Upside Momentum but also Overhead Resistance
Positioning in S&P 500, Gold & OilThe market momentum and internals are looking strong for the equities market overall. With last week's strong close we have seeing the percentage of stocks closing above their 50 and 200 day moving averages surge from 40% to 68% from the previous week. Stocks closing above their 20 day moving average jumped from 40% to 82% from the previous week. Seeing this type of shift in the market momentum is generally a bullish indicator.
The second half of last week we saw some strong price action in the equities market. The S&P 500 Index (SPX) (SPY) broke through the 5 and 50 day moving averages closing the week just under key resistance levels. There is potential resistance for the S&P 500 futures at the June high $1099.25, $1100 which is a whole number, and at $1103 which is the 200 day moving average. Each of these are clumped together making it really just one solid area which becomes significant from a technical perspective. You can also see further overhead resistance levels on the following chart.
Mini SPX Futures Daily Chart
Gold:
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Breakouts vs Fakeouts
This article is written by Bob Lang, to find out more about
the services he runs for BigTrends, please call 1-800-244-8736.
the services he runs for BigTrends, please call 1-800-244-8736.
Up At Old Resistance, or....???
So, now we have a close over 1100. Time for celebration? I'm not so sure. But, the action in certain stocks is quite telling that buyers are out there...dip buyers, the ones who put a floor under the market. But what truly is that floor? I think it is Ben Bernanke, who came out with as gloomy an assessment of the economy as you could possibly imagine. Is he willing to give up and let deflation take hold, or will he once again try and re-inflate the economy? I think the latter rather than the former, and we know what the markets did when Ben started dropping bags of money from helicopters last year. It seems however that we're in some kind of quick boom/bust cycle, pushed/pulled around by the liquidity provided/taken away by the Fed. It'll be awhile before the economy is back to normal, Bernanke said as much last week...at least 5-6 years. A lot of time between now and then. The market reacts to news, and we see emotional responses to such each day. Relief seems apparent with the VIX dropping, less fear so needless to buy insurance. Seems about right, huh? One can never be so sure, and if the market is offering a chance to buy cheap insurance, it's probably the best option.
Breakouts Vs Fakeouts
This challenging market has been tough to read, and as on options trader one needs to see a very clear road, rather than one slinging mud on the windshield. Patience is a virtue not often seen in this profession, which is why more times than I can count traders are tossed to the side after getting wiped out. How do you avoid this? Since we know the main difference between options and stocks would be time and leverage, it's understandable that we need to be accurate in time to be successful. Markets are filled with fake moves and strong, sustainable moves. But if you buy some calls on a 'fake' move, volatility may enter in and you get slammed. Conversely if you time it right on a breakout with followthrough, your chances of success rise. Last week was a great study in this. Chairman Bernanke was on the 'Hill talking about the economy, his twice-annual testimony. The market was moving along nicely until he dropped a few bombs, mostly saying what he did a week prior. The bulls panic and a big whoosh...down 23 handles on the SPX by days end. Who could by anything with a potential rout being on? Further, the Chairman had one more day to testify: could he possibly do more damage? Thursday saw the markets gap much higher, regaining what was lost on Wednesday and then some. The VIX (see hourly chart below) did not flinch much, and then Friday the markets ran to resistance at 1100 when the Euro bank stress test results were unveiled.
VIX 60-Minute Chart
Charts Are Looking Better
I don't
Inflection Points are Near - Weekly Outlook
Stocks staved off a bear attack last week, advancing 3.5% following the prior week's 1.2% loss. Over the prior three weeks, we've seen the market rebound 7.8%, leaving one to wonder if all the gloom and doom prognostications were making things out to be far worse than they actually were.To be fair, the underlying economic data could be interpreted either way. Given the behavior of the indices though, it looks like traders have decided to start viewing the glass as half full.... which may largely be the result of strong (and surprising) earnings results.
We'll look at all of it below.
Economic Outlook
It was a light week in terms of economic data, but an important one on the real estate front - though not a great one. We did see a bump and a 'beat' in the number of building permits requested. There were 574K permits issued in May, and analysts were looking for 572K this time. We actually saw 586K permits issued in June, indicating that future construction activity will be stronger than the recent past.
Other than that though, real estate seems to be suffering. The National Homebuilder's Index (a confidence index, mostly) fell to multi-month lows, housing starts were down by even more than expected, and existing home sales fell by about 5%.
New unemployment claims bounced back up to 464K, right where they've been hovering for weeks, and undoing an encouraging drop in the prior week. Ongoing claims did make a significant move lower to 4.48 million.
Economic Calendar
There's a lot more in store for the coming week. New homes sales will be unveiled on Monday, with the Case-Shiller Index being updated on Tuesday; both are forecasted to show modest improvements. The same goes for Wednesday's durable orders (even if the bulk of the improvement is aircraft sales).
