There is still no direction apparent in this market as it continues sideways, however there may be an end of this sideways trend in sight. Not only will the volume and volatility pick up at the turn of the new year, there is also an important date on 12/31/09. I found this cycle after the previous date registered back in September. Although it did not mark a reversal, the market rally was definitely slowed down, only trading higher by less than 5%.These past 3 months of the cycle definitely look less impressive than the previous 6 that preceded during the market rally. With heavy resistance overhead perhaps the market may begin to turn south at the mark of the new year.
Monday, December 21, 2009
Saturday, December 19, 2009
Going on vacation
I am going on vacation for a couple of months and in that time period I doubt I will be making many posts if any at all.
Good luck with your trading and Happy Holidays!
Wown
Good luck with your trading and Happy Holidays!
Wown
Wednesday, December 16, 2009
Do I still remember my login information?
Hey all,
So I haven't written in a long time. I've still been around but I was studying for the CFA examination all this time and I felt it was better for me to take away some time watching the markets and blogging to free up some extra time to study. Anyway I'm back now, and hopefully I can get back to posting regularly. I guess the good news is that the market hasn't moved more than 20 points from when I last left. Its basically been trading sideways and I'm finding recent market activity to be quite uneventful, almost boring.
Unfortunately its not going to get much better until the end of the year I would suspect, I remember this time last year when we had our end of the year rally and I remember the same feeling even. However with the VIX now inching down near 20 we are getting 10-20 point days rather than 90-150 point days from this time last year.
The only thing I've noticed that has really made any significant type of change is commodities. Gold definitely had a nice parabolic run overshooting its channel, typical of a 5th wave in a commodity. Is it done? I'm not exactly sure but I'd like to think so because the dollar definitely is putting together a significant rally. The dollar should be off to a multi-month rally here and if that's the case watch out commodities. Its hard guessing anything near term nowadays but you'd like to think the dollar has to rest sometime and have some type of pullback which will give gold a last pop higher. One thing to note is that the market seems to be ignoring the dollars rally. A lot of us thought that once the dollar reversed higher the markets would come down. This certainly is not the case and one must pose the question if this is relative strength/consolidation building for the next move higher. To be honest I'm not quite sure, there's so many different signals that you can make the argument that the market will go lower or higher. If I had to say anything it would make the most sense the market continues higher as it has on every pullback since March.
I didn't prepare many charts for this update. I promise to do so next time. However I do have one chart that I find to be interesting of longer term history of market breadth.
What I have charted is the up/down ratio plotted with longer term moving averages (on top is 50, and the bottom is 200). As you see the breadth has been pretty strong since March. However both indicators are approaching the upper end of the range. Now if you compare to historical levels the 200dma is now in "overbought" territory and I guess you can say is generating a sell signal. The market can sustain a rally even in these conditions, however I've noticed that if both the 50dma and 200dma generate a common signal (by approaching extremes at the same time) then the market tends to react in the opposite direction. Its almost as if the market is telling you there is way too many buyers right now, time to sell we've gotten way too far ahead of ourselves.
If we use the logic behind this system it would make sense to me that the market should experience one last push higher so we can get the 50dma up into "overbought" territory. Then we can see some type of pullback. That is not to say a pullback cannot happen sooner, because the 50dma is beginning to roll over and prices going higher on weaker volume is never a good sign. Lets wait and see what is discussed in tomorrow Fed meeting. It is at least something to look at during the day while we wait for the volatility to creep back into the markets.
So I haven't written in a long time. I've still been around but I was studying for the CFA examination all this time and I felt it was better for me to take away some time watching the markets and blogging to free up some extra time to study. Anyway I'm back now, and hopefully I can get back to posting regularly. I guess the good news is that the market hasn't moved more than 20 points from when I last left. Its basically been trading sideways and I'm finding recent market activity to be quite uneventful, almost boring.
Unfortunately its not going to get much better until the end of the year I would suspect, I remember this time last year when we had our end of the year rally and I remember the same feeling even. However with the VIX now inching down near 20 we are getting 10-20 point days rather than 90-150 point days from this time last year.
The only thing I've noticed that has really made any significant type of change is commodities. Gold definitely had a nice parabolic run overshooting its channel, typical of a 5th wave in a commodity. Is it done? I'm not exactly sure but I'd like to think so because the dollar definitely is putting together a significant rally. The dollar should be off to a multi-month rally here and if that's the case watch out commodities. Its hard guessing anything near term nowadays but you'd like to think the dollar has to rest sometime and have some type of pullback which will give gold a last pop higher. One thing to note is that the market seems to be ignoring the dollars rally. A lot of us thought that once the dollar reversed higher the markets would come down. This certainly is not the case and one must pose the question if this is relative strength/consolidation building for the next move higher. To be honest I'm not quite sure, there's so many different signals that you can make the argument that the market will go lower or higher. If I had to say anything it would make the most sense the market continues higher as it has on every pullback since March.
