Watch list for year end

F
NCT
IMAX
IGT
CF
EXXI
STEC
FLIR
M

Corn SemiAuto Trade Stats

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50% winning ratio is not very excited. But money and trade management make the money.

Don’t Outsmart Yourself with Sentimental Nonsense

James Stack, editor of InvesTech Research, explains why bullish sentiment surveys are not the bad omen they've been made out to be.

The problem now, it seems, is that the latest rally has made everyone too bullish. At least that's the story according to the current headlines:

"'Dumb Money' Returns to Stocks," The Wall Street Journal, Nov. 8, 2010
"Market Optimism Is Ominous Sign," The Wall Street Journal, Nov. 18, 2010

A Bank of America/Merrill Lynch poll of fund managers reveals market sentiment at its most bullish level since the April peak. And surveys by both Investors Intelligence and American Association of Individual Investors (AAII) found bullish sentiment at new extremes for the current bull market.

A Stopped Clock is Right Twice a Day

But before battening down the hatches and running for cover—simply because everyone else is becoming too bullish—perhaps we should share with you the rest of the sentiment story.

Some have pointed to the recent cover of Barron's ("Bye-Bye, Bear," Nov. 1, 2010) and other institutional money surveys as evidence that bullish sentiment has reached dangerous extremes. But the historical truth is that the majority of institutional investors are correctly bullish during the majority of a bull market run. They just happen to be wrong at the critical turning points—both top and bottom.

In the last bull market, which extended from October 2002 to October 2007, a similar Barron's cover appeared in May 2003 with the following title and quote:
"A Fresh Start: Say goodbye to three years of stock market losses, the bullish portfolio managers in our latest Big Money poll declare. Why the Dow could rally 10% or more."

That poll of bullish sentiment was not only correct, but the bull market lasted three more years and the Dow gained over 65% before peaking.

The Investor's Intelligence survey of investment advisory services shows a similar leap in bullish sentiment since the August correction low. From the Aug. 26 bottom, the percentage of bullish advisors has almost doubled (from 29% to 56%). That is the highest bullish sentiment of the bull market that started in March 2009. And, as you might expect, it's creating great concern among those who follow the numbers.

Yet here again, one needs to research past data to discover the rest of the story. During the middle and latter portion of bull markets, the majority of investment advisors are "correct" in their bullish outlook. Like their institutional counterparts, they're only wrong (or most wrong) at the critical turning points.

The current 56% bullish reading is not that extreme or ominous. In fact, during the 2002-07 bull market, this Investors Intelligence survey registered a bullish reading of more than 50% for 60% of the run. And it spent one-third of the time higher than 55%.

The AAII shows an even sharper swing in sentiment since the Aug. 26 correction low. At that time, the bullish sentiment had dropped to only 21%—the lowest level since the week prior to the March 2009 bear-market bottom. Today it has almost tripled to 58% in less than three months. Sounds ominous, doesn't it? But as Paul Harvey would say, here's the rest of the story.

The AAII poll is far more volatile than any other survey we have tracked. Extremes can be important—but the bearish extremes are far more important than the bullish extremes.

When the Bears Talk, Pay Attention

In most cases when bullish sentiment drops to 20%, it's time to start thinking in the contrarian camp. However, the same is not true when bullish sentiment dominates the landscape.

The current 58% bullish sentiment might sound extreme until one considers that this same survey registered similar levels repeatedly throughout the second year of the 2002-07 bull market. In fact, if one used the "50% bullish" threshold of this sentiment gauge as a trigger to exit the market, they would have been whipsawed 13 times in the 2002-07 bull market, before the final "correct" warning in October 2007.

Bottom line, while extremes in sentiment can be a useful tool in confirming market bottoms, we have yet to find a sentiment survey that has proven historically reliable at market tops.

