The Power Gauge gives the individual stock trader an edge with its uncanny ability to predict securities relative performance vs. the market on a forward looking 3 - 6 month basis  When we look at the Power Gauge rating of stocks that represent economic sectors in aggregate, we get a road map of future possible sector rotation. When compared with the technique of looking back at the recent relative performance of  major domestic economic sectors,  the Chaikin Analytics derived sector strength analysis gives us a weeks-to-months head start vs. other traders.  The Power Gauge's mostly fundament reading of individual stocks within each ETF serves as the centerpiece to our weekly analysis of ETF sector strength.

• Healthcare (XLV)  remains the leader , and prognosis for future ou-tpeformance is strengthening as the trading environment gets more defensive. 
• Cyclical areas of the market such as Basis Materials, Technology and Industrials are weakening.  The phenomenon, even when short lived, suggests that a more significant correction than we've been accustomed to may be at hand.  Q3 Earnings and Guidance (along with the Fed) could amplify or reverse what appears to be October weakness.
• Consumer Staples remain week, which is unusual for a market enviorment that is otherwise looking defensive.  Moreover, Consumer Discretionary, led by retailers, are showing signs of strength ahead of holiday shopping season. 
• Financials usually exhibit strength in a rising interest rate environment, but are off slighly in the past couple of weeks.   This is likely a result of the rise in bond prices during a stock sell off.  Utilities act opposite of financials, and general retreat when interest rates increase. 
• My Take: We're in the middle of a stock pullback with few signs of a major trend reversal.  Expect choppiness and pull back in high beta names, along with a flight to safety.  I've been selling covered calls, writing some bearish options spreads, allowing stop losses on trend trades to get hit, but am positioning for a market bounce in the resumption of an upward trend into the holidays.   Until and unless the facts change, I'm bullish in the long term but directionally agnositc in the near to intermediate term. 

The S&P is trading below BOTH the short and long term trend, while  the composite Power Gauge ratio of its 500 underlying stocks leans in a neutral to bearish direction.   Market conditions don't imply favorable reward-to-risk on trades with a multi-month timeframe.    However, stocks are oversold in the near terms, and we're ok with taking shorter term swing trades lasting a few days to a couple of weeks.  

Despite today's rally (as I write this on the morning September 24th) our market analysis suggests a neutral posture at best.  We continue to avoid taking long trend trades, preferring instead to trader short term options spreads at support and/or resistance depending upon what the Chaikin Analytics Power Gauge and technical dashboard tells us. 

Full market analysis here

On our market analysis page, you'll find 3 useful tables derived from Chaikin Analytics indicators. 

1. Our market market analysis of the SPY, trended daily for the preceding 9 - 12 months, shows the market degrading recently.  Whether this is a short term pullback or the beginning of a more significant correction remains to be seen.   Our rules call for us remain on the sidelines as far as initiating NEW trend trades are concerned.  We'll continue to manage stops of current portfolio selections and have begun taking profits whenever one of our holdings falls 2 percent below the long term Chaikin trend line. 
2. Our sector trend report shows you the relative strength of the major US sector ETF's. Remember, this is Power Gauge strength not strenght based on past performance,  so it's a forecast of where money is LIKELY to rotate based on the aggregate strength of the underlying holdings (The Power Gauge itself is largely a fundamental indicator)
3. Finally, we have rated the relative strenght of world wide macro stock, commodity and currency ETF's vs. the SPY.  The market is a much bigger place than simply the 3000 US stocks that Chaikin Analytics tracks, but right now our analysis would suggest that the US is the safest of havens.  Of course, it too is showing some chinks its armour.

If the market bounces, our portfolio will benefit from increases in our remaining holdings.  We're ok with missing out on some intermediate term entry opportunities until market conditions return to the what's acceptable for us to trade long equities.   Until then, we'll look at shorter term option trades, which benefit from market movements in either direction.

I hate cheesy headlines like this.  But, I'm telling you...with discipline and consistency, there's a lot of truth to it.  The secret to piling up cash trading is get paid a better return on risk compared to the theoretical risk you take.   In Vegas terms, if you could get paid 2:1 for a 50/50 bet, you'd take that every time.  This isn't quite that good, but it's close.  Watch!

Market conditions may be transitioning from trending to choppy.  How to incorporate Chaikin Analytics into trading with shorter time horizons.  A "swing trade" mentality.  MRO looks like a perfect candidate.   If your watching this video later, you can see how we did

This video is 30 minutes..

Neutral Power Gauge rated Ciena Corp has earnings on Thursday morning.  Options are highly liquid on this stock, making it a perfect candidate for a speculative earnings play. 

The stock had run up 12% in less than 2 weeks before recently encountering resistance at the Chaikin Trend line and is now in overbought territory.  While the Tech sector is strong, we note the predominant "sea of red" for this stock on the Chaikin Money flow indicator and an anemic relative strength indicator.   

While the preponderance of technical evidence is bearish, analysts have been increasingly bullish on the stock, raising their estimates. Plus, valuations are not excessive and the cost of the stock in terms of future earnings is attractive (Bullish Price to Sales Ratio = Bullish).  

The options market is anticipating a move of around 9% when earnings are announced on this $20 stock.  Today, Cien made a large downward price move and I took advantage of the spike in implied volatility by selling the  22 call strike for $.83.  That means that CIEN can appreciate to $22.83 between now and expiration, and I'd break even on the trade.  However,  my plan is to capture around half the credit  and  buy back the options once earnings come out.  If all goes well, I'll  profit mostly from the collapse in implied volatility.  If price goes my way away from my short strike, that will be gravy.

For those without the stomach and risk tolerance for holding naked option positions, a risk defined call vertical can be sold for an attractive risk to reward ratio.   It's a little closer to the money, but it pays better than the risk.  Here's the trade. 

SELL -1 VERTICAL CIEN 100 SEP 14 21/22 CALL @.29 LMT

• Probability of breakeven or better by expiration: 65%
  
• Return on risk = 40% 
  
• Theoretical trade risk = 35%
• Breakeven: CIEN's price can appreciate to $21.29 by September expiration.  
  

Comment:  This trade matches my neutral to bearish earnings posture on CIEN.  The stock can even move 5% to the upside against me,  and I'd still make money on the trade at expiration.  In terms of reward and risk, the return at maximum profit is 5% in excess of the theoretical percentage risk I'm taking.   That differential is the key and provides a statistical edge.  Chaikin Analytics improves my confidence that earnings will not produce price movement greater than the expected move or that price will actually move in my favor.  After a 13% move, I believe that the upside of an earnings surprise is likely baked into the price.  And if I'm wrong, there is a margin of safety.