On Fast Money last night, they were discussing the dramatic surge in XLF call buying, which was considered to be wildly bullish. I consider it to be wildly foolish if the buying was based upon Thursday morning’s GDP number. Can the economy really be expanding while shedding jobs?
Fast Money also thought that Dell’s IT-spending bomb was just wonderful news because it will be creating such good bargains on tech stocks today. Of course, if you are long tech, that’s the kind of thing you would say to keep other traders in long enough for your to get out.
Watch the comments section for updates throughout the day.
Hi Matt,
good to see you up and running
Street protests are escalating in Thailand. You might have a coup over the weekend. Pakistan a mess. Gustav. Russia/Georgia. Increased U.S. presence in Persian Gulf. More bad macro news.
What’s my point? The mood of investors could be quite negative when you wake up on Tuesday. Oil price will be the wild card.
“Of course, if you are long tech, that’s the kind of thing you would say to keep other traders in long enough for you to bail out.”
OMGosh, I never thought of it that way – their using the tube for personal benefit.
I never watch TV during the day and very little at night. I avoid the financial “news” in offices, hotels, etc. because they wear me out (for lack of better description).
I read somewhere that hedge funds base many of their decisions upon Cramer-The-Clown (gasp!).
Bot a chunk of SDS at EOD yesterday. Wasn’t fast enough for SKF.
still got a chance at SKF. well maybe not.
Two views on the XLF call buying I came accross yesterday:
First view:
A large majority of those CALLS were SOLD not PURCHASED. With a majority of the calls being SOLD, someone is looking to take in premium for profit. That’s the overwhelming trade being placed. The premium will be taken for profit when the XLF DROPS in price.
What happens tomorrow? More CALL BUYING because people read headlines. Who are you buying those calls from? Somebody selling them to you and hedging their bet. Watch for large PUT buying soon.
2nd view:
BY ANY STANDARD, the vegas (volatilities, either implied or historical) of ALL GSE options is EXTREMELY HIGH. So when you are purchasing premium, you are buying an asset that is wasting extremely rapidly.
The THETA of an option is the rate of premium decay. And these options are decaying at EXTREMELY fast rates.
So shorting puts is actually what a lot of top players are doing right now, rather than purchasing options with such high implieds.
Remember 95% of people lose money in options. There’s a reason for that.
Secondly, you have to examine the coincident fluctuations in open interest of the options to be able to make intelligent prognoses about sentiment here. Without such info, you don’t know if people are SELLING TO OPEN or SELLING TO CLOSE.
So kind of day are you guys predicting today? A gradual decline into the close, a dip and rebound? Sharp move lower once 10 am arrives?
Thoughts?
The market, except the naz, is holding up well. Financials pretty strong as a sector which bodes well for the DOW. Could be a mixed bag, NAZ down, DOW up.
Having said all that, with all the concerns global and Gustav, I imagine the old BS “wall of worry” will start to get airtime today and push it to an up day by the EOD.
I mentioned the XLF call volume yesterday in the comments. It was all mainly at the open. I think it is manipulation. We saw a similar thing on the way down to the July lows one day.
Right now, the inverse has the edge.
I’ve done 4 scalps while it is making its mind up. Plus core positions in SDS and QID.
Waiting on SKF to show me the love.
so am I
Intraday 15 minute is approaching the 36 MA. That will be make-or-break for that time interval.
I just added to my SDS and SPY put positions. I am now very, very short with about 80% of my capital. Since it is still month-end, the big funds will likely be able to keep the wheels from coming off of the market today, but I think another whoosh down at the beginning of next week, just like the last two Mondays, is a good possibility.
That 15 minute 36 MA is for the S&P SSO, SDS – QID has already cleared it.
I’m expecting a retest of the 5 day MAs if the market cannot rally from here today.
I will wait like yesterday 9:45-10:00 to see how big the bounce is and which direction the market looks to go.I think they let the market flop here to get the big boys in cheap Tuesday,the one wildcard is the Hurry-up-cane
SDS made it past the 15 minute 36 MA. Hope she holds.
SKF is starting to show some love.
