Mentoring Sessions.

I will be starting my yearly mentorship group this summer on June 15, 2013.
If interested, please e-mail me at marketing1977@gmail.com

Are we on Mt Everest - Part 2.

On April 4 and on Feb 5 of this year. I wrote about how tops are being formed.

http://bigbullandbigbear.blogspot.com/2013/04/are-we-on-mt-everest-yet.html
http://bigbullandbigbear.blogspot.com/2013/02/are-we-on-mt-kilimanjaro.htm

We are now on April 20 looking again for the same answers that we were looking at.
Now since I wrote the last article 20 more days have passed and we again go back to Mr. Time to give me answers.

Lets look at Market Breadth.

Last time when we looked at the charts, they were at the extreme bullish levels and a turn was right around the corner but turn had not arrived.  We said that we would look for a turn and a big down candle in the in the market and we did that that turn and a big candle down day and all three Bullish percent Indices have turned downwards which is telling us that the Ball has now been passed to Bears and one should not be surprised to see big down days in upcoming days to weeks. 

Lets look at the moving averages to see what to expect. The  8 /21 Exponential Moving average has now crossed over in one of three charts. RUT is definitely in the bearish territory while Dow Jones and SPX charts are right on the verge. 

RUT chart has also formed the ugly looking Head and Shoulders pattern. It tried to trigger this week but bulls came in to fight and defend the 900 -905 levels on the Russell chart. The same happened with SPX chart.  SPX chart tried to breach 1540 area but then it was defended this week.  Also remember that 1540 is the 50 day Moving average too and historically long term trends tend to have a bounce at that Moving average before failing down.

So for now the charts have not fully broken down but Bullish Percent Indices are leaning towards bearish side.

So if you are still long in your 401K account and IRA accounts, use the bounce that will come in next days/week to get out of the position before the Train wreck happens.

Hopefully this should help you protect your 401K and IRA accounts.  If you still need help with your overall trading goals, 401k etc and this type of detailed analysis, you can sign up at www.Bigbullbigbear.com

Are we on Mt. Everest Yet?

I wrote on Feb 5 2013, an article about Tops (http://bigbullandbigbear.blogspot.com/2013/02/are-we-on-mt-kilimanjaro.html) and we are now at April 1 and the same question gets asked again. After a great first quarter, and a ugly day in markets today, the same question Are we on Mt Kilimanjaro or Mt Everest yet.

The only person who has answer to this question is Mr. Time.  The game of stock market is won by people who tries to put the odds in their favor at every given instant of time.  Every person who buy or sells stocks is making a prediction at that point in time on the direction of the stock. The only time he will make money is that Market gods favor him and stock moves in the direction he predicted.

Now if he gets this done in a consistent manner then his profits and accounts will grow. Otherwise his /her portfolio will die the death of thousand cuts.

So next question in your mind is how to predict ?

There are multiple various ways to predict:
1). Market Breadth
2) Moving averages
3) Chart Patterns which are based on human behavior.

So going back the question are we on Mt Everest

Lets look at Market Breadth.

These are the charts of bullish percent indices on SPX and Nasdaq -100 stocks. These charts swing from 20 levels to 80 levels. 80 levels means extreme bullishness and 20 levels means extreme bearishness. Ideally one should buy a the turn near 20 levels and sell at the turn near 80 levels.

Both of these charts are telling us that we are at the extreme bullish levels and a turn is right around the corner but the turn has not yet arrived.. The day these charts start to reverse and you see the market selling off with big candle till then one needs to remain long.

One of the other way to position is to buy at 20 levels before the charts turns upwards and then sell before that chart turns downwards from 80 levels and just target the core of the move. However history has shown the fat tails have been very profitable. So adding the fail tail gains can provide the extra oomph to your portfolio.

Now lets look at the Moving averages: 

All these three charts has their latest lows still intact.A close below the 21 period EMA would indicate further weakness. So the goal is remain long till the stops below these averages are taken out. Otherwise keep trailing the upside moves and let the profits come in.

I will go in the details of chart patterns in a later article.

If you still need help with your overall trading goals, 401k etc and this type of detailed analysis, you can sign up at www.Bigbullbigbear.com

Are we on Mt Kilimanjaro

Some folks keeps on talking about Top is emminent and this should be top. Let me point out some charts on weekly timeframe and you can judge for yourself why this is not a Top. Tops takes 2 to 4 weeks to form where we don't go anywhere and just chop around at the same levels. Yes if we don't break above last week's high which is at 1514.17 and just chop around then we are in the beginning phase of forming a Top. Also if there is a sell off then it will be seen in price action as well as in Breadth numbers and in VIX too.

Why XIV gave 181% returns in 2012.

Looking at the yearly performance of ETFs ,we can see that some of these ETFs significantly outperformed their counterparts. 

Out of these names, the first name is of significant interest here.

Why XIV was the best performer in Year 2012

The main reason for this absolute out-performance  is because of the way these volatility ETFs are structured. 

