Current Portfolio

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The Daily Report- Rally of Fear $SPY $VIX-X

Indices are rallying nicely but volatility is holding ground at fairly high levels. Plenty of stocks are putting in higher prices on earnings but others like AMZN are taking a hit on missed expectations. These divergences in earnings coupled with a continual release of bad news are keeping fearful market players on their toes. While my timer is green, I have not found any set-ups that I wish to enter in equities. I will hold the positions I currently have as they are holding their respective 8 EMAs.

It's a good time to sit on hands.

The Vix chart has taken a breather from its recent collapse, but volatility is still at a high level. The CNN Fear index still reads "Extreme Fear" even though it has climbed significantly from where it bottomed last week. Here is the Vix chart. Note that it is not dropping with today's rally. I have no doubt that it will collapse as fear can only stay elevated for so long, but I have no way of knowing how long it will take to get there and for the moment volatility is just going sideways. 




The Daily Report - Setting Up $SPY

Yesterday's pull back in the indices allowed stocks a chance to start setting up again. It is difficult to enter stocks when they are putting in a "V" shaped recovery. I prefer to wait for a pull back and inflection to invoke bullish patterns like flags and JHooks. Price does not move a straight line and until those patterns pullback and inflect, they are potentially bear flags.  Today I added two positions to my portfolio and I continue looking for set-ups that match my needs for entries. Here is the SPY chart.   



The Daily Report - My Timer is Green $SPY

The reversal to the upside in the indices has been enough to turn my timer to green but I still have not added any new positions. It is not for lack of a bullish environment though, it is for lack of finding the setups that will keep the odds in my favor. I am still in 80% cash. Stocks were beaten down fairly quickly and as such most set-ups find themselves under previous support now acting as resistance. I am looking for strength in liquid names to build up my portfolio in the coming days. The SPY chart is very strong here and may take a breather while components set up for moves higher. Here is the SPY chart. 




The Daily Report - The Process of Bottoming - $SPY

Markets appear to be making a turn after flushing out the bottom over the past two days. Indices are up significantly today while working on their respective 8 EMAs.

After leading the charge the past couple of days, IWM small caps are holding just above the 8 ema while letting the other indices catch up.   SPY, DIA and QQQ are working on getting through that level, but they are not there yet. A close above the 8 ema in indices along with stocks going in the right direction on Monday morning would give me a green light to go long stocks. However, indices may not get through that level today and may need some more time before they are ready to confirm a green light. Bottoming can be a process and I must wait for confirmation before buying into it. As such, my timer is not green yet and I am still hand sitting.

Here is the SPY chart.



I Did Say Correction $SPY

There really is nothing else to say here. Market is in a correction as I highlighted in the title of my post yesterday. I am wearing my bear suit and hold a large cash position while my XIV sits in the abyss. Markets continue going lower on bad news in the global economy, oil deflation and fear of Ebola. The SPY is down nearly 10% from it's high and over 6% just this week, and it's only Wednesday. The CNN fear and greed index is at zero. Can it go negative? Are we on the verge of another 2008 type crash? It's hard to see that right now as we certainly don't have the bubble we had then, but it is clear that hedge funds are liquidating on volume. I can tell you with a fair amount of certainty that there will not be talk about rate hikes anytime in the near future. I even wonder if the Fed will stop tapering.

Is this overdone? Of course, investors are emotional creatures who give in to fear easily. There is not even discussion about good earnings reported by many companies. INTC, for example, should be up today not down.

Most of the news is not new. We knew Europe was in trouble. We knew about turmoil in the middle east. But when you combine all the bits and pieces that attribute to the fear (oil, Europe, China, Ebola) after a stable upside for a few years and the regular calls for a market top, perhaps this sell off was inevitable when you study it from a psychological perspective. In any case, the trend is down. If you are trading, trade predominantly to the short side, otherwise, cash is your friend and there is nothing wrong with sitting on the sidelines and waiting for this to settle out if you are not as comfortable with shorting. The good news here is that a real correction such as this, will allow for a a real rally from the bottom. There will be money to be made with patience. Remember, embrace the bear and don't fight the trend. 




The Daily Report - Afternoon Update - Market in Correction $SPY $XIV

A Correction has definitely taken root in the markets and I have been wearing my bear suit for a couple of days now. The only position I hold is XIV (short VXX) but I definitely jumped the gun on that trade. I intend to rethink my strategy for shorting volatility to keep myself from sitting on a position this far underwater. My exception to the rules have left me in a foolish position.