You can’t get this drama and excitement anywhere (and get paid for it).
goog,aapl,rimm all getting hit pretty good so far,the q’s could really dive today
Financials are sure surprising.
I’ve been in BBT for the past several days and I keep waiting for it to tank but it keeps hanging on.
It’s a good stock. Actually PAYS its dividend and recently raised it.
Check it out.
First hour volume for SPY was double the recent average. That’s pretty strong selling pressure.
Unless we are 100 pts up or 250 points down, then Tuesday will decide direction from here. I’ll be gone so I’ll miss today’s ending, although I don’t think it will be happy for the bulls. I bought some TWM and some more SKF.
I also find it amusing when the majority of TV pundits are in agreement that “everyone else” thinks things are really bearish, which makes things bullish. If the majority of the finacial media thinks this, then the predominant view is bullish, not bearish. It’s like that joke I read: I was going to buy you this one-of-a-kind gift, but Wal-Mart was sold out of it.
Have a good weekend, guys.
It’s a strange day indeed where SPY and the QQQQ’s are showing weakness and XLF is holding. Reminds me of the days when finance and consumer discretionary leads a rally heh.
Do you think Da Boyz will want to sell out and take profits before this long weekend?
George,
I think the red-neck NC banks will beat the NYC fancy-pants banks in the next few years. NC housing is among the strongest in the nation. Also, they aren’t nearly as involved in the CDO market. Citi and JPM are about 30% investement bank, while BBT, BAC, and WB are old fashioned banks, although I’m sure that they made more than their share of liar loans: greed always enhances stupidity.
Huge resistance for he q’s at 46.12 only .24 away
More like that saying that a particular club used to be really popular, but now it’s gotten so crowded that nobody goes there anymore.
wow big 3 are droping like a rock goog,aapl,rimm
Paul F;
That must be it. I used to trade NCC but it has really taken a beating. It’s down .05 to 4.93 while BBT is up .74 at 29.96.
Go figure.
9:45 no bounce yet we are still acellerating down this could get real ugly lets see what how the next 15 minutes plays out
I’d like to see light volume movement up to confirm with a flag over the next hour or so.
q’s just broke thru 46.12
Rimm & aapl still falling goog getting a minor boost
Is the bounce over? Q’s should break 46 and there is a lot air underneath
If you put a trendline from the XLF high through the next candle body top highs over the highs of yesterday and today, it is a descending triangle. That indicates distribution and perhaps a retest of the lows. If the QQQQ breaks it is not out of the question.
quite the battle going on to hold 46 q’s break this and watchout
i’m out of my collection of ndy oct 1700 puts @15 even, had a sell order in from yesterday. Still maintaining 9 % allo to QID and have some DIA oct 110 puts, and a smidge of SKF as bearish positions…
Huh. Early in the day to start getting this type of volatility.
Somethings being carved out. Not sure which direction though.
Pooch,
Look at the Q’s daily chart. They spent the entire month of July building a base between $44-$46. It’s not impossible that they would slice right through that area, but it is quite a lot of support. It is a far better base than that of SPY, IWM, or XLF.
Matt
If the big funds were able to hold the line at 1285 today, I think they would consider that a victory. They should be able to pull it off.
Matt my oct puts are making double of what my iwm puts are, i started the day a buck out of the money on both
I got my loss back on SKF from yesterday’s stop. I’ve been swinging the short moves all morning. Actually, I’m ahead quite a bit.
Thinking back, I should have removed the stop. I got in at 119.60 and we may get back to that area today.
A learning process for sure.
q’s just broke 46. Wonder if it is a fakeout.
SKF starting to show me some love. My SPY puts are starting to look good.
Matt.. do you have a target for SPX on this move down? 1285 should hold.. but that is just for today.
There’s some mighty bearish opinions being expressed on this thread. Makes me wonder whether a surprise move to S&P 1400 may be in the cards. I keep thinking about the old adage that the market can stay irrational alot longer than I can stay solvent.
Best to all.
Matt,
Can you share your thoughts on ANF?
Jim;
You may have a point there. When I see the lame ICE begin making a move up I wonder.
