http://www.tradermike.net/inverse-short-etfs-bearish-etf-funds/ list of inverse funds Chart of VIXY breaking higher- it likely will recede lower as the day goes on, but this increase in volatility is not what investors want- The higher the US dollar goes, should affect the multinational companies- So DOG - a 1:1 short of the Dow may prove to have some fundamental basis With JPM leading the big banks lower, another financial missing earnings would likely push the entire sector down further- SKF Position taken in DOG- 64 $23.86 a lower Risk trade with a well defined area to gauge where the POF lies. (dbl bottom) While typing, SKF moved higher and I entered a bit higher than I intended- 30 @ $54.78, a larger RISK trade although position size is approxomate to DOG- This used up my "freed cash" for the day, else I would have taken another position- VIXY is out of my reach-
1.14.15 The big sell-off did not reverse, but became less severe going into the close- Both of my late am entries are slightly in the red tonight, but that was not unexpected. Both of these 'short' positions are counter-trend trades- and perhaps the market selling is going to abate as Oil rallied today, energy was up- but I think the likelihood is that this decline will have made many investors more skittish, as it has caught most unprepared- Particularly -us retail folks- When we have a big down day, that closes better- is it a bottom? or just a pause? There will likely be an oversold bounce here- but is today a bottom for the market's decline? It all depends on what Investors find to hang their hat on as good news. If we get a market bounce for a day or two, it may get the volatility trades pulled back enough to consider taking a position. Biotech and Utilities were both up today- safety plays? Listening to the market pundits- The US Dollar is expected to go higher- Bad for foreign trade on a currency basis- Rates are expected to stay low- bad for banks- and banks are under greater regulation- and scrutiny. Oil may have a short term rally here, but 'experts" like Gartman- think Oil could go much lower- Another 'Expert" suggests that OIL has been overpriced- that the Saudis will produce at lower sell points until the other producers quit competing. On the plus side- why are lower oil costs bad for the global growth story? Why has not the US consumer spent their gas savings by buying more goods? Why would the market not be rallying on a declining energy cost and selling on an energy rally? It seems convoluted thinking. If OIL indeed gets priced cheaper- it is a bonus for the consumer and the mfg of all oil related products- including chemicals- plastics, heating oil, gasoline, diesel, jet fuels, cruise boat fuels, - WHY is this not seen as a huge world wide stimulus? Very quickly, reduced energy expenses will translate into higher balance sheets, and the opportunity to produce or transport goods for less monies. If thought about this rationally, other than hurting the energy producers with tighter margins- is lower energy not a win-win- for most all other business ventures that pay for energy as a % cost of doing business? It extends across virtually every market segment as a declining expense on the balance sheets. Eventually, the consumer will be spending those extra dollars they are saving- perhaps on their health care premiums-. I don't think this week is the bottom at all-despite any rally that might occur- Just my Bias- but the investor side of me is starting to think about scaling back into some investment decisions gradually- I am largely in cash on the investment side, and glad to have been there- but how far are we from a lower market level? Might assess this better over the weekend-and think about scaling into some investment funds-- I'm thinking along the lines of value-dividend focused holding a larger weighting, and perhaps greater exposure to the emerging mkts. Back in the trading account- Even with a possible Rally over the next day or two- I think I'll stay with both short trades .
With the Swiss shaking up the currency /banking markets by cutting rates and no longer pegging it's a currency to the Euro? And with a big ECB meeting next week; INTC disappointing on forward guidance, Jaime Diamond saying Banks are under attack- Oil lower, all market sectors in decline-AAPL downgraded, some recent tech flyers declining. I'm not sure there is a valid impetus that will reverse the market higher Friday- That could come from almost anywhere though- I got out a bit earlier than expected, and caught the market prior to the close- The IBB position was declining- but i elected to hold for now. I may reassess that tonight- The XLU went higher today- a "flight to safety" by investors- and Gold higher as well. As i had some additional cash "Freed" - I added to the SKF position bringing it up to a Full position. I allowed DOG to remain at a 2/3 . The QQQ's were a larger % decliner -1.48% today, than either the Dow -.48% or S & P -.92%. I took a short Q's position with QID (2/3) , and took a .5 position in HDGE- an actively managed fund that shorts anarrow basket of equities. The markets are off the highs by approx 4% - a relatively minor pullback- People have argued that a 10% correction is not only overdue, but is healthy for the market . I'm hoping to employ these short focused trades going into early next week, and be able to trail stops and lock in some profits- Typically, the market will not put in too many consecutive days in any one direction - so how will traders position themselves tomorrow (Friday) going into the weekend.
