Trading RM, LLC.

Slower day, a bit of consolidation, some news, and two-way action… market broke the range yesterday, but was unable to make new highs or return to the range today.

• The “Trading RM" oscillator is trying to pop, but meeting resistance on a downtrend line… It is trying hard, but still riding the line. As Trading RM has said before, when it pops thru the trend, be ready to get aggressive, until then be patient.

• “Future(s)” have taken a breather today, after a recent pop-up, however, good two way action and some news plays worked on this summer Friday.

• “Range” was in-line with the recent average.  Market uncoiled yesterday, and today it tried to find its way but was mixed by days end. The lower high of 990.50 in the ES Minis might become a resistance point Monday, IF the markets try it again.

• “Going Big” was approximately a 2:1 ratio of percentages gained on the upside compared to percentages to the downside all day. When this has happened on recent Fridays, the next trading day was more heavily weighted to the downside, but again this is using history to predict the future.

• “Gap DaP” was flat today since there really wasn't a gap on the open. However, futures were up early this morning, then down into the open. When the market opened, the market failed to make new highs compared yesterday, much less test 1000 in S&P futures. The futures could try for higher again, but the oscillator is light, thus a move lower is entirely possible.

While today was a bit slower trading, opportunities were there.

Good luck and Great Trading.

Early morning offered a decent set up for a select few short trades. We saw the major indices catch a bid early a.m. MA, V, LVS, MGM, WYNN and several stocks initially seemed strong. But 20 minutes into the trading day we saw the SPX make new highs with the leading stocks on the open not confirming. The Nasdaq was also not confirming highs. Meanwhile several names (AKAM & SYMC) remained weak.





SYMC ended up dripping lower all day and picking up some acceleration lower as SPX sold off in last half hour.

Today oil had a major reversal after the sharp sell off yesterday as the strength in the equity markets fueled a rally in the energy markets. Today's strength was attributed to the demand trade and the dollar index was showing some slight weakness. Yesterday oil gapped lower and today it gapped higher and was able to fill its gap from the previous day. The USO hit resistance right at the gap fill.



Resistance: Double Top @ 36.00 - 36.30; 37.00 - 37.50
Support: 20 Moving Average on the daily; 33.40; 32.80

Great opening opportunities, followed by slowness, some news, and two-way action… market broke the range, but it may, or may not last.

• The “Trading RM" oscillator is trying to pop, but meeting resistance on a downtrend line… like Trading RM has said before, when it pops thru the trend, be ready to get aggressive, until then be patient.

• “Future(s)” had taken a breather yesterday, today a pop-up with good two way action.

• “Range” was a lot bigger than recent days, but not one-way. As was predicted last night, the market uncoiled, however, smaller than recent pops, thus possible the move is completed, only the markets will tell us.

• “Going Big” was slightly greater percentage to the upside when compared to percentage to the downside all day, but less than recent history has shown. As was written last night,

“4 of the last five times the oscillator registered a day like today, the next day was highly weighted to the upside.”

Since the markets did not have quite as large a divergence, a breather could be coming.

• “Gap DaP” provided a look today for the markets to try and push higher given little continuation with futures morning pushes down. It happened, we continued to the upside after a large gap up from yesterdays close. Given the lack of afternoon rally, Futures traders could feel it is time to push lower, or give 1000 another shot pre-market.

While today wasn’t incredible trading, opportunities were there.

Good luck and Great Trading.

At out Trading RM morning meeting we discussed what is appropriate trading and emotional reaction for a 1 star day. (We often quantify days and trades as 1 star/3star/5star). Many of us graded yesterday, Wednesday July 29th, a 1 star day.

Was it a hard day? No, it was an easy day for the guys who traded less decisions and/or traded less size. This led our firm to a discussion of maximizing a 1 star day. If you can cut your losses on every 1 star day you will most likely pay yourself more than you can make on a 5 star day over the course of a year.

Assuming each year we have 120 1 star days, 90 3 star days, and 40 5 star days; consider the 2 hypothetical traders below:




You will notice above that by cutting the losses on a 1 star day in half your yearly earnings will go up by 120% (assuming the data above). I encourage readers to go through their numbers and see how their years would change if they limited 1 star days.

Every idiot on the street nails the 5 star days. The question is can I tread water on the 1 star days in the meantime???

**Trading RM Real Time is a product geared towards identifying market characteristics, including 1-5 star days. Trading RM Real Time is available for a monthly fee and gives our traders and edge. Traders out there who are interested in Trading RM Real Time can email info@tradingrm.com or can find information here**

Chop, with increased volatility… market is in a range, but the last couple days have offered great opportunity. Today was different in the action seemed to not be clear and whippy.

• The “Trading RM" oscillator is trying to pop, but meeting resistance on a downtrend line… like Trading RM has said before, when it pops thru the trend, be ready to get aggressive, until then be patient.

