BigTrends

For those of you that trade for a living and work from home--this is for you.  Lifehaker recently posted a peek into Steve's custom home trading station.  He (Steve) elaborates on all the tech specs of his computers so if you're loooking for some guidance on that new Window's 7 computer check out his update below:

''Originally there was to be 60 monitors, a mix of 19s and 24s however, it changed a bit and there is now 40 24" monitors and another 20 monitors offsite for development.  There is six computers running all the monitors, each computer has a core i7 975, 24 gb of DDR 3 memory, two SLC SSDs in raid 0 and a large amount of nvidia NVS 420s as well as Nvidia 9800 GTs.  This office is used for intraday trading and development.''

At any rate, you can take a look at Steve's personal trade station below - I must say he's got us beat on the monitor:trader ratio by a long shot (BTW-I find that 8 monitors does the trick just fine). Take a look at some of the pictures below that show the development of this workhorse station (original post with more pictures @ Lifehacker

Overall February's ETF Trend was more bullish than January's with all three major index ETFs gaining ground. Here are the quick take-aways from February:

--In contrast to January Asian markets experienced the heavier selling in February with Japan and Taiwan leading the weakness.

--January's standout was Regional Banks and February is no different with strength spreading to all financial another month of gains (XLF, RKH, KRE)

--Energy and Commodity Based ETFs continued to show major weakness with XLE, XOP, OIH, UNG and SLV all showing losses.

--If any leaders emerge in Energy and Commodities look towards Gold and Oil as GLD and USO were a couple of the bright spots.

--With International and Global ETFs closing decisively bearish for a second month we'll be watching if they lead major US indices lower. 

--The strongest US sector is consumer discretionary led by retailers (XRT)

Let me know if you see anything else in the comments below!

ETF Heatmap (1 Month Performance) - Click to Enlarge

Take a look at the ETF heat map below - we're looking at January performance (or YTD) so this gives you a solid idea of the winners and losers so far in 2010. I suspect there is a positive correlation between the overall market and individual sectors with respect to the January Barometer. That said, we may be looking at the strongest and weakest sectors of the year.

• 90% of World Market Are Negative (Majority of Green are Short/Inverse ETFs)
• The Worst Performing Group Looks Like Basic Materials (XLB, GDX, XME, SLX)
• The BEST Performing Group is REGIONAL BANKS (KRE, RKH, IAT)
• Other Notable OUTPERFORMERS Include Japan (EWJ), Homebuilders (XHB), Russia (RSX), Global Shipping (SEA)

From FinViz

For those of you that receive our nightly Trader's Edge Report you know the importance of sentiment in the market place--investor sentiment can help you determine when the so called fear and greed on Wall Street is primed for reversal.  In my trading Iconsistently use four different sentiment tracking charts, (1) CBOE Volatility Index, (2) CBOE Equity Put/Call Ratio, (3) RYDEX Ratio, and (4) ISE Call/Put Ratio.  Each has it's own unique system to highlight market reversals (covered each night in Trader's Edge), but they all employ a similar contrarian strategy.

The reason I bring this up today, is based on the current sell-off in equities--as it stands right now, it's the strongest two day sell-off since last summer.  As of now the CBOE Equity Put/Call Ratio is at extremes again - we measure extremes based on Bollinger Bands and as of now we are clearly outside the upper band.  This means the Put/Call Ratio is very high relative to the past 20 days or that FEAR has reached an inflection point.  The CBOE Equity Put/Call Ratio simply looks at the number of equity puts (bearish) traded compared to calls (bullish) traded, it's falls lower as market participants become more bullish and vice-a-versa climbs higher as participants become more bearish.  

Market reversals tend to occur when fear and greed saturate the markets.  In today's case we are seeing an extreme amount of puts traded, so much that it is unhealthy for the current trend.  Take a look at the graphic below to see recent patterns with the Equity Put/Call Ratio and the S&P500.

CBOE Equity Put/Call Ratio

Whether you follow currency pairs or read the headlines you already know about the heavy pressure on the US Dollar (UUP).  After testing 52 week lows in December 2009 the US Dollar (UUP) reversed higher to break above the downtrending channel.  Against all (expected) odds the US dollar gained substantially in the last month.

Since the parabolic bullish reversal started UUP has not experienced a meaningful pullback until now.  It seems as though the inverse relationship between equities and the US dollar remains strong in the New Year since today's hard pullback in the dollar fueled strong rally in all three major indices.  That said, we should still be aware of the key levels in the US dollar--as basic as it sounds, this relationship will continue until it stops.

