Vix double spike down… proceed to take profits in longs, or stay long for a few weeks

(This is for you short term traders…) You will have about 5 hours from the open before the rest of the street starts taking profits tomorrow. At least that is what I will be trying to play on Tuesday (updates on Twitter if I notice any changes). My thesis is that the short week of trading will lead to a lot of portfolio re-balancing ahead of the long weekend. Don’t even count Friday as a trading day, volume is the lowest of the year there. According to the Vix spike theory, now is not a good time to be in a fully long position. When the Vix was at 80, that is where you wanted to get a little more aggressive. However, on the flip side, worst case tomorrow for rookie bears is they will short into a dull market- that means the volume is low all day, but the market melts up.

(This is for you medium term traders… ) But let us forget about tomorrow. Tomorrow will have a series of profit-taking, followed by dip buying, so I’m expecting it to be choppy, and tough for the bears to short and fade stocks despite a vix spike down. But yes, let us forget about tomorrow for now…take a look at this 3 month pattern of the Vix, that shows the nice drop in the Vix from the 80s to the low 60s.

Basically, given the intraday action in the past two days, I expect the Vix to create a wedge-pattern from now and for the next few weeks, as traders undergo the grinding process of a Sisyphean Reversal (a counter-trend rally). This Sisyphean Rally will probably last quite long, but the strategy I’m implementing is to buy on Vix on the top range of the wedge, and sell on the bottom of the wedge. As the wedge tightens, then I will bet on the counter-trend rally getting real legs. Sorry, but I just don’t think we get an instant rally by just adding turkey sauce, especially with retail numbers coming out tomorrow. Again, this whole “wedge pattern” in the Vix is only an early discovery and could very well be nullified. Wait for the range of the tightening channel, then you’ll know how to enter and exit swing positions.

As you can see, there are many ways to play the market right now. It appears Fly is taking the medium term attack on the bears, which has a high probability here since I believe the Vix is heading for the mid 50s. But, if you’re into the volatility on the day-by-day scale, then you can get more complex and use the wedge pattern in the Vix. The other outcome may be that there is no wedge channel, and the Vix just takes the A-train straight to the mid-50s. If that is the case, then its back to the contrarian strategy by going against the trend when the Vix hits “extreme” levels.

Anyway, if you’ve noticed from the chart, I am expecting this rally to go a little higher as the Vix heads back to the mid-50s. But don’t think its an automatic trip there, but do trade accordingly.

Aloha to my new stocktwitteradical peers! Let’s see, who do we have? First and foremost, “Uncle” Howard, founder of StockTwits. I’m honored. Also check out SkyTrader and BlackDogTrader who were keeping it real intraday on twitter…

	CW_Nightman / C & W Nightman
	evileggbeaterma
	jarsch501
	howardlindzon
	JohnMilner / John Milner
	adamsussman
	optionmonster / Jon Najarian
	buster_french
	charlesamadeus / Charles Amadeus
	magikmsu
	danreich
	sparkycollier / Mark Collier
	SkyTrader
	thefoxmanjr
	daytrend / Vic Scherer
	BlackDogTrader / Chad Geauvreau
	whitestone
	forcevector
	jaycoje
	akapaul

	HPHolidayCheer
	bhh_ibdindex
	mt_ppr

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Look at the wicked relief rally going on in solar stocks today.  Insane.  I issued an alert that the solar stocks would bounce hard last week due to positive statements towards the sector as outlined by Obama this past weekend as he was revealing his cabinet.  I do not care that these stocks have majorly broken technicals.  If you can’t figure out how to spot counter-trend reversals, then you can miss out in some of the biggest and fastest gains!  Remember, these are “trades”:

JA Solar Holdings Co., Ltd. (ADR) [[jaso]]  … what the horse!!

First Solar, Inc. [[fslr]]  … your “correlation stock”.  In other words, if FSLR sells off,  take profits in solar longs!

Energy Conversion Devices, Inc. [[ener]]  … PPT showing improving hybrid (versus previous close)

Yingli Green Energy Hold. Co. Ltd. (ADR) [[yge]]

[[spwra]] …drastically improving PPT hybrid.

Canadian Solar Inc. [[csiq]]  … PPT showing improving hybrid

ReneSola Ltd. (ADR) [[sol]]  … PPT showing significantly improving hybrid.

… in my “the Obama Effect” post, I mentioned that we could rally far enough as the 10 day moving average.  Thanks bears.   Don’t forget, I have a strategy in trading this sector so I’ll update you on the way (we will go long and short).

Speaking of bears, did you buy your SKF puts as a hedge?!  Down -100 points from Friday.  We could be in the middle of one epic rally.  Speaking of rallies, today’s one is a very good win for the bulls.  I think IBD might notch today as a FTD.  Just be careful with the short week.  History shows only today and Tuesday have good volume in them.  After that, the boulder might slip.

See you on twitter!

Alohaz,

Gio

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… even in the short term.

I added last week’s “double spike” to the 80s as another case. Again, I’m not a good video editor.

