Eschewing my lengthy nonsensical banter, with this post I’m going to post charts for the ETF’s that I’m following, in rank order. Keep in mind that I use SHY as a proxy for cash, and that is where the vast majority of my money resides at the moment (along with a small VXX speculative position and a bit of cash). Additionally, SHY is my top ranked ETF, but posting it’s chart would be pointless as I don’t perform any sort of analysis on it…I just move my money there when my screen tells me to do so.
Being almost exclusively in cash, days like today are really tough to sit back and watch…because that’s all I’m willing to do…watch. The urge (likely spawned from early childhood experiences) is to get in on what it seems like everyone else is getting in on. Here I’m watching this market, and there it goes, advancing over 3%, it’s difficult to shake the feeling like I’m missing out on something.
This feeling is compounded when my speculative long positions in GSS and BC sit around and don’t advance with the same vigor as the market as a whole. I realize that my trade in GSS probably isn’t going to move in lockstep with the major averages…so I’m mentally prepared to underperform with that during these rallies. But BC, what the hell is your excuse? You were supposed to “tie the room together”…instead you are like the Eagles to the ears of a Mr. Jeffrey Lebowski. Someone really needs to recover those Creedence cassettes, or you will be entering a world of pain. Stop pissing around with that 63 EMA and throw the bag full of cash, not the ringer, out the window. Maybe I’m out of my element.
Anyway, my screen is still telling me to stay in cash. The backtests I’ve run using it over the past 5 years have been pretty accurate at keeping me out of harms way and in boring-ass SHY. Compounding my frustration on a day like today is the fact that my SHY position is now a losing trade. Granted, it’s a minuscule loss compared to the size of investment, even still, I have that to watch as well.
Looking around at the ETF’s, I can’t help but be impressed with the price action on the day. The ‘gap’ recipe as of late has been that the open marks the high (on a gap up) or low (on a gap down) and the market reverses….several percent. Savvy daytraders (read: NOT me) have probably been making nice money on this recently…then a day like today comes along and says: “no matter how smart you think you are, over time, daytrading is a losing proposition and you are going to lose lots of money trying to do what makes statistical sense (i.e. fade this move)”. The bulls held steady throughout the session, pushing most of these ETF’s to intraday highs at the close. Nice work buyers…let’s take a closer look and see if these charts can tell us anything.
SPY
In spite of my insistence that the 252 EMA held some sort of significance, SPY decided to blow right through it today and nuzzled right up to that 189 EMA at the close. Additionally, the Thursday/Friday gap has been filled. What I want to know, and this was a recurring theme for the day, where is the volume? If prices are going to surge higher like this, I’d feel a lot better about higher stock prices in the future if buyers were more willing to step in and buy stock on days where there is little resistance from the bears. To illustrate this point, today was the 2nd lowest volume “green” day since before the crash on 5/6. Maybe I’m crazy, but that kind of volume puts a bit of a damper on, what, by all accounts, was a promising day. I have the feeling that there are a number of people out there who initiated positions in the 111-115 range that are going to be happy as a pig in shit to have the opportunity to break even in the coming days, so we should probably keep our eyes peeled for whether or not bullish traders swoop in at this level to accumulate shares or the bears smell blood and use the ‘break even relief’ momentum to push prices lower again.
IWC
The microcaps posted a very bullish looking candle in addition to closing the Thursday/Friday gap and almost piercing the 63 EMA. Once again, delving a bit deeper reveals that volume has been downright pathetic the past two days, so that is tempering my enthusiasm. If prices continue to rise, they soon will be entering an area of EMA confluence with the 1, 3 and 4 month lines along with what could be considered a decreasing trend line connecting the highs from 4/30 and 5/15. Right now that line lies around 45-45.5…and it will obviously be decreasing as time moves along. I think that any break above this zone on above average volume should be considered a bullish sign, and I would then look to the highs around 47 on 5/12 and 5/13 to see how price performs in that region.
QQQQ
I’ll quickly mention that the Q’s said adios to the oft-mentioned 189 EMA on light volume.
EEM
In what might be the most encouraging sign of all, over the past 15 days EEM has been outperforming all of the ETF’s I’m following. I know that I’m waffling on the statement I made a couple of days ago where I mentioned EEM getting “hammered”. I should have delved a bit further into the data, because, like I’ve been saying for a while now…EEM is a key component to higher stock prices. Even though the ETF only broke through the 252 EMA today, it did so on above average volume that surpassed the previous two declining sessions. Also look at the relative price compared to that of SPY or IWC. IWC has yet to even sniff prices from last Thursday, while EEM has already started to chip away at losses from earlier last week. I like how the EMA’s are more ‘collected’ than SPY or IWC…hell, EEM could be flirting with the 21 EMA tomorrow.
