Stocks, ETFs, Options, Commodities & Currencies

Its very common at ATP for our swing traders to book 6-8% gains inside 24-48 hours. The reason is we look to buy strategic dip patterns in strong stocks in a certain window of time. Besides needing to like the fundmentals, we look for crowd behavioral patterns to identify opportune times to strike with attack trade capital.

More importantly, we know when the opportune time is to take the profit as the crowd floods into our play. We often sell 1/2 at a time, and depending we may sell the entire position at one time.

This week (June 24th-June 28th) we took a shot at DATA, a recent IPO that we really like fundamentally.

We watched the stock for almost 2 weeks to learn the trading patterns of it first. Once we had a grip on how it trades, we waited patiently for the opportunity to strike.

That came on June 26th in Pre market, and we alerted our Traders to buy from 54.50 and lower only that day. It traded in that range or lower til about 1120am EST, then it started up, rising 6% by end of day!

Today, June 27 we alerted to sell 1/2 when the stock hit $59, and from here, we tend to hold the remainder 1/2 and look for higher prices and if the pattern or market dictates we will adjust the stop or move out of the remainder.





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As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. However, members of OptionsTradingSignals.com closed 3 trades during the selling carnage for huge overall gains.

As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of the service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.

On June 13^th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19^th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.



While volatility contraction going into triple or quadruple witching is a high probability event, it is not a certainty. However, as can be seen above the trade worked nicely and we were able to exit with a tidy profit with a very short-term holding period.

The 2^nd trade that was closed for strong gains was a MA Put Diagonal Spread. The trade was entered on June 19^th and was subsequently closed on June 20^th for a holding period of less than 36 hours. The trade produced a gross gain per spread of $285 on maximum risk of $885. Thus, the trade produced a gross gain of 32.20% on maximum risk per spread.



As can be seen above, MA was trading near the top of its recent price range and we used a diagonal spread to take advantage of time decay and lower prices. Obviously we saw a big selloff transpire in MA shortly after entry and the trade structure produced some strong gains for the OTS Portfolio.

The final trade that was closed prior to the June monthly option expiration was an AMZN July Put Butterfly Spread. AMZN was trading near the top of its recent price range and as a contrarian I took a short position that would capture time decay and profit from a decrease in the AMZN stock price. The trade was entered in the OTS Portfolio on June 18^th and was closed on June 20^th.

The AMZN Put Butterfly Spread took a maximum risk of $470 per spread. The trade produced a gross gain of $195 per spread. Thus the overall gross return on maximum risk was 41.49% per spread. As can be seen below in the chart, the position was net short AMZN and members entered the trade right before a large selloff transpired.



Ultimately AMZN fell further, but we were able to lock in some nice gains in a short period of time. Typically the OTS strategy focuses on entering a lot of trades and locking in profits quickly. My goal is to take at least 2 – 3 new positions each week while managing other open positions.

The majority of opened trades have a better than 50% probability of success based on the implied volatility levels at the time of entry. I typically focus on a probability of success at the time of entry between 60 – 80% and my track record has about roughly a 70% probability of success on all trades entered since the OTS Portfolio inception.

Right now I have been slow to add any new positions into this bounce higher in equity prices, but if prices continue to drift higher the rest of Thursday and into tomorrow I will likely begin looking at the short side again in specific names in the near future. This week I have been pretty quiet in terms of new positions, but I suspect that I will start to get busy on Friday and into the early part of next week with new positions.

Obviously the recent performance has been outstanding, but most long-term members would tell you that the service helps teach option traders how a professional option trader views the marketplace with a focus primarily on probability driven trading where implied volatility and time decay are commonly the primary profit engines for trade entry. The service is a great value from an educational standpoint and I welcome you to give it a try. Happy Trading!



