This is some commentary on the “one stop chart” from this posting:
https://chiefio.wordpress.com/2012/06/04/a-very-useful-one-stop-investment-chart/
with some minor variations (like a full SMA Simple Moving Average stack)
It has a broad swath of “things” on it. A bit of oil, some grains, gold, stocks, bonds, copper, etc.
In one look you get a quick “feel” for what’s moving and which way.
Here is a static image as of today:
One Stop Chart 20 June 2013
OK, “Uncle Ben” told us all he was going to start to “taper” off bond purchases (as long as the economy was showing signs of life…) ‘sometime’ later this year, and ending the taper ‘sometime’ middle of next year. He’s announced ‘last call’ at the punch bowl ‘soon’. So loads of folks are running around in a tizzy as they are about to have withdrawal symptoms. In particular, bonds will drop (and note on the chart that TBT is going up).
Yes, that chart is cluttered, but you can pick out bits. First off, stocks have had a ‘go flat’ moment. The “juice” that has been holding them up is about to end. Unlikely to be a lot of gain going forward, but not yet falling. SMA stack is going into a ‘weave’, not yet inverted. Bollinger bands narrow and flat. RUT above the SPY (as the broad market often over runs both ways, that shows we’ve been running up, and may turn. Yet RUT has not yet started leading down). There’s a bit more weakness in the QQQQ as it is not quite ‘dead flat’ but a bit down slope at that tail / ‘flat’ area. Not good. Unfortunately, since the colors are hard to keep separate, it’s hard to see, but JJC copper continues low / down while the similarly redish TBT ‘short bonds’ is rising sharply. Copper says we’re not yet in a real manufacturing growth phase. Yet oil is rising, costs up. And Gold GLD continues to run downhill. (Looks like that “be out of gold” from way back months ago was not too bad a call.) So “what’s next”? All I’m seeing that looks interesting at the moment is the “short bonds” trade.
The interesting thing to me is that TBT showed the change 2 months back while TLT reflects it 1 1/2 months back. Somebody read some tea leaves right (or have ‘friends in high places’). So had I not been so focused on getting a new job and relocating to Florida, I’d have been able to see this coming about 4 weeks ago (after the chart had a decent sized trend established). Sorry to have been slow on the call on that one.
The One Stop Chart at BigCharts.com where you can customize the settings
A live version:
Broad Markets on One Chart from BigCharts.com
I had said before that:
It is possible, in Windows, to set that chart as your “Wallpaper” and have it automatically update every so often. ( I had mine set to about 10 am each day, once opening volatility was out of the way and a reasonable ‘trend’ indicate was possible). Then if you see something interesting, hop over to BigCharts.com and explore related tickers.
It looks like in the more recent versions of Windows they have disabled this feature for “security reasons”.
SPY - S&P 500 - the Benchmark for all other tickers GLD - Gold ETF - Fear and Inflation index RUT - Russel 2000 index ETF - Broad market and small caps EEM - Emerging Markets ETF basket JJC - Copper ETN - Broad manufacturing indicator TIP - Treasury Inflation Protected bonds - Benchmark safe haven. USO - US Oil ETN - energy sector AND broad economic indicator QQQQ - NASDAQ 100 - Tech indicator - more consumer sensitive less financials JJG - Grain ETN - Ag proxy and weather sensitive TLT - US Treasuries long duration - "Flight to safety" indicator and moves more than TIP
Here’s the same chart with GLD as the main ticker (so I clicked on the Bigcharts link, then just changed the main ticker to GLD as it looked interesting on the basic chart):
One Stop Chart with GLD as main ticker
Gold is clearly in a long term dropping market. Hanging below the SMA line. Yet perhaps nearing a bottom. We’ve had a ‘failure to advance to the downside’ at about $1290 or so a couple of times now. RSI bouncing off 20. It needs to have an SMA stack weave (not visible on a single SMA chart like this) and then a crossover to the topside. MACD needs to cross the zero line to be a confirmed bull market (and that can be a bit after a run up is established). IMHO, it’s near (or perhaps at) a bottom. But I’d not buy it until there’s some signs of life. It is possible that as Bonds drop (see that down trending TLT line above) some folks will ‘run to gold’ for ‘safety’ and send it up a bit. IMHO, the better trade is to short bonds. With the Fed withdrawing purchases, interest rates WILL rise, and bond prices drop. Uncle Ben has told us we have that, if slowly, for the next year. “Never fight The Fed”…
Tea Leaves
Some general comments on what each ticker tells you in a general sense (i.e. not which way it is trending at the moment):
So looking at the individual tickers tells a lot. Is oil plunging? Longer term that’s good for the global economy, but usually means the economy is tanking right now. Has oil taken a spike? Maybe a war breaking out somewhere or news of economic growth starting.
