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4 Names to Watch: Update
Two weeks ago we highlighted 4 names to watch for the upcoming weeks. In the video below, we break down the recent action in the market and revisit those 4 names to see how they have done. The 4 names are: Tesla (TSLA), Caterpillar (CAT), Michael Kors (KORS), and Target (TGT).
Continue Reading -->4 Names to Watch for Next Week
In the video below we highlight 4 names that have shown relative strength to the market this week and are in a prime position to see additional follow through in the coming days/weeks.
Continue Reading -->US Dollar Update: Nailed It…Again…
In this video update we revisit the US Dollar Index (UUP) as it has been under heavy pressure. Just recently it tested the key $24 level which was the 2016 low and a level we said would get tested based on a simple and objective method. In this video you will: Hear the analysis that got us to this point See how you could have made money off the bottom Find out where this is headed next
Continue Reading -->The Red Dog’s Roadmap
The SPX futures are up 2 ahead of the Fed this afternoon. It has been a methodical move since clearing the descending channel above 2430 to take out 2453 before making a new all-time high at 2481. Now we’ll look to see if the active bulls stay in control with upper support at 2464 and yesterday’s low at 2474. IWM gave another calculated entry Monday after it reclaimed $142.25 and cleared $143.55 to hit a hgih of $144.25. It will need to hold $143.21 to keep active bulls happy and, if it can, extend another day towards a target of $145. XLE is trying to stay relevant as some are long vs the $64.50 stop while others want to see if hold the 50day of $65.86. IBB has its first bearish engulfing candle in a while and I did tweet that I sold around $329.50. After this move from $310, some digestion makes sense. Look for banks to be in play on fed day as JPM had a nice 2 day move. If it is able to hold the $92 area, I will be looking for it to make a move towards all-time highs in the days ahead.
Continue Reading -->Weekly Sentiment Report: Fear Is Here!
Last week, I asked if the bulls went too far. Options traders were buying call options like crazy, betting on a big pop into quarter-end. Turns out, the only thing that popped was the VIX, which rose 56% intraday yesterday, its 5th largest range ever. Take a look at this chart: So let’s take a look out our 5 sentiment indicators to see just how bearish traders are after yesterday’s volatility spike. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish This VIX rose so fast yesterday that the curve actually inverted for a short period, indicating extreme fear. But less than 24 hours later, the VIX is around 11ish and the 3-month spread has reinflated back to +2.75. So everyone that bought puts yesterday to bet on a further decline today is getting spanked. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, flat from last week. F&G operates on a 1-100 scale, and a reading of 53 is right smack in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 29.7% of individual investors are bullish, dowm from 32.7% last week. This 29.7% reading is well below the 38.5% long-term average, and indicates that individual investors are fearful. Throughout this year, individual investors have tended to not trust the market, and this latest reading indicates that nothing’s changed. On a related note, two weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top. Individual investors were downright loony in October 2007, not the least bit worried about the deteriorating housing market. They’ve been much more skittish in 2017 even though we’ve had almost no volatility this year. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.69 yesterday, which is a bearish reading. The 3-day moving average is 0.66, which is slightly above the long-term average. These numbers indicate that traders are modestly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 90 (90 calls bought for every 100 puts. The 10 day moving average is just 81.5 (81.5 calls for every 100 puts) This indicates that traders are bearish. Conclusion Out of 5 sentiment indicators, we have: 1 bullish (down from 2) 1 neutral (down from 2) 3 bearish (up from 1) Clearly, traders are more bearish than last week. So we’re seeing the same old trend — every time the market hits the rocks, traders get real real bearish real real fast. I know it’s trendy to say that everyone’s bullish, but that’s just plain wrong. If you want to see what real bullish sentiment looks like, go back to 2007. As I noted earlier, we’ve seen very little volatility this year. So the fear isn’t coming from troubling price action. The problem seems to be two-fold: 1) People are fixated on Washington DC headlines and assume that political volatility will lead to a down market 2) The bull market’s gone on for so long that people assume it just has to hit the wall — what goes up must come down The bears will be right eventually, but who knows when? Jeff Cooper is making a very good case for further downside, so I suggest you read his latest piece: These Rallies Were Made for Selling
Continue Reading -->The 7 Deadly Sins of Trading, and How You Can Cure Them
Greed, for the lack of a better word, is good. That’s what Gordon Gekko said in the classic 1987 film Wall Street. And indeed, a little greed goes a long way. Greed can push you to work harder to bring home a bigger paycheck. It can push you to save more money for retirement. But greed can also eat you alive… even if you have all the money in the world. Greed is only one of the 7 deadly sins you’ve heard about from religious texts or pop culture. And as you’re about to learn, they all apply to trading, and they all have cures if you understand them. Lust is often associated with sexuality. But there’s another kind… the lust for money and power at all costs. That’s a recipe for disaster for 2 simple reasons. An obsession with making more money can push you to take bigger and bigger risks. You’ll put yourself in harm’s way when there’s no good reason to. It can also push you to cross ethical and moral boundaries. Remember, once you cross that line, there’s no turning back. The Cure for Lust Replace your desire for money with a desire to learn. As you become a more skilled and experienced trader, you’ll likely earn more money. So focus on building your skills and gaining experience, NOT the potential rewards of skills and experience. It’s like dreaming about buying a Ferrari before you’ve even had a job. It’s downright childish. Grow up, get good, and the rewards will come. 44% of lottery winners go broke, according to a 2015 study by the Camelot Group. Why? Because most people can’t handle sudden wealth. Traders are no different. Once a trader achieves financial success, he’ll be tempted to overindulge in everything from food to clothes to travel to cars to real estate. An upgraded lifestyle