Trading Notes: Calendar Week Of October 12Th

Friday, Oct 16th

*  Yesterday’s sudden rally as well as novel high closed for this displace fits amongst the “buy weakness, sell strength” thought from yesterday’s posting as well as is consistent amongst the thought of a marketplace position that may remove hold topped inwards upside momentum, but non price.  It was interesting to come across that nosotros had 609 stocks brand fresh monthly highs yesterday, downward from the 1274 novel highs final Friday.  Such breadth divergences tin live on expected to popular off along if nosotros indeed remove hold made a momentum peak for this cycle.  It’s when nosotros come across pregnant expansion of stocks/sectors making fresh short-term lows that nosotros demand to seriously consider the market’s downside.

*  Meanwhile, volatility continues to live on crushed amongst VIX closing around 16, downward from around 27 slow inwards September.  My pure volatility stair out also hitting novel lows as well as is getting closed to levels that are associated amongst subnormal upside returns.  It has been challenging for traders to adjust to the reduced volatility, which punishes trading on momentum as well as rewards patient, counter-trend entry execution as well as quick, tactical profit-taking.

*  A projection I volition cause this weekend is gauging the expectable size as well as duration of moves based upon volatility regimes.  My sense is that such an approach could aid making trading far to a greater extent than flexible as well as adaptive than it currently is for many traders.

Thursday, Oct 15th

*  So here’s my inquiry of the day:  Why practise hence many bastions of capitalism pursue alter via centralized planning?  From large corporations to finance firms, capitalist enterprises increasingly rely on fundamental planning equally they grow.  Indeed, if countries ran their economies the way many companies run their businesses, we’d persuasion them equally communist/socialist bureaucracies hopelessly out of date.  We extol “leadership” inwards corporations as well as large organizations; perchance that’s how dictators cry back of themselves inwards centrally planned economies.

*  A adept purchase merchandise early on inwards the twenty-four hours reversed on the WalMart intelligence as well as stocks traded off through much of the session yesterday, though they’ve recovered inwards overnight trading.  This dorsum as well as forth is what we’d await if nosotros lately hitting a momentum peak for the electrical flow bike as well as directly are engaged inwards a topping process.  In that scenario, buying weakness as well as selling forcefulness makes sense.  Yesterday closed amongst farther weakness, equally nosotros had 348 stocks brand novel monthly highs as well as 261 register fresh monthly lows.  That novel lows figure is the highest we’ve seen since Oct 2nd.

*  The weak retail sales discover as well as WalMart intelligence highlights what seems to live on a changed story:  instead of economical increase justifying a Fed hike, there’s increasing verbalize of economical weakness as well as no hike this year.  If the topping out scenario holds, as well as then we’re seeing a bike peak cresting below the prior peak, volatility bottom at higher levels, as well as increasing concerns of recession–all bearish on a longer fourth dimension frame.  I volition popular off along to monitor breadth measures to come across if this scenario is playing out.

*  I’ve heard from multiple sources that this has been a hard trading environment, amongst piteous P/L, for many traders.  Per yesterday’s entry, we’re seeing reduced volatility inwards stocks as well as reduced volatility of volatility.  In such an environment, crusade fails to extend–and becomes to a greater extent than consistent inwards failing to extend.  That sort of reversal way is hard for traders wanting to merchandise momentum or trend.  I’m non certain many traders explicitly run on adapting to changes inwards volatility regimes.  In such cases, sticking to a procedure is real a failure to adapt.

Wednesday, Oct 14th

*  Per yesterday’s postal service nosotros indeed saw cost consolidation inwards Tuesday’s session as well as we’ve directly worked off the short-term overbought conditions.  According to the Index Indicators stats, at Tuesday’s closed nosotros had nether 19% of SPX stocks closed higher upward their three-day moving averages as well as nether 32% closed higher upward their five-day averages.  In general, especially equally uptrends mature, I similar to live on a buyer when the bulk of shares autumn below their short-term moving averages as well as lighten upward when the bulk are short-term stretched as well as rolling over.  My leaning is toward the purchase side if nosotros come across selling dry out upward higher upward the overnight cost lows.

