What's working?

There is endless talk about how tough trading this market has been.  As a technical swing trader, I couldn't disagree more.  The opportunity has been immense in commodities, the indices and even individual stocks.  Alas, there are a ton of trading styles and it's worth keeping an eye on what's working and what's not.  

This is a tough market for:

Investors  the pockets of strength have deteriorated throughout the year.

Breakout traders  ideas are much harder to come by this year and the odds are much worse than last year.  That said, the breakouts that are sticking are winning BIG.  

Optimists  Most structural positives including top growth trends like healthcare and mobile computing had been priced very optimistically coming into 2015.  Again, windows of opportunity have shrunk.

It's always a tough market for:

Trend faders  If you've faded the downtrend in commodities, odds are great that you lost a lot of money in 2015.  

This is a good market for:

Hit and run day (futures) and swing traders.  Buy support, sell resistance, rinse and repeat.

Trend traders  Conversely to the trend faders, those riding the downtrends in commodities have made a windfall of profits.  


Odds are strong that 'what works' changes substantially at some point in 2016.  Keep an eye out.


Trade 'em well

The Ultimate Edge

Where do we find an edge in the markets.  As traders, we're all searching for that answer.   More importantly, how do you find a continuous edge in the markets.  After all, edges are always coming and going, right?

Wrong.  You're edge comes from persistence.  Staying on top of the markets in a controlled manner shows us where the edges are emerging and fading alike.  

Persist how you ask?

Always run your setup scans - also scan for top movers and unusual volume

Why top movers?  Objects in motion tend to stay in motion.  Follow on moves are common.

Why Unusual activity?  They help you see all the stocks with big news and sometimes you find very meaningful accumulation in smaller stocks.  I use finviz for such simple scans.

It also pays to keep up with the news headlines.  It's a great way to build an informational edge in the special situations that constantly occur in the markets.  I use Seeking Alpha and Stocktwits to stay on top of things.

Make notes on charts for EVERY trade you take

Write down everything going through you're head.  Finally, do a trade review.  Save the charts for future reference.  Certain patterns appear and re-appear in the various market phases.  The quicker you figure it out, the bigger your edge. 

For example, in August-September, most of the price patterns we would see, wouldn't work.  It paid greatly to ignore the patterns and simply respect price levels.  That saved me from a handful of early exits and gave me an edge of pattern reliant traders.  

For printing charts, I subscribe to StockCharts

Keep a clean list of your favorite ideas 

Update it daily.  You might have some amazing idea that isn't quite to a trigger yet, but have a lesser idea that is ready to go.  What do you do?  That's never an easy question to answer, but being mindful of these ideas when deciding to implement capital is crucial.

I just use a spreadsheet

Track market conditions daily

What does the market backdrop favor in the next few days, what does it favor in the next few weeks?  Track your put call ratios, breadth oscillators, new highs/new lows etc.

Yes, this is an obvious tip.  However, in practice, it is very useful as we fight to stay mindful at all times.  The markets naturally wear us down to the point of where we feel like giving up or giving in.

Again, StockCharts is a tool I use for this.

The common theme:

Stay mindful at all times.  Do what you have to do to avoid feeling worn out by the markets.  When you do feel worn down by the markets, be sure to take advantage of your social tools and ask - are others feeling the same thing?  If the answer is yes, get your ass back on the grind.  That's when opportunity is the greatest.


I'll leave you with my favorite quote on persistance via Calvin Coolidge:

"Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent."

Trade 'em well

Gio's Market Rundown

We all know what happened this week – “HISTORIC DAY” they called it on CNBC. This poster sums it up via @Stocktwits

Last week (Dec 14-18), I focused on FEAR and how to measure it. Bottles popped and the “Santa Rally” cries were deafening as the $NDX reversed +4.7% from Monday’s low to Thursday’s open.  Sellers took total control at that point

The end result? Price took a 360 turn and all major indexes closed the week printing inverted candles below major weekly moving averages.

$NDX finisihed the week -0.92% and closed under the 10wma (4605) for a 2nd consecutive week, losing upward trend. More worrrisome, the $NDX ( as well as the $SPX) has printed 3 consecutive lower weekly closes. Support now @ 4470

$SPX closed the week under the 10/20/30/40 wmas. As stated last week, the rejection of the 10/40 bullish cross @ 2060 is a major concern and confirms the trend points LOWER at the moment.  

Taking another step back, the $SPX monthly chart has lost its 10 & 20 averages (2042 & 2020). It is extremely important to note two things in this chart:

1. Losing the 10/20 monthly avgs was only the beginning of the market crashes in 2000 and 2008.
2. The exception was the 2011 drawdown, in which price “played” with the middle Bolli for 5 months before resolving higher. 2015 is now in month #5

In summary, my POINTS OF CONCERN:

1. $SPX rejection of bullish 10/40 cross @ 2060. Remember this number as it may prove to be major resistance
2. $NDX lost rising trend by closing under 10wma (4605)
3. Given price reversal, the path of least resistance is lower. weekly Bollis retest = $NDX -8.8% / $SPX -4.8%
4. Per price action, reaction to Fed announcement was a textbook bull trap. Euphoria right into and right after event to get the dumb money excited … just for the smart money to sell the news a day later
5. $SPX monthly chart continues to deteriorate, displaying signs common of major market drawdowns

OK so charts took a major hit this week. But this post can’t be all negative. Below are some POSSIBLE POSITIVES to be discussed individually in detail below

1. Daily $NDX (and $SPX) chart closed the week at lower Bolli, could be a nice spot for a short term bounce
2. Seasonality favors upward trend starting Dec 15 into end of year
3. $WTIC (Crude Oil) is 1pt away from its largest decline ever of -68% – cheap gas!
4. As/If the $NAA50R approaches 20% (Nasdaq  % of Stocks Above 50dma), we will have an excellent market entry
5. Yellen and Shkreli Memes!

