A Day Trade View Chart

Down in comments on the prior trade oriented posting, Rick A had said:

https://chiefio.wordpress.com/2015/08/21/close-up-on-the-dow/#comment-63732

RickA says:
21 August 2015 at 8:37 pm
I have been waiting for a 10% correction from the highs (at least for the DOW) since about Feb. of 2014.

So I dumped some money in the market today.

I am a contrarian.

Well see how well it works out.
[…]

I responded with:

[…]
Monday will be interesting… I’d expect a down open, then a reversal in the afternoon as the “market makers” bank some profits off the shorts to date. When prices rise to the SMA stack, that’s when the shorts get re-applied.
[…]
@Rick A:
[…]
FWIW, I’d have guessed about 10 AM PT ( 1 PM ET) Monday as the ideal time to “dump some money in”. We’ll see which of us is right…
[…]

Well, looking over some charts, the hourly tick mark wasn’t quite as clear as a 15 minute one. So I thought I’d put that chart up here and folks can check out who guessed best on this come Monday. Here’s the saved chart of as Friday close:

SPY vs other markets and bonds / gold 10 day 15 minute tick marks 21Aug2015

Remember that you can click on this charts to “embiggen” ;-) them…

On this very rapid time scale, some things get stretched out and harder to read, others get more obvious. Take RSI Relative Strength Index, for example. Instead of a ‘near 20’ and a ‘near 80’ it tends more to “at 20” and “at 80”. But it can stay in that state a couple of days, so it’s hard to decide “how soon”.

On this graph it was “at 80” Monday 2 weeks ago. Time to sell. Then “at 20” the next day and half of the one after. Middle of that 2nd day was a good time to buy. But hard to tell from the close the prior day until the next day got here. A “near 80” Monday of this week was a good ‘sell’ time, but not clear until Tuesday when RSI fell away sharply almost to 20 (but still clear in time for an exit. Next we have a jump up on that flat day, but then a dead drop into Friday. Now, end of week, 2 days of “at 20” implying time to buy is “soon” (or perhaps “now).

Any help from the other indicators in sorting these out? Well, yes.

First off, the SMA stack was saying “be out” on that start of 2 weeks ago drop. Only having a ‘be in’ crossover mid Wednesday. MACD crossover was a clearer ‘buy’ call at that point with better timing; but then it also said buy the prior day into market close and the gap down Wednesday would have busted that trade… The safer trade would have been to make the entry only on at least 2 indicators. Price crossing SMA stack AND RSI ‘at 20 and rising’ and MACD crossover… That misses the start of the rise off the exact bottom, but avoids the larger loss from an early entry mid Tuesday. Then you ride the slow arc up to about Monday for a 1% or so gain. Maybe enough to cover transaction costs… Sigh.

That exit on Monday/Tuesday comes in a ‘topping weave’ of the SMA stack and prices with flat slope and low volatility. MACD has crossover to the downside Monday and RSI is headed to below the midline late Tuesday as MACD crosses under the zero line. Time to be out, but you needed to act in 1/2 hour increments or faster.

Now look at DMI / ADX. Clearly “blue on top” from that Mid Wednesday buy point, but it whipsaws you out end of Tuesday. Back in and out Monday / Tuesday of the second week. Then mostly screaming out until the end of the week. Accurate, but twitchy.

They must be combined to get the ideal trade times. Using MACD above zero / below zero gives a nice basic trade. Tune it up a little by a slightly earlier entry ( perhaps using a ‘buy if touched’ to buy in quickly on a rise out of that dip the first Wednesday) or just noting that RSI on 20 2 days in a row likely has a reversal ‘buy moment’ coming soon.

ADX (the black line) going down to a very flat 15 or so spanning the weekend a week back says that staying in is having less chance for gain, and all the risk of loss, and encourages an exit.

The MACD crossover downward on Tuesday also says “heading flat to lower soon” and the cross below zero end of day pretty much says “sell now or on the close”.

Wednesday this week we gap open below the SMA stack. Shorting would be nice, but a bit later than optimal (that was the close the night before). You make nothing on the day and would likely be scared out of the short on that blip up toward the end of the day.

That the blip up fails to penetrate the SMA stack says to “hold the short position” and especially as MACD is below zero (though inflected upward…)

Thursday DMI- is clearly rising fast (red line) and ADX (black) is rising too saying strength increasing. If scared out of the shot, it ought to have been put back on fast (but having lost on the short it would be emotionally hard). MACD “surfs down” the next two days with mid-day attempts to rise, that fail. ADX just keeps rising until a ‘go flat’ mid Friday last. Turning up again at the very end. DMI- (red line) has crossed under ADX and gone flat, but with ripples. So a steady down with some strenght. DMI+ is just dead on the bottom at between 10 and 15.

