Friday, July 22, 2016

VXX is signalling a reversal

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Market Overview - Fully Long, but "long" in the tooth too.

Long-Term Timer:  Long
Intermediate-Term Timer: Long
Short-Term Timer: Long, Under Pressure

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Long-Cash Ratio Table

The left side of the table is indicating that we are fully long on all time frames but the right side is showing weakness:


Click on the image to enlarge.

On the far left, a LCR value of 2.423 indicates that we are extremely overbought and that a reversal is possible.  Sure, we can continue to move upwards (the markets climb a wall of worry and we are in earnings season), but the high values indicate a certain level of caution.

The right side shows red on some time frames, green on others.  This is a mixed message, but with red creeping in, and more importantly, the "hit" we took on Tuesday with everything showing red, indicates that we should be more cautious.  Buying stocks now that are correlated with the S&P 500 (or the GGT index, which looks mostly like the NAS or R2K right now) could be a losing strategy.

If you're not in the market at the present time, I would keep your powder dry with respect to stocks.

VXX Naked Put Strategy

A number of my readers attended our local AAII meeting this past Saturday and Alan Ellman, of the Blue Collar Investor, was the presenter.  I was unable to attend, but note that I am a subscriber to his service and like his approach.

Alan teaches investing with options, and the approach is sound.  It is a conservative approach, and he uses Covered Calls (CC) as well as writing Naked Puts (NP) as a focal point.  I focus on naked puts as this generally uses less capital, and it ties in closer with certain transitions within my GGT strategy.

We are nearing one of those transitions.  Whether we are there today (Friday) remains to be seen -- futures are up as I write but not very strongly.

The VXX is an ETF that moves with volatility of the markets.  I prefer it to other ETFs for CC/NP writing, but also fully buy into the view of writing NPs on quality stocks that are at a local minimum in the markets but are in an uptrend.

VXX is NOT in an uptrend, but is signalling that it is hitting bottom.  I doubt today will be the day to enter, but I could see entering a position in VXX quite soon if the short-term topping formation in the markets continues.


Click on the image to enlarge.

The left two panels show a daily analysis of VXX, and the right two panels show a 78-minute analysis, which is 1/5 of the daily trading interval.  I watch the 78 minute, daily, weekly, and monthly charts for many of my stocks.

The top left shows a "new uptrend" using one of my two trend-identification methods.   I have noted this as "NU".  You can see that the line is below the daily bar, and this is new as of Thursday's action, which is why it appeared on my radar scan last evening.

The bottom left has not confirmed this and indicates that VXX is still in a downtrend.  Note that any strength in the VXX above Thursday's high will trigger the signal to a "NU"; the trend analysis is a "ratchet" in that it can only move lower until it doesn't, which then causes a new uptrend to occur.

With Friday's futures pointing higher I do not think the VXX is moving upward, but of course, your crystal ball is as good as mine.

On the right side, you see that on the 78-minute bar time frame, we have a NU for VXX using two independent trending methods.  This is a necessary requirement for the left side to move higher -- and consequently, this too is why VXX appeared on my radars last night.

All I need is the confirming "NU" on the lower left window to tell me that an initial trial balloon in VXX could be a good choice.

VXX is one of the most liquid ETFs on the market.  VXX 160819P11, which is the August 19th put option with a strike of $11 (current price of the VXX is $11.34) presently has an open interest in excess of 60,000 contracts and a spread of $0.03.  Liquidity and spread are important if you need to exit a contract.  It is also important when it comes time to enter the contract.

If the VXX moves up from here, writing a naked put (NP) on this contract will pay about $73 for a single contract.  Here's the risk profile:


Click on the image to enlarge.

This graph is indicating that a single contract in VXX 160819P11 will pay $73 if the price remains above the strike price of $11 by the August 19th expiration.  This includes my round-trip commissions.  Below $11 the amount that the contract pays is less, and a break-even occurs at $10.27 (not shown but that is where the blue line intersects the $0 line).  Below $11 on August 19th the contract will most likely be assigned and you'll have to buy the VXX at whatever price it is below $11, resulting in the reduction in profits.

