🤨 When in Doubt...17th November 2022🖼 Daily Technical Picture 📈
➤ ...sit out. In my humble opinion, the current short-term price action in equities are highly ambiguous. This often happens at key inflexion points when prices temporarily move sideways. Sometimes this is the market digesting recent moves e.g. the upward surge or the market is in search of direction awaiting some news or catalyst.
➤ With ambiguity comes the danger of forcing a trade or reading too much into a particular price action. For example, the Russell 2000 small cap stocks performed terribly today, breaking below support. Technically, I could make a case for shorting the Russell yet if I look at other equity indices, they ended above or very near support levels on this bearish day. The VIX (fear index) actually contracted showing lack of bearishness. Based on my experience, it is much better to wait another day for things to develop than eagerly risk capital in search of gains.
➤ I currently have zero exposure in the market. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Thursday is Action Day?
Stoxx50
That Was Not Good, 16th November 2022🖼 Daily Technical Picture 📈
➤ I didn't change the title from yesterday's post for an obvious reason. The news about the "errant" missile landing in Poland. The first thing that comes to mind is "uncertainty". Uncertainty is not good for markets albeit this one may be short-lived.
➤ That being said, from a technical view point, markets bounced off the daily low strongly closing the gap created by the higher open. The uptrend is intact for now. Speaking of gaps, there is a large gap unclosed since 13th Sept just above current levels in the S&P500 (SPY). There is also the massive gap created on 10th Nov when prices leapt higher post inflation data. The market likes to close those price gaps.
➤ The last of my long positions was closed. Leaving us in a familiar territory of having no positions. That's not a bad thing given the uncertainty.
The key to my Strategy is to only get involved when there is a clear price structure with a good probability of success. I don't think I'll be out of the action for long though. Price action on Wednesday will most likely determine new positioning.
➤ I currently have zero exposure in the market. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Wednesday is Action Day.
That Was Not Good, 15th November 2022🖼 Daily Technical Picture 📈
➤ It was looking good for my Bullish position until the final hour of trading. Then things went sour. Prices reversed course. That Was Not Good.
➤ It was not good for two reasons:
➀ My fear of being taken out by choppy conditions has materialised. Exit signals were given. That meant I had to cut most of my positions at market close. Overall a set of break-even trades. Not disastrous but very disappointed with giving back profits.
➁ Price action leaves the market in "limbo", at least in my view. It was not a sufficiently strong reversal to give a short signal. That means price can maintain its Bullish stance but without my participation. A case of Fear of Missing Out (FOMO).
➤ At the end of the day, it was good to stay disciplined and not second-guess my process. Wavering on decisions and letting emotions get in the way will lead to inconsistent behaviour and erosion of confidence. Eventually, that will lead to disastrous results.
➤ I hold a +8% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Looking forward to the next set of trades that are just around the corner.
Bull Charge Continues, 14th November 2022🖼 Daily Technical Picture 📈
➤ Good Monday, we experienced some extraordinary market action last week. Beginning with the BTC/Crypto plunge and ended the week with a massive bullish move in equities. Not to be outdone was the sharp reversal in the USD. The USD reversal is a big deal.
➤ Equities extended the rally off the yearly lows accelerating past key resistance levels. Price is in "clear" air territory. VIX continues to contract, it may continue to do so heading for the 20 level. At that level momentum to the upside ceased on numerous previous occasions.
➤ I was caught out by the "false" Bear positioning mid-week. I'm hoping to recoup those losses quickly with a continued rally. Will the Trading Gods play another trick?
➤ Interesting to note that the NASDAQ has led the way in the latest up move whereas it was lagging badly from the bullish move off the yearly lows. Perhaps there is some sector rotation here. Reducing exposure to bluechip names (DJIA) and increasing exposure to Tech where market participants are severely underweight.
➤ I continue to hold a +64% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: The price is always right.
Bull Charge, 11th November 2022🖼 Daily Technical Picture 📈
➤ What an extraordinary day! The Bulls have run riot. The Bears have been crushed like myself.
➤ Price has charged through the top resistance level and looks unlikely to stop there with so much momentum. There's really not much more to be said. You can see the empty space till the next resistance level on the chart.
➤ The saviour for my portfolio has been the small short positioning. This is of course somewhat offset by such a huge advance in price. Overall, correct positioning kept losses to a manageable level of around -2%. That takes my performance into negative territory for the month. I was also caught wrong-footed in September in a similar fashion. Losing is part of Trading and so is risk management.
