$SPY in a tough trading area

Trading the $SPY for the last 7  days long has been relatively easy. Technically speaking it is text book. Large range days with good volume on rallies. Significantly lighter volume on days with small price ranges.

We rallied into the 200SMA on the daily chart last week @$111.78 and paused, with everyone looking at the same charts this created a lot of indecision. (again, perfect technical structure)

Keystone traders went home Friday with a game plan with two scenarios; what do I trade if the 200SMA holds as resistance and what do I trade if buyers some back strong and this significant level gets taken out?

Based on the light volume pause for the better part of 3 days (after the violent momentum rally) we expected a bullish day (this was not a guess it is technical analysis 101). However if we did get the bullish stampede there was an even bigger level to be aware of in the SPY at just over $113.

This $113 is the level that excites the sellers to come off the sidelines, it has been the trigger since just after the flash crash in May.

Now here is the situation you are faced with as a trader: long (being a buyer) is the correct trade, but there is limited upside potential to the trade taking into consideration this mornings gap to the upside.

What do you do? This is the zone where a lot of money is lost. The buying ideas are still valid but have less profit potential but there are not that many solid short sale scenarios.

I will ask again, what do you do?

Most inexperienced traders who feel the longs are not following through will put out short sale probes or actually in allocate capital to a full short sale position (because longs seem to have used up all their energy).

The correct play here is to be patient on the longs for new levels or better risk reward (from lower levels, which would be a flag on a daily chart) or do nothing. Doing nothing is the hardest thing to do.

Remember, not wanting to be long is not necessarily a reason to be a short seller.

Everyday isn’t the Same

As Mario posted earlier today, what a boring day to trade.  Sure there were some pockets of opportunity in Newmont (NEM),  Research in Motion(RIMM), and the gold sector to name a few.  But I think today taken in the context of yesterday was a great educational experience. 

One of the hardest things for traders to figure out is that everyday is not a day to push it.  Some days the best trade is to scan your list and realize your plan is not playing itself out.  I know the hardest thing for me to do is to sit on my hands when I haven’t had the best day.  Saving money on days like today and not overtrading will pay off in your check at the end of the month.  The flip side to this is when the market gives you a great opportunity and leaves money sitting in the corner you have to be aggressive and take it.  When your pre-market plan is playing itself out like Monday you have to push it and take on as much risk as you can handle. 

On Monday are plan as a firm was perfect.  But I know personally I didn’t have as good of a day as I should have.  This is my fault and its my job to find out why.  I took notes of what the market looked like and next time the well-defined levels in our plan are playing themselves out I will look for spots to add-on more size to my trades.  I also will look to have more positions in a broader range of sectors, so as to catch more of the move.   When the market pulls back into support and pauses I need to be more confident to put on more positions.  As traders we need to take advantage of days like Monday because days like today are always right around the corner. 

Nothing that happened today fit my plan.  I let the algos in RIMM chop me up even though I had the right side.  The volume was lacking in many of the moves today and it was very evident early in the day that it was going to be a tough day.  The key is don’t let these days go by without learning from them.  Learn to be disciplined when your plan isn’t playing itself out.  The disciplined trader will be around to take advantage of the good days and the gifts that the market sometimes provides.  Best of luck and have a great night. 

Kyle

Dull Summer day…

Apart from the short burst of energy on the open this morning, the markets really didn’t have much of any direction or volume. the $SPY traded 204mm slightly higher than yesterday – but as mentioned most of it in the 1st 45min of the day. The 200 day moving average on the S&P has turned out to be the next resistance levels in the markets, we couldn’t stay above it today, despite the nice gap up we had this morning on the back of good earnings.

The VIX once again proved to be useful as it moved higher during the course of the morning session, keeping the longs under tight control, and keeping the shorts, especially in the gold sector, nice and profitable.

As for the rest of the day, Keystone mainly stayed on the sidelines, as the markets lost volume as well as a clear direction. Let’s see what sort of volume we get tomorrow…

And how was your day?

We don’t get many of days like today, where we open down 150 on the Dow Jones just to finish up 75 points — all done on decent volume for the $SPY 250mm shares. It’s safe to say that most traders come in to work today with a short agenda. Those that didn’t get run over today where patient and recognized that the dynamics and the internals of the markets today was different. For starters the VIX index opened at its highs 27 and proceeded to close on its lows – that’s the 1st clue to not be short and start looking for longs.  Any shorts taken on the pause at 10am were quickly closed. That’s when the firm started to look for longs.

The 2nd clue was the very strong buy programs we where getting in the afternoon, the MA on the 2min chart rising to +500 in the afternoon, we had plenty of +1,000 and even some +1,400 tick readings.

The 3rd clue is to follow the leader, some such as AAPL and GS – which spent most of the day making higher highs .

Bottom line, if you had your “short hat” on this morning, you either took some small losses in the morning and adapted to what the VIX and the TICKS were telling you, so make it all back and some in the afternoon.

Tomorrow is another day, with plenty of more earnings in some of the large names.

Earnings Season Has Begun

As usual Alcoa(AA) has kicked off the earnings season.  Alcoa beat the street’s forecast for earnings per share for the second quarter with .13 per share against a .10 forecast.  They reported stronger volumes and, favorable currency and energy costs that more than offset lower aluminum prices. 

The statement that caught my eye was the raising of the consumption forecast for the full year from 10% to 12%.  I take the raising of the forecast as an expectation that the economy will show strength towards the end of the year.  This should be good news for many of the commodity stocks that we trade.  Also if the economy does show increased strength, it could lead to an upward trending market for the rest of the year. 

Today I will be watching many of the commodity stocks that we trade as they are showing some pre-market strength.  They have been beaten down recently so I will keep a close eye if buyers come into this sector on the long side.  Stocks like Cliffs Natural Resources(CLF), US Steel(X), Freeport-McMoran(FCX), and Newmont Mining(NEM) will be the stocks I will be watching to see if this sector is in play today.  Best of luck today with your trading. 

Kyle