Heading off this Friday- futures down this hour- but not severely- GS reports today- A bank and a Dow component- If their report is not positive- it could move both the Dow and the banking sector - SKF. Hope to get back in pre market close today.
Got in 3 pm- Market was in rally mode across most sectors- with energy the stimulus- Not trying to fight the momentum, I raised all stops to just below the swings made intraday, and all in short order (pun intended) stopped out. Additionally, I bought partial positions in XLE and GLD- at the close. GLD is seeing strength due to the currency concerns/fears. Should be a short term trade. Swiss stock market dropped 14% in 2 days Santelli says- Wow! FXCM lost 88% of it's value due to exposure in the Swiss currency. Was closed for trading today at $1.59 - It got funding this pm - An oversold bounce- likely- Will the markets continue lower - or was today the 'bottom'? No way to tell- but the input i get is that the rest of the world's economies are not in great shape- the US $$$ is the safe haven trade- the US MKTS are highly valued- but as the dollar increases, the valuations can also go higher - but eventually, it has to come back to a median level- I don't understand the macro economics- and they seem to change depending on who is at bat- have to see how the market behaves- I took some of the monies in the Investment account and made some conservative focused purchases- to see if there is an upturn in the near term. In Total, I am closing this week down 2% from the account high- I was delayed in entering some of my recent positions- and I will look to get a better entry on trades next week- once cash clears.
when to hold em and when to fold em? Holders of individual stocks can be rewarded with a stock leading it's sector higher- or being a laggard on the sector performance- Holders of the ETF will have to settle for the averaged performance the ETF delivers for it's combined holdings. One may be able to select the sector leaders, and get sector beating outperformance- Individual stock picking can outperform the sector- or the index- but things also can change with the higher risk of individual stock ownership. Past performance is no guarantee of future performance as they say in the disclaimers. The advantage of the ETF-sector- or index- is that it provides exposure through a larger # of holdings and while it dilutes the return compared to having selected the better performers, it also eliminates that single stock risk. Most stocks generally trade in the same direction of the sector - some leadership stocks may lead the sector- higher as well as lower- Looking at JPM and BAC as 2 large bank components in the financial sector on a price performance chart with the xlf index. Notice that BAC started off the year with significant sector outperformance, but that leadership dropped in the 1st quarter and has since reversed to the downside- While the 1 year shows the sector still positive, but BAC has lost 16% in just a few weeks. while the sector has dropped just 8% In the financial sector XLF- BAC started the year out with a strong move higher relative to the sector- It appeared to be leading above the sector , but following a few months of outperformance, fell and lagged the sector. It appears to be that much more volatile. Over a 3 year period - BAC has outperformed the xlf by 80%- but the past year has not been good as BAC is negative on the year, and in decline- possibly near the lows of the past year. Friday's market rally may have paused the market selling for the moment- but I think the sector goes lower- and BAC as well. ($14.00-$14.25 target) I will look this week to resume a short of the financials using SKF- Much depends on the news from Europe where we go.
