Long Term Analysis on YM and ES

Above I have 2 daily Charts of YM(Mini Dow) and ES (Mini S&P 500) The one interesting thing I want to point out is the apparent divergence between price and acc/dist indicator. Based on price action alone, one would say we broke above the 1175 high's before the May crash, and is headed towards the 1216.75 high's of April. But once we take a look at the Acc/Dist, as many of you may know if one of my favorites, we see that it is at the same level as the May 1175 high's. This would suggest a possible reversal here at the 1193 area. This has also been coupled with some MACD divergence. The interesting thing is that, we see the EXACT same thing between the YM and ES charts that makes this so convincing. I personally would not jump short just yet, and wait for an actual reversal. Always look for price first, but this is an warning signal and I'm going to keep my eye on this. Also, considering that volatilities are so low, buying some put protection if your long equities might be a cheap and smart move to consider.

GBP/USD Short Setup

This is a longer term swing trade setup. I've noticed over the last few weeks of dollar selling that there's been some exhaustion and divergence on moves up towards that 1.6000 resistance and psychological level. We can clearly see the divergence on both CCI and MACD. I would aim for the 1.5500 level as target on this short with a tight stop of around 70 pips, since any break above the 1.6000 level would just invalidate our trade. Making for about a 6:1 risk/reward ratio from the current price.

EUR/USD Long Setup

Here's a trade setup I was thinking for a swing trader. Clearly we have a very bullish momentum in EUR but with such strong moves in the last few days, expect a pullback or at least some consolidation back to the new support level at 1.3285 level as both our CCI and MACD confirms overbought readings before a move upwards towards the 1.3900 61.8 fib level.

$ES_F Daily S&P 500 Analysis

This is an update on the daily S&P 500 Chart. Last time I posted I used acc/dist to find the Aug top and now we're back near that level again, but we clearly see acc/dist seems to have broken that resistance level, which is a bullish indication. I'd hold off on doom and gloom analysis and taking shorts on equities for now and wait for moves higher before going long volatility.

S&P Daily Chart Analysis

As some of you know by now, I'm a big fan of the Acc/Dist of volume indicator, and looking at it on a Daily chart gives us a pretty interesting level to keep an eye out for. From a price action prospective we're at a resistance level at the 1130. This typically we would keep an eye out for either a bounce lower or a break higher, and using the Acc/Dist, I can confirm that this level is a a significant level to keep an eye out for. Couple of things to consider as to which way this will play out: 1) volatility in the markets has been pretty low and we've seen back vol on S&P options significantly higher than front vol suggesting possible rise in Volatility. 2) We see divergence on this recent rally with MACD. Both these reasons does not mean this rally can't continue and shoot higher, but reasons why I'm looking for a potential move downside vs. upside.

Breaking uptrend on $ES

Today, we saw the ES break a nice 2 week uptrend channel pretty definitively. This retrace back up to the 1100 level after the break should provide some great short opportunities. 1102.50 is the last 5 day weekly pivot.

GBPJPY Short

A lot of interest in GBPJPY after it broke it's 3 month channel to the upside yesterday. However I point out that it's likely a false break and a move back to the bottom of the channel is more likely. CCI confirms divergence here and starting to make its move back into the channel. Also, I like the risk/reward on this trade. The 61.8 fib level above is going to provide my stop level. Shooting for middle of that range first, then bottom of the channel as 2nd target about 600 pips.

More importantly, this gives us a clearer picture of the potentially breakdown of equities in the coming week.

Using ACC/DIST to find true Support and Resistance

Many times, simply looking at Price Action to find support and resistance can be deceiving, One way to spot these is to use the Accumulation/Distribution Indicator. I use a volume based acc/dist to better spot true support/resistance and keeping me out of false breakouts and false reversals. Attached is this morning's S&P Emini Futures chart. I've attached both 1600tick chart on the left, and 512 tick on the Right. One thing I noticed this morning in the first 15 mins of trading was what looked like a double bottom forming in the 1087 area. At the time, just looking at price action, on the 512 tick chart, it looks like a pretty standard double bottom forming, which would be a textbook Long Trade, however looking at ACC/DIST, we clearly see we broke that support from the o/n session lows and acc/dist even came back to test that resistance and was rejected. Based on this, I would have stayed out of taking a Long trade at the double bottom. Which turned out to be a false one.

Now looking at the 1600tick chart. This is a classic Textbook Support turns into resistance trade, HOWEVER, it would not have been clear on the price chart. If we only looked at charts, 1086 would have been the support and we would have been trying to wait for the 1086 area again to short. However, looking at acc/dist we see that as we approached 1083 level, that acc/dist was showing us that, that was the true resistance.

Selloff in Gold is NOT over

We've seen some really ugly, and crystal clear divergence in GOLD for a few weeks now. Finally we broke the downside of accumulation/distribution that I was looking for to confirm the break downward. Initial targets on the downside is the Trendline support in the 1160-1175 area.

