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