Friday 20 November 2015

VIX cools into the weekend

With equities closing moderately higher, the VIX remained in cooling mode, settling -8.9% @ 15.47. Near term outlook threatens a minor equity retrace, but regardless, the key VIX 20 threshold now looks out of range for some considerable time.





*a net weekly decline of -23.0%.

Suffice to add, VIX is now sustainably in the mid teens... sub teens look due at some point before year end, not least if sp' breaks >2134.

more later... on the indexes

Closing Brief

US equities closed moderately higher, sp +7pts @ 2089 (intra high 2097). The two leaders - Trans/R2K, settled higher by 0.3% and 0.7% respectively. Near term outlook offers threat of a sporadic minor retrace, but broadly, new historic highs in some indexes look probable before year end.



*closing hour action: minor chop, a touch of weakness to 2084, but then battling higher.

Price structure is a clear baby bull flag.. bodes for an opening gap higher on Monday into the 2100s.

... and another week comes to a close.

Having fallen 3% last week.. and here we are.. net higher by around 3%. All those still touting a broadly bearish outlook... really... still?

The broader trend IS bullish.. or maybe you'd like to short AAPL, DIS, BAC, or INTL?

Have a good weekend

*the usual bits and pieces across the evening.. to wrap up the week.

3pm update - a week for the bull maniacs

Regardless of the exact close, it has been a powerful week for US equities, with most indexes set for net weekly gains of around 3%. With the USD +0.6% in the DXY 99.50s, the metals are under pressure, Gold -$5, with Silver -1.0%. Oil has seen a sharp swing lower... -0.2%




*re: oil... those gains of 2.0% sure didn't last long, set for a net weekly decline of around -1.0%

Short term.. its a mixed picture in equity land, price structure remains a clear baby bull flag.. but the hourly MACD cycle is turning negative.

Broadly though... new historic highs are on their way before year end.

notable strength...

NFLX, daily


.. the entire series will be available at midnight. I'm not sure whether I can manage 13 hours of TV this weekend, I'll give it a damn good try though.

Meanwhile... CMG is having problems with E-coli. 

A pretty fierce afternoon collapse wave of 9%... trying to find support, but on the broader daily chart.. next support is not until the gap zone of $475/450.... which is clear 10% lower.

back at the close

2pm update - bearish and bullish

The hourly equity MACD cycle is set for a bearish MACD cross before the close of today.. with first support at the 10MA of 2088/87.. with rising trend @ 2085. Price structure remains a baby bull flag though.. and considering the broader trend... the odds favour the bulls into the Friday close.


USO' daily2


re: Oil, we have a clear short term floor, but again - as is also the case for the metals, supply remains the underlying issue. Regardless of any near term upside.... energy prices are set to remain subdued into 2016.

Without getting lost in the minor noise within equity land, we do have an interesting setup for the rest of today.

Hourly equity cycles set to turn bearish before the close... but price structure offers yet another bull flag.

Maybe the two will cancel each other out... not least as its opex.. which by definition should be more choppy than normal.

notable weakness, miners, GDX -3.2%.. as Gold -$4 and Silver -0.9%

back at 3pm

1pm update - tired, but bullish

US equities continue to see underlying price momentum turn back toward the equity bears. Yet.. price structure on the hourly cycle is a rather clear baby bull flag, offering upside into the weekly close/early Monday. Without getting lost in the noise.... outlook remains broadly bullish.



Look at the MACD (blue bar histogram) cycle, which continues to tick lower, even though prices remain close to their highs.

This is often the case in powerful up cycles, where all the bears are able to do is merely hold the market flat.. whilst the micro 5/15/60min cycles reset.. before resuming upward.

There is clearly threat of a retrace as the 60min cycle is set for a bearish cross in the closing hour... and trading negative across at least first half of Monday.

notable weakness...

CHK, -5%... hitting a new low of $5.06. It has to be asked, will Chesapeake be one of the names to disappear next year, as the energy sector sees full capitulation?

notable strength... NFLX +2.6%

The valuation remains crazy.. a PE in the 100s, but hell, the shows are some of the best.

back at 2pm

12pm update - holding gains

US equities continue to hold moderate gains, and the only issue is whether we see a weekly close above or below the sp'2100 threshold. Considering ongoing price action, along with the bigger daily/weekly MACD cycles... a close in the 2100s is viable. Metals remain weak, Gold -$4, with Silver -1.0%.


GLD, weekly


re: Gold. Set for the fifth consecutive net weekly decline, having broken a new multi-year low of $1062.