➤ At market close, I reversed my short positions with a larger long position. The portfolio sits at +64% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Wrong direction but right-sizing - risk management.
NOT INVESTMENT ADVICE
I Am NOT UNCERTAIN, 10th November 2022🖼 Daily Technical Picture 📈
➤ I'm borrowing that quote from the TV Series Billions. The market is NOT UNCERTAIN that things are UNCERTAIN. There's one thing markets don't like and that is uncertainty.
➤ The results of the mid-term elections in the US are UNCERTAIN. I'm no political expert but if Republicans win the House and Democrats win the Senate or with some sort of coalition, the division will cause friction with pushing through policy decisions. Furthermore, things may be undecided till December if there are run-offs due to the close voting...the UNCERTAINTY will only be removed through time.
➤ Incoming Inflation data is also adding to the UNCERTAINTY. Luckily, this will be out of the way by Thursday. Market participants will make a decision quickly.
➤ In the previous note, I said that the ball is in the Bear's court. Today, they pushed prices lower to form a lower high. This dents the chances for a continued uptrend in the immediate future.
➤ I've strengthened my bearish view by moving to a -34% short exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: By no means am I a high conviction Bear. We are only at the 1st innings. That I am NOT UNCERTAIN.
First Signs, 9th November 2022🖼 Daily Technical Picture 📈
➤ DJIA, the blue chip equity index, continues to outpace all other US indices. It is quite remarkable. Never have I seen such outperformance. It is TELLING US something...
➤ I think the first signs of a longer bearish period is being shown by the price action. The recent move forming the higher low is looking laboured. It doesn't have the big "strides" of a strong march especially if you compare this to the up movement from the yearly low. There, the up bars are large and look confident.
➤ We can't get too far ahead of ourselves though and dive into short positions just because things look bearish. I need confirmation. We will get this very soon by today or tomorrow with inflation data.
➤ The Bullish view is that prices need a bit of time to digest the large move off the yearly low. Hence a pause before exploding higher.
➤ I've taken profit on the remainder long positions leaving the one small short in the Russell 2000. The portfolio sits at -8% short exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Looking for Bearish confirmation
Fence Sitting, 8th November 2022🖼 Daily Technical Picture 📈
➤ S&P500 was able to climb above the resistance/support level at the end of the days trade. This has set a higher low above the yearly low on 13th Oct. We now have the first set of higher highs and higher lows => an uptrend in the classical technical definition. 📈
➤ While the Bulls may be rejoicing on such an occasion, we must note that within the larger context, the price is still stuck in the choppy range bound condition. A move above 390 in the SPY would break those shackles.
➤ Looking across at other markets, NASDAQ still looks very weak. The Russell 2000 still have not triggered an exit for my short position despite recent bullishness. DAX hit resistance and was unable to stay above it for now. STOXX50 did overcome resistance. VIX is dangling in the reversal zone.
➤ With the above set of conditions, I'm still leaning Bullishly but have cut NASDAQ and DAX longs. The portfolio sits at +32% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: CPI data on Wednesday could have a huge influence on the near term Bullish progression. I'm inclined to go sit on the fence.
Higher Low? 7th November 2022🖼 Daily Technical Picture 📈
➤ Welcome to another week of snakes and ladders. Before we look at the technicals, I urge you to read my thought piece about The Paradigm Shift if you haven't done so. IMHO, this will alter the behaviour of markets going forward. A much more active approach rather than a passive buy and hold approach is required.
➤ Let's now look at the charts. Once more the price in the S&P500 is back in the chop with resistance and support levels acting has hurdles. For the Bullish case, we could possibly pencil in the higher low I have been writing about. Price retraced 50% of the up move from the yearly low. This is a common place where prices tend to rebound higher. Price needs to overcome 379 in the short-term to make certain of this.
➤ The biggest conundrum right now is the weakness in tech or NASDAQ. This is very rare during a bullish phase. In fact, with a cursory glance all the way back to year 2000, I cannot see such a huge discrepancy between the performance of NASDAQ as compared to the DJIA, a portfolio of blue chip stocks. In every instance, the NASDAQ has matched or bettered on a Bullish move whether in year 2000 or 2008. I'm interested to investigate this further as to the cause. Is it high inflation and fast rising interest rates the culprit? I welcome your insights!
