SPY gives a possible BUY opportunity 5/31/11

My SPY trading system gave a possible BUY opportunity signal today. I can use a Buy Stop at 134.92 for tomorrow. This means that it is saying I can buy SPY if it exceeds 134.92 price. Market close was at $134.90. I would prefer a Buy Stop value slightly above today’s high of 134.92 at 134.95 but I realize we are splitting hairs at this point. The trading system is giving a possible buy signal after a long sideways movement.

I have also noticed that my OBV (On Balance Volume) line graph located above the volume bars at the bottom of the chart has broken its down trend line. That is a promising signal. Up volume appears to be supporting the trading system’s call.

I will use the signal to add to my long positions in my 401K if SPY exceeds 134.92. I will follow my system...

 

Ford (F) turns down 5/24/11

I see that a down signal was generated end-of-day on Ford stock. When I look at the chart, it has been looking weak for a few days. It is right at the 200 day exp moving average (black line); but below the 50 day ema..
If you are a die hard Ford investor, you can place a sell stop below the previous low of 14.49. Or you can get out now and wait for the Up signal later, whenever that happens...

The Market has been moving sideways - SPY 5/21/11

Traders get frustrated when the markets go sideways. Everyday they try to predict if it is going up or down. Being wrong frequently on direction gets frustrating. Emotions take over. They look at the last 5 days and decide which way the trend is. And in a choppy sideways market, that can cut you down at your knees!

After 5-6 months of trending up from 9/15/10 to about 2/15/11, the market has paused for breath. That is totally understandable and expected. Markets do not defy gravity forever… so we settle down and say it is going sideways. But for how long?

What would trigger it to move again? The end of QE2?

I think that is factored in anyway and may very well be why we have been going sideways.

The beginning of QE3? Nope… we don’t think that there will be a QE3 per tea leaves reading from Mr. Bernanke

I think the market has to ultimately shift from the medicated state (ala Mike Santoli quote) it has been in, to surviving on its own. Is there enough steam behind the corporate earnings to now take on motion of its own? Probably for a while longer. We will find out soon enough. No one knows. Till then, let us just settle on that it is a sideways market. A pullback is reasonable before it continues its drive up. And so far the pullback has been extremely modest. Let me stop here and not over-analyze it any more. I got the picture. It is sideways.

What Year is it? A talk by Michael Santoli from Barron’s magazine

Rating: A-

Yesterday I went to the local AAII chapter meeting and heard Michael Santoli from Barron’s magazine talk about What Year is it?. I was very impressed with Mike’s knowledge of the markets, his ability to tie the pieces of history together (he was a history major) and fluently speak about it to a group of about forty mostly white haired gentleman and a few ladies..

Have we been here before? Are we in a third year of a bull market or the first year of something else? He pointed out that an equal weighted S&P 500 index RSP has hit new highs but an index like SPY based on aggregate wealth in the S&P500 is flat, weighted down by the big ones. Right now the Fed is giving us the green light. The market has doubled from its lows, and is reacting to profitability by the companies in its index. He thinks this may last 3 to 4 quarters and after that could change. The emerging markets have been heating up and China has started raising interest rates. Europe is pulling back and raising interest rates and may find itself back in a recession. Bernanke and the Feds are still going through QE2 and is on a track different the rest. The economy and big businesses are still getting all the help it does not need. Big companies are flush with cash. Yahoo, IBM, MSFT, CSCO to name a few. Mike feels we are in for leveraged buyouts in the future. MSFT $8 billion buy of Skype is an example, and that makes hedge funds that short the markets wary. Everyone is selling you the things you missed buying in 2008.  Mike does not think we have a relapse coming. Expect choppiness as we anticipate the end of QE2 Fed’s quantitative easing program, and it is unlikely that there will be a QE3.

The function of the stock market is to capitalize the future value of companies. Big companies are still making profits and the rise in stock prices have been closely related to their profits. CEOs prefer to be cautious about profits in the future.  And being conservative is looked upon well. Still, companies that have been making good monies in emerging markets are having a hard time keeping their enthusiasm down.

Regarding commodities like Gold – he discussed that gold prices are based on market demand. The total gold in the world would fill two Olympic swimming pools. The ETF GLD now holds about 5% of the gold in the market. He thinks that the commodity bubble is not done yet. The ride down of the US dollar has brought manufacturing back to the US. The auto companies are now better sized. He finds commodity related stocks interesting.

He discussed several of the past crisis we have had and possible causes. This is the third consecutive jobless recovery. He felt that the ’87 crash might have been induced by Jim Baker saying we will not defend the US dollar. The 80s double dip recession was engineered by the Feds controlling interest rates. Regarding high frequency trading, he pointed out that the ideal high frequency trades occur during 11:00 AM – 2:00 PM where the index has low volatility and pings between two values, reverting to the mean. The speed of information transfer and ability to leverage it has changed and is approaching the speed of light. News pieces are being sent using algorithms that computers can understand and respond to, much faster that humans reading a news piece. Whereas before, a 20 second lead in news release was significant, they are complimented for a 400 millisecond lead … and the distance of servers from the trading locations are another battle frontier.

The individual trader cannot compete by scalping on a second by second basis. But for us a loss in opportunity is not a cost. Time arbitrage costs are not a problem – 1 month holding is an advantage for the individual trader, and our costs for trading have come down significantly. I gathered that he felt swing trading was still a good place for us to be. No one knows what the future holds. There will always be opinions and we should keep our eyes and ears open; but I was even more convinced that the best weapon I have is my market timing systems that will react to what the market is doing on a slower time frame, capitalizing on macro trends. Perhaps the better talking heads will give us a good idea of the WHERE to place our money instead of the WHEN.

- I thoroughly enjoyed Mike’s talk and will track his work and writings in the future.

SPY makes Higher High and Higher Low 5/6/11

There are trading system signals and then there is chart reading. Sometimes the two do not exactly agree with each other. 

What is an uptrend? When the chart shows that higher highs and higher lows are being made we can say we are in an uptrend. The opposite is true for a downtrend, when lower highs and lower lows are made.

May 2nd we had a higher high and then SPY pulled back and looks like it is making a higher low. The previous low and support was on 4/18 at 129.51. The most recent low was 133.02. We will have to see if the formation shows that this in fact is a higher low. Next week’s action will be telling. But for now, that is my chart read on SPY.

On the other hand my trading system is still saying Exit on Long on 2/23/11.

What do I do? Listen to the chart or my trading system?

I will continue to stay long but will keep my hedge on the down side. I believe in first reading charts from a purist standpoint. Next I will pay attention to the trading system and what it signals. It too has a voice in the determination however and helps keep me from getting too subjective.

IIF gives down signal

The IIF (India Fund) has turned down and given a down signal. Not much to say other than what the signal says. Not all the signals will be profitable. In fact many of these systems are no more than 50% chance of success. Where it helps make money is that the win:loss is usually in the 1.6:1.0 range, meaning the wins are worth more than the losses.