Of course.. the floor callers are still out there. For now.. there is simply not enough capitulation in the precious metals mining sector.

VIX update from Mr T.

time for tea :)

12.15pm.. oh noes... seat belt problems for TSLA

A company that loses money on EVERY single sale.  Not bullish.

11am update - bullish sunshine

US equities continue to build gains, with the sp +13pts @ 2094. To negate all of last weeks declines, the bull maniacs need a weekly close >2099.2, and that is clearly very possible. With the USD +0.4% in the DXY 99.40s, metals are increasingly under pressure, Gold -$2, with Silver -0.7%.



*for some reason I've been touting 2097 as necessary to reverse last weeks declines, not taking note that there was a minor gap lower on last Monday's open... so, actually the target is 2099.2 - from the Friday 6th close.

In any case... a very strong rebound, and it was somewhat nauseous to see how pleased the Cramer was this morning at how the 'year end buying' has perhaps already begun.

Indeed, with most fund managers having had the worse year since 2008/09, will there be panic buying on renewed confidence, not least if the Fed raise rates?

Right now.. that would seem to be probable.

Meanwhile... the sun finally appears in London city...

Very significant construction projects continue across the wider London metropolis, whether domestic housing or commercial office space/residential towers. There are also a great many transport/utility upgrades, its a very... very long list. For those in the construction sector, London is ticking along rather well.


*outside my window.. a pure white Cinderella-esque horsedrawn carriage... with a police escort on the urban freeway.

All thats missing is a trailing rainbow and maybe swap the horse for a Unicorn. I hear there are still a few in rural Tibet.

time to cook

10am update - opening gains

US equities open moderately higher, with a new weekly high of sp'2095. VIX is naturally subdued, -4% in the 16s. Regardless of the rest of today... it will have been a powerful week for the US market, having secured a floor of 2019.




There really isn't much to note.

There is ZERO reason why the market will see anything other than algo-bot melt today...  but with increasing chop into the opex close.

notable strength: INTC, +1.6%, as some traders are starting to chase it.

weakness, miners, GDX -0.4%.. as Gold turns fractionally lower.

back at 11am

Pre-Market Brief

Good morning. US equity futures are moderately higher, sp +8pts, we're set to open at a new weekly high of 2089. USD is back on the rise, +0.3% in the DXY 99.20s. Commodities are mixed, Gold +$3, whilst Oil remains weak, -0.6%.



Suffice to note... its opex... regardless of how today closes... it will have been a week for the equity bulls.

Bulls need a close of sp'2097 to fully negate last weeks declines.... not that its necessary to prove anything. The 2100s look due in any case.

Overnight Asia action

Japan: weak across the day, but with a bizarre spike into the close, +0.1% @ 19879
China: +0.4% @ 3630... remaining broadly strong... a monthly close -more likely Dec', above the key 10MA (3700s) looks due.

End week doom chatter from Hunter

Have a good Friday.

Risk management is everything

It was a rather subdued day in the US equity market, although the sp' did break a fractional new weekly high of 2086. All US indexes are set for very significant net weekly gains, almost completely negating last week's declines. New historic highs look due, especially if the Fed raise rates at the Dec' FOMC.



Aside from the market... for which there is little to be said today... I wanted to bring up a story that is increasingly doing the rounds...

A trader - Joe Campbell, who blew up his E-trade account via a bio-tech short.

First.. see:  RutRho blog

Second: the 'gofundme' for said trader.


It never fails to disturb me when I read about such a trading disaster. There can be no excuse for it. None.

So... lets get this clear... the trader had $37k... decides to risk it all on shorting KaloBios Pharmaceuticals (KBIO) - from somewhere around $2.00, with KBIO then exploding higher in Wednesday AH... the trader was not just zeroed out.. but saw his account implode to -$106k.

KBIO, daily

KBIO settled higher by 397% @ $10.30, but that was a long way under the opening level of $14.00. The daily closing candle was of the black-fail type, with the stock maxing out in the upper gap price zone from early January.

The trader noted he covered in Wed' AH for an average exit of $18.50.

With the Thursday close of $10.30, his exit now looks even more disastrous. Rather than having closed out for a $16 loss per share... he could have closed out for around $8.... halving his trading loss to $50k or so.

I have some sympathy for the guy, but having broken almost every rule in my (and probably many others) trading book, I'm mostly just annoyed.

As for 'gofundme'..