• “Future(s)” had took a breather today after a slight pop-up the last few days. Mixed action today, but nothing stuck out as special.

• “Range” went back to the recent tightness the market has been experiencing lately, less than ten S&P futures handles. Perhaps a tightening before an uncoiling?

• “Going Big” was mixed all day and basically show only a slightly greater percentage to the downside when compared to percentage to the upside. We have had 3 out of the last 4 days showing huge percentage gain divergence when compared to downside percentage, so a correction day was likely due. 4 of the last five times the oscillator registered a day like today, the next day was highly weighted to the upside, however, this is just trying to predict future from history.

• “Gap DaP” has been a bit mixed, with futures trying to push the market down only to get a pop by days end. Trading RM discussed how possible gap fills from the opening print are possible, and lately, the fills have been partial, today - not so much. Since futures cannot get continuation, it is entirely possible the market could push significantly higher in the near future.

While today wasn’t incredible trading, opportunities were there.

Good luck and Great Trading.

Feels like market participants are at the Beach. The key to trading during times of slow, boring trading is to be ready to get aggressive when you see something sticking out while laying low when nothing is happening. On Trading RM Real Time, we alert traders to patterns of market activity. Our Star Ranking system will alert us when the current volume or range date is telling us that the market might be more ripe to make profitable trades.

During trading dull drums I will remind myself that that next 5 star trade is right around the corner. This helps me stay patient while I am waiting for it to show itself.

Recognizing the intraday trend or range in real time is something I am
always working on as a day trader. There were some good clues today
that could have helped a trader to pick up on the action. The market
gapped down, opening up at 972.25 (the overnight low) and attempted to
retrace back to Monday’s close of 980. The market was able to rally
back to 979.25 before the second straight decline in Consumer
Confidence number came out. As unemployment approaches 10%, consumers
seem more likely to save then spend. Traders recognized this, with
the market being on high levels they began to take profits. As the
market sold off we broke through the overnight low (972.25) and then
continued to sell through yesterday’s low (969). The low for the day
was 966. As we have been in an up trending market, this is the first
time since July 13th that the market was able to break through the
previous day’s low. Further we had GS selling off all morning which
seemed to help lead the market down, and the VIX was able to rip
through the 25.00 level with ease. Today something changed. Although
we rallied in the afternoon, the market was unable to make higher
highs, at no point was the market positive, and we made lower lows on
a daily chart. This could be the start of consolidation or market
correction. I will look to see if we can again make lower lows
tomorrow.

As intraday traders we use the price action the market provides as a way to gauge and judge how stocks are trading. Today their was divergence between Archer Daniels Midland (ADM) and the market and this was seen early on in the trading day

If you look at the chart below you will see that ADM had been strong all day since the opening bell. ADM has been in a major uptrend the last couple of weeks and looks great on the daily chart. As the market sold off to the intraday low of 969, ADM was showing strength and trending upward. As the day progressed, ADM continued to put in higher highs and higher lows, which makes an excellent candidate for a stock to play on the long side.

Green = ADM
Red = S&P Futures

More two-way action and some chop… but to be expected after the rally the market has had.


• The “Trading RM" oscillator is riding the downtrend, now trying to pop… when it pops thru the trend, be ready to get aggressive



• “Future(s)” have been slowing down, light volume, mixed both-way action (term used loosely), and now stalling here, be ready once it breaks to see more one-sided direction.



• “Range” went back to the recent tightness the market has been experiencing lately, S&P futures average around 15 handles the last 5 days, however, the action started to perk up again last week Thursday and it appears more is possible once we break the range.



As for a couple other oscillators:

• “Going Big” showed a 1:1 ratio for downside percentage when compared to the upside gainers… a couple days last week it was over 3:1 for the upside percentage gainers... this stall is normal, could mean toppy action, it appears pressure is growing to the downside.

• “Gap DaP” was again a bit mixed at futures tried to push the market lower, but like Friday nothing sustained. If a correction comes in futures, perhaps down 10 handles, watch for one-way action to the downside.

While today wasn’t incredible trading, opportunities were there.
Good luck and Great Trading.

• The first half hour showed us a 1 star volume scenario


• The first half hosue showed us no "waves" in the market

These are good early indicators of less range and less volume (and most likely less trading).

This morning's market action may have been less volatile than recently, but that doesn't mean the market did not provide clues. Lets discuss...


After the 10 AM EST housing number, when the market caught a bid to the 980 level, we noticed on our trading desk that while the market was making intra-day highs many "large", high beta names, were not participating. AMZN was still down over a $1, AAPL was still negative, and GOOG was relatively weak as well.

Is this the type of price action we would expect to see in a "strong" market? Clearly, not. A subtle hