Buyers In Control - December 2, 2011

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The IWM robot could enter a new long position at 73.14 in the lower end of the consolidation day’s trading range while the day’s money flow strength was just average. The stop is now at 68.97.

All the strong floor support confluences remain potentially active just below the entry price and should temper any aggressive selling raid. Further support could be found at the close on the declining trendline from the October 27th top which was also the much commented resistance of the triangle that developed in early November. Even more significant was the close above the 2-day VWAP ( blue line at 73.10) which means that the average buyer since Wednesday’s gap up opening is above break-even and this remains a market controlled by the bulls. Notice how Tuesday’s consolidation also found support at the 2-day VWAP. Weekly R3 (73.67) capped prices yesterday and remains the only serious resistance for Friday. It won’t matter anymore next Monday with the new weekly pivot levels.

The IWM robot found no edge for entering a new position today and is neutral. This is not a sell signal for the existing position which must be held. With neutral settings, risk-adverse leveraged traders might consider booking some leveraged profits on strength today.

The GDX robot is in cash. Please read Pascal’s comments on the new GDX robot evolution.
Billy

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This morning we have the following

These are the settings for managing the stop loss of an existing position in related ETFs.
These settings are calculated from the IWM settings. Note that we do not keep track of the original position entry level. :
RWM: Trailing stop loss for a trade that started on 12/1/2011: 32.01
UWM: Trailing stop loss for a trade that started on 12/1/2011: 30.25
TWM: Trailing stop loss for a trade that started on 12/1/2011: 44.99
TNA: Trailing stop loss for a trade that started on 12/1/2011: 36.32
TZA: Trailing stop loss for a trade that started on 12/1/2011: 33.74

As suggested by Billy (if I understood correctly, I took a BASE position in IWM and added a 2/3 position in TNA.
-1- Under what condition(s) are we to enter the last 1/3 position in TNA, if your care to comment Billy?
-2- I am somewhat surprised that the system would suggest stop losses for SHORT positions which are the opposite of what the robot has suggested. It adds to confusion IMHO and I think only the long positions should be showed.
This is a positive constructive suggestion

[QUOTE=Pierre Brodeur;18978]This morning we have the following

These are the settings for managing the stop loss of an existing position in related ETFs.
These settings are calculated from the IWM settings. Note that we do not keep track of the original position entry level. :
RWM: Trailing stop loss for a trade that started on 12/1/2011: 32.01
UWM: Trailing stop loss for a trade that started on 12/1/2011: 30.25
TWM: Trailing stop loss for a trade that started on 12/1/2011: 44.99
TNA: Trailing stop loss for a trade that started on 12/1/2011: 36.32
TZA: Trailing stop loss for a trade that started on 12/1/2011: 33.74

As suggested by Billy (if I understood correctly, I took a BASE position in IWM and added a 2/3 position in TNA.
-1- Under what condition(s) are we to enter the last 1/3 position in TNA, if your care to comment Billy?
-2- I am somewhat surprised that the system would suggest stop losses for SHORT positions which are the opposite of what the robot has suggested. It adds to confusion IMHO and I think only the long positions should be showed.
This is a positive constructive suggestion[/QUOTE]


Pierre,


I use the "short" positions limit a lot myself when the Long signal is issued: I would simply short TZA or TWM.
Therefore, these stop loss on the TWM/TZA shorts are important for my own trading.

Do not forget that when a BUY signal is issued, going SHORT TZA should be more profitable than going LONG TNA. However, shares availability might be limited.


Pascal

[QUOTE=Pascal;18980]Pierre,
Do not forget that when a BUY signal is issued, going SHORT TZA should be more profitable than going LONG TNA. However, shares availability might be limited.
Pascal[/QUOTE]

Thank you. Now I understand

The most bullish [URL="http://www.zerohedge.com/news/tomorrow-and-tomorrow-and-tomorrow"]statement[/URL] I've ever seen this year:

[I]As Macbeth said, It is a tale told by an idiot, full of sound and fury signifying nothing. Fading the "Grand Plan" rally worked very well. There was a couple days of pain and then generally the market followed a nice path lower. Last week the market had felt oversold and was looking for a reason to rally. I thought that Monday was overdone, and that Wednesday was extremely overdone, but I started cutting shorts yesterday, and am now getting long. Everyone seems to understand that the "globally coordinated rate cut" plan was not a big deal in of itself, yet the market didn't give up any of the gains. Even some of the perma bulls downplayed the move. I think the move was meant to be more pre-emptive than a strong show of future support, but Ben is not dumb, and he has seen the outsized impact such a simple move had. Cracks will appear in this rally, and we will ultimately figure out the problem with the current attempts to fix Europe, but right now it is too vague to fight, positioning has been too extreme, and Bernanke and Draghi have to see the opportunity to push things forward while the market is behaving positively.[/I]

Well, now. Incidently, /ZB (30 year treasury futures) fell below 140.

Do I yet want to take off that TNA position?

Good morning, all!

The Sector page of the PascalA_List spreadsheet, and the Sector List, are great tools, but in a strong trend, almost all sectors tend to go into buy or sell mode. I wondered if you or Pascal had any thoughts on the best way to approach creating a ranking of sector forecasts (i.e., how they are likely to perform over the next few days or weeks) for those of us who might want to rotate into the best sectors, or hedge by going long the best (forecast) sectors and short the weakest ones. Thanks!

[QUOTE=Pierre Brodeur;18978]This morning we have the following

As suggested by Billy (if I understood correctly, I took a BASE position in IWM and added a 2/3 position in TNA.
-1- Under what condition(s) are we to enter the last 1/3 position in TNA, if your care to comment Billy?
[/QUOTE]

Pierre,
There are no position-sizing rules from the robot. All position-sizing and leverage decisions are your own responsibility.
I previously gave an example of my own discretionary guidelines in the current conditions.
First, I always enter a full TNA position at the initial limit, say 1,000 shares at 43.77 yesterday. I place my initial stop for 666 shares just under the first support cluster and for 334 shares at the robot’s stop.
Once I see a higher low from my entry followed by higher highs, I exit 333 shares at a 39% retracement and 333 shares at a 51% retracement. The remaining 334 shares are managed exactly like a robot position.
The proceeds of the 666 shares should only be reinvested at a robot’s entry limit if there are buy settings and the same stops and retracements guidelines apply from there.
Today, 1/3 of my TNA (entered at 43.77) was stopped out at 45.29 and 1/3 at 44.99. I am still long 1/3 position but wont scale back-in my 2/3 position before a new active buy limit price.

[ATTACH=CONFIG]11690[/ATTACH]

The first retracement line is at 23.6% retracement and puts me on alert for potential stops triggering.

Again, these are not backtested rules but just an example of my current handling of leverage in the context of the robot because I was asked and tried to help.
Billy

[QUOTE=Billy;19002]
Again, these are not backtested rules but just an example of my current handling of leverage in the context of the robot because I was asked and tried to help.
Billy[/QUOTE]

First of all, thank you for answering my question given my past history. I am used to trading 2x leverage which are dangerous. This is the second time I trade 3x (the first was TZA) and those are [B]VERY[/B] dangerous. It is known that you are an "expert" in trading these instruments and therefore your knowledge of managing the risk of that trade is invaluable to me and others, I am sure.

This explanation now makes it very clear to me. Thank you

[QUOTE=taw55;19000]The Sector page of the PascalA_List spreadsheet, and the Sector List, are great tools, but in a strong trend, almost all sectors tend to go into buy or sell mode. I wondered if you or Pascal had any thoughts on the best way to approach creating a ranking of sector forecasts (i.e., how they are likely to perform over the next few days or weeks) for those of us who might want to rotate into the best sectors, or hedge by going long the best (forecast) sectors and short the weakest ones. Thanks![/QUOTE]

Taw 55,
The best indicator I know for sector rotation is relative strength.
The best book I know on the topic for multi-month investment timeframes is by Michael J Corr:
[url]http://www.amazon.com/Smarter-Investing-Any-Economy-Definitive/dp/1934354236/ref=sr_1_1?s=books&ie=UTF8&qid=1322853400&sr=1-1[/url]
But the paradox for short term trading is that you must buy the worst short term RS sectors on a 20 DMF buy signal when confirmed by Pascal’s sector lists.
Billy