means upgraded living expenses So what happens when that trader has a bad month or bad year? Panic, frustration, and inaction. When the mortgage is due today and there’s just $28.71 in the checking account, it’s pretty dang hard to focus on the charts. The Cure for Gluttony As you earn more money, save a higher percentage of what you take home.. Let’s say that after a year of trading, you have $25,000 left over when all your taxes, trading expenses, and bills are paid. And let’s assume you feel comfortable spending $7,500 of that on “fun stuff” like new clothes, travel and entertainment. That’s 30%. On your next $25,000, take it down to 25%. And the $25,000 after that, reduce it down to 20%. The exact numbers don’t matter. The point is, by scaling down your spending, you’ll keep a safety net in place for the rough times. It’s okay to want a bigger house, a nicer car, and private school for your kids. And it’s okay to dream about having $10 million in your bank account. But if you’re trading just to make money to buy more stuff… go do something else. To become a great trader, you must love the process of trading. It’s not easy to stare at computer screens for 9+ hours a day, trying to make sense of news and charts and price action. Most people burn out from it. But the best of the best can’t pull themselves away! The Cure for Greed Revisit what you really love about trading. Is it the process of scanning through 200 charts to find the one that speaks to you? Is it the rush of adrenaline you get when you nail a trade? Or is it just plain fun? Your trading results are important. If they’re not, you shouldn’t be in this business. But it’s equally important to enjoy the process. So shift your greed for money to a greed for sheer enjoyment. Experienced traders often get nostalgic for the ‘good old days’ before high frequency trading, decimalization, and overactive central banks. Many of these traders run into trouble because they do more complaining than learning. Instead of learning new skills, they get left behind. Evolution is a cruel beast. And it comes for the weakest traders first, the ones that don’t adapt. It’s 2017. The strategies you use today may not work 3 years from now. What are you gonna do about that today? The Cure for Sloth Put yourself on a regular schedule for continuing education and personal development. Don’t give yourself the option of NOT improving. You could set a goal of reading 2 new books a month. Or learning 4 new chart patterns. Or writing out 3 case studies about your best — or worst — trades of the month. The possibilities are endless. And don’t forget about improving your non-trading self. Some of the biggest trading lessons are learned away from the desk on a racquetball court… or on a wild boar hunt in Texas. (seriously) An angry trader is one that just lost money, and is on the verge of losing more. If you’re angry, you’re impatient. If you’re impatient, you’ll make more bad trades. And if you make more bad trades, you’ll get even angrier. That’s when the ‘revenge trading’ starts. That’s when you lose $2,000 in the morning, and you’re determined to ‘make it up’ with more trading. Before you know it, you’re down $5,000. And then $10,000. And so on. And so on. The Cure for Wrath Clean up your mess as best you can. And then walk away from your trading workstation. Don’t come trade again until you have your anger out of your system. Talk to your buddies, watch a funny movie, or take a walk. But get it out of your system. And if you feel like you’re getting out of control too often, seek professional help. Anger won’t just hurt your bottom line. It will also destroy your body. On Wall Street, you can make $1 million a year and still feel poor. Why? Because the guy next to you made $2 million! Traders are competitive by nature. It’s no wonder so many love
Continue Reading -->Weekly Sentiment Update: The Bears Are Growling, But No One’s Listening
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->The Trouble With Crude Oil
The action in crude oil has been hideous as of late, as you can see in this weekly chart: To be fair, it doubled in a year, so some profit-taking may be in order. However, let’s hope it can resume the uptrend, or at least hold the uptrend in the $46-$47 area. The oil rebound off the $26.05 February 2016 low played a huge role in last year’s rebound. There’s been no volatility in 2017 but oil is certainly a candidate for messing up the party. Remember, oil affects a lot more than energy stocks. Many regional banks have large energy loan books, and weak oil means more defaults. There are also an awful lot of high-yield energy bonds that would suffer. And historically, weak high-yield markets means trouble for the broader equities market. For now, the bulls remain in firm control, but oil could inspire the bears to finally step up after getting destroyed in the post-election rally.
Continue Reading -->Throwback Thursday: Two of Our Most Popular Articles
Meet the Traders! 8 Questions With Sami Abusaad 5 Reasons Forex Trading Might Be for YOU! Bonus Article: Trading: Trend Following vs. Counter-Trend
Continue Reading -->Weekly Sentiment Update: The Broken Permabear Clock Is Finally Right!
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Neither side provides evidence for their views. So let’s see how traders are feeling after what may have been a change in complexion yesterday. With hot momentum stocks like NVIDIA (NVDA) and Tesla (TSLA) taking beatings, let’s measure the market’s mood for insights on where things may go: 1) VIX Spread – Bullish The VIX is ticking up, but the 3-month VIX spread is at +3.83, which indicates traders are still not concerned with volatility. This is a bullish reading. 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 75. F&G operates on a 1-100 scale, and 75 is in extreme greed territory. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 38.5% of individual investors are bullish, which is right in-line with the long-term average of 38.5%. This is Neutral. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio is at 0.62 with a 3-day moving average of 0.61. This indicates higher-than-average bullishness. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at just 92 (92 calls for every 100 puts) this afternoon – which is a bearish reading. And the 10-day moving average is 81.3. This also indicates bearish sentiment. Conclusion Out of 5 sentiment indicators, we have 3 bullish, 1 neutral, and 1 bearish. Plus, keep in mind that the ISE Sentiment Index seems to always read bearish no matter what’s going on in the market. So that 1 bearish indicator doesn’t count for much. So just as a broken clock is right twice a day, the permabears are now right: traders are indeed very bullish right now. And when bullish sentiment meets stretched technicals, the bears tend to have a better chance at mounting successful attacks.
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