10:56 am - SMH is approaching a new 52-week low and looks like a great short on the daily chart if it breaks below 22. However, it will probably bounce off 22 if it tests that price level. We will ONLY be shorting if it tests the 22 area, bounces off of it and THEN confirms the break of support by dropping below 22 again. To reiterate, we will be looking to enter short around 21.90 AFTER the first test of support, subsequent bounce, and THEN the break below 22.
As part of our continuing analysis of various ETFs, we chose OIH for analysis this week because it is one of the ETFs we are trading this week due to expected volatility over Middle East tensions. Since we cover a different ETF each week, you can view earlier parts of this thread to read about ETFs previously discussed. The purpose of this analysis is to enable you to understand the underlying components that comprise each ETF, as well as the bearing each respective stock has on the associated ETF. OIH is the ticker symbol for Oil Service HOLDRS Trust and is one of seventeen different HOLDRS issued by Merrill Lynch. In addition, OIH is one of only six HOLDRS that trades an average daily volume of more than 300,000 shares. As explained in the August 19 issue, HOLDRS is an acronym that stands for HOLding Company Depositary ReceiptS (pronounced "holders"). These securities represent ownership in the common stock or American Depositary Receipts (ADRs) of specified companies in a particular industry, sector or group. A complete list of HOLDRS can be found by going to the HOLDRS web site. OIH is comprised of individual stocks represented in the Oil Service Index, which trades under the ticker symbol OSX. The index is comprised of companies whose primary source of revenues is derived from oil-related services such as drilling and drilling machinery. Prior to the inception of the Oil Service HOLDRS ETF, we frequently traded a basket of oil service stocks including Halliburton, Schlumberger, Diamond Offshore, and Baker Hughes. However, since the inception of OIH, we have been able to realize the same benefits of diversification on an even broader basis with a deep savings in trading commissions. It is also much easier to manage one position than a basket of 5 or 6 positions. Since OIH is a composite of many different stocks, it trends better intraday, making technical analysis easier and more accurate. We simply base our OIH trade entries on the movement of its respective sector index, OSX. Here is detailed look at the composition of OIH. An explanation of how to interpret this data is listed below the chart: Company and Ticker: Pretty self-explanatory. This represents the name of the company and associated ticker symbol for each individual stock that comprises OIH. Shares: This is the quantity of shares of each individual stock that comprise one round-lot order of OIH. A round-lot order is equal to exactly 100 shares. For example, the total of 205 shares of stock that you see listed above equals the exact number of shares that you receive by buying 100 shares of OIH. By purchasing 100 shares of OIH, you are buying 22 shares of Halliburton (HAL), as well as the specified number of shares in each of the other 16 stocks. By owning OIH, you also will receive dividends, when issued, from any associated stocks. Furthermore, HOLDRS can actually be converted to the underlying quantity of stocks by requesting your broker to do so. Price: Simply the last price of each stock that is listed, based on the closing prices of Monday, September 16. Market value: This is found by multiplying the number of shares of each stock times the last closing price. The sum of the portfolio's market value will always equal the current price of 100 shares of OIH. As of today's close, the sum of the market value was $5,215.68. Taking that number and dividing by 100 shares equals the current price of one share of OIH. Here is how we derive the price of OIH: $5216 (market value) / 100 (one round lot of shares) = $52.16 per share of OIH. Notice that the closing price of OIH today was $52.34, within 18 cents of the actual value of the components. Sometimes there are arbitrage opportunities in instances when the value of the ETF strays too far away from the value of the underlying securities. However, it is difficult to arbitrage an ETF such as OIH because of the wide spread that is usually present; it works much better as a multi-day swing trade. Percent Weight: Represents the current percentage of the entire portfolio that is represented by that one stock. This percentage will constantly be changing as the market value of each individual stock changes. However, the number of shares of each stock does not change. For example, if Tidewater had a really strong up day but the rest of the Oil Service stocks did not rally much, it would result in an increase in the percentage weighting of Tidewater within the portfolio. One strategy we have found to be effective is to set up a group of quotes with your data provider that lists each stock within OIH. As you are trading OIH, you will find that watching the performance of the individual stocks enables you to get a better idea of the relative strength or weakness of OIH, especially when the price of one of the stocks in OIH is being heavily affected by news. Below is a screenshot of a market minder that we have set up to follow OIH. Notice how we have the stocks sorted by percentage change so that we can quickly see who the best and worst performers are within OIH. We can then compare their performance with their percentage weighting to predict short-term price movement of OIH in relation to the OSX index: Notice that HC was the only stock in OIH that closed severely down on the day. However, because its weighting in OIH is so small (less than 1%), it did not affect the overall price of OIH very much. It is helpful to have printed copies of the underlying components and a market minder following each sector because it enables you to analyze the importance of price divergence of particular stocks throughout the day. Once you begin to memorize the individual components and weightings of each stock, you will find significant improvements in your profitability.
