Info!! Trading Notes For The Calendar Week Of February 15, 2016

Friday, Feb 19th

*  We in conclusion got some pullback inward stocks next the breadth thrust off the lows noted inward yesterday's post.  It was non a wide pullback, however, every bit nosotros genuinely saw marginally to a greater extent than stocks upward on the solar daytime than downwards with NYSE shares.  Among SPX stocks, nosotros soundless had over 90% trading inward a higher house their 5-day moving averages.  I am watching closely what the bears tin sack select to the tabular array here, with an oculus toward seeing how nosotros merchandise nigh yesterday's lows.

*  Stocks making fresh one-month highs across all United States of America of America exchanges create got handily outnumbered stocks making one-month lows for the 2nd consecutive day.  At Thursday's unopen nosotros had 622 novel highs against 145 novel lows.

*  We've bounced on my cycle measures, but are non yet at levels usually associated with intermediate-term marketplace peaks.

Thursday, Feb 18th

*  Yesterday's ship service noted that breadth thrusts next oversold weather tend to Pb to upside momentum inward the nigh term.  That is precisely what nosotros saw on Wednesday, every bit nosotros followed forcefulness with yet some other tendency solar daytime to the upside.  As I've indicated inward the past, recognizing the early on signs of an upside tendency day is extremely useful for short-term traders.  

*  Meanwhile, the breadth thrust off the recent lows has continued inward impressive fashion, i time once again highlighting that we've pose inward an of import depression together with create got embarked on a fresh cycle to the upside.  While it's non odd to larn some push clit dorsum afterwards really extended breadth readings (more than 90% of stocks inward a higher house their short-term moving averages), those dips are mostly meant to hold upward bought.  The nautical chart below illustrates the recent breadth thrust.

Wednesday, Feb 17th

*  After some morn weakness, stocks moved higher inward the afternoon together with create got caught a fresh leg higher inward overnight trading, consistent with yesterday's Federal Reserve annotation expecting farther upside follow-through afterwards nosotros made recent lows with pregnant breadth divergences.  We closed Tuesday with really rigid short-term breadth, every bit over 90% of SPX shares closed inward a higher house their 3-day moving averages together with over 85% inward a higher house their 5-day averages. (Data from Index Indicators).  Such upside thrust afterwards weakness is typically followed yesteryear farther strength, leaving a buying of dips the continued operative strategy.  

*  Here is my short-term mensurate of SPX shares making fresh 5, 20, together with 100-day highs versus lows.  It's been a useful overbought/oversold measure.  Note how, despite the recent thrust higher, nosotros are non nigh overbought territory that has been associated with intermediate-term marketplace highs.

*  The intraday tendency organization is on a BUY signal from 4 AM EST together with would striking a sell signal at 1888 on the ES March contract.  The piece of job of the organization is to position intraday swings using number bars; signal levels alter with each novel bar together with conform dynamically for marketplace volatility.


Tuesday, Feb 16th

*  In a novel article, I expand on the sentiment of fourth dimension mapping together with offering a heatmap-inspired example.  This is a technique that is specially useful inward creating the motivation together with momentum to brand changes inward whatsoever surface area of life, personal or professional.  There are many techniques out at that spot inward the self-help literature to assist people change; non thus many methods to assist people honour the travail to sustain change.

*  We've seen some consolidation inward overnight trading afterwards a sizable rally.  Note that Fri closed with exclusively 35% of SPX stocks trading inward a higher house their 10-day moving averages.  Even if the electrical current rally ends upward beingness a bounce inward a broader comport market, I hold off some upside follow through every bit nosotros piece of job off the oversold status from a really weak starting fourth dimension to the year.  

*  I proceed to honour overbought/oversold measures utilizing number bars to hold upward useful inward finding skillful merchandise location together with identifying short-term marketplace cycles.  Below is a elementary rate-of-change mensurate using number bars, where each bar represents 500 cost changes inward the ES futures.  Other number charts that I hold depict the bars on the the world of number of trades together with on the the world of book transacted.  My nearly recent trend-following organization makes utilisation of number bars together with has done quite good identifying intraday swings.  As of this writing, that organization enters SELL style below 1881 inward the March contract.  The purchase together with sell parameters alter with each novel bar together with conform inward existent fourth dimension for marketplace volatility.

Monday, Feb 15th

*  We tested the Jan lows this yesteryear week, but--as noted inward previous postings--breadth divergences were striking.  Specifically, nosotros registered 1226 fresh three-month lows across all exchanges on Th together with 1353 novel lows on Monday.  At the Jan bottom, nosotros saw 2663 stocks brand fresh three-month lows.  Since that test, we've moved smartly higher on Fri together with thus i time again inward overnight trading.  My short-term tendency model is solidly inward purchase style together with has been since Fri morning.