At the very end of Friday, Price is still well below the SMA stack. There has not been a ‘crossover to the upside’ and no “Dead Cat Bounce” is seen. RSI Is “at 20” so “end soon”, but it can be that way for a couple of days. MACD is still ‘red on top’ and pointing down.

All in all, it looks like “more down to come” and I’d hold the short (or not buy the long side). Looking back, the middle of the day is when reversals upside try their attempt. Usually on the second RSI 20 day (though the sample here is very low). It happened after ADX was inflected downward and as DMI+ (blue line) came off ‘near 10’ and headed for crossover of a decaying red line.

None of that is here now, but could form by the middle of Friday. So I’d hold off on a ‘go long’ stock buy until those signals started to show up (IMHO, a few hours after market open on Monday, and likely just after lunch in NYC as folks have had time to asses the news over the weekend and clear out the “sell at open” order from folks who only check their accounts Friday evenings or Saturday by the pool…

IFF the market opens “gap up”, then things are changing fast and a guess has to be made of the relative values of a quick long buy vs just sitting out the move and letting that surprise develop into a more understood trend. It is generally better to sit on the cash until you know the trade will work than to toss money at guesses and hope.
“Hope is not a strategy. -E.M.Smith”

RUT the Russel 2000, is an almost exact match to SPY on this time scale. No help there. But QQQQ is showing a big drop. Given that the NASDAQ darlings were THE hot property going into this, that they are dropping more (“the leaderships is failing”) strongly implies more to come. I’d be cautious until I see some strength there or “new leadership” clearly identified.

TLT bonds and GLD gold continued to rise into the close Friday. Not much sign of the ‘flight to safety’ weakening there.

Finally, Friday was an options expiration day. They can be quite volatile. Often followed by a flatter Monday. I’d not be too surprised to just see things tread water Monday. (Open down to clear out the weekend warrior sells at a low price. Rise back to prior close to sell on that inventory at a profit. Wobbly up just after lunch, then sell back down into the close at about where started. I’ve seen it before.)

Now remember that longer chart from the prior posting. Basic conclusion was that this down run had a strong pair of legs and a fair distance to go. That “down bias” context makes a ‘go long’ bet even on a day trade basis a bit more risky.

With all that said, this chart looks to me like a small day trade to the upside ought to be coming “in a while” as the SPY retraces the roughly 10 pts back to the SMA stack (about 900 Dow points) for the next “fall away” as shorts are reapplied.

But I’d “wait for it….” and mostly look for further down as the entry point for that trade AND be ready to flip reverse it to a short at the return to the inverted SMA stack from below.

Let The Games Begin!”

So now you all get to watch the market Monday, and see if any of this was worth a damn or if something “completely different” happens ;-)

Here’s a live chart (that won’t change until markets are open Monday)

Original at Bigcharts where you can play with the buttons…

Update: I’m adding more charts Sunday Evening

The first thing to mention is that if you have too many indicators in use, analysis paralysis sets in. So while I sometimes use some of these, by the time you looked at all of them you would miss the timing on a trade and be more befuddled anyway. I have a set of about 6 that are as much as I’ll typically ever ‘go to’ prior to a decision. If it takes more than that, you ought to be in cash as the situation is not clear enough.

Also note that this is not an exhaustive set. I left off a half dozen (and that’s just of the ones at Big Charts! other places have some more) simply because they didn’t seem to say anything. Maybe they are useful at some other time scale, but I could see no useful information about the prior 10 days in them, so nothing I could say about the next 2 from them.

I’ve changed to “only SPY” just to unclutter the charts a little. This also means that the side axis is labeled in price, not percent.

Bollinger Bands

This one adds Bollinger Bands (those red envelopes around price) and uses an Exponential Moving Average that moves faster on recent events.

Volume+ uses RED for volume on down periods and BLACK for volume where the period ended up.

Volatility is used in pricing options, so it is better to be “selling volatility” when it is high and not buying options then if possible. At low volatility times, buying options is better as their price is lower for any given strike range. So buy “protective puts” at the tops when volatility is very low. Sell puts at the bottom when prices are very low and volatility high. If you do get “put” the stock, you are getting it at a big discount anyway. (But odds are the put expires worthless and is pure profit, or if the volatility dies, you can buy it back for less and bank profit before expiration). Selling calls at the top doesn’t gain much premium and if you are wrong on direction, has your stock called away for not much gain. Buying calls at the bottom costs too much premium and the gain on the stock rise is often offset by the drop in volatility premium. (And buying calls at the top is just a stupid losing bet just as is selling calls at the bottom…)

Williams %R, to my eye, just says the same things as MACD but in a less useful way.

