Trading Journal - Sept 30th 2014

Not too much to write or share. The big gapdown yesterday let to the reactive buy the dip folks closing the market higher compared to where it opened. I would have hoped for an up open to continue the sell but the market had other ideas. This has however not changed much internally and the market remains vulnerable to sell offs.

There is an expectation to a month end/quarter end rally so I am not sure what to expect today however a sell off would be very telling. For now maintaining bearish stance and positions.

Gold continues to be very weak so I closed off my straddle and went short via NUGT puts in December. This could be a potential multibagger.

Best,
PM

Weekly Journal - Sept 29th 2014

Big bounce on Friday. Expected a bounce between Friday and Monday but everything together on one day was a little too much. I am not sure yet if the bounce is done. If it is done, then we are likely to head back downward. I expect we trend lower this week ofcourse with bounces in between. I am thinking we may have a trade-able bottom in around 10 days. Maybe end of this week - to the next Tuesday/Wednesday. Just an idea I have based on some cycles and seasonality I follow.

Lets take a look at internals.

The bounce on Friday turned up the MCO but its still a long way to go to the zero line. The NYSI is below the zero line decisively and this will put pressure on the market. Friday looked like stop running to me and a lot of shorts might have covered. I would be watching this weeks market with a lot of interest. Technicals are decisively bearish. How long will the market try to hold it together? I will also be on the lookout for a bottom after Friday Oct 3rd.

Best,
PM

Market Journal - Sept 26th 2014

Yesterday turned out to be a great day for me and for bears in general. The day before's bull move was odd - very odd - and yesterdays breakdown just goes to show how made up the rally before was.

So yesterday was a real breakdown and market is not just going to turn around and rally over here. Best case is for a couple of days back and fill and maybe a little bounce before the move down continues and maybe finds a bottom this time around. So at minimum I would say a trade-able bottom is atleast a week away - most likely more.

But instead of trying to guess, lets wait and see what the market internals tell us.

The MCO is very oversold. I dont think it will continue to move straight down from here. Most likely we get a bounce and then probe a little lower before starting to build texture and bottoms above bottoms. But this is a process that will take time which is why I mentioned atleast a week before we get any kind of bottom that can be traded.

The NYSI is below zero and this is not good for the IT bull case. It is going to continue down for a while and most likely the market with it.

Coming to my positions. I think I am very short side heavy at the moment. And volatility has increased a lot. Time to lighten up a bit and maybe reload later. I have already outlined my positions in earlier posts. I will be lightening up and taking some profits today.

Best,
PM

Market Journal - Sept 25th 2014

Surprisingly strong rally today. I was expecting a rally but not of this magnitude. However even though we rallied strongly breadth did not improve much and sells still remain in effect. We will likely move back and forth a little before going down again - this is my best read on the market at the moment.

Yes - today's rally has strengthened the bull case but still bear remains in force.

Lets take a look at the MCO -

Moved up a little today but nothing abnormal. We might have however seen the low for the MCO on this move but price should have more to go. Let us wait and see how the next 2-3 days work out. The decline should start within that time else something else is going on and we will have to reevaluate.

The NYSI is right at the zero line. Breaking down through it will put even more pressure on the market. The market is also seasonally weak until around beginning of October.

Several of my shorts performed magnificently today. WLT was down 20 percent today! BTU was also down but not by much. Couple of others rallied a little but I have time on my options to capture the expected resumption of the downmove.

The butterfly on SPX is stable. The Iron condor on SPX will expire worthless - mostly likely - earning some premium. I am on the lookout for creating next week's spread. I will most likely enter this sometime tomorrow or Friday. I wanted to see a little more of a downmove before doing this.

Gold is just meandering for now but I think we get a decisive move starting from tomorrow. Looking at the charts I feel it might break down again - hard and fast. I dont care which way it moves as long as it moves - I have a strangle position on NUGT. I just need a big move to profit.

Best,
PM

Market Journal - Sept 24th

The market continued to be weak yesterday. Breadth remains horrendous and will take a while before it repairs itself. We are likely to get a bounce today maybe after some initial backing and filling.

My current positions
Short BTU, WLT, TNA, GRMN, IDCC via puts.
Straddle on NUGT - expecting a big move either way. Might be up but lets wait and see.
Butterfly on SPX - 1900-1950-2000 calls. This could turn out to be an interesting trade.
Long VIX Dec calls.
Long a bear put spread 1980-1940.
Long SPY calls as a hedge - entered yesterday.

Overall positions are heavily weighted toward the bear side so I might take some off today. Not very sure how much of a bounce we might get and this is the problem. But either way I do not think the bear move is done yet.

