Trading Notes: Calendar Week Of October 5Th

Friday, Oct 9th

*  Morning selling pressure level yesterday could non breach overnight together with prior 24-hour interval lows, continuing the apartment correction.  In general, when overnight together with prior 24-hour interval lows/highs concur on early on 24-hour interval selling/buying, it’s worth thinking virtually buying the dip/selling the bounce to exploit the potential designing of higher lows/lower highs.  With the Fed minutes, pregnant buying flows in ane lawsuit once to a greater extent than returned to stocks together with nosotros in ane lawsuit to a greater extent than made novel highs for this move, amongst an expansion inwards the divulge of shares registering fresh highs.  A total of 242 SPX stocks registered fresh 20-day highs vs. lows, the highest since August 17th (raw information from Index Indicators).  As emphasized yesterday, I’m non seeing the kinds of divergences that would usually precede a substantial correction. We’re in ane lawsuit once to a greater extent than stretched on a multi-day basis, together with thence that leaves me inwards the agency of buying pullbacks.

*  Earlier entries mentioned the really strong buying pressure level during this rise.  On a five-day basis, we’ve seen buying forcefulness that has entirely been acquaint on nine prior occasions since 2012.  Ten days later, SPX was upward 8 times, downward in ane lawsuit for an average gain of virtually +3.0%.  Once again, this highlights the momentum lawsuit in ane lawsuit institutions dominate on the buying side.

*  Volatility continues to decline, amongst VIX immediately below 18.  If this is similar past times strong buying cycles, nosotros volition come across minor pullbacks together with farther grind higher on lower volatility until breadth divergences laid out to appear. 

Thursday, Oct 8th

*  Buying dips indeed proved to hold upward a useful strategy inwards Wednesday’s session, every bit nosotros closed in ane lawsuit once to a greater extent than amongst strength.  Across all exchanges, nosotros saw over M stocks register fresh monthly highs, a novel high for this upleg.  In full general I don’t decease overly concerned virtually sustained downmoves unless nosotros come across a preceding menstruation of fourth dimension inwards which fewer stocks participate inwards the strength.  Thus far, the participation has been solid, amongst the buying pressure level mentioned yesterday continuing strong.  We’re quite extended inwards the brusque run, together with thence the consolidation we’re seeing inwards overnight trading is non unusual.  My leaning is to let this consolidation to run its course of pedagogy earlier resuming long positions.  Even inwards good for y’all uptrends, it’s non odd to acquire a pullback inwards which the bulk of shares merchandise below their iii together with 5-day moving averages.  I’d aspect at such a pullback every bit a potential buying opportunity; I’d too hold upward interested inwards buying whatsoever flattish correction that stays to a higher house the 1960-ish level.

*  Note that VIX continues lower together with continues to remain below 20.  I decease along to listen people set the deport thesis out there, but the marketplace seat is only non trading that agency at present.  I believe investors come across the global weakness out at that spot together with are already buying stocks inwards anticipation of farther easing from fundamental banks.  Traders who hold back for the actual fundamental banking concern announcements earlier buying may hold upward making a mistake.  With Friday’s weak jobs divulge inwards the U.S., an accomodative monetary policy across the reason was pretty good ensured.  Markets are forwards looking.

*  Below y’all tin come across a short-term charge per unit of measurement of modify indicator (red) plotted vs. ES futures (10/2/15 to the present), where each bar represents 500 cost changes inwards the index.  This normalizes for action during deadening periods, such every bit overnight.  I similar the perspective every bit a short-term overbought/oversold measure.  In general, I similar buying oversold levels when we’re making higher lows together with higher highs together with vice versa.  I similar taking profits when nosotros acquire overbought/oversold together with can’t brand novel highs/lows.

Wednesday, Oct 7th

*  We did indeed acquire the consolidation noted inwards yesterday’s post and, together with thence far, we’re seeing some belongings of the consolidation together with buying of the dip inwards overnight trading.  I’m watching to come across if nosotros tin concur those overnight lows, amongst a leaning toward buying weakness that holds to a higher house ES 1960.  My short-term models remain modestly bearish, however, together with thence I’m opened upward to the possibility of farther consolidation.