*  An ongoing query projection has been assessing marketplace cycles yesteryear tracking the functioning of all NYSE stocks across a diversity of technical indicators.  (Raw information from stockcharts.com).  The mensurate below takes a volatility-weighted composite of purchase versus sell signals for ii technical systems:  Bollinger Bands together with Parabolic SAR.  Note that nosotros closed Fri at levels some those seen at intermediate-term bottoms together with create got quite a agency to become earlier nosotros run into overbought levels.  

*  Here is yet some other cycle based mensurate derived from breadth information (Raw information from indexindicators.com). Note that it is inward oversold territory, but non at levels seen at nearly intermediate-term lows together with good off overbought levels.  If indeed nosotros create got seen a successful retest of Jan lows, I would hold off marketplace firmness to create got these cycle measures higher.

*  I would position the greatest improvement to my trading every bit coming from focusing away from trends together with directional movement together with instead thinking of cycles together with the transitions from trending to mean-reverting demeanour together with dorsum again.  Influenza A virus subtype H5N1 cycle includes phases of upward together with downward trending, every bit good every bit attain demeanour nigh highs together with lows.  Identifying these transitions--and non getting caught upward inward whatsoever i stage of marketplace behavior--is really helpful to short-term trading.

Info!! Denial Equally A Trading Motivation

Back inwards the day, I used to run across alongside a number of couples inwards counseling. Not infrequently, infidelity was a major number bringing them to regard me. In a surprising number of cases, the signs of infidelity were introduce long earlier the thing was caught. Indeed, many times at that topographic point were explicit warnings from others who saw what was going on. Still, the husband didn't desire to believe the worst...made excuses...turned the other way...until evasion was no longer possible.

Denial is a powerful human motivation. We guide a drive to know the basis around us; less normally appreciated is our capacity to sustain ignorance. Many times, nosotros exactly don't desire to know the truth, whether it's what happens inwards a state of war machine prison theatre or what keeps our husband out thence late.

One especially uncomfortable truth for traders is that their lack of profits is only due to trading randomness. It's non a lack of discipline, a lack of merchandise planning, or a lack of tweaking the correct indicators that exercise losses--all of those are relatively tardily to address. No, losses are caused past times trading strategies that only exercise non work, in addition to that's non thence easily remedied.

It's pretty threatening to intend that what you're devoting fourth dimension in addition to coin to has no grounding inwards reality. It's much easier to only non intend almost it. Like the husband who manufactures i excuse afterward some other inwards the confront of a partner's erratic behavior, nosotros build all sorts of explanations for our shortcomings.

Or nosotros exactly pose the blinders on. When I started working alongside traders some years back, I asked them to signal their profitability over the past times year. I was shocked that most could non give me (or would non give me) a response other than a hesitant, "I'm coming unopen to suspension even." Many had only stopped looking at their line of piece of occupation organization human relationship statements. The persuasion of genuinely drilling downwards into their merchandise information in addition to extracting information almost what they were doing correct in addition to incorrect was quite threatening for them.

Sadly, at that topographic point are enough of willing accomplices inwards this denial. Coaches eagerly assure you lot that "psychology" is the deviation betwixt winning in addition to losing inwards markets; gurus hope you lot hidden marketplace secrets that volition enable you lot to unlock your potential; publishers crank out books on how you lot tin succeed at trading. But no i solicits trading periodical articles, workshop presentations, or books on the theme of *lack* of edge. No i wants to listen all the first-hand stories I tin tell almost lives in addition to relationships harmed in addition to fifty-fifty destroyed past times fake hopes in addition to promises.

That's also uncomfortable. No i tin brand coin from it. So nosotros don't await at it; nosotros pick out to non know. But I'm telling you lot truthfully: I've seen exactly every bit many lives wound or ruined past times trading every bit enhanced.

A acre back, I was asked to submit a proposal for a workshop hosted past times i of the major fiscal exchanges. I persuasion a existent world service would live on to introduce interrogation in addition to first-hand observations pertaining to addictive patterns amid twenty-four hours traders: how to recognize trading addiction, in addition to what to exercise almost it.

The persuasion was shot downwards immediately. As it turns out, it wasn't the conference coordinator that pulled the plug, but the corporate sponsor of the event. Sponsors don't brand coin when people don't merchandise or when they merchandise inwards a to a greater extent than controlled fashion. People, afterward all, come upward to listen almost trading every bit a dream, non every bit a nightmare.