Best,
PM

Market Journal - Sept 23rd

Well, after yesterdays market move, things look more bearish. Need to be seen whether bears get something substantial moving this time or it will be like the numerous other times where the bulls take back control.

Yesterday was a good day for me. I entered all bear put positions as planned and what I had earlier on the bear side also performed very well. IDCC, GRMN, TNA, BTU puts and the SPX bear spread are all doing good. I also entered WLT puts - this stock had a big breakdown yesterday as well.

Today also seems to be opening down. But a bounce is possible somewhere today. I will like consider hedging today with SPY+IWM calls. Will make a decision on when exactly to do it during the trading day based on internals.

MCO went down hard yesterday as can be seen from chart below. Will we have a bounce? Or more deterioration before that? Either way bear rules for now - until we have a turn up in MCO and eventually a move back above the zero line. This will take a while which is why I believe the bear is here to stay atleast for a few more weeks.

More charts tonight.

Best,
PM

Weekly Market Journal - Sept 21st 2014

The market was surprisingly strong last week. This may have been in part due to the Alibaba IPO. Now that is out of the way, maybe we will see downside pressure come in next week.

MCO turned down on Friday and remains below the 0 line. Until we have a turn up above the 0 line and an upturn in NYSI, I will not enter any long positions except for intraday hit and runs.

I am not very fond of shorting either as it has been a very strong bull market and all bears have been able to do is make the market go sidewise.

Nevertheless, I am maintaining my bearish posture until the internals tell us the next upmove is starting. I explained in my earlier post how I am positioned. Not much change except now I have entered an Oct Bear Put Spread position - 1980-1940 strikes - to profit from any quick move downward in next 2 weeks.

I have also entered an Iron Condor position with out of the money strikes - for next week - to earn some relatively low risk premium.

I also am entering small positions in puts in the following most likely on Monday -
TNA
BTU
GRMN
IDCC

I dont think I will overstay my welcome in above shorts. And position sizing is very small on all. Less that 2 percent risk on overall equity.

Gold remains extremely bearish. Now a bounce might come in next week. I am considering shorting the miners via puts. I will make a decision during the week.

Lastly VXX. I am considering a strategy over here but will not enter it until I get a confirmed bull move. This will be a bullish strategy to be executed in a way which will not risk much capital in account. Basic idea will be to construct a short call spread maybe 30-26. VXX has been going down longer term and I expect we will be lower by end of year. The idea is to earn some premium with minimal risk. I will outline details of this strategy once I enter it this week.

Best,
PM

Trading Journal - Sept 17th 2014

Stocks.

Seasonally the month of September is supposedly weak for the stock market. And we have got that weakness so far although its been very muted. I don’t use seasonality exclusively but it serves as a vague guide to keep in the back of your mind – following it blindly is a definite no-no. But when used in conjunction with other ideas and methods, I have found it to be useful.

Internals have been horrendous so far this month. But price has done little to catch up with it. Which makes me wonder – will the internals improve and catch up with price? Or will price quickly breakdown in the near future? Need to wait and watch what will happen.

Above chart shows have I have been talking about. The MCO has travelled a lot below the zero line but prices have been mostly rangebound even though we declined a little initially.

So how am I playing the market right now? Ever since we got a high below a high on NYMO and it then turned below the zero line, my bias has been bearish. I exited all long positions and began a short ES position. As I am not too bearish, I have been selling weekly puts on SPX against my short position. Total risk is limited to 2 percent of total equity.

Current Position: Short ES at an avg price of 1999. Short SPX 1960 puts current week. Will roll over to next week puts on Friday. The idea is to earn premium on position in a market neutral way as long as NYMO remains below zero line.

I expect the NYMO to put in a bottom above a bottom and the NYSI to turn back up toward end of September/ or beginning of October. Seasonality tells us to expect this. Also as per my hurst analysis, we should see an important low by then – without going into too much detail – this could be the first 40day low after the 18 month low which was most likely seen on August 7^th. If this analysis is right, we could have a bullish Oct-Dec and I intend to take advantage of it through outright positional plays in few select stocks and index option bullish spread plays. But first let us let the market specifically the NYMO, tell us that its time to be bullish.

So far this year and most of last, the market has been moving in a bullish channel outlined above. I was expecting that market might decline toward lower range of the channel to set up a buy by end of month but market seems to be having other ideas. Let us wait and see if the internals give a decisive buy, else playing a slightly bearish but market neutral strategy as outlined above will be my game.

Gold.

Gold has been on a confirmed sell ever since it broke down from the triangle outlined below.

It looks like it might test the 1180 area again before we get a chance to play the longer term bullish side. There is a cycle low expected in the November timeframe – I will be watching this to set up a longer term bullish position via options.