Current thoughts

Still no positions at this point although I am trying to leg into an November iron condor on the long bond with 126/123 strikes for the puts and 142/145 strikes for the calls. I've been trying to leg into the put side first with the view that bonds are likely to move a bit higher. Alas I may have missed the boat because bonds found a floor at 132 and have not looked back since.

Interesting that the SPX and the VIX both moved higher yesterday. Normally this is a short term bearish signal. Cumulative tick action was mixed last night finishing at minus -6000. Recent action has been fairly bullish with the 70,000 mark hit when the Dow finished up 175 points last Friday.

The current market action to me suggests that the market is pretty much anticipating another round of quantitative easing from the Fed as a floor under the market. We've seen risk appetite go through the roof with small caps and tech leading the equity rally whilst, yield currencies like the AUD hit multiyear highs against the greenback. Gold is also up sharply. Meanwhile bonds have not fallen sharply like you would expect when risk taking is up so that's saying something.

Stay tuned for more.......

I'm still here!!

It's been a bit quiet on the blog lately as I've really nothing to report as the market keeps grinding it's way higher. Look for the 1150 on the SPX as a possible swing high. I only have the one position on right now and that is a short put spread on the long bond which I'm trying to close. Overall the iron condor has returned around 45% on the margin held which is pretty good. I'll update this trade later in the week.

Thinking out aloud

I think the market is just setting itself to be disappointed if the Fed does not announce any new quantitative easing measures on the 21st of September. I think that's why we've had the rally and why the USD has been slaughtered of late and gold is rallying. Methinks that the current swing high in this rally is not too far off. Now what would be the best trade to profit from this if I was right??

Big divergence this morning

I'm seeing big divergence between the ticks and the other internals. Cumulative and adjusted ticks are trending straight down but breadth and A/D lines are coming in very strong. I always use the ticks as an leading indicator as it foretells that institutions remain the better sellers today. Perhaps a reversal is not too far off as the market has been amazingly strong (eg. 6 upside gaps in a row that have not filled now - this has not happened before). I think what we have witnessed was short covering rally that has fuelled this market. For us to remain bullish in the longer term, I'd have to see if it can take out 1150 on the ES.

Morning update

Cumulative ticks are levelling off here and bottoming after trending straight down for the first 30 mins today. Other internals also bottoming out. Volume is very weak today. I'm expecting some kind of afternoon rally here but the market is very overbought so I wouldn't be surprised if we just go sideways and chop it up for the rest of the day.

On the trade front, all is well with the long bond iron condor and the NDX iron condor. I'm not seeing any other opportunities at this point so it's a matter of waiting for something more substantial to happen. With the pop in volatility today, I don't think selling some is such a bad idea.

Uber bullish

Everything is green today! Under the hood the internals are flying. It's like someone put a rocket under this market. Ticks are just trending straight up and volume is on par with yesterday ie very strong and well above the 30 day median average. I'm not sure why the market would be rallying so hard but could it have been to do with China's PMI today which came in slightly above expectations?? Futures opened with quite a large gap up and well above yesterday's highs and this normally forces a lot of the shorts to cover. It is also the first day of the month, which is normally when a lot of new money coming into the market gets invested. I'm expecting a strong close near the end of the day as well from the dumbo's that tried to fade today's gap ie as they have to cover their positions (first day of the month and large gaps are statistically very poor winners for fading gaps - learnt that from masterthegap.com)

Are we going to make a run at 1120 from here??

Heads up.....

Extremely high volume today. I am seeing volume come in about 30% above the 30 day median on the SPY. The next question is why?? Is the market really loving the housing and consumer confidence numbers today? Note that we have bounced off the 1037 level on the ES for the 5th time now. Ticks continuing to trend higher so we should finish firmly positive I think today.

ZB Oct Iron Condor

The risk graph above is my current position on the ZB. I'm still bullish overall on bonds which is why I adjusted the position today by embedding a long call spread within it.

OEX BWB Put Update

A few adjustments here. I decided to hedge my original position a bit by buying the same number of the 475/470/460 OEX Put BWB expiring this week for $0.25 credit. I also reduced by half my original position by selling them out for $0.60 debit for a loss of $0.60 per contract. I did all of this before the consumer confidence number and I can tell you that I got filled on the hedge position almost instantly. I guess the market makers thought that we had a good chance of going lower with a bad number. I might add that when you get filled instantly, that's not a very good sign as it means the market is more than likely about to move against you (those market makers know just a bit more than me. I lie, they know a lot more than me!). It would appear that even though we've had nice bounce off the number, the way they are still pricing the spreads is telling me that there is still a chance that the market could sell off this week. Under the hood we have cumulative ticks now positive and all other internals improving quite considerably.

