Trading Notes: Calendar Week Of 8/24/15

Friday, August 28th

*  Buying weakness yesterday ended upward beingness a useful strategy for much of the day, but a potent selloff too and hence buying reversal inwards the concluding 2 hours of the trading session made for volatile trading.  I maintain to hold off these volatility aftershocks to locomote alongside us, equally noted inwards Wednesday’s post.  That beingness said, the pure volatility stair out has been to a greater extent than oftentimes than non trending downward over the past times several sessions, though it’s nevertheless at historically high levels.  

*  The blueprint of improving breadth has continued.  Interestingly, nosotros had 131 stocks across all exchanges register fresh novel monthly highs too 136 brand novel lows.  That novel depression figure compares alongside 726 too 840 during the prior 2 sessions too 3553 at what appears to locomote a momentum low.  As long equally nosotros encounter higher prices, potent NYSE TICK readings, too improving breadth, my game conception is to purchase weakness, especially if it tin concord higher upward the overnight lows.

*    Pertinent to the number of declining, but nevertheless high volatility, is the pass upward inwards book inwards SPY over the past times several sessions.  We peaked at 507 meg shares traded on Monday, too hence roughly 369, 339, too 275 meg the past times 3 days.  One of my quant routines estimates the probable day’s arrive at (very helpful for establishing toll targets on trades), alongside book equally a major input.  By seeing how today’s book unfolds, nosotros tin approximate the probable day’s book too brand informed estimates equally to probable toll arrive at for SPY.

*  A stair out of the breadth of marketplace position forcefulness that I rails daily is the number of NYSE shares that laissez passer on purchase vs. sell signals for diverse technical measures.  Yesterday nosotros had 520 purchase signals vs. 20 sells for the Parabolic/SAR measure.  We’ve had xi occasions where we’ve had over 400 purchase signals on that stair out since June, 2014, when I began collecting the data.  Three days later, SPY has been upward viii times, downward 3 for an average gain of +.49%.  It’s likewise pocket-sized a sample to hang our hats on, but does serve equally a prissy reminder that potent upside thrust leading to a short-term overbought province of affairs (over 90% of SPX stocks are higher upward their 3- too 5-day moving averages) does non necessarily Pb to “mean reversion”.

Thursday, August 27th

*  Per yesterday’s post, nosotros did indeed encounter a essay of lows inwards Wednesday’s session, followed past times important buying.  The NYSE TICK has provided real proficient tells for the recent marketplace position action, equally wide downticking was followed past times wide upticking real early on inwards yesterday’s rally.  That forcefulness has continued into the overnight, all of which is consistent alongside the persuasion of having seat inwards a momentum depression per Tuesday’s comment.

*  Another proficient order inwards yesterday’s merchandise was the continued drying upward of the number of stocks making fresh novel lows on weakness.  We had 726 monthly lows across all exchanges yesterday versus 840 on Tuesday too 3553 (!) on Monday.

*  The pure volatility stair out continues at high levels, suggesting that book too volatility powerfulness locomote alongside us for a while.  We remain higher upward thirty inwards VIX, off the highs but significantly elevated relative to nearly of 2015.

*  I discovery that the psychological issues faced past times traders inwards this recent marketplace position are related to difficulty adapting to the recent changes of trend, correlation, too volatility.  Per the recent Forbes article, a big business office of emotional upheaval inwards trading comes from the mismatch betwixt the patterns we’ve acquire accustomed to seeing inwards markets too the novel patterns that are playing themselves out inwards electrical current marketplace position action.

*  I greenback that 89% of SPX stocks are right away trading higher upward their three-day moving averages, but solely a piddling over 2% are trading higher upward their 10-day averages.  I hold off that latter number to increase significantly, equally our correction from the recent weakness plays itself out inwards fourth dimension equally good equally price.  My game conception is to locomote opened upward to buying weakness equally long equally nosotros remain higher upward the overnight lows.

Wednesday, August 26th

*  The interruption of the 1920 degree inwards ES referenced yesterday showed us that the China cutting was non a game changer, too nosotros continued the volatile downward market.  Interestingly, fewer stocks made fresh novel lows yesterday relative to the twenty-four hours previous.  Specifically, nosotros had 3553 monthly lows across all exchanges 2 days agone too solely 840 yesterday.  This would locomote consistent alongside having seat inwards a momentum low, which on major declines tin precede ultimate toll lows past times weeks or fifty-fifty months.  

