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Trading the Trend

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Had a bit of a sleep in this morning so I missed all the drama:



Missed the news and headlines of the day. I'll now go have a look and see what I missed.

Well for the Bears:

Harry Callahan: "I know what you're thinking. 'Did he fire six shots or only five'? Well to tell you the truth, in all this excitement, I kind of lost track myself." Dec 24, 1971.

jog on
duc
 
The only news worthy of reading if you are trading markets:

NEW YORK (Reuters) - A gauge of global equities rebounded on Monday after the Federal Reserve widened its program of buying corporate debt, while crude oil rebounded too on signs fuel demand is recovering and as investors grapple with how to assess the economic reopening.

https://www.reuters.com/article/us-global-markets/stocks-rebound-on-fed-debt-program-oil-recovers-idUSKBN23M020?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+reuters/businessNews+(Business+News)

https://www.bloomberg.com/news/arti...s-china-virus-outbreak-monitored-markets-wrap

So now we know: Harry only fired 5.

jog on
duc
 
Well, did not "the market" answered clearly the questions of many today?
Sure we may have a fall tomorrow or in 2 months and some may say: i told you so but as far as i know, we did not stop riots overnight or found a 2c virus vaccine yesterday.trying to find causality between the virus figures and current market jitters is tarot reading.
I will even go further and advocate that the depth of march fall is probably uncorrelated to the virus.
As would say a famous by now poster, jog on
 
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Now this chart made me smile. If you ignore the actual data it is reporting: viz. COVID-19, it is actually a perfect proxy for market belief/expectations.

The top chart is the expectation that there was to be a bounce from the March lows and then a second low or even lower low. Many didn't even believe in a bounce.

The second chart is what happened in the market (and for the moment continues to happen).



jog on
duc
 
All things VIX update:



The resistance in the VIX held and is headed lower. We'll need to check in again as it reaches that support point (not highlighted) and have a think about what may happen at that point.

jog on
duc
 
Zoom up 9% overnight and another 1% after hours. Paypal 1.5%, ebay & cisco basically flat.

Looks like I was right to dump my BA position. I now await more virus data.
 

Indeed it did.

Rules of the Market:

1. Don't fight the Fed;
2. See Rule 1 (but know when to break it);
3. Market Makers work for the Big Banks (who get bailed out by the Fed).

The Fed. knows where the risk lies: they will not let market values fall low enough to threaten the financial system, unlike in 2007/08.



They simply will not allow a financial meltdown. The loans that do fail or look like failing will simply be transferred to the Fed. Balance Sheet.

jog on
duc
 
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Part of the difficulty in trading the current market is the expanded and extended volatility. Historically only the Great Depression has exceeded the current environment. Even 2008 was less volatile. This environment is really an object lesson. However, if you can stomach this, you will be in good shape going forward.



The thing to remember in an expanded volatility environment is that the size of the move up or down contains no increased weight of importance, informational wise, than does a move in a lower volatility environment.

Observations like, 'wow, stocks tanked' etc. carry no relevance other that how they tie into a technical signal. All that it means is, instead of taking 3/4 days to trade down or up to a technical point, we do it in a day. There is however no increased weight in the message.

Imagine 4 years of this.

jog on
duc
 
Duc isn't the current daily range a bear market.......this one is rising?

I don't hold opinions of why the markets rise or fall other than uncertainty (falls)

BTW you have been on fire this year thanks for the flow of material your picking of the bottom using the VIX was a standout IMHO.
 

1. So a simplistic approach to Bull/Bear is above/below the 200EMA. Currently we have retested the 200EMA and we are still above. Therefore by this simple definition, we are in a Bull market.

However the $VIX is still elevated:



It is still x3 the level we were cruising along at prior to the current situation. Therefore when 'news' (let's go with that one for the moment) happens, the move will be x3 whatever it would have been at the lower levels. What it doesn't mean is that the news is x3 more important. All it means is that the move will be amplified. At the level that the $VIX was prior to the move (call it) x2.5'ish, that initial move had a feedforward element that expanded it in time (it reduced the time element) which took us to x4. This usually happens in selloffs more often than melt-ups.