Interesting Divergence on S&P

As you can see from this Chart, as prices move lower. there is no confirmation of a break of that 1050 support level from Accumulation/Distribution. Now this is not a BUY signal just yet, but this is definitely a level I'll be keeping my eyes out for. If we see a bounce up on the acc/dist, I would consider that to be a BUY signal. Otherwise, I would be uncomfortable holding equities in my portfolio if this acc/dist line breaks that support line. I'll keep everyone updated on this...

Using Pivot Points When Trading the Emini's

Many times, active traders using short term strategies or scalping strategies, tend to look at very zoomed in charts, includng myself (1-2 min charts, tick charts). As these charts are our tools for our strategy, many times with such zoomed in charts, we tend to lose focus of the BIG picture, such as major psychological levels, VPOC's, 200 day MA's and so on. A lot of times, if you spend too much time worrying about all the different big picture levels, you might lose focus on your short term strategy and start second guessing your trades. Which is why I personally like to use Pivot Points. They help give me an idea of the big picture (for the day). I only look at this once when I start trading, whether we're above or below, and never really have to pay much attention to them, unless price action starts to approach a particular pivot level for the day. I've attached a Screenshot of yesterday's price action (5 min chart). As you can see, we spent most of the overnight session right by the Pivot Point, acting as major support on that level. If you trade premarket, you would have noticed a nice rally, right up to R1. If you were trading that, R1 would have been a great point to take profit, and sit aside and wait for a break or a bounce back to Pivot, or higher to R2. As 9:30 approached, we stalled a bit and headed higher, and hit R2 right on the nose. If you were scalping that rally as I was, R2 would be a great take profit for your core positions, and wait to see either a bounce or a break. Then came the big selloff around 2:30 which headed straight for the Pivot, hit it RIGHT on the nose and bounced right off. Great take profit areas.

I used a 5 min chart to demonstrate this, when I'm actually trading I'm typically using a 512 and 1600 tick chart, which is close to a 1 and 3 min chart, I do not see these pivot points, RI, R2 for most of the day. But they are on my charts, so when price action reaches these levels, I react and trade accordingly only when that happens, but I don't have to constantly keep aware of these levels, unlike, 200 day MA's, VPOC's and any other major levels you can come up with.

Using Options to Make Better Stock Picks

I'm a derivatives s specialist and I have people ask me all the time, How do I get into Options Trading, or What's a good options trade? The matter of fact is, trading of options is quite complex, and not necessarily suitable for the casual investor or even trader. Options can be very confusing and intimidating for a lot of traders especially once you learn about all the greeks, calculus formulas used to price the option and derive the greeks. So I can't and will not be able to teach you all about options in a post, but I can show you how someone can use Options to make better stock trades. This isn't a secret, or strategy per se it's simply common sense, and with a simple knowledge of how a market works, you can derive some great stock trades from watching Option traders.
In Stock trading, with all the algorithmic, high frequency trading and simply the massive amount of money thrown around, makes it impossible to understand who is doing what from Time & Sales or even with Level II quotes. However, Options because there are SO many strikes, and So many months for each Underlying security (or asset) if you know where you look, its actually quite simple to see what was traded, and what was the intention of the trade. In essence, you can follow large institutional players that make their bets on the Options market, because it's much easier to see their trades and understand what kind of bets they are making. This just requires a very basic knowledge of options and how markets work. No Deltas, Gammas, Thetas or calculus.
To begin, you need to have a fairly standard Options Trading Platform and Scanner. ThinkorSwim is what I use, you can even sign up for a demo account to see the tools offered. But also, there is a website www.livevol.com that offers a free version which is very useful as well.
I have a scanner set up to search for "abnormal" volume. This when the volume on a particular stock option sees more than the usual volume on any given day. Some scanners or sites refer to this as the Sizzle Index. Many break it down even further to Call Sizzle and Put Sizzle. Using this, you can easily scan for stocks where the Options Volume traded that day was "abnormal". I like to set my scanners to looks for stocks where the Options volumethat day was at least 1.5 times the average volume. Also, just to keep out tiny stocks I suggest choosing stocks that have a daily volume of at least 2 Million and over $10. Once I run my scanners, I start from top down, starting from the stock with the Highest "Sizzle Index" for the day.
It helps if you have a separate column that breaks it down to Calls Sizzle and Puts Sizzle, but it's not necessary.
Once you have a stock with a High Sizzle Index, simply pull it up in an Options Chain.
With the criterias above for your scanner, once you pull up an Options Chain, it's usually easy to spot the Strike and month that caused the abnormal volume.

Just as an example Today (6/3/10) AYE came up on my Scanner well over 5 times the average volume. Skewed heavily towards the calls, even if you didn't know it was mostly from the calls, once you pull up the options chain it would have been very easy to spot. A nice round 1000 contracts were traded on Jul 22.5 calls. With an already 20,920 outstanding open interest. Now that we've determined WHAT was traded, we just have to see what the intention was. This part gets a little tricky, but with the right tools and some practice, it's nothing difficult


The next step requires you to pull up Time & Sales for that particular Option, which livevol.com provides for free (its just delayed by 15 mins) if your broker doesn't already provide this to you for free. We see that Jul 22.5 calls were traded 4 times, 500 contracts, 100, 200, and 200. But because they were traded with 1 min of each other, we can confidently say they were traded by the same institution. Keep in min 1000 contracts controls 100,000 Shares, at $20.62 a share, that's a $2 Million bet. We also see that they were traded for 20 cents, which is clearly the ASK price at the time which indicates they were bought. (traded at ASK Price = likely they were bought, BID PRICE = likely they were sold) Many time & sales will display each sale as RED or GREEN, making it easier.