Both technical and leading fundamental evidence remains on the side of the bulls. The data from our good friends at the Economic Cycle Research Institute is not forecasting a double-dip recession. Consumer confidence, while nothing to write home about, is holding steady. And the ISM survey of purchasing managers is continuing to register levels consistent with ongoing recovery.

What's QE?

Pontential ES pullback target

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Opportunities

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TICK in post QEII rally

not much selling pressure.

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ES post QEII

Short term target is reached;
upside target is still ahead.
Buying breakout only makes a scalp.

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HFT goes to mainstream

HFT coverage on CBS 60minutes 10/10

Oct 15 e-mini

bull flag, followed by trend line break sharp move up, followed by test the low, market should have more up to go, 1175+.

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Wheat and Oats

Wheat will make new high.
Oats goes to 4.

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EURUSD

Open short at 1.2726, stop is at 1.2788.

Sep Future Spead Watch List

Buy Feb 11 Live Cattle / Sell Dec 10 Live Cattle
Buy Dec 10 Soybean Meal / Sell July 11 Soybean Cattle
Buy Feb 11 Lean Hogs / Sell Dec 10 Lean Hogs

Buy Jan 11 Soybean Meal / Sell May 11 Soybean Meal
Buy May 11 Sugar / Sell Sep 11 Sugar
Buy Sep 11 Cocoa / Sell May 11 Cocoa

08/27/2010 US Prelim GDP

8:30am (NY Time) US Prelim GDP Forecast 1.5% Previous 2.4%
ACTION: USD/JPY BUY 1.8% SELL 1.2%

There are talks of an even worse release than the already deeply discounted forecast of 1.5%.

1. Better GDP = Risk Appetite: JPY should lose strength immediately, making all JPY pairs move up (GBP/JPY, EUR/JPY, USD/JPY, AUD/JPY), and expect to see USD remaining strong against other majors.
2. Worse GDP = Risk Aversion: JPY should gain strength immediately, dragging down the USD/JPY pair. USD should also be weak across the board. If the GDP release drops down significantly, we could see flight for safety movement in the market as USD could actually gain strength on the back of demands for US treasuries. This would be an extreme case if GDP misses expectation by a huge deviation such as 1% or more.

I think we may actually see some reversal in risk aversion sentiment after this release as speculators will be doing the typical "buy on rumor, sell on news". On this matter, long EUR/USD.

EURUSD

It should test the breakout area and the channel starting area, which is 1.2450-1.2500.
Spike and channel.

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ES 08/12

If ES is traded above 1083.25, that's failed wedge, potential target is 1088+.

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Rice

It is in the process for potential buy setup.

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Corn

It filled the long time gap, Fib extension target is also in the area.
Wheat daily chart shows huge reversal bar.

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EURJPY

The first upside EURJPY target is around 114.5-114.6.

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Rice

Worth paying attention.

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AUDUSD

short term target is to test 0.9000 area.

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ES 07/09

ES should make a run to test the high

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EURUSD

If EU manages to close above the resistance line and the downtrend channel line strongly. It has a lot upside room.

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30 days real time trade posts on Forex

Well, almost 30 days. And I did forget to post in the last few days of June, due to World Cup I guess. That's it, I won't post real time trades anymore.

Record:

AUDUSD +27
CADJPY +90
USDJPY +30
AUDJPY +46
AUDJPY +30
AUDUSD +47
AUDUSD +18
AUDJPY +19
AUDJPY +52
AUDJPY +33
AUDJPY +38
AUDJPY +64
AUDUSD -3

All trades are sort of swing trades. Total 12 winners and 1 loser. Pips earned is 491.
Not bad.

Converting Futures to Forex

GBP/USD, EUR/USD, and AUD/USD:

Go to www.cme.comand click on e-quivalents

Make sure you use the middle section, and choose the currency from the drop down menu.

Add the "Forward Points" to the futures bid/offer to find the forex equivalent.