As of writing (10pm EST), JC has raised $5245. No doubt, by late Friday.. the 7000s.. and maybe 10K by end of the weekend. Who knows, maybe someone with serious money will generously clear the entire debt in a single donation.

JC has stated he wants to pay off E-trade, and even get back to trading. I find the latter a little disturbing to read, a mere day after his account imploded. Even if his account is refinanced, I'd seriously hope he takes some months off to reflect upon things.

I could write a good book on Risk management. Part of my academic background was in the psychology of risk, and the basis for the decisions (especially bad ones) that people/institutions make.

A few of my core rules...

1. Never borrow to speculate.. or 'invest'. The cost of such money is almost always going to negate gains (if any) from trading.

No trading on margin ever.


2. Steer clear of the worse sectors/groups... namely bio-tech, momo stocks.

Most bio-tech companies lose money, pay no dividends, and are inherently unstable.

Most momo (momentum) stocks are either in collapse mode.... or soaring. For those who can stomach roller coasters though, I do understand the attraction.

3. Position size management.

This is something I could give a hundred examples of, and it still might not be enough.

Suffice to say...  whether someone had 50k, 100k, or 1 billion to invest.. they'd have to be clinically insane to put ALL their money into a single investment vehicle/company.

Strength in diversity, right?

4. Trading stops.

Everyone is different in what loss can be considered tolerable. Many in retail land sure would get upset on a -5/10% daily decline (not least via the leveraged ETFs or options. Yet for some... its bearable.

What should be clear... at some point... a 'white flag' MUST be waved.

Further... where a position has gains, a good stop to protect some of the gains is imperative.

*of course, in AH (after hours), trading stops do not apply. Even if JC had been 'babysitting' his KBIO position on a second by second basis, the price would have moved so quickly on the news, he'd still not have had time to make an emergency exit without incurring a monstrous loss.

A clear solution to that problem of course is to never hold positions beyond the 4pm close/overnight.

5. Worse case scenario

This particularly relates to those who write options or directly sell short a stock - something I have never done (if I want to short a stock, I'll either buy option puts, or a short side index/sector ETF such as SDS or ERY).

Consider this trade...

Trader 'Writes' (sells) 20 put contracts, strike $10, listed at $1.00 ($100 a contract), on a stock that currently trades @ $10.00

Total income from the 'write'. $100x 20 : $2000

Worse case scenario: stock goes to ZERO.

Trader 'buy to close' @ $1000 per contract x20....  $20,000

$20,000 - $2000 'write' income:  $18000 net loss... worse case.

Any trader writing such option puts (or short the actual stock) should (at least in my view) have $18,000 of cash sitting in their account ready to cover the worse case loss.

Yet, from what I know, that kind of reserve requirement is simply not the case with most (if not all) retail brokers. This lack of 100% backing against the 'worse case scenario' is why traders like JC can not only get zeroed out... but actually see their account balance turn negative.

*One of these days, I'll get around to detailing more on risk management, for now, that will have to suffice.

Update from Oscar

I'm sure Oscar would have some things to say trader JC about risk management.

Looking ahead

Friday has no scheduled data.

It is opex, so expect increasingly chop into the weekly close. 

*Fed official Bullard is due to speak in the early morning, and Mr Market will clearly be looking for further confirmation that the Fed will likely raise in December.

Final thoughts

We've all had bad trades, whether long or short. Yet... the story of trader JC should be a good reminder of what can go wrong if 'reasonable' rules are not held to. I for one know that under my rules I'll never see my account balance turn negative.. its simply not possible, as I don't trade on margin.

Maybe... just maybe.. if JC does get to recharge his trading account, next time he'll avoid the bio-tech/momo stocks, and never EVER trade on margin.

Goodnight from London

ps. If you ever read this JC. I do hope things work out for you, but hell, if you even start to consider trading on margin in bio-tech/momo stocks again... you need to just turn off your screen, and quietly walk away from the market (aka, the twisted casino)... forever.

Daily Index Cycle update

US equities closed moderately mixed, sp -2pts @ 2081. The two leaders - Trans/R2K, settled +1.0% and -0.4% respectively. Near term outlook offers threat of a minor retrace, but regardless of any such decline, the broader trend remains increasingly bullish... into the sp'2100s.




*notable weakness in the second market leader - R2K, but even so, its holding well above the Monday low of 1140.

As for the sp'500, a fractional new high for the week of 2086.. and regardless of any Friday-opex weakness to the 2070s.... it has been a week for the equity bulls.

a little more later..