Another Gold Analysis with some Volatility, Options, and Charts

Thu Feb 21, 2013 6:17am

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Its no secret that gold and the miners (via GDX) took a hit today. All I heard from CNBC was the looming Death Cross (50sma crossing below 200sma). Quite frankly it got old and then there was the FOMC Meeting Minutes that caused further selling on volume in the yellow metal and miners. But was today a capitulation? That is what many seem to be wondering. Today many talked about the rise in the VIX and yes it was big on a relative percentage move in comparison to the SPX.

When looking at the VIX-type instrument for gold we look at the GVZ. Today the GVZ saw a move of 18.03%. Below is a 1 year daily log chart showing the size of the move. Something to note is that GLD really saw this down move accelerate last Friday on the gap below 158, but note what the GVZ has done on the Friday & Tuesday moves in comparison to today:

Also with that I like to look at what the GLD implied volatility (IV) has done in the options, below is an excel screenshot of the rise in volatility since the close of Thursday (data from thinkorswim):

We can see the larger rise on a percentage basis in the near-dated weekly options verse the monthly option chain. Next week expiration showed a rise of 4.03 points (29.94%) in the calls and 4.33 points (31.22%) in the puts. A bigger jump relative to price change than we saw on the previous decline Friday. Personally I’m liking the idea of selling some front month volatility and buying further dated options.

On a chart and price basis, how big was the move today? When looking at volatility of the instrument, many use Bollinger Bands and I like to use them as well. Today it was noted by several on the stream that we closed below the 3rd standard deviation 20 day Bollinger Band. While traders like to use the fat tails of moves as price has been known to walk the band on the 2 standard deviation setting, this isn’t quite so common with the 3rd standard deviation. It is a more rare occurrence that often sees a snap back.

I looked at the last 10 years of data for GLD and a close below the lower 3rd standard deviation band has happened twice, both being in 2012 (yellow arrows mark a close below then back inside the band):

Zoomed in view:

Below is a chart of GLD going back to when we broke out and GLD went parabolic:

I have a correlation to GDX as today it was noted on the stream by several I follow that the metals saw big option buys near the close in ABX, GG, & NEM in the January 2014 chain, search stream with ticker and you will find the posts. ABX stuck out in my mind as January saw buyers of the 40 calls, noted by @OptionsHawk at his website where there are usually 4 free option notes for each day:

These go all the way out to January 2014 so if you were looking to play off some of this information you will definitely want to go out in time and let the trade work. The trades today (2/20) were put on for cheap on an option price basis but are also +1million dollar trades. Either way use diligence if using this info for a trade and keep timeframe in mind.

Combining The PPT’s Features with Events

Thu Nov 1, 2012 9:23am

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Taking a learning lesson from iBC Bloggers The Fly and chessNwine I decided to create a screen of companies with the keyword cement in their business description. In The Fly’s post I wanted to highlight the following paragraph as I believe it serves for good future reference in the case of any potential market moving event, in this case Hurricane Sandy:

Many moons ago, I created a “Hurricane Watchlist” inside The PPT. Whenever an event moves a specific sector, I like to create a watchlist and save it for future reference. Think of it as a stock market diary of sorts, a reminder to buy certain stocks under specific conditions, like hurricanes, terrorist attacks, war etc.

Also in The PPT Keyword Search to Develop a Thesis” href=”http://ibankcoin.com/chessnwine/2012/10/29/using-the-ppt-keyword-search-to-develop-a-thesis/” target=”_blank”>@chessNwine ‘s post he described a feature inside of The PPT that I never used but find it to be beneficial, especially in cases like that noted above. His post is more for members of The PPT but this can be useful altogether if you are familiar with data mining or know of other sites in where you can do keyword searches within business descriptions and then filtering them by performance. FINVIZ comes to mind but I have not tried it within FINVIZ.

With this information I went inside of The PPT this morning to combine these two informative posts. I went to the “ALL INDUSTRIES” tab and sorted by breadth and found the Cement Industry to listed as having 100% breadth. This stood out to me as there will be rebuilding efforts in the wake of Hurricane Sandy I then sorted by “Hybrid Change – Daily” and the Cement Industry was the 3rd ranked industry. With this I then went to the “COMPANY SEARCH” tab and put “cement” in parenthesis (for exact match). This returned 41 companies with cement in their business description. You can then use these returned results in a screen, a feature just found above the returned results:

I created a screen within The PPT with the results and some basic sorting features. Feel free to click on the link below and modify the results to your liking.

