Stocks, ETFs, Options, Commodities & Currencies

One thing that will always over rule charts and technical analysis is fundamentals in the long run.

To be sure, I love technical analysis but I always combine my work there with fundamental research. I rarely if ever buy a stock just because the chart looks nice, that is almost always a recipe for disaster.

With that said, how many times have you seen a good company with strong fundamentals and a seemingly great looking chart break down over 1-2 weeks and take everyone out of the trade?

Then for sure, the stock reverses right back up all the way back to where the decline began? *To make matters worse, this happens without any real news or any bad news as it were. *What is it that causes these crazy down the mountain and up the mountain moves anyways?
How does it work?

In an apparently strong fundamental growth stock with no apparent issues, an institution will have a pre-defined price at which point instructions are triggered to liquidate the entire position almost at any price once that price point is hit. They protect themselves ahead of time with Puts, which give them profits if the targeted stock drops hard while they are selling out of the position, thereby locking in their targeted sell price.

Lets take several examples below with 3 month charts to show you exactly how they look on paper. If you can learn to spot these moves you will be more likely to add to positions on big declines rather than selling out at a loss as all the stops trigger along with the margin calls:
The stocks we will chart out here are AMBA, DATA, DECK, and GILD.

All strong companies with good growth profiles:









So what have we learned? *In a Bull cycle buy the dips on the stronger fundamental stories when the Algo and Institutional programs start kicking in. *Don’t panic out of your position at a loss, study the fundamentals and trust your instinct.


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As we move through the July monthly option expiration which will occur on July 19, 2013 at the close of business we can look back at the expiration cycle that was. The end of the June monthly option expiration nearly marked the recent market lows. Since the beginning of the July expiration cycle we have seen the S&P 500 Index charge higher.

The recent performance in the OptionsTradingSignals.com portfolio has charged higher as well. There were 4 trades that were closed during the July expiration cycle. The 4 trades that were closed had a total gross gain of $169 per spread. The total risk assumed in the 4 closed trades was $927. Thus, the four trades produced a gross return on maximum risk of 18.23%.

A trader that risked roughly $2,500 per spread would have had a gross gain of $1,951 for the month of July. The table below demonstrates the trades that were closed during this expiration cycle.



In full disclosure, there were three trades that were rolled forward as price action did not accommodate trade expectations. However, the overall results of the OTS Portfolio since the beginning of the June expiration cycle have been outstanding. The full trade performance is shown below based on actual trading results from the portfolio.



Since the beginning of the June monthly option expiration cycle, the Portfolio has closed 15 total trades. In that time frame only 1 trade has produced a loss and that trade essentially was breakeven overall. The total recent trading results speak for themselves.

Since inception, the OTS Portfolio has taken 171 trades publicly that have been opened and closed. Of the 171 trades executed, 125 trades have produced gains. This equates to over a 73% success rate for all trades that have been opened and closed for the OTS Portfolio since late 2010. It is not a coincidence that the typical probability of success that I focus on for the service is between 60% – 80% probability at the time of trade entry.

Overall, the OTS Portfolio continues to generate strong trading returns while providing members with an opportunity to look over a professional trader’s shoulder to watch how trades are evaluated and when they are taken and why.

The OTS portfolio strategy is focused on a mathematical approach to trading options that gives traders a probability based edge. No more red and green arrows, no more charts with 500 indicators, and no more confusion. The system used is simple and has proven that strong trading results are possible when simple discipline is applied.


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At our ATP trading service, we look for entries on pullbacks in strong stocks. *We also look for the opportune times to sell and take our profits out of the market, which is what the purpose of swing trading is after all.
With AMBA, we alerted our traders to buy only from 16.50-17.10 ranges on July 8th. *Over the next 48 hours the stock dipped right into those exact ranges, bottomed at 16.50, and then shot higher.
On July 18th we sent an alert to sell 1/2 the position at $19.24 per share for 13-16% gains depending on entry point.
We held 1/2 long in case it broke higher, but 6 days later on July 24th we alerted to liquidate the remainder at 18.60 ranges for 9-10% gains on the back 1/2 of the position.
Our net gains were in the 12-13% total return ranges on this swing.

We can now see on July 29th, just 5 days after our last sell alert that the stock broke down and dropped into the mid 17

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Since that point, we outlined a Wave 5 pattern that should take the SP 500 to 1736-1771.
Several weeks ago we patterned out 1768-1771 as a perfect target for a Major wave 3 high.
This will be followed by a 125-200 point SP 500 correction if we are correct.

Below is our chart update outlining what we project ahead. A run to 1736-1771, followed by a 120-200 point correction for Major Wave 4 in the SP 500.




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By now everyone has a prediction about where the S&P 500 Index (SPX) is going to be heading in the future. Most of the sell side and their ilk are all rolling out the green bullish carpet and predicting that a major bull run is right around the corner.

