Trading Notes: Calendar Week Of October 19Th

Friday, Oct 23rd

*  The combination of prospects of farther QE from the ECB too positive net turn a profit word breathed fresh life into the market, equally nosotros rose on substantially increased volume.  The increased book told us that fresh participants were coming into the market; the positive skew of the NYSE TICK told us that the participation was dominantly to the purchase side.  Picking upward those cues early on inwards the trading solar daytime is an essential business office of short-term trading.  Thursday’s activity was farther confirmation of the base of operations illustration outlined yesterday, though I’m for sure opened upward to the possibility that, amongst the renewed buying, a momentum peak lies ahead of us.

*   Below is an interesting nautical chart that tracks “relative volume”:  how book at each infinitesimal of the solar daytime compares amongst the average book for that infinitesimal inwards SPY.  A value of 1.0 agency that book is average for that fourth dimension of day.  A value of 2.0 is a total measure departure inwards a higher house average; 3.0 is 2 measure deviations inwards a higher house average; etc.  Note inwards the nautical chart how book yesterday was good inwards a higher house average, especially when the marketplace was rising.  Great tell.

*  Interestingly, novel highs *and* novel lows expanded inwards yesterday’s trade, too minor caps buy the farm on to lag large caps.  I’m watching that human relationship closely, equally good equally the novel highs/lows.

Thursday, Oct 22nd

*  Weakness inwards minor caps noted before contributed to a sell off inwards stocks through much of the solar daytime Wednesday.  My mensurate of buying vs. selling pressure, interestingly, did non demo a corking surplus of selling.  This continues to aspect to me similar a correction of the recent strength, non deport marketplace behavior.  With fewer than one-half of stocks straight off trading inwards a higher house their iii too five-day moving averages, the risk/reward looks a flake ameliorate too I am opened upward to buying weakness that holds inwards a higher house the overnight lows.  I practise note, however, that the number of stocks making fresh monthly lows has expanded beyond the degree seen concluding week.  Continued expansion of that number would brand me to a greater extent than concerned regarding the market’s downside.  

*  In short, my base of operations illustration is that the August/September lows were meaning ones; that nosotros began a novel marketplace cycle off those September lows; too that the cycle has striking a potential momentum peak simply has farther to run on the upside.  Waning breadth, especially amidst minor cap stocks, too waning relative forcefulness amidst EM shares concerns me nigh this base of operations case, however, too then I’m cautious too updating views solar daytime yesteryear day.

*  A say for marketplace weakness prior to the August driblet was that nosotros were persistently seeing to a greater extent than shares trading below their lower Bollinger Bands than inwards a higher house their higher bands.  At present, we’ve been seeing the opposite: to a greater extent than stocks trading inwards a higher house their upper bands (see nautical chart below).  I’m watching that residual closely equally yet a dissimilar form of breadth mensurate that captures the relative breadth of forcefulness vs. weakness.

    

Wednesday, Oct 21st

*  Stocks showed continued resilience on Tuesday, amongst pullbacks limited, ultimately leading to higher daily lows too higher highs.  We likewise expanded the number of stocks making fresh monthly highs, rise to 812 from 698.  Interestingly, VIX rose, simply realized volatility too book continued low.  We’re seeing forcefulness inwards overnight trade, afterwards belatedly solar daytime weakness yesterday–that continues the grind higher.

*  We’ve seen a driblet inwards 1 of my measures of breadth volatility, which tracks the variation inwards the number of stocks making novel highs too lows.  Going dorsum to 2010, when breadth volatility has been high, the side yesteryear side 5 days inwards SPX create got averaged a gain of +.52%.  When breadth volatility has been low, equally at present, the side yesteryear side 5 days inwards SPX create got averaged a gain of solely +.03%.  I buy the farm on to persuasion the risk/reward inwards the marketplace equally non especially appealing for multi-day positions too instead lean toward shorter-term tactical trading of intraday swings.

*  I am continuing to sentinel minor cap too mid cap issues to run into if nosotros tin expand breadth or whether relative weakness inwards those groups tin expand to other segments of the market.  The Cumulative NYSE TICK has been rise inwards recent sessions; buying forcefulness has been moderate, simply selling forcefulness has been low.  I don’t await a major marketplace reject until nosotros run into a reemergence of sellers, too that’s non occurring too then far.

Tuesday, Oct 20th

*  The topping behaviour referenced yesterday was evident inwards Monday’s trade, equally nosotros set down higher inwards SPX.  I buy the farm on to authorities annotation relative weakness amidst minor caps, which is contributing to breadth divergences.  We saw 698 novel monthly highs on Mon against 166 lows.  That is against over K novel highs on the seventh through the 9th.  That existence said, breadth divergences inwards rise markets unremarkably don’t holler for major reversals until nosotros run into expanding numbers of shares making fresh lows too overtaking novel highs.  During topping processes, it’s to a greater extent than of a rotation merchandise than a trending one, amongst volatility, volume, too momentum coming down.  That makes it an opportunistic trading environment, equally the lower volatility agency that moves extend far less than they had when VIX exceeded 20.

*  One of the large mistakes traders brand inwards depression volume/low volatility environments is looking for the side yesteryear side large move, rather than planning for the lack of movement.  To attain that planning, traders either involve to merchandise brusque term swings opportunistically (intraday swings) or extend their asset periods to assay larger moves that ride out the shorter swings.  I discovery that pullbacks too bounces inwards NYSE TICK intraday aid to seat those shorter-term swings.

*  Should nosotros run into minor caps too midcaps grab upward to the large caps inwards performance too displace to fresh highs, that would endure a worthwhile clue that the upside has farther to go.  I’d desire to run into other marketplace sectors underperform before taking a longer-term bearish stance.

Monday, Oct 19th

*  I’ll endure tweeting from Stocktoberfest the side yesteryear side yoke of days.  My latest Forbes article highlights a topic I’ll endure addressing inwards my Stocktoberfest presentation:  how nosotros tin brand the transition from existence goodness traders to becoming corking ones.  That agency that repeated sense is non enough; nosotros really create got to undertake directed training.  The Forbes piece describes how nosotros tin purpose psychology to sustain preparation efforts.

*  Here’s a elementary way y’all tin know if you’re genuinely engaged inwards a procedure of expertise development:  Are at that spot *specific* things you’re working on inwards today’s trading; are y’all keeping score to run into if y’all are genuinely making progress; too are y’all making ongoing corrective efforts amongst continued scorekeeping if you’re non making progress?  If you’re non intensively engaged inwards the above, y’all are non on a class of peak performance development.

*  Friday’s trading continued the bounce from the short-term oversold province of affairs noted concluding week.  We 1 time once again are at a juncture where I’m non enamored of the risk/reward province of affairs here.  Intermediate-term measures are stretched to the upside; put/call ratios create got come upward down; too nosotros buy the farm on to run into fewer stocks brand fresh novel highs despite novel highs for this displace inwards the wide indices.  My pure volatility mensurate is at levels associated amongst subnormal frontwards returns over a several solar daytime basis.  All this is consistent amongst my overall perspective that we’ve seen a momentum peak for this marketplace cycle too are straight off involved inwards a topping process.  That procedure tin extend for a piece before nosotros run into an ultimate toll peak too eventual deport phase. 

*  An uptrend is sustained when nosotros are able to register higher toll highs too higher toll lows across multiple short-term cycles.  So far, that is what we’ve been doing.  Until that designing changes, I’m reluctant to create got brusque positions for anything to a greater extent than than short-term trades.
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