In tonight’s column, I will show you three ways to take advantage of the CVR signals from the
Market Bias Indicators page.
1. Outright positions in the S&P (or Dow) futures or SPIDERS (SPY). This is the
cleanest and most efficient way to exploit buy or sell signals. SPIDERS (SPY) trade on the
American Stock
Exchange and are highly liquid. They trade just like regular stocks except you are not
required to short them on up ticks. The futures are more leveraged and riskier, but they also
offer higher
potential return when you are correct. As we stress throughout the
site, use stop orders to protect yourself when a signal is wrong.
2. Options. When you have a CVR buy signal, shorting option put premium gives you the
best of
all worlds. When the signal is correct, you will have time erosion, volatility implosion, and
price movement all in your favor. It doesn’t get much better than that! Because of the
inherent dangers of naked puts, however, I do not advise using them. Use spreads or, if you
insist
on naked positions, use smaller position sizes (combined with tight stops). For CVR sell
signals,
long put positions are recommended. Price direction will be in your favor and implied
volatility will likely increase, offsetting any loss in time value.
3. Put on short-term stock trades only in the direction of the bias. When you have a
correct
buy signal, you are better off focusing on stocks from the proprietary momentum long list and
the pullback stocks from the long list. On correct sell signals, the best moves will come from
shorting stocks from the downtrending lists. Obviously, trading in the direction of the market
bias gives you an additional edge.
Trading Thoughts: On the Futures side, March copper [HGH9>HGH9] is wound up and
close to a
large move. On the Equities side, the Chemical Index (CEX), and especially two of its
component
stocks, [APD>APD] and [PPG>PPG], are poised for large moves.
Next article: Tuesday, February 9, 1999.