Traders' Library Blog

So much for the Thanksgiving rally!

November 30th, 2009

Look for our market outlook quoted in the December issue of Futures Magazine!

We have been reminding readers of the infamous Thanksgiving rally for weeks but this year it just wasn't meant to be.  A poorly timed announcement in regards to a plea for a Dubai debt restructure sent equities swooning in thin holiday trade. 

While many American's naively assumed that because the New York Stock Exchange was closed for business their equity holdings weren't changing value, the futures markets were in panic mode.  At one point in overnight futures market trade, the S&P was down nearly 50 handles from its close on Wednesday.  Luckily, the markets quickly gathered composure and ended Friday's session with hefty but not crippling losses. 

In our opinion, the market's reaction to the Dubai World news was grossly exaggerated by the holiday.  Had the announcement come during a more "normal" trading session things might not have been nearly as volatile.  Additionally, it is likely that many traders that were long the markets placed their sell stops ahead of the holiday weekend leaving the market vulnerable to large and irrational moves on sell stop running.  In the larger scheme of things, the markets have failed to trade on fundamentals in recent months and that trend seems to be intact. 

 

Treasuries soar in holiday trade

 

November 30th, 2009

 

Look for our market outlook quoted in the December issue of Futures Magazine!

 

 

News of a possible Dubai World debt default, Treasuries spent the Thanksgiving shortened trading sessions running wild.  We had mentioned last week that we felt as though the quiet trade was due for an increase in volatility and as expected the price move brought bonds and notes to better levels.  The strength of the rally was a bit more than we had originally anticipated but we feel as though the bull run is nearing a temporary high.  After all, a Dubai World debt restructure wasn't a complete surprise and had the news hit during something other than thin holiday trade their might not have been nearly as much panic.  That said, the impact of a Dubai default on the U.S. markets is relatively minimal.  The market's concerns were likely focused on the possibility of similar news from many other entities. 

 

Our clients were recommended to cancel the standing order to sell the January bond 125 calls for 20.  Instead, they were encouraged to sell the February 128 calls for about 25 ticks (fills ranged from 24 to 25).  This trade offers a slower rate of premium erosion but also carries a lower delta (less immediate risk) and has much more room for error.  Given the uncertainty of last week's events and the market's reaction to such, it seems as though being prudent is the way to go.  If you would like to be notified of changes in trading recommendations that occur intraday, such as this, open a trading account with DeCarley.  We offer full service as well as discount online trading and all of our clients receive email updates during the trading day.

 

Aside from the Chicago PMI, traders had little news to go on Monday morning.  The regional purchasing managers index pointed toward growth at a reading of 56.1; much better than the expected 53.  The news will pick up tomorrow with the ISM index, constructions spending and pending home sales. 

Forex correlations, Dubai, ETF updates, and post-holiday recaps

Wall St. Breakfast from Seeking Alpha

Dubai and holiday retail sales from The Kirk Report

A fresh look at the strongest forex correlations by Kathy Lien on Greenfaucet

The Declining Moving Averages of Market Internals Nov 29 by Corey Rosenbloom

Thanksgiving Week 2009 Stock Market Recap by Trader Mike

Hirsch & Person, Commodity Trader’s Almanac 2010 by Reading the Markets

ETF Update: Trading Discipline in a Time of Turmoil by Dash of Insight

Morning Briefing for November 30th: Wide Pre-Market Range by Dr. Brett Steenbarger

Massive Attack - Protection by Trader Rock

Ravens victorious over the Steelers in OT thriller WOO!

Grunge: Mohawks, Flannel and Loud Guitars (Michael Lavine's photographs via Rolling Stone)

Coleadero: steer wrangling in Chihuahua  on Lonely Planet

Let's Go Ravens!

Not much to say on a Sunday like this one except for a big loud CACAW! Going to join the rest of Baltimore in support of our Ravens!

In case you're in town, here's a good football guide for ya, Bmore style:

http://baltimore.metromix.com/events/roundup/baltimore-ravens-football-guide/169506/content

My pick-- Mother's Purple Patio! Enjoy---

Learning video: Elliott Correction Waves

With this video we continue looking at Elliott correction wave rules and applications.

Let me first sum up a few important things about correction waves:

- Recognizing correction waves is more difficult than recognizing impulse waves.

- There are more correction patterns than impulse patterns.

- Correction patterns have the tendency to develop more complex combinations. 

- The most important rule is that a correction wave of the same order can never have 5 waves.

- Only impulse waves have 5 waves.

- A correction consisting of a 5 impulse wave can therefore never be the end of that correction.

Sylvain Vervoort
http://stocata.org/

S&P500 Technical Analysis Update Nov. 28, 2009.

One day less and low volume the past week. The previous top was not broken and friday price had to come down to a support level. A further correction move should be holding the better cards.

This should be confirmed by higher volume to really believe in starting of a medium term downtrend. Let's see what is happening next week.

