Down Mo, Down....Good Dog

Momentum is every traders friend.  Whether trend, contrarian or spreader, no matter your time frame, everyone loves momentum.  Think of a situation where the wind is at your back, in comparison to the wind in your face or no wind at all.  Alex......I'll take Wind At Your Back for $500.

Now, something of value.  I am short the $ES from 1310.  I like being short in this area because there is downside momentum and it has not been easy to get on the train, whether bull nor bear.  You are forced to sell when others are buying and vice-versa.  Here is what I am seeing.

Lets start with the Daily chart.  $ES is trading right up to the Lower Momentum level (-1 Std Dev).  As you can see from the first half of June, the Lower Momentum level held the $ES in check for 8 sessions after it closed below Lower Mo on June 1st.  If $ES moves down and closes near the 7/18 Low of 1291.25, the slope of the Bands will begin to diverge and that will stoke the fire of momentum.

Lets dial this trade into a lower time frame, the 240 min chart.  The $ES has rallied 20.25 handles from the 7/18 Low without a pullback, in this time frame.  I am not fading this market purely because it has rallied 20 handles.  $ES has rallied right into the Upper Momentum on the 240, which has a slight downward slope.  Again, if $ES trades to the downside and we get a red candle on the 240, the slop of the bands will begin to point down.  This gives us more momentum.

I love trading signals that provide a "confluence" of levels.  These confluence levels provide strong signs of future price discovery, whether our thesis works or not.

Every single trade we enter needs a business plan and you owe it to yourself to develop one.  If I am wrong, my stop point is above the July 15th and 18th highs of 1315.50 and 1314.75 respectively.  A secondary stop I will run is if $ES closes above Upper Mo on the 240.  I like this type of stop because price action is leading us to discover that there is a change of momentum occurring.  I am risking a little over 5 handles from my short entry of 1310.00, but the risk could be less if we close above that Upper Mo band.  On the reward side, I am looking for the July 18th Low of 1291.25 and then the area of 1275, which has plenty of price action from June.

Be Well,

Hemi

Good is the Enemy of Great

I am sucker for inspirational one-liners.  Victory Loves Preparation; Commitment to Excellence; Play Like a Champion Today; etc....  The list can go on for ever.

Last week, my son participated in a hockey camp at Notre Dame in South Bend.  These picture were taken in one of the locker room areas of the Joyce Center.  I had never seen this one-liner before and it had a great impact on me as we drove back to the Chicago suburbs.  I thought long and hard, as the mile markers flew by, about how I could execute this is my daily life.  How do I identify areas that I am merely "Good" at because I don't focus on being "Great" at them.

In the past, I have told you about my 4 F's; Faith, Family, Finances and Fitness.....in that order.  I decided to breakdown each quadrant into the sub-topics that make-up that part of my life.  What I found is that I have too much "stuff" going on in each part of my life.  It takes a lot of time and effort to focus on so many different things and moving parts.  I would be well served to narrow that list down to the 2-3 things that are most important to me and focus on being "Great" at those things.  I am in that process now.

This obviously has direct implications in the trading world.  Great Trading is Boring.  Did you get that, Great Trading is Boring.  Sometimes the market is rockin' and you have multiple signals and positions.  Most of the time, you have to lie in the weeds like the lion and wait for the weakest prey......and then POUNCE.  You cannot allow yourself to get into "marginal" trades.  It is easy to do, especially during the summer.  The market is slow, it doesn't even look like it will hurt you, I'll just take this one, right?  Great trading does not work like that.  It takes ultimate discipline and a sensitivity to your inner voice that is unparalleled.  Save your time, energy, capital and mental capital for the best set-ups or weakest prey....like the lion does.  Conserve energy for the fight that could take your life.

Take inventory of what products you trade, what set-ups you are trading, your business plan and risk management rules.  Go back and look at your journal....oh wait, you probably don't have a journal.  Start keeping a journal, NOW.  Narrow your focus to the specific products that you have a "feel" for.  What set-ups are making you consistent money?  What set-ups are you finding it most easy to be disciplined with.  Follow your business plan for each trade.  Identify these attributes and focus on being "Great" at them.

Be Well,

Hemi

ES v FESX Update

So I held 2 units of this trade over the weekend as 1 of my primary trade indications was screaming at me, although I did not like that this trade was pushed by rather volatile, macro oriented news (The Greek Tragedy), so I capped my overnight/over-weekend exposure to 2 units.  This trade entered my psyche, more than once, over the weekend.  I remember reading in "Reminiscences of a Stock Operator", "Sell until you can sleep".  I wasn't loosing sleep, just thinking and forming a plan for my exit on Monday Morning.  I have exited all my units, got flat and am resetting my exposure to this spread as the market has moved in my favor and I am not willing to tempt fate by hanging on to a volatile, news driven trade.  This is a nice reaction to news that the decision on the next disbursement to Greece will be taken in mid-July.  Germans are critical of multiple parts of the plan including the next disbursement to Greece, Greek Debt Rollover and the Greek's willingness to agree to proper austerity measures.  What?  Germans don't want to work too the age of 70 while Greeks retire at 55?

Be Well,

Hemi

ES setting up for a bounce

As I progress through some charts on a hot and humid Chicago day, I cannot help but notice where the S&P closed.  First, lets look at some simple bar analysis.  This looks like a base forming in the S&P, with today's low above the last 2 days' lows and today's high above yesterday's high.  Now for some indicator analysis.  Today, the S&P closed just above the -1 Std. Dev or Lower Momentum level.  This puts the probabilities back in the Bulls hands as Bears seem to be struggling with keeping the market down.  Bears had a real opportunity to close this market near new 2 months low's yesterday but could not seize the moment and the S&P rallied into the close.  Let's talk Volatility.  VIX closed just below 22, but closed above 20, there is still some fear in this market, rightfully so.  The news coming out of Europe, regarding the Greek situation, has really been volatile.  Greece could refuse to agree to necessary austerity measures.  Germany and France could really put the screws to Greece, as they hold power at this point.

