Pullback to 5-Day MA

By Jeff Pietsch | March 15, 2010 | 3:43 PM |  0 CommentsTweet This

Today marks the beginning of either a mild retrace or a choppier consolidation range, in my opinion. Because this is only the first minor test, buyers have been quick to put in a floor and have subsequently bid price back up to the rising five-day moving average. While this reaction may bring us into the low-SPY $115s, the VWAP at that same level could provide strong resistance with down volume and the AD line as negative as they are. Note that tomorrow is an FOMC day.

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Chart of the Week: RUT vs. DJIA

By Bill Luby | March 15, 2010 | 2:10 PM |  0 CommentsTweet This

Among the many ways to evaluate the speculative activity in stocks is to evaluate the relative interest in small cap stocks versus blue chips. I like to do this by simply comparing the Russell 2000 index of small cap stocks (RUT) to the Dow Jones Industrial Average.

As the chart of the week below shows, for all of January and most of February, these two indices were tracking fairly closely. During the last two plus weeks, however, the Russell 2000 has begun to significantly outperform the other major market indices while the DJIA has been an underperformer in relative terms. As a result, RUT has begun to separate from the DJIA, indicating that investors are developing an appetite for riskier small cap stocks and are shying away from the safer blue-chip alternatives. A strong RUT relative to the DJIA typically means that the "risk trade" is in full gear and investors are comfortable placing more money in more speculative assets. As long as this trend continues, it is generally bullish for stocks as a whole.

For more on related subjects, readers are encouraged to check out:

• Capitalization and Bullishness
• A Baker's Dozen of Favorite Indicators
• RUT Hedge Fund Puke?

[source: StockCharts]

Disclosure(s): none

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Options Expiration Week Performance By Month

By Rob Hanna | March 15, 2010 | 1:10 PM |  0 CommentsTweet This

Some readers may recall that I've previously labeled December op-ex week "The Most Wonderful Time of the Year". Op-ex week in general is normally pretty good. And while December has been the most reliable month, both March and April have produced more profits going back to 1984. Below is a table that breaks down op-ex week performance by month. It assumes buying the close on the Friday prior to op-ex and selling the close of op-ex Friday. If there was a holiday on that Friday, then the Thursday before the weekend was bought. I excluded op-ex week of September 2001 due to the extreme (and horrific) circumstances.

This positive seasonality could provide a bit of a tailwind this week for the market.

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What Works in Trading?

By Ray Barros | March 15, 2010 | 12:38 PM |  0 CommentsTweet This

I have an e-mail address that I use for ‘free’ offers. It’s a good way of keeping track of what is going on in the trading industry. I received the attached pdf from one of the subscriptions.

It’s well written, contains much truth and worth a read. I found parts very entertaining.

Having said that,  I want to make it clear I am not supporting James De Wet’s sites or products. I am conscious that many readers tend to accept what I say on faith. For this reason when I mention a book, product or service, I take great pains to ascertain as carefully as possible, the credentials of the author.

Mr De Wet  has an ambigous reputation - see links below. I am endorsing some of the content in the PDF not his products.

Favorable Reviews:

http://www.forexpeacearmy.com/public/review/www.forex-science.com

Note comments by Terry and Patrick (bottom of thread) that says De Wet has been upfront about his past mistakes.

Unfavorable Reviews:

http://www.forexpeacearmy.com/public/review/www.thetradersclub.com

One of the unfavorable reviews refers to a CFTC complaint. Below are links summarizing the complaint.

1. http://www.cftc.gov/newsroom/enforcementpressreleases/2006/pr5218-06.html
2. http://www.futuresmag.com/Issues/2006/10/Pages/The-DeWet-investigation.aspx

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Consequences of a Low VIX

By Bob Barnes | March 15, 2010 | 9:49 AM |  0 CommentsTweet This

Everyone knows the VIX has been in freefall for the past year, but for daytraders and short term swing traders this has consequences . . mostly of a negative nature. Gone from recent memory are those Prosac-grabbing 500 point daily spreads that provided the catalyst for more than a few traders closing up shop and finding other meaning of sustaining a livelihood. Back are the days of low volatility and, presumably, relative market calm.
Until the next black swan appears.
But, as part of this dramatic volatility decline, the daily ATRs have also decreased dramatically. Above and below are the SPY and Qs charts with the 8 bar ATR shown in the lower tech panel.
Since last April the SPY's ATR has dropped from 3.00 to the current 1.10 and the Qs have dropped from 1.00 to .52.
Now these are absolute values, not percentages, so the ATR of the Qs is actually large than the SPY. Also to be noted is the fact that these ATR values have to be considered in the context of the underlying price change. Hence, in April, an ATR of 3/price of 70 = 4.0%, while a current ATR of 1/price of 115 = 0.8%, only 1/5 the April value. You can run the numbers of the Qs, but they turn out similar.
The net result is that those 90 minute daytrades that use to produce a $.75 gain are now yielding a measely $.15. So while you may have improved your daytrading skills over the last year, you had to improve your performance by 500% just to keep up. They call economics the dismal science . . maybe they should call trading the dismal profession.

And what's a little surprising to an ole geezer like me is that the VIX ATR profile below looks exactly the same as the SPY, Qs and basically all the majors. So the VIX is kind of a victim of it's own success, and if you want to peek at the REALLY dismal consequences of this swoon, just check out the chart of the VXX . . the VIX futures based ETN. But more on that at a later date.

OK, enough of the grim realities of trading . . let's get back to the Neverending Story of the bull market. Friday was, well, a day to be doing something else. The NYAD hung on a neutral 1.00 value like static cling after a brief opening pop&go. TICK was neutral, volume was non-confirming and the closing stats , as shown below, were flaccid.

Friday, my little buddy and favorite VIXEN setp GE was the shing star of the day with over a 3% gain on sustained accumulation. This was an easy peasey trade if you track the GE/VIXEN setup chart on the blog or if you've got the setup on your own platform.
Every so often, and generally without much technical warning, GE blasts off , and pays off . . which is why IMHO it pays to monitor this little prima donna.

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