*  Below is an interesting nautical chart that looks at the volatility of the pure volatility measure that I track, amongst the nautical chart going dorsum to August 17th.  Notice how the volatility of volatility spiked during the August spend upward as well as has since returned close levels seen prior to the market’s drop.  Vol of vol tells us something well-nigh the stability of cost action, which inwards plough tells us something well-nigh the participation of marketplace position makers.  If a marketplace position is dominated past times marketplace position makers, nosotros oscillate betwixt bid as well as offering as well as mass cannot displace cost a swell deal.  If marketplace position makers delineate dorsum as well as the guild mass becomes to a greater extent than sparse, a given unit of measurement of mass tin ship on cost much to a greater extent than greatly.  Interestingly, when vol of vol is inwards its highest quartile since slow 2013, the side past times side iv days inwards the ES futures average a gain of +.34%.  When vol of vol is inwards its lowest quartile, the side past times side iv days average a loss of -.05%.  As marketplace position cycles mature, nosotros tend to come across a crushing of vol but also of vol of vol.  I believe we’re seeing a maturation of the acquaint marketplace position cycle; if that’s the case, nosotros should cause to come across breadth divergences on farther strength.  Yesterday’s weakness amidst pocket-size caps powerfulness live on the starting fourth dimension of that pattern.

Tuesday, Oct 13th

Last week’s punchy postal service on why nosotros merchandise emotionally seems to remove hold struck a chord.  The hits on the postal service remove hold been well-nigh 4x average as well as it’s already acquire ane of the give 10 posts inwards terms of hits.  One reader took criminal offence to the linguistic communication as well as style of the post, as well as I understand amongst that view.  One of the things I’ve learned equally both psychologist as well as raise is that how you lot deliver a message has equally much ship on equally the message itself.  But purpose of that ship on is saving the punchy style for the most of import messages.

*  We had a ho-hum vacation merchandise yesterday, amongst rangebound action.  One stair out that helped my trading yesterday was looking at the extremes inwards the NYSE TICK.  (I typically human face at one- as well as five-minute readings during the day).  If nosotros don’t remove hold many positive or negative extremes, it agency that institutions exactly are non active inwards the market.  It takes large, handbasket executions to acquire TICK higher upward +800 or below -800.  If you lot don’t acquire those extremes early on inwards the morning, you lot tin anticipate a ho-hum twenty-four hours as well as oftentimes a rangy one.

*  As my intermediate term forcefulness nautical chart below shows, nosotros popular off along to live on stretched to the upside.  This stair out is a five-day moving average of 5, 20, as well as 100-day highs vs. lows amidst SPX stocks.  (Raw information from Index Indicators).  In a rigid cycle, this volition give out ahead of price.  I noted yesterday that I wasn’t thrilled amongst risk/reward as well as indeed we’ve pulled dorsum inwards overnight trade.  I would non live on surprised to come across farther consolidation near-term, but am non expecting an outright ship move.

 

Monday, Oct 12th

The weekend article on “flourishing” is, inwards my view, ane of the most of import topics inwards psychology broadly as well as trading psychology specifically.  By as well as large, traders practise a decent task of keeping themselves out of damaging, negative states of heed as well as body.  They don’t necessarily brand special efforts to maintain themselves inwards optimal states.  As a result, nosotros never genuinely sense how good nosotros could perform across many areas of life, including trading.

*  This past times week’s entries remove hold focused on rigid marketplace position breadth as well as the favorable implications of high buying strength.  That has led to buy-the-dips trading as well as has done good to this point.  Breadth continued rigid on Fri amongst 1274 novel monthly highs, the highest figure inwards a week.  (Raw information from the Barchart site).  We mostly come across pregnant corrections later a catamenia of waning breadth.  That exactly hasn’t been occurring to this point.

*  That existence said, I’m non enamored of the risk/reward right here.  As the nautical chart below depicts, nosotros remove hold come upward downward quite a chip on the Pure Volatility stair out (volatility per unit of measurement of mass inwards the ES futures), as well as that has historically led to subnormal returns.  We’re also stretched to the upside on many of my indicators, which inwards the past times has occurred close momentum peaks (not necessarily cost peaks).  The put/call ratios remove hold come upward down; all that leads me to believe nosotros could acquire some consolidation early on inwards the week.  

*  Should nosotros acquire some pullback this week, my leaning would live on to resume the buying strategy.  Good short-term pullbacks would live on ones inwards which a bulk of shares closed below their iii as well as five-day moving averages as well as where nosotros come across to a greater extent than stocks give sell signals vs. purchase signals on the technical measures I follow, such equally Bollinger Bands, Parabolic/SAR, as well as CCI.  The past times few days we’ve seen many to a greater extent than purchase signals than sells on those measures, but the discover of purchase signals tailed off on Friday.

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