S&P 500 BBands Vix Volatility Williams %R 10 day

The Bollinger Bands (BB) formed a nice tight channel on Tuesday and as price dropped to the bottom of that channel it was a very good time to sell. (Or buy puts, or put on a short). Hard to tell that Tuesday from the prior Friday other than price moving from the bottom band to the top on Friday. IFF that is a consistent behaviour, then BB could be a very useful “sell now” indicator. On the First Wednesday ‘buy’ day, price pulls cleanly away from a very much widening BB. Could work. The second Monday does something similar, but too late to make a decent trade of it. The second Wednesday does something similar, just in time to get you bought in to a hard crash like drop… Hmmmm… Need to add some protective context. Like maybe “don’t buy right after a narrow channel sell – give it a couple of days”… At the far right, we are still hugging the lower BB, so no reason to even think of buying yet.

Don’t see much difference / benefit from the EMA vs SMA. Maybe with some added tuning?

Friday Monday Tuesday in the middle we can see volume just dry up and die. Just before the crash starts, on Tuesday, it’s just dead. On the same days volatility dries up too. ( I call the two of them together VolVix. When VolVix dries up, sell. It is never good. It can also dry up on holiday intervals, so this weakens at Christmas and Thanksgiving as folks pack up and head out of town. I usually avoid trading each side of a holiday. Volume and Volatility both still building to the downside. Not seeing any indication of exhaustion yet. (Watch for mid Monday. If VolVix is starting to weaken, the tend is winding down. If it is continuing to rise, well… Note that volume is always higher at open and close than in the lunch time window. Traders do most of their work before and after that window. During that window they will do ‘price discovery’ with moving prices back and forth to see where volume lives, then plan what to do in the after lunch session. Look at the second Monday at mid day. Price inches up, but volume just dries up. Now look at volume mid Thursday. Prices dip a little, and retreat as volume started to build. That’s when the “short into the close” strategy is formed. Similarly Friday. After a painful open, price rises a little before lunch, volume drops. Dropping back into lunch, volume rises, so after a ‘raise prices and get ready’ on low volume, more high volume shorting into the close.

Those are my speculations on what floor traders and market makers are doing. I have no first hand knowledge of it; but I think it fits all the known facts.

Williams %R is mostly above the center line when you ought to be in, mostly below when you ought to be out, but jumps back and forth rather a lot. The Second Tuesday it swaps to mostly below the line in time to signal a ‘get out’. Having been ‘mostly above’ from the first Wednesday buy point until then. After a ‘whipsaw’ buy sort of on the second Wednesday, it is cleanly ‘mostly below’ through the end of the chart. IMHO it would be more useful with less whipping and more smoothing, so I do the smoothing visually.

So these indicators mostly say “stay out right now” and expect a down open. I find BB and VolVix the most useful of the set.

PSAR and faster SMA Stack

Here the top indicator is the PSAR (Parabolic Stop and Reverse) those little red dots. When price crosses the dots, you swap to the other side of the trade (and the dots swap sides too). So if the dots are above, price is dropping and you ought to be in cash or short. Until price touches a dot, then the swap to the other side as you ought to have closed the short or bought the stock (or both). I find it works well in trending stocks, but is prone to severe whipsaws at flat market tops. When you see that “chopping sideways”, it’s time to not trade PSAR and just get out.

On Balance Volume is supposed to tell you if folks are net buying or selling (with Market Makers making up the difference). Never talked to me much. Maybe I just don’t know how to read it.

ROC or Rate Of Change is like a slightly more volatile Momentum. I find it useful, but not a whole lot different from MACD Histogram much of the time. (And between MO and ROC it’s just a coin toss, IMHO).

There is also a Fast Stochastic, but since Slow Stochastic is often too twitchy, I’ve not going with the even more schizo cousin.

S&P 500 Parabolic SandR OBVolume Rate of Change Slow Stochastic 21 Aug 2015 10 day

The much faster time interval on the SMA stack gets you bought in sooner, but with too many whipsaws IMHO. I mostly just end up looking at the longer time interval line in this set. FWIW, I’ve generally found that setting the first number to 1/10 of the total ticks in a chart time period gives the best medium between too fast and too slow. So a one year chart has about 230 trading days, and 23 works well. A 10 day 15 minute chart has about 260 ticks, and a 26 works well (though I’m often lazy and just leave it at 23). Don’t know why, just seems to work that way.

