The Trading Digest

Dave Johnson

Thoughts on these leaked documents from JPM?

Have a Great Night!

Dave Johnson

Bear Stearns CEO

This was on Tuesday!

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Dave Johnson

Why? Why? Do these people never ever learn?

(click picture for full size photo)

Those are some big ass bars to work with huh?

Dave

Everyone enjoy the game tonight. I think New England will finalize the undefeated season.

Dave

Funny Kid Isnt Sorry About Huge Party - Watch more free videos

So we have ridden down fairly far and I have noticed some of the sentiment gauges starting to lean a bit bullish which always tends to make me leery of that case. But after such a strong down thrust statistically being up versus down in the short term is the high probability play. I am curious in the the very very short term where the readers think we will finish on Friday versus yesterdays close (Tuesday). We closed at 1428.23 on the SP-500 cash index. So after the next 3 days - where do we land? Positive or Negative. And take a stab at the value if you wish too. Just leave your guesses in the comments. Feel free to leave your analysis as well. I think it may be helpful for other readers to hear comments from posters. Here are a couple charts for some perspective.

Daily Chart

Weekly Chart

Have a Great Day!

Dave Johnson

I have a feeling E-Trade’s customers may have another idea for that finger after today…..

In doing some research to show that not all high volume reversals are the same (one’s after fear are better) I came across a stat that just blew me away. I scanned for days with volume being greater than the previous 22 trading days and the day was up greater than 1% from the previous days close in the SP-500.

Since 1966 we have had at least 160 days that this happened or about 8 times per year. A fairly common event. As a matter of fact we have had at least one happen every year since 1966 without any years skipped. Well not every year. As a matter of fact we have not had one happen in a while.

Here is my challenge to you. Can you find that day for me? The last trigger in the SP-500? Put it in the comments if you find it. If I do not get an answer today I will post the stunning answer tonight. The first to get it correct gets my copy of “There Must Be A Pony In Here Somewhere” by Kara Swisher about the AOL - Time Warner debacle.

Have a Great Day!

Dave Johnson

All week on financial television and media I have heard how volatile the market has been. All I can do is pull from SenatorLloyd Benson’s famous quote and say “Nasdaq today you are no Nasdaq of yesteryear”

I am in no way implying about future movement but those were spectacular moves. That you had to have been through to truly have a concept of massive moves.

Also this weekend I will be doing a follow up on my Bank index post from last week. And pointing to a specific trade that could provide a huge opportunity in the near future.

Have a Great Weekend!

Dave Johnson

Always bobbing and weaving.

Over at the Wall St. Warrior blog I happened to catch the chart he posted this morning on the Nasdaq Composite. He always has lots of graphs and data that can be helpful knowing where the market is. Thanks Jaime for a great blog.

I repost that chart here with his notes. I want to run a simple backtest based on something I am seeing.

Look at the RSI indicator in the upper pane. It appears to have just crossed under the value of 68 yesterday. I wanted to test what that may portend for the market going forward.

We will buy the open the day after the cross under of 68 on the 14 period RSI and test exits at 5,10,and 20 days later. I tested on the Nasdaq Composite going back 20 years. Here are the results of that scan.

Not what you may expect but the level of out performance in the 5 and 10 day holding periods is over 2 times the average 5 and 10 day hold. Even 20 days later were still almost 1.5 times an average 20 day hold. Does this mean we definitely go up these amounts. Not at all. There were many losing trades as well. But were looking at all of the trades in aggregate.

Typically these high readings happen in bullish environments and those tend to be supportive in the short term at least. As to what will happen - who knows?

As I was playing around with the parameters of the test I inputed the MACD level as well. notice in the chart it is above the 40 level. If I add this parameter to the backtest what do you think this does? Lessens the number of trades but average winners increase dramatically in the shorter timeframes.

5 days - 0.94%

10 days - 1.58%

20 days - 1.79%

Pretty Dramatic - I love this stuff…..

Have a Great Night!

Dave Johnson

Jon Stewart: Many people are free-market capitalists, and they always talk about free-market capitalism, and that is our economic theory. So why do we have a Fed? Is the free market – wouldn’t the market take care of interest rates and all that? Why do we have someone adjusting the rates if we are a free-market society?

