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Tuesday, November 24, 2015 7:49:43 AM
Trading Notes: Tuesday, November 24th
By Brett Steenbarger, Ph.D.
* November 24, 2015
* Yesterday's trade was interesting in that we saw considerable buying interest in early trade, as tracked by NYSE TICK, but much of the strength centered on smaller cap issues and not the NASDAQ and SPX large caps. What turns a bull, rising phase of a market cycle into a topping phase is that buying interest fails to take prices meaningfully higher, as some segments of the market display weakness as others hold up. In yesterday's trade, it was the NASDAQ index--and AAPL specifically--displaying weakness. As buying failed to push indexes higher, sellers came in during the afternoon and took us lower. Yesterday's trade was a nice illustration of how markets turn on a short time frame. It was also a nice illustration of how it's important to track multiple market sectors, not just the index you're trading.
* Painful experience has taught me to not be long stocks with pure volatility (volatility per unit of trading volume) is low. Forward returns just aren't positive on average. As you can see below, pure vol had gotten quite low recently, a yellow caution light. With the downing of the Russian jet overnight in Turkey, stocks have fallen back and taken out stops in the 2070s in the ES futures. Pure vol has expanded meaningfully. Adjusting volatility expectations and risk/reward is key here. On one hand, corrections that elevate pure vol offer good entry points on the long side. On the other hand, we now have a situation where idiosyncratic (geopolitical) factors are moving markets. It is difficult to successfully trade historical patterns when idiosyncratic risk factors dominate. I'm open to buying weakness that cannot take out the overnight lows, but in no rush to get involved.
http://traderfeed.blogspot.com/2015/11/trading-notes-week-of-november-23rd.html
• George.
Click on "In reply to", for Authors past commentaries.
By Brett Steenbarger, Ph.D.
* November 24, 2015
* Yesterday's trade was interesting in that we saw considerable buying interest in early trade, as tracked by NYSE TICK, but much of the strength centered on smaller cap issues and not the NASDAQ and SPX large caps. What turns a bull, rising phase of a market cycle into a topping phase is that buying interest fails to take prices meaningfully higher, as some segments of the market display weakness as others hold up. In yesterday's trade, it was the NASDAQ index--and AAPL specifically--displaying weakness. As buying failed to push indexes higher, sellers came in during the afternoon and took us lower. Yesterday's trade was a nice illustration of how markets turn on a short time frame. It was also a nice illustration of how it's important to track multiple market sectors, not just the index you're trading.
* Painful experience has taught me to not be long stocks with pure volatility (volatility per unit of trading volume) is low. Forward returns just aren't positive on average. As you can see below, pure vol had gotten quite low recently, a yellow caution light. With the downing of the Russian jet overnight in Turkey, stocks have fallen back and taken out stops in the 2070s in the ES futures. Pure vol has expanded meaningfully. Adjusting volatility expectations and risk/reward is key here. On one hand, corrections that elevate pure vol offer good entry points on the long side. On the other hand, we now have a situation where idiosyncratic (geopolitical) factors are moving markets. It is difficult to successfully trade historical patterns when idiosyncratic risk factors dominate. I'm open to buying weakness that cannot take out the overnight lows, but in no rush to get involved.
http://traderfeed.blogspot.com/2015/11/trading-notes-week-of-november-23rd.html
• George.
Click on "In reply to", for Authors past commentaries.
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
• gtsourdinis
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