$SPY – the fool’s game’s not foolin’ for 79% on the day trade

THE FOOL’S GAME – BUYING CALLS AND PUTS FOR DAY TRADES

After SPY’S opening gap, it was very trying trading in the early action as the ETF whipsawed back and forth across its open.

The market’s first ninety minutes chopped out two short signals and two long signals before settling into an downward trend for the rest of the day.

That slide into the close saved the trade for the day. After an initial draw down of $1500 (on a $10K buy-in on each trade), the overall net at the close was $7,900 for the day (or 79%) trading the weekly calls and puts (see the chart below for an illustration). Instead of saying the drop from 8 a.m. (PST) into the close “saved” the day, I guess it would be more apt to say it made the day-trade with this system once again great for the day.

I have upped the ante on what I talk about here from buying $5K worth per trade to $10K worth for each trade simply because it’s easier to talk about percentage gains and losses using that level. The SPY is best for this kind of options day trading because of the liquidity in both the weekly and the monthly strikes. The action today was in this week’s 266 calls with a volume today of more than 63,000 contracts and this week’s 267 puts with a volume today of more than 9,000 contracts, both were in the money contracts (that volume may be skewed by the fact this week’s expiration Friday is also a monthly expiration). Size ranged from 72 to 90 contracts per trade.

With $10 in the trade, it’s also fun to say on good days like today — Made $7900 today with my 10 grand in the market and now I’m flat with no overnight risk! What a fool am I?!

(click on the chart for a larger view)

REMINDER: The commentary presented here is for entertainment purposes only and should not be construed in any way as direct investing or trading advice.

#MarketTiming – said bounce and so it came to pass

Yesterday, my nifty-50 stock suggested a bounce in the market today and so it came to pass.

In the process, the bounce turned long-term breadth up, to go along with the buys now on all of the swing signals (see panel below). With 15 individual buy signals on the nifty-50 list today, the list itself moved to middle ground from oversold which would suggest more to come to the upside.

All of the leveraged index ETFs – TQQQ, XIV, UPRO, TNA – are buys on the open tomorrow, as well as 9 out of the 12 bellwether stocks I follow (see chart panel below).

With all of those positives in the midst of a bull market, one has to assume this is once again going up. Until it doesn’t.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 1).

PRICE: Buy. (Day 2).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Buy, (Day 3).

CONTEXT:

SPY CLOSE – 264.07
QQQ CLOSE – 154.02
CNN MONEY’S FEAR AND GREED INDEX: (60, stalled, greed level).
NIFTY-50 STOCK LIST: 24 Buys; 8 Overbought, 10 Oversold, 15 new buys today, 1 new sells.

(click on the chart for a larger view)

#MarketTiming $QQQ – a bounce nearly guaranteed…

Thirty-nine of the stocks on my nifty-50 stock list are on sells. Nineteen of those are oversold. If that number was 40 sells or more, I’d take out the “nearly” in the title above. Forty is the magic number that brings a bounce in the market within a day or two.

But only 39…so only nearly guaranteed…

See the chart below to view the stretch of sells (the red boxes) on the stock list and what happens next in the Nasdaq.

In addition two of my three swing signals – Price and Volatility – switched to buys while short-term breadth remained on a sell for the fourth day in a row. Four days down on breadth tends to also lead to an upward pop.

With long-term breadth on a sell, the bounce, if it come today, might be a one-day event but we’ll see.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: SEll (Day 2).

PRICE: Buy. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 4).
VOLATILITY: Buy, (Day 1).

CONTEXT:

SPY CLOSE – 263.24
QQQ CLOSE – 153.50
CNN MONEY’S FEAR AND GREED INDEX: (61, falling, greed level).
NIFTY-50 STOCK LIST: 11 Buys; 3 Overbought, 19 Oversold, 3 new buys today, 8 new sells.

(click on the chart for a larger view)

$TQQQ – a Nasdaq bloodbath too far too fast?

TQQQ, the 3x-leverage ETF based on the Nasdaq 100 stocks (NDX), was down 5.4% today, a bloodbath that affected many of the bellwether Nasdaq stocks in the index.

See the table below:

(click on the image for a larger view)

NVDA down 14 points, NFLX down 11, and so on. Pretty ugly in the momentum bellwethers.

There was a fake-out nudge to the upside Tuesday, but can’t say today’s slam down was unexpected. Posted this two days ago:

This could be tricky since long-term breadth continues to climb (up for the fourth day). Given that, if short-term breadth turns up here in the next day or two (or bless a bottom dollar, three days), the market would get another bullish boost. If long-term breadth turns down, this could very easily become the hook that catches every bull off guard. Although the bull market has so far defied the signs over and over again, it is inevitable that one of these times, like today, when the signals signal a turn, the turn will come. Probably when the bears are worn out and the bulls don’t expect anything of on their blindside.

If today’s sell off continues, that will be relevant, but there are signs this is done already.