Actually Jim, I wouldn’t say this board is overly bearish.. it’s just that the current market makes people to be more inclined to be bearish. I’ve seen good calls on this board on both the long and short side.
What you say is true though, too much bearish sentiment can be a contrary indicator, but if you look at the daily $CPC (Put/Call) ratio, it is currently sitting @ 1 (just rose above it today).
So overall, while this board is bearish, there are probably an equal number of boards out there that are bullish. Right now, the market is in neutral territory. Until we see an over weight of people on the bearish side would there be a motivation for big boys to swing the market the other way to take the avg retail investor’s money.
Charlie,
I don’t rely on price targets so much. Once the market hits a short-term oversold condition, I will start looking for a reversal pattern to develop.
Matt
You got apoint there jim,looking to move puts into calls towards the end of the day
BTW.. this is nice commentary for today:
http://www.stocktiming.com/Friday-DailyMarketUpdate.htm
SDS coming to 36 MA resistance on the 30 minute timeframe. Another test and hurdle to overcome.
Topper Harley,
I don’t know anything about ANF, but it looks like it has built a modestly good base at $50 on its chart.
Matt
SDS is also filling a 30 minute down-gap there as well as SSO filling its up-gap.
The NASDAQ’s drop this morning has been very sharp. Odds are good that we will get at least a modest retracement back upward soon.
Charlie,goog,aapl,rimm at lows of the day and the q’s still straddling 46 give or take .05
Hi Jim, wish you luck with that one. Keep us updated.
yeah its lunchtime
XLF showing a lot of strength today. GS positive still.
Anyone have any thoughts?
The XLF is making an inside day so far. The two-day pattern is very similar to the one made on August 5th and 6th. August 7th was a nosedive.
SKF just went negative.
sold my q’s 1.60 lets see if we get a decent pullback
Took my profits on my SPY puts. Good trade for a 13% gain on my position. Will re-enter after the bounce.
SDS back-testing 15 minute 36 MA after failing to break through the 30 minute 36 MA.
ok do we retrace like yesterday only to test the lows of the day and break thru them???????????
SKF is hurting me though.
SKF right at the 200 MA. Should act as support.
XLF has been able to push higher than yesterday’s high, so it is no longer an inside day as I mentioned earlier.
Jim,
the banks stayed irrational long enough to loose their solvency.
Matt, your comment about the limitations of the Fed yesterday was enlightening. If they continue to do what they did this year, in one year’s time all treasuries will be crowded out from their balance sheet…
skf ran me over
High call volume on XLF 22s again. I wonder if this is profit taking from yesterday.
I mean you buy calls, drive up the price, sell the calls, then short the security.
so lunch is over do they break this or down,longs holding thru the long weekend with the hurricane rollinginto the gulf????
The only positive thing about the SKF chart right now is that I see there is positive divergence on the MACD on the 10 min and that it is sitting on the 200 MA. That might been a short-term top.
Can anyone help me point out more positives?
SPY, Q’s, and Dell are topping the buying on weakness list.
SKF – RSI(5) near oversold on a 60min chart
Charlie;
I wait until 2 of anything happens in two different time frames. For example, stochastic in 1 minute, 5 minute cross; MACD in 1 minute and 5 minute cross; any popular moving average in 2 time frames.
Always works for great entry. Then follow trendlines or MACD to track the trade and get out anywhere and anyway you want, like stochastic hits 80, MACD starts going down, trendlines cross. Don’t hang on too long unless the higher time frame is still moving.
Remember, the lower time frame will cycle many times to move a higher time frame up or down.
As far as long-term and strategy goes, I have no idea how to do that – that’s why I’m here.
Hope this “style” helps.
I can say that I do excellent scalps if that’s your “thing”. And this is how I do it.
Charlie;
One other thing. The higher up in the time frame pairs you go like 5 and 15 minute, 15 and 60 minute or even daily and weekly, the longer you have to wait for a setup and mostly the trades last longer and more profitable.
I taught my son this method and in about an hour he was making money.
