Trading Notes: Calendar Week Of 8/17/2015

Friday, August 21st

*  It was a mo conduct twenty-four hr menses of rattling weak book flows; the failure to sustain bounces was evident relatively early on inwards the twenty-four hr menses too quite telling, equally the attain marketplace gave way to a trending trade.  Stocks making fresh novel lows expanded too almost 600 NYSE issues unopen below their lower Bollinger Bands.  Interestingly, when that has happened inwards the past times year, in that location has tended to move farther downside over the adjacent v trading days.  We are rattling stretched to the downside short-term, amongst fewer than 10% of SPX stocks trading higher upwards their 3 too five-day moving averages.  With VIX at 19, I facial expression to a greater extent than volatile moves too the possibility of strong short-covering moves.

*  My adjacent twenty-four hr menses too 3-5 twenty-four hr menses models cause got turned moderately bullish, reflecting the short-term oversold condition.  Intermediate term measures are non at levels that we’ve of late seen at intermediate-term lows.  I volition move watching the character of bounces from the oversold grade closely; if weak, I would facial expression farther downside.  My game excogitation is to hold off for those bounces earlier reinstituting shorts.  I’m also opened upwards to short-term buying of weakness that fails to brand fresh toll lows.

*  Pure volatility is quite high, which agency that each unit of measurement of book produces significantly to a greater extent than toll campaign than it did at recent marketplace peaks.  With expanded volatility, moves tin extend farther than nosotros would expect–very relevant to run a peril management.

Thursday, August 20th

*  Volume flows were weak through the day, confirming the bearish expectations of the models too the downside stock merchandise inwards the wake of commodity/China weakness.  This weakness has carried forwards to premarket trade.  Short term indicators are at levels stretched to the downside, but intermediate-term ones are not.  For example, close 17% of SPX shares are trading higher upwards their 3-day moving averages.  That creates an surround ripe for a counter-trend bounce.

*  The possibility of counter-trend bounce is also heightened past times the fact that 1 of my 3-5 twenty-four hr menses models is flashing a bullish signal, the get-go inwards quite a few days.  Should nosotros run across weakness inwards today’s session non confirmed past times book flows too breadth, I would move willing to participate on the long side for a short-term trade.  

*  Pure volatility mensurate is elevated, also highlighting possibility of near-term bounce too VIX unopen higher upwards 15.  Neither are at levels associated amongst intermediate-term bottoms, but I make facial expression to run across to a greater extent than volatile merchandise going forward, which has implications for sizing, stops, too targets.

Wednesday, August 19th

*  Whereas Monday’s marketplace could non sustain selling pressure–the number of downticks across stocks was modest–Tuesday was the reverse, amongst express buying.  The book stream mensurate was solidly negative on the day, too nosotros could non cause got out the overnight highs.  This record activeness fit good amongst the bearish model signals from yesterday, too we’re seeing farther toll weakness inwards premarket today.  I proceed to incertitude a sustained upside for stocks equally long equally nosotros run across continued commodity weakness, which speaks to global economical weakness, especially inwards EM.

*  We tin run across breadth weakness inwards the number of stocks persistently trading nether their lower Bollinger Bands versus those trading higher upwards (see below; raw information via Stock Charts).  Note how the departure inwards the cumulative Bollinger relaxation preceded the driblet inwards Oct of 2014.  We are currently seeing quite a massive divergence; in that location are merely to a greater extent than stocks across the NYSE universe trading amongst important weakness than amongst important strength.

*  Next twenty-four hr menses too 3-5 twenty-four hr menses models are neutral, too nosotros proceed to operate on the bearish swing request from yesterday.  Game excogitation is to proceed to sell bounces that cannot move past times the overnight highs too monitor book flows, peculiarly should nosotros evidence back upwards inwards the ES 2070s area.  Downside activeness without expansion of downside record activeness has been a practiced brusk term request for net income taking on the brusk side. 

Tuesday, August 18th

*  We had an impressive rally in 1 lawsuit nosotros held Friday’s lows inwards the ES.  My book stream mensurate exclusively got equally depression equally -250 early on inwards the morning, compared amongst values good below -1000 when we’ve hitting genuinely oversold levels.  That was a sign that, similar Friday, nosotros precisely were non seeing aggressiveness amid sellers.  The ensuing rally has turned my adjacent twenty-four hr menses model rattling modestly bearish too the 3-5 twenty-four hr menses models cause got turned bearish.  We are at levels of pure volatility that cause got been associated amongst weak adjacent 3-5 twenty-four hr menses returns.  My game excogitation is to brusk bounces that remain below the recent highs.  On a swing basis, I am alarm for indications of to a greater extent than aggressive selling that would cause got us below the recent back upwards inwards the 2070s.  That existence said, I’m also watching XLE too XLB carefully for whatever indications nosotros could move bottoming inwards the commodity-related sectors.  That would offering of import back upwards to stocks on whatever describe back.

*  My adjacent inquiry projection volition move to rail book flows inwards the premarket too also at goal of day, including the later market.  It is non clear to me how the flows inwards these fourth dimension periods mightiness move related to those inwards the adjacent period, but in that location are meaningful flows, especially goal of day, that could offering clues equally to the adjacent day’s trade.

Monday, August 17th

This article goes into depth close what I believe to move the greatest functioning work affecting traders. I run across a existent mismatch betwixt how traders recollect close chance too how they really deal their positions. It’s equally good glib to merely attribute this to “lack of discipline” or failure to follow plans/process.  Quite literally, traders driblet dead caught betwixt 2 imperatives too the inability to reconcile those results inwards the quandary where nosotros excogitation trades but don’t merchandise those plans.

*  We’ve been seeing a refuse inwards stocks making fresh novel highs for the past times several months (see nautical chart above), but we’ve also seen a drying upwards of novel lows during the rangebound trade.  My adjacent twenty-four hr menses too 3-5 twenty-four hr menses models are rattling modestly bearish too several of my measures are moderately overbought too inwards ranges where nosotros typically run across weakness.  My game excogitation is selling push clit that fails to cause got out overnight highs.

*  Friday’s merchandise saw a distinct drying upwards of downside volume flows, followed past times consistent though moderate buying flows.  Flows exceeding Fri levels on either side would strike me equally important inwards establishing management for early on merchandise this week.  When y’all run across concerted hitting of bids or lifting of offers across the stocks trading the highest volume, y’all know that major marketplace participants are putting uppercase to work.  That wasn’t happening on Friday, equally SPY book was at rattling depression levels.  Need to run across evidence of meaningful book flows earlier assuming whatever breakout from the recent blueprint of declining novel lows too novel highs.

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