The Wagner Daily September 19, 2002 -------------------------------------------------------------------------------- Commentary: The major market indices gapped down below support on the daily charts yesterday and trended down for most of the morning session, enabling us to profit from a few short positions. Although there were not any major support levels in the vicinity, the selling slowed going into the afternoon session and formed a double bottom, prompting us to take profits on our short positions and watch for a possible reversal. Upon completing a bullish inverse head and shoulders pattern intraday, we entered a few long positions and rode them up as the market proceeded to fill the gap from the morning and set new intraday highs. After rallying directly into major resistance from the prior three days, we set tight trailing stops to lock in profits right before the S&P and Nasdaq were once again met by selling into the final thirty minutes of trading. Overall, it was a good trading day that enabled us to be profitable in all five of the trades we entered. Perhaps the most important event that occurred yesterday is that the S&P index broke below the neckline of the head and shoulders pattern on the daily chart we were discussing last week. As such, the predicted move is eventually a 90-point drop in the futures, down to about the 790 level. That being said, head and shoulders patterns on a daily chart rarely follow-through in a smooth trending manner. For example, even though we broke the major support level of the neckline yesterday, the markets still attempted to recover in the afternoon session before eventually closing near the lows. This type of indecisive trading action requires you to be alert and ready to shift your directional bias at a moment's notice. Also, volume has been picking up for the past two days which suggests the selling momentum is increasing. A spike in volume will usually mark a short-term bottom. Although the primary purpose of The Wagner Daily is to seek out low-risk, multi-day ETF swing trades, we sometimes must adapt our style to that of the current market environment. As evidenced by the past few days, we are not presently in a market environment that is conducive to multi-day swing trades because of the lack of follow-through we are seeing in any trades with a duration of more than a few hours. This is largely the result of all the international political variables the U.S. is facing, not to mention the start of earnings warning season (with another bomb dropped by EDS after the close yesterday). Therefore, we have been primarily making intraday trades during the past week because overnight exposure results in increased risk. Once we see more closure on the Iraq issue (which apparently did not occur when Iraq agreed to admit weapons inspectors), it should result in a smoother trend eventually becoming established, which will allow us to begin taking more overnight trades. Until then, we need to adapt to current market conditions by taking what the market gives us. Five winning trades that each net 30 cents of profit is still the equivalent of one winning trade that nets 1.5 points (except a bit more commission). -------------------------------------------------------------------------------- Today's watch list: SPY - SPYDERS (S&P 500 Index tracking stock) Sector: n/a Short Trigger = HALF position at 86.18, HALF position at 85.90 Target = 83.60 Stop = 87.05 Notes = Given the weak close yesterday, as well as the pre-market weakness in the futures, odds are decent that SPY will break yesterday's low. If yesterday's low is broken, there is not much support on the daily chart until the low of August 5, around 83.50. We will short half position just below yesterday's low and another half below the whole number at 85.90. Our stop is just above yesterday's close, but we may tighten it if market conditions warrant. Remember the gap rule -- we don't short a gap down that triggers on the open without waiting for confirmation of the break of 20-minute lows. -------------------------------------------------------------------------------- MDY - S&P MidCap SPDR ETF Sector: n/a Short Trigger = 76.90 Target = 74.50 Stop = 77.80 Notes = Similar play to shorting the SPY. If we break yesterday's low, next support (target) is the low of August 5 at 74.40. Stop is just above yesterday's close. Standard gap down rule applies. -------------------------------------------------------------------------------- Report Card: We netted roughly 30 cents profit on each of the four intraday trades we entered yesterday, as well as with the SMH overnight short that we covered. Through the use of trailing stops, we were able to lock in profits at the most ideal levels with