Alan Greenspan: You’re raising a very fundamental question. … You didn’t need central bank when we were on the gold standard, which was back in the nineteenth century. And all of the automatic things occurred because people would buy and sell gold, and the market would do what the Fed does now. But: most everybody in the world by the 1930s decided that the gold standard was strangling the economy. And universally this gold standard was abandoned. But: you need somebody to determine –or some mechanism – how much money is out there, because remember, the amount of money relates to the amount of inflation in the economy. … In any event the more money you have, relative to the amount of goods, the more inflation you have, and that’s not good. So:

Stewart: So we’re not a free market then.

Greenspan: No. No.

Stewart: There’s a visible – there’s a benevolent hand that touches us.

Greenspan: Absolutely. You’re quite correct. To the extent that there is a central bank governing the amount of money in the system, that is not a free market. Most people call it regulation.

Source: http://divisionoflabour.com/archives/004047.php

Have a Great Day!

Dave Johnson

If you are in a trade and you begin stage 1 type talk - cut the trade. If you have deviated from YOUR trade - whack it.

via videosift.com

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Dave Johnson

This chart of the SP500 futures says it all. Today is going to be fun.

Have a Great Day and Long Weekend!

Dave Johnson

I thought you might find the following links interesting about some very large options positions being put on.

Large mystery trader looking for large down move?

And this thread trying to discern the ramifications of that information.

For those non-system traders out there, do you let information like this affect your decision making process? How do you frame the trade? As for me I just follow my systems and let the chips fall where they may.

Also I am back from the North Carolina beaches after a week of fun and sun. Had a blast down there.

I also see John mentioned the intraday SPY system he’s working on. I will be curious to see how the walk forward testing goes over the next few weeks.

Have a Great Night!

Dave Johnson

Anyway I had some good personal submissions for todays short candidate. I saw a couple that had market caps the were a bit small. The one I have settled on is HSY. Man that chart is worse than a chocolate bar on a hot sunny day. Awesome. It will be added to the long portfolio. Remember the exit……

You guys have got to get me links from other sites. User submitted short ideas are good but having hard links is even better for posterity stake.

I received some emails saying this exercise is a sign of bull market mania. Nothing could be further than the truth. I want to show you a system, with specific exit and entry rules. I have tested this system over many many years. It works in bear markets quite well too. The only variable that I am unsure is how the grabbing of others shorting ideas will impact the system. I suspect the performance will be quite good. Maybe we’ll actually outperform the major indexes. This is going to be fun regardless. The exit is one that is so simple, but it is one John and I have found to be extremely powerful when buying those long red bars downward. The component that I want you to watch is exposure. Watch how the system lessens exposure as the market has the inevitable pop up days. Especially when it has 4-5 holdings. As in backtesting you have to choose how much money to allocate and how many holdings this will encompass. 5 holdings in this live test is quite aggressive. But this is purely an educational fun exercise. Let’s see what this little monster does. Get me those links!

Have a Great Day!

Dave Johnson

I have for a long time debated with readers, colleagues, and peers over the use of shorting. I at one time I had an open invitation to anyone to give me the parameters or rules of a shorting system for individual stocks that held in the swing timeframe (1-10 days) - that resulted to anything close to solid results. Anyway I have yet to see one.

This led me to an idea. I would like you the readers to send me links from other blogs and mainstream websites that list potential shorting candidates. I will then take these stocks that are setting up as potential shorts and play them to the long side. I will run a little 5 position portfolio just like I did on the old blog. I am working on getting a stocktickr.com portfolio setup so you can follow along.

I think ultimately the concepts that I may prove are a consistent exit is very powerful and the negative pessimism adds potential fuel to the upside. On all of these trades I will use the exit that I have mentioned here frequently - the close above the high of the previous 2 days. For the purposes of this little fun experiment I will focus on stocks with higher market caps. Lets just say Russell 1000 type material for now. I do not want to make this work for me so please this is just for fun with no disrespect to the originator of the shorting idea. Ultimately the trade may work in their favor.

I will need your help. Please Please help me find candidates that are out there. If I don’t have short ideas coming in from you that you see out there I will never be able to keep up with the number of holdings we need. The worse the chart pattern the better. The one rule I will likely add is that I will want a down day before I enter at the market open the following day.

So get out there and get me some really really bad ideas - I mean it c’mon the worst!. Maybe we can have a trade for tomorrow. Just leave a comment on one of the posts or email me directly at dayvejohnson@gmail.com

Have a Great Night!

Dave Johnson