The dollars bull trend has more strength than the prevailing trend in equities so I am expecting this to carry the overall trade (US dollar will continue to lead equities).  That said, take a look at each chart below and take note of the new line in the sand that was drawn today. 

The longer-term chart shows the technical importance of the support level (green line) that was broke in early December.  This generally leads to a test of the new, lower support level at some point in the near future.  More accurate timing can be seen in the shorter-term chart at the bottom: with Acceleration Bands and William's %R you can see clearly that there is a strong bull trend in place--strong enough to trade actually.  Essentially, the US Dollar can be expected to gain value in the short0term unless we see a close below the new key level created today.  A close below $22.84 would signal a strong correction in the dollar, which would likely lead to Gold (GLD) testing 2009 highs and equities following suit.

US Dollar 2008-Present


US Dollar ETF (UUP) Daily w/ Acceleration Bands & Williams %R

One of the most valuable indicators that I keep on hand is the NASDAQ vs S&P500 Relative Strength, it is designed to show periods of extreme growth by highlighting periods of outperformance (or under performance) in progressive tech names. 

As you know, market leaders like Apple (AAPL) and Google (GOOG) and First Solar (FSLR) are listed on the NASDAQ exchange so we look for the tech heavy index to signal periods of strong market growth.  Generally, the NASDAQ vs S&P500 RS is used as a market timing tool and it works on multiple time frames.  I review this on hourly, daily and weekly charts on a regular basis. 

Below is a chart of the weekly NASDAQ 100 (QQQQ) with the Relative Strength.  Here's a brief description of what we look for:

When the 10-day simple moving average crosses above the 21-day simple moving average of the relative strength (RS) line, this creates the bullish Setup for this indicator. It is ONLY confirmed when the Nasdaq Composite CLOSES in a future day above the Nasdaq Composite high on the day of the bullish RS crossover. This will then typically start a new uptrend phase for the markets, as the Nasdaq leads to the upside as money managers will be playing "offense" and moving more money into growth-oriented stocks. If the RS cross-over is not confirmed, then that Nasdaq Composite high is considered the top for that move, usually a peak in a trading range or an evolving downtrend.

Bottom line: Recent underperformance of the NASDAQ is supportive of a weekly outlook of broad market weakness.  Notice that the March bottom was pinned by a buy signal in the RS - since the March bottom this is the first signal (long exit) - An actual short signal would only be confirmed if we closed below weekly S&P lows (1,033.57).

Answer: I assume that you enter a limit order based on what you noted the night before.  If you enter 'market orders' please don't do that.

When trading options, entering such an order is an invitation to receive a terrible fill, and there is little chance that you will get a fair price.

Entering a market order at the opening is much worse.  It's difficult to imagine being so desperate to get a fill that you are willing to enter a market order at the opening of trading.

If you want to trade the opening, limit orders are mandatory.

'Yesterday's closing bid/ask prices' are almost always bad.  By that I mean they no longer represent the true market the following morning.  Why?

Our good friend over at Tickerville, Quint Tatro, invited Andrew Hart as the options guest on his weekly radio show Tape Talk this week. Tape Talk cuts through the noise and takes you through the tape each week giving you the power to control your investments.

The show originally aired on Sunday and covers a wide range of market topics from S&P500 support and resistance to my current view on the market. This episode is well worth the time so sit back, relax, and crank up the volume and listen to the tape talk. For other streaming episodes check out Quints blogtalkradio page for Tape Talk.

Finally, for those of you interested in live analysis with Quint make sure to sign up as a BigTrends Insider to receive an invitation to his upcoming webinar to BigTrend Traders.

It's that time of year again when investors start adjusting the rear-view [investment] mirror as they look forward to a new year of money making trends. It's a good time to peruse the free analysis available, all-the-way from the top investment banks down to your local advisor, but be selective and filter out the noise because a lot can be misleading or incorrect.

That said, I found this handy little document called, Goldman Sachs Global Viewpoint - Top Trade Ideas for 2010, which covers Goldman's (GS) top 8 trade ideas for 2010. In my view, it's well worth the time to scroll through the short 7 page analysis, there are some ideas that I agree with - for example, Trade #2 is LONG RUSSIA Equities (RSX), this points towards the strength in BRIC countries (BTW, Goldman coined that acronym back in 2001), however, I would expect Brazil (EWZ) to be a larger beneficiary of BRIC investments next year. I'll be covering the details of Brazil in BigTrends 2010 Outlook due out next week (sign up for a free BigTrends Insider account to receive)

Tell us what you think about these trade ideas below, I'm especially interested in the 12 month volatility play...