[QUOTE=Billy;19002]Pierre,
There are no position-sizing rules from the robot. All position-sizing and leverage decisions are your own responsibility.
I previously gave an example of my own discretionary guidelines in the current conditions.
First, I always enter a full TNA position at the initial limit, say 1,000 shares at 43.77 yesterday. I place my initial stop for 666 shares just under the first support cluster and for 334 shares at the robot’s stop.
Once I see a higher low from my entry followed by higher highs, I exit 333 shares at a 39% retracement and 333 shares at a 51% retracement. The remaining 334 shares are managed exactly like a robot position.
The proceeds of the 666 shares should only be reinvested at a robot’s entry limit if there are buy settings and the same stops and retracements guidelines apply from there.
Today, 1/3 of my TNA (entered at 43.77) was stopped out at 45.29 and 1/3 at 44.99. I am still long 1/3 position but wont scale back-in my 2/3 position before a new active buy limit price.

[ATTACH=CONFIG]11690[/ATTACH]

The first retracement line is at 23.6% retracement and puts me on alert for potential stops triggering.

Again, these are not backtested rules but just an example of my current handling of leverage in the context of the robot because I was asked and tried to help.
Billy[/QUOTE]

Billy--I don't understand how you determine the point from which you draw the fibonacci lines to determine your exit points. You mentioned a higher high and higher lows, but I see lots of them. Forgive the stupid question but I have a lot to learn! Thanks for all the great teaching on this site. Jerry Kuhn

Billy,

I'm playing along at home here, and I'm also currently at 1/3 my original position. So far so good. I know this is not a universal prescription, but I certainly appreciate your candor in the service of education.

My question may have been addressed implicitly or explicitly previously. If so, my apologies.

It is this: At this point I set my speculation in the robot trade at approximately 125% account, calculated according to net [I]exposure.[/I] Acting in this manner I've secured fantastic gains at times with a risk of only 40%of my capital in the account.

In your calculations, do you wager your entire account at 100% in 3X instruments and then adjust your holdings according to the risk management tactics you adopt? Or, do you like me, wager only an amount that would equal an exposure to a given percentage of the net liquidating value in your account?

For example:

An account of 73,140.00 USD would have allowed me to enter a 100% position of IWM at yesterday's robot price of 1000 shares-- a 1000 share or 100% exposure. However, with the same amount of cash I could purchase 1671 shares of TNA, which would increase my total [I]exposure[/I] (as I calculate it) to 5013 shares of IWM, which seems to me to be an exposure of over 500%.

Any thoughts?

Many thanks,

[QUOTE=jerpk;19010]Billy--I don't understand how you determine the point from which you draw the fibonacci lines to determine your exit points. You mentioned a higher high and higher lows, but I see lots of them. Forgive the stupid question but I have a lot to learn! Thanks for all the great teaching on this site. Jerry Kuhn[/QUOTE]

Jerry,
I like to use the 30-minute chart highs and lows references. At the open today, we knew that yesterday’s close was the first higher low since entry and we had our higher highs. I draw the fib retracement up to the new highs and keep adjusting with additional new highs.
Billy

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[QUOTE=nickola.pazderic;19012]Billy,

I'm playing along at home here, and I'm also currently at 1/3 my original position. So far so good. I know this is not a universal prescription, but I certainly appreciate your candor in the service of education.

My question may have been addressed implicitly or explicitly previously. If so, my apologies.

It is this: At this point I set my speculation in the robot trade at approximately 125% account, calculated according to net [I]exposure.[/I] Acting in this manner I've secured fantastic gains at times with a risk of only 40%of my capital in the account.

In your calculations, do you wager your entire account at 100% in 3X instruments and then adjust your holdings according to the risk management tactics you adopt? Or, do you like me, wager only an amount that would equal an exposure to a given percentage of the net liquidating value in your account?

For example:

An account of 73,140.00 USD would have allowed me to enter a 100% position of IWM at yesterday's robot price of 1000 shares-- a 1000 share or 100% exposure. However, with the same amount of cash I could purchase 1671 shares of TNA, which would increase my total [I]exposure[/I] (as I calculate it) to 5013 shares of IWM, which seems to me to be an exposure of over 500%.

Any thoughts?

