Pascal
07-18-2013, 05:34 AM
I received the following question on a PM:
"Once again I am totally lost. Clear upward divergence on SKF, not reflected in uyg which continues upward. Makes no sense to me. Volume is about same for both, so I would think if there was trouble coming the big money would close the 2x long etf first, so why are they buying skf?"
Traders bought SKF around June 19, when the whole market went down.
This failed a few days after and traders are now slightly selling SKF.
We can see that the XLF MF itself (calculated on all the XLF components) is positive.
However, it took time for traders to move around the initial sell-off.
This is what the SKF figure also shows: reluctance to sell even though those who bought from June 19 are losing money.
We can see that most of past SKF bounces have failed.
The eagerness to purchase SKF as soon as the market is somewhat shaky shows that market valuations are high, but that liquidity is also high. This is a very difficult market to trade: you need to buy the sectors that are pulling back, because liquidity will push them up again, until the market breaks (or resets lower.)
In general, high valuations make trading breakouts very tricky.
Pascal
19202
19203
"Once again I am totally lost. Clear upward divergence on SKF, not reflected in uyg which continues upward. Makes no sense to me. Volume is about same for both, so I would think if there was trouble coming the big money would close the 2x long etf first, so why are they buying skf?"
Traders bought SKF around June 19, when the whole market went down.
This failed a few days after and traders are now slightly selling SKF.
We can see that the XLF MF itself (calculated on all the XLF components) is positive.
However, it took time for traders to move around the initial sell-off.
This is what the SKF figure also shows: reluctance to sell even though those who bought from June 19 are losing money.
We can see that most of past SKF bounces have failed.
The eagerness to purchase SKF as soon as the market is somewhat shaky shows that market valuations are high, but that liquidity is also high. This is a very difficult market to trade: you need to buy the sectors that are pulling back, because liquidity will push them up again, until the market breaks (or resets lower.)
In general, high valuations make trading breakouts very tricky.
Pascal
19202
19203