Market’s Next Move

When guessing what will happen next, you need look no farther then the trend, and the condition of the market.  So what knowledge can be gleaned from the current situation?

This chart shows the SPY, an etf that tracks the S&P 500 index.  Read the rest of this entry »

Triple Leveraged Arbitrage

This is a long term play you’ve NEVER heard of.  Its not quite arbitrage, but it does have some similarities.  Its similar to an arbitrage strategy in that you have a long position, and a short position on the same underlying.  In other ways its like selling call options dated fairly far out, in that the odds are highly on your side, and it should slowly but relatively safely make money over longer time periods.  Yet the reality is this play is like nothing you’ve ever seen. I call this ETF strategy: Triple Leveraged Arbitrage.

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Time to short financials?

So lets get straight to the point.  The financial industry has been destroyed during this recession.  Going by the XLF, a ETF that focuses on the financial sector, at the prior bottom, the sector was down 83%. Meaning a recovery to previous levels would be a 488% gain.  Since the March bottom, it rallied 110%, and after a small pullback, has dropped to just 85% higher then the march levels.

So what happens next?  After this rollercoaster ride of a sector, what’s likely to happen next?  There are a couple key ways we can predict that, but keep in mind that the point of technical analysis isn’t to be 100% sure of the direction; the idea is to get a good idea of what is most likely to happen next, and capitalize on the opperunities the market gives you, while keeping your risk in check.  With that said, lets take a look at the technical picture.  Basic technical analysis, step 1 is to identify support and resistance levels.  Key support levels seem to be 11.20, and 9.80.
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Sector Update

I posted an article about using BP indexes a couple days ago.  When the article was posted, a number of sectors were overbought, but it wasn’t a sell signal yet because they hadn’t entered a column of Os yet on the Point and Figure chart.  That situation has changed.  The Financials, Consumer Discretionary, Industrials, and Materials sectors are now all showing sell signals on the P&F charts, so anyone who is long those sectors should lighten exposure, and anyone looking to short them into a reversal has an added indicator to confirm that move.  The overall market, as represented by the S&P 500 isn’t showing a sell signal yet, but with so many sectors switching from overbought to sell signal, there is a strong possibility that this bull market rally is nearing is nearing its climax.

That being said, its important to note that the last time financials gave a BP chart sell signal, it turned out to be a head fake, and people shorting on that signal would have lost money.  Still, this signal is right far more then its wrong, and traders should keep that in mind in the coming weeks.

Stock Trading Strategy: The Bullish Percent Chart

In my previous article on stock trading strategy, I showed you how to use relative performance to decide what sectors you should be buying and selling.  In this article, I’ll show you how to use a little-known tool to call reversals in the major economic sectors.  What is this little known tool?  Its called a Bullish Percent Index, or BP Chart. Read the rest of this entry »