iBankCoin
Joined Nov 11, 2007
1,458 Blog Posts

2 Short Setups

I’m still not ready to go full-tilt bullish. With $SPY putting in two back-to-back doji days just beneath the 50 day average, I think there is room here for some downside. With that in mind, here are two stocks that have been in a downtrend but have recently surged, are sitting beneath resistance, and might provide some downside action should the market pullback.

Have a great week trading!

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An Orderly Consolidation: Why I’m Beginning to Lean Bullish

As I noted in an earlier post, my wife’s business has been going through the roof. November sales have surpassed our wildest dreams, no hyperbole. So I’ve been a good sweat shop slave and have stayed fully engaged in nightly production efforts. Knowing this, I hope you’ll excuse me not waxing poetic on the current orderly consolidation the market has experienced over the last few days. Just know this: An orderly consolidation after a swift rocket ship up can mean the continuance of the rocket ship. I’m not ready to go full-tilt bullish, but I’m fully entertaining the possibility that a serious pullback of 2-4% may not occur until the market moves up more.

Still, one cannot be too prepared for more downside. With that being said, here are a couple of candidates for some swing shorts.

Or, you could ignore all my equivocations and just short $SPY, which still “looks” ripe for a swing short. There are a lot of technical reasons for people to sell, assuming they still follow the technicals.

Either we go up, or down. We will learn much from either move. I am positioned for a move lower.

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A Gentle Reminder: Sell The Rip

In my post on November 13th, Time to Sell the Rips, I wrote the following:

I expect the first $SPY rally to run to around $141 to $142. I would not be surprised to see it run all the way back to the 50 day average before reversing. But it will reverse.

Friday’s low-volume holiday trading session saw $SPY close at $141.35 . As per the plan, this rip is to be sold.

Once I’ve seen the pullback, I’ll be better able to make some guesses about whether we’ve seen the bottom or whether there is more pain to come.

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Have a Great Thanksgiving

The beer is sitting outside cooling down and Kentucky Fried Chicken is prepped for warming in the microwave. Picked up a couple of extra packs of Marlboro Lights 100s, just in case. I even rinsed off my best snap-back hat, in order to look nice at the table. Aunt Betsy drove over 80 miles and picked up enough Twinkies for us all to have doubles. It is going to be a great Thanksgiving!

From Woodshedder’s family to yours, wishing you a restful, warm, and wonderful Thanksgiving.

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S&P 500 Closes More Than 1.5% Beneath its 200 Day Moving Average. Bullish or Bearish?

Saturday afternoon found me at the neighborhood chili cook-off, which I won one year and placed runner-up a second year. Being lazy, I did not enter this year. Anyway, I was talking with a good friend who is in the biz, and he was concerned about the current state of the markets. I was sharing that I was relatively unconcerned, as I believe we are not witnessing more than a run-of-the-mill correction. What seemed to concern him the most was that the S&P 500 had fallen more than 1.5% beneath its 200 day moving average. I did not find this to be particularly disturbing, and offered a guess. My guess was that after falling more than 1.5% beneath its 200 day moving average, the S&P 500 (using $SPY as a proxy) would rise on average between 4 to 5% over the next 50 days. He asked me to test it, and so I have. Here are the results.

The Rules:

  • Buy $SPY at the close when it falls more than 1.49% beneath its 200 day moving average
  • Sell $SPY at the close X days later
  • No commissions or slippage was accounted for
  • All $SPY history was used

The Results:

So Bryan was right, and my prediction was way, way off. $SPY closing more than 1.49% beneath its 200 day moving average has been a fairly neutral to bearish setup, over the past 18 years.

  • There were 637 instances of the setup.
  • There were 37 trades held the full 50 days.
  • The median of the 37 trades was 1.21%.
  • The biggest winner was closed in June, 2003 at 13.05%
  • The biggest loser was closed in November, 2008 at -32.89%

I am still surprised at how neutral to bearish this setup has been. Of course the -32.89% loser skews the average, but when the first close beneath the 200 day moving average yields a strong average trade of better than 4%, it is interesting that changing the variable to 1.49% beneath the moving average affects future results so dramatically.

For you folks that can’t get enough of the numbers, below is a graph of all the trades.

Have a great holiday trading week!

 

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Bounce or Die!

I believe we have seen the worst of the carnage, at least for the short-term. The % of stocks above their 20 day moving averages is at historically low levels, levels that almost always mean an intermediate term bottom is near. This metric closed last night below 15. Unfortunately, I can’t show you the graph because my damn computer shut down and re-started overnight, meaning all of my software has to be re-started and my scans re-run, which I do not have time to do this morning. So you’ll have to trust me. We are at levels where we bounce or die. My money is on a bounce.

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