Wednesday, April 30, 2008

April 2008 Rewind - Earnings Dominance

This April brought shelter from the recent financial storms with the major U.S. equity indices posting their first across-the-board gains since last October. Once again, Large-Cap technology led the charge with the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posting monthly changes of +4.76%, +4.54% and +7.62%, respectively.

After monster gains recorded on the first day of the month, daily movement was almost completely dictated by the earnings calendar. On balance, this along with a smattering of merger and acquisition news and significantly reduced volatility supported a positive mood on the street. This was in spite of several highly negative economic readings and record breaking commodities prices, which were largely overlooked.

On the final day, the Federal Reserve cut key lending rates by another 25 basis points, and appeared to indicate it would be pausing at the 2.0% level for the time being. Meanwhile, Style-Box performance was firmly in the Growth camp all along the capitalization spectrum.

Now that the five-month string of losses has been broken and the markets have shown signs of stabilization, traders will begin to look for indications of renewed economic strength in support of the second-half comeback premise. As of now, there has been scant evidence for it, but then again and unlike the market itself, most economic indicators are backward looking.



The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Sentiment: Stabilized/ Positive
Volatility: Elevated (VIX 19-23)
Direction: Positive

04.30.08 - GDP Push


A slightly higher than expected first quarter GDP reading set us up for more positive momentum. Get ready for the Fed noise trade if you're fast enough. Again, short of a bizarre statement, I'd expect a resolution to the upside, though too much of a move will likely get sold later in the week as we are already technically overbought. Are you fast enough? Keep a close eye on price relative to the daily VWAP!

o Federal Reserve Statement - Quarter Point Cut Across the Board

1:30PM CST UPDATE: Tepid statement; tepid market response. Note the slight reversal in the Long Tech/ Short Commodities trade! Day isn't over yet though.

POST CLOSE UPDATE: The market got taken up too far in advance of the announcement and the tepid, "we're probably done" tone of the statement led to a sell the news phenomenon. Since the market was arguable overbought going in, I suppose it wasn't a big surprise though I was ticked to close my hedges too quickly when price action held in there longer than I expected. Well, that's the nature of the beast, so to speak. Just about matched the market for the month with significantly less exposure, which I'll take any day. I'd say tomorrow holds a positive expectation.

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Tuesday, April 29, 2008

04.29.08 - Mixed Market


Sort of a bizarre split market today, small caps are down over a percent while large cap tech is up almost 50bps+. The energy and commodities complexes are pulling back too, which is hurting yours truly more than I'd like. It may be time to start lightening up there, or raising stops... but a day doesn't tell the whole storey, and I'll hold tight for now. Meanwhile transportation and consumer discretionary are benefiting. Mostly interest rate/ dollar induced/ related rotations I supose, but you wouldn't know about all these interesting cross currents just looking at the broader indices.

Monday, April 28, 2008

04.28.08 - Pre-Fed Markup


A little late to post today, and probably will be tomorrow too with other business. It has been a steady grind higher even as the talking heads have commented on a go nowhere market. I suppose when you don't have any skin in the game it's easy to make comments like those. Mostly I think they are just Dow centric.

We'll almost certainly see more noise [edit] Wednesday though, with a likely move to the upside when it is all set and done, unless there is some really bad statement, in my opinion. In this regard, the statement will be more important that a nothing or 1/4bp cut per se since either could be intrepreted bullishly and we are at the end of month. [Edit] If we do see more upside tomorrow, it will leave us short term overbought while simulatnesouly signalling a possible break out back up to the 200 day moving averages.

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Friday, April 25, 2008

04.25.08 - Failure and a Bounce


The market couldn't break higher after the overnight recovery and so they took it down for a sharp bounce back off the five-day moving average. Be careful though, it's Friday and the VWAP continues to decline. Most sectors are now going sideways. Maybe we see a sideways to negative trade ahead of Fed -1, then a run ahead of the news.