VXX - This Etf is based on constant weighted average of VIX futures maturity of 1 month

VXZ - This Etf is based on constant weighted average of VIX futures maturity of  5 months.

Details at the following site.

http://www.ipathetn.com/static/pdf/vix-prospectus.pdf

So what exactly are VIX and VIX futures?  CBOE's education site describes it as follows:

"The CBOE Volatility Index is based on real-time prices of options on the S&P 500 Index, listed on the Chicago Board Options Exchange (Symbol: SPX), and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility... The contract multiplier for each VIX futures contract is $1000."

Since VIX is just a computed number, the way to trade VIX is using VIX futures or options on VIX.  The prices of VIX futures are dictated by actual market price. The VIX options are based on the VIX future prices.

If look at a chart of the VIX, you will see that it remains in downtrend for quite a bit of time and then it just runs upwards crazy in exponential fashion and then again come crashing down

There are couple things once can  one can observe on the VIX  and VIX futures charts.

• The prices of VIX futures in different month are different 
• There are short term momentum spikes in VIX and near term VIX futures
• Effect of SP-500 options trading.

The different prices of VIX futures are also called Forward Curve or Term Structure. Term Structure or The forward curve is a graphical representation of the current price of each futures contract over a period of time.

Here is the latest scenario of VIX term structure. 

From the above picture you can see the various months VIX futures. The same information is also available on www.cfe.cboe.com. The futures months are prices upwards towards the mean value of VIX. This upwards slope is called Contango  in Options world.

 If the price of VIX does not change then at settlement the futures contract will have to come down to price of VIX which is also called SPOT price. Hence the difference between the forward price of VIX futures and VIX will be lost.

For e.g Currently March VIX future contract is at 18.05 and VIX is today 14.68. So the difference is 3.37 points Now since VIX futures are mutliples of 1000, So the amount lost will be $3337. 

So as long as the VIX futures keep on sloping upwards, the difference between high VIX futures prices and VIX will be lost.  Hence the ETFs like VXX or VXZ are at significant disadvantage. 

So if there is no movement in VIX or if VIX remains range bound then these ETFs based on VIX futures will continue to perform badly. 

Now there are two ways to capture this type of melting effect, You can short VXX or VXZ etf or you can buy XIV and keep trailing with a stop loss of 75 cents to $1. 

The only caution area here is the deterioration of Term Structure or VIX running up exponentially. 

Bull Snorting today

The market gapped up almost 25 points on SPX and than ran more. This is one of the strongest moves I have seen in a recent history.

Here are the ETFS that had the biggest moves today.

The name of the game to pick winners is Relative Strength. 

What is Relative Strength? 

Relative Strength is the comparison of Performance of a Stock or ETF against the performance of overall market or Market Indices. 

Some of the easy way to look at the performance is to compare stock performance vs Market Performance on Strong uptrending days like today. 

Similarly on a down trending day, one can look for stocks that are holding up or not selling as much as over all market index. 

So use this method and focus on these strong names and you will find good winners, Out of these some will be like 200% to 300% winners. 

Good Luck.

If you need help getting through the muddier market, then please join my premium site at www.bigbullbigbear.com

Premium Market Analysis

The following is the re-post from the premium site. 

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On Friday we finally finished the trading day and the trading week with SP-500 at 1389 which is a lower low the weekly chart. This 1380 area is also a 200 day MA for the SP-500 index. Hence one should expect some of bounce or re-adjustment of position usually on higher volume which is where we are in the current cycle.

We are now at the junction where market can bounce back heavily or can collapse and create a gloomy picture all over the place. I pointed out over the weekend to mentorship students that we are at the critical stage in terms of Stage Analysis.

As you can see in the below chart that in past we have bounced back from the 200 day MA in the summer and went to create new yearly highs and same type of pattern is setting up and if we get the same bullish move then we are looking at the new highs at 1575 on measured move basis.

Same thing can be said that if we dont bounce and fail here then another 80 to 100 point down move is warranted which will take us the the 1300 to 1285 levels on SP-500.

There are various levels of support on the way down. They are at 1370, 1355, 1320, and finally at 1295.  So we will have to just wait and evaluate one day at a time and one more week here.

For now we are hovering around the 200 day MA and that is acting as support level. Most of the blogosphere and investors are all concerned about the failure here and market has its own way to go against the majority of investors.

Also another thing to note today is that we had a DOJI type of signal or Inside day type of signal.  So any break of today's high and low and then any break of Friday's high or low would be the action signal in-terms of taking short-term positions.  

The only positive indicator for bulls is VIX.  VIX continue to defy the bearish more and bamboozle most of the traders who rely on VIX to give them a confirmation.

The VIX term structure that we talk is still slanted upwards that means bullish market.

VIX closed below 17 levels today at 16.68 but we did not see market close at the highs today. Hence I am still in the wait and watch mode here. Break of DOJI's high or low would the action signal.