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As a short term trader, one of the best ways to make consistent profits and take them out of the market is buying oversold gap fill set ups. I’m looking for strong stocks that are having very rapid short term pullbacks in price. *When I see the pullback, I immediately check the 5 or 10 day charts on an hourly basis and look for any gaps in the chart below.
Gaps are a situation where a stock moved up with a higher bid price than a recent closing price (Can be on a 15 minute, hourly, or daily basis even) and never came back down to where that Gap was created. *These gaps often close because traders set stops just at or below where that gap was created and then often the computer trading systems end up running all the stops until the final stops are filled at or below those gaps.
I use that type of arbitrage and volatility to scale into that stock as the gap is approaching. *I never try to buy the exact gap because often a stock will fill the gap on 100 shares and then reverse quickly to the upside, and then you are stuck watching and or chasing the stock higher. This only adds further risk to your trading, not less.
Often a gap will fill and the stock will dip a bit below the gap as well, so I will continue to buy shares as that occurs as well looking for the reversal while lowering my average entry point at the same time.



We have a real time sample below in DATA (Tableau Software) a recent IPO. *This stock is pretty thinly traded so it can move up or down a few dollars quickly for no real reason, thus creating the arbitrage. *Yesterday this peaked near $60 and as of this morning it was trading below $55 per share on light volume as a gap on the 10 day chart was sitting there around $54.80. *Noting that gap and the near term oversold condition, as a trader, you would want to begin to buy just over 55 and down to and below the gap. The stock filled that gap and dropped into the 54.50

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Stocks managed their third session higher as of Thursday June 27^th and its too late to jump onto that move. Major indexes and leading stocks have rebounded into resistance along with a few key moving averages. The next 1-3 days favor a pause or pullback at the least simply because of the selling momentum and multiple resistance levels being tested. It is only natural for traders and investors to pull some money off the table or short at these levels.

Stepping back seven days and looking at the overall stock market we have seen a substantial drop in prices across the board. A Ton of stocks have formed their first impulse thrust to the downside which is typically what happens when a stock market is in a topping process (Stage 3 Distribution). The type of damage we had cannot be fixed overnight. This will be a process if it is to resolve to the upside and price action will remain wild (volatile).

The odds from a technical analysis stand point using Price, Momentum, Cycles, Volume and Moving Averages point to lower prices still to come. Actually they point to another 5% drop from the current level.

Major Points to Be Aware Of:
1. 20 Simple Moving Average is crossing below the 50SMA. Last time this took place it triggered a 5% drop in the SP500.
2. Price has bounced for three consecutive days. This typically puts the odds in favor for a pullback.
3. Price bounced and hit it’s head on the 20 and 50 moving averages on Thursday (RESISTANCE).
4. Market Time Cycles are in a decline phase meaning there will be a negative bias and seller will be actively pulling price lower on bounces.
5. Major Long Term Chart looks favorable for a bear market to start which may last 12 months. If so this is just the beginning of some scary yet highly profitable potential trades in the coming year. Stocks fall 3-7 times faster than they rise…

Daily SP500 Trend & Analysis Chart:



Long Term SP500 Trend Chart:



BEARISH SP500 Price & Volume – 60 Minute Intraday Chart:



Looking at these charts from a long term, intermediate and short term basis the odds are favoring lower prices. Being short stocks or buying inverse ETF’s is the current play for the market. But analysis and trends are subject to change depending on price and volume action each week. Do not get your heart set on the BIG picture outlook of a yearlong selloff. That could prove to be dangerous. We take this market one bar or candlestick at a time and trade based on current short term analysis.

Chris Vermeulen


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They Just Rang A Bell On Gold-The Lows Are In!

As they say on Wall Street, “They don’t ring bells at the top” and for sure they usually don’t give you a phone call at the bottom either. Many heads have rolled trying to call this recent near 2 year downdraft in Gold in terms of bottom callers, me included. I thought we would never get much below 1440 or so from the 1923 highs, but alas we all know we did.