➤ VIX has entered an interesting area where Bears have come to the fore. Despite that, I cut my small short in NASDAQ and reversed to buy. A small short position in Russell 2000 remains. I'm long other indices. Portfolio sits at +60% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Chop means fingers closely placed near the exit button.
Now the Real Battle Begins, 4th November 2022🖼 Daily Technical Picture 📈
➤ Price has reached the next level of support after sharp falls. Now we will see the real battle between the Bulls and the Bears.
➤ The Bullish case is quite simple. Price needs to be supported here to form a higher low. The classic definition of a bull trend is the formation of a set of higher highs and higher lows.
➤ The Bears have it much easier. It can push prices down to a new low straight away or allow the price to set a higher low but break that new uptrend soon after. Arguably, the ball is in the Bear's court. Their job seems to be a lot easier with the backdrop of fragile world economies.
➤ My trading signals show the possibility of a short-term bullish move. This may set that higher low. Portfolio sits at +51% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: We may experience choppy conditions here so a full commitment long or short may not be ideal.
...And Down She Goes, 3rd November 2022🖼 Daily Technical Picture 📈
➤ If you ever doubted the effectiveness/importance of support and resistance levels/zones, I think that has been put to bed by today's price action in the S&P500 equity index.
➤ All you need is to look at the price action in the past few days. Price has tried valiantly on multiple occasions to overcome the resistance zone. Today saw the ultimate failure.
➤ However, failures like these are not always full gone conclusions. In my analysis of such situations in the past, many times prices have held on to re-ignite the bull charge. The probability of this happening is certainly well below 50% but we shouldn't dismiss it.
➤ At European equity market close I was able to add short positions to hedge my initial long exposure. This did help to offset the majority of the loss. At close of US trading, I exited the long positions and entered small short positions. Portfolio is net short with -34% exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Bears are back in charge but it's not too late for the Bulls to strike back.
STOXX 50 Monthly Forecast Movements 1-30 November 2022 STOXX 50 Monthly Forecast Movements 1-30 November 2022
We can see that for this month, the implied volatility is around 7.3%, increasing from 7.18% of last month.
This is currently placing us in the 60th percentile according to ATR and 91th according to VDAX.
Based on this percentile calculation, on average the monthly movement for the candle(from open of the candle to the close of the candle) is:
BEARISH Candle : 4.89%
BULLISH Candle : 4.46%
With this in mind we can expect with a close to 12.2% probability that our close of the monthly candle is going to close either above or below the next channel:
BOT: 3368
TOP: 3888
Lastly, based on the calculations that we had for touching the previous candle high and low values, we can estimate that there is a :
75% chance that we are going to touch the previous monthly high of 3630(already happened yesterday)
25% chance that we are going to touch the previous monthly low of 3252
Poised to...2nd November 2022🖼 Daily Technical Picture 📈
➤ Yesterday in Australia was the running of the 162nd world-renowned horse race, the "Race That Stops the Nation" - The Melbourne Cup. The blue-ribbon event is a 3200m long-distance race and each horse is handicapped by age, weight and "quality". In theory, due to the handicap, each horse has a fair chance of winning. This year's winner is Gold Trip with odds around 15 to 1 or $1 bet wins $15. The favourite for the race was odds of around 5 to 1.
➤ Just like the Melbourne Cup, it's time for the US Federal Reserve Cup. Whilst the FOMC members are no thoroughbreds, they do seem have staying power with market participants who hang on their every stride. Today, onlookers are poised for the "Rates that Stops the World". Market behaviour is showing nervousness. S&P500 failing at resistance again in the pink zone for three days in-a-row. DAX and STOXX50 in Europe also stopping short of key resistance levels.
➤ I've betted on horses for the fun of it, but when it's serious money like my trading capital, I'm not keen to get too involved. It seems my Strategy agrees given it is not giving any trading signals other than "sit-tight" for now.
➤ My exposure sitting tight at 20% long exposure. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Place your bets, big winners and losers expected today.
Pause...1st November 2022🖼 Daily Technical Picture 📈
➤ Welcome to November. Just two months to go prior to the end of a long but so far successful year. However, there will be a lot of action and many trading opportunities still to come.
➤ Except maybe not for a day or two. As if on queue we have a pause on proceedings. This is to be expected both from a fundamental and technical viewpoint. We are awaiting the important US Interest Rate decision on Wednesday and S&P500 is up against strong resistance (pink zone).