Companies with “cement” in their business description

Tropical Storms, Hurricanes, and Stocks

Mon Aug 27, 2012 11:49pm

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With Tropical Storm Isaac approaching and mostly likely to become a hurricane, I decided to look at what industries and stocks can benefit and be hurt from these natural disasters. The following are industries that tend to be negatively impacted by hurricanes:

Insurers – property and personal injury impact. Leading property insurers include: AIG, HIG, TRV. One thing to keep in mind is not to look at all insurers as some have little exposure to property and casualty damage (ie. MET)
Utilities – quarterly cost rise due overtime expenses for restoring power. Some stocks included: DUK, PGN, D, ED
Airlines & Air Freight – flight cancellations to also include air shippers. We are already seeing this occur with TS Isaac as all New Orleans flights have been cancelled. Some stocks include: DAL, LUV, UPS, FDX

Industries that are positively impacted by hurricanes:

Supplies – demand for emergency essentials such as batteries, bottled water, fuel, etc. Stocks include: WMT, COST, LOW, HD, CVS. The homebuilders are the obvious among investors and public but James Altucher provides further research on that.
Credit Card Issuers – people finance their emergency purchases with cards. Some stocks include: V, MA but the article states the lager beneficiaries are bank issuers of cards to include: COF, JPM, AXP

The above information was provided by Trefis. Further I came across a Sept 2009 article (and re-stated in a 2011 interview) in where he went back and ran a scan to see what stocks in the S&P 1500 were up after the 8 most expensive hurricanes in history. His findings included 4 stocks:

Campbell Soup (CPB) – attributed to stocking of canned goods and non-perishable items. Has been consistently profitable.
Hill-Rom Holdings Inc. (HRC) – makes hospital beds, patient-room furniture and other medical products ranging from home-care systems to patient data management software for hospitals
Nucor Co. (NUE) – steel & infrastructure for rebuilding efforts
Toro Co. (TTC) – landscaping for residential, commercial and government buildings, and its services are heavily in demand after a hurricane

What I find interesting about these specific picks was that they made their 2011 bottoms around this time and traded higher through the year. But the market made a yearly bottom before hitting a bottom again in October, although these stocks did not make a lower low at the same time. In regards to Home Depot (HD) and Lowe’s (LOW), which many think about right away. James found that these stocks did not always benefit from all the hurricane time periods tested, so they were left out as he was looking for stocks that were up every time after these historically worst hurricanes.

I would not blindly pick these stocks mentioned within this post just off the information provided. I think what is important is to recognize the industries of those stocks and select stocks within that industry that are outperformers (positively impacted industries) or underperformers (negatively impacted industries). Also keep in mind time frame as this analysis probably wouldn’t be too important to swing traders holding for a week that trade just off technical analysis. It would be more useful for position traders that hold for more than 1 month at a time. Another tool that the trader could use to further justify positioning is to watch the options market. If you see big block trades going off on the put side (married put) or calls and puts (collar) in an insurer, it could be institutions hedging their current holdings expecting to see downside. That is speculative on my part but just one thing that you could watch for directional evidence.

Structuring the Emini-SP500 into the FOMC Rate Decision

Wed Aug 1, 2012 2:01pm

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Today we have the FOMC Rate Decision at 2:15. Looking at the price action today it can be summed up as boring and with good reason, people don’t want to get aggressive. One instrument I always watch is the emini SP-500 (/ES) on a 30 minute time frame. I will also note that @chessNwine gives consistent and informative updates on the 30 minute SPY chart. One reason I like to use the /ES is for the market profile and the fact that futures in general are the first to react to news events. Going into today I pulled up the /ES on a 20 day chart (preferred for rolling month visual):

Looking at the chart it looks like an awesome bull flag formation. The volume profile on the right hand side takes into account the volume of the recent 20 days. Besides the bull flag formation there are several things that concern me about the chart. There are several gaps to the upside that are also coupled with Naked POC’s. Both of these (gaps & naked POC) both have a tendency to get filled. Also looking at the volume profile on the right hand side we can see the that we are above the Value Area High (indicated by higher yellow line). This can act as support though and I do like that coupled with the bull flag formation. But another thing that makes for a bear case is that the Point-of-Control (indicated by red line) is at the lower end of the Value Area. Low volume at the higher end of the Value Area tells me there is not a lot of participation by the longer term traders.

My concern here is that if we break below the current highlighted channel we will also break the Value Area High and put is back into the Value Area. This coupled with the gaps and the Naked POC theory of them both tending to get filled, I believe we will see more downside. Also the monthly POC (red line on right) also comes into play with price structure on the chart of looking like a decent support area which would be around 1345. But a break below that and I believe we see the lower 1330’s again and putting us under the current uptrending channel and trendline that we are above (as highlighted below on daily /ES chart).

It has been said to fade the initial reaction but I have not done any research on that. Personally I wouldn’t start paying attention to the true move until the last hour of trading…or the last 3 minutes as in yesterday and on a side note, what the hell was that about. ZeroHedge put out a quick read on what happened, over all its disturbing to see things like this go on, but there sure is nothing I can do about it.

Operation Ivy sums things up with their song “Vulnerability”

Watching For Bond and Dollar Weakness, Not Market Strength

Fri Jul 27, 2012 1:03am

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Not much to say here but I am not getting excited by the market strength today but instead want to see more weakness in the bonds and Dollar. Bonds look like they are just retesting the cup with handle breakout. Chart noted by @chessNwine in posts on July 23rd and July 25th. I do like the fact that the Dollar sold off some due to the news today and Draghi’s pledge to save the Euro. Below is a chart of the $TLT and unless this gets under 130, I believe the bond market will hold and any gains in U.S. equities needs to be scrutinized. We are seeing a negative divergence in the MACD but this alone isn’t a trading strategy in my opinion but more of a warning. This divergence can be the security just needs some time to breath before resetting itself for a higher move. I would like to see the recent chart pattern breakout fail and go back into that range, until then I am not betting against bonds.