What makes me think that last week put in the final Gold low for the bear cycle? Too many things to mention, but based on the work I do enough to give me some chutzpah to make this call now. The 1180’s are very close to a classic ABC 61.8% Fibonacci retracement of the prior 34 month bull cycle. That cycle ran from October 2008 to August 2011 with a rally from $681 to $1900’s area. The most recent 21 plus month decline dropped right into the 61% pivot retracement of that entire move, and over a Fibonacci 21 month period as well! Human behavior does repeat over and over again, and as we all know in hindsight at the tops everyone is bullish and at the bottoms everyone is bearish.
I think it’s pretty much as simple as that. Investors get overly optimistic and exuberant in all kinds of asset classes and finally at the highs everyone believes the rally can only go on and on forever. At the opposite near the bottoms nearly everyone is calling for lower prices and further catastrophe ahead. Stocks in the sector are priced for near bankruptcy. Newsletter writers are universally bearish, and the small trader has a big short position. Only a few weeks ago the Bullish Percentile index measurement on the Gold Stock Index was at 0! That means nobody was bullish on the Gold stocks by the measure that is used. We quickly had an 8% rally in the index after that reading, then in the last few weeks we came all the way back down again to even lower levels!

If you watched the action last Thursday as Gold was melting down below $1200 a curious thing happened. The gold miners were ignoring the move and going green! On Friday, as Gold reversed to 1234 they went ballistic with one of my favorite miners going up 16% on Friday alone on the highest volume in 5 years! Those are the signals I’ve been waiting for to call the capitulation lows. My guess is some money managers are front running the coming 3rd quarter rotation they see in Gold and Gold Miners, Copper, Coal, and other commodity stocks.

So below is my basic GLD ETF multiyear chart using very simple monthly views to see the big picture. You can see a classic ABC pattern of bear market correction and now a near 61.8% perfect Fibonacci retracement of the prior leg up. I’d say enough is enough, pick your spots and start buying.





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As talked about almost two weeks ago when the SP500 trend reversed to the down side we have been waiting for a bounce in price to short the market (buy and inverse ETF). That happened last week and now we are waiting for the market to shake out the short positions and suck in as many traders to get long before the next wave of major selling takes place.

It seems traders are becoming bullish again as prices rise and they are dumping their precious metal positions and rotating into equities again from the looks of things. Also if you know the Dow Theory then you know the industrial and transportation sectors tend to lead the broad market. Well today the only two sectors trading lower are just those two.

See the charts below for a visual:



The Market Forecast Cycle Analysis, Trends & Signals








All these things paint a clear picture for lower prices to come. But as we know, surprise news can change the technical outlook of the market from time to time. This is why constant analysis is needed along with protective stops for any open positions.
Chris Vermeulen


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Every investor and novice trader is looking for a newsletter that exemplifies the holy grail of investment acumen. It would seem that so many newsletters promote their latest or greatest trade idea. If the trade idea works, readers get quickly reminded of the analyst’s success. However, failed predictions about future price action in stocks typically are ignored by the analyst in subsequent articles.

I do not make wild predictions about the future prices of anything; much less make suggestions that are not based first on option chain derived probabilities. In fact, I spend most of my time studying probabilities that are driven by implied volatility calculations in the equity options marketplace. From an option standpoint, I would characterize myself as a volatility trader. I focus on equities which have implied volatility levels that are significantly higher than their historical norm.

Obviously I do take trades that are directional in nature, but I am typically contrarian in my view of the marketplace. I use very little technical analysis because most studies are not profitable consistently because of their inability to remedy the passage of time as a function. This more simply can be described as a false signal that is generated due to consolidating or choppy price action. When you hear the term price action moderated as a function of time rather than price, many times indicators and oscillators have thrown off failed signals that lead to losses.

Instead of having my screens full of indicators and analytical tools, I spend most of my days looking at option chains and price charts. My view of the marketplace is simple. Sell when prices are near recent highs and buy when prices are near recent lows.

As an example, recently I heard an analyst on television say that the S&P 500 would get to 1,700 by the end of the year. Instead of listening any further, I pulled up an S&P 500 Cash Index (SPX) option chain and looked at the December Quarterly contracts for more clarification.