Let's suppose that the VXX moves up from here by August 19th.  Because I am selling the contract, I would collect $74 today ($75 credit less $1 write commission as of today).  This would be a credit to my account. If assigned @ 11.00 my total return would be 7.12% = (75-1-1)  / (1100-75).  Your commission structure may be different so your round-trip commissions could be higher/lower per contract. 

Hence, as long as VXX moves upwards from $11 I could collect the full premium.

Here is the summary:


Click on the image to enlarge.

Of course, if we continue to climb the wall of worry then VXX will continue to drop and if it drops below $10.27 on or before August 19th, we are at our break-even point.  

I note that the implied volatility (IV) is presently 72.95% with the average implied volatility at 71.32%, so we have IV rising above historical and I expect VXX premiums to increase.  This is desired as this means I collect more for writing the contract.

There is a strike in VXX at $10.50.  Here are those numbers:


Click on the image to enlarge.

The table shows that if we lower the strike to $10.50 in VXX, same expiration, then we drop about 2.4% in possible maximum profit to 4.69% and we lower our break-even level to $10.03.  This is a very good return so this could be a further consideration.  Note that this contract (VXX 160819P10.5) is currently trading at $0.49.

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In the end, I will not pull the trigger on writing a NP on VXX today unless I see the daily trend (lower left in the quad chart above) also move to a "NU" signal.  We are close, but I need the markets to indicate that volatility for stocks in general is moving upward.  We have the start of this, but it is not confirmed.

Certainly, the Weekly trend charts (not shown) are still quite bearish and have some time before they move to a NU.  VXX has to rise above 14.91 AND 13.17 in order to get both weekly charts to move to a confirmation of a market downtrend/VXX uptrend.

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My stock alerting service is fully functional and is available at https://twitter.com/grems8544.  Follow me and "Turn on Mobile Notifications" from within Twitter to get notified every time a breakout or pocket pivot is detected on a Greenfield Leader stock.  Here is a portion of my Twitter feed from yesterday:



This service is free and those that are subscribed tell me they really enjoy the notifications and their review of the quality of the stocks is quite positive.  These would be stocks that would be ideal for a CC or NP strategy, provided that the market cycle confirms (it presently does not so be careful).

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Stock updates are posted in a daily file that I attempt to share by the following morning with all subscribers. To review the stocks that you are holding and see how I evaluate them, you need to be a member of my Dropbox.  Send an email to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "DROPBOX" in the subject and I'll add your email.  I also ask that you subscribe to this list using the link to the left (if you are on the blog), as it's the only way I can communicate with Dropbox users, if the need arises.

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As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  The equities I have listed here are not recommendations -- they are seeds for you to do your own research.

Regards,

pgd

Thursday, July 7, 2016

New Short-Term Buy Signal

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If you are on the blog page in a browser, please subscribe to this using the "Follow by Email" link to the left.  Having your email helps me to notify you when Google mucks up email distribution, as they did at the beginning of May.

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Market Overview - New Short-Term Buy Signal

Long-Term Timer:  Long, finished the day stronger
Intermediate-Term Timer: Cash
Short-Term Timer: Cash

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Long-Cash Ratio Table

We have a transition in the LCR Table:

Click on the image to enlarge.

While not overly "strong", a transition is a transition and I'm taking the signal.  The right side of the table looks relatively strong off the bottom, but clearly, Tuesday's action was volatile and weak and it detracts from the upward movement.

This being said, the transition indicated on the left side of the table is clear and is a confirmed short-term entry signal.

Strategy

Standard rules apply:

  1. Buy strength; do not buy weakness.  I buy stocks that are moving higher, not lower.  You do whatever you want but this method works best for me over the longer haul.  Please do not write me to tell me the method leaves money on the table -- I does not and I'll challenge you to prove otherwise.  Come prepared if you engage me on this because I have years of data to prove otherwise.
  2. Buy stocks above their 21d exponential moving average.  No exceptions, since dropping below the 21d EMA for 2 consecutive days will trigger a sell signal.
  3. Buy stocks that are in an uptrend on the monthly, weekly, and daily time frames.  While some exceptions are allowed, the exceptions do not apply this early in a short-term signal.
  4. Buy stocks that are rated "Buy" or "New Long" or "Affirmed Long" using my GGT measurement criteria.  Free of charge to subscribe, but you need to request access.  See below.
  5. Buy stocks that have rising revenues and earnings, measured on multiple time frames.  These are my "Greenfield" stocks and I provide the listings in my Dropbox folder that I share.
Dropbox lists are updated as of 9:00 a/ET, July 7.