Below is the adjusted position on the OEX BWB. Please note that the P&L is incorrect. Overall I'm still down about $200 in the trade.

However with the adjustment, I feel a bit more comfortable as I've given myself more downside movement should we get it this week. One of the main reasons I adjusted was that the market has failed to rally. The rally which I was expecting was the reason why I put the trade on in the first trade (last Friday). Thus when the market fails to do what I thought it would then I always re-evaluate and either adjust or get out of the trade entirely. One needs to be proactive not reactive when trading the current market. No need to be forced to adjust when you absolutely have to ie when the trade is already a clear loser....

That is an F!

Yes that's the mark I'd give the market after yesterday's session. The rally failed miserably after just one day. It kinda tells you what kind of mood the market is in. Under the hood we had cumulative ticks finish at -70,000, A/D lines both at very bearish levels (-1700 on the NYSE and -1600 on the Nas) and breadth on the NYSE was 10% positive while on the Nas it was not much better coming in at 17% positive. The only saving grace was that volume was very light but that's probably because it was a banking holiday yesterday in the U.S.

That leaves us in a very precarious position as the ES is now just a mere 4 points or about 0.5% from taking out last week's lows. You can bet that there are a lot of stops placed just below this level, so any trading below that and we will likely test 1010 again. At this point in time, I'd be wary of placing any new trades and wait for the market to make it's move first. I'm looking to adjust my OEX BWB just in case we roll over hard here.

Was Friday's rally for real?

Well it would appear that the market got a real boost from Bernanke's comments about doing everything it can to help the economy. Let's look at the facts from Friday's session. A/D lines on both the NYSE and Nasdaq were at extremely bullish levels. Breadth on both exchanges were above 90% whilst cumulative ticks finished at a healthy 50,000 ticks after starting off down -10,000. Volume was quite heavy finishing well above the 30 day median average.

So what do I think of the market here? I think Friday's session was a bit of a knee jerk reaction to the Fed's comments. I don't think anyone want's to get their pants pulled down in case some unexpected new measure is announced so it was a case of a lot of traders covering their positions and probably a few new longs getting into the market. The danger here for the bulls is that the market fails to make any sort of meaningful bounce. A quick failure here would lead to a lot of disappointment and that could lead to a lot of long positions being dumped quickly. That would be perfect for new shorts and so we could see heightened volatility (on the way down). We shall see.

I did initiate a smallish OEX Put BWB with 480/475/465 strikes but now after thinking through the structure of the market above, I'm not so confident as if we fail to rally here then we could move lower within a short space of time so I need to monitor this trade closely.

The update on the same trade but that expired last week was that it was closed for $1.00 credit. It may have done a lot better had Ben not opened his mouth but that's trading for you.

Another forgettable session it seems....

Internals were strong off the open and started trending up but have now started pulling back. NASDAQ is looking decidedly weak right now. Breadth is actually negative on the NAS. Volume is average and on par with the 30 day median but no where close to like it was yesterday when it was very strong. Overall it looks like we are in for another chop session. I'm not sure when we will get some nice movement and opportunity but it feels like everyone is on vacation.

My trades are looking dandy right now. The OEX put BWB is doing quite nicely and so is my iron condor on the NDX and SPX. I've got capital to deploy but I'm going to wait until the market actually does something! Yep, I'm going to be much more patient, and disciplined as to when and what I trade. I think that's the best way to approach things from now on. Take what the market gives. This is how I used to trade a while back and I think with the uncertainty surrounding the current market you need to try and get as much edge as you can.

Chop, chop....

I think the market is going to consolidate at these levels. Market internals today, whilst they were weak right off the open have now stabilised and are bouncing. Just in case you didn't know cumulative ticks finished only down 10,000 yesterday so it's not like the selling is accelerating but then again, it's not like the buyers are stepping in either. Overall a choppy sideways market. I'm leaning slightly on a bit of a bounce so with that in mind I put in a small 2 contract position on the OEX with a 480/475/465 Put BWB. I got filled for even. We'll see how we go. Market overall feels dead to me here, I don't think there's any real sellers or buyers left anymore. Also, I think for us to have any meaningful bounce, it's going to take some sort of a shakedown to get rid of all the weak hands that are still long ie we have to go lower to go higher.  Risk is firmly off at this stage judging by a check of all the asset classes out there.

Existing home sales nose dive......

Well the market is acting kind of strange today. Breadth has been trending lower the whole morning and A/D lines are quite bearish. However the odd thing is, is that the cumulative ticks bounced right on the release of the worse than expected housing number. Meanwhile, breadth and A/D lines have improved somewhat. Perhaps some bottom fishing going on here after 3 days of weakness?? Nice big bottoming tail on all the major indices so it seems that 1040 or thereabouts on the SPX are where buyers are willing to step in. Volume is huge today so that's another clue that perhaps the "other" timeframe buyer is stepping in.