The second chart is the Dollar. I do like the fact that this came in more than the bonds but still this just may be a retest and relief from the recent rally as the Dollar is still in an uptrend. Note that it is hanging right near the 83-level where the Dollar broke out in early July. I would like to see the Dollar close below the low of July 26th. Do note on the chart that every time it has tested the RSI 50-level since its breakout mid-May, the Dollar has bounced. While I am not a big fan of trading off that alone, it does add as a contributing factor along with testing a support level.

I keep telling myself to ignore the news and opinion but instead to look at the facts. Right now the bond market and Dollar are telling me to exercise patience and keep from weighting heavily to long positions. I still think this is an unhealthy environment and traders need to be quicker on taking profits. Also I would still avoid buying the breakouts but instead get in before the anticipated breakout or play horizontal/channel support and resistance zones.

Be Quick On The Pullback

Mon Jul 2, 2012 10:29pm

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Last week I closed out my positions in AAPL and SPX coming into Monday all cash. Last week left me a bit frustrated as I was pleased with positions into Friday but the Thursday night news and Globex market action had me believing that this was not normal and Friday was going to be an interesting day. So that night I decided that if this action held into the open I would immediately close the SPX position leaving the AAPL position on. Friday morning I closed the SPX position and the AAPL trade was working great until the end, when I was expecting a pullback making the 580 Call Calendar a pin. AAPL didn’t pullback at the end so I left profits on the table and what would have been a positive week created a overall net loss of -0.40% for the week.

With Friday’s action I came into Monday looking for more bullish setups than bearish. One stock that I favored based on relative strength, chart pattern, seasonality, & possible short squeeze was PPO. More details can be found in this post.

It is definitely hard to allocate money to the long side here as we are overbought on many metrics to include the McClellan Oscillator reading of 261. I watch this closely for readings over 200 and hitting 250 is screaming overbought and in need of a pullback. Despite these overbought conditions I decided to allocate money as I wanted to have some exposure to the long side. We are in need of a pullback but that doesn’t necessarily mean we have to. So after seeing PPO pullback some I decided near the close to gain some exposure to the long side via September single calls.

The most bullish case and the one I favor is a pullback from these levels giving traders a chance to buy. I do believe one has to be quick on the trigger and I will say that if we see a bad jobs number and selling I would have no problem going long as I think that is your chance to get in. In these cases I prefer to watch the emini-SP in the pre-market to see where price was accepted based on the numbers.

Also the way we came back from the poor ISM data shows me that traders are looking buy on weakness and that is what I am preparing for.

Cash – 95.3%
Long – 4.7% (PPO 4.7%)
Short – 0.0%

http://www.youtube.com/watch?v=hQn35n3Zvjw

Again Traders Are Left With Questions

Wed Jun 20, 2012 8:54pm

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Today was suppose to be the big day and we were either going to shoot up or drop down but either way volatility seemed to be expected by many. Well the FOMC released their news and Bernanke did his thing that basically ended us with a flat market. All I could do was laugh as last night @Rhino_Cap wrote a post in which I commented “…now that everyone including me is expecting volatility watch the market do nothing, confusing folks again with the “what do I do now?”” While we did have some intraday volatility the market basically was flat. Those that shorted the initial drop got their faces ripped off with a 16.75pt run in the $ES_F. Then those that did the panic buy (fear of missing out) on the run up almost see those lows again with reversion to the mean at basically a flat day. A daytraders delight but those that are looking to get in the market and bought on the run probably were not comfortable with the action. I know the feeling because I was one of those guys as I made a trade in AAPL via weekly calls.

I chose to trade the AAPL June Weekly 580 Calls.

It was a stock that I was looking to get into as stated in previous posts but more for a swing and not a daytrade. After the initial drop after the FOMC minutes I did get in the stock after the initial drop and move higher but my stance changed. This no longer turned into a stock that I was willing to hold overnight because I believed that the news pretty much sucked and if we see a gap down tomorrow, this is one stock that can make a nice point gap and move violently against a trader. I chose the Weekly options for the leverage (preferred when daytrading AAPL) and knowing that I was going to exit the same day as with only 2 days until expiration there is big theta decay with AAPL options and holding them overnight is not a good decision while hoping they don’t open down and then have the position be crushed. I was definitely pissed to see it continue to run and see the option go another +$100 but the selling came and overall it seems like whenever I get in this stock I can’t wait to get out as I believe it alone has ruined traders careers.

5min AAPL Chart

Stated before the FOMC announcement in a post, I cut half of my SPY puts for slight gain and then at the end of the day I put on a short bias position in KO. Staying light here right now and see how this news is digested.

Current account with allocation (rounded to tenth):

Cash @ 87.2%

Long bias @ 6.6%:
-NKE Bull Put Spread @ 6.6%

Short bias @ 6.2%:
-SPY Single Put @ 2.3%
-KO Single Put @ 3.9%

“you create your own reality and leave mine to me” -Bad Religion