After another choppy week of trading fueled by corporate earnings misses and currency headwinds for US multinationals, the "preponderance of the evidence" demonstrated in various Chaikin Analytics metrics suggests that we could be in store for more downside price action. Though trading sideways and currently at support, the market is flashing red in 5 key areas, and that's our basis for a "market down" call from here, though we admit, it might not be until some
mean reversion price action first.
The overbought/oversold oscillator is also flashing red, giving us a lower risk, higher probability timing signal for entering bearish trades.
AA and I don't move the long stock portfolio in and out of cash based on these signals. This is simply an opportunity for us to hedge our directional risk and make a little cash off other people's fears. With 1972, the 200 Day Moving Average, and 1860 all with the potential to act as key support areas for the S&P, not to mention we've likely traded down to an intermediate support level here at 1995, we have no plans to pile all-in short, though at each "break" we'll ramp up our negative deltas. Our philosophy is to take lots of small, risk-defined bearish trades with high probabilities of success using Chaikin sell signals on the weakest stocks and ETF's in lousy sectors and industry groups. Can you say "Energy Sector?"
We prefer selling options because we benefit not only from a directional move in our favor, but we can also get paid far better for the risks we take due to elevated levels of implied volatility. Some items going on our watchlist. We'd look look to put these bearish trades into market rallies:
- The Bull:Bear ratio in the S&P under 1 and falling
- The long term Chaikin trend rolling over and pointing down.
- The short term Chaikin trend also rolling down
- Price is below BOTH the short and long term moving averages.
The overbought/oversold oscillator is also flashing red, giving us a lower risk, higher probability timing signal for entering bearish trades.
AA and I don't move the long stock portfolio in and out of cash based on these signals. This is simply an opportunity for us to hedge our directional risk and make a little cash off other people's fears. With 1972, the 200 Day Moving Average, and 1860 all with the potential to act as key support areas for the S&P, not to mention we've likely traded down to an intermediate support level here at 1995, we have no plans to pile all-in short, though at each "break" we'll ramp up our negative deltas. Our philosophy is to take lots of small, risk-defined bearish trades with high probabilities of success using Chaikin sell signals on the weakest stocks and ETF's in lousy sectors and industry groups. Can you say "Energy Sector?"
We prefer selling options because we benefit not only from a directional move in our favor, but we can also get paid far better for the risks we take due to elevated levels of implied volatility. Some items going on our watchlist. We'd look look to put these bearish trades into market rallies:
- Mexican ETF EWW - Negative money flow, poor relative strength, recent relative strength sell signals, high implied volatility. We'll look to sell a short term rebound.
- The gold ETF GLD - Trades opposite the market during sell offs. Relative strength breakout signal today. With the world in a race to devalue currencies, gold has caught a bid.
- HOG - Reversal and Money Flow Sell signals. Very Bearish Power Gauge and weak overall Chaikin Analytics.
- Emerging markets ETF, EEM - Oil crash hurting one-trick pony economies relying on a high price of oil to make budget. Relative strength sell signal today.
- Very Bearish WYNN - Earnings this week and a relative sell signal today. Directional flyer into the close ahead of earnings? Probably a call spread.
- Norfolk Southern. One of those "personality change" stocks, where the market, in the form of a relative strength reading, agrees with the Power Gauge. In this case both turned bearish ahead of last week's earnings. Waiting for the stock to break below $100.
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