Where to next?

I'm seeing some dark clouds on the horizon just judging from the recent price action. In the intermediate to longer term time frame I think the markets will have a higher chance of moving lower. Just the economic data points coming in seem to suggest that the government and central bank induced pop in growth is now over and we are seeing very sluggish growth rates. Still there are a lot of companies that are flush with cash and you seeing evidence of this in the form of takeovers and buyouts recently. Thus this should be supportive of equity prices and valuations.

I remain in the range trading camp but we could see the SPX trade back down in the 1010 to 1070 range.

August Trading Review

Hmmm....I've broken a few promises of late, one of which was to update my August trades. Yes my integrity is a bit out so let's right the ship by going back over my August trades. Overall August was a bad month with the account down 8% but it could have been worse as I was down over 17% at one stage. Let's go over the good, the bad and the ugly.

The Good - The only good thing to happen during August was the 2nd lot of hedge trades I had on the OEX Put BWB's for August expiration. If you've been following the blog closely, you will remember that I initially had bought 6 x 505/500/490 Put BWB's (see above) for $0.25 credit. But then after the big down move, I decided to double down and buy some more but at 500/495/485 for $0.40 credit (you can backtest the trades by following the dates and times but note that they are in GMT +8). When the markets failed to bounce I had to get out of the original 505/500/490 BWB's for $2.00 debit (a big loss of $1.75 per contract). Then as the market just kind of went sideways, I thought it was probably a good idea to start peeling off some risk and get out of some of those 500/495/485 BWB's as well by taking some off for $1.55 debit (a further loss of $1.15 per contract) and a couple of other contracts off for $1.10 debit. As I was taking the risk off I bought some more BWB's lower down with the 490/485/475 for $0.25 credit (average). All up I bought 8 contracts. At this point I had 8 of the 490's and about 3 of the 500's left. Now as the markets bounced last Wednesday (see OEX chart below) I was able to take the remaining 500's off for $0.35 credit (profit of $0.75 per contract). At this stage I decided to hold onto the 490's as they were in profit and out of the money but I was expecting some bearish action on Thursday and Friday. Lo and behold, I was right for once and the market moved lower. So on Friday mid morning I took 4 off for $2.50 per contract and decided to let the 4 ride as I didn't think we would have any big moves on Op Ex day and the market internals were holding firm and going sideways. The OEX finished up at $486 resulting in a payout of around $4.00 for the remaining 4 contracts (profit of $4.20). I haven't done the maths yet but when you add up all of those trades I think I might have come out slightly ahead. It was really one of those rare instances when the market cooperates for you and you get the underlying to finish almost dead on your short strike.

The bad - The iron condor on the zb trade for August took a big hit. When the markets tanked, bonds rallied like crazy and as I was short the 131/133 August call spread, you can imagine I took some heavy losses as I was too slow to react. The list of adjustments to my position is as follows:

Notice I started buying OTM call butterflies to move my breakeven higher. However as bonds continued to rally I eventually had no choice but to buy a bunch of the short 131/133 call spreads back and roll my put spreads up as well.

The risk graph now looks like this:

The position has probably made most of it's money right now unless bonds sell off which I think is unlikely. I will probably leave the position on just in case they do decide to pull back a bit. Overall this position has taken off about 5% of my total account in August.

The Ugly - Well the stinker of the month has to be the OTM NDX call butterfly I decided  to buy one day before the SPX lost 2.8%. You can see the trade plus the adjustment's below:

This trade was where I lost the other 4% of my account. Say no more.......

Watch out below!!

Cumulative ticks are trending straight down! Volume is huge today! Looks like a trending day to me and things could get ugly!! Take care out there!

Yes I'm still here!

Ok I'm back from my blogging hiatus. I had to complete a financial analysis assignment due yesterday. I know it sounds like fun but in reality it was heavy going. At least I learnt a few things such as how to analyse financial statements but don't worry I will not be applying what I learnt on this blog (not yet anyways).

Right, back to the markets and in both Monday's and Tuesday's session we had positive 60,000 cumulative ticks. A/D lines and breadth were very positive on Tuesday but somewhat mixed on Monday. Overall Monday's positive ticks should have been a clue that selling power was drying up and we would bounce which we have done so. Volume has been reasonable but still coming in somewhat below average. At this point, the market is likely to consolidate. I think it's still hard to say which way it's going to break but until it does break this narrow range of 1120 to 1070 on the ES, positions should be kept fairly light. I'm just not in love with the idea of intiating income trades at this point because the market could move.