#1) $NDX Friday candle closed outside the daily bolli. Unless Monday brings absolute panic ala August, we could bounce here. For now, I don’t think a repeat of August happens here given Friday’s options expiration and seaosnality. Watch out for a possible bounce and follow through on Monday

#2) $SPX average return in Dec. (1990-2014) bottoms on 12/15 and a rallies into tear-end. (Data source: Yahoo Finance)

#3) Charlie Bilello (@MktOutperform) reminds us the largest $WTIC decline EVER was -68% (2009) while current decline is at -67%. I indeed think we make a new record in the low 70s. However, I expect a mean reversion afterwards which could provide a major headwind to $SPX $NDX price action in early 2016

#4) Gotta be patient with $NAA50R – wait for 20% and below to start thinking about loading the boat

FINAL THOUGHT

Allow me to be crystal clear – As long as the $NDX and $SPX trade under their 10 & 40 weekly moving averages, I am inclined to think a new bear market is starting. Until then, any bounces are treated as short term trading opportunities. The positives above will all need to confirm before going long again with a short timeframe in mind. I DO NOT recommend immidiately shorting the market due to possible support at lower bollinger bands on indexes. Best move right to start new positions:

New Longs  – wait for indexes to close over 5ema ($NDX = 4580 / $SPX = 2033)

New Shorts – Good shot at another rejection from $SPX 2060 and $NDX 4600. Both could be major resistance

As always, thank you for reading. Trade ‘em well – Gio

And now, the best Yellen memes found on @Stocktwits this week!

Opportunity in Master Limited Partnerships

I'm looking into the MLPs this week.  Why?

Simply put, this is a time where the actual valuation of the businesses is superseded by fear and other considerations.

We've just seen a major panic in energy stocks and in particular Kinder Morgan.  It's no longer an MLP, but it's still the largest psychological anchor of the group.  Also, we're in the middle of tax loss selling season.   

It's worth looking for some bounce trades in MLP stocks as they test panic lows areas.   

Wall St. Jesus noted some large put selling in AMLP earlier this week:

$AMLP 5X NORMAL VOLUME TODAY, LED BY HUGE JAN PUT SELLING

— JE$US (@WallStJesus) December 15, 2015

Here's a list of AMLP's holdings

Here's a look at the daily charts via FinViz

Like at most bottoms, there isn't much to be excited about technically.  Frankly, the ETF AMLP might just be the best play for traders.

Disclosure:  I have a long position in KMI at the time of posting.

Trade 'em well!

The Carrion Weekly Outlook

Gio is at it again with another with another great market outlook post! Show him some support, the blogging community would be lucky to have his insights!

This is it! All those GDP revisions, job numbers and Yellen’s data dependency measures have led us here – the week the Fed will raise interest rates. Whether that’s a bad/good idea it’s up to smarter macro folks than I. All we can focus us on is how to trade during a news driven week.

Last week (12/7-12/11) was firmly characterized by one word – FEAR. Here’s how the indexes performed

$SPX closed the week at 2,012, undercutting a rising 10wma and a flat 40wma while negating a bullish cross of the latter two averages. Adittionally, an 8-week range of ~80pts (purple box) was pierced to the downside. Red flags everywhere.

Crude Oil ($WTIC) continued to dominate headlines and added to panic on Friday as it had its lowest weekly close since June 2014. This decline is now -67%. Last week, we discussed the largest decline stands at -68% (2009)

Question arises then – how do we measure fear? The quick on the draw will point you to $VIX, up 58% in 5 days

If I had to “teach” you about the $VIX, it would be two things:

1. In a rising market, the VIX tends revert when outside it’s daily Bollinger band
2. When FEAR takes over, #1 goes out the window

Given #1, last Friday was the first “oversold” signal for all major indexes. However, #2 is a major call for caution. During the Aug 2015 decline, the VIX exploded +300% in 4 days ($NDX -12%). We all took a hit during those 4 infamous days. Is there a better way to measure fear then? For me, yes there is.

$NAA50R – Nasdaq Percent of Stocks Above 50 Day Moving Average

The $NAA50R is the ultimate combo measure of market “breadth” and fear. It quantifibly depicts not only the overall market trend but also the severeness of market sell-offs. Since Dec 1st, this metric has declined from 65% to the current 33% in a virtual straight line. However, it’s not all negative. This chart has been helpful determining execellent entry points in the market while the rest is stuck to the CNBC screens.

The following two points will be my sole focus this week:

1. The daily RSI for $NAA50R rarely goes under 30. It stands at 31.6 right now – another “oversold” signal. I am watching for a sub 30 reading or any bounce attempts
2. Major market bottoms in the last 20 years were all marked by $NAA50R hitting 20% or below. (I welcome you to back test this as good charting practice). We stand at 33% right now. Amind, Oil, Junk Bonds and Rate Hike noise, I am blindly focusing on this metric if it approaches the 20% mark

I’ve intentionally left out individual stock picks on this post. It is not prudent to advice buying on this week ahead. Focus on tools that give you the most edge. For me, measuring Fear is the best way. Trade ‘em well and thank you for reading!