each of the trades we entered. We went to all cash overnight. Closed Positions: SMH short (from overnight) - shorted 21.82, covered 21.48, closed with + 0.34 SPY short - shorted 86.95, covered half at 86.43, half at 86.88, closed with + 0.34 (average) DIA short - shorted 81.44, covered half at 80.89, half at 81.37, closed with + 0.31 (average) QQQ long - bought 22.03, sold half at 22.33, half at 22.45, closed with + 0.36 SMH long - bought 21.27, sold half at 21.53, half at 21.68, closed with + 0.33 BBH long - (never triggered) -------------------------------------------------------------------------------- Open Positions: (none) -------------------------------------------------------------------------------- Glossary and Notes: Remember that opening gaps that cause stocks to trigger immediately on the open carry a higher degree of risk because the gaps (both up and down) often do not hold. Use caution if trading stocks with large opening gaps. Trigger = Exact price that stock must trade through before I will enter the trade. If a long position, I will only enter the stock if it trades at the trigger price or higher. For a short position, I will only enter the stock if it trades at the trigger price or lower. It is really important to only enter the position if the trigger price is hit, otherwise the trade becomes riskier. Target = The anticipated price I am expecting the stock to go to. However, this does not mean that I will always hold the stock to that price. If conditions warrant, I will sometimes take profits before that price, in which case I will notify you of the change. Stop = The price at which I will have a physical stop market order set. As a position becomes profitable, this stop price will often be adjusted to lock in profits. Again, you will always be notified of such changes in the next daily report or intraday if you subscribe to intraday updates. SOH = Sit On Hands (Don't Make Trades) Closed P&L under Deron's Report Card is based on the actual price I closed my trade at, not just the theoretical target or stop price listed for each stock. Open P&L is based on the closing prices of the most recent trading day. Unless otherwise noted, average holding time is 2 days to 2 weeks once a position is triggered. Updates on open positions are provided daily.
Thanks for the info. I am sold on trading ETF's as well. They are super liquid, and diversified as well.
This week marks the violation of the head and shoulders neckline of the SPY and DIA. I wrote an article about it, which includes a very basic primer on what a head and shoulders pattern is. Also, keep an eye on OIH long. It started to show signs of life today and had relative strength to the market. We will be watching that one in tomorrow's session, especially given the high price of crude oil. I will also be analyzing a new ETF next weekend and will post the analysis here. Might be looking at the fixed-income ETFs such as SHY.
Yesterday's relative strength in QQQ and SMH hinted at a rally today, which enabled us to take some long positions in the technology-related ETFs. We are currently trailing stops on both SMH and QQQ swing trades. Because we have spent a lot of time trading QQQ since Monday, I wanted to share our observations regarding changes we have noticed since ISLD eliminated access to view their order book: 1.) The AMEX specialist now has a wider spread than ever before. When ISLD quotes were being shown, the AMEX specialist rarely had more than a 5 cent spread. However, I have noticed the average spread for AMEX is now somewhere around 10 - 15 cents, which is total BS! Even with the strong market momentum today, AMEX was continually bidding a nickely below the best bid, which was usually the third market or a different ECN. 2.) It seems like Instinet is suddenly the execution platform of choice and that many ISLD traders have simply switched to Instinet. It is my hope that Instinet picks up the liquidity that ISLD formerly had because I sure as hell don't want to execute through the AMEX anymore! Just my observations, for what they're worth. . .
Deron, I have also placed a long swing trade in QQQ, based on the fact that QQQ close above the intraday high of the previous day, and it also closed above its 5 day EMA. When you swing trade ETF's do you set sell targets, or wait for a reversal day? I am currently looking to sell at the 20 day ma. Thanks, Kevin
Hi all, does it have sense to use not only NDX chart as indicator for QQQ trading but also whole Nasdaq Composite (COMPQ)? Is it used by somebody who is (day)trading QQQ ? Or purely NDX only ?
Hello, I also use nq emini futures as leading indicator. I use also NDX chart. Now I am wondering if it also have sense to have opened also COMPQ chart.