Trade wise, I've taken a pounding over the last week. I've had to adjust my OEX Put BWB twice, I've had to buy back my short bond call spreads as well as adjusting (have they moved or what??!!) and I completely exited my NDX position (last Thursday of course). Overall, I think I really need to cut down the amount of time I'm actually in this market and just be more patient and discipline and wait for the opportunities like last Wednesday and Thursday. The payoff structure for income trades just isn't worth it at the moment (ie you make 1 but lose 8 if the market moves against you). I'd rather play something more symettrical like the e-mini futures if you want to trade day in day out or actually spend a little and buy some premium (long gamma, short theta) to take advantage of the sharp movement in either direction.

Well more on this later and I will post snapshots of my trades later tonight (Perth time).

And the verdict is............

Pretty bad session for the bulls (me included). It was a stinker every way you look at it. Cumlative ticks finished at -140,000, volume surged well above the 30 day average, breadth was terrible coming in at about 30 to 1 negative, yup that's not an error, that is a shocking number folks. A/D lines were just as bad with sub minus 2000 readings on both the NYSE and Nasdaq. I haven't worked out what the skew is but if skew didn't go up too much then that would be a victory for the bulls as it tells me that the selling whilst bad was expected or orderly unlike the type of panic selling that occurs when something unexpected comes up. Remember the VIX did go up on Monday along with the market so that in itself tells you that some of the smart money was already hedging bets (usually a bearish sign according to my quants).

Needless to say, all my positions got absolutely smoked last night. The NDX position right off the get go was down 50% on a cost basis due to the large gap (ah the perils of holding overnight positions in this market) and this was after I was up 10% at the close of yesterday! This is bad and as bad as it was, sometimes there is nothing to do in that situation except not to panic and wait for the reversal. I made some adjustments to it with the advice of Mark but the position is on life support barring a 2% rally before next week's expiration. I will post a risk graph of it tonight.

The other trade is the OEX BWB and early on in the session, I made the decision to double down and hedge the position by buying more of the BWB with strikes further down (500/495/485). What this does is increase my expiration breakeven but adds more deltas, short vega and long theta to the position. So ideally I need the market to hold at these levels or if it sells off a bit more proceeded by some kind of bounce at the end of it. The lucky thing is is that I have some time on my hands for this to eventuate unlike if I was in the weekly options that expire this Friday (there would be very few options left but to get out).

The final trade is the iron condor on the long bond ZB. That position is also on fire as in going down in flames with the long bond now slightly past the short strike calls at 131 (oh how I regret to go against my long term view that bonds were a good long play). I am doing nothing at the moment on this position either until it reverses somewhat before adjusting (if I do). This is the same as the NDX position, what I've learnt over the years is that adjustments shouldn't be made at the worst time (emotional pain is the highest but when things are calmer). If I had traded based on my emotions, I would no longer be here. It takes a bit of a iron stomach to trade like this but that is my trading philosophy and plan and I'm sticking to it. Remember the market doesn't pay you for being comfortable but for when you are very uncomfortable as many times it's the contrarians type of approach that pays off.

So what next? Well, as bad as it was, I think I've seen this movie before. ie market rallies and then sells off very hard over 2 or 3 days before it bottoms and then rebounds sharply. I think in the very short term we probably will bounce here. However, in the intermediate term context, it does call into question of whether we will get higher prices. This market has such a short term memory it wouldn't surprise me but then again you never know. Overall it would appear that the wide range trading scenario is playing out nicely ie support at 1010 and resistance at 1120 on the SPX. We shall see........

Pre-market thoughts

As I write this, the market is taking it on the chin with the futures down over 1.5%. I think the reaction across the globe today was two fold.

1) I think there was a little disappointment that the Fed didn't come out and do more. After all it's what it is basically doing is keeping the size of its balance sheet at these levels instead of allowing it to shrink slowly. The market was probably expecting more QE and a further expansion of the balance sheet.

2) The economic data that came out of Japan and China was worse than expected signalling a slowdown in those two economies.

Combine those two points and you could say that the Fed is behind the curve?? It remains to be seen whether this sell off develops into something more nasty but I suspect buyers will come back in a lower levels just because you've got nowhere else to put your money ie property still stinks & bank deposits are paying nothing these days because of the record low yields. Therefore even though you know the global economy ain't going that well, and all three choices are bad, its like choosing the not so bad option.

We'll see in the first hour just how bad things are, when we get to look at the internals underneath today's price action. If the institutions really didn't like what they are seeing from those two points above then you would expect extremely heavy volume and very lopsided breadth and tick action (-100,000) at the end of today's trade.

My money is that there will be buyers and this is not the beginning of a new down leg. We need something a bit more dramatic than a few bad data points for the markets to totally reprice risk. What's more likely to happen is that we might trade between 1080 and 1120.