Is copper falling? Not much stuff being sold / manufactured.
Are grains rising or falling? Drives food costs, drives Ag Industry sales, even impacts restaurants and meat prices.
How do Emerging Markets, RUT 2000, Nasdaq 100 and SPY compare to each other? Emerging markets often move first and furthest, RUT right behind. If they are below the more staid SPY, likely a bear market. If they spike up, we’re likely starting a nice run up. QQQQ has been beating them all, and rolled over last. It will likely roll up near the middle (or perhaps earlier than most) and run faster up when it does. But not all trends last forever, so don’t get wedded to QQQQ; it can have a “Tech Bubble” moment…
GLD TLT and TIP make a “Flight to Safety” and “Relative Fear” indication. TIP vs TLT is also a bit of an inflation indication. TIP has an inflation index ticker so rises when inflation erodes TLT. TLT bounces up more on fear moments and Federal Reserve Bank actions. Gold is largely driven by Central Bank buying and selling, but with about 25% being gold sales into India. When India is in recession, that’s a problem. When Central Banks are scared, they buy gold, and that props up the price. Right now it’s mixed.
So you can look at this one graph, and get a quick feel for fear in the market, fundamental inflation in real terms, Oil Shocks and what they might be doing – or oil glut in recessions as they approach, food pressures and Ag status, along with general demand for manufactured goods and a broad economic indication. Then compare the stock indexes ( SPY, RUT, QQQQ, EEM ) and see if the more volatile / sensitive ones are leading in a direction you like… or are they approaching an inflection point? Also these things together indicate: is it time to go “Risk Off” into a “Flight to safety” asset, or “Risk On” into stocks and other risk assets.
One quick look and you are rapidly “oriented” to the situational awareness of the global markets.
In Conclusion
So that’s why I’ll often just look at this One Stop Chart and figure there isn’t much to do…
With that said, many of these have been dropping long enough that RSI is at or near 20. That’s typically bottom fishing time and a rise, even just back to the SMA stack, is likely. I’ll trade those movements on a 10 day hourly chart until a new rising trend is confirmed. These are going to be “counter trend rallies” until then, so short fast trades up to the SMA stack, then out for the fall (or buy puts behind them).
Advanced style trades are to buy the puts AND put stop loss sell orders behind the stock. If prices fall, you are stopped out of the ‘long stocks position’ and make money on the puts. If prices rise, you stay long the stock (making money) and the relatively cheap insurance of Puts expires worthless; but you dramatically reduced your risk profile and were positioned to make money with either directional move. That’s the kind of thing you need to do if ‘going long’ in a ‘counter trend rally’. Not just “buy the stock and hope”.
“Hope is not a strategy. -E.M.Smith”
Musings from the Chiefio 
I guess I should feel guilty as I read you for affirmation of what I see coming. And you never seem to disappoint. Of course you seem to be right much more often than you are wrong, so I will continue to read your analysis of the markets.
@ Chiefio: Ahhh! Thank you for bit on what it all means. I usually skim your stock post squiggles and 3-4 letter words because I just don’t get it. Now I feel I can sorta keep up!
Interesting about gold, India and the banks. Does China have much influence on it? I thought they were buying heavily.
Could you explain the difference in the last two stratgies you mentioned: buy with puts vs buy with puts and stop loss? What is the advantage over simply buying with a stop loss set?
@Jradig – to me the buying puts gives you additional protection on top of the stop loses. If the market goes down and you exit your stop loss, your puts will make you money, so hopefully you come out even or even make money. If there is an all out crash you might blow through your stop loses and not get an execution of the orders, in such a panic sell the puts are your protection as you are guaranteed a sell price to recover from the non executed stop loses. You might lose some, but not a whole lot.
If you buy with just a stop loss, your betting the farm things are going up and you will get out if it goes against you and most likely you will see a small loss. This can be very risky in a volatile market. When the market goes crazy and stocks are cratering there are no guarantees you can get out and you can end up with a huge loss.
For a market that is peaking and looks to fall, a good strategy is a collar. Sell calls against your stock and use that money to buy puts. If the market goes down you get out ok, if it stays in a trading range nothing happens and your options expire, but it was a zero sum transaction so your ok. The worst case is if the stock shoots up and you deliver your stock for a gain, but not as big as it could be and you pay the tax man in the process.
My perspective, maybe Chiefio sees it different, that’s the beauty of trading, it all looks different based on your perspective.