Many thanks,[/QUOTE]

Nickola, I have a visitor now and will reply this weekend.
Billy

[QUOTE=Billy;19002]Pierre,
There are no position-sizing rules from the robot. All position-sizing and leverage decisions are your own responsibility.
I previously gave an example of my own discretionary guidelines in the current conditions.
First, I always enter a full TNA position at the initial limit, say 1,000 shares at 43.77 yesterday. I place my initial stop for 666 shares just under the first support cluster and for 334 shares at the robot’s stop.
Once I see a higher low from my entry followed by higher highs, I exit 333 shares at a 39% retracement and 333 shares at a 51% retracement. The remaining 334 shares are managed exactly like a robot position.
The proceeds of the 666 shares should only be reinvested at a robot’s entry limit if there are buy settings and the same stops and retracements guidelines apply from there.
Today, 1/3 of my TNA (entered at 43.77) was stopped out at 45.29 and 1/3 at 44.99. I am still long 1/3 position but wont scale back-in my 2/3 position before a new active buy limit price.
Billy[/QUOTE]

Billy,
I have three questions re your discretionary trading:

1. In your Cluster Strength comment for IWM on 1. December 2011 you mention that “I place my initial stop for 666 shares just under the first support cluster”. You also mention a “massive floor support confluence from WR2 (72.26), MPP (72.00), YPP (71.84) and QPP (71.25)”

From your IWM chart illustration the “just under” first cluster support would be between 71.90 and 72.00. This is about 1.55% below entry point. I assume that identifying the “just below” for the first cluster support level of the TNA will then be 3x1,55%=4.65% below 43.77, which is about 41.75. Is that a correct assessment of a TNA initial stop price “just below” first support cluster?

2. One may also experience a lower high and a lower low scenario after a limit buy entry. Would you always stick to your initial stop (“just under the first support cluster”) or may exit if a lower-high, lower-low scenario occurs [I]before[/I] hitting the initial stop?

3. You also mention that these are discretionary guidelines as they apply to the current situation. Would you already now be able to hint other types of guidance applied for other market conditions? If not, we would all be very pleased to have you presenting them as they emerge. Thanks a lot. best Sorensen

[QUOTE=sesorensen ;19033]Billy,
I have three questions re your discretionary trading:

1. In your Cluster Strength comment for IWM on 1. December 2011 you mention that “I place my initial stop for 666 shares just under the first support cluster”. You also mention a “massive floor support confluence from WR2 (72.26), MPP (72.00), YPP (71.84) and QPP (71.25)”

From your IWM chart illustration the “just under” first cluster support would be between 71.90 and 72.00. This is about 1.55% below entry point. I assume that identifying the “just below” for the first cluster support level of the TNA will then be 3x1,55%=4.65% below 43.77, which is about 41.75. Is that a correct assessment of a TNA initial stop price “just below” first support cluster?[/QUOTE]

I actually opted for an initial leverage stop reference at 71.80 because it was below the strongest support of YPP (71.84). That 71.84 stop was 1.83% away from the 73.14 reference entry level.
Converting for TNA, the stop was 43.77 – (3x1.84% =5.50%) = 41.36.
Note that I will only enter a hard stop order at 41.36 if I can’t be present at my desk. I will normally monitor the price/volume/TICK/RT 20DMF behavior of IWM at the yearly pivot (71.84) and sell TNA only once I see evidence that IWM is failing as support.

[/QUOTE
2. One may also experience a lower high and a lower low scenario after a limit buy entry. Would you always stick to your initial stop (“just under the first support cluster”) or may exit if a lower-high, lower-low scenario occurs [I]before[/I] hitting the initial stop? [/QUOTE]

That scenario happens quite often. As long as the robots daily settings remain on a buy signal, I will stick to my initial leverage stop and wait for the first higher low and higher highs on 30-minute bar charts.

[/QUOTE]
3. You also mention that these are discretionary guidelines as they apply to the current situation. Would you already now be able to hint other types of guidance applied for other market conditions? If not, we would all be very pleased to have you presenting them as they emerge. Thanks a lot. best Sorensen[/QUOTE]

Yes, this is my favorite technique for choppy market/high volatility conditions only. The leveraged positions stopped out at a profit can often be re-entered at the recommended robot limit price. Sometimes several days in a row. Now, if volatility declines for long enough, and gaps/choppiness calm down, I would switch to trend-following or mean-reversion leverage risk management techniques. I think it is best that we wait for practical real-time opportunities to discuss these.
Billy

Billy, Pascal and Thanassis:

In case I haven't said thank you lately, well, thank you.