*  Yesterday nosotros had fewer than 5% of all SPX stocks trading higher upward their 3, 5, 10, 20, too 50-day moving averages.  Going dorsum to 2006, at that topographic point convey solely been iv occasions inwards which we’ve seen similar wide weakness:  10/7 too 10/9 of 2008; 11/20 of 2008; too 8/8 of 2011.  Over the side past times side 3 trading days, SPY moved -9.74%; 9.68%; 13.95%; too 4.75%, respectively.  Note the real high volatility going forward.

*  Note also that the dates higher upward did non brand ultimate toll lows for a number of months, but ultimately led to major bull marketplace position moves.

*  I am warning for the possibility of our putting inwards lows close term too am watching that 1830-1850 degree inwards ES closely.  I would hold off the combination of brusk roofing too value buying inwards the high volatility surroundings to create a major snapback rally from these real oversold conditions.

Tuesday, August 25th

*  The volatility warning proved useful for Monday’s trade, equally nosotros blew out to a VIX of xl past times the unopen too traded alongside a daily truthful arrive at inwards excess of 8%.  We traded good off the day’s lows, inviting the hypothesis that we’ve seen a momentum depression for this downward move.

*  Contributing to the persuasion of a momentum depression is the unusually broad, weak breadth.  Over 400 SPX stocks made fresh 20 twenty-four hours lows yesterday.  We haven’t seen that form of wide weakness since early on August, 2011.  That indeed was a momentum low, but greenback that stocks drifted lower, albeit alongside fewer stocks registering novel lows, for a duet of months after that.

*  I volition locomote watching commodities closely, equally these convey been a useful warning for EM equity weakness too weakness inwards United States of America of America stocks.

*  I volition also locomote watching the ES 1920 area, equally that was the nearly recent depression prior to the China proclamation of a reserve ratio cut.  If that displace past times China was a game-changer, that degree inwards ES should hold.  Game conception is to purchase weakness that holds higher upward that 1920 level.

Monday, August 24th

*  There’s a real cardinal betoken toward the terminate of the recent Forbes article:  many times what nosotros translate equally a trading employment genuinely represents *information*.  For example, the trader who has difficulty pulling the trigger may real good intuit that the marketplace position surroundings has changed too that what had been proficient risk/reward may non locomote hence at the moment.  Similarly, frustration could locomote a real proficient early, emotional signal that regimes convey changed.  We pass a lot of fourth dimension trying to foreclose too fighting emotions inwards trading when maybe nosotros should locomote focused on learning from them.

*  With honor to the recent article, also greenback the 5 things I facial expression for to position changing regimes.  Very helpful inwards adapting to marketplace position conditions.  These volition locomote relevant in 1 lawsuit we’re laid upward for the deport to turn.

*  We maintain to encounter toll demeanor that is wildly dissimilar from what nosotros seen through nearly of 2015.  For example, from midnight to viii AM EST hence far today, we’ve printed 150 bars based upon 500 ticks of toll movement.  By contrast, on the Mon 2 weeks ago, from midnight to viii AM nosotros printed half dozen such bars.  My pure volatility stair out continues to brand novel highs, pregnant that we’re getting to a greater extent than elbow grease from to a greater extent than volume, but also to a greater extent than elbow grease per unit of measurement of volume.  This makes adventure management tricky, equally nosotros tend to rely on the same fourth dimension frames for asset periods without realizing that asset a merchandise for a hr right away is similar asset for a twenty-four hours before inwards the year.

*  We closed Fri alongside fewer than 5% of SPX stocks trading higher upward their 3, 5, too 10-day moving averages.  That form of wide short-term weakness has been to a greater extent than typical of 2010 too 2011 markets than recent ones.  Very often, when we’ve had such wide weakness, the start thrust downward has been followed past times farther weakness, which is what we’ve seen overnight.  I maintain to favor selling bounces until there’s but about evidence that selling push clitoris per unit of measurement area cannot maintain to yield weakness across the vast bulk of sectors.

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