed both EUR-USD and GBP-USD moving south. This is because the specs are selling and commercial are buying; based on past discussions, this shouldn't have been a surprise. We're seeing the same thing with the yen, silver and gold.
The looney (Canadian dollar) and Aussie dollar are off of their extremes after beating the tar out of USD. While NZD is still at extremes, which presages a turn-around. Interestingly, the US Dollar index is sort of in a knot; but, the dollar is gaining some strength which is clearly seen in EUR-USD. Is a dollar rally coming? Maybe. Based on the current price action, it appears this is the case. We need to hold on and pay close attention, especially swing and position traders. Intra-day, there have been and I believe there will continue to be good trade setups, regardless of whether a longer-term rally materializes, or not.
View this week's COT charts here.
Be very well!
Clay


Tradesight Market Outlook for 11/22/10

The SP recouped some very large midday losses to settle for the third day at almost the same level. 1198 has been the recent draw and will be a very important level when the range is resolved. If price moves higher this will be an important support area and if price declines 1198 will be formidable resistance. Note that the MACD is negative but has not touched the zero line which could be important unfinished business.

Naz was bifurcated from the broad market. Monday the Naz gained 21, which was a 5 day high, while the SP could only mange to close even. Price remains above the April highs and could easily challenge the YTD high. The notable flaw with the current construction is the open gap around 2100.

Energy names dominate the daily relative performance chart while the financials continue to lag:

The 10-day Trin has yet to record an oversold reading of 1.35+ but has recharged and worked off the September overbought reading.

The XAU was top gun +1%. The trend remains positive above all 3 moving averages. Note that all 3 of the moving averages are pointing higher.

The SOX was the top Naz sector and is very close to recording a new high close on the move. The pattern is 3 days up into prior resistance so a measuring day Tuesday could be in the cards.

The OSX would provide excellent leadership if it can break through the current double top. As noted in previous reports, the chart may want to take some time and trace out some kind of handle here.

The financials were the laggards today. The BKX lost 1.5% settling near the low of the quarter. The pattern is 8 days down and should want to either pause or bounce.

Is gold making a head and shoulders top?

Oil was lower, settling in the previous comfort zone.


Forex Calls Recap for 11/22/10

The streak continues, and November is now officially a great trading month for us. Two new winners, very clean, to start the short week. See GBPUSD below in particular. Most pairs exceeded average daily range, which is good.
Here's EURUSD:

USDJPY:

GBPUSD:
Triggered long nicely at A, hit first target at B, stopped second half under Pivot at C unless you were awake to adjust (I wasn't). Triggered short at D, hit first target at E, still holding second half with a stop over LBreak red line:

AUDUSD:
Check out the clean Value Area play (from top light blue line to lower one):

GBPJPY:
Value Area worked here as well:

EURJPY:
And another Value Area that worked:


Stock Recap 11/19/10

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.
ESRX triggered long (with market support) and worked fine:

MXIM triggered long (with market support) and worked:

OVTI triggered long (with market support) and worked:

In the Messenger, Rich's BIDU triggered short (with market support) and didn't really work:

His FCX, however, triggered long (with market support) and worked great:

GOOG triggered short (without market support) and worked:

Rich's CRM triggered long (with market support) and worked:

His NTAP triggered late in the day without market support and only went a dime, so it's a wash, no harm, no good.
In total, that's six triggers with market support, and five worked. Several worked really nice. Very good for options expiration.


A Lesson in Options Unraveling

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.