Tuesday, September 1, 2009

Overnight Action

Well we are seeing quite a bit of activity here during the overnight session. Going to have to figure out exactly what happened here but we have broken yesterdays intraday low just now. Of course I have a big grin on my face as it means we are nearing the 998-1008 range where we will put this puppy to a test. A break out of last weeks trade range especially with the weekly GAP down makes for a nice weekly exhaustion gap that immidiately got reversed.

Are we finally getting that overhead supply I have been talking about for oh so many weeks now at the 4 digit range. It seems the immense pain I had to sit through the past 2 weeks are turning into my favor. Lets see how it will unfold during cash hours today.

Will post a more detailed update before the cash hours open after watching the futures unfold and show me more direction. Another GAP down here could lead to quite a strong trend day. We had a trend day in the making yesterday but did not manage to pull through as we lacked volume.

Its quite ironic - everyone (including me) expected, and is still expecting the first "holiday" week of September to be quite tame with an upside bias. Maybe its true, the market does the opposite of what most people expect. Even xtrends has turned cautious - the first time I am seeing this kind of "throwing arms up in the air" type of attitude. Of course he is giving proper justifications but from a sentiment perspective - its really just a fact to support the current dilema all bears are in - what the heck is going to stop this madening rally.


  1. Hey Chris,

    So I saw over at Slope of Hope that, "So here we have the SEC suspending the use of leveraged and any inverse ETFs at major brokerages. It's starting with the 401-ks, but how long do you think it'll be before more "help" is on the way?"

    Since when was this? I was on vacation all of last week and wasn't paying much attention. Do you have any more info on this? Thanks.

  2. Here is what I had posted on that post actually (in case you did not catch it)

    Tim, regarding the letter you received. As you know its not the first broker to make this step. Started about 8 weeks ago with Credit Suisse I believe, top that off with the law suit (while totally unfounded it was still quite a lot of buzz around it) - brokers may shy away from those ETFs.

    I mean lets be honest, I used to trade SSO and SDS quite a lot and really liked those instruments. With the introduction of the tripples such as the widowmaker FA$ many noob (and not so noob) investors had many losses thinking they would make a killing on those.

    If I were a broker, I would do whats best for my clients and those high leverage, decaying ETFs are not a good choice for my clients - with the assumption that my clients may not know exactly how those instruments work (think the stewardess suggesting FAS buy). I doubt she reads the prospectus and fully understands the expense ratios and decay.

    Unfortunately the entire FA$ debacle has put a bad light on those ETFs and as a broker, its a difficult position to be in - either single out a handful of them and then have to deal with pressure from direxion (or others) or just skip them all, even the proshares one that I quite like (of course with exception of the other widowmakers SRS and SKF).

    Again as a broker, if I had clients that have lost money using those instruments, I would recommend them to work with SPY (or SH as the inverse) if they wanted to play the downside.

    Just playing devils advocate here - its not all bad, yes I agree the above letter and move of the many brokers could be interpreted as a negative, in the end, it is positive as such high leverage needs to be handled with proper risk and money management skills that many do not have.

  3. I really think its not really SEC based but more based on brokers legal department.

    Direxion implemented something completly new to the market place, something we had never seen before that seemed to give traders even more leverage then they had before. Consider this, do not remember the exact numbers but if you had bought 1 million $ worth of FAZ at the peak in march you would be left with something like 15K.

    That is quite incredible especially for a noob retail investor that hears about this FAS/FAZ double., tripple in weeks and want to get into this position but completly unmanaged.

    Think about a financial advisor for a broker.
    Client: well I heard about this FAZ thing, seems like its the way to go to profit from this move.
    Advisor: sure thing, we can add a position, lets say $25K?
    Client: sure, maybe a bit more, I do not mind being exposed 30+%, after all I can only loose what I put in.
    Advisor: Great, lets do it.

    2 months later after having received the monhtly statements and seeing a huge loss on the account the client reviews each position individually (out of their 15 mutual funds) just to find out FAZ has declined 60+%.

    Another phone call.
    Client: wow that was unexpected, well you have to risk some to make some, lets average down.
    Advisor: sure thing

    rinse and repeat.

    I think brokers have some severely pissed off clients that were test mules for something new to the market place - and got burned.

    So in order to avoid potentially loosing clients, or clients withdrawing money brokers are deciding to not allow those instruments. I mean we are getting enough leverage from our brokers already, is that not enough?

  4. FYI. On tradestation, lets say I have 100K in my account, they give me another 100K in overnight margin and another 200K for day trade margin, for a total cash hours buying power of 400K.

    However, if I purchase FA$ my buying power decreases as the margin requirements on this are different. If I remember correctly FA$ on tradestation can only be traded 100% cash. So if I had 100K in my account I could only ever own $100K of FA$ for overnight positions, whereas I could own $200K of SDS for as long as my margin allowed.

    So some brokers had already choosen to protect clients (at the expense of getting more money from comissions and margin interest). Heck the broker is in the business to make the most money possible, however, you need to be able to keep clients at the same time.

    FA$ does not keep clients, especially since most of the brokers clients are investors with longer term horizon and NOT traders like we are. FA$ are short term positions, max of a few days.

  5. I could go on and on but I think you get the point ....

    I remember fast money back in march stating how FAS has double in value in just one week. Think about some 401K or IRA holder listening to this when their account has been put back into a 199X state. Who would not get emotional and try to make that money back.