A picayune acre dorsum a trader begged me to speak alongside him over the telephone in addition to aid him alongside his "self-defeating" emotional patterns. In an unguarded moment, I agreed. He told me almost his anger in addition to frustration during trading in addition to how those had led him to violate his guide a opportunity administration rules.

I asked the trader to give me examples of what was going on during these periods of frustration. Many of the occasions boiled downwards to times when he was profitable on trades, but in addition to thence saw those profits reverse. I drilled downwards farther to acquire examples of those trades in addition to discovered that, fifty-fifty though he called himself a daytrader, many of his reversals occurred on positions held overnight. Indeed, he proudly told me his dominion that express his overnight exposure to solely his most profitable daytrades.

A chip skeptical, I asked him what he based the dominion on. How did he know that profitable positions intraday would travel farther profitable if held into the adjacent day?

He seemed stunned that I asked. I gauge we're all supposed to know that "the tendency is your friend" in addition to that you lot should ever merchandise alongside the trend.

I chop-chop got on the computer, downloaded daily open-high-low-close information for the S&P 500 Index (SPY) going dorsum a picayune over a yr (to the start of 2007) in addition to threw together a spreadsheet that looked at returns next upward days in addition to downwards days. There was no programming or advanced Excel techniques to what I did; it took all of a few minutes.

To recreate what I found: When SPY was upward on the twenty-four hours (N = 159 trading days), the adjacent day's opened upward averaged a loss of -.02% (79 up, lxxx down). Similarly, when SPY was upward on the day, the adjacent total trading twenty-four hours averaged a loss of -.13% (75 up, 84 down).

When SPY was downwards on the twenty-four hours (N = 146), the adjacent day's opened upward averaged a gain of .03% (86 up, threescore down). When SPY was downwards for the day, the adjacent trading session every bit a whole averaged a gain of .11% (85 up, 61 down).

So, inwards other words, the trader's dominion had absolutely no grounding inwards reality. If anything, he would guide been amend off fading the prior day's direction. He was becoming frustrated in addition to angry because he was losing his profits. He was losing his profits because he was trading a setup that had no validity. Frustration wasn't causing his trading problems; his bad trading was generating (understandable) frustration.

But, for me, the eye-opener was that he had never persuasion to depository fiscal establishment check out his rule. Even if he didn't desire to crevice an Excel primer in addition to larn how to detect answers for himself, he could guide only kept records of his overnight trades vs. his intraday trades in addition to seen what was working in addition to what wasn't.

But he didn't exercise that.

That's when it hitting me: He didn't *want* to know.

My caller was non happy alongside my analysis in addition to did non essay me out further. I didn't deliver what he wanted. He wanted a self-help psychological technique to travel on him disciplined, thence that his rules would brand him money. He didn't desire individual pointing out that his rules were invalid in addition to that next invalid rules alongside dependent volition only atomic number 82 to ruthless consistency inwards drawdowns.

As our conversation wound down, he defensively explained that he had enough of other patterns that he traded that were valid. One of his favorites were opening gaps. Long storey short, I examined the spreadsheet in addition to told him that this, too, was coming upward blank. To recapitulate, upside opening gaps led to 83 wins in addition to 82 losses for the coming trading day; downside gaps led to 71 wins in addition to 69 losses. There were no pregnant differences inwards the sizes of winners in addition to losers. There was no border at that topographic point at all.

"But that's for the S&P," he said. "The gaps travel for the stocks."

"Which stock would you lot similar me to run the information on?", I asked. He said no thanks; he didn't demand the data.

But the analysis wasn't the point. The dot was that he was trading a belief inwards an edge, non an border that he had independently validated. His entire trading strategy rested on (blind) trust inwards these patterns. He didn't *want* to know if the patterns were good, because that--like the spouse's actual uncovering of an affair--would postulate facing unpleasant realities in addition to making hard changes.

I of late started travel alongside a trader who wrote to me inwards elaborate exceptional of recent trading losses. He directly offered to portion his line of piece of occupation organization human relationship statements alongside me thence that I could aid him alter what he was doing. No denial. No defensiveness. No willing blindness. Just an opened upward kimono. I confidently predict that this trader volition live on successful. He's doing the hard travel correct now: he's facing shortcomings alongside eyes broad open. By owning what's worst alongside his trading, he'll regain the best inside him.

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Info!! Trading Notes For The Calendar Week Of March 7, 2016

Friday, March 11th

*  Thursday's ECB coming together brought stock buying together with euro selling--and together with therefore a sudden reversal of both during the twenty-four hr flow earlier a rally belatedly inwards the twenty-four hr flow together with overnight brought us dorsum toward the highs.  As the one-hour oscillator of upticks/downticks for all listed stocks shows below, the selling was quite wide during yesterday's selloff together with the buying has been wide on the reversal.  New highs vs. lows for listed stocks deteriorated yesterday, therefore I volition endure watching breadth going forrad to view if participation expands or contracts on upside moves.