I am a contrarian investor by nature and I tend to sell when others are buying.* When retail investors are buying and the professional sell-side is quickly reducing their long equity exposure I get increasingly more bearish. A recent report from Zerohedge shown here, was accompanied by the charts shown below courtesy of Bank of America Merrill Lynch:



As can clearly be seen above, retail investors have been strong buyers as of late while the institutional or professional investors have been sellers. The institutions almost always are net sellers near market tops while the retail crowd buys up the professionals’ inventory at high prices only to sell lower. The sheep are coming to the slaughter, they just do not know it yet.

Using a more quantitative methodology, it becomes apparent that the probabilities are not favorable for a significant bull run to emerge as we edge toward the back half of the year.

As a professional options trader, I focus on probabilities to help guide my investment thesis. One of my favorite underlying indexes to monitor for probability based moves is the S&P 500 Index (SPX).

The probabilities shown below were derived from statistical calculations based on the SPX option chain that will expire December 31, 2013.



As can clearly be seen above, the probability that price will close at the end of this year above 1,750 on the S&P 500 Index (SPX) as of Monday’s close was roughly 35%. Based on current implied volatility, there is a nearly 72% chance that we will trade up to 1,750 before the year is over at some point in time.

Again, referring to the SPX option chain shown above, there is a 20% probability***** that price will close above 1,800 on the last day of the year with only a 41% chance that price will reach 1,800 at any point from now until December 31, 2013.

The numbers go down considerably when we begin to look at the probabilities of reaching 1,850 on the SPX. The probability that price closes above 1,850 at the end of this calendar year is less than 10%. However, the probability we touch the 1,850 price level at some point later this year is around 20% based on current implied volatility levels.

The SPX option chain is telling us that this monstrous move is unlikely to be able to hold through the end of the year based on current implied volatility levels. Clearly these levels will adapt to market conditions as they change every day during normal market hours, but at this point they are not providing a strong indication of significantly higher prices before year end.

By now readers are probably expecting me to make a prediction about where prices are going to be headed. I do not do specific predictions because I do not feel that I know anymore than anyone else regarding future price action. However, I do believe we are closing in a topping pattern that is likely to give us a strong correction sometime before year end.

In addition to the professional versus retail investor charts and probability based determinations for future price expectations, there are two more indicators which are showing a divergence or a non-confirmation signal from the price action in the S&P 500 Index (SPX).

As shown below, the money flow indicator has failed to break to new highs as of today (Monday) which thus far fails to confirm the recent move to new highs in the S&P 500 Index (SPX).



The chart above does not require much explanation. The last time we witnessed a major divergence was in the autumn of 2011 which culminated into a nasty correction.

In addition to the divergence shown above in the Money Flow Indicator, there is also a strong non-confirmation signal in the NYSE Advance / Decline Index which is shown below.



I want to be clear to readers that I am not trying to imply that prices are going to collapse tomorrow or even in August or September. I am simply trying to point out through the use of a variety of analytical methodologies that buying here is a rather risky endeavor.

While more upside may await in the short-term, the intermediate term could be plagued by strong selling pressure. One thing is certain, I expect the selling pressure to come out of nowhere and the retail crowd will most certainly be left holding the bag. Risk is high.


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Market close to confirming new correction
David A. Banister- 1685 support is KEY!

The SP 500 has been on a tear since late 2012 with the SP 500 bottoming at 1266. The rally though we have been charting out as part of a “Primary wave 3″ uptrend for this Bull market cycle from March 2009, and we are likely entering a Major correction or what we would label “Major wave 4″. Since the 1266 lows, we have had Major Wave 1, 2, and now 3 completed at 1710. We are entering Major wave 4 which should correct 23-38% of the entirety of Major wave 3, which was 444 points.

This correction will be confirmed with any close below 1674 and nails in the coffin begin with any close below 1685 on the SP 500 index. Primary wave 1 of this super bull cycle ended at 1370, a 704 point rally. Primary wave 3 will likely be larger than Primary wave 1 and I am projecting a top between 1900-2000 on the SP 500 before it’s completed. The current correction is Major wave 4 of Primary wave 3, which has 5 Major waves required. With that said, our projections are for 1605 on the shallow side and 1540 on the deeper side for Major wave 4 of Primary wave 3.

Now it is possible that we may extend a bit higher yet in Major wave 3 to 1736-1772, but only if we hold the 1685 support lines which the market is basing around currently. In any event, at our Trading service we have been aggressively taking profits in the past two weeks on multiple positions while still holding a few open at this time.


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It has been a bumpy ride for precious metal investors over the past couple of years and it unfortunately I do not think its over just yet.

The good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum see to be stalling out.

What does this mean? It means we should expect short term weakness and lower prices over the next month or two.
Below are three charts I posted several months ago on my free stockcharts list. These forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at my key pivot level which I expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.

Gold Trading Weekly Chart:

Here you can see that gold is technically in a bear market when viewing it on the weekly chart. If you were to pull up a daily chart you would likely notice how the price of gold is trading at a key resistance level on the chart and has reached its full flag measured move.

What does this mean? It means the odds are pointing to lower prices for gold in the next few weeks. Keep in mind though I do feel as though a major bottom has been put in place for the precious metals sector. So buyers are likely to step back in around the $1300 area.