I don’t make $3,000 a day – mostly 200 – 500 and occasionally 1,000, but add that up each day for a month and that’s a living.
Danny I agree, my charts show XLF topping within an hour or so most likely.
George,
What do you think of the MACD on the 60-minute XLF chart? It looks like a major negative divergence to me: the strongest momentum of the month without a new price high.
Matt
This might be about it for the day. The big funds will bid underneath to preserve their months, but won’t rope in enough suckers with the “support” that they are painting on the charts to move things higher.
The market is still on the overbought side, so I am comfortable going into the weekend short.
SPY broken downtrend line tested today
I’ve made many trades so far today. Most were scalps, others were longer term, like 1-2 hours. For example, BBT one core position and two scalps. UYG one trade after noon until a while ago. SKF 2 scalps. SSO 2 scalps. SDS one long one this am and may re-enter. QID core position plus 2 scalps.
ALL PROFITABLE using that method. Each of these was 50 to 500 dollars.
My problem is not holding on long enough. I could make more. I found out the reason for that is now knowing the “big picture”. Again, that’s why I’m here.
The other thing is I need to commit more $ per trade. That’s a conifdence thing. I could double my profit if I did that.
I have NO problem pulling the trigger because of the reliability of my method. And, I have no problem getting out of a losing trade. I do have them occasionally when I get faked out. No problem, I know I am going to come out a winner.
I don’t know about support/resistance, psychology, ATR, channels, chart patterns and all the other technical stuff like that or I’d most like perform better. I do know that price is what matters and it is affected by moving averages.
Mostly, I learned that stochastic is the TRUE price following indicator. No other indicator, to my knowledge, follows price like it. It doesn’t predict, but when used with another time frame, it will paint a picture like Picasso.
I’m trying to learn.
Yerk,
Yes, it is indeed scary what the Fed has done with its balance sheet.
Matt
Matt;
Wish I knew about that one.
In looking at the XLF 60 it of course is strong. Then I go to the daily I see the stochastic and MACD (which has a positive histogram) going up at the same time. That is usually a powerful move.
The weekly however, is under its 36 MA and is moving upward which would mean some trendline testing along the way.
Naturally, I can’t predict, but these are the types of stocks I like because they are down and will move back up (I only trade on the long side).
I will swing this one intraday. I like it.
Yeah Zen, I was going to mention that additionally, as SKF was near oversold on RSI(5), 60 min chart, the XLF was looking toppy by the same metrics.
I just didn’t want to repost back to back.
RE George: “The other thing is I need to commit more $ per trade. That’s a confidence thing. I could double my profit if I did that.”
I think these are famous last words, at least for me. Risk what is reasonable, and trade from there. You’ve done very well today, congrats! As you grow your account, compounding will turn 50-500 into 100-750 with the same risk level. Just my 2¢.
Matt – I agree completely with your 2:15 comments.
XLF showing topping signs on the 15 minute that almost never fail. 1st Broken MACD trendline. 2nd Retest of high on a negative divergence. 3. Overbought on 60 min. I think they are holding it up to dump their calls. If XLF dives next week, it will take SPX and the Dow with it. One thing the government can’t manipulate is the weather and oil has not been run up yet.
Matt;
I probably didn’t answer your question correctly.
I don’t know much about divergences. I would like to learn though.
I follow the “swings” with the stochastic and the MACD, etc. I was taught that the higher time frames were more important. They’re not. The lower time frames are.
So, I’ll look at a daily stochastic and MACD and figure out what time frame to watch intraday. Then I just go with the flow. Sometimes I’m faked-out, but mostly I do very well.
I’m VERY lacking in the overall picture and direction. I believe that is where the real money is made – in the longer-term vision. I love trading but I would also like to put a bulk of funds into the market that has a reasonable chance of being profitable (no buy-and-hold-forever though).
I’m just not there yet. I’ve already gleaned a lot of that from here.
Thanks
Danny;
Reasonable risk – I like it.
You know, the only thing we know about a trade when we enter it is “how much are we willing to lose?”
All else is probability, luck, and hope – or something like that.
There’s a couple of things bad about day-trading.
Scalping creates a nightmare for tax reporting.
