by Chart School - March 20th, 2010 1:56 pm
Courtesy of Bill Luby at Vix and More
Truthfully, I have not surveyed our ursine friends this morning, so I really have no idea if they are emboldened by the low CBOE equity put to call ratio (CPCE), but they should be.
My preferred way of looking at the equity put to call ratio involves using an exponential 10 day moving average (EMA) as a smoothing factor. The 10 day EMA generates the dotted blue line in the chart below, which is now at a one month low, meaning that bullish investors are now likely to be speculating more aggressively with calls and are less concerned about managing risk with put protection. The chart shows that prior lows in August, September, October and January all preceded meaningful pullbacks. The history of put to call extremes suggests that another pullback is now in the offing.
Whether the bears are truly emboldened or even bother watching put to call ratios, this looks like an excellent time for longs to take some profits and go enjoy the vernal equinox.
For more on related subjects, readers are encouraged to check out:
[source: StockCharts]
(The Technical Take, 3/13/10)
(THE PRAGMATIC CAPITALIST, 2/14/10)
(Index Universe, 2/17/10)
Put Call Ratio,
Chicago Board Options Exchange (CBOE)
at Wikinvest
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by Chart School - March 19th, 2010 12:05 pm
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The front month on the SP futures has now switched from March to June as a part of the Quad Witching Expiration. (Technically it switched last week, but for charting purposes I made the switch last night.) The June Futures have essentially the same formations as did March, it’s just that the earlier months have few trades to mark them.
This is the first serious test for US equities since mid-February, as it has been on a spectacular rally streak, no doubt fueled by excess liquidity applied to a selling exhaustion in the funds. Curiously not among corporate insiders who were selling at a rate of 57 to 1 in this latest rally, no doubt for diversification purposes.
The extent of this correction will be determined on the amount of actual selling that starts to occur. For now what we are seeing is more of a trading correction in response to an outsized rise in price, or as the Street likes to say, the market was getting ahead of itself.
Key levels to watch are 1135 and 1120. If we break those I would look for a consolidation around the 1080-1100 level.
“Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows”Leonard Cohen, “Everybody Knows”
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by Chart School - March 19th, 2010 12:46 am
RINO — RINO International
It ran from the trigger price of 24ish to 26 in short order. One and done hit and run and you got paid IF that is your plan.
RGLD — Royal Gold
Triggered Tuesday in a gap up. This stock opened at 46.31 so you had a blink your eye you missed it moment to buy the stock and here it is pushing 48.00. One and done hit and run and you’d be done.
RAX — Rackspace Holdings
Triggered and is crossing over the pink line. Now we get to deal with that 50 day average where it is thus far facing resistance. Still though all you had to do…
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by Chart School - March 18th, 2010 2:09 am
Courtesy of Joshua M Brown, The Reformed Broker
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by Chart School - March 17th, 2010 4:53 pm
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The SP is trying to break out of the trend and hold it’s gains. I would not get in front of this, unless you wish to guarantee an opportunity for an additional short squeeze. Remember, the wiseguys can peek into your collective hand at will, and read your strategy within milliseconds of your executing it. That is why playing short term trends is becoming increasingly difficult for the individual speculator.
It is useful to watch the Nasdaq 100 at key support and resistance levels, as well as the broader indices. The SP futures are generally the ‘push’ where the flash and sizzle of bull markets occur of late. Buying the futures drags much of the market behind it. But this can only last for so long unless additional ‘real’ buying steps in.
Formidable retracement. Now the rally must show its mettle and either confirm an economic recovery or the start of a new bubble led by financial assets, or not.
Little pricing in of fear, but the markets remain thin and a bit uneasy.
The Dollar is hanging on to support.
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by Chart School - March 17th, 2010 3:47 pm
Courtesy of Michael Panzner at Financial Armageddon
The market value of the high yield FINRA-BLP Active U.S. Corporate Bond Index relative to its investment grade counterpart has now exceeded the level seen in May 2007, at the peak of the credit bubble.
If you ask me, it looks like risk-taking is back with a vengeance.
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by Chart School - March 16th, 2010 12:43 pm
Courtesy of Corey Rosenbloom at Afraid to Trade.com
Aaaand we’re off! Buyers pushed prices higher to trigger yet another round of ‘popped stops’ not only this morning, but over the last few trading sessions.
Let’s take a look at the recent ‘popped stops’ rallies and how they reveal the character of the market… and what that matters to you more than indicators or anything else.
(Click chart for full-size image)
I started this chart on March 8th to today, showing recent false breakdowns that have resulted immediately in a sharp rally that triggered the stop-losses of the shaky bears.