    Again, noob investors do not understand the concept "once money has been lost, its gone". If my cost basis on a mutual fund is 100K, and its current value is 50K, well I am inclined to disagree with the above because I did pay 100K for it, and well, I believe it will come back to me as "buy and hold" has worked for MANY MANY years. So why not try to make it back faster with that doubling machine FAS.

    Ok enough for real now ... but I think this move is purely based on brokers not wanting to piss off and loose clients. On top of legal departments that probably have gotten an increasing amount of suits by clients (there is quite a bit of cost associated to being sued). Plus it does not look good on corporate reports that you were sued 100 times in the last 6 months based on services you offer - regardless if this is founded or not.

  6. I see. Makes perfect sense. Thanks Chris. Very helpful as always!

  7. A sell volume spike there?

  8. I had added 10% shorts at the top there and also added 40% stop loss on all my positions at 1031 SPX (around that range).

    This is either a nice volitaile move that just started a small W3 down to 998-1008 or a nice bear trap to move this bad boy to new highs.

    Either way, big ranges are back in the markets, which is a sign of things to change. I would really like to see a break into the reds to confirm this move lower here in the next 60 minutes. Otherwise I may lighten up on shorts regardless of price.

  9. hah yeap. Did not expect it to be this strong, I would have been happy with a break of yesterdays close at 11:30 by a point or so. This just makes it all a bit easier.

    It was quite scary seeing my account balance move quite a bit off the open. Have to admit.

  10. being in a long position at this point is going to be quite scary. But the bulls still have the 4 digit strength on their hand, many bears will be very afraid of the 1000 mark and cover pre-maturely adding fuel to the dip buyers.

    Been wanting to make a post about a general discussion about support. Maybe I will have some time tonight to add it but it should get quite interesting.

  11. Houston, we have a problem :)

  12. oh yeah lol, one exit, no one coming back in.

  13. its the mental 4 digit level. Never though we would go this low this fast. I mean that was a FAST move on good news.

    Remember the saying bear market rallies end of good news, and let me tell you, the news has been amazing.

  14. We should get around 90 minutes of sideways action now, I would say we should get back to 1012 as a possibility, if not today, it should be another time towards the end of the week.

    I do not believe in a crash like drop from here. Yes we may have a day or two of crazy moves making everyone think we can drop like mad, but it should be much more contained.

  15. Chris, it seems that happy days are here for the bears. what is your LOD projection, if any. are we done for the day here? are you covering the shorts here or hedging with long? thanks

  16. sam, yeah its been a good day for me. 2 weeks of pain have paid off so it seems. I am currently 50% short and will remain short.

    No covering, no hedges, no position changes.

    Want to see the next 3 days first before I make any changes to positions. Still maintaining stops for 40% of all my shorts at around 1031SPX.

    Of course like everyone else I will probably be making a larger post soon explaining all scenarios, what I am expecting, what we have to look for to guide is through this month.

  17. LOD prediction is quite difficult from here. 992 possibility or 1008-1012.

    Most likly scenario is the 1008-1012 range for a close today, possible to get a close even above at 1016-1017.

  18. Looks like 1000 broken. is it fake move? who knows. but now 992 is more likely.

  19. as you remember I had called for 90 minutes of sideways at 11:54AM earlier, so whatever move happens then should be for real on a day like today - no fake moves at least intraday. With the 4 digit break 992 is definitly in plan even with such large drops already.

  20. I'm been depressed for the past week and I couldn't take it anymore and finally took a HUGE HUGE loss with hnu.to (double UNG) yesterday. I guess I should be happy since it took another smack in the face today. I learned my lesson with holding leverage funds and NOT setting stop losses sigh. I bought some oil companies yesterday hoping for a rebound which happened this morning then took a dumping with the rest of the market. What are some of your thoughts in regards with oil and natural gas?

  21. Ryan, yeah I have been following nat gas and have to admit, every time I looked at this chart I could feel your pain. Oil and service companies will definitly be taking a beating of the dollar move today turns out to be for real. We broke key resistance (or support on EURUSD) which will severely affect commodities.

    On nat gas, I decided to let this one go, it looks very appealing time after time just to be disappointed again. I have tried myself to play UNG quite a few times, each time without success so I moved on from this combo.

    Playing the long side is quite difficult from here I have to admit, just because we are still overbought on the mid term and are still on the upper ranges of the trendline. If you are looking for a long position, I would probably wait it out a bit, same with shorts.

    Taking a break sometimes may be the best thing, the only thing I can recommend as you have clearly identified is the proper management of stops.

  22. ok now that I had some time to digest the market and take a quick break I decided to play it save and entered a 25% hedge here against my current shorts. Yes we did break 1000 but we did not quite make it happen with proper follow through and are now back above.

    Stop on my hedge is the LOD so lets see what they make of it. Will be away from my computer for a little bit so will come back with update before 3:00PM

  23. no update from me tonight. Going to let this one sit in a bit overnight hah

    Needless to say, today was amazing for me. All my underwater positions are in the greens, the EURUSD is bugging me a bit still but what the heck - everything else made back up for it.

    Not much more to say for today, I will post some charts tomorrow but look at SPY daily chart with volume. That is just pretty ...

    Ok, we have made an important milestone, BUT lets not get too excited about this. DO NOT get used to down days like today, we may have one more madness day in it this week on the downside but after that order will return, does not mean we have to go up but order nevertheless ....