Follow the sqiggly lines

Holding on a bit longer has served me well. I've got some tight trailing stops on at this point (0.25 on SPXU). Gains are nothing to jump up and down about, but they're gains nonetheless so I'm not going to complain.

Just waiting to this wedge to resolve... Unless it's not really a wedge, in which case we just churn around the VWAP I assume. Also of note - the consolidation/distribution area after this mornings' gap did not follow the Fibonacci 161.8 level that the gaps up recently did. Maybe the quant computers aren't programmed to do that on a down? I still need to get set up for backtesting and really see the incidence of it.

Nuttin'

I'm just hanging around, watching the tape, working on getting a backtesting package up and running. Another day of VWAP zeroing in on 161.8% of the gap up. I'm still in my positions. POMO tomorrow, so I'm going to see of the thesis holds or was just a fluke. Only one I'm really kicking myself for is the tech short - but my view is that tech will rollover first and I'm not afraid to be a bit early on that trade. Most of the profits will be made in the early phases of that - much like the run up has gone.

A further examination of the charts reveals my main mistake: Not following through on my indicator of waiting for the CCI to cross 100. This was a big one - had I waited I would have gotten exactly the move I was looking for, just with a different timeframe. The intra-day down move happened. But it happened differently from all the others which preceded it. Go figure.

Moving forward, I'm going to split my high-risk money in two parts. One will continue to scalp short. The other will be kept in cash waiting for degenerate small-cap biotech stocks (and a few others, like BPOP) to pop and taking the 10 minute trades on those awful beasts. I've missed out on a number of those on my screener due to lack of settled cash. My low-risk money has been withdrawn from precious metals and is sitting in a money market fund for the time being, waiting for more macro clarity before being allocated. If backtesting reveals a good trend on the gap-fibonacci theory I've been exploring, I may try to work that. I'd probably need to trade futures for that size of move to be really viable though.

What's so magical about 1037

Fibnoacci Numbers? I'm going to have to try to get some backdata and see.

An investment is a trade gone bad...

I'm still in. I don't understand what's so magical about 1037, but it's acting as resistance/support. Have the VWAP algo's taken a shine to it?

At any rate, there remains a question for me to ponder. Why didn't things go according to plan. Is it that the correlation I saw was only coincidental? Or has something changed?

One possibility is that the people who run the equities-ramping program are aware of the attention that has been gathered and have changed the operations of the program. Another is that a critical mass of traders have started to front-run the expected late-day surge.

At any rate, I'm prepared to take a bit more pain. We're extremely overbought, though that concept has had very little meaning of late. I expect to have enough of a pullback to at least recoup the morning's losses. I need to sit down and draw up a new battleplan in the meantime.

Lessons:
I should have waited for opportunity to get long instead of trying to swing from short - since higher was what I expected in the medium-term.

I should possibly have waited until premarket to go short. Depends on what happened on those other POMO down-days and when the falls really began. Right now I have no way of seeing historical pre/post-market action though.

Great...

In previous samples, there was a gap down on the POMO days. Doesn't look as though we're getting one today. Japan had a good day this morning, and the dollar is down a bit.

Should I have sold in the premarket open at 8 as soon as the dollar and japan looked bullish for US equities?

Maybe. Right now I'm looking around at what else is going on but to be honest I'm also engaging in wishful thinking. I want to have been right.

Duh

A good number of the Permanent Open Market Operations are on Mondays.

Bank failures are done on Fridays after market close.

Duh. It's only insightful if you've previously looked at things in isolation, and is entirely obvious in hindsight.

Less obviously, the non-Monday operations would more likely be involved in supporting bond auctions. And the Monday operations would focus on dragging up the banking indexes besides the broader markets. There also may be some exploitable differentials - though I'm sure some quant math-nerds somewhere have already latched onto those.

Trigger Pulled

I'm in SPXU for the weekend at 50.36 - target is to sell Monday at 54 or above.

Tweaks

Not really much has changed in my plans. The only thing I'm still unsure about is where on Monday I should target to swing through to long.

We're still hovering around the top of the blue channel I drew on the dailies. Everything is quiet for the lunch hour. Too quiet.

This whole swing trading business has been frustrating. I go both long and short, but keep getting pasted on the short side. Obviously, there's something wrong with my tactical approach. Mostly that I don't cut and run when I ought to. I'm too patient. My small position size in relation to transaction costs may have a lot to do with that. I might need to double my position size. Doing so ought to reduce my motivation for sitting and waiting and bias me towards swinging around faster rather than legging in/out or trying to wait out small cycles. The long cycles are never small, and once we turn around I suppose the short cycles won't be either.

"Yesterday's weirdness is tomorrow's reason why."
— Hunter S. Thompson (The Curse of Lono)

Don't panic

I fell asleep without putting on that stop. I'm glad I did, as the premarket bullsh** would have whipped me around for more of a loss than I needed to take.

Obviously, we've blown past the upper boundary of the blue channel. The dollar is down, which probably has more to do with what's going on than the housing report. *Quick*, housing is up! Buy BioTech!!

I'm going to wait and see if this cools back down inside the blue channel. If not, then this whole time we haven't been in any kind of channel but more likely an expanding triangle.

Or maybe my charting just sucks :-)

But it's certainly time to take a step back and re-evaluate the strategy. I still feel good about putting in a short today and swinging long tomorrow. And at this point the outlook for higher highs is good enough that I feel comfortable going long with unsettled cash.

