More Duration
As mentioned in recent columns, the lack
of quick intraday volatility spikes has pushed my time frame out. Today I
want to share with you a trade that I did yesterday in order to give you some
insight as to how I am navigating the market presently.
Naturally, you always want to be cognizant of critical levels on the S&P and
Nasdaq futures. So, as usual, I take all of those levels into consideration.
Yesterday, it was clear that the 926 level would be key.
However, even prior to breaching that level, the
opening pullback offered a very low-risk entry on either the
SPYs/E-Mini, or as I
prefer the underlying stocks. One subtle difference is that I tend to gravitate
toward “second tier” stocks that are not as closely correlated to the
futures. Given that I am pushing the time frame out and basing the trade on a
five-minute chart, I can expect a little more “noise” while in the
trade. Avoiding stocks like
(
C |
Quote |
Chart |
News |
PowerRating),
(
IBM |
Quote |
Chart |
News |
PowerRating),
(
MSFT |
Quote |
Chart |
News |
PowerRating), etc., will greatly
minimize that noise.Â
The other advantage of using the stocks as the proxy is
simply the time “gap.” You will recall that the edge in trading stocks is that
the futures will give you that split second lead time. Rather that making a
stand at any given level, you can allow the futures to lead you into the
trade. Call it cheating, but who cares? It is a subtle, but very important edge.
Stocks like [HRB|HRB],
(
FNM |
Quote |
Chart |
News |
PowerRating),
(
WLP |
Quote |
Chart |
News |
PowerRating),
(
ADI |
Quote |
Chart |
News |
PowerRating) and
(
UNH |
Quote |
Chart |
News |
PowerRating) provide good intraday range, volume
and a reasonably close correlation with the S&P futures.
So, with that in mind, take a look at the opening 45
minutes on the S&P futures:
You will see that the initial pullback “peaked” below
the 40% retracement off the low, but managed to hold on. My trigger was going to
be a push through the 60% retracement (923-24), and then naturally hoping there
would be enough momentum to surge through the 926 level.
For me, I was watching
Fannie Mae
(
FNM |
Quote |
Chart |
News |
PowerRating) during this whole
process. As can be seen by the chart below, FNM
actually held in better than the S&Ps, only retracing 40% (63.64) off the
highs. Despite that, I still wanted to see confirmation from the S&Ps before
establishing a long.
That push through the 923-24 level was my trigger to
get long FNM.
So until further notice, this is how I will be
approaching the market on a day-to-day basis. Trade frequency down; trade
duration up.
Going into today’s session, there are a couple of key
levels to keep an eye on. At present, both the S&P and the SOX
are within striking distance of the August highs. Given that the SOX has been
the lead sled dog recently, I feel that tracking that index will be critical for
trade entries going forward.
SOX:Â Â Â Â Â Â Â 365
S&P’s:Â Â Â Â 965
Nasdaq: Â 1074Â and
1058 (these levels will now serve as critical support)
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *965* | 1150 |
| 949 | 1141.75 |
| 945 | 1134 |
| 942 | 1128 |
| 940 | 1119.50 |
| 936 | *1112* |
| 929 | 1105 |
| 925 | *1097* |
| 921-22 | 1089 |
| *915-16* | 1071 |
I leave you with this quote. It is from one of my
favorite and most insightful trading books, and one I encourage you to read,
Fooled By Randomness,
by Nassim Nicholas Taleb.
“I start with the platitude that one cannot judge
a performance in any given field (war, politics, medicine, investments) by the
results, but by the costs of the alternative (i.e. if history played out in a
different way). Such substitute courses of events are called ‘alternative
histories’. Clearly the quality of a decision cannot be solely judged based on
its outcome, but such a point seems to be voiced only be people who fail
(those who succeed attribute their success to the quality of their decision).”
As always, feel free to send me your comments and
questions. See you in TradersWire.