The “Popped Stops” phenomenon occurs when two conditions are met:
1. An ‘obvious’ (or at least reasonable) sell-signal is given
2. Sellers place stops at roughly the same (tight-stop) levels
The ‘trigger’ comes when buyers - in whatever manner - step in to overpower the sellers and thus drive price higher (often with surgical precision) and then create (manufacture) a rally due to the bears (short-sellers) buying to cover their positions.
These are always temporary plays, but can allow quick profits for those traders ‘in the know’ when these set-ups (situations) trigger.
We had a trendline break and overnight downside gap to start March 9th, drawing sellers in and then buyers immediately popped them out all day long in a massive short squeeze.
Price fell later in the afternoon and then into the next day, where an almost identical short-squeeze formed (in equal proportion).
See my prior post for a detailed summary:
“Measured Move AB=CD Example March 10″
Price then consolidated into two triangles, a smaller and a larger structure:
“Get Ready for Range Expansion Play in SPY Intraday March 11″ (a great lesson in breakout tactics)
“Second SPY Intraday Triangle Forms March 12”
Price did expand/breakout as expected, and then formed a mini-exhaustion gap on Friday, marking the high of the day and then trailing off into the close.
Monday’s action gave us a “Rounded Reversal” that was a perfect mirror image and then a “Bear Flag” and second trendline break which triggered in the short-sellers…
only to pop them out violently into the close and into today’s session, which has broken above the key 1,151 level on the S&P 500 which could set off sparks, triggering longer timeframe swing and position traders (who are short) to cover, and cause others - who have been on the sideline so far - to ‘capitulate’ and buy this market, driving prices higher.
Finally, why is it important…
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by Chart School - March 16th, 2010 12:09 pm
Courtesy of TraderMark at Fund My Mutual Fund
Seriously? Sleepy mega caps that now move like Chinese small caps? These 2??
Truly we are in the Twilight Zone market. Somewhere Alan Greenspan must be so proud of his disciple.
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by Chart School - March 15th, 2010 11:47 pm
For those new to Pharmboy’s TA Book, previous chapters are:
1. Understanding Market Cycles: The Art of Market Timing (Chp. 1),
2. Dow’s Theory of Markets (Chp. 2),
3 & 4. Fundamental vs. Technical Analysis and Types of Technical Trading (Chps. 3 & 4).
5. Stock Charting Basics: How to Read & Understand Stock Charts (Chp. 5 here.)
All caught up? Here’s Chapter 6:
The use of moving averages (MA) are a mandatory requirement for technical trading. They are a favorite indicator of chartists. Chartists do not consider a trade without looking at the relevant MAs. A MA is the average value of a stock’s price over a certain length of time. There are several uses for MAs:
All MAs are lagging indicators, meaning that they will react to price, and not foreshadow it. Moving averages work in trending stocks and do not work well when a stock is in a neutral trading range. Merck (MRK) is an example of a stock that has been trending up since May (Figure 23) and the 50 and 200d MA crossed over in July. Notice how the 50d MA acts as support for the uptrend:
.png)
There are many types of MAs (simple, exponential, variable, linearly-weighted), but only will the two most widely used will be discussed: the simple (SMA) and exponential (EMA) moving averages.
The SMA is calculated by taking the average price of a stock over a certain period of time giving equal weight to each day.
The EMA is calculated as either percent-based or period-based. The exact mathematical formula will not be covered, but the EMA cuts down the lag time by distributing more weight to recent prices and less weight to older prices. The shorter the EMA (in days), the more weight is designated to the most recent price. Therefore, the EMA is almost always closer to the current price than the SMA.
Which one is more useful? The determining factor is small, but there are large differences once a stock becomes more volatile. The EMA should be used for day/swing trading. The short time frames are factored into the EMA. The SMA is a better indicator if the holding period is several weeks because theEMA is too sensitive to small changes and will give false signals, which makes it less effective for longer periods. If a moving average does…
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by Chart School - March 15th, 2010 6:25 pm
Courtesy of David Grandey at All About Trends
The S&P 500 hit resistance at 1150 last week and is now pulling back. It’s all about the trend channels at this point.
Bottom line this overbought condition when viewing the 60 minute charts gets worked off by either going sideways or a pullback to trend channel support.
.png)
See the S&P 500 during January? It went sideways range bound. Don’t rule that out over the next week or so.
Well as you can see we are starting to work our way towards the trend channel support line. We’ll either do that sideways till we catch it or down to it. Thus far the action seems corrective vs. impulsive.
Market Leaders
Some MAY be topping right here. It doesn’t take a rocket scientist to see all having that "Look". This automatically doesn’t mean that it’s all downhill from here it just means that they are pulling back. I’m sure some will bite the dust in this pullback but at this moment in time it’s something you want to be aware of.
The names below are probably not good ideas to be a buyer of at this moment in time. A lot of these names could easily just pullback to the 50 day average. If you are long only or looking to gain some long exposure then you need to see some sort of Pull back Off Highs (POH) pattern form from here over the next few days at least. That’s what we’d be looking for anyway.