Nearly every time TQQQ falls through the standard deviation lines (the blocks on the green lines on the chart below), the Nasdaq bounces the next day or two days out (the red vertical lines on the chart). It is as if any fall this far is too far too fast. And oftentimes in this bull market, the bounce becomes another rally (see the diamonds on the chart are TQQQ). In fact, a look-black on the chart shows this last great upswing in the Nasdaq, which began in late September, started with a touch down on the green lines just like today.

So I’m looking for the bounce, and looking to ride a rally if it develops here (Santa time?), and if it doesn’t then the suggestion in the quote above might indeed be a sea change in the market.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Buy (Day 6).

PRICE: Sell. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Sell, (Day 1).

CONTEXT:

SPY CLOSE – 262.31
QQQ CLOSE – 153.89
CNN MONEY’S FEAR AND GREED INDEX: (67, rising, greed level).
NIFTY-50 STOCK LIST: 14 Buys; 11 Overbought, 8 Oversold, 6 new buys today, 3 new sells.

(click on the chart for a larger view)

$SBGL (TRADE UPDATE) – up 9.4% in 4 days…

SBGL, long from 11/21 at 5.09, has had a nice four day run to the upside to close-by resistance.

SBGL – START OF THE TRADE

At the same time the leveraged gold-stock ETF, NUGT, has move up to the top of its recent range (see the chart below). Would like to see a breakout in order to take SBGL above 5.65. It closed today at 5.57.

In the meantime, moving the stop on half the position to 5.42, and to breakeven on the other half.

(click on the chart for a larger view)

$SPY – Three days in the “fool’s game” for 100%

I have been posting these BUYING SPY options trades for three days now, Friday, Monday and Today, buying against the common wisdom that buying options is essentially a fool’s game.

FRIDAY – A “FOOL’S GAME”? NOT!

MONDAY – BUY CALLS FOR A RINSE AND REPEAT

Friday and Monday were “call” days, today was a put day. These are the weekly in-the-money options expiring each Friday. Each buy signal is a $5000 buy-in with up to five trades a day for no more in on any day than $25,000 at once (there were only four signals today). These are all day trades, which is the point.

As I proposed in the link: SPY options are ideal for day trading — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is trend for the day, can be substantial, even rather astounding.

I suppose “astounding” is a relative term and every person defines it differently but…

This is how I’m defining it today — these trades in these three days are now up a shade more than 100%.

That’s largely thanks to the “astounding” 80% move on last Friday’s expiring call. And I suppose the last two days for 12% each are more typical.

But there’s more to this if one takes a look inside the trade (without going crazy — easy to do…). For instance, today first three signals were up $8000 at their peak and there was a possible and reasonable sell at up $6000 as opposed to the mechanical close at $2450. There were moments like that every one of the days. Options after all as volatile trading products. Could have been much more than 100% on any one of them…and of course there buying out-of-the-money instead of in-the-money for more bang for the buck but this is when option trading begins to go insane so I’ll just quit talking about the might-have-beens. The what-is remains north of 100% in three days.

As I’ve said in the links above the key is any entry signal with which a trader is comfortable (see the chart below or those in the links above).

By the way, I’ve had discussions on a couple of forums in which it has been suggested that ES futures would be a more efficient and much better way to take these day trades, give the futures’ liquidity, tight spreads and lack of time decay. While that seems logical and even appears to be obvious, as far as day trading goes that is, so far, simply not true. ES futures have under-performed the weekly SPY options on these day trades. For one example the SPY Puts today netted 12% while the ES futures, at an equal level of commitment using day-trading margin, were flat on the same signals.

(click on the chart for a larger view)

A REMINDER: These posts are solely for entertainment purposes. They are a journal of my thoughts on the market and should not be construed in any way as direct or indirect investment or trading advice.

$SPY – beginning another hard up leg…

The general market continued higher again today.

Interesting one-day moves in the top five stocks on my Nifty-50 stock list: TAL up 5.2%, WTW up 10.2%, EDU up 7.9%, PODO up .58%, and FSLR up 3.2%. All in all, 36 of the stocks on the list advanced.

Long-term breadth is still declining but it often lags a market move as short-term breadth begins to give glimmers of a blast to the upside (see the green circles on the rising lows on the chart below).

This is a bull market that just keeps charging, and will apparently until it doesn’t anymore.

SWING TRADING SIGNALS:

LONG-TERM BREADTH: Sell (Day 15).

PRICE: Buy. (Day 2).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Sell, (Day 1).

CONTEXT:

SPY CLOSE – 258.85
QQQ CLOSE – 153.79
CNN MONEY’S FEAR AND GREED INDEX: (69 rising, greed level).
NIFTY-50 STOCK LIST: 28 Buys; 12 Overbought, 7 Oversold, 12 new buys today, 5 new sells.

(click on the chart for a larger view)

#MarketTiming – as breadth goes, so goes…Part II

This time short-term breadth.