Thursday, April 24, 2008

04.24.08 - Looking Strong


Well, my futures program went down just as I tried to buy into that morning dip. I can't complain too much... I could have been stuck in a bad trade and at least I caught the overnight run down and up... Cumulative tick is picking up and everything is looking good except for my diversified bond and commodities trades and Ford short position! It looks like this run up should survive the day at this rate. Maybe well see SPY $140 by the end of tomorrow? If we do and can hold it, there could be quite a breakout in the near-term, I'd expect.

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Wednesday, April 23, 2008

04.23.04 - Back to Neutral


We are back to neutral here at the mid-day, giving a slight test to the rising (but flattend) VWAP. We are seeing just a slight pull-back as energy picks back up here.

Tuesday, April 22, 2008

04.22.08 - Pullback

We are getting the pullback I have been discussing and it's deepening by the minute. I wouldn't have guessed it would trail this far, but the prospect of $120/barrel oil is weighing. Cumulative tick is very negative -- I'd hold on to those shorts. Maybe we'll see some support around SPY $136.50 to $137.00

[Google is not posting pictures at this time]

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Monday, April 21, 2008

04.21.08 - Price Holding Up


So far price is holding up pretty well just under the pivot in the face of a midly negative cumulative Tick. Tech and large caps are providing the support. Keep an eye on the VWAP and relative bond strength for any changes. I still think the shorts have a bit of an edge here if we get up to that pivot (say SPY $138.8).

Friday, April 18, 2008

04.18.08 - Another Impressive Day


Wow, how long has it been since we've seen a string of days like this? Go GOOG! However, just as we were oversold within the range a few days ago, we are now borderline overbought. I am imagining that we may see harder potential resistance materialize at the early February rally attempt failure point around or just above SPY $139.50.

Meanwhile, the cumulative tick is looking very strong and the leaders are showing great strength and correlation even as oil is making a come back. Glad I covered most of my shorts yesterday, but I'm starting to put them back on. Lastly, note that it is an expiration Friday.

3:OOPM CST UPDATE: Official SPY high was $139.56. Looks bullish going forward to me. Any single earnings miss from a big boy could still cause some swing, but we may be tentatively back to a buy the dips mode.

WEEKEND UPDATE: Don't misconstrue my intermediate bullish change of heart. We are overbought for the very short-term. Take a look at a very short-term RSI for one.

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Thursday, April 17, 2008

04.17.08 - Happy to be...


...net short. The last push off of the rising VWAPs yesterday looks to have been short covering. The internals aren't awful by any means, however, and there is no reason to think the uptrend will be broken just yet. Oil does look like a bit of a worry though, doesn't it?

Wednesday, April 16, 2008

04.16.08 - Thanks INTC!

Looks like INTC (+5.8%) answered yesterday's after-the-close call for some earnings leadership!

We are seeing a nice reversal from oversold conditions. As we bump up against the ten-day moving average/ R2 (SPY $135.50), look for corrective impulse support from the rising VWAP and R1 (SPY $134.75).

Tuesday, April 15, 2008

04.15.08 - Slow Drip


Technically we are oversold, but don't tell the market that... it's a slow, rather annoying trip south here. Just about every indicator is mildly negative as the SPY hangs around S1. The financials and transports are holding up OK (in spite of record oil in the case of IYT). Really it seems to be earnings ambivalence.

2:40PM CST UPDATE: We need a leader to come out and beat their numbers here. IBM? GOOG? Anyone? Rob Hanna sees a quantitative buy setup.