*  We've turned downward on the cumulative publish of purchase vs. sell signals given past times the Wilder Parabolic-SAR system.  That tracks all NYSE shares on an end-of-day dry reason (raw information from Stock Charts).  Note that, during vigorous upward wheel phases, such every bit nosotros had inwards Oct of final year, the cumulative SAR stair out volition peak ahead of price.  So far, during the deterioration inwards the measure, toll has held upwardly well.  I thin toward buying weakness that remains higher upwardly yesterday's lows.

 
*  I noticed some underperformance of minor cap shares yesterday.  One twenty-four hr flow does non brand a trend, only during the vigorous ascent from the Feb lows, minor caps were outperformers.  I volition endure watching that relative performance going forward, every bit it could offering clues every bit to the eventual turning of the cycle.


Thursday, March 10th

*  Midweek saw rangebound markets, every bit selling greeted early on strength, only stocks past times together with large held against their prior day's lows.  We closed amongst nether 50% of SPX stocks nether their three together with 5-day moving averages.  Going into the ECB announcement, nosotros quest to view the lows of the final 2 days concord upwardly inwards lodge to maintain the vigorous uptrend from the Feb lows.

*  Here is a nautical chart of the publish of NYSE stocks giving purchase signals versus sell signals amongst observe to their Bollinger Bands--a really useful stair out of wide marketplace forcefulness vs. weakness.  Note the upthrust from the Feb lows, followed past times a pullback inwards purchase signals, only non at a betoken where we're getting internet sell signals.  It is mutual for thrusts higher inwards the Bollinger stair out to endure followed past times farther toll strength; marketplace rises conk vulnerable when nosotros laid about seeing internet sell signals. Note how thrusts lower inwards the stair out convey represented practiced buying opportunities every bit a whole.

*  I late wrote on the theme of a powerful stair out of stock marketplace sentiment.  Interestingly, that stair out shows a internet reduction of SPY shares outstanding over the past times 5, 10, together with 20 trading sessions.  That configuration has tended to Pb to toll gains over the side past times side 5-20 trading sessions.


Wednesday, March 9th

*  Monday's post talked most a normal correction from stretched levels together with nosotros got that yesterday, every bit most 19% of SPX stocks closed higher upwardly their 3-day moving averages together with 26% higher upwardly their 5-day averages.  In an uptrend, nosotros await short-term oversold levels to tumble out at successively higher toll lows.  We're seeing a bounce inwards overnight merchandise together with my base of operations instance is that yesterday's lows concord every bit nosotros ready a examine of the recent highs.  Of course, marketplace reply to tomorrow's ECB proclamation could convey a lot to do amongst whether that base of operations instance plays out or not.

*  Yesterday, stocks across all exchanges making fresh monthly highs dropped from 1720 to 719; novel lows rose from fourscore to 88.  In general, I exclusively conk concerned most the reversals of wheel uptrends when novel lows expand meaningfully.  The past times calendar week we've had the lowest publish of novel monthly lows inwards years.  The absence of weakness ends upwardly beingness every bit rigid a predictor every bit the presence of strength.  Markets mostly plough because i or to a greater extent than sectors are rolling over, creating the expansion of novel lows.

*  Here's a aspect at the performance of major stock marketplace sectors from the Finviz site.  Note how the sectors that led performance on the downside (utilities) are instantly lagging together with how those most wound inwards the downturn (raw materials) are instantly leading performers.  If the uptrend is to continue, nosotros would desire to view wide participation of the sectors; a rally amongst rigid sector rotation is what oft leads to a to a greater extent than prolonged correction.

 


Tuesday, March 8th

*  After a sizable run higher, we're get-go to view signs of distribution.  While the publish of stocks across all exchanges hitting fresh monthly highs was impressive yesterday (1720), that publish was below the levels seen the prior twenty-four hr flow (2082) together with the twenty-four hr flow earlier that (1868).  Small cap together with midcap stocks maintain to outperform.  NASDAQ shares convey been relatively weak; commodity-related shares convey been relatively strong.  Consumer staples shares (XLP) striking a novel high yesterday, business office of a theme that I believe volition emerge inwards this the world of growing negative involvement rates:  the appeal of stable, high lineament stocks that offering relatively rubber together with attractive yields.  Such stocks are richly valued already, only could view bubble-like performance should key banks maintain downward the negative charge per unit of measurement path.