On the confidence front, look for the Conference Board's Consumer confidence figure - which plunged like a rock last month - to be released on Tuesday, while the University of Michigan Sentiment index will be updated on Friday. The former is expected to move down, while the latter is anticipated to go up.
S&P 500 and VIX Outlook
It's a clear good news/bad news scenario for the major indices. Let's just approach it from that perspective, beginning with the S&P 500 (SPX) (SPY).
The good news is....
* The S&P 500 Index has crossed back above the 50-day moving average line (purple), which had been a resistance line with the bullishness from three weeks ago.
* The CBOE Volatility Index (VIX) (VXX) (VXZ) is trending lower. Moreover, the VIX's lower Bollinger band (at 20.13) is now pointed lower, meaning it's less likely to act as a deflective floor. Rather, it just may gently catch the VIX and slowly guide it lower.
The bad news is...
* The S&P 500 is on a crash course for the 200-day moving average line (black) at 1113.4, and the upper 50-day Bollinger band at 1141. Either could halt or slow the advance, and if they combine at the same area, they could be become doubly-tough to cross.
* The VIX, though trending lower, seems to be hitting a minor floor around 23.0 (dashed)
While from a fundamental point of view the recent gains and more upside are merited, from a technical point of view we see some roadblocks in the near future. We're getting close to the inflection point.
S&P 500 Daily Chart
NASDAQ Outlook
5 Steps to Trading Like a Professional Trader
5 Steps to Trading Like a Professional TraderSo you want to be a professional trader? Here are some aspects of the job that you might not have thought of.
1. Have a dedicated working environment and structured work hours.
Create a space for your trading that is solely devoted to that and make sure it is suitable for your needs. What kind of computer power do you need? How many monitors will you be using? What software packages and scans will you be running? Do you want CNBC or other channels on a television? What newspapers, magazines and websites will be perused each day? And so on...
Next, devote a set amount of time to trading every day. Whether it's the 6.5 hours that the U.S. market is open, or 1 hour at the open/close, or 2 hours before the open and after the close, find a time that works for your trading and stick with it like a real job.
I knew a trader in Chicago who began "scalping" U.S. Futures vs. German DAX Futures, which required him to go into the office every night from about Midnight to 5 am. Is this a sacrifice? Yes ... but the pay and profits from it made it worth his while.
2. Have regular performance reviews and keep detailed records.
Trading on a professional basis is a very competitive, bottom line business. Think of it as being a professional athlete. When companies are "giving" you large amounts of capital to trade with, they want a good return on their investment.
In addition to benchmarks of indexes and positive returns, many firms will pit and rank their traders against each other on a weekly, monthly, quarterly, semi-annual and annual basis. The top performers are richly rewarded, while the laggards and money-losers will quickly be cut from the roster in many cases. The top traders are often given leeway and other perks (such as showing up late) that won't be given to those who haven't or aren't proving themselves.
Evaluate your own trading performance with such a ruthless eye. If you aren't making your weight over an extended time frame, pull yourself off the trading floor so to speak, and re-evaluate. Test new methods and concepts in paper trades.
3. Find a profitable niche.
Negative Earnings Reactions and Volatility Dropping
This article is written by Bob Lang, to find out more about
the services he runs for BigTrends, please call 1-800-244-8736.
the services he runs for BigTrends, please call 1-800-244-8736.
Earnings Season - Seems Rather Negative
It's hard to imagine such positive results being sold. We've only had a sampling of earnings so far; by and large they have been met by the market with a thud. What gives? It's all about perception and not reality...the perception that future earnings will not be robust or perhaps start to decline in general, rather than the reality of strong earnings being posted and celebrating a good quarter. Do we dare believe our CEOs when they tell us 'business is ramping', 'backlog is strong as ever', 'production is increasing', 'gross margins are on the rise'? That's what we've been hearing of late, yet the market is not responding as we would expect. Oh sure, there are isolated cases of good earnings and a nice pop in the stock: witness Intel. The excitement there afterwards bordered giddiness, yet we saw a muted response overall subsequently (in fact, Intel is right near where it was a month ago. Sentiment has much to do with the response to earnings, and we all know about implied volatility. But if a company like Intel or IBM beats earnings but cannot get a lift, what does that tell you about sentiment? Nobody cares about good earnings right now and would use any pop to sell.
Cut To the Chase - Volatility is Dropping
Interesting phenomenon, not too surprising is the dropping volatility. One recent trend I've noticed is that fear drops soon after the open, and either plunges and works higher or just stays down. What's it mean? Simply put we have protection being bought on both sides of the market, perhaps preparing for a big move. Open interest is heavy on options and contracts out of the money and in future months, and we also see large bets taken on higher volatility. Sopping up excess volatility is great for the net option seller, capturing premium and waiting for the decay to work in his favor. I've found that dropping volatility is a good spot to be long (bullish) this market as fear subsides. However, stagnant volatility is the seller's best friend.
VIX Daily Chart
Always Something to Worry About
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