At this point, I think the most likely course of events is for prices to either consolidate in the EMA confluence zone or rebound downward again. Prices have advanced over 7% (7.11) in the past week, so I would think that kind of performance is highly unlikely to continue. Just to put things in perspective, the ETF (that I’m following) with the closest performance is IWC at 4.91%. Again, I was just basing my misguided opinion of EEM’s (lack of) relative strength solely on the chart…when the numbers actually tell a much different tale. So there you have it, I think this might be the first post I’ve been able to end on an optimistic note. Though, knowing my ability to read the market, one could probably use this as a decidedly strong “contrarian indicator”.
Yes, the markets rallied into the close from the muck and mire of a rather grotesque gap down to open the day. As mentioned in the weekend wrap up, bears tried, but once again into significant resistance at the 105 level on SPY. This is the line in the sand. Are we out of the woods? Hell no. The continued repulse of this level on the SPY is somewhat encouraging. Let’s take a look at the chart
SPY
Ok, so, great…105 held, prices rallied into the close, volume increased from Monday. Of course, prices are still well below the 252 EMA, needed to rally almost 3 points just to close in the green and the intraday volatility is still something to behold. Just look at the candles since prices peaked in late April. The move upward from the February lows was methodical. The fall from the highs has been like an avalanche. Huge intraday price swings are not signs of a healthy, or even more importantly, readily tradeable market. The continued ability to hold the 105 level is kind of impressive, and today looked like it was going to be the day all hell broke loose…but it was not to be.
Granted, the market is again “oversold”, so quick 1-2 day rallies are to be expected in the coming days. But this volatility still makes it really difficult to try and get in and make money…long or short. Some traders excel in markets like this…they have an edge when volatility increases. I have no clue what the hell to expect when things get crazy like this, so I just move out of the way and observe. You better believe I’m keeping an eye on these SPY price levels to see what happens next. What would encourage me is seeing the bears unable to move the market much lower than these levels. I do suspect that bears will furiously try to sell any rally attempt(s) in the coming weeks…but watching to see how far they are actually able to move the market downward and on what volume will be of key importance.
IWC
So to temper the relative optimism of the SPY analysis, here is the chart for top rated IWC. Yes, prices are still well above the February lows, but a closing low for the recent correction was achieved on a day when other, underperforming ETF’s, rallied to finish in the green. Could this mean that there is a changing in the guard amongst the ETF’s I’m following? QQQQ has been gaining strength relative to IWC and IWM recently. Or this could be a sign that the ‘line in the sand’ rally in SPY and QQQQ is fools gold? IWC is still able to boast about bouncing off of and closing above the 252 EMA, but was also not capable of rallying enough to regain the 189 EMA by the close of trading today. If you look closely, the 189 EMA held the lows in February. One day does not make a trend, but it’s tough for me to be overly optimistic when looking at this chart. The outperformance of the microcap and small funds (IWC, IWM) has been one of the few bright spots so far in this correction as traders have shown an aversion to abandoning the most risk sensitive asset classes. As always, I’ll continue to monitor these events as they continue to develop.
In other news, EEM continues to get hammered…take a look for yourself. Again, I think US stocks are going to struggle to mount a meaningful rally without the help of emerging markets…but I’m an idiot, so what the hell do I know?
EEM
My BC and GSS trades are both still on…I was very tempted to lighten up on BC this morning, but decided to stick with it, as the 63 EMA was providing good support even in the face of heavy losses by the market as a whole.
Well well, what a week to start a blog geared at my analysis of the US stock market. If you are someone who likes lighting your money on fire, watching it combust and disappear before your very eyes, then being long and unhedged stocks this past week is right up your alley. If, however, like me, you wish to protect your (presumably) hard earned money, I suggest, if you haven’t done so already, biting the bullet, getting the majority of your capital the fuck into cash or SHY as soon as possible…like Monday morning. Your digestive tract and bottom line will thank you.
This decline has led to an “oversold” state of affairs in the market and therefore we are likely to see the ‘rally’ from Friday continue into the next week. Nevertheless, I still anticipate lower stock prices in the coming weeks, if not months. Of course, there is always the possibility that I’m completely wrong and Europe is going to be fine and dandy and the underperformance of emerging markets of late is merely part of the economic cycle. If that happens to be the case, I’ll be sure to devote an entire post to eating crow. Even if I am wrong, in the meantime, my sizable position in SHY is providing a safe haven. Therefore I am busy drafting contingency plans in the event that I am required to atone for my cynical economic outlook through none other than trying to make some money.