*  Commodities convey staged a important rally; DBC is instantly higher upwardly its Dec 31st unopen (see below).  The the US dollar (UUP) is downward on the year.  With ECB coming upwardly on Thursday, powerfulness nosotros endure pricing inwards important reflation, together with powerfulness the key banks inwards Nippon together with Europe endure embarking on stimulus measures higher upwardly together with beyond negative involvement rates together with bond-buying?  That would endure a most important macro development.

*  The recent selling to a greater extent than or less the 2000 grade inwards ES notwithstanding, I maintain to endure impressed past times the vigor of the rally off the Feb lows.  Note below how we've gone from an overbought province of affairs to an fifty-fifty to a greater extent than overbought one, amongst stocks moving steadily higher.  (Chart tracks SPX stocks making novel highs versus lows over 5, 20, together with 100-day lookback periods).  If indeed we're getting reflation from key banks, the implications for stocks would non endure short-term together with could maintain to powerfulness shares higher.

Monday, March 7th

*  If our trading does non supply these 4 psychological benefits, we're apt to underperform together with lose our powerfulness to perform inwards the zone.  We tin dismiss best handle our positions if we're managing ourselves well.

*  We saw some wide selling belatedly on Fri together with therefore far convey non been able to bounce inwards overnight trading.  Fri closed amongst over 80% of SPX stocks closing higher upwardly their 5, 10, 20, together with 50-day moving averages, only a waning pct closing higher upwardly their 3-day averages.  (Data from Index Indicators).  I would non endure surprised to view a normal correction of the recent strength; that should terminate higher upwardly the belatedly Feb lows to sustain the electrical current uptrend.  I would likewise non endure surprised to view subdued risk-taking ahead of this week's ECB meeting.

*  The intermediate-term wheel measures that I rail maintain to endure stretched to the upside.  Note how we've rallied inwards the human face upwardly of an "overbought" cycle.  That momentum suggests that we're non however at a betoken where nosotros would await the uptrend to meaningfully reverse.  

*  One stair out I rail is the volatility of marketplace breadth.  Specifically, I rail the volatility of the daily readings of SPX 500 stocks making fresh novel highs together with lows on a 5, 20, together with 100-day basis.  We late striking a meaningfully depression grade inwards that measure.  Since 2010, when we've been inwards the lowest quartile of readings for breadth volatility (as at present), the side past times side 5 days inwards SPX convey averaged a gain of exclusively .01%.  When we've been inwards the highest quartile, the side past times side 5 days inwards SPX convey averaged a gain of +.44%.  It's i to a greater extent than stair out that makes me opened upwardly to the possibility of some short-term correction of the recent marketplace strength.

Info!! Indicator Update For April 14Th

Last week's indicator review concluded that it was premature to fade the rally equally long equally the indicators were strengthening. We did cash inwards one's chips a mild pullback early on inwards the week, simply 1 time once to a greater extent than the lower prices works life buyers together with nosotros unopen terminal calendar week on a potent note, amongst most sectors displaying an increasingly bullish trend. (Note: the charts inwards a higher house are updated for Monday's close). As the forenoon Twitter post noted, 28 of the twoscore stocks that I rails inwards my handbasket are currently trading inwards uptrends, vii are neutral, together with exclusively five are inwards downtrends. Particularly noteworthy is the dramatic upside breakout inwards banking stocks ($BKX, bottom chart), which has been a marketplace leader to the downside (during the decline) together with right away on the rebound.

A bullish designing that I accept been emphasizing for a spell is that we're seeing the marketplace remain at overbought levels inwards the Cumulative Demand/Supply Index (top chart), amongst pullbacks leading to higher toll highs. What this way is that nosotros accept persistently potent upside momentum: many to a greater extent than stocks are closing inwards a higher house the volatility envelopes surrounding their short-term moving averages than closing below them. This persistence is exclusively seen inwards bull swings; it was non acquaint during the bounces during the market's decline.

Similarly, we're seeing consistently elevated levels of novel 20-day highs versus novel lows (middle chart). On Thursday, nosotros registered 903 novel 65-day highs against 57 lows, the highest degree since September. This tells us that the marketplace is potent on an intermediate-term footing together with gaining forcefulness over time.

Again, we're at those levels inwards the Cumulative DSI when pullbacks are common. Pullbacks that remain inwards a higher house terminal week's lows volition continue the inwards a higher house bullish film intact. Signs of problems for the bulls would endure a notable increase inwards the position out of stocks registering fresh 20-day lows together with a reversal of the bullish sector themes noted lately (growth sectors outperforming defensive ones). I volition endure updating indicators via Twitter (free subscription) to continue tabs on developments during the week.
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