The SPY remains below a falling short and long term Chaikin trendline, making market conditions less than ideal for initiating intermediate (3-6 mo.) trend trades -- which is the foundation for the Chaikin system. The SPY bull-bear ratio, though flashing red as well, appears to have hit a low last week.
Oupeforming sectors, like Healthcare and Utilities, point to a defensive market posture, while cyclical areas of the market like Energy and Technology fall out of favore. Remember, the Chaikin Power Gauge ratio is a leading indicator, giving us a peek as to what areas of the market are likely to outpeform in the next 3-6 months.
For us, the preponderance of the evidence keeps us on the sidelines in terms of establishing trend trades. We'll continue to trade market swings in the short run and place speculative earnings bets, using the edge given us by the Chaikin Power Gauge.
Howdy fellow Chaikin Power Users, Double A here to tell you how I used the Chaikin Analytics edge to book a big win trading NFLX through earnings.
Netflix (NFLX) reported last week (10/15), investors we're quick to sell the stock down over 25%, on some disappointment, as the expectations had apparently gone to high.
Back on 10/09, Prior to earnings, Chaikin Analytics gave NFLX both an overbought sell and a relative strength breakdown signal.
NFLX also broke it's diagonal trend line back on 9/15, then formed a bear flag.
With a very bearish power gauge, overbought oscillator , overbought sell signal, relative strength breakdown signal, a break in diagonal support, and high analysts expectations, I stepped out and intimated a trade I usually wouldn't have. I purchased a long dated OTM put.
I purchased the DEC 300 put for .56 cents.
As we all know now, NFLX disappointed and the stock sold off hard after hours. I got out of the trade at the open the day following earnings for 8.40. Net gain of 7.84 per contract for a three day trade.
While this is not the type of trade we usually initiate around earnings, the return on risk, the technicals AND the Chaikin Analytics edge gave me confidence in the trade.
Happy Trading Chaikin Power Users.
Making Money Off Earnings: Short Term Speculative Trades While We Sit On Our Hands And Avoid Making Intermediate Term Trades
With the major averages having breached major support levels and our weekly market analysis using Chaikin Analytics composite Power Gauge metrics for index based ETF's flashing red, we're staying out of the market for other than shorter term "swing" type trades. With dozens of larger companies set to release earning this week, we'll keep track of our trades here (opens in a new window). Our trading style is deep end of the pool - naked short puts, calls, or both (called a strangle). Our directional bias will ALWAYS be influenced by the power gauge, so you can always shadow us with something more risk defined, such as an option spread (vertical, calendar or iron condor). We'd never trade naked positions into earnings without having a few years experience under our belt, but we'd also avoid buying long options into earnings because of the inflated impact of implied volatility on option prices. Better to be a seller than a buyer.
The Chaikin Power Gauge gives us an idea of how an individual equity is likely to perform vs. the market in the coming months. When we consider the aggregate PG ratings of stocks in the various sector ETF's that make up the US economy, we get a sense of what sectors are likely to fall into favor with institutions and, because Big Money IS the market, a sense of where we're headed in the next stage in the business cycle. Aggregate Power Gauge ratings represent the sum of fundamental and technical factors that drive institutional trading decisions. Following institutional traders and emphasizing strength in the market can make a big difference in how we manage our portfolio and the results we generate..
When stock and commodity prices fall and defensive sectors like Healthcare (XLV), Utilities (XLU) and Consumer Staples (XLP) show strength compared to the overall market, that can signal a transition from last vestiges of economic expansion to the first stages of economic contraction. But distortions, such as the Fed, jobs, housing prices, overseas markets and the strength of the US Dollar make it difficult to take e comfort in linear extrapolations. Markets simply don't move that way. Fortunately, I have Chaikin analytics to simplify economic reality just enough for me to action, but without ever dumbing things down. Remember, the Power Gauge is predictive in nature, but not necessarily a definitive measure of current reality. I liken it to a 3 - 6 month "heads up" about what's likely to come next. It gives me a road map of, in the famous words of Wayne Gretzky, where the puck is headed.
Favorable market Power Gauge ratings and technical patterns are what I require to make intermediate terms bullish bets. With lights flashing red on almost all fronts, I'm content to sit on my hands and avoid trending directional bets. I'm trading in the short term, and more to the downside than the reverse. Next week, we'll turn our attention to short terms speculative earnings trades, while keeping a wary eye on a suddenly volatile stock market.
Our complete market analysis is here
Every week, we measure and trend the underlying strength of the major sector ETFs. This is how we pick key areas of the market most likely to curry favor with large institutional investors, a crucial first step before we ever consider individual equities to trade. We use the relationship between bullish/very bullish and bearish/very bearish rated stocks in each ETF.
Defensive ETF XLV (Health Care) is showing persistent strength, while cyclical sectors like Industrials (XLI), Energy (XLE) and Materials (XLB) have really fallen off. Health Care ETF XLV is also giving off a relative strength buy signal today. More evidence of a persistent trend.
Click here to realize attractive monthly and annual savings on Chaikin Analytics. Never trade without an edge. Use the power of Chaikin Analytics to unlock fundamental and technical trends to put the wind at your back when investing. Last year, Chaikin Analytics bested already stunning market returns by 50%. And in the lost decade of 2000 to 2010, Chaikin Analytics beat the market by 22% annually.
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