This expansion in range and simultaneous compression in time usually occurs when there is a 'surprise'. Given that the pullback was one of the most flagged pullbacks in recent memory, ie. no surprise at all, it was a bit of a surprise that we went to -7% on the day. Possibly it was more of a surprise (pullback) to others than I thought.

I also alluded to this on the 'Dump It' thread: volatility has a number of interesting properties that traders should acquaint themselves with. One of which will give you a pretty good approximation of market direction and movement in price (distance).

2. Then you are miles ahead of the game. However there are fundamental macro factors that are worth becoming acquainted with as they time-after-time signal major market moves. They are nothing to do with 'news'.

3. Glad it was useful.

jog on
duc
 
Yep this is what we've been debating all along - what constitutes relevant news. The pullback was straight after a release of a spike in virus data and I still haven't had a clear answer on whether this is believed to be a coincidence or not. Do you think it a coincidence or not?

The other curveball is predicting fed action, which is much more difficult - no schedule for stimulus unlike data releases for example.
 
give you an hint as for the schedule for stimulus:
as soon as required!
 
Ah but define required...
 
over9k said:
Ah but define required...
Click to expand...
after a fall and the time it takes for the Fed intern to type the right number of 0 on the magical account balance creation button..sadly, I do not share the code for that one..;-)
 
Well watch your threads, thanks btw for all the info over time, and 1 think that your 100% right your cant fight the trend ( bulls ) regardless of information comes out I charted the moving averages seems like it's under the last few days
 

1. Relevant news is news that has a categorical outcome for the markets. Non-relevant news is news that invites a speculation on what may or may not happen, what the news actually means, etc.

2. I don't remember you making any mention of 'coincidence'. So I went back and checked. No mention of coincidence.

3. Irrelevant.

4. Predicting the Fed. is not foolproof I agree. It takes some work to be able to do successfully. That is exactly what this thread will attempt to do.

jog on
duc
 
Dark1975 said:
Well watch your threads, thanks btw for all the info over time, and 1 think that your 100% right your cant fight the trend ( bulls ) regardless of information comes out

1. I charted the moving averages seems like it's under the last few days
Click to expand...

1. Moving averages, Bollinger Bands, whatever are targets (price). They are where I expect price to move to prior to a re-evaluation of variables. I don't use the same targets consistently as the market evolves, changes back, etc. Sometimes the target are the Fibonacci levels and other times pivot points etc. It is worth developing a bag of indicators that you have confidence in and test them all at any given price. Take the best fit. However, think about why is it the best fit? Just luck, or is there something about the character of the current conditions that make it a good or logical fit. Of course all of the above helps if you have picked the correct timing for a turning point. If you have, that will give you some clues to your correct target.

In this particular case: 300 was a level that we knew was (previously) important and there was a confluence of 20EMA/200EMA and rising 50EMA all concentrated in that single spot. This was the easiest target to pick. The indicators made sense in the market environment that we had from last week into Monday just gone. I don't know if this style works so well for the mechanical chaps as they have everything pre-programmed. More of a discretionary approach.

Once you have your target, you need to start figuring out whether it will hold or fail, which is everything else. This is where, if you are a news hound and you follow 'news', you need to differentiate noise from signal. Historically there has always been relevant (signal) news contained within irrelevant (noise) news. Again, historically, the media tend to miss the news containing the signal and emphasise the noise, which just adds to the noise.

jog on
duc
 
So in the US we approach another earnings period:

Retail:





Only one sector, but it will be an important sector as it is a gauge of the consumer.

The actual numbers (generally) are (particularly if they are bad) slightly less important than guidance. Why anyone pays attention to guidance I have no idea, but they do.

I would 'expect' guidance to be (increasingly) positive (by comparison) and it it is, we have additional fuel to feed to the trend, assuming that we are still trending higher at that point. Certainly I would expect the trend to continue into earnings season, at least until we see which way the wind is blowing.



Note the divergence of guidance to the market leading into the COVID collapse.

jog on
duc
 
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