Regardless of what happens in the coming weeks and months, what cannot be denied is the fact that volatility has shot through the fucking roof the past 3 weeks. Healthy markets move with (relative) ease to the upside. They will take occasional jabs from the bears, but those typically resolve themselves rather quickly at ‘meaningful’ price levels (more on this in a minute). Take a look at this chart of the VIX since the March 2009 bottom
Clearly this spike in volatility is very uncommon for a normal consolidation of prices since the US markets bottomed in March 2009. Underscoring the magnitude of this move, the moving averages have started to move en masse to the upside. The next week or so will be interesting. Will the VIX settle and and stabilize in the 25-30 range or will it continue to expand upward at a blistering pace? What happens from here is of key importance, and on the pullback to 25-30, I will look to go allocate funds to go long VXX (the ‘relative’ VIX proxy).
While I would not recommend trying to use technical analysis to trade the VIX, check out how the decline during the week of 5/10 found it’s bottom right around the 252 day EMA…almost refusing to push through it. On the way down, the 252 EMA was right around the upper range of price advances and held in November 2009 and again in January and February. With price blowing through that level in addition to the trend of that EMA turning upward, I’m keeping my eye on a possible confluence of price and the 252 EMA. Nevertheless, I do think it is a bit too early to become overly concerned with those matters…but I will be keeping an eye on it here. For now, let’s turn our attention to the market ETF’s, starting with what I use as my ‘baseline’ for analysis, SPY.
A few items come to mind upon viewing the SPY chart. First, prices seem to have a significant aversion to the lows from February, May 6 and May 21. Two times this month prices have found a good deal of support in the 105 range, bouncing off of that level to a significant degree in all instances. The bulls have clearly dug in their heels at this price, so it is going to take a fairly significant push to break on through to the downside. If that scenario does unfold…look the fuck out below, because things are probably going to get ugly.
While the 105-106 range has been able to stabilize prices, the inability of any of the EMA levels to keep prices afloat is troubling. Again, the 189 and 252 EMA’s were incapable of being breached (at the close) in the February correction as well as early May. Things actually looked mildly promising this Wednesday with intraday prices probing the 189 EMA only to rally to close near unchanged. Often times in declining markets, I have found days like this to be excellent signals for market reversal. Well, on Thursday morning traders said “fuck you” to that optimism and sent the market to the locker room with a game misconduct before the bell even rang. Prices made a feeble attempt to poke above the 252 EMA, but were quickly rebuffed with great prejudice and moved lower for the remainder of the session closing at the lows of the day on some of the highest volume in six months. I was quite surprised when the markets gapped down to open trading on Friday…as I was at least expecting opportunistic buyers to step in for some bargains after the horrendous nature of the selling seen the entire week prior.
Even with the gains on Friday, this market both amuses and scares the shit out of me. If you like spending your free time swimming in shark infested waters then you would probably enjoy allocating a large portion of your investment capital to go long stocks in this market. Otherwise, my best advice is to relax, pay attention and keep the vast majority of your investment capital the fuck away from it until things calm down. Let’s take a peek at the charts for IWC (top pick) and EEM (bottom pick)
The 5/6 lows on IWC were undercut early on Friday, but, in contrast to SPY, the February lows are still a ways away, and the uptrend remains intact. Again, the 252 EMA provided a nice lower bound for prices on Friday. This chart just looks much ‘healthier’ than the preceding SPY chart…granted, this is a relative term because with all of those large price moves over the past 3 weeks, I wouldn’t call it “pretty” or even “attractive”. Look at the volume, which came in higher on Friday vs. Thursday…this is divergence from SPY and could potentially be meaningful (though, I am keeping in mind that the average daily volume of this ETF is minuscule compared to the others I follow).
Based on these factors and through my screening process (which, again, has IWC ranked #1), this is currently the ETF I will be buying if the aforementioned bearish scenarios do not pan out. I would like to see the moving averages converge to a much greater extent than they have so far…this could play out in prices vacillating in the 40-44 range. Still, I have a difficult time looking at this chart and being anything but frightened and skeptical about putting trading capital into this ETF. Having written this paragraph about IWC, this blog is already serving the purpose I intended. I look at a lot of charts and make mental notes, and while those notes are useful, often times there are things (some major some not) that get lost in the shuffle as time passes. I submit that writing down my thoughts is going to provide me with a much more objective performance/decision making analysis tool in the future.
The first thing that jumped out at me regarding EEM compared to IWC and SPY is how the gap down on Thursday has been already been filled on EEM while SPY and IWC didn’t come close, both failing to even reach the highs from Thursday. Now, EEM has been the doormat of the ETF’s I follow, having peaked in price a good two weeks prior to SPY. I still think this chart looks fucked, but this filling of the gap does leave me intrigued…and is something that I’m going to keep my eye on as a possible clue going forward from here.
