I trade the bond ETFs–TLT and TBT regularly. I find them easy to trade and rotate back and forth based on my favorite bond indicator, the 5-day RSI. One reason I trade them is that in today’s market they signal how much risk the big traders (hedge funds, pension funds, etc.) are willing to take on, and what a powerful insight that is! Here’s a chart of TLT, watch it bounce along as if its pulled by the 5-day RSI from oversold to overbought and back again.See what happens when it pushes passed the volatility bands or Bollinger Bands. This represents extreme short-term overbought and bonds will dance back to their MAs or value. You can buy TBT–the inverse bond ETF–for this mean reversion trade or short the futures. But this is not the real story. What the bonds are telling us is how much risk the big traders are willing to take on. In other words, when TLT is rallying, fear is growing in the market, hedgies are shorting, and rallies are sloppy and choppy. Best not to be too heavy long stock, in other words.When bonds rush to extremes and peak, then traders are reassessing and willing to take on more risk, so back they go into the market, probably buying futures, so SPY or its derivatives are a good bet. Of course, this pattern may just be a summer thing and it will all end after Labor Day, or eventually, when the Fed decides to goose the interest rates.One of the best insights I’ve seen lately, is a casual comment by an experienced trader that the hedge funds have large short stock positions. Other players are trying to push the futures up so the hedgies will have to cover; then the hedgies short more stock driving the market to the bottom of its range. This dynamic creates a market that is careening back and forth in a range parallel to the 200 SMA. Frankly, that heavy analysis takes more time than I have, so I just tell myself we’re just trapped by the 200 SMA in some sort of magnetic warp, and we’ll keep chopping around for awhile longer as we head into the dreaded Sept-Dec time period.
[ this message came from Jeremy C, a Spiketrade Member ]I am curious to know how many, if any, Spikers and fellow members do their trading under some type of business entity versus an individual account. It is a thought I ponder from time to time, but have neglected to research it on my own to any extent. It seems the tax advantages would be beneficial in purchasing any items used for trading such as charting software subscriptions, educational materials, seminars, internet connections, as well as a host of other reasons. If there’s anyone that could enlighten me through their own experiences, or recommend any good books or websites, it would be very much appreciated.Thank You,Jeremy C.
[ Percy C is a new but active Member.
Since Spike Trade does not trade country or commodity ETFs, I thought I would post a couple of charts on Europe for those interested. EPV is Ultra Short Europe and EUO is Ultra Short the EURO.The rally in Europe looks like it’s stalling out. EPV is testing long-term support around 20, and if it holds, looks good for a bounce to the declining 20 EMA, or possibly the 200 SMA. The EUO also looks like the EURO rally is over. Despite some bullish bank tests and some debt reduction in some EU countries, the Eurozone has some significant fundamental issues to overcome. Regardless, nimble traders can take advantage of the bounces and declines. For long Europe trades, I use FEZ, and for long EURO trades I use FXE or ULE.The odd thing is that UUP, the long dollar ETF, looks like it wants to bounce, as does GLD, the gold ETF. So we have the dollar perking up, the EURO running on empty, gold looking frisky, and the Yen hitting resistance. Just to confuse the issue, TLT, the bond ETF looks like it wants to extend its rally. Is this is why we love the markets? Also for those interested, ECH or Chile is on a tear and in pullback position. Malaysia or EWM is also rallying, breaking through a rare Quad Top resistance pattern. Interested traders should proceed with caution in these foreign and emerging markets–nasty things can happen over night that can wreck the best of trades.That said, I find trading country ETFs easier than trading the US indexes. Most of the time, they respond systemically to reversion to the mean trading, moving back and forth to their value/moving averages. I look to catch them at ST/OS or ST/OB and bet that they return to their moving averages. While the movements aren’t extraordinary, the percentages of winning trades is high, so you make small incremental profits.
Last week, I made some comments about the Third Industrial Revolution. I posted a weekly chart of WFR, a solar company, in a Fallen Angel pattern as a 3IR idea. This is a pattern I learned from Alex, and one I trade as often as possible. WFR bounced 16% in the week. Note the buy day was a narrow range day that marked a higher low. The bullish MACD-H divergence on the weekly provided a very powerful push. Target is around 13 or the 200 SMA, and we should get a pullback before then that will allow new buys to enter. Sadly, it was not my Spike pick.
Since in Spike Trade we don’t trade bonds, or Yen, or country ETFs, I thought I would post a couple of charts for those interested. I do a great deal of ETF trading–they let me trade all over the world, in commodities, and in currencies efficiently. Alex commented on the possible top forming in the Yen as well as in bonds, so I thought I would post TBT the inverse bond ETF. This is a classic 1,2,3 Bottom and so is YCS, the inverse Yen ETF (not posted). I’m also including EWM, the most powerful of all country funds. EWM is about to break to a new yearly high, and probably test the ultimate high at 13. The pattern is a very rare quad-top breakout. In each, new buys should wait for pullbacks. In the case of TBT and YCS, look for them to decline back to value. For EWM, look for it to break out, then retest the breakout point. If it holds that would be the buy point. Just so you know, I’m long all three.
When is a powerful stock finished? Good stocks are hard to find, and
Thanks Jock G’s for the post about RIG–I like it, too. Here’s RIG’s monthly chart showing an attempt at forming a major 1,2,3 Bottom. The set up would confirm if price closes above last month’s high of 55.49. However, we may see another narrow-range bar and more sideways basing depending on market action and the reaction to the dividend announcement.
Monday, a NYC investment banker I’m know began negotiations with three Slovenian scientists who may have invented the world’s most efficient street lamp. Thursday evening, my wife and I made Chicken Marbella for a brilliant young Indian/Brit banker who searches the globe looking to spend millions of pounds on cleantech and products like the Slovenians’ street lamps.Somewhere after the chicken and a bottle of pinot noir, the conversation with the Brit shifted from cricket and soccer to the Slovenians. Soon the ideas bounced across the globe, and all around the cleantech industry from biomass fuel generation to smart grids, from peak load management to zero energy homes. All of them part of the biggest, most powerful megatrend in human history.Since I own a mechanical engineering firm that works in the energy efficiency and cleantech industries, I am deep into this subject, which a few perceptive social-economists are referring to as the Third Industrial Revolution. Not to get too pedagogical, but industrial revolutions occur at the nexus between new communication technology and new energy generating technologies. The first was the nexus between the printing press and the steam engine, the second occurred in the later part of the 19th century with the invention of analog communications, and carbon-based energy generation. The 3rd IR is at our doorstep with the nexus of the Internet and renewable energy and smart grid distribution.What does any of this have to do with making money and trading stocks? Well, if someone had told you in the 1970s that the world was about to enter the information technology era, and that maybe you should buy a few shares of those new companies with odd names like Microsoft and Apple, would you have figured out a way to make a buck? If not, then gardening may be a better fit than trading.Just to give you some context. California’s 2010-2013 energy efficiency cycle is worth $3.6 billion. New York launched its own effort this year with a $1.5 billion initial cycle. The Feds poured about $250 billion into the energy efficiency and cleantech industries as part of the American Reinvestment and Recovery Act