That said, the only time I have lost money shorting volatility was in 2011 and I noted after that if I had held on, the trade would have been profitable. Why? Because volatility always collapses. It has to,  but it can stay volatile for sometime longer than I would like to sit in a position that is underwater. I am not worried about it which is why I am still holding it but that is no excuse to break my rules. I should have closed it early on and waited for a better entry.

As I watch markets bounce today, I note that SPY is either putting in a relief bounce to work off oversold conditions before it heads lower or it is finding support with volume at price from this past spring and putting in a bullish harami before it recovers. Either scenario is possible and so I am just waiting it out.



The Daily Report - Market Update $SPY $DIA

Markets are continuing to the downside. The 200 day sma is a clear target for the DIA as it has regularly found support there over the past year. In SPY, that 200 sma now fully coincides with the August low so again, that is the level I am looking to hold before I zip up my bear suit.

The tech industry has been hit hard today due to a message from MCHP's CEO who warned of a slowdown in semis. This has affected tech stocks across the board and TWTR is no exception, so I will have to drop my TWTR before the end of the day unless it recaptures the 8 ema.

As far as XIV, I will wait until Monday to see if the 200 does provide support in the indices. As I have said many times, volatility does and will eventually collapse and XIV will see new highs but if fear persists, volatility can continue to spike for a period of time, however I believe there is a strong case for the bottom to set in. If the 200 day provides support in SPY, it will become a double bottom on the SPY weekly chart with the August low.

On the other hand, there are a lot of correlations to 2011 right now. Congress members hinting of government shut downs and the S&P downgrading France. A volatile couple of months like the ones we saw in August/September of that year could prevail and I will need to take it on the chin with XIV until it settles out.

Here are the daily charts.

dia110 spy1010


Afternoon Update $SPY $XIV $TWTR

My timer is red. I have made no new moves today as markets gave back what they gained yesterday. While I am eyeing my bear suit, I am not ready to slip into it just yet. bearsuit

Currently SPY is still above its August low and the 200 day sma and is also holding the past week's lows as well. Those levels need to be lost before I fully embrace the bear. For now it is still a bull market correction that is down only 5%

There is clearly fear in these markets as we see more volatility than we have in some time. This current whipsaw action reminds me of 2011 when volatility spiked higher over the course of several weeks. I also know that that volatility did eventually collapse and etf's like XIV did eventually make new highs. But I will admit that I have no interest in riding volatility down in a whipsaw market if it continues a la 2011. I am not one to be stubborn about a position when I can just cut my losses and wait the for the right moment to strike again. Since I hold a 75% cash position, a larger loss in XIV will not hurt my bottom line much. That said, the CNN fear and greed index is at extreme high fear levels and that usually denotes a top in volatility. We shall see. 

TWTR continues to hang in there and I will continue to hold it. 


The Daily Report - My Timer is Still Red $SPY

Yesterday I said that my timer was red but had the potential of turning green on confirmation this morning of the big move. We joked in the chat room that it was a reddish-green or a nice shade of brown but alas, markets have not confirmed yesterday's move, so my timer remains red for now. Here is the SPY chart. 



The Daily Report - Bear Sightings $SPY $IWM

Markets continue to be weak as folks await the word from the Fed. We have been experiencing a whole new level of "tantrum" of late, a "rate hike tantrum."

Just as markets took it on the chin in fear of the great "tapeer," they are now taking the same heat in fear of interest rate hikes. I don't think this is so different from the same taper fears we have been experiencing over the past couple of years.  Markets sell off until the Fed assures investors that they will continue to support the economy. So it will be interesting to see what Ms. Yellen has to say today. She has always said that she will continue to support markets and the economy until they are on much firmer footing. It doesn't make sense to me that she would change her position at this juncture.

That said, small caps (RUT/IWM) are definitely in bear market territory and the other indices are testing support levels that could put them in bear markets as well if those levels are lost. Remember that once the announcement is made, volatility will come in until everyone has sorted through the minutes and made sense of them. Markets often whipsaw in both directions for the first 30-60 minutes after the announcement is made so I find it best to wait until it settles before making any moves.

Here is the SPY chart currently putting in a double bottom with last Thursday and also culminating a trend line from last October's bottom. If this holds after the Fed minutes, it could denote reversal to the upside, if not, I will be eyeing my bear suit.


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