A shout out and an “Aloha” to my new twitterifantasimistico fellahs:

	jeanettejoy / Jeanette Fisher
	prebynski / Brandon Prebynski
	JackRyanBauer
	mjg300 / Michael
	Jazztrumpet / Chris
	kunal00 / kunal desai
	ppearlman
	StockTwits / Stocktwits
	mdawsz
	roberee / Robert Lee
	raythemoneyman
	jaguargold
	stockitch
	hurr1 / Mens Health
	dae42 / DAE
	RizzoTees
	Goldieee
	szaman
	Hawkeye_esq

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Oil is now down -66% in about 5 months, and shed -12% last week.  The last time OPEC met together they cut output and nothing happened!  Ooops.  Their timing was horrible, as a sharply declining US stock market was signalling recession (which kills the price of oil).  In their next meeting they will have to do something extraordinary, and all oil traders know that.  The cartel meets again on 11/29 then 12/17.  They probably won’t cut anything on 11/29, but the whole anticipation of it should call for some high surf advisory in the energy sectors.

 

Using the oil ETF as a benchmark, notice the volume pattern.  (1) Stock falling on relative low volume, and (2) right now there is a lot of money on the “side”, so any news item can ignite a short cover rally.  

 

It’s amazing to see how heavily short USO has been for the past 3 months, but it looks like there’s a reversal.  The magnitude of the short selling is suspicious:

 

And here’s your tradable stocks.  Again, we are buying these trashy stocks on the rumor, and selling on the news.  This is an play on the anticipation that OPEC cuts production drastically and that the price of oil would squeeze up a little.  

Again, I am overall bearish on the market, but that doesn’t excuse the fact that you should have a strategy to play counter-trend rallies.  For example, if you are heavy short energy (the correct trade), then buying calls on USO here would be an excellent hedge.  Right now the market is about timing; therefore, if the alarm does not set, do not wake up to trade these.

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Anyone else catch anything from Obama’s plans during his tenure this weekend?  I did catch something about jobs and alternative energy.  Maybe this will bluff the shorts to cover.  What do you think?

“Obama announced Saturday to create or save 2.5 million jobs by rebuilding infrastructure and modernizing schools while developing alternative energy sources and more efficient cars.”  -http://www.mercurynews.com/greenenergy/ci_11050918

Some believe that energy should be a top priority.

Alternative energy, mainly solar stocks, have been so beat up, I’m quite interested to see how this plays out.  As you know, I always have alternative plays on a post-it note.  My plan is to swing long this stocks, then short them on a fade.  Requirements for holding them are a (1) declining Vix, especially under 65 would be good for bulls, and (2) volume in rallies.  Again, these are trades, not investments, therefore if the sector gets “boring”, then pick another battle, otherwise if volume picks up we can rally to the 20day, higher probability to the 10day.  Here we go!…

With delta-hybrid from Friday’s action…

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Once again, the beauty of blogging about the markets or taking private notes on the markets is that when you have a setup that develops, you know what to do and how to trade it.  I outlined it here: http://ibankcoin.com/gioblog/?p=2357

I outlined two days ago on a few blog posts that I would like to see the Vix give me a “double spike” to the mid 80s.  Well, I sort of got that… we had Vix at the 80s and SKF trading ridiculously over $200 points (almost hit $300 today).  Clearly there was too much fear, and a squeeze was imminent.  “Who wants to stay short  the weekend”, is what you should have asked yourself.  Also in my notes I pointed out that the double inverse ETFs are trading at a high premium, for example EEV is trading at a Dow 7,500.  I even noted that a Dow +0 day would send EEV down hard.  Look at them now [[eev]] , [[fxp]] , [[skf]] .  

Anyway, I waited all day for volume to pick up, and we finally got it… right on the breakout from the inverse HS triangle (thanks Woodshedder), but in reality I was using trader instincts that we would rally into the close.

Anyway, I made a clean trade in shorting [[FXP]] since yesterday (added to current position today.  But covered all at the close) and shorting [[eev]] .  It is useless to post a day-trade chart in them.  There are no technicals to discuss in them.  It was simply a matter of using “fear” and the Vix as our only indicator to find an optimal entry point, and therefore you could have got long any stock or shorted any inverse ETF stocks and came out a winner.  Shorting the inverse ETFs was the big winner.

Remember, today’s insane 500 point rally on the Dow was simply the undoing of yesterday’s -500 point (yeah, I’m rounding) insanity.  Also note, both huge swings occurred because of two news events.  One was of Paulson speaking of how bad our economy is, and then there’s today’s news event on an announcement of a new Treasury guy.  These are not fundamental changes in our economy, but only news items.  Therefore, I still will notch today’s rally as a Sisyphus Rally.   If you are going to pick a side, pick the winning side!  Lol.

An aloha and a high five to my new twitterfunknastilicous followers! Oh hey there , Andy Swan!  Follow that guy if you’re a bull, and if you want to laugh.

 

	tradejunkie
	IRON100 / David Buffalo
	StreetRaiders
	ukefuture
	bertram25
	AndySwan / Andy Swan
	dariuswei
	cruxmonger

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