SP riding new channel low line

I bought a straddle on SPY at ~1266, and it is losing money slowly. :-(

I was expecting a relatively large jump from this level within a day or 2 given the past history. The S&P hasn't wanted to stay anywhere for too long, and it was poised on channel line.

There are lots of little channels drawn on the chart above, but the longest one is the one I'm concerned with. The peaks and valleys were following a steeper channel until about a week ago when we dropped back hard from > 1300. I identified the shallower channel from the lower group of highs happening since july which also seemed to be in line with linear movement in lte june.

It looks like we resumed another linear movement right along the bottom line of my new shallower channel.

Its not what I would have liked having bet on big move instead of a slow upward crawl, however it is interesting that it is following the trendline so closely. I still think a breakout is imminent, especially if oil makes another big move, up or down. Falling into this narrow range action is rare enough, but much rarer is for it to continue for more than a couple days. So I'm still in my straddle. Just gonna take a little more work to clean up the losing side once it breaks.

Oil still in a channel?

Not much time to comment. A picture is worth a thousand words. Middle line is the regressed linear fit for the Oil down turn. Outer lines are at 1.82 sigma about the mean. A much smaller sigma channel defined the USO action for the past 6 weeks until yesterday. But just pushing the channel edges to 1.82 sigma captures todays peak, and shows it is in line with the mid july peaks using the same channel top line. So we may just be looking at an extreme channel excursion, and not necessarily a resumed oil rally.

If we bust further up, I will have that much more confidence the oils bulls are back. But if we stay within this 1.82 sigma line and start dropping, we're still obeying the channel, which means some more tradable pivots along the sigma values which have shown support/resistance in the past my come into play.

Tht all being said, oil will not be going to zero. Real bottom support and decent upward growth from there are due, if not overdue. But right now, technically, its battle of conflict support and resistance, and war in Georgia isn't helping those who would have it drop more.

Oil ready to bounce up?

Here we see a fairly long term chart for USO, the ETF which tracks crude oil prices. These days, the spot price of barrel of oil = 1.236 * (Price of USO).

Oil took off like a rocket this year, and built upon last years big gains too. But it hit its peak around $145 in July, nd strted falling as the general market recovered. The reason for the big dip and big fall is the subject of much debate. Some say real world demnd from developing countries. Other's say pure speculative bubble. Either way, one only really needs to consider price to understand what's going on.

Consider the big rise since Jan 2006. If we set a fibonacci range from this low to the July 2008 highs, we see some intermediate corrections landing in or around the key 38, 50, and 62% support levels. But perhaps most interesting is the situation right now. Based on this range of movement, we have retraced 38%, and from the looks of it, found some soft support and flattening right at this line. But we re also looking at intersection with the uptrending 200 day moving average around USO=88. This is strong combination of medium to long term technical support levels. We could very well find some support here, and any strength in USO which appears to break out of the channel it has declined within for the past 6 weeks could be considered a bullish oil opportunity.

On the other hand, continuing through this big retrace level and the 200 day moving average says there aren't enough bulls to keep it floating, and more precipitous decline is likely. But you can bet that $100/barrel isn't going to be an easy line for it to break if it keeps dropping. This is more or less at the 50% retrace level, and then $89/barrel is roughly the 62% retrace line. These would be good price targets to keep in mind if playing the downside.

AAPL channel adjustment

I've adjusted my channel slightly...the slope is steeper, and is better matched so some other features in the AAPL 15min price history. There's no science to choosing channels...its pretty arbitrary, but what I have noticed is that certain choices of slope match existing details better.

When AAPL prints the next local bottom, we'll have an even better idea of what the channel looks like.

In this case, the new slope matches the slope of some tight channeling around the middle line, and also connects the wider transition points above and below. The top and bottom lines are centered some proportion of the standard deviation of all the data in the regression, so it makes sense to me that a well fit channel should capture big peaks above and below the center line nd connect some smaller channels with the same slope of line. You cn imagin sliding the upper and lower lines vertically (up or down) to test fit conditions. Tweaking the slope is effectively done by changing one of the end points to include/remove some data from the regression fit. The choice of endpoints is tough in the beginning of new trend, but gets easier as the path unfolds.

And notice the channel also sets the avg expected gain and price movement. So if you have weigh price movement vs. premium loss, this helps provide some direction in an average sense.

Its all empirical, but there's little arguing boundaries can be set, and that there is a linear trend supporting the price movement for some time until some big event changes the dynmics.

Price movement to the boundaries sets up higher reward/risk opportunities for quick trades on the reversal. Good luck!

