That's right folks, the recent selling pressure has the market average closest to the 200 day MA (exponential) since July. As it stands now we are about 2% above the key trendline, which rests at $104.79 on the SPY. At first glance it looks longer-term bearish, however, that's not the case if the market holds above this level of support. Odds are that this will be a solid level for value seekers to enter the market.
The argument is two-fold, it's trend based and volatility based. Take a look at both charts below–the S&P500 and CBOE Volatility Index both show that the market has 2-3 percent MORE to lose before finding a short-term bottom. Of course, if we break below the 200 day for two or three days I'll update the post as it would alter the outlook in a meaningful way.
Click on the images to expand
S&P500 Daily (200 EMA)
CBOE Volatility Index
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.
Here's what I see (sound off in the comments below if you notice anything else!): (Click to enlarge pic)- 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)
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
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...
It looks like traders are still digesting Friday's job news as the market is in a holding pattern with major indices mixed. Gold continued to move in big ways and oil may be breaking out of it's recent bear trend (Are Gold and Oil set to revert back to their means? GLD / USO Pair Trade??)
Check out this 5 minute video on GLD, OIL, and UUP and let me know what you think
For those of you that follow us on Twitter you saw our new way of sharing the market this morning. If you're looking for the best way to stay in touch with BigTrends look below the video.
In the future we'll be offering more updates on the market via video in our blog, if you have an iPhone you'll be able to view them there too.
In the mean time, check out this analysis on the Market, Gold, and a Real-Time Large Put trade on ARM..
Here are a few good charts to help conceptualize last week's record breaking rally in Gold. In my view, each chart supports further upside this week with a probable short-term high developing later in the week.
Of course it's hard to mention Gold without mentioning Goldman Sachs (GS), the new market bell-weather, which has earnings Thursday before the bell. It will be interesting to see if Gold can continue its rally amid a larger financial rally or vice-a-versa (last week GLD gained 4.5% and XLF gained 6.65% an uncharacteristic correlation).
My favorite pics below are the CBOE Gold Volatility Index and the GLD Weekly with Acceleration Bands Signals. The 'Gold Vix' as it's called gives unique insight on Gold prices and similar the the traditional VIX can provide guidance on short-term reversal areas. In the chart below I'm looking for relative extremes in Gold Volatility on Bollinger Bands.
Finally, the GLD weekly chart is nothing short of awesome. With all time highs being made each day it would seem a reversal is near, however, if we close outside the upper Acceleration Bands this week, look out for an even larger weekly rally. Note the past signals and average length of holding.
Gold:Sliver Rally (GLD:SLV) with Bollingers
Top 20 Option Trade from Breakout Day (10/6) - LiveVolPro.com
Gold (GLD) versus US Dollar (UUP)
GLD Weekly with Acceleration Band System
Gold Volatility Index (Gold Vix)with Bollingers
The much anticipated jobs data was released Friday and pre-market action is pointing to a decisive sell-off. Of course, this is based on initial reaction to the number of jobs lost, but you can read the direct release below and make your own assertions.
You don't normally see economic data and technical data used in tandem, generally, economic indicators are longer-term compared to short-term analysis with technical indicators. In my view, this morning's negative reaction comes at a good time for buyers.
Most traders will look to short this market next week, based mainly on Thursday's sell-off followed by this morning's negative reaction. That seems logical, but there are two indicators that are screaming SHORT-TERM BOTTOM. The VIX and the CBOE Equity Put/Call Ratio.
CBOE VIX
CBOE Equity Put/Call Ratio
empsit
Editors Note: Thanks to the New LiveVolPro.com for Charts and Information Below - We are Currently Running a Full Review on the World Class Volatility Program, in the meantime you can check out the free version here (LiveVol.com).
Around 12:35PM on Wednesday just 90 minutes prior to Bernanke & Co. released the ‘official' outlook on the US economy a large options trade was placed in a benchmark bond ETF. The Lehman 20+ Yr. Treasury Bond ETF (TLT) saw heavy options action in the form of what looks like a bearish leaning straddle trade.
January 115 PUT
Images Courtesy of LiveVol.com
January 115 CALL
Image Courtesy of LiveVol.com
Traditional Straddles employ the use of buying an ATM call and ATM puts where the buyer's expectation is increased volatility (in either direction). In effect, one side goes worthless while the other side increases in value theoretically netting out in a gain. Generally, volatility must increase a substantial amount fast and buyers should also be concerned that this expectation may already be priced in.
Profit/Loss TLT 115 Straddle
In today's case, the large option trade can be broken down into a bet on treasury volatility with a bullish bias on bond yields. TLT reflects the price of bonds, which trades inverse to yields. Effectively, the buyers of the bearish straddle expect rates to increase, either in the short-term or certainly before January. As of now the total investment is around 11.5 million, a hefty gamble to make 90 minutes before the FED statement.
TLT 3 Month Chart with Implied Volatilities 30, 60 90
Image Courtesty of LiveVol.com
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