COMPARING SECTORS- XLF-$SPX- and SPY I find this 3 year chart interesting- for several reasons- It shows how closely the financial sector tracks the $SPX- very highly correlated in recent times- while periods of underperformance in the xlf initially. When adding the SPY into the chart, I was surprised by the % outperformance of the SPY to the $SPX. Since the SPY is the index that tracks the $SPX, it's daily performance should be just a slight bit less. In checking the price charts 1.3.2012 - 1.5.2015 I find SPY gained 69.91 and $SPX 59.99 In this chart, I added a couple of Indicators-based on the price action of the S&P 500. Indicators lag- once upon a time I thought they were "The Answer" - if I could just get them all aligned just so.......I don't use them often- but they are useful in that they can measure things that are not easily apparent when viewing a price chart only. The RSI measures momentum strength- and is presently declining on the weekly http://stockcharts.com/school/doku....hnical_indicators:relative_strength_index_rsi The MACD - http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:macd-histogram In the price relative chart of the SPY, I have included the RSI 14 and the 12.26.9 MACD histogram only- These are useful as they give a sense of underlying momentum strength. What the indicator cannot tell you is when the price action is actually going to respond differently- IF at all- "Divergence" - it means that price is going in one direction - and the indicator is showing something different. In the present chart, price relative is still climbing higher, but having a pullback.all within the channel uptrend- THE RSI is making lower highs as price has climbed. This is a divergence- It can continue for an extended period - and price can still move higher- The blue bars are the MACD histogram, now below the 0 line has generated a 1st bar lower- Again, this does not mean that price has to go lower- and perhaps if it does, it does not occur for some time- yet- Looking at the past 3 year chart, typically a 1st histogram bar under the 0 line does not often bounce right back to above the 0 line-although price can indeed move up some, the histogram will lag in following. The Histogram is useful as a momentum directional "check" - if the bars are below the 0 line and increasing in size- momentum is to the downside- If the histogram looks like an upside down layer cake with a series of steps, and a shorter step appears, it indicates- for that period moment- that the momentum down is slowing- The indicators on one time frame may be entirely different on a different time frame. I'll post the price relative chart with the added indicators here, and try to add a SPY chart separately
I put some Investment dollars to work at the close on Friday- Monies I had withdrawn in December, and felt that now was a good time to step in on this pullback- Having a bit of Buyer's remorse at what may just be a market bounce here- I'm sure many can relate to getting into a trade too early thinking it was a "bottom" only to find it has a larger distance to go further- What is doubly troubling is these are mutual funds- cannot put in a stop-loss-and they only trade at the market close- I can move monies within that account at no commission charge, but I don't care for the arrangement-Also limited to $4,999.00 sell in any one fund or it closes me out of that fund for 30 days to discourage market timing. Since this is an employer sponsored account and generates some Free matching $$$, I have hesitated in shifting this account to Vanguard-and want to see how well I manage the trading account $$$ this year. It just makes sense to shift the majority of those assets into a Vanguard Brokerage account, set up an asset allocation model, and plan to set some stops as well. I now have approx 30% of total assets back in the market-Overly bearish I'm sure. When making decisions on moving monies around, it is easy to react to the news of the day, a fluctuation up or down , and think I should get in -or get out- With Investment assets, it pays to have a less reactive view, ignore the short term volatility and keep an eye on the overall trend direction- and momentum. THE ONE investment i added to in 2015 was a mutual bond fund- trend looked good on the chart, and i stayed with it . it had a surprisingly good performance in municipal bonds. I don't know how long that trend will continue in 2015, but I will expect that it may good for some time- particularly as market volatility increases. at some point, all good things end, and I need to continue to learn to allow winning trades to run, give them a small amount of reasonable room- and cut those potentially losing trades early with no regrets.