Hence, from all this work, we can confidently say that there are large institution out there that thinks this stock will be above 22.5 by Expiration date in July. With the stock trading at $20.62 at the close of today, that's still almost a $2 gain. That works out to be about a 10% gain in less than 2 months time if this plays out. Now this is no exact science or should it be a sole determination for buying this stock, but it gives you a peer into institutional desks and what they are betting on.
Also note, that every time there is abnormal volume DOES NOT mean that there is something going on. Sometimes it could indicate an institution closing a position, which is no good to us. Sometimes they were trades for options very far out (LEAPS) or very close to the money, those are also not really useful for us. Or sometimes, its just hard to tell because the volume was spread out over many months and strikes. Most days I can get at least 7-8 stocks to look at from my scanner, and will usually yield at least 1-2 clear indications. But it really pays off when you can find that one institution that's making a bet over 10,000 contracts. Legg Mason yesterday had a 40,000 contract spread traded, where 20,000 Jul 27 Puts were sold to buy 20,000 Jul 32 Calls. Also another institution a few days prior sold 10,000 Jul 29 Puts to buy 10,000 Jul 34 calls. These are all HUGE bets made with very strong convictions, which the average trader would never have known were made, but this is publicly available information. Many times these large traders step in around 10-11am EST, they tend to avoid the first half hour. I will continue to post more examples of these to help explain this further.

More Examples of my Trading Style

Just another Explanation of my trading.

Step 1. Acc/Dist on Volume breaks below Support: ENTER CORE SHORT POSITION

A. First Trade: Clearly 50 period CCI is well below -100 and 5 period just peaks around 100 forming V: ENTER SHORT POSITION (Targeting 6 ticks with 5-6 tick Stop Loss)

B. Repeat

C. Woodie and LONG CCI starting indicate end of Downtrend, Might consider getting in if your aggressive. It's up to you. I would have closed out core position, but still taking a short position with half the typical size.

D. Clearly Downtrend still stay: Take another Short Trade (Target 6 ticks- same 5-6 tick stop loss)

E&G. Repeat of C. But more pronounced, I would not have taken this trade.

F. With such high volume, and quick 4 quick successful trades already: You might want to take another Short position (I'd suggest half of your typical size)

H. CCI and Woodie confirms end of Downtrend. Close out Core position if your still holding onto it.

My Emini Scalping Strategy

Just wanted to share with everyone what my E-mini Scalping strategy looks like. It sounds like a lot of steps and indicators to keep track of, but actually its fairly simple and mechanical, and it is exactly what I tweet about live when I trade Emini's.

Chart Setup- I usually use a 512 tick chart, but 333, 1600 tick will work as well.

I myself like to use the 1600 tick and 512 tick at the same time. When looking for Step 1 setup, I will like to see both charts to confirm Step 1 before getting into the trade.

Step 1. (Setup) Looks for breakouts of support/resistance or breakouts of uptrend or downtrend on Acc/Dist of volume as my way of keeping on top of market breadth. Dependent on Break down or up, I will take a core position, usually half of what I would trade on subsequent trades.

Step 2. (Entry) Using a Double CCI. 50 period and 5 Period. I look for the 50 Period CCI to stay above 100 if we're looking for a Long positions and the 5 Period to make a sharp quick move below and then cross above the -100; forming a V shape. (see chart). We initiate a Long Position on the formation of the V shape on the 5 period CCI. This forms a very high probability Quick trade usually good for at least a Point and half (6-7 ticks) while allowing for a very tight stop loss (I usually use 5-6 ticks).

Vice Versa from break downward from Step 1. Short Half position Initially on breakout. Look for 50 period CCI to stay below -100 and the 5 period CCI to cross below the 100 forming a V shape to enter full Short Position.

Step 3. From most of the breakouts from Step 1 we can see 2-3 trades on average. Repeat on every V shape from the 5 period CCI, as long as the 50 period stays above 100 and vice versa for Short.

Step 4. Exit initial core trade once the Long CCI falls below the 100 for long positions or above -100 on short postions. I've also used the Woodie CCI before for this purpose before (I've included it in the chart to show)

These trades will allow for very short term scalping with very high probability. You can play around with different time frames for different products, like Euro Futures, Mini Dow. Also you can use almost any oscillator, RSI, Stochastics, instead of the CCI.

Because these are relative short term, your looking at very zoomed in charts. I highly suggest either having a larger time frame chart on the side, or follow other traders on Twitter to keep track of the big picture, like VPOC's, pivot points, 200 day MA's.