From a money management perspective, I am targeting 100% invested in the Greenfield Dividend portfolio.  However, there are not enough stocks in the list to get me to that point.

For the Greenfield Leaders portfolio, I am targeting 65% or so invested.  There may be enough stocks on the list today if we have a good day.


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Stock updates are posted in a daily file that I attempt to share by the following morning with all subscribers. To review the stocks that you are holding and see how I evaluate them, you need to be a member of my Dropbox.  Send an email to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "DROPBOX" in the subject and I'll add your email.  I also ask that you subscribe to this list using the link to the left (if you are on the blog), as it's the only way I can communicate with Dropbox users, if the need arises.

Here's how to find me:

InvestFeed/Twitter:  grems8544

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As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  The stocks I have listed here (if I have listed any) are not recommendations -- they are seeds for you to do your own research.

Regards,

pgd


Wednesday, July 6, 2016

No Change from Tuesday, July 5 - No New Buy Signal

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If you are on the blog page in a browser, please subscribe to this using the "Follow by Email" link to the left.  Having your email helps me to notify you when Google mucks up email distribution, as they did at the beginning of May.

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Market Overview - No Change from Friday, July 1st

Long-Term Timer:  Long, weaker than start
Intermediate-Term Timer:
Short-Term Timer:

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Long-Cash Ratio Table

Click on the image to enlarge.

We made no progress on Tuesday; in fact, we lost a bit of ground.  An ideal buying signal looks like this:

Click on the image to enlarge.

When the left side 8d transitions to "green" it generally is a good time to start buying stocks.  You can see the "sea of green" on the right, and this shows overall acceleration.  This loosely correlates with IBD's "confirmation day" or "follow-through day".

Compare the ideal picture to where we are now -- less than ideal.  I did not buy any positions on Tuesday.

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Strategy

A note came in overnight asking why I buy strength -- "... there is better value in buying quality on the dips".

This may be true, but timing is important.  

My experience is contrary to the questioning statement -- buying a stock that is moving higher has historically worked better for me compared to purchasing a stock that is "undervalued".  When you buy a stock that is moving higher in price the market is recognizing that the stock is worth more than it was in recent history.  It is in demand (especially if volume is higher).  The "Darvas Box" concept buys these types of breakouts, and although I do not follow this methodology, the "buy strength" concepts that are used in the approach are proven.

So, you'll see me buy stocks that are at least 1.001 x (previous-day's-high) as my entry.

I've placed a number of day orders for strong dividend stocks in both the Collective2 Greenfield Dividends portfolio as well as my personal portfolio.  Futures are weaker as I write so I am not overly optimistic that these orders will fill today.  If we have a strong day those positions may fill, bringing my invested level upwards.  Here's the group performance of the list:

Click on the image to enlarge.

The top plot shows the group performance (blue) relative to the SP500.

Subscribers to my Dropbox can get the list of Dividend stock candidates for today by looking for the file that is called "16JUL05-DividendOrderListFor16JUL06.txt"

The sequence to select stocks goes something like this:
  1. I start by looking at my holdings and those stocks that are signalling "Buy" and that are in an uptrend on multiple periods are added first.
  2. I look at the most recent (internally generated) scan for new "Buy" candidates that pay dividends.  These must meet my "Greenfield" criteria, which I've described numerous times elsewhere in this blog and my newsletters.
  3. I look at the "Dividend Champions" list from David Fish (Google it).  These stocks meet a unique set of criteria, and they only fail one step of my Greenfield criteria (specifically that they have not moved more than 50% in the past year).  David's list of dividend stocks is a stellar list and if you invest in dividend-paying stocks you have to use his list as a starting point.
Again, all my holdings are quality stocks that have shown a great resiliency to this market, so I'm not overly concerned about the exposure.  As a comparison, the markets were down about a percent on July 5th but the C2 portfolio rose slightly, as did my personal holdings (which more/less mirror the C2 portfolio).