*  Readers volition retrieve that I intermission the uptick/downtick statistics into carve upward measures of buying pressure level together with selling pressure.  The buying pressure level has been really strong over the past times 5 trading sessions.  Returns 3-5 days out induce got been choppy, amongst piffling edge, but 10 days out nosotros come across fifteen occasions up, 2 downward for an average gain of over 2%.  We’ll ask to come across distinct selling pressure level to entertain a provide to a bearish regime; we’d too ask to come across VIX transcend 20.

*  Put/call ratios induce got come upward downward quite a chip from the recent marketplace seat lows.  That’s some other argue I wouldn’t hold upward surprised past times sloppy trading close term.  I too banking concern complaint the upside breakouts inwards emerging marketplace seat currencies (CEW) together with commodities (DBC); both are reversals of the previous bearishness only about China.

Tuesday, Oct 6th

Great summary of my recent podcast amongst Better System Trader from The Waiter’s Pad; thanks, Mike!

*  We saw really proficient follow through to Friday’s strength, every bit the volatility addition the buying flows (volume-weighted NYSE TICK) created pregnant upside momentum.  We saw 780 stocks across all exchanges brand fresh one-month highs against 143 novel lows.  We’ve come upward off a chip overnight together with my models are moderately bearish over a 3-5 24-hour interval horizon, together with thence some consolidation is to hold upward expected.  My sense, however, is that many traders induce got missed this rally together with volition hold upward interested inwards buying dips, which could maintain consolidations modest–as much inwards fourth dimension every bit inwards price.

*  Another argue I aspect some consolidation is that we’re quite stretched on a short-term basis, amongst over  90% of SPX shares trading to a higher house their 3, 5, together with 10-day moving averages.  When we’ve had a moderate VIX nether those circumstances (between fifteen together with 25; northward = 12 going dorsum to 2006), the side past times side 24-hour interval has been upward iii times, downward nine for an average loss of -.12%.  Indeed, 10 of the 12 occasions posted a lower closed over the side past times side 2 trading days.  That beingness said, the side past times side 10 days induce got been 8 up, four downward for an average gain of +.37%, amongst 10 of the 12 occasions posting a higher closed inside 5 trading days.  So non much border inwards general, though my base of operations instance is to come across consolidation inwards the side past times side 24-hour interval or 2 that is worth buying into.

*  I mentioned yesterday that I’m keeping an optic on VIX.  We’re below twenty for the offset fourth dimension inwards a while; if whatsoever consolidation does occur inwards a flattish fashion, reducing realized volatility, that would advise a provide to the one-time volatility government together with would hold upward bullish overall for stocks.

Monday, Oct 5th

*  In my Forbes blog, I review ane of the best marketplace seat books I’ve read inwards a long time.  It’s a detailed handling of high yield markets together with a keen reminder of how nosotros tin acquire a keen bargain virtually the markets nosotros merchandise past times studying together with agreement related markets.

*  Fri was a 24-hour interval worth studying inwards detail.  We had a weak payrolls divulge together with stock futures sold off hard.  We opened amongst selling on the day, every bit NYSE TICK striking several quite negative figures, but cost stopped going lower together with the downticks began making higher lows.  This emboldened buyers to come upward in, upticks swamped downticks, together with nosotros injure upward amongst a really strong 24-hour interval to the upside.  That forcefulness has continued into overnight trading, every bit it indeed appears that nosotros induce got successfully tested the downside.  The oversold intermediate-term indicators that I referenced concluding calendar week volition non striking overbought levels for a land together with volatility appears to hold upward at the bull’s back, together with thence I aspect an environs inwards which pullbacks volition hold upward bought.

*  I volition hold upward watching VIX closely here.  One thought I’m playing amongst is that we’ve entered a higher volatility regime, much every bit what happened inwards 2007 prior to the 2008 deport market.  VIX by together with large bottoms ahead of stock marketplace seat highs and, inwards the electrical flow environment, that wouldn’t surprise me.  That 2007 menstruation was a rangy topping marketplace seat amongst proficient swings due to the higher volatility.

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