Monday, April 14, 2008

04.14.08 - Slim Recovery


We are seeing a mild recovery after some initial morning uncertainty. Tick and AD line are essentially flat thus far. The financial complex continues to hold back the S&P500. How are those tax filings coming along?

o IRS Form 4868 Extension for Individuals
o IRS Form 7004 Extension for Certain Businesses

Sunday, April 13, 2008

DV_indis Descriptions

This is just a partial list of indicators provided as part of the subscription service:

DV Intermediate Stretch(DVIS): This is one component of the DVI that isolates the stretch in terms of net days up or down over a series of periods and is re-scaled to create an accurate and consistent measure. The stretch is not like RSI because it does not consider the magnitude of up or down days but rather the net difference. It also looks at the short, intermediate and long time frames with a net weighting on the intermediate. This is a very accurate and useful indicator for identify mean-reversion areas of value rather than actual turning points. It can also be used as a trend measurement in conjunction with the ADX (Average Directional Movement).

DV Intermediate Magnitude (DVIM): This is the other component of the DVI that looks at the magnitude of up and down movements and is smoothed to reduce noise and also re-scaled to create an oscillator that appears to move in a “wave” format. The DVIM is a great complement to the DVIS because it measures the net percentage move over a variety of lookbacks weighted primarily on the intermediate time-frame. Like the DVIM, it does not attempt to identify turning points, and is instead a measure of relative value that does not change as frequently as other oscillators. The “wave” movement of the indicator is ideal for “hook” type mean-reversion strategies that buy or sell following a transition from overbought or oversold levels. It can also be lengthened to create an excellent trend or relative strength indicator.

Trend Stochastic (DVTS): The Trend Stochastic is a super-smoothed 10-period stochastic that moves gradually relative to the standard indicator developed by George Lane.  It borrows from concepts used to smooth noisy data such as momentum. As a consequence it can be used as a trend indicator or a filter for mean-reversion trades. It is a number scaled between 0 and 1, where .5 is not necessarily the median point. It can be traded long anywhere above .4 to .6, and short below. Or it can be traded by observing whether the stochastic is rising or falling, and potentially a combination of both the direction of movement and relative position. (insert pic from tradestation here).

DV Trend-Minus Cycle (DVTO): The Trend-Minus Cycle oscillator is a transform that nets the difference between the trend stochastic and a calculation related to the DVDS or super-smoothed double stochastic. The DVTO is useful for markets where an intermediate trend signal is hidden or obscured by a cyclic component. This trend may occur at medium frequencies such as the S&P500 or at extremes such as the case with Oil. If the DVTO is highly unprofitable on a given market that is usually because it is mean-reverting at the intermediate level—this occurs in markets such as natural gas or gold stocks. The benefit of the DVTO is that you can use it to filter intermediate trend signals such as in the MACD or DVMM, or you can use it to combine with longer term trend indicators to create a more accurate multiple time frame system.

DV Super-Smoothed Double Stochastic (DVDS): The super-smoothed double stochastic is the preferred mean-reversion variant to the conventional stochastic by George Lane. The DVDS normalizes the 10-period stochastic position within the channel to increase peak/valley classification accuracy and is smoothed twice to make it less prone to whipsaws. It does not use a percentile rank classification which tends to increase median accuracy versus extreme accuracy.  As a consequence is a good compliment to shorter –term oscillators like the DV2, DV Stochastic, or RSI2, or even intermediate oscillators like the DVI as it helps to increase the odds of finding a temporary bottom or top. DVDS levels below 10 and above 90 often coincide with peaks/valleys within a few days. With the broader trend, levels below 20 and above 80 tend to be the appropriate signal levels.

DV Stochastic (DVS): This is the short-term cousin of the DVDS and resembles a stochastic version of the dv2. Like a conventional stochastic it permits highly profitable entries from oversold/overbought levels when the indicator is rising/falling, and this is a much lower risk entry than classic rsi2 and dv2 variants. It isn’t designed as much for binary use, although the binary version responds better to adaptation than DV2 or RSI2 variants because it is more predictable in its oscillation. It  does use the percentile rank to permit a consistent number of entries.