With December coming up it is not impossible that the index will stay at this high level within a small trading range.

It looks like the index is making a rounding top. If that is the case, prices will drop slowly at first for the creation of the right side of this rounding top reversal pattern.

The last uptrend was not supported by volume. All indicators are moving down. The last (C) wave now seems to be complete and with this also the (Y) wave. There is no change in the positions. There is no manual long position for the moment and SATS2 is still holding the last long position. First support is at 1080, but if this support breaks I expect in first instance a further down move to 1030.

Wedges, Triangles, and Rectangles to Trade with Raghee Horner

The following excerpt is the continuation of yesterday's article from Raghee Horner's contribution to the best-selling ebook, High Profits in High Heels: Secrets from Today's Top Women Traders. Make sure you read the "Importance of Chart Patterns" post from yesterday first, then dive into the text below. Download this entire ebook today!

***Wedges are considered continuation patterns. The rule of thumb when analyzing or trading an established trend is to follow the trend until it breaks or transitions to a sideways market cycle. The break of a trend is defined by prices trading through the resistance of a downtrend or the support of the uptrend.  Wedges can help a trader find an entry point within the context of a trend—which, contrary to belief, is a difficult thing to do correctly. Just because a market is trending doesn’t mean that any entry with the trend is a good one. The wedge offers a trader a point at which to short resistance at the upper downtrend line or play the reversal of the trend, which also is defined by the upper downtrend line.

Importance of Chart Patterns with Raghee Horner

The following excerpt is from Raghee Horner's contribution to the best-selling ebook, High Profits in High Heels: Secrets from Today's Top Women Traders. It's a long article so I've broken it up over today and tomorrow. Download your copy today!

***Chart patterns are often the very first introduction traders have to charting the markets.  There is something inherently familiar about chart patterns, and because of this, there is a comfort level to trading these common shapes. Triangles, rectangles, wedges, channels, and more—these are the patterns that are often identified on a chart, and through these patterns, key decisions can be made as to how and when to enter a trade. In that way, I believe chart patterns are a tremendous anchor to what we know as we venture into the unknown waters of trading for the first time.

Happy Thanksgiving!

Happy Thanksgiving blog readers! Hope everyone has a beautiful holiday with friends and family (and football and turkey!)!! Thank you so much for being part of our community here!

-Jody

Breakaway Gaps

Since we're featuring Toni Hansen's new book, I thought I'd share a short video clip from her on breakaway gaps. Enjoy!

Toni Hansen is the President and CEO of the Hansen Finance Group, LLC and Trading From Main Street. As one of the most respected technical analysts and traders in the industry, she has a high reputation for accuracy in both bull and bear markets. She is a frequent guest lecturer at trade shows and trading expos, and often speaks on behalf of many of the world’s top exchanges, including the CME Group and the International Securities Exchange. Toni is also a repeat contributor to the industry’s top financial publications, including SFO Magazine, Your Trading Edge magazine, Traders’ Journal, and Active Trader, and publishes daily market commentary and market education through her website www.tonihansen.com.

Get her new book today!

Dow convergence, bond bulls, futures for Thanksgiving, and TheHotel in Vegas

Marvelous Mondays (Kirk Report)

Interesting convergence to watch at Dow 10,500 (Corey Rosenbloom)

The bond bull (Planet Yelnick)

Holiday trading slowdown in play (Toni Hansen)

A daily breakdown of Thanksgiving week history (Quantifiable Edges)

Stocktwits (for all you new to Twitter)

Options Trader Monday Outlook: Stuffing the Futures for Thanksgiving (Seeking Alpha)

Is the dollar driving stocks or the reverse? (Kathy Lien on Greenfaucet)

Quick reads (Dr. Brett Steenbarger)

It isn't easy being green (Rick Reilly, ESPN)

16 Rock Myths- Debunked! (SPIN)

TheHotel at Mandalay (thanks for a great weekend!)

Can you say "mutual fund Monday"?

November 23rd, 2009

Pick up Carley's book, "Commodity Options" at www.TradersLibrary.com!

Stocks started the week off with a bang; it seems as though Friday's option expiration was holding stocks down, rather than propping them up.  With that out of the way, an economic calendar chock full of data and thinly traded markets we can't help but looking higher from here.  Thanksgiving has always seen investors give thanks by buying up shares of stock, so we are expecting the December S&P to see 1130ish at some point this week. 

Risk trade leaves Treasuries out of favor

November 23rd, 2009

Look for our market outlook quoted in the December issue of Futures Magazine!

 

Bonds and notes suffered at the hands of equity gains as investors are seep to be pouring money into "risky" assets such as commodities and equities.  However, as has been the case, the selling across interest rate products lacked enthusiasm. 

With the Thanksgiving Day holiday upon us, it is likely that the markets will see very little trading volume throughout the remainder of the week.  Despite an action packed economic calendar and another round of sizable auctions, traders seem to have already called it quits.  Some liquidity will come back for the first few weeks of December but the real volume typically doesn't show up until well into January. 