Time to stare at the tape for a bit and make some decisions...

5 Samples does not a trend make

Still - I've got to do my own trading and learn my own lessons. I can't survive on the coat-tails of others. And besides, for a number of personal reasons I don't think I can replicate the strategies that other people use. For the time being I need to trade without broker margin, and I'm not ready for options. And my position sizes are small enough that I can't really chase 1% moves - I need to hunt larger game.

Following from the last post. The attempt to run the numbers sector-by-sector has been taking too much time. Instead I just focused on getting the historical pomo data into a spreadsheet format which could be used. You'd think that the "excel format" link on their site would take care of that. It's basically the same format you'd get if you cut and pasted the raw text. Sigh. I was going to do all kinds of fancy processing but that's going to have to wait until I have time for it.

So here's a quick and dirty chart looking at a triple-levered inverse S&P500 ETF to amplify the daily move. The POMO days are boxed in white. The 17th is a bit of an anomaly since we had the big dollar jump the previous evening. The kinds of moves I hope to catch are the yellow lines from the prior days. I've looked back further and this pattern of moves down from the prior day doesn't extend far. But we are in a different operating mode from July, so that doesn't worry me. It looks like good entries are hinted at by a up-trending RSI moving average, and from the CCI either reversing from down to up or crossing -100 upwards. Exit point should be after about a 5% gain and before 2pm at the latest.

Time to get to sleep before I repeat my common mistake of not being awake during the all-important morning trading session. Accountability and all that...

Discipline

Maybe I will post everyday. It'd be good for me to have to explain my thinking. Doing so will force me to examine assumptions which I might not otherwise. It will also keep me accountable as I won't be able to lie to myself as easily about bad habits I'm failing to confront.

Given that....


My charts seem to be working so far. It's too early to return a verdict, but so far the SPY price has followed the lines. Today we had a push through the bottom of the blue channel at 1003, and proceeded to bounce off the top of the orange channel at 1012. After hours trading has slipped a bit from there - though I have yet to really see much correlation between what happens after-hours and what happens during the day. Sometimes it's very influential - sometimes it's completely contrarian. It would not surprise me if some "tells" can be distilled which would give a clue as to the durability of the after-hours action. Unfortunately, premarket and after-hours trading are something of a big black box. Most charting software doesn't seem to show any of what happens there. Online, it's possible to see what's happening and even to see the order book. But I have yet to see anything which will allow you to do any kind of analysis against it.

Foolishly, I didn't sell out my TYH position when the bottom of blue was first breached. Though, to be fair, if we remain in the orange channel (not likely) I'll get a much better exit point as we swing down to it's lower boundary. So, I guess that means that after finishing writing this I ought to learn my lesson and go put in a stop order a little bit above orange. This won't be too bad, since it will free up cash to settle in time that I can swing long on Monday's POMO surge without having to use the unsettled cash from selling the short position I'm establishing tomorrow. I need to decide tonight whether to just go levered S&P500 or to pick some POS speculative stock that will get carried up in the euphoria. I'm going to run through my charts and see what happens in different categories of security during POMO rampups.

Looking ahead, I still expect Monday to experience lows markedly lower than the close on Friday. The main question is whether the SPY will wiggle around under the lower boundary for the orange channel, or if we're now back in blue and headed up to retest 1020 before we get a little push down. There are encouraging signals on the oscillators that we are a bit overbought, and the MACD is just kind of lounging around. So there doesn't appear to be much "pressure" to bust higher tomorrow

China, Oil, and the Dollar - as always - are the wildcards. It's looking more and more like we are in a distribution phase where the investment banks and hedge funds are offloading their positions to mutual fund managers. Still, I think the overall direction is up until we get some failed retests of recent highs.

Do you see what I see?

This one goes out to Stevo and to the folks at Evil Speculator (molecool, springheel, and kiersten especially). This is my first public attempt at analysis - feel free to humiliate me as long as you teach me something in the process.

And please excuse the clutter - I'm still experimenting with the tools and figuring out what works best for my style of trading. Also be aware that my candlesticks are setup different from what is normal - green/red is the daily move, open/closed is the net change.

The basic story I'm reading is that we've got a set of channels which we're transitioning between. It's kind of a rounded top formation from the looks of it.



The inflection points should be clearer here on the hourly chart - if we don't break above the bottom of the blue channel we're going to chop around the VWAP in the orange one. If we do break back into the blue channel it's clear sailing up to 1020 or so on the S&P500 - which lines up quite nicely with molecool's target for the next elliot wave up. I'm still studying EW theory but I think seeing how these connections happen will be instructive.




Finally - here's my view from 10,000 feet that I like to refer to. Many technicals, as well as a lot of sentiment are pointing out that the rally has run out of steam. Whether we get a new rally full of its own steam or a large-ish correction is still up in the air, but should become clearer within the next week or so. We're out of that purple monster channel from the daily chart, and macro technical analysis seems to be working again. If we stay in the orange channel for a long time it may be a good idea to dust off the old stochastics again.


A final note of interest - looking at the daily chart, the trend lately has been for the Permanent Open Market Operation days to actually be down intraday until the ramp up in the close and into the following day. I'm going to experiment with going short and levered on the close of the day preceding the POMO, and putting on a tight trailing stop on late that morning.