➤ If you are familiar with my trading style, you will know I don't like these 50/50 situations. Prices can break above or falter at the resistance. It's a perfect set-up by the Trading Gods to take your money. They either can hunt down your well-placed stop-loss or trap you against your directional bet. This is especially true when important economic data is released.
➤ My exposure is low right now so I'm quiet relaxed. I did have a go at buying NASDAQ yesterday, but cut the position as price failed to hold well. My overall 20% long exposure remains. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Unless something dramatic happens on Tuesday, my positioning will remain the same. I'll be waiting for the fireworks display on Wednesday to show the path forward.
Time for a Pause? 31st October 2022🖼 Daily Technical Picture 📈
➤ S&P500 leapt higher to the upper resistance zone highlighted in pink. This is probably the best opportunity for price to take a pause or reverse downwards. A clear break above the zone will give the Bulls impetus to push higher as there is little to no resistance left until the top of the double-bottom formation as explored in a previous post.
➤ VIX is approaching the pink zone as well where reversals have occurred. This will add weight to the Bearish argument. We will know soon enough with key economic data/policy decisions this week including US employment, manufacturing and interest rates.
➤ I closed my ill-timed NASDAQ short exposure and also cut my long exposures in half. Leaving an overall low 20% long exposure. This will change quickly if prices reverse course. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Inflexion point incoming?
We are Many, 28th October 2022🖼 Daily Technical Picture 📈
➤ One thing I like about trading indices is that I don't have to deal with individual stock risk. A reasonably diversified portfolio will do the trick too. We have seen some major moves in the price of mega cap stocks this earnings season. Meta, Netflix, Amazon to just name a few. Overall, at the index level, they were pretty much non-events. The Many overcame the Individual.
➤ With the exception of tech, indices have overcome the bad individual stocks moves. This lends to a sense of bullish resilience. Something we probably haven't seen for a while. Does this mean that this bullish bounce is more sustainable or simply a case of "better" macro-economic factors such as a potential easing of interest rate rises have temporarily overshadowed bearish proceedings?
➤ I added a small short exposure in NASDAQ whilst keeping my longs in S&P500 and DJIA. An overall 30% long exposure. This will change quickly if prices reverse course. The S&P500 is sitting on short-term support. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Major earnings news is over...back to the macro-news grind.
VIX is in the MIX, 27th October 2022🖼 Daily Technical Picture 📈
➤ Price pushed higher once more but was unable to hold most of the gains. More often than not, this bearish looking daily reversal candle is not bearish at all. Buyers tend to bid it back higher.
➤ Price is approaching the next line of resistance. If successful in overcoming that hurdle, the next hurdle is some distance away at 417 on the SPY. That is 9% higher from here.
➤ The VIX (equity fear index) is contracting quickly well below my panic level of 30. If it keeps falling, it will soon hit the zone where things get interesting. This is the area where in previous months equity prices have reversed downwards and VIX rebounded higher. More often than not, the subsequent expansion in VIX has ended with equity prices setting a new low.
➤ I remain with 40% long exposure in US indices, looking for further upside in the short-term. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Keep an eye on the VIX.
Double Bottom? 26th October 2022🖼 Daily Technical Picture 📈
➤ Price pushed strongly higher through resistance. After-hours trading is showing weakness due to earnings releases from Google & MSFT.
➤ With today's action, it is probably right to say the market structure has formed a double bottom formation (one could argue a small double bottom also occured with left/right bottom on 30 Sep/13 Oct). The larger structure has a left bottom on 17th Jun low and right bottom on 13th Oct low. If true, the first price target for the larger structure is the high at the peak on 16th Aug, price of 431 on the SPY. We are 12% away below that level.
➤ Most US/Europe indices have overcome short-term resistance levels.
➤ I added 40% long exposure in US indices, looking for further upside in the short-term. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Double-bottom formations are generally pretty reliable. Let's see how this plays out with the positive expectancy of US mid-term elections and the seasonal Christmas-rally.
Resistance is Futile, 25th October 2022🖼 Daily Technical Picture 📈
➤ I'm not a nerdy Star Trek fan but it seems the phrase about resistance is appropriate here. For the S&P500, price is challenging the upper ceiling of the range that has unfolded from the start of October.
➤ A higher high has developed due to the temporary intrusion above the resistance level. This is a basic requirement to confirm a longer term trend change. A major higher low is now required.
