Trading Notes: Calendar Week Of November 2Nd

Friday, Nov 6th

*  Today’s early on merchandise promises to endure dominated past times the payrolls data.  Trade overnight slowed downward ahead of the release, but I await it to generate a adept bargain of activity, given the focus on whether the Fed volition hike rates inward December.  What I’ll endure looking for out of the release is how rates, the dollar, too stocks respond–and whether they movement thematically, inward sympathy.  Any early on movement is to a greater extent than probable to endure sustained if it’s business office of a thematic macro trade.

*  That existence said, I don’t take away hold a groovy bargain of conviction going into the report.  I idea the inability to sustain an overnight bounce yesterday was significant, equally was the bounce off the morn lows.  All inward all, we’re overbought longer term, oversold shorter term.  I would demand to encounter yesterday’s lows concord on whatever selling pressure level inward guild to endure a buyer.

*  Most people are familiar with VIX, the stair out of volatility implied past times options markets.  Fewer people runway implied correlations: the correlations reflected inward options pricing.  While VIX has non moved tremendously from the outset of the calendar year, the implied correlation alongside stocks has collapsed.  We’re pricing inward real depression correlations, reflecting a relatively differentiated, rotational environment.  We had a decent sized drib inward implied correlation yesterday, such large drops take away hold by too large been bullish 3-5 days out.  I’ll endure sharing to a greater extent than query on implied correlation inward coming days.  The index symbol is $ICJ.

Thursday, Nov 5th

*  Yesterday’s post service noted concerns over risk/reward too Wednesday’s merchandise offered a pullback, equally nosotros closed with fewer than 50% of SPX stocks inward a higher house their three-day moving averages.  We closed close levels that take away hold been associated with short-term buying opportunities (see nautical chart below) too take away hold bounced higher overnight, too hence buying weakness that holds inward a higher house the overnight lows too at to the lowest degree testing the recent highs is a reasonable strategy.

*  Yesterday’s movement higher inward rates inward the wake of the Fed chair’s statements contributed to USD strength, commodity weakness, too weakness inward stocks.  That designing is worth keeping an optic on going forward.  When markets merchandise thematically–multiple property classes moving inward a coherent pattern–that merchandise is by too large supported past times large institutions too volition take away hold about legs, short-term.  Only watching the musical instrument you’re trading loses a lot of information.

*  I’m equally good increasingly cognizant of how many directional moves teach off the ground during European too Asian hours.  Indeed, the median movement from opened upwards to unopen inward SPY has been well-nigh the same equally the overnight movement during 2015.  Anyone limiting stock index trading to U.S. hours effectively cuts the chance laid inward half.

Wednesday, Nov 4th

*  Stocks by too large continued their forcefulness on Tuesday, moving to novel highs for this move.  I used the occasion to take away hold profits.  It’s non that I mean value the bull run has ended for good.  Rather, I’m non inward honey with the risk/reward hither after a corporation movement higher.  Specifically, nosotros are non exclusively overbought on my breadth measures (more than 70% of stocks inward a higher house their curt too medium term moving averages), but yesterday displayed waning breadth relative to Mon for the SPX shares.

*  With observe to breadth, it’s noteworthy that nosotros registered 410 stocks making fresh three-month highs yesterday, which is soundless below the break of novel highs seen final week.  One argue I’m non overly concerned past times this seeming breadth difference is that too hence few stocks are making fresh 3 calendar month lows–only 65.  Returns inward SPY tend to endure best when the break of stocks making novel lows are real high too real low.  You demand to encounter an increasing break of shares displaying weakness earlier the marketplace equally a whole turns over.  We’re non seeing that too hence far.  What we’re seeing is a rotational market, with formerly weak sectors, such equally liberate energy shares, straightaway perking up.

*  Below is a nautical chart of breadth for the SPX stocks.  It captures the pct of stocks trading inward a higher house their 3, 5, 10, too 20-day moving averages.  (Raw information from Index Indicators).  Note that after a breadth thrust higher next the tardily September lows, we’ve by too large stayed inward a higher house 50%.  Pullbacks inward the breadth stair out take away hold been adept entries on the long side.  As long equally nosotros teach dips inward the breadth stair out occurring at successively higher cost lows, I consider the uptrend to endure intact.

Tuesday, Nov 3rd

*  Yesterday’s post service noted the possibility of broadening buying inward stocks too that is precisely what nosotros got, with little caps catching upwards to larger caps too SPX making novel highs for this move.  Indeed, yesterday was a poster small-scale for an upside tendency day, with a skewed positive distribution of NYSE TICK values through the day.  Here’s a post that outlines iv keys to an upside tendency day.  Recognizing those days relatively early on inward the session tin endure real valuable.

*  Below y’all tin encounter the breakout inward the cumulative uptick/downtick trace of piece of occupation (red line; 9/25/15 – present), which represents upticks minus downticks for all stocks, all exchanges.  As long equally we’re making novel highs on that measure, I popular off on to thin to the long side.

*  A breakdown of upticks vs. downticks for yesterday’s merchandise industrial plant life that what was too hence meaning well-nigh the tendency 24-hour interval was the close full absence of selling pressure, rather than a huge fountain alongside buyers.  (This was equally good evident inward yesterday’s relatively modest volume).  Indeed, since 2012, I’ve seen exclusively 21 days with similar levels of depression selling.  Five days later, SPY was upwards 17 times, downward 4 for an average gain of +.51%, though, interestingly, at that spot was no detail border for the adjacent day.

Monday, Nov 2nd

*  Stocks experienced a tardily 24-hour interval selloff on Fri too extended the selling overnight earlier stabilizing a bit.  We popular off on to encounter large cap shares (SPX) brand higher lows too higher highs and, too hence far, the recent selling does non alter that pattern.  Meanwhile, the Russell 2000 Index of little too midcap shares has shown relative weakness, but all of that mightiness endure business office of an extended, flattish correction (see below).  Should little cap forcefulness bring together the larger caps, inward keeping with year-end seasonals, nosotros could encounter a melt-up inward stocks.  I don’t take away heed many people talking well-nigh that possibility.  My undertaking equally a trader is to endure aware of a multifariousness of scenarios too the show that would back upwards each; non to impose my predilection on markets.  I take away hold been operating with an supposition that we’ve already seen a momentum peak for stocks, but I’m opened upwards to revising that view–and renewed involvement inward smaller caps would for sure spark such a revision.

*  On a 6 calendar month too one-year basis, raw materials shares–stocks related to the commodity sector–have been the weakest past times quite a margin.  Interestingly, however, over the past times month, those raw materials stocks take away hold been marketplace leaders, per the nautical chart below from the fantabulous FinViz site.  Commodities are sensitive to patterns of global growth, too hence I’m watching those–and commodity related sectors such equally XLB too XLE–quite closely.

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