As can be seen above, based on current implied volatility level calculations the analyst has a probability of being correct based on the July 2, 2013 close of about 28%. As shown below, in order for price to get to the 1,700 price level by the end of 2013, we would need to take out the all-time highs set back on May 22, 2013.



I have identified the key price levels on the chart above which ultimately have an impact on the short to intermediate term price action in the S&P 500 Cash Index. However, what is more important to understand is that the probabilities are not overwhelmingly favorable that a move to 1,700 will take place that holds through the end of the year.

Based on current market conditions, the odds of us taking out the all-time highs before 12/31/2013 are a little better than 1 out of 4. In reality, these numbers indicate that any perma-bulls out there should be cautious.

However, the short-term bulls out there or those analysts that are pontificating about new all-time highs being set in the near future need to consider the July monthly option expiration probability data which is derived yet again from implied volatility calculations.

As of the close of trade on July 2, 2013 the probability that the S&P 500 Cash Index (SPX) will close above 1,700 on Friday, July 19,2013 is less than 1.76%. The July monthly SPX option chain shown below highlights this important information.



I want to be clear that these probabilities change every day based on price movement and changes in the underlying asset’s implied volatility levels. However, what does not change are the standard deviation calculations that govern this data.

Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a one standard deviation move to the upside (68% Probability Price Stays Below This Strike) would be the 1,635 SPX July Calls.

Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a two standard deviation move to the upside (95% Probability Price Stays Below This Strike) would be the 1,685 SPX July Calls.

Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a three standard deviation move to the upside (99% Probability Price Stays Below This Strike) would be the 1,715 SPX July Calls.

While this data does not reveal precise expectations for future price action in the S&P 500 Cash Index (SPX), it does shed context on the wild predictions some of these television and newsletter analysts provide. In financial markets anything is possible, but I will continue to trade using statistical analysis that has been proven to be effective over long periods of time when large quantities of trades are taken.

I prefer analysis that is backed by statistical studies versus a quantity of indicators that all have their own set of limitations. While the probabilities are not always going to be favorable, over long periods of time the numbers will solidify the trading results.

While there is much more to my strategy than just this basic explanation, I was hoping that readers could come to understand that there is a mathematical way to use statistical analysis to enhance trading results.

Would you rather base trade decisions on indicators and oscillators? Or would you like to learn a system that uses probability and basic statistical analysis to arrive at conclusions which are relevant over large data sets?

Ultimately no trading system is right all of the time, but a system built on probabilities will likely perform over large quantities of trades within the desired success range. I hope at the very least this article will open readers’ eyes to a different style of trading that is statistically relevant. In the meantime, have a safe and enjoyable Independence Day!


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US Equities opened higher this morning and are setting up for a sharp pullback based on technical analysis using trends, cycles, momentum, volume, market breadth and key resistance zones.
Take a look at the charts below for a quick flash of what I think.

Barchart Market Momentum Index

This chart I look at daily. In short if its price is at 101 or higher I expect the broad market to pause or pullback within the next day. It tells me if stocks have moved to far in one direction on a daily basis and if so sellers (big money players) are likely to re-align stocks by taking profits or shorting during these times.



Stock Trading Above the 50 Day Moving Average

Here we can see that while the SP500 has been rising over the past 6 months less stocks are trading above their 50 day moving average. This means a smaller group of stocks is holding the market up and it’s just a matter of time before those stocks burn out and roll over also.



SPY Swing Trading Analysis – Daily Chart

With the SP500 breaking down from its trend channel and testing a short term resistance trend line. Odds favor sellers should become more active and pull the market down as they unload any remaining long positions and possibly get short the market. Both of these actions will put pressure on US Stocks.



Big Picture Outlook – Don’t Get Me Wrong!