As I have mentioned before, emerging markets led the market throughout 2009…their underperformance and failing to make new highs with SPY in April was a red flag moving into this period of increasing volatility. Even the highs achieved in April were barely above the January highs…take a gander at the IWC and SPY charts and you can clearly see that EEM was in trouble (and possibly providing warning about the new highs in SPY). Events like this take time to materialize, but they are potentially important market ‘tells’ and should not be brushed aside…especially when searching for market tops and bottoms. Coincidentally, it was EEM that bottomed in December 2008 a good three months prior to when the major US averages bottomed out. Just saying…
I have spent years refining my investment strategy. I have gone through many phases of ‘information overload’ whereby I would try to analyze the price behavior of dozens, if not hundreds, of stocks every single day. One of my big flaws is my inability to stick to a routine. I start out with a head of steam only to fade a short time later. Even in light of this, I have been remarkably consistent in my daily analysis of my stock watch lists for years now. Nevertheless, I have continued to fight tooth and nail to try and maintain pace with the major market averages. While my overall percentage gains and win/loss ratio have improved over time, I’m still a fucking pussy when it comes time to really trust myself…so I ultimately end up underperforming (relative to my account size) even though my trade statistics are quite good.
Basically I have become sick and fucking tired of performing well, yet coming away feeling underwhelmed when I look at my results. I knew that in order to depussify myself, as it were, I needed to devise a method whereby I would invest the lion’s share of my account into a single ETF, and keep a smaller percentage with which I can continue to trade my strategy. My ETF selection criteria is really quite simple…I will be fully invested in one of the following:
SPY
DIA
QQQQ
MDY
IWM
IWC
EEM
SHY
I have thought about adding a commodity ETF’s in there as well like USO/OIL, GLD, DBA but after backtesting I have decided to keep this shit simple. USO did add some significant gains to prior returns, but it also shit the bed a few times over the past few years. I’ll sacrifice the big gains and the kicks to the nuts for less volatility as this strategy is meant to provide steady growth with minimal drawdowns over time, not return 100% a year. SHY is used as the safe haven for times when the market is dishing out punishment (i.e. right now).
Just so happens that I’m full tilt in SHY at the moment…and I must say I do find a sadistic sense of enjoyment watching the market bitch-slap the shit out of all of the neanderthals suckling from the “where to buy next” CNBC tit. (As an aside, really, CNBC? Your willingness to provide advice beyond, “put your money in cash or short term treasuries [aka SHY] you fucking dolts” is hilarious. Please, Maria Bartiromo, interview someone else who can enlighten me as to what my next “play” should be while the market continues to spew projectile vomit all over anyone who tries to stand in it’s way.) Anyway, my goal here is to regularly post a chart or two of the above ETF’s and add my two cents as to what I see happening. I don’t have a crystal ball or time machine, so it’s going to be a learning process for everyone involved…and that’s probably a good thing. In addition, I’ll keep you posted on what ETF I’m currently invested in as well as any other stock/ETF that I find intriguing.
Here’s a look at IWC, the Microcap Index Fund from iShares. This ETF has been leading the (seemingly endless) march higher since the February lows and as you can clearly see, losing 5.66% certainly qualifies as a shitty day. In all fairness, the moving averages were starting to get away from each other a bit too much into late April. That kind of singular and relentless directional behavior will always resolve itself. The key is to realize this and try and stay ahead of getting your face caved in by 5% daily losses. What one can clearly see is that, even with the hammering this ETF has received since the post ‘flash crash’ rebound highs on 5/13, the moving averages have just started to move closer together. I do think that, in the meantime, the downside is rather limited. Having said that, you would have to be bat-shit crazy to enter a long position right now. Lets wait for things to settle down (significantly) before committing any money. SHY is safe, it will take care of things while the rest of the market figures out what it wants to do. Just be patient. While IWC is still my highest rated ETF, let’s take a gander at EEM, which, as you can clearly see, is currently taking steel-toed kicks to the teeth on a daily basis.
Not only has the price blown through every moving average, the 21 day EMA is starting to plow downward and today (5/20) the February lows were taken out on high volume. The lows from September of 2009 are the next place to find support and those don’t start to become a factor until the low 35’s. Since 2007, EEM has been a dominant ETF. If emerging markets have been the fuel to the 2009 rally (and they were, with EEM making lows in 12/08 as opposed to 03/09 for US markets)…this recent performance has to be cause for concern. I will be monitoring this situation closely, as I feel if EEM fails to rally, I’m not sure the US markets have the ability to take prices higher in spite of emerging markets underperformance. Basically, if you are unhedged long stocks, I don’t know what to tell you besides “you probably, most certainly, fucked up”. Sleep tight though as I’m sure that CNBC will let us know everything is a-ok and back to normal upon the first rally from these levels.
A Sequined Sash 