The absence of trading volume, and traders, is important in that many proprietary desks leave their second string traders at the wheel.  The combination of illiquidity and "back-up" traders can mean large and unexplainable market moves.  If you recall, last year a few sessions before Thanksgiving the 30-year bond futures rallied approximately 10 handles over the course of three trading sessions.  Seven of those handles took place in a single trading day. 

Cookies and Cream Cake

My sister loves to bake, and well, I love to test out her creations. She made this recipe for a friend's birthday, and I had to share it with you because it was super delicious!! Try it out tonight!

 

http://annies-eats.com/2008/09/05/cookies-and-cream-cake/

Learning Video: Elliott Impulse Waves

With this video we continue the Elliott waves education, looking at the rules and application of impulse waves. Recognizing wave patterns is the most important occupation within Elliot wave analysis. An impulse wave is always composed of 5 waves, numbered 1 to 5. Waves 1, 3, and 5 are, again, impulse patterns. Waves 2 and 4 are correction patterns.

Sylvain Vervoort
http://stocata.org/

I'm in Vegas!

Hi-- I'm currently in sunny Las Vegas, Nevada. Tomorrow I'll be hosting our Traders' Forum featuring Carley Garner, Gary Anderson, and Bennett McDowell. I know it's going to be a great event for the both our attendees and speakers. If you missed out on this one, look for the DVDs of the event in Feb-March. Also, keep April 23-25 open for travel. We will be returning to Chicago for a bigger and better than ever event-- The 2010 Traders' Forum- Legends of Trading. More details coming very soon..... Have a nice weekend!

And don't forget... even though I'm in Vegas, you still have plenty to read here. Make sure you use the lijit search function to find all the best articles from your favorite traders.

S&P500 Technical Analysis Update Nov. 21, 2009.

And once more a new top at 1113.69, now very close to the long mentioned target of 1120, the 50% retracement of the long term downtrend. The last uptrend was not supported by volume. All indicators are turning down. The last (C) wave now seems to be complete and with this also the (Y) wave. It looks like the index is making a rounding top. If that is the case, prices will drop slowly at first for the creation of the right side of this rounding top reversal pattern. As mentioned last week I did not enter for a long trade because I was expecting price not to break the resistance at 1120. The SATS2 expert still has an open long trade. In the candlestick chart you can recognize something that looks much like an evening doji star top reversal. There is now support at 1080, but I assume this will not hold and price will move down for a first target at 1030.

Trading Gaps, Lesson 2 with Oliver Velez

Continued from yesterday-- the conclusion of Oliver Velez's lessons on trading gaps. For more of his tips and strategies, pick up his best-selling book Strategies for Profiting on Every Trade.

Trading Gaps, Part 2
In the last lesson, I started a discussion about gaps. I talked about what they are, how they form, and why they form.While there are many strategies involving gaps, let’s look at a few examples here.

November 18, Market Analysis and Trading Plan

Timely Trades Letter™:

November 18, 2009:

NASDAQ Outlook & Key Trading Levels:

The market moved slightly above the 2190 horizontal resistance area during Monday's session, with below average volume. During Tuesday and Wednesday's sessions the market moved mostly sideways on even lower volume. The trading plan was to watch for a break above the 2190 horizontal resistance area, on good volume, and then pick up a few long positions. We got a small move above the 2190 area, but it came on below average volume, which continued the recent pattern of up days generally coming on lighter volume than down days. I followed the trading plan and did not add any new long positions because the move above the 2190 area did not come with good volume.

Light volume moves are generally suspect, and a time for protecting profits and letting the market sort itself out before actively trading. Any move worth trading does not require you to be in on the first day, almost by definition, and getting in early on a false breakout can eat away at previous profits. I will hold off on adding new long positions until the market shows stronger volume, or a continuation pattern. The exception to this relates to ETF trading, since some of them can trend regardless of the market direction. An example of this is the ETF selection, GLD, which has had a nice run since being listed in the Letter.

Trading Gaps, Lesson 1 with Oliver Velez

Let's check in with acclaimed trader and educator Oliver Velez on a trading gaps. Check back here tomorrow for lesson 2. [Excerpted from his best-selling book, Strategies for Profiting on Every Trade]

Trading Gaps, Part 1
Gaps are a category all unto themselves. I will discuss gaps in two parts. We will look at what they are, why they happen, and what the concepts are. In the next lesson, we will look at some chart examples.

A gap is a term used to describe the condition when a stock opens at a significantly higher or lower price than it closed the prior day. It refers to the gap that is left in the daily chart. It is the empty space from yesterday’s close to today’s open. However, gaps can also gap into the prior days trading range, making it less obvious on a daily chart. Gaps can be either up or down. They can happen to all stocks, listed or NASDAQ.