So PSAR is all muddied and both sides of price both on the First Monday top and at the 2nd Monday / Tuesday top. Muddied PSAR, maybe get out. (Or you are in a slowly rising boring market and ought to be using investor rules, not trying to day trade it…)

First Wednesday it made a nice “buy now” call part way into that rise of the day. Could be very useful to watch PSAR on this coming Monday. It seems to get a little muddied just about lunch time (gee… I wonder why…) and then is clear into the late afternoon. Right now, still saying “stay out”. So, to my eye, you need to not expect it to be useful during the lunch meander, but pay attention at long days of flat muddied (exit) and after large plunges (buy on crossing). Useful, I think.

OBV told me the first 3 days people bought until they didn’t, but I knew that from prices already, then it told me people were buying up to the top and were selling during the crash. Well Duh. Not seeing any predictive power. It does show the exit was continuing into the close, which I suppose is helpful, but again, we already know that from price. In fact, from my point of view, it is highly reflective of a reduced range price chart with an added lag. Then again, I never did like OBV, and maybe it comes into it’s own on decade scales…

ROC gave a pretty good “BUY” in sync with PSAR on the First Wednesday. The inflection of an imaginary tangent would be a great indicator. By the 2nd Tuesday it has gone flat, but crept below the line. A subtle but clear warning that the run up is out of gas. The 2nd Wednesday is clearly saying “you ought to have been out already”, then has a blip up of “exit now with the floor brokers” (On the first day of a heavy fall, you often see that ‘rebound’. I speculate that it is Market Makers raising the prices to sell out the inventory they had to suck up in the morning before they can short things the next day…) ROC is then substantially a big below the line blob (modulo the occasional lunch wiggle) into the end of the week.

Slow stochastic is calling every little wiggle and bump all day every day. IMHO at this time scale it is too useless and twitchy for home use. Maybe for floor traders or folks with automated trading and real time quotes it could catch all those tiny day trades, but with 20 minute lagged quotes at home, just a day late and a lot of dollars short. ( I do find it useful on multi year charts as then the time scale makes it closer to a decent swing trade time scale of coverage. Several days to a week or two range.)

Price Channel and Mo

Here we have a Price Channel on the upper price portion. This holds a marker at the last highest and lowest prices. Moving out of the ‘channel’ is supposed to indicate a trend. Probably better with slow staid stocks when waiting for a breakout. Then again, an average like SPY is slower and soft of staid.

Money Flow is like OBV only measuring the money flowing in not just the stock volume; and to me has about the same result.

Ultimate Oscillator is supposed to give clear trade signals. I don’t hear them well…

Momentum is a measure of which way the crowd is running. To buy or to sell? Volume and price products are the momentum basis.

S&P 500 Price Channel Money Flow Ultimate Osc. Momentum 10 day 21Aug2015

Price Channel, to me, says about the same as Bollinger Bands but without the Volatility component. Knowing that Volatility matters, I don’t see the point of leaving it out. Still, we do get price in a narrow channel on the second Tuesday and hugging the lower bound to the end of Friday, so saying “out, and stay out”. Comparing first Wednesday to 2nd Wednesday both give a ‘buy me’ lift off of the lower bound. But the second one is a head fake whipsaw… so maybe a rule to “only buy after a down” and “never buy the day after a topping call”? Or maybe 2 days…

Money Flow just doesn’t do it for me. Misses the trade out early in the week. Looks a lot like flattened lagged price data. Just don’t see the use.

Similarly Ultimate Oscillator. Well, it DOES oscillate a lot. But what is it saying and when? And does that do any good? No idea…

As noted above, most of the time ROC and MO are essentially the same (and similar to MACD Histogram). Does have big black blobs below the line when you ought to be out and above when you ought to be in; so provides some psychological comfort while you fret. Inflections from above to below happen at buy and sell points (but as the 2nd Wednesday shows, it’s a little too twitchy sometimes so needs some confirmation to buy using it, and didn’t tell you to get back out until after the gap down open 2nd Thursday. So again “trade rules” to need a clear confirm from 2 or 3 indicators not just swap when it swaps.

At the Friday end, the “mass” below the line is lighter. An imagined tangent line is sloping upward at that point. Put a trend line from the 11 to 3 peaks and it intersects Monday about 11 just before the “lunch wobble”. So I’d say an 11 AM potential buy (short cover) point, but then the lunch wobble will let you know what the floor brokers / market makers discover and choose to do at 1 PM ET …

End of Updated Charts

So that’s the end of the added charts update. Now you can try all sorts of things and see what works.

At the end of Monday, or maybe Tuesday if Monday is just all down all day, I’ll put up some comparison postmortem charts along with the “who won?” conclusion on ‘when to buy the dip’ question that started all this.

Enjoy watching the market and place your bets now ;-)

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