What a great education!

The debt ceiling has faded from the headlines, but it's still an issue.

[url]http://seekingalpha.com/article/311662-warning-u-s-debt-crisis-as-early-as-next-month[/url]

I don't understand whether the action by the six central banks, which seems to imply QE3 and money printing, is at odds with the debt ceiling.

Is this apples and oranges, or is it pertinent?

Can someone please explain....

[QUOTE=ilonaross;19051]The debt ceiling has faded from the headlines, but it's still an issue.

[url]http://seekingalpha.com/article/311662-warning-u-s-debt-crisis-as-early-as-next-month[/url]

I don't understand whether the action by the six central banks, which seems to imply QE3 and money printing, is at odds with the debt ceiling.

Is this apples and oranges, or is it pertinent?

Can someone please explain....[/QUOTE]

The central bank liquidity swaps are a [I]monetary[/I], as opposed to [I]fiscal [/I]action. Monetary actions do not directly affect government debts, though they do indirectly inasmuch as they affect borrowing rates. Accordingly, the Dollar swap lines lent by the Fed will affect the Fed's balance sheet but not that of the US, so the debt ceiling is not really an issue.

[QUOTE=Billy;19041]I actually opted for an initial leverage stop reference at 71.80 because it was below the strongest support of YPP (71.84). That 71.84 stop was 1.83% away from the 73.14 reference entry level.
Converting for TNA, the stop was 43.77 – (3x1.84% =5.50%) = 41.36.
Note that I will only enter a hard stop order at 41.36 if I can’t be present at my desk. I will normally monitor the price/volume/TICK/RT 20DMF behavior of IWM at the yearly pivot (71.84) and sell TNA only once I see evidence that IWM is failing as support.

[/QUOTE
2. One may also experience a lower high and a lower low scenario after a limit buy entry. Would you always stick to your initial stop (“just under the first support cluster”) or may exit if a lower-high, lower-low scenario occurs [I]before[/I] hitting the initial stop? [/QUOTE]

That scenario happens quite often. As long as the robots daily settings remain on a buy signal, I will stick to my initial leverage stop and wait for the first higher low and higher highs on 30-minute bar charts.

[/QUOTE]
3. You also mention that these are discretionary guidelines as they apply to the current situation. Would you already now be able to hint other types of guidance applied for other market conditions? If not, we would all be very pleased to have you presenting them as they emerge. Thanks a lot. best Sorensen[/QUOTE]

Yes, this is my favorite technique for choppy market/high volatility conditions only. The leveraged positions stopped out at a profit can often be re-entered at the recommended robot limit price. Sometimes several days in a row. Now, if volatility declines for long enough, and gaps/choppiness calm down, I would switch to trend-following or mean-reversion leverage risk management techniques. I think it is best that we wait for practical real-time opportunities to discuss these.
Billy[/QUOTE]

Thanks a lot Billy and Pascal. With Ilona and others i'd like to commend you all (incl. Eric, Bob, Mike, etc.) for your transparent and professional way of servicing us... It is really so different from other sites that claim to deliver the same... Sorensen.

[QUOTE=Billy;19009]Taw 55,
The best indicator I know for sector rotation is relative strength.
The best book I know on the topic for multi-month investment timeframes is by Michael J Corr:
[url]http://www.amazon.com/Smarter-Investing-Any-Economy-Definitive/dp/1934354236/ref=sr_1_1?s=books&ie=UTF8&qid=1322853400&sr=1-1[/url]
But the paradox for short term trading is that you must buy the worst short term RS sectors on a 20 DMF buy signal when confirmed by Pascal’s sector lists.
Billy[/QUOTE]

Billy,
Thank you very much for the book reference and great tip - I will definitely try that out! I also remembered that the SIGR file available on the site has a kind of sector ranking, and so am looking at that as well.

Thanks Again,
Terry

I got the entry to the cent 73.14

Sold last weeks 74 calls for 59ct credit
rolled to this weeks 74 for $1 credit

Today I bought the 74-72 put vertical for 62ct.