The technical pattern in the S&P set's up a low-risk long entry above the 1269 6/16 high and projects up to 1297, with resistance at 1290, which would be a great time to take off 1/2 and reset stop to at least break-even.  Initial stops could be placed at 1253.75, which is 2 points below the 6/15 low of 1255.75, you know the ES needs wiggle room near high's and low's when it comes to stops.  If your risking 15 handles, the target of 1297 gets you a 2:1 risk/reward, which is the minimum threshold for my personal trading.  Have a great weekend.

Be Well,

Hemi

ES v FESX

Good morning.  I am initiating a position in 1/2 unit quantities this morning to take advantage of, what I deem, a large overreaction by European Equities to the news that Germany and France are seriously discussing a private bailout of Greece.  I am dipping my toe slowly, too allow wiggle room if I need it.  In the first 4 hours of today's session, we have traded 200% of the spreads' ATR.  I am viewing this as an opportunity to get long some Spuz.  I will keep you updated on the progress of this trade.

Be Well,

Hemi

Will XLF Lead the SPY Higher?

While looking at some charts after today's session, I noticed the XLF closed above what I consider Lower Momentum on the Daily.  I like to look at +1 and -1 Standard Deviations as Momentum levels.  As you can see, XLF has traded below Lower Mo for 5 sessions, since the big down day on June 1st.  A close above this level is a short-term signal that the significant momentum down has stalled, for the time being.  A buy at the open tomorrow, with a Stop below the June 10th low, would project to a target of $15.50 or the Upper Momentum band.

This should lead the broader market, SPY up as well.  SPY is in a different position, closing today just above unch and below Lower Mo.  For this long XLF position to really pay-off, we want to see SPY close above its'  Lower Mo, currently at $128.61.  This would really put the XLF in a position to test it's Upper Mo, mentioned above.

For those more inclined to trade the XLF/SPY spread, which is not one I generally watch, the low risk entry occurred on June 10th when the spread crossed and closed above the Lower Mo.  The 1yr correlation = 87.3%, 30 day correlation = 96.5% and the 1yr cointegration confidence level is 44%.  I am generally not interested in equity spreads with such a low cointegration confidence level.  Now that does not mean there is not a trade here.  This spread closed above it's Upper Mo today.  The low risk trade would be to buy this spread on the open (XLF-.12*SPY), watch the outrights for the levels mentioned above and look for this spread to trade above it's Upper Mo into the resistance level near $0.00 as the Bollinger Bands begin a potential process of divergence.

Be Well,

Hemi

Pepe the Squirrel

It has been a while since I wrote my last post.  I must admit, I got a little caught up in the whole "Audience" thing and I stopped writing.  I thought, no one gives a crap anyways.  Well, I was wrong.  The writing is really about me.  Here is my installment into the vast world wide web.   

Last week, I was on a run.  Picture a typical sidewalk, in a typical suburban neighborhood, houses to my right, fairly busy road on my left.  I was running by some hedges and out pops a squirrel, I call him Pepe.  It's the first name that popped in my mind.  He was definitely surprised to see me hammering down the sidewalk (I am 6'3" 250lbs, I run like a Clydesdale and am hard to miss).  He darted for a light post.  While in mid-flight he recognized that this was a concrete post, not a wood post.  In mid-flight, doing his best MJ #23, he twists and lands in the road.  As he lands, he is ready to blaze a trail across the road and get away from the Budweiser Clydesdale that somehow escaped from the stable.

Keep in mind, this is happening within 10-15 seconds.

All of a sudden, a Mercedes ML 320 comes blasting out of nowhere and Senor Pepe is about to meet his maker.  Pepe stops on a dime, literally between the front and rear tire of the Mercedes, and darts back to the sidewalk where he found a tree to jump into.  

My immediate thought was, I wish I was that nimble in the markets.  Here are some thoughts on how to be nimble in the market.

1) Develop a plan - Each trade (I have wrote on this subject) needs and deserves a business plan.  Entry/Stop Loss/Reward Exit/Time Stop.  Breakdown your trade and determine what is vitally important to its success.  First create a written business plan for each trade.  As you progress and build a process, that will become a mental business plan.

2) Journal - Write, write, write.  Talk to any successful trader and at some point in his/her career, there was journaling involved.  Write down everything.  Entry/Exit/Time/Trade Reason/What is broader market doing/Confidence level at Entry/Confidence level at Exit/Did you follow plan/If not, why?/What were your emotions telling you.  By writing this stuff down, day-in-and-day-out, you will begin to see patterns.  Also, by writing stuff down, you access a different part of your brain.  This can help you anchor positive behaviors.

3) Listen - You know that inner voice, yeah, the one that always seems to be right, even if you don't follow the voice.  That is you.  I remember my high school English teacher telling us, your first thought is the best thought.  Never change the answer on a test if it is different from that first thought.  Learn to be sensitive to your inner voice and follow what it says.  This is your self-conscious, all those things you absorb, that you may not be aware that your absorbing.

Disciplining yourself to listen and be open to changing the plan mid-stream is a process, in and of itself.  By developing a plan, journaling and listening to your inner voice, you will begin to frame the market and your trade in a new perspective.  As traders, you had better be ready to stop on a dime when the Mercedes of life and/or the market is barreling down on you.  You can either change directions and save yourself or keep moving in the same direction and damn the consequences.  Now your just road kill and the market just keeps rollin'.

Be Well,

Hemi