I didn't prepare many charts for this update. I promise to do so next time. However I do have one chart that I find to be interesting of longer term history of market breadth.
What I have charted is the up/down ratio plotted with longer term moving averages (on top is 50, and the bottom is 200). As you see the breadth has been pretty strong since March. However both indicators are approaching the upper end of the range. Now if you compare to historical levels the 200dma is now in "overbought" territory and I guess you can say is generating a sell signal. The market can sustain a rally even in these conditions, however I've noticed that if both the 50dma and 200dma generate a common signal (by approaching extremes at the same time) then the market tends to react in the opposite direction. Its almost as if the market is telling you there is way too many buyers right now, time to sell we've gotten way too far ahead of ourselves.
If we use the logic behind this system it would make sense to me that the market should experience one last push higher so we can get the 50dma up into "overbought" territory. Then we can see some type of pullback. That is not to say a pullback cannot happen sooner, because the 50dma is beginning to roll over and prices going higher on weaker volume is never a good sign. Lets wait and see what is discussed in tomorrow Fed meeting. It is at least something to look at during the day while we wait for the volatility to creep back into the markets.
Monday, December 7, 2009
Portfolio Update and GDX Update
This month I pretty much broke even though most of my trades are showing plenty of profit. Even I found this surprising because as I discussed in an earlier post, at least three of my trades were hedges for other trades and I expected them to show a loss. The reason why I have been successful on all fronts is that volatility has risen but the price action has not been volatily enough to offset my negative time trades.
GDX Update
If you are following GDX, you will know that gold dropped pretty significantly in the last couple of days and GDX followed suit by dropping around 12%. My trade, although still somewhat ITM, showed big time losses and my position was greatly altered. As such, I have gone ahead and bought a $48 calendar spread to neutralize deltas as well as prepare for a further possible down move.
I believe GDX could fall as low as $46 if it breaks current resistance. The chart below shows significant fibonacci resistance at $49 and $46. At the moment, we are very close to the $49 mark and today we were unable to sustain the lows. Gold too showed similar patterns and has in fact made a decent recovery in the last few hours.
My overall hypothesis is still that GDX and gold will not fall significantly (and by that I mean GDX at ~$40) until interest rates go up. Meanwhile, I have three targets over the next 2 weeks - $46, $49, $55. More than likely we will see it stay between $49 and $55 which are the two major support and resistance areas.
My GDX Trade
After many modifications and adjustments, I have finally reached the following trade (see chart below). Unfortunately, at this point, I am simply trying to curtail losses as much as I can for this month. My plan is to let this trade go to expiry and then roll it into the next month. I believe that although at this moment I am showing a loss of nearly 10-12%, this will significantly fall because my short options are very overpriced because of the recent volatility. For instance, my 50 Puts are trading at $1.65/contract when there is a mere week left to expiry and the option is OTM.
IV has spiked up and although it is hurting my short positions quite a bit, my long positions will benefit as I roll this trade into next month.
Here is the current (very complicated) trade:
Ignore the colored trades
My only negative trade for the month (which is my GDX trade) is only negative on the books (Mark-To-Market can bring down some of the largest investment banks and may even bring me down!). See below for a discussion on that.
| YTD Return: | 4.19% |
| Month's Return: | -0.09% |
| Best Trade | UNG: +19% (too bad this was also my smallest trade) |
| Worst Trade | GDX: -10% |
GDX Update
If you are following GDX, you will know that gold dropped pretty significantly in the last couple of days and GDX followed suit by dropping around 12%. My trade, although still somewhat ITM, showed big time losses and my position was greatly altered. As such, I have gone ahead and bought a $48 calendar spread to neutralize deltas as well as prepare for a further possible down move.
I believe GDX could fall as low as $46 if it breaks current resistance. The chart below shows significant fibonacci resistance at $49 and $46. At the moment, we are very close to the $49 mark and today we were unable to sustain the lows. Gold too showed similar patterns and has in fact made a decent recovery in the last few hours.
My overall hypothesis is still that GDX and gold will not fall significantly (and by that I mean GDX at ~$40) until interest rates go up. Meanwhile, I have three targets over the next 2 weeks - $46, $49, $55. More than likely we will see it stay between $49 and $55 which are the two major support and resistance areas.
My GDX Trade
After many modifications and adjustments, I have finally reached the following trade (see chart below). Unfortunately, at this point, I am simply trying to curtail losses as much as I can for this month. My plan is to let this trade go to expiry and then roll it into the next month. I believe that although at this moment I am showing a loss of nearly 10-12%, this will significantly fall because my short options are very overpriced because of the recent volatility. For instance, my 50 Puts are trading at $1.65/contract when there is a mere week left to expiry and the option is OTM.
IV has spiked up and although it is hurting my short positions quite a bit, my long positions will benefit as I roll this trade into next month.
Here is the current (very complicated) trade:
Ignore the colored trades