This chart is just to show you what is possible. I am not a perma-bear nor do I want another bear market like this to happen. But knowing what is possible still has to be known. Major market tops are a lengthy process and tends to take several months. If this is the case then it could be a wild and choppy market for the rest of 2013 and a great way to play this is through writing options. Do not expect price to just collapse and free fall for 18 months… Dreams like that do not happen. Bear markets must be actively traded as they carry a lot of risk.



Flash Chart Analysis Conclusion:

This week is do or die for US stocks. We need sellers to step in here and pull stocks down. With the SP500 trading at resistance, stocks being overbought on a short term basis and the holiday week behind us which typically favors higher prices it is now time for sellers to become active once again.

Chris Vermeulen


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Wave 5 up has been in our forecast ever since we started correcting down below 1600, because wave 5 must follow wave 4, its in the Elliott Wave Bible.
Wave 5 can be difficult to forecast, but we have said at a minimum it will test the all time highs at 1687-1689 pivots, which would be a shallow wave 5 rally from 1560.

Today, we updated to our paying subscribers that we have 1768-1771 as the upper end of this rally and where the market likely would top out and begin a larger correction pattern, what we would call a “Major wave 4

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During the recent weeks we have seen commodities especially precious metals continue to drop in value. Market participant sentiment has become more bearish on commodities and couple that with a rising dollar it’s no wonder why we continue to see commodities as a whole fall in value.
Money has been flowing out of bonds at record levels this summer telling us most of market participants are feeling bullish on the stock market. This shift in sentiment of the masses are typical as they move their money from the risk on safer assets (bonds & commodities) and rotate into risk-on assets like stocks. While this is a bearish (contrarian sign) stocks could easily continue to rally for an extended period of time and possibly several more months before they actually top out.

Let’s take a look at the financial market business cycle diagram:

Bond prices have been falling for months and they typically lead the stock market lower. I feel we are starting to enter the phase where stocks will soon top and head lower also. Once this starts money will naturally flow into safer assets that are more tangible like commodities.

Keep in mind this cycle is very slow moving and rotation from one phase to another takes months. This is a process not an event but it is still very tradable.



Now let’s fast forward to precious metals both gold and silver are likely to do in the next couple months. If you review the charts below you will see gold and silver bullion prices are looking primed for a bounce/rally from these deep oversold levels.

*
Gold Weekly Price


*
Silver Weekly Price



Take a look at a basket of commodities through the GCC ETF.

GreenHaven Continuous Commodity Index Fund (GCC) is an Exchange-Traded Fund (ETF) that provides an innovative and efficient way to deliver broad based, diversified commodity exposure. It aims to achieve this by using futures contracts to track the Thomson Reuters Equal Weight Continuous Commodity Total Return Index (CCI)^†. The CCI-TR is an equal weighted index of 17 commodities plus an additional Treasury Bill yield. Because of the equal weighting, GCC offers significant exposure to grains, livestock, and soft commodities and a lower energy weighting than many of its peers. In addition, GCC is rebalanced every day in order to maintain each commodity’s weight as close to 1/17th of the total as possible.

So, knowing metals are 24% of the index it bodes well for a bounce in the overall commodity index. Keep in mind this report is only focusing on precious metals, but many other commodities look ready to rally also like natural gas.



GCC – Continuous Commodity Index Fund Weekly Trading Chart

The chart below shows a very bullish 4 year chart pattern. At the very minimum a bounce to the $29 is highly.



Commodity Basket Trading Conclusion:

In short, commodities as a whole remain in a down trend. Until they show signs of real strength I will not be trying to pick a bottom. Several commodities are starting to look oversold and ready for a bounce like sugar, coffee, copper and natural gas.

Last month I talked about how a major market top is likely to unfold during the second half of this year. I still believe this to be true. But keep in mind these major market tops which only happen every few years are a MAJOR PROCESS. They take time to form and often we will see a series of new highs followed by quick sell offs as the market gets more people long as they big money distributes their shares/contracts into the new money rotating into the market.
Chris Vermeulen

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