➤ The bluechip DJIA (DOW30) is leading the charge higher. This is a bit suspect given that you would expect the riskier indices such as the NASDAQ to lead in a bullish environment. This may be a temporary lag but we need to keep an eye on it.
➤ I now hold zero exposure having exited my S&P500 position at resistance. I don't like to play when prices stop at support or resistance levels. More often than not, prices reverse course rather than break through. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: I'm looking for a bottoming VIX. If this occurs, I will jump in to short the market. If prices keep elevating I will miss out but I won't be kicking myself for it. Is Resistance really futile?
Whipsaw, 24th October 2022🖼 Daily Technical Picture 📈
➤ If the chart is looking congested, that's because it is. This is due to the whipsawing, range bound, choppy conditions. I think I've ran out of other descriptions...coiling maybe. I'm pretty sure market-makers are having a good time of it and perhaps day traders too...although the intra-day volatility and news flow, it may be hard to handle.
➤ With such conditions, it is probably wise to reduce risk and sit on your hands rather than being tempted to do something rash. That's exactly what I've been doing. There's been numerous times where a potential sustained bearish move looked to be on the cards but reversed course to snuff out that opportunity. An eager beaver would be licking multiple wounds from any pre-emptive strikes.
➤ That being said, price structures on all major equity indices in the US and Europe that I trade are almost back in sync. This simply means, once a trade opportunity arises, I will most likely be able to add risk simultaneously in multiple indices, hence, build a moderate to high conviction position at the portfolio level. Above average profits or losses should be expected.
➤ I remain long with +20% exposure for now. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Coiling price action, poised to strike.
Range or Trend? 21st October 2022🖼 Daily Technical Picture 📈
➤ Without wanting to sound like a broken record, prices are still treading carefully around the important support/resistance level.
➤ That being said, the Bearish picture is progressively getting clearer. Not enough yet to pull any triggers but very close. Here's why and why not:
➤ S&P500 price once again rejected the opportunity to stay above our key level at 371. Finishing near the daily low and printing a bearish looking candlestick.
➤ We can count the recent peak on 18th Oct as another lower high. The classic definition of a downtrend with lower highs and lower lows remains intact.
➤ VIX continues to contract. Now below 30, out of the panic zone. Contractions usually lead to higher equity prices. Not so in the last few days. This needs a resolution to clear up the overall bearish picture. I am watching this as a determining factor.
➤ I remain long with +20% exposure but will change drastically soon. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: Prices are trending down but also staying within a range. Most signs show bearish continuation. Easy to get whipsawed here.
Trapped, 20th October 2022🖼 Daily Technical Picture 📈
➤ Prices continue to dance around the key support/resistance levels. This time falling under my key level.
➤ It's not the only index doing this dance. STOXX50 is sitting right under the short-term resistance at 3484. On the other hand, DAX is hovering above the 12670 support. This also holds true for DJIA and NASDAQ, the former below and the latter above their respective key levels. This is not sustainable. They will need to decide on which side of the fence they belong.
➤ I'm now leaning towards the Bear case. I'm not acting on it right now as my short-term Index Trading Strategy hasn't sent a Short signal. However, my medium-term equity signal is threatening to flash RED and I've entered a Short trade for my long/short individual stock trading strategy. Timing is never perfect on these but the overall bias is there.
➤ I remain long with +20% exposure but will change drastically soon. The maximum portfolio exposure is +/- 200% on capital, the level of highest conviction.
➤ Conclusion: The dance continues in these choppy and volatile conditions. Be agile and don't get trapped sitting on the wrong side of the fence.
🟰 Support & Resistance, 19th October 2022🖼 Daily Technical Picture 📈
➤ Today's price action is showing the importance of support and resistance levels. At market close, you can see the price just holding a key level after another eventful day. Price gapped higher at open, it then dropped to fill the that gap and then recovered. After hours trading is showing further upside pressure post Netflix earnings results.
➤ The continued Bullish case would be for prices to overcome the next level of resistance at the 379/380 area on the SPY. This would set a higher high.
➤ The Bearish case would be the inability for it to hold that resistance level and/or close below the 371 level where price closed.
➤ I remain long with +20% exposure.
➤ Conclusion: Choppy conditions with supports and resistance levels in play. Directional/Trending trades will be difficult unless price clears these areas. Mean-reversion trades work best here.