The Pullback Off Highs pattern is one of the most bullish and constructive longside set-ups out there. Rather than go straight up, an index or stock will make a move higher, then spend sometime consolidating those gains often down to an area of chart support such as its 50-day moving average, before making another move into new high ground.
When a stock clears these consolidation periods, it’s your opportunity to buy them and take advantage of the next run — and the bonus part is when you catch a stock at the beginning of a new uptrend, you’ll often get to trade the stock and lock in profits over and over again. You are buying it at the point where it’s just started a new move and is near support which minimizes your risk.
On the flip side, a Double Top we is your early warning alert pattern letting you know in advance that a "Change In Trend" may be…
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March 20th, 2010 4:56 pm
The Threat to Muddle ThroughCourtesy of John Mauldin, at FrontlineThoughts.com
If the Chinese allowed the renminbi to rise, would that make the USA better off? That is the contention of a cabal of critics from Senators to Nobel laureates. Paul Krugman wants to see a 25% tariff on Chinese goods. Today we examine that idea, and look at the real problems that we face. If only it were so easy. The numbers just don't add up. The fault, dear Brutus...
O CanadaBut first, and quickly, and in keeping with the spirit of the recent Olympics in Canada, I want to let my Canadian readers know...
March 20th, 2010 3:48 pm
Introduction by Ilene
You may be wondering why Chopshop is referencing Martin Armstrong's writings, given Marty's extended stay in maximum security prison. Chopshop contends that Martin's cyclic modeling is genius and ought to supersede whatever opinion one has of Armstrong's case.
Armstrong is a gold-to-$5,000 guy. Chopshop agrees that one day gold will likely reach those dollar-denominated "values", but believes that gold will likely digest its 400% gain of the past decade over the next few years before 'going for the gusto.'
Chopshop and Fibozachi have remained steadfast in calling for first t...
March 20th, 2010 1:56 pm
Bears Emboldened By Low CBOE Equity Put to Call RatioCourtesy of Bill Luby at Vix and More
Truthfully, I have not surveyed our ursine friends this morning, so I really have no idea if they are emboldened by the low CBOE equity put to call ratio (CPCE), but they should be.
My preferred way of looking at the equity put to call ratio involves using an exponential 10 day moving average (EMA) as a smoothing factor. The 10 day EMA generates the dotted blue li...
more from Chart SchoolMarch 19th, 2010 9:29am
Well now we're officially cashed out!
As I always do before options expiration I reviewed our Buy List, which, this quarter, is a list of 37 stocks we've been playing since late December and, sadly, after reviewing 37 of our favorite investments very carefully this week - I could only conclude that cashing them out was the only decision I could be comfortable with this week. Of 66 trades we had on our 37 stocks, 64 are winners with an average return since 2/8 of 28% - since most of the trades were designed to make 40% for the year - it just seems silly not to take the money and run now, on March 19th.
You are not supposed to have 64 out of 66 winners in 6 weeks, you are not supposed to make 3/4 of what you anticipate for the year in 6 weeks - that is NOT how the markets are supposed to work! When the ma...
March 19th, 2010 11:05 am
Identifying the Fundamentals
Stocks move under the influence various factors that we can use to identify stocks that are likely to move 3-5% in a single day. Even t...
March 19th, 2010 4:41 pm
Today’s tickers: BBY, DNDN, GLD, BAC, AET, BA & NBR
BBY - Best Buy Co., Inc. – Shares of the world’s largest electronics retailer rallied 2% to $41.25 during the trading session after receiving an upgrade to ‘buy’ from ‘neutral’ at Goldman Sachs Group where analysts increased BBY’s target share price to $47.00 from $44.00. Options traders employed a few different bullish tactics to position for continued upward movement in the price of the underlying stock through expiration in April. Plain-vanilla call buyers targeted the April $44 strike to purchase 5,100 calls for an average premium of $0.55 apiece. These investors stand ready to accrue profits if Best Buy’s share price increases 8% from the current value to exceed the effective breakeven point on the calls at $44.55 by expirati...
more from Andrew
March 15th, 2010 6:49 pm
By Ilene
Let's take a look at Insider Buying and Selling over the last week or so. These are screen shots from Finviz - the significant buys against a green background first and significant sells against the pink background second. All the buys fit into my screen shot but the sells did not. Click here to see all the sells.
Note that the largest buy in the group, for KITD was at a price of 9.73 (KITD is currently at 11.54). The buy was part of an Equity Offering rather than an open market purchase. Tuzman Kaleil Isaza's (KITD's Chairman and Chief Exec. Officer) history of buys is http://www.insidercow.com/ more from Insider
March 15th, 2010 8:55 am
This post is for live trades and daily comments.
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