DVBU/DVBL/DVBM: The DV Lower Band (DVBL) price is similar to the lower band of a standard bollinger band but is re-scaled to the annual lower band level frequency. The DV Middle Band (DVBM) price is similar to the middle band of a standard bollinger band–but is not the average price but rather the re-scaled average price. The DV Upper Band (DVBU) price is similar to the upper band of a standard bollinger band but is re-scaled to the annual upper band level frequency.

DVBI/DVBP: This is the DV Band Indicator for DV Bands. For the Excel Plug-In this is the percentile rank of the H,L,C version of the z-score. The DVBP returns the price associated with a user-defined percentile and H,L,C range. Thus if you wanted to know what the price of the S&P500 would be at the 95th percentile based on the last 30 days of prices you would highlight the H,L,C range over the past “n” days and type in “95%.” In the case, with price data  in a spreadsheet in descending order, you would type in as follows:

=DVBP(C3:E32,95%)=$119.13

Both the DVBP and DVBI can be used as probability-based indicators, where the likelihood of exceeding  the absolute extremes the next day is very low. In our testing the upper and lower DV Bands contained up to 95% of closes out of sample—that is, the chances of exceeding the upper or lower band or 97.5th and 2.5th percentiles were roughly equivalent to their promised probability (2.5+100-97.5=5% of values outside the range). This makes DV Bands a good tool for mean-reversion strategies and/or filtering for abnormal market conditions.

DV Zones (for Excel Plug-in only): This is one method of identifying regimes, in this case DV Zones are constructed using DVRAC- a trend filter that uses multiple smoothed regression slopes  that are smoothed with a 30-day measurement periods,  and DVPV which is the percentile rank of 30-day historical volatility. The following table shows the corresponding number codes and indicator values used to de-lineate the zones:




DV Zones are excellent for developing comprehensive trading systems. They are static regimes that capture a broad spectrum of market conditions.  You also may wish to shift a portfolio allocation to various systems dynamically based on the current zone position. The most common use of zones is to understand the performance of a given indicator within each zone, since they will be very different. It is instructive in some cases to consider longs separately from shorts. For example, in up trends with low volatility, shorting using a short-term indicator like the RSI2 or DV2 might not be desirable. The same may apply with going long in down trends with low volatility. As always taking a smaller position size is the least risky alternative if you have a good system to avoid missing out. The zone concept can be applied using other indicators as well such as the 200 day moving average.

DVSE: This is the DV Super-Charged DV2 percent exposure model that varies between 150% and -150% based on a simple algorithm. The DVSE increases exposure on both the long and short side at extremes, and normalizes its exposure positioning to keep size proportionate.

DVBE: This is the DV2 percent exposure model that varies between 150% and -150% based on a simple algorithm. The DVSE increases exposure on both the long and short side at extremes, and normalizes its exposure positioning to keep size proportionate.

DVHV: This is the standard historical volatility calculation with a used defined measurement period. The default setting is 30 days. The calculation is the standard deviation of the natural logarithm of price changes over the period selected scaled to 1year as defined by 252 trading days using the square root rule. It has been multiplied by 100 to make it comparable to the VIX. When the VIX is trading above this number it is bullish for the market and vice versa based on our historical research.

DVPV: This is the percentile rank of DVHV with a 30 day default setting and a 252 day lookback for the normalization. The DVPV is an excellent tool for system filtering and testing as well as position sizing and portfolio allocation. Primarily it should be considered as a key measure to watch when deciding between mean-reversion and trend-strategies. It is also a key component of “zones” analysis (see DVZN).

DVCV: This is a composite volatility measure that includes ratio volatility , longer term historical volatility, and a measure of daily variation. It can be used as mean-reversion filter on its own or combined with DVPV.

This text republished by permission of David Varadi/ CSS Analytics.

Friday, April 11, 2008

04.11.08 - Shakedown


A pretty weak attempt to fill the gap has turned into a deterioration of the cumulative tick. Stay out of the way. That said, should be support between here and SPY $133. Note we are right on top of the 20 and 50 day moving averages (although the 5-day has rolled over again).