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Stock updates are posted in a daily file that I attempt to share by the following morning with all subscribers. To review the stocks that you are holding and see how I evaluate them, you need to be a member of my Dropbox.  Send an email to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "DROPBOX" in the subject and I'll add your email.  I also ask that you subscribe to this list using the link to the left (if you are on the blog), as it's the only way I can communicate with Dropbox users, if the need arises.

Here's how to find me:

InvestFeed/Twitter:  grems8544

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As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  The stocks I have listed here (if I have listed any) are not recommendations -- they are seeds for you to do your own research.

Regards,

pgd

Tuesday, July 5, 2016

Post Olympic Trials, Life Returns to Normal, Close to an Entry Signal

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If you are on the blog page in a browser, please subscribe to this using the "Follow by Email" link to the left.  Having your email helps me to notify you when Google mucks up email distribution, as they did at the beginning of May.

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Personal note:  Life is slowly returning to normal.  My older son successfully competed at Olympic Team Trials and although he did not qualify, the experience for both him and our family was amazing.  The athletes we send to the Olympics are truly amazing, and I think our son has a great shot at qualifying for the team in Tokyo in 2020.  Of all the pictures that I took, this one is the most special:



Click on the image to enlarge.

This picture was captured at the start of the 3m Springboard Olympic Team Trials competition on 6/20. Greg is standing on the base of the 3m diving board. There are probably 300-400 people in the stands, and they are all waiting for the start of the event. He is first up in the competition - no other divers have dove -- and is standing there with his eyes closed. I've not asked him what he was thinking and I will not -- although very public, this is his private time. I can only imagine what is going through his mind.

Read more here.  
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Market Overview

Long-Term Timer:  Long
Intermediate-Term Timer:  Cash
Short-Term Timer:  Cash

Despite the run-up last week from oversold levels due to Brexit, we are still relatively early and bearish in the overall market tone.  The following table provides a historical view of a recommended cash vs. fully-invested level as a function of market performance:



As you can see, we are at 67% in cash right now, and have been there for about a month.  The fact that the long-term timer is still showing "Long" is a positive sign, but even the internals for that signal are quite weak.  If we do not get a major turn this week I could see all of the indicators hitting the lower bound and telling us that extreme caution is advised.

Whether you pick 33% invested or 50% invested is up to you.  What matters most is the next chart:

Long-Cash Ratio

The Long-Cash Ratio (LCR) table is near a buy signal:


Click on the image to enlarge.

On the left side of the table, in the "slopes of LCR EMAs" portion, you can see that the 2d, 3d, and 5d slopes are positive (pointing upward) but the 8d is still negative (but less negative day-over-day).  As many of you know, when the 8d transitions to green/positive I attempt to move long in the markets using quality stocks.  We may see that today.

On the right side of the table you can see that we have had solid acceleration (slope of the slope is acceleration) to the upside, as indicated by the green.  Friday saw a weak pullback in terms of acceleration on the shortest of time frames -- this is due largely to the weekend holiday.  Continued green on the right will be good to see expansion (more green) on the left.

Cumulative Tick

The CT is also indicating positive behavior, but also shows Friday's weakness:



Click on the image to enlarge.

I have covered this chart numerous times in previous blog entries -- suffice to say that Tu-We-Th saw extremely good buying action, and Friday was more/less neutral, as expected.

Percent Longs

Another valuable indicator of mine is the number of stocks that are "long"-rated that are in my database:


Click on the image to enlarge.

As you can see, we are in the "green" area, which means (historically) that on a longer-termed basis we tend to move up from here rather than down.  Yes, we certainly may move down but on average, history favors more stocks appreciating in terms of price and doing so with increased volume.  The move from the local low (below the solid green line) indicates a reversal from oversold levels and is normal.