AAPL redux

I guess I implied it, but its worth emphasizing that with the Nasdaq perched near a high point, and AAPL too, a strong down day is probably an excellent AAPL put option opportunity.
But it is expiration week, which means premiums are low nd delta is high making for really nice potential gains on modest stock movement, but also a lot of risk if the market turns and runs you over when your not looking. There's little time to make up a bad trade, but you can always try putting on a spread to hedge and even make back money lost on the original directional trade, if the counter trend is strong.

Is AAPL getting a little frothy?

Ah...everybody's little darling AAPL. At the money options purchased off the 50% retrace bounce from the mid-May highs eventually reached a 10x gain over the course of the past week.

And the really smart folks who also bought in on the dip to the mid 140's for the quick pump did even better. That's right...a 10% or so portfolio bet on AAPL ATM's could have doubled your total holdings if you played them right. Amazing!

But that was then, and now we're at another spot. The recent trajectory of AAPL has been very steep, but it basically peaked coincident with the Nasdaq hitting and stopping cold at its 50 day moving average. That was yesterday, and the market has been testy since. While AAPL showed a little more strength pressing the edges of the wide channel shown above, it really didn't have the buying umph of late, and definitely showed some signs of cracking the rally late in the day.

We've got some tough economic news expected tomorrow, and we're coming on the heels of some weakness in the DOW and S&P, as well as a very toppy looking Nasdaq (relative to its wide channel since the july bottom). My bet is we see more weakness to push the indices towards a short term oversold condition, and set up the next leg of the rally.

AAPL is looking much like the Nasdaq at the top of a wide channel after a long and nearly monotonic and linear climb. A push higher seems unlikely until it drops lower into its channel, or at least just goes flat for some time, giving the channel upside little time to open up again.

Good luck!

Naz too hot?

Nasdaq approaching 200 day ma, and bear channel resistance simultaneously. A breakout is a big bullish event for this nearly yer old bear market, but be prepared for downside too.

Recent AAPL channels

Speaking of channels, check out AAPL in the past 20 days. I really like the 15 min period  for looking for daytrading trends, and you can see here how AAPL has hot support at some key points and set up nice quick profit opportunities. The most obvious is the big drop into the mid 145's which was well below trend. This was basically an opportunity for people big on value. If you believed AAPL is a good solid company, this an amazing gift. The gift was gone by the end of the next day. ATM AAPL options picked up at the lows were good for 500-600% gains before it peaked.  

Good opportunities don't last long.  But even if you missed it, its exciting to know stuff like that happens. So keep your eyes and ears open.

As of late, AAPL has finally kicked into the nasdaq Rally which started  few weeks back. Just after the quick low mentioned above, AAPL retested the low 150's a couple times (more excellent opportunities) and eventually bounced for good. AAPL went from 115 in mid march to 190 in mid-May, and trailed off from there. So let's see, 190-115 = 75, and 50% of 75 = 37.5, and 190-37.5 = 152.5...aha...a nice 50% retrace bounce. And lo and behold, look at the renewed interest since. Big retrace's in strong stocks are powerful opportunities laying in waiting as well. 

Sorry...forgot the channel lines. Here they are. 

Also, note the support lines in the bull run in April-May, and the very channel bound drop since June 6th. The in between channel areas are subject to random news shocks, but the trader sentiment to stay within channel boundaries seems to dominate when we get close. The bounce at 1200 could easily be rationalized by hitting the much longer term channel designated by all the high VIX lows since last August, as seen here. 

A parallel channel placed at the top seems to model the peak action well too, though I'm pretty certain proximity to the 200 day MA had quite a bit to do with the mid-May reversal as well. 

Here's the S&P 500 as of friday. The bounce from 1200 has been very volatile to say the least, but we do see consistent uptrending support following a straight line from 1200. Until this support line is violated, there may be more low risk/high reward opportunities for options traders anytime the index is approaching this line, or has recently bounced off it. And s we hve seen this week, we can go between heavy support and heavy resistance in the course of a single trading day. But even for swing traders and short term investors, buying in at the support line will be the best opportunity until this bear market rally fails. 

Speaking of rally failure, its reasonable to project we'll see topsy turvy action up until the s&p hits the high 1300's again. This would more or less put the peak in line with the big bear market channel we've been watching for the better part of a year, and certainly since last November. But the market is full of suprises...it will be significant if we hit that expected resistance zone in the high 1300's and don't slow down or turn around. Then its time to consider the possibility of the birth of a new bull market. 

 

Hi Folks, 

This is the first entry into my new blog to capture some interesting and hopefully profitable market insight. I'm not a pro, and I'm not offering anything remotely resembling professional financial advice. But you may see some interesting analysis and viewpoints and use it for 

your own investment decision making. Good luck, and stay sharp! There's a lot of people out there who want to take your money. 

Cheers, 

Ben