Silver Trading Weekly Chart:

Silver has a little bit different looking chart but the same analysis applies here as it did in gold.



Gold Miners Trading Monthly Chart:

Gold miners may have bottomed on this monthly investing timeframe chart but the daily chart which you will see next clearly shows short term weakness has started.



Gold Miners Trading Daily Chart:

This daily chart really shows my thinking for miners and the overall precious metals sector as a whole. The recent weakness in gold miners to the down side point to distribution of shares. This is very negative for the price of physical gold and silver as gold mining stocks tend to lead physical metals.

The yellow box shows a possible major stage 1 basing pattern forming. If this is the case, then we will have a great opportunity in the coming months when the precious metals down trend completes a reversal and start heading higher.



How to Trade Precious Metals & Gold Miners Conclusion:

In short, I think that staying in cash or shorting metals is the play for the next couple weeks. After that anything can happen and until price breaks down or finally completes the basing pattern and confirms a market bottom I would be very cautious trading here.

Chris Vermeulen
www.GoldAndOilGuy.com

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Todays’ example is Tableau Software which we really like for long term growth, but there are going to be periods where the stock dips, and ebbs and flows. *Well, instead of sitting around doing nothing, we can make some money while holding a core position on the *swings.

We recommended the stock in the 54-55 ranges for a full position in June, a recent IPO.

The stock bucked and kicked but moved up to over 59 and we alerted our traders to sell 1/2 for 8-9% gains.
We waited quite a while and then a few weeks later we alerted to re-enter that 1/2 position sold in the 54-55 ranges again which we did.

Now back to a Full position, we sat on it for weeks and then after earnings we sold 1/2 at 72-73 for 30% plus gains, holding 1/2 long.
So here we are today, having booked 8-9% and 30% gains twice already, and still holding 1/2 the position from 55 at 69 per share.


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Investors and traders alike are heading into the long weekend with a variety of potential risks facing them. The media has made us aware of the situation that is going on in Syria and that the United States may be planning a military strike.
Since the current Syrian situation arose, we have seen some strong volatility return to U.S. financial markets. The observed volatility has included both realized volatility and implied volatility in many of the various option chains. There are pundits who will surmise a variety of outcomes, but frankly no one knows for sure. Will oil prices spike if military action occurs in Syria? Will oil prices fall on a military action(s)? What will happen to gold? What will happen to risk assets? Will they find Jimmy Hoffa?

I have recently received several emails asking these questions. I have answered them all in the same manner. I have no idea what is going to happen in financial markets for sure. Anyone who says they do does not respect the randomness of markets. We can look at option based probabilities for some clues, but there is no definitive answer.
Instead I want to look at a very powerful tool that is available on most trading software platforms. Volume by price is a powerful tool to determine where key levels are in an index or price chart. The S&P 500 Index is shown below.



As can clearly be seen above, the obvious price points where we saw the most volume trade are highlighted. If price breaks below the current support level the 1,580 – 1,600 support zone is likely going to act as a magnet for price action.
Currently I think there is a high probability that we at least test the 1,600 price level in the next few weeks. The current probability that the 1,600 price level will be at least touched before the September SPX option expiration (expire in 20 days) is around 65% on Friday morning. The probability that the SPX touches 1,600 before the October SPX option expiration (48 days) is over 76%.

Clearly the implied volatility in the SPX option chain is telling us that odds are greater than 50% that prices work below the current support level over the next 3 – 7 weeks. Additionally we have strong volume by price data that indicates that the 1,580 – 1,600 price level will act as support.

I do not believe that making predictions is a great way to trade, but I think assumptions based on obvious support / resistance level as well as implied volatility based probability assumptions keep traders from making just pure guesses based on very little facts.

Back on August 16^th I displayed the following chart in an article that was titled “Will 1,650 Offer Buying Support for the SP500?”.
*

Unlike many market prognosticators, I will tell readers when I was wrong, when I was right, and when I was close. On August 16^th I called for a bottom to play out around 1,650 and I was close. The bottom was actually formed intraday on August 21^st. The forthcoming bounce rallied roughly 30 points before reversing back to the downside to our next support level around 1,630.

Ultimately we have the long weekend ahead and with Syria remaining in the forefront and the United States government fiscal debate looming down the road, markets could become quite volatile over the next 6 – 8 weeks. Traders need to act accordingly and manage risk through appropriate position sizing. Market conditions could get very interesting in the near future.

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Our Track record updated through August 28th 2013, our last Closed out Trade.

During the month of August we opened and closed 12 Trade Positions.

Each position is assumed to be $20,000 for calculation purposes, but what matters is whether its a Full or 1/2 Position.
We can see our positions below resulting in gains of just over $6,000 assumed with a $60,000 weighted portfolio.
This is a 10% return vs -3.13% for the SP 500 during August using our methodology of swing trading.



Taking our work from April 1st 2013 to August 28th 2013 we are up just over 53% weighted average non compounded vs 4.49% for the SP 500 index during the same period with a total of 57 open and closed positions, about 10-12 per month.

This assumes 3 open positions on average over that period of time and is based on all closed out trades.





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