The take-away for you is that buying stocks when in the "green" area has historically worked out over a longer-period, e.g., 3-6 weeks or so (somewhat follows the Intermediate Timer signal but they are not related).

Buy Candidates

Subscribers to my Dropbox folder have access to the various leader lists that I develop. Instructions on how to subscribe are below.

Two very important lists, which are my primary buying lists, are shown in the following charts:



Click on the image to enlarge.

The stocks that comprise the Dividend Leaders list are, well, dividend payers that are leading stocks.  As you can see on the far left, my GGT system has the top 4 with new entry signals and the rest are recommended as a "hold".  All are performing extremely well in terms of price action, revenue growth, and EPS growth.  As dividend payers these are some of the best performers in terms of capital appreciation that you will find in the market today.

The other list is a non-dividend payer leader list:



Click on the image to enlarge.

The stocks in this list also follow the same behavior as the previous list, but these do not pay a dividend.  Again, note that there are several that are recommended as "buy", so more on that below.

Note that the recent performance of this list of stocks is stellar:



Click on the image to enlarge.

Note that in the figure the top blue line is relative performance to the $SPX over the past 30 days, which is shown in the top pane as the light green line.

The stocks are all holding the 21d EMA (green line in the 2nd pane Price Window), even in the recent downtrend, so they are literally "leaders".  I do not screen on this criteria -- it simply is a characteristic of a leader.  Of course they all hold the 50d MA (yellow), and I don't even know why I plot the 200 (red), as nothing ever hits that level.

Both of these lists are in a full uptrend on a monthly, weekly, and daily horizon, again measured using a set of proprietary indicators that I've developed.  I believe that these stocks are some of the best performers in terms of price, revenue growth, and earnings growth that you can find.

Of course, actual mileage for you may be different, so do your own diligence.  I simply am providing the lists that are on my TradeStation Radar and will alert me if they take off.

Strategy

1) I only buy stocks that are moving higher in price.  Very little exception here.
2) I only buy stocks that are indicated as a "Buy" using the GGT_Rec_rx.x.x indicator shown in the tables above.  This means I do not buy "hold", or heaven forbid, "sell" or "avoid" recommended stocks.  Very little exception here, except for the next criteria:
3) Stocks that are moving higher in price AND in volume get my attention and I'll buy a 25% position in those stocks.  The earlier this occurs in the day, but after 9:45 a/ET or so, the better.

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Greenfield Dividends Portfolio @ Collective 2

You can subscribe to my daily trades at Collective2:

https://www.collective2.com/details/94780986

Luckily, past performance isn't indicative of future performance and June was up 2.1%.  I've stabilized the strategy for this portfolio and have a full trading plan, which is available to subscribers.  Earlier months have underperformed the market due to a number of reasons but simply stated, a combination of being under-invested as well as being invested in high-beta stocks caused portfolio volatility.  As current subscribers know, the mechanics of the portfolio have changed dramatically from January, which was a terrible month and is keeping me underwater for the year.  While your crystal ball is as good as mine going forward, this is a real portfolio that I have real money in (about $40K), so I feel the same pain as well as joy as you do.  Performance numbers do not include dividend payments.

This portfolio will strive to maintain a 65% (or higher) level of equity.  It will re-purchase positions on a day-over-day basis, so entry levels are typically 20% or 25% of a full position.  Having 4-5 purchases of the same stock is not uncommon.  Buying and selling is conducted as described in my newsletter and other blog entries here.

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Stock updates are posted in a daily file that I attempt to share by the following morning with all subscribers. To review the stocks that you are holding and see how I evaluate them, you need to be a member of my Dropbox.  Send an email to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "DROPBOX" in the subject and I'll add your email.  I also ask that you subscribe to this list using the link to the left (if you are on the blog), as it's the only way I can communicate with Dropbox users, if the need arises.

Here's how to find me:

InvestFeed/Twitter:  grems8544

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As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  The stocks I have listed here (if I have listed any) are not recommendations -- they are seeds for you to do your own research.

Regards,

pgd