With Europe’s woes and the dollars fluctuations, the price of oil is getting tossed about like a toy in a dog’s mouth. Since as Spikers we don’t pick commodities, I thought I would share my”oil trade” plan in case others are interested. My tools of choice are the ProShares oil-price-based 2x ETFs, UCO for long the price of oil and SCO for short the price of oil. Both trade in size, are liquid, and offer excellent short-term trades. My take is that the price of oil is range-bound, roughly trapped from around $68-70 to $80-82 dollars per barrel. It takes several weeks to claw to the the top of the range, only to suffer violent and sudden declines to the bottom. I anticipate this behavior to be long-term, offering a rich, though probably boring, trading environment. After last week’s European panic, oil plunged to the low end of the range, and I’m looking to buy on a spike below UCO 10–maybe in the 9.60-9.70 range. If we find support, I intend to trade UCO from the long side on a short-term basis as we grind higher. UCO and SCO can have extended ranges, so quantities will be small.
The “Thanks Kerry” trade. As I’ve mentioned, Kerry and Alex generously share a ton of market insight; sometimes even as minor details. For which, of course, I am grateful. A couple of days ago, Kerry noted at the end of his market wrap that prices were rallying into resistance. I decided to set up a quick trade, since the bounce into resistance and subsequent failure usually offers an edge. He was right, the market had rallied into the huge swath of supply overhanging SPY 1175. In addition, prices were ST/OS and facing the declining 20 EMA, which often acts as resistance on the first move up. I shorted the market by buying SDS, the SPY inverse ETF on 5/12’s close. With the market down around 200 points mid-day Friday, I sold my position not wanting to lug anything around over the weekend.
It seems that a lot of traders were stunned that the market crashed last week. I was on the sidelines, overwhelmed with a work project and missed most of the events–didn’t even know that the market went down 1,000 points Thursday, until my son called mid-day and asked if I was buying anything (I did buy some QLD, fortunately). As Alex has said repeatedly,”the market speaks, it is up to us to listen.” So, I went back to my charts to see if the market did speak last week, and why weren’t more traders listening? Of course, like always, greed or fear had clouded reason and vision. This time it was greed, people kept buying the highs, the Greater Fool theory at its worst. In hindsight, last week’s top and market reversal was very clear, and those who misplayed it, or didn’t play at all (me), missed a very profitable opportunity. The weekly SPY chart shows a classic MACD-H bearish divergence, something Alex has been writing and talking about since Trading for a Living. The daily chart shows another MACD-H bearish divergence, this time on a short-term MACD-H. We also had a 1,2,3 Higher Top that was screaming at us. To make matters worse, we had one of the oldest trading tools in market history, a moving average cross-over yelling that bad stuff was imminent. So, this top/reversal was definitely Old School, and pretty basic, and I shiver over how many articles I’ve read about indicator divergences not working, or why moving average crossovers never did. Like Voltaire, I need to tend my own garden, and my garden is old school technical tools.
Since reading “Checklist Manifesto” and “Getting Things Done” I have been searching for a ToDo List software package which works as an extension to my thoughts, not an obstacle.
Sometimes the market is complicated and obscure, other times it is fairly clear. This is one of those “clear” times.Now is when technical analysis offers clarity in the midst of chaos. It’s just that most traders try to impose their own emotional overlay on top of market behavior. At brunch today, I overheard one young broker loudly proclaim that everyone should buy tomorrow and hold until we crack a new high. I shivered listening to him hustle some older family members, knowing he hadn’t a clue.As we stand today, the trend is down. We’ve formed a 1,2,3 Lower Spike Top, and we’re selling off. Basically, we’ve made a lower high and we trend down until we make a higher low. The market is too oversold to short, so the best trade is to wait until the market bounces and then short. The best shorts are usually the indexes, but I’m most interested in the inverse financial ETFs, like SKF. Since the financials led the market up, it seems likely that they will lead the market down. After the bounce, I look for the market to grind down and eventually test the lows. Most probably we are in a long-term secular bear market, and while we will have breath-stopping bull runs, the market will struggle.One of the most common myths about Wall Street is that there is a link between the stock market and the economy. Maybe once upon a time that was true, but over the last few years, the market trades on its own needs–a landing place for massive amounts of institutional and hedge fund money. Commodities and currencies more or less follow economic fundamentals, but are subject to extreme money flows. However, there are a few clear signs of what the world’s various economies are doing. Most country funds have rolled over and headed down, oil is overpriced, Europe is headed down, and US bonds are overbought. The US stock market will take a few weeks to settle down, but most likely we will see a bounce into a declining moving average, a failure and a resumption of the down move and eventually a test of the lows. Remember retests are the way the market establishes support. The easiest and safest trades are short term long/short the indexes through ETFs. If you swing trade like I do, shorten the holding time and reduce the amount.
Last year we gave a SpikeTrade award to Jason Goepfert –
The best website charting package in my opinion is www.stockcharts.com
Sergey needs no introduction – he is a double Gold winner in Q4-2009 and the current leader of Spike group on points whose unusual bio you can read at Spiketrade website – Alex Let me share with you my thought, about current market.Many traders, include me, were not much in short positions by the close of Wednesday with an idea that the
In 1987, the use of derivatives, artificial bets and so called “portfolio insurance” instruments were widely used and very popular.
Please can someone explained what happens in The Procter & Gamble in a selloff day? The stock fell 40% in some minutes and came back?? The company has very good fundamentals and