@PhilJourdan:
If you can be right 60% of the time, and have trading rules to cut the losses short, that’s enough to win at trading. I like to delude myself that I’m right more than 60% of the time on the trend. ;-)
(It is actually getting off my duff and doing the trade where I tend to fail, being too cautious at times.)
@Quail:
Any time you want an explanation of a point, just say so. I love to explain things (as it often helps sharpen my understanding…)
It is a gift that can be given for nearly zero cost, but significant gain overall. It makes the world a little bit better, net.
China buys a lot when it has a lot of US $ and EU € to dump. As the EU is the ‘dead man walking’ and the US is broke and borrowing $Trillions, they don’t have so much currency to dump these days…
@Jradig:
Buy stock: Goes up, you win, goes down, you lose, fully proportional.
Buy with stop loss order: Goes up, you win. Goes down gradually, you lose a little. Opens the day “gap down hard” as the CEO was perp walked out… you lose big as ‘at the open’ the stock is already in the dumper.
Buy with stop loss order and puts: Goes up you win, minus the cost of the puts. Goes down gradually, you lose a little to the stop, and the puts might break even depending on speed of drop (has to drop faster than implied volatility of the puts to make money). Opens the day “gap down hard”, you make a bundle on the puts (as the volatility premium goes up too!) while losing on the stocks. Net, you will gain. So the only “lose” is on a slow decline that eventually stops you out, but doesn’t move fast enough to cover the ‘time value’ lost in the puts. For that, you need to watch the position each day, note the slow bleeding out of the put price and the stock drifting down 10 % over a month, realize “it’s not working” and exit the trade early.
Puts alone: Betting it goes down fast and hard.
Calls alone: Betting it goes up fast and hard.
Puts and Calls together: Betting it goes somewhere really fast and really hard. Useful if, say, there will be “news”, but you don’t know what.
Buy while selling a covered call: Betting it will go up, very slowly over time, but with a bit of insurance if it goes down (the premium of the call sold) to cushion a dip. Makes more money on the slow rise as the call expires worthless and you keep the premium. Only “lose” is if they announce something great, the stock pops up, and you get it called away. So you “only” make the difference from buy price to call exercise price + the premium collected. The best strategy for most folks. Or if they announce something really really bad and open “down hard” more than the premium on the call sold. So best used on moderately safe stocks.
Options have a slow loss of ‘time value’ where the premium slowly evaporates as the option approaches expiration. That ‘time value’ is set based on historical volatility, so you are betting that the stock will move further and faster than it usually does. Best to buy options when the market is low volatility about to get higher… best to sell options when market volatility is very high and about to get less. That way you sell a load of volatility premium, and it just goes away as the volatility drops. (Probably THE thing most folks trip over with options, buying puts DURING a crash when the volatility premium has spiked way high… You want to buy puts at those low volatility quiet tops with tiny price bars… just before the plunge into high vol…)
Plus the stuff BobN said.
That’s probably enough for now ;-)
@BobN:
I’m more worried about the more common ‘gap down open’ than not getting an execution, but the two are strongly linked…
Notice on the live chart that after a near 80 RSI it’s dropping, MACD is near a zero with “red on top” and DMI has a now got a clear “red on top spike”. That big drop of an isolated tall price bar is an indicator of heavy selling / short selling. IFF this is a topping motion, we expect to see a a mild recovery back to the SMA lines from below, then a further “falling away” to the downside.
Last time we saw this I made a ‘mild panic’ holler about it and missed this last run up. But it IS a signature of the ‘big boys’ starting to short. Usually it’s about 3 or 4 days later that it gets confirmed with another big down price bar. The other thing that can happen is “other big money” steps in to “buy the dip” and we are off to the races again.
I’d vote more for “drop” here than “dip”, as The Fed is saying the easy money is going to end over the next year, but as usual, “expecting” at the market is not a good behaviour and watching the charts tells you what all the OTHER folks are doing, and that moves the market.
In any case, I’m mostly “out”. Just sitting in cash (plus my Berkshire Hathaway… that’s a perpetual hold). Ought to have a short on in bonds. Ought to have bought puts last week. Oh well. I was busy ;-)
On the live chart you can see that we’re returning to the SMA stack from below. MACD is now below zero and DMI is clearly RED on top. It’s “bear rules” for now. Only if price punches through the SMA stack and MACD gets back to ‘blue on top’ and headed clearly into above zero can we expect rising trend. For now it’s “negative trend” or “waffling” at best.
If I get a chance I will do a full posting, but with copper dropping, stocks rolling over, and bonds dropping, the markets are looking grim. The Fed is talking of removing the meth and the addicts are looking ill. Not good.