The market indexes today were mixed – the Dow up again, moving through its bubble, SPY up a little, IWM up a whisper, Nasdaq down a touch. Like a lot of days lately (actually nine out of last 15), it made its move on the open then chopped all day until in the end it has essentially flat-lined for the rest of the day. No big deal and kind of boring.

All four of my end-of-the-day signals came into the day on sells. So swing traders would be either short or in a bull market in cash, watching for the next upswing. This is obviously a bull market. Those swing signals, including the important long-term breadth, remained on sells today except for one.

Short-term breadth gave a buy signal on the close today.

How many times has the market made a move to oversold on short-term breadth and turned up by itself to signal a bounce? As a matter of fact, every time this year a bounce became a swing became a rally.

And once again a bounce is guaranteed tomorrow on earnings news as AMZN, GOOGLE, MSFT, INTC and FSLR (from my bellwether stock list) are surging in the overnight trading (see chart panel below). As can be seen in the QQQ chart (the chart in the upper left), and assuming no disaster strikes later tonight, the Nasdaq is going to gap up madly tomorrow, and probably take the rest of the market with it.

If it doesn’t turn up long-term breadth in a timely fashion, this bounce will be suspect (unlikely but it could sell off right from the open tomorrow). But for now a bounce is a bounce is a bounce…

SWING TRADING SIGNALS:

PRICE: SEll. (Day 2).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Sell, (Day 4).

CONTEXT:

SPY CLOSE – 255.62
QQQ CLOSE – 146.96
LONG-TERM BREADTH: Sell (Day 8).
CNN MONEY’S FEAR AND GREED INDEX: (71 falling, greed level).
NIFTY-50 STOCK LIST: 18 Buys; 8 Overbought, 18 Oversold, 10 new buys today, 5 new sells.

(click on the chart panel for a larger view)

#MarketTiming – is October turning into October after all?

If the general market keeps rising while long-term breadth keeps falling, more often than not, the market is running on empty.

This bull market has been trending so relentlessly up that it has been defying that notion and may again but today it did not.

The all-important long-term breadth signal I use has been falling for seven days and the Dow and S&P have continued to advance, getting to a point yesterday when it looked like once again this bull market would defy even its own narrowing internals. Heard a lot of “bullish forever” talk yesterday. Today’s pull-back is not that much but, given that any drop lately has been surprising, one must once again say this may be the one that drops the market of the sky like a clay pigeon.

My swing trading signals (see below) are all again on sells in sync with long term breadth. CNN Money’s Fear and Greed Index put in a lower high, setting up a divergence with SPY, and downtrend pattern of its own. If these continue, and one can only assume they will until they don’t, the market may finally have a real correction, five percent or more.

Wouldn’t it be ironic if everyone thinking bullish forever yesterday looked back to this week says “Wouldn’t you know it – again October turned out to be October after all.”

The Nasdaq (and the Russell for that matter) stopped advancing on the long-term breadth signal this week (see red-circle signal arrow on QQQ on the left chart in the chart panel below). And as the Nasdaq faltered so did many of its key stocks – see FB, BABA, and TSLA on the chart panel, all shorts.

SWING TRADING SIGNALS:

PRICE: SEll. (Day 1).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Sell, (Day 3).

CONTEXT:

SPY CLOSE – 255.29
QQQ CLOSE –147.43
LONG-TERM BREADTH: Sell (Day 7).
CNN MONEY’S FEAR AND GREED INDEX: (75 falling, greed level).
NIFTY-50 STOCK LIST: 13 Buys; 3 Overbought, 17 Oversold, 2 new buys today, 11 new sells.

(click on the chart for a larger view)

#MarketTiming – the short-term rejoins the long-term…

My swing signals whipsawed all last week, reversing direction four times in five days, as the general market moved sideways with an upward bias.

Long-term breadth, which has been up three of those five days, pretty much accounts for the upward bias.

There are only four things that can happen trading in the stock market: a little win, a little loss, a big win, a big loss. A trade can do nothing about the little wins and little losses (that’s just the market fluctuating) but has to be able to eliminate the big losses in order to be in position to get the big wins. The trouble with whipsaws is they can pile up the little losses until they are, or at least feel like, a big loss.

So what now?

Since one always wants to be on the side of the trend, which is defined by long-term breadth, this latest short-term upturn in the swing signals basically says this leg on the whipsaw has to be followed long. Everything is again in the buy column (see chart below).


SWING TRADING SIGNALS:

PRICE: BUY. (Day 1).
SHORT-TERM BREADTH: Buy. (Day 1).
VOLATILITY: Buy, (Day 1).

CONTEXT:

SPY CLOSE – 254.95
QQQ CLOSE –148.34
LONG-TERM BREADTH: Buy (Day 4).
CNN MONEY’S FEAR AND GREED INDEX: (73 falling, greed level).
NIFTY-50 STOCK LIST: 27 Buys; 18 Overbought, 5 Oversold, 9new buys today, 7 new sells.

(click on the chart for a larger view)