Example (from today):
EuroFX: -15 forward points (approx.)
Futures bid: 1.2188

Forex equivalent = 1.2188 + (-.0015) = 1.2173

USD/JPY, USD/CHF, and USD/CAD:

FIRST: Calculate the inverse of the futures quote (1/"futures quote"). For example: if CHF futures bid is .7893, inverse is 1/.7893 or 1.2669.

Then go to www.cme.comand click on e-quivalents

Make sure you use the middle section, and choose the currency from the drop down menu.

SECOND: Add the "Forward Points" to the inverted price.

Continuing the CHF example, if the Forward Points = 30 (approx), then forex equivalent = 1.2669 + (.0030) = 1.2699

EURUSD

It reached my initial target zone after NFP report.
See how it closes today.

EURUSD

strongly bust through congestion area. 1.2630 area is expected.

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EURUSD upside targets

It should test the long downtrend line after 1.2350 area is broken out.

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Near term ES target

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ES midterm down target

I expect a MM down to July low area.

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06/29 ES DT

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Today has some classic textbook setups.

1. Opening big gap down, naturally looking for the 06/09 gap filled at 1151. Today is large range day, so the scalp size is 2 points, instead of 1 point.
2. After sharp down, short at bar 6 LOW 1, for scalp.
3. Bar 9 LOW 2 and bull trap, for MM target.
4. Buy setup is at bar 14, but conservative traders can just wait for short setup.
5. short at EMA area at bar 21, tick forms ND in shorter time frame. ES didn't even touch EMA before going down for at least a scalp. It shows aggressive selling. But Market should have another leg up.
6. Shorts continue to short at EMA at bar 35 and 36, it tested low this time. But it's unlikely for market go straightdown at this point.
7. Bar 57 is EMA gap 1, bar 60 is EMA gap 2. Target is retest the low or forming the new low. Bar 60 is a gift. Stop is the bar high. Still the day is range day so far, at least scalp half position.
8. Bar 65 went down then up, traps both bears and bulls. Normally it means big move ahead.
9. Bar 68 is another excellent entry.
10. At this point, it's reasonable to expect market test 05/25 low and 02/05 low. It broke 02/05 low marginally, then bounce.

ES

with or without pullback, ES should go up to 1090 area.

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AUDUSD

cover at 0.8770

AUDUSD

short at 0.8767, target is 0.8717

AUDJPY

sold at 79.02, unlikely to break up now.

AUDJPY

set target to 79.7

AUDJPY

buy at 78.38

SPY July 112 put

sold to close at 2.98

SPY July 112 put

buy to open at $3.17

AUDJPY

target hit, too conservative due to absence.
38 pips

AUDJPY

buy at 78.72, set target to 79.1

AUDJPY

sold at 78.89

AUDJPY

buy at 78.56

AUDJPY

hits the target, 52 pips.

AUDJPY

set target to 78.91

AUDJPY

buy at 78.39

ES 06/11 day trade

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1. Open MM to the target.
2. H1 at bar 10 for scalp
3. now it's trend line broken for higher high, 2 legs down is expected.
4. short EMA at bar 25 for scalp
5. bar 27 and 28 are 5 ticks failure in 5 mins chart
6. second entry long at bar 28 is good
7. buy at EMA at bar 32 for scalp
8. short at bar 46 is high probability trade. 2 leg corrective upmove.
9. short at EMA at bar 55
10. bulls should be happy to see bar 59 and 60 took out low of bar 27, 28 and 37 then reversal. Buy at bar 60 for scalp.
11. buy at EMA at bar 66 for scalp
12. doji bar 69 2nd long entry, looks bad, but works good. Upside move broke high of bar 44 and 46 is expected. But eventually bulls made strong break move to make new high.

AUD/JPY

sold all at 77.40

AUDJPY

buy at 76.65

AUDUSD

sold at 0.8320

AUDUSD

short at 83.38

AUDJPY

buy at 77.78

AUDUSD

close short at 0.8370

AUDUSD

short at 0.8417

AJ and UJ

UJ target is reached at 92.45
AJ out at 78.40

UJ and AJ

UJ is disappointing, set target to 92.45.
AJ is much stronger, set to 79.8.