On Holding a losing trade- We've all likely done this. fundamental traders have beliefs about the value of their investments, and expect that the markets will eventually become conscious and come to the same rational conclusion. Traders should not have the same excuse to stay in a losing position- Unless their goal is indeed to become a long term Investor.. We can-and will get caught - as Investors- or Traders in a price turning against us. Sometimes it occurs just overnight on an earnings report,That may have not been foreshadowed... a change in the market that has been coming for a while, or an about face due to other elements affecting the position are often telegraphed in advance by a slowing momentum. Sometimes, this momentum slowing sets the stage for a higher run- but it can also foretell of a pullback/decline. The astute price action trader likely can see such signals leading up to the decline, because of their skills and experience- Others- rely on other measures- such as Indicators and oscillators- and moving averages- to help them interpret the subtleties of what they cannot discern in the price action itself. Indicators and oscillators take some portions of Price action and translate that into a graphic that the viewer can easily understand- What one is viewing is based on past price action, and that does not necessarily mean it will continue in the future. For my short term trading- a faster chart and some moving averages- and understanding of the larger trend and where my entry is positioned is a good start-One should have trend lines on the predominant trend- Weekly-Daily-hourly.... As far as keeping one from holding on to a winning trade too long, or getting into a winning trade too early- or too late. I started to think about what is perhaps useful indicator - and i am presenting this outline of the MACD histogram as something one may find beneficial. Read stockcharts to learn more about this indicator of an indicator- http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:macd-histogram There are a lot of ways one can format this indicator to serve their purpose for study and backtest to see if it helps or hinders and should be abandoned- I will be looking at testing this out in my own trading- to see if it helps- One can vary from the standard 12-26-9 period- the faster the period one uses- as with any indicator, the information will be based on less averaged information.More timely- Technically,yes one could simply use the 0 line cross as an entry and exit. One could speed up the slower 12-26-9 - and modify it to a "faster" response time- With a faster response comes more timely and earlier signals- and more false signals-as well. For illustration- and some possible "rules" -I put a moving average ( your choice ) on the histogram itself in the charts- So, one guideline would be- when price and the histogram is increasing, and above the moving average line- stay long the trade- keep the stop held back- as the histogram starts to decrease below the moving average- it is just indicating momentum is slowing- but that is a caution as well - watch price action relative to the moving average- as long as price is closing above the uptrending ema , the trade should be held, but stops may want to be tightened for some of the position when this occurs. Once the trade drops below the ema, the histogram will also likely drop below the 0 line and the histogram bars are below the declining histogram average line. The trade should theoretically have been exited by this point. As price declines, and possible momentum lower increases, the histogram bars will increase in size away from the 0 line. This is a clear signal to Not take an entry- yet- When the declining histogram steps back to become a smaller bar, it suggests the momentum is perhaps slowing- possibly a change in direction. It is a tenative early signal to look to take a long position may be sizing up. One could view the price action at that moment to determine if a trade may be taken- Or , one could wait and get a 'safer' but delayed signal, by waiting for the histogram to close between the 0 line and the histogram ema line- This is also below the ) line - and early and aggressive- One could start by testing the conventional 12-26-9 and seeing how well the 0 line crosses work as entry /exits- and then consider modifying - and back testing- What may prove useful is how long one could have stayed in a winning trade but jumped out early, and stayed too late as a winning position turned and declined. If interested, check this out on your past trades, and determine whether it has promise- As with most indicators- the information itself should not be the sole criteria to make a trade decision based on just this one indicator- The chart period i used on the SPY was just a 1 year period- and this indicator looked interesting in keeping one on the proper side of the trade- One would have to test this through each successive period to find where it falls short. False signals in non-trending periods- One could also consider splitting a position depending on one's entry and overall gain.
aS A FOLLOW UP : i did a bit of a napkin on the table price backtest using just the faster macd indicator on a weekly chart over the prior 3 years- The market returned 80%, and the macd weekly returned 55%- I expected higher results- perhaps i made a math error or missed an entry/exit- but not 3 or 4 such entries/exits. one would be inclined to disregard this type of approach based on these results- but this has been an unusually bullish trending market. This short term "study" did not include periods of considerable selling . Also, this backtest was based on signals occurring on one week's closing value, and entering on the following week's value at the open. With No discretion. i think the initial results would be improved on applying a faster time frame approach-perhaps the daily ...... Something to look at down the road ...... I think that a more responsive approach (faster) not only gets out of losing trades faster, but reenters bullish trades sooner- thereby increasing the potential overall gain within a period. This thinking supports the application of faster charts -even in a longer term type of trade- One has to be able to make an "adjustment " between the time frames- very difficult proposition for myself-