My mouse finger gets tired from clicking buy and sell.
My wife wants to quit her job and day-trade after she sees how much money can be made. (Just $200 per day is about $4,000 per month!)
lol
George,
The idea of a “negative divergence” is that if you get a higher momentum peak, you should also get a higher price peak. If a lot of buying power is expended, and a higher price is not achieved, then it is a sign that overhead resistance won’t be broken. It’s a pretty good indicator, but like any other indicator, it is not flawless.
In any case, if you have a system that works, don’t change it!
I pay a lot of attention to the stochastic too. What parameters do you use for daytrading? I like to use a %D of 10 and a %K of 7.
Matt
Danny love the bluntness of your blog
Is XLF becoming the stronger sector? QQQQ looking really weak, SPY looking weak (energy maybe?), and IWM holding up ok. XLF could go back down to its trendline off the bottom ($20.50) to consolidate from here. That’s also around the 5 day MA.
Just a thought.
looks like we may test the lows of the day
XLF is up because of GS and MS, all the others are flat or down (looking at the Top 10 holdings) – that’s not a sector move
Matt;
Sorry, just had to jump into SKF and SDS for one last trade(s).
Thanks for the divergence description. I’ll start looking for that.
It’s funny that different chart programs show various results using the same parms for stochastic and MACD.
I use two chart systems: Stockcharts and Askresearch.
For Stockcharts, I use the standard 14,3. For Askresearch, I use 8,8,3.
Additionally, I noticed that the higher up in time frames I go, I need to use a lower value to get the true picture. So on a weekly chart I will lower Stockcharts to 10,3.
I suppose any setting would work after someone gets used to it.
My rule of thumb is that I make mine follow price movement as closely as possible. I had to experiment to find the settings that fit that rule.
The stochastic and MACD are truly a winning combination along with different time frames.
Hey George,
was away from the computer so couldn’t respond, but thanks for your tips on MACD.
So far, things are looking pretty good now compared to before and I am pretty happy holding my SKF position to wait for the real activity next week.
Anyone have a feel for Tuesday?
Brian,
Thanks for the explanation of XLF-call issue.
Matt
Thanks George.
Charlie;
I hope they are beneficial.
The beauty of how I trade is that you can make profits even on a falling stock when it does its counter-trends. I do it all the time. Always with big movers though. Like SKF. I made good profits on it today – after losing some a couple of days ago. Made it all back plus more.
ICE used to be that way, but not now. It would move 10 bucks a day. Hopefully it will get that way again. I paid for my honeymoon from ICE.
Just keep watching SKF stochastic and MACD in your favorite time frame and compare it with the next-higher time frame and you’ll see the picture.
Go higher up (30-60 minute or daily-weekly) and you’ll get a good view. Once in, keep your eyes on the time frame you’re trading and the next-higher. Follow the MACD on the time frame you’re in and the next-higher to see what it’s doing and don’t let a down candle shake you out unless it causes the MACD to turn down. There will be lots of down candles in say the 5 minute because the 1 minute is “cycling”. In the event you can’t figure out what’s going on, don’t do anything until the next setup which will come along in the next 10-15 minutes.
You can get out at the kiss of the stochastic in the time frame you’re trading or the next higher. Preferably the one you’re trading. If it is a real long move up, get out on MACD turning over. Or, just take profits and exit. Unless you’re on the daily or weekly, these aren’t going to the moon because they are SHORT(ER) cycles.
If you get in and it looks like its going against you, it ISN’T as long as the MACD is still moving up in the time frame you’re trading and the next higher stochastic is going up. If the MACD histogram goes to the zero line, get out or use a stop.
Using two time frames keeps you from getting in on false stochastic and MACD upturns.
Once you get used to it, piece of cake.
All the best
Charlie;
Since my last missive, I’ve been in SDS.
Look at the 1 minute MACD, then look at the 5 minute. See how the 5 minute smooths out the run while the 1 minute is choppy. However, the 1 minute is what got me in the trade.
Beautiful. Nice trading day.
Charlie;
I should have said choppy stochastic and MACD.