AUDJPY

buy at 78.10 after news.

AUDJPY

sold at 78.00 before news

AUDJPY

buy 77.54.
risky.

USDJPY

buy at 92.15

CADJPY

out long at 87.20, not bad for 30 mins work.

CADJPY

buy at 86.30

AUDUSD

AUD rate keeps hold. My last portion was out with 20 pips profit.
Overall it's not bad for 2 hrs work.

AUDUSD

take some off table again with 40 pips profit at 0.8355.
30 mins to the rate decision.

AUDUSD

I decide to take some off the table with 20 pips profit at 0.8375 before AUD rate decision at 12:30am.

AUDUSD

short from 0.8395, target 0.8342.

Ratio Spread or Reverse Ratio Spread (Backspread)

Both strategies have neutral to bullish bias. But which one is better? Let's analyze. Assume both strategies are credit spreads, which is better one.
Take AAPL as of 05/28/2010 as example, it closed at 256.88 on 05/28/2010.

Ratio Spread

Buys N calls at a lower strike and sells more than N calls at a higher strike.
The maximum profit happens when the underlying closes at the higher strike on expiration date.

Maximum profit point = initial credit + (higher strike - lower strike)
Upside breakeven point = higher strike + Maximum profit point

Here I use 1:2 ratio July calls, notice the margin requirement is $42756.

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Position summary and P/L graph:

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Reverse Ratio Spread

Buy N calls at higher strike and sell less than N calls at lower strike.

Maximum loss happens when the underlying closes at the higher strike on the expiration date.
Max loss = higher strike - lower strike - credit received
Upside breakeven point = higher stike + point of max loss
Downside breakeven point = lower strike

Position:

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Position summary and P/L graph, notice the margin is small, $18900

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Clearly, backspread favors volatile securities, it expects underlying move up dramatically. It has the following advantages:

1. stock moves up beyond breakeven point by expiration.
2. stock moves up modestly early in the life cycle of the trade.
3. market condition causes IV to move up.
4. stock falls sharply and recovers.

On the other hand, ratio spreader expects underlying move up, but not too much and too quickly.

Finally, the probability shows backspread is somehow like bullish straddle:

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AAPL

spike and channel pattern. Downward slope channel is bull flag. It is also forming a potential large bull flag. The minimum target us 258-260.

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ES 05/25

Wedge fails and goes up with measured move.
In daily chart, we should have more up to go.

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ES downside target

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Sugar, Soybean, Coffee and Soybean meal

Sugar is working on its way to the channel top. Seasonal trade favors bull heavily.

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Soybean is at the bottom of trading range, look for bull setup. Seasonal trade favors bull.

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Coffee is between 130 and 140 for some time. Seasonal trade favors one more up before any downside move.

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Soybean meal High 2 is working on right now, it should have one more push to 300 area.

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ES and BP

ES might form a third push down after upward correction.

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BP weekly calmly reached the measured move target.

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EURUSD

h&s bottom in H1 to 1.2710 area or a little lower.

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ES 60mins

still forming a bull flag, another up leg is coming, to 116x.

GLD

spike and channel pattern.

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EURUSD box trade

EU and GU clearly were forming bear flag during early US session.
It's getting easy. Equity market should have sharp rally into close.

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GLD forms bull flag in 60mins

upside breakout soon.

1 tick away from target

it's considered to reach.

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Pull back target

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Market should swing up

to test ES 1170 area.

EMC

classic spike and channel pattern

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Minimum upside target

reward = risk.
Market should have more upside if today's low is held.

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It's getting easy

Sometimes you win small, sometimes you win BIG.

EU has 1.2225 as weekly support; but it should head to 1.2 first, eventually 1.0
GU has 1.4233 as weekly support.

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