So what can happen this Friday;

a. We are above $74 -- I get assign on 74 -- making 74- 73.14 = 86ct+59ct+100ct-62 = 183ct or 2.5% for 8 days
b. We are below $74 but above 72 -- I use the 74 put and sell the IWM for 74 and I will have the same result as under a.
c. We are below 72 -- same result as under b. but I rebuy the IWM for 72 with the profit from b. I effectively own for 72-1.83 (I am getting close to break even considering the current Robot stop)

Alternatively for B; I can sell the 74put, expire the 72 put and roll the short call to next week. This depending the DMF20 and my market "feel".

Ernst

[QUOTE=ernsttanaka;19061]I got the entry to the cent 73.14

Sold last weeks 74 calls for 59ct credit
rolled to this weeks 74 for $1 credit

Today I bought the 74-72 put vertical for 62ct.

So what can happen this Friday;

a. We are above $74 -- I get assign on 74 -- making 74- 73.14 = 86ct+59ct+100ct-62 = 183ct or 2.5% for 8 days
b. We are below $74 but above 72 -- I use the 74 put and sell the IWM for 74 and I will have the same result as under a.
c. We are below 72 -- same result as under b. but I rebuy the IWM for 72 with the profit from b. I effectively own for 72-1.83 (I am getting close to break even considering the current Robot stop)

Alternatively for B; I can sell the 74put, expire the 72 put and roll the short call to next week. This depending the DMF20 and my market "feel".

Ernst[/QUOTE]

I ended up closing the vertical put 72/74 for 23ct credit and rolling the 74call for this week to next week for 1.18ct. So my new max profit if we stay above 74 is 183ct+23ct+118ct=324ct. Initial entry was per Robot 73.14+3.24 equals 76.38 and my current break even is 74-3.24 = 70.76

The put vertical served its purpose - yesterday during the sell off - my IWM position was more or less flat for the day. So my 2yr old and I could spent some time in the Natural History Museum ;)

BTW I still wish we had a TLT robot -- I "predict" the next significant trade-able trend will be short TLT.

TLT's chart looks promising for a second leg down, but the MF chart looks very bullish though.

[QUOTE=ernsttanaka;19195]I ended up closing the vertical put 72/74 for 23ct credit and rolling the 74call for this week to next week for 1.18ct. So my new max profit if we stay above 74 is 183ct+23ct+118ct=324ct. Initial entry was per Robot 73.14+3.24 equals 76.38 and my current break even is 74-3.24 = 70.76

The put vertical served its purpose - yesterday during the sell off - my IWM position was more or less flat for the day. So my 2yr old and I could spent some time in the Natural History Museum ;)

BTW I still wish we had a TLT robot -- I "predict" the next significant trade-able trend will be short TLT.[/QUOTE]

[QUOTE=Wei;19199]TLT's chart looks promising for a second leg down, but the MF chart looks very bullish though.[/QUOTE]

When it comes to tlt and the other bond ETF's I don't think ETF volume is a tell-tale for what actually is happening. The bond futures and their derivatives are (I think) more products to watch. Let's not forget we are talking about a market with a couple of trillion in size and players like Bill Gross and Jeffery Gundlach - to name two biggies.

I am very novice when it comes to interest rate trading - (read extreme novice), but I suspect that the EU will have kicked the can fare enough down the road that it has become invisible for some time. With the political system in the US in disarray till Jan 2013, I presume we will get an attack on the US bonds. Which other sandbox is available for our bond-vigilantes to play in.

If my theory plays out -- then I see interest rate going up, USD going up!!!, SPX coming down.

To finish up with my posts on the last Robot Long call -- I will need to update you on what I did last week.

As we all did - I got stop out on the IWM stock @ 71.02, the short call 74 Dec were trading 7ct when I closed those.

All in all $2.12 loss on the stock.
and $2.31 profit on the options.

I was of course not looking for 19ct profit - as we all I was looking for the start of the xmas rally. But overall a little profit for a trade that did not work out is great.

For me this is one of the reason why I like to trade options when I engage in a direction trade.
It allows me to express myself in a more diversified way then just long or short.

To me it is important to always sell options or (kind of) never sell options on long stock. If you do it once in awhile you run the risk of have asymmetric results. You sold options when the stock really runs upwards and you limited your upside potential and you did not sell options when the trade falls apart giving you an outsize loss.

Ernst