Category Archives: S&P 500 Futures (ES)

That was fun

There we have it.

The S&P in moderate panic mode on news (presumably) that a budget deal is in the works. So good is bad for another Fed fix. It’s been a long time since we saw such a smooth ride down. I like this chart, look where we stopped, surprise.

ES Chart

For those of you looking at Fib extensions we have a bit more downside. (Or not…) What was so fun (and profitable) about today’s trading was the failure to find 1800 again and then the breakout under 1792.

These opportunities are rare these days, it was a beauty.

ES Chart Levels

The VIX screamed higher 10% to 15.42. This in itself isn’t so extreme, but if the end of the week shows some follow through we’re in for some volatility. Finally!

The other possibility is we’re going to find a range here 1775 -1805. That also offers some interesting possibilities.

Good Trading.

Selling Vol on the radar.

Using the VIX for Trade Entry Signals

With the popularity of the VIX and VIX futures being overly used as a volatility hedge, I’ve been thinking about the signals it might give for medium term entry or exit points. If you chart the VIX and overlay Bollinger Bands (20,2,SMA) and look at the SPX, you’ll notice something interesting. Remember the VIX is forward-looking. The other indicators are price biased, and historical.

When the VIX breaks over the upper Bollinger band, you’ll see a low point directional change in the SPX. This isn’t a completely new idea, I was at a seminar recently which looked at combining this with Chandelier as a trading strategy. I’m going to just stick with the Bollinger Bands, the VIX and ATR. That’s where I see the most interesting information.

I mention ATR (Average True Range) because the 1 day ATR helps confirm long entry points.

Everything is in the chart below. The long signals look better than the short signals.

VIX SPX Bollinger

Good Trading.

More Downside?

I wasn’t completely blindsided by this pullback, but the head-fake after bouncing off the 50% fib scared me off my short trades. That’s the way it goes. What could have been a beautiful setup falls into the category of live and learn.

Here’s part of the bearish argument; here’s atleast one reason not to jump back in long, yet.

  1. Rising Historical Volatility – the last 3 times we passed this HV level there was more downside.
  2. Testing the 50% Fib, again
  3. The upward channel works until 1600.
  4. That 1600 falls at the 23.6% fib

S&P 500 Futures ChartI’m expecting some churn here, we’ll see.

Good Trading.

 

Calvin Screaming

Market Manipulation

Calvin ScreamingEvery so often I get thinking about The Manipulated Market. When markets defy logic to such an extreme degree only one of two explanations is possible. 1) Either your understanding of the forces that move markets is so fundamentally flawed that migrant farm work might be more rewarding; or 2) forces are at work which neither the press, bloggers, twitterers, or even Ben Bernanke have the courage to ‘expose’, question, criticize, regulate, or remotely ‘deal with’.

To Big To Fail = Big Enough To Manipulate.

We’re living through a sort of post 9/11 self-reflection while at the same time struggling with the contradictions of rising ‘wealth’ and shrinking disposable income. Capitalism is taking a hit, privacy is taking a hit, and the free market altar seems to be experiencing Alzheimers under stimulus ad infinitum. Some traders make every effort to avoid any and all ‘macro’ inputs to their trading strategy and focus only on: charts, price action, measurable ratios, divergences, volatility, etc. etc. etc. Those traders, presumably investment bank equity desks, and your friendly neighborhood algo are doing well… Very well.

Continue reading

Shifting Fed

Now we can explain why bad news is good and good is bad.

This morning the claims numbers missed slightly and the ES is rallying. Personal income rises, and spending falls. Ok. The logic apparently is: if the economy slows or stays flat, The Fed continues buying. A stock market methadone drip. This is now the only factor of any import, left for investors. How much have central bankers primed the system? (source: FT):

  • $12 trillion of financial asset purchases by the big 5 central banks
  • 520 central bank rate cuts
  • $33 trillion of fiscal and monetary stimulus according to the BIS1 (an amount equivalent to (46% of the world economy)
  • The lowest US government bond yields in 220 years
  • 50% (or $20tn) of global government bond market cap trading with a yield below 1%

The effect withdrawl will have on the EMs or Europe, is unclear. And yet I have gold in the back of my mind… Gold remains the outcast, only recently she was the prom queen. What to make of the paper selling in gold?

S&P-Gold Chart

All of last weeks worry was unwarranted. Really? That was quick. Is the VIX buying it? She can’t decide what to wear to the prom and gold is not in fashion.

VIX Chart

So when will QE end, slow, stop or be spun into such schizophrenic confusion that rehab is the only option? Never? I find that hard to believe. When the economy starts working on its own? That’s vague. Maybe they can take it in 12 steps. Friends of Ben.

The risks of shock to the equity euphoria are huge. Being long here feels dicey to me, but based on the charts it looks smart. We met one of my pull-back targets, but I personally traded it poorly. I was expecting more time to pass, end of July was my target time horizon. Here’s the chart and my logic is here.

S&P500 Chart

Leaving aside the BOJ, ECB, and Fed, the most confusing action for me is gold.  Is it not a safe haven investment after-all? Have we been mislead? Where’s the simple reasoning that gold will protect against inflation? Is that no longer a major risk? Check out the gold chart. Ugly.

Gold ChartGood Trading.

 

Credible Confusion

For those watching the gyrations of the S&P Futures, the sceptics are being vindicated. How long will the weakness last is unsure (though I have an idea), but; fear is seeping into the market. The strategy I’ve been following is written about obtusely here, here, and here. The list of red flags which have been raised over the last month is long, and taken individually the market might have easily overlook each. Yet even as the elephant in the room, Mr. Bernanke, tied the lose ends together as optimistically has his communication strategy would permit, traders started looking for an exit.

So that’s all well and good, but what now? The elephant has spoken. Continue reading

Good Morning Viatnam – S&P Retracement Levels

This morning it was ALL Japan – not Viatnam – I admit, but I woke up with Robin Williams ringing in my head.

 

The Nikkei extended their losses after:

  • BOJ REFRAINS FROM EXPANDING J-REIT, ETF PURCHASES
  • BOJ LEAVES FUNDING TERMS UNCHANGED AFTER JGB YIELD VOLATILITY

This sent the US and European markets into a tailspin. Expectations were obviously not met. It’s not often you see a gap open in the S&P down 1%. A bit unexpectedly the ES has been working off it’s overnight fear all day. Remember there’s a big buyer stalking…

Considering a slightly longer term, I’ve been looking at some potential cycles that might make good targets. If you’re even slightly bearish this perspective might interest you. If you’re bullish these might make good entry points.

I looked at three of the last major retracements during this bull market on a yearly chart.

  • September-November 2012
  • March – June 2012
  • May – September 2011

I measured the range as a percentage and measured the duration between the high and low. I’ve written about it, here. This is what I come up with:

Retracement Targets

If history rhymes, the medium term levels to keep an eye on:

  • 1558
  • 1515
  • 1400

And if this pullback continues we should be attentive around:

  • July 23rd
  • August 1st
  • October 24th

Even at these targets on the yearly chart, the market will still be trending upward. Count on the bears coming out of the woodwork.

Good Trading

Robin Williams