Put Money To Work In These Areas On Any Pullbacks
The
market is continuing to show strength. I like what I’m seeing based
on price and volume. I’d now like to see some more leadership develop to really
get this market going. So far, the breadth has been lacking. That said, I had
more charts to look at and found more quality stocks nearing the top of their
bases this weekend than I have in a long time. We could begin to see a large
number of very nice breakouts fairly soon.
On Friday the 13th
of May there was an unusual occurrence. The VXO, which measures volatility of
S&P 100 options closed 10% above it’s 10-day moving average. That same day, the
VXN, which measures the Nasdaq 100 options volatility actually closed BELOW it’s
10-day moving average. In other words, it appeared fear was creeping in to the
market based on the VXO, but the VXN was not confirming this. My thought was
that there may be some way to take advantage of this via a long/short spread
trade.Â
Since 1999, this scenario where
one index is stretched and the other is on the opposite side of its 10-ma has
occurred 18 times. After finding the 18 times where this occurred I looked at
different ways to execute a long/short, SPY/QQQQ or QQQQ/SPY combination trade.Â
The results were, at best, inconclusive. A situation that I thought could have
provided and edge turned out to be nothing more than an anomaly.
When studying the market and
looking for statistical edges and patterns, these types of failures will
happen. Sometimes your great idea is great, and sometimes it is worthless.Â
Rather than rushing in and acting immediately on a new idea you may have, it is
better to do a bit of testing. Then, if you decide to act, you can do so with
confidence, along with an exit strategy. Once you know a trade has an edge and
you have a plan to exit, then you may proceed. In the above case, my idea was
basically worthless, but at least it didn’t cost me anything.
Sector
Action
Tech, Internet, and Retail are
showing standout strength. It might be a good idea to put money to work in
these areas on any good-looking pullbacks.
Best of luck with your trading,
Rob
P.S.
Click here for the Hanna ETF Money Flow System.
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