3:00PM CST UPDATE: Very, very ugly. Back to where we were before the last week's up move. I have to admit I didn't think we were going this far back. I bought a bit in towards the close. "Hope" it doesn't gap down on Monday. Please note that big move downs on low volume, are actually bearish, not bullish, as the common wisdom goes.

NEVER INVESTMENT ADVICE

Thursday, April 10, 2008

04.10.08 - Love it When a Plan Works Out


I love it when a plan works out, especially when it's to a T... can't let it get to your head though. Tick is strong, albeit softening up a bit as of this writing. I wouldn't put more on the table until a small pullback though, maybe around SPY $136. That's near the daily pivot and the rising VWAP. The five day, on the other hand, may provide some techinal support here. We'll see if it happens. SMH has been on a tear (+3.12%).

Wednesday, April 9, 2008

04.09.08 - Bad News Bears

Remember this classic? Too bad about UPS. Transports are down big (IYT -2.85%), exactly mirroring oil in the opposite direction (USO +2.75%).

Tick is looking very negative. As mentioned a couple days ago, look to SPY $135 for POTENTIAL support. Lot's of one-sided days this year (see Traderfeed), I'd be careful with contrarian positions or at least leg in once/if support is verified.

Tuesday, April 8, 2008

04.08.08 - Small Cap Relative Strength


We are a bit flatlined here on the Alcoa/ AMD news. Tick and AD line are essentially flat as well. IWM is taking a slight lead (+0.15%), but appears to be capped by its 5-day MA. SMH has been hit the hardest among the "leaders" (-2.3%).

Monday, April 7, 2008

04.07.08 - Resistance Zone


We are now in the SPY $138-139 resistance zone referenced several days ago, more specifically being capped immediately here at the mid-day at the daily R1 of SPY $138.15. This is potential resistance... Tick is still healthy and money is definitely moving out of bonds (edit), perhaps we will break through but I'm putting on partial hedges just in case. Hope you had a good weekend.

2:20PM CST UPDATE: If this lasts for more than a day or two, I would look to SPY $135 as near-term support. Not entirely surprising after the big run and in the face of earnings.

NEVER INVESTMENT ADVICE.

Friday, April 4, 2008

04.04.08 - Yes, Martha...


...this is what resiliency looks like. Cumulative Tick looks very strong and the A-D line is making a nice comeback. Looks a bit like yesterday all over again, doesn't it? If we pick up too much steam, I'll be looking to go nuetral over the weekend. Speaking of which, enjoy yours and thank you for my first 4,000 visits logged this week.

Sincerely,
Jeff Pietsch

(P.S. - Financials are trailing badly, keep an eye on any further deterioration there. Also, look to next weeks earning's calendar on the link to the right.)

Thursday, April 3, 2008

04.03.08 - Strong Support at S1


Strong support was found at S1 (dotted blue line) around 10:00am CST and I took off hedges as soon as cumulative tick went positive about 45 minutes later.

Wednesday, April 2, 2008

04.02.08 - Steady as She Goes


The market is relatively stable, all things considered. There is a slight negative expectancy after yesterday's big move, but so far it's all green on the screen. I've noticed that small caps are outperforming quite a bit. The SPY just fell under the VWAP even as the tick continues to look constructive...

Tuesday, April 1, 2008

04.01.08 - Exlposive Tick


This is about as strong as it gets. I'm hedging a bit along the way, but I wouldn't consider standing in front of this with a net short.

12:10PM CST UPDATE: Where's the volume?

3:00PM CST UPDATE: Where's the volume? Wait, already said that... Very bullish to have broken above the 50-day moving average. That should provide strong support as it begins to flatten and advance. Strongest start to the quarter in 70 and some odd years? As I stated late last year, if the dollar can get some traction and attract money back to the US, we could have a powerful rally even as we are only historically half-way through a typical recession-based bear. Possible resistance short- to mid-term is SPY $138 to $140.