Friday, March 30, 2012

Sector Rotation

Below is an interesting chart of sector rotation during the past 8 weeks for the SPX. Although we cant do traditional technical analysis on this, it is intersting to see where the money is flowing IN and OUT during this timeframe.
What use is this you say? Well as a technician, this information is used to trade from the top down approach - similar to a fundamental analyst using his/her data to trade from a top down approach. If we know which sectors have money flowing IN, then we can dissect the sector ETF's and trade the strongest stocks within that sector with a buy-the-dip mentality. Conversely, knowing which sectors have money flowing OUT, then we can either lighten any longs or for more aggressive traders trade against the prevailing big trend (although with the sector weakness trend), and short light volume bounces.

Next week I will shed a little more light on which sectors charts look the best/weakest to give you further insight into where to trade.

Have a great weekend!

Trendlines and Moving Averages...

Although I usually use trendlines to see the bigger picture and to trade with the trend, some people prefer short term moving averages, especially to help them trade intraday...and they both can be very useful.

Below is a daily SPY chart from the beginning of 2012 which shows 3 short term simple moving averges...the 10day, 20day, and 50day. The bigger trend (trendline not shown) is slightly lower, but its easy to see the 20day moving average has provided some very nice buying opportunities along the way. Actually yesterday was a great buying opportunity intraday at the 20day sma sitting near 139.08 (lows of the day were 139.09!!!).

Lesson - dont rely on just one indicator or one way of doing things to trade the market. Use a variety of things and stick with the things that are working at that time. Right now in SPY, the 20day sma is working very well. Also, these things work, until they dont...so dont get married to a particular way of doing things. You have to be flexible in your approach.

Thursday, March 29, 2012

XXX week --- Weak in the knees

Historically, the week after XXX (triple expiration) is a weak one. So the struggle for the equity market to get going here at midweek is not surprising. But taking a look at the daily SPX from last post, as well as the daily IWM chart below, we can see the bigger trend still remains up. So whats the plan? Until the trend is broken continue to trade with the trend. This week the market may continue to struggle but until the trendline is broken buy the dips.

Note the IWM trendline from the Oct2011 lows which currently sits right on the 50day moving average near $81.50.

Wednesday, March 28, 2012

SPX Bull Trend

With the S&P - 0.50% here mid-day it may feel like the end of the world to some people. So many of us have been accostomed to consistent UP days...hence the strong trend. But on days like this, and what is shaping up to be a week of prices consolidating, it presents another opportunity to add to longs or selectively look for new longs. I am looking for an intermediate term top sometime in April, but there is still opportunity here.

Tuesday, March 27, 2012

Breaking Ground...

Some may say another blog on technical analysis and trading is just one more sign of a market top. But I say, if you're trading the trend then it doesn't matter where the market is. Yes momentum indicators are extended and yes there are plenty of reasons why investors should be cautious. But identifying the trend (currently its easy to see we are in a bull market) and trading with the trend is most rewarding.

When the trend changes the market will feel different. There will be a few failed rally attempts, and eventually we will make a lower low. Thats when the trend changes and you can choose to just liquidate longs or both liquidate and play from the short side.

There are many technical indicators - and yes I will get into plenty of them in the posts to follow - that may shed some light on future direction, but technical indicators can remain extended for some time. Therefore don't rely just on technicals. Eventually you will come to rely on many factors, including psychology (which can often be read through volume), sentiment, breadth, and good old-fashioned gut.

Hopefully this site will get people talking, provide some commentary on posts that I will quickly respond to, and shed some light on aspects of trading or technical analysis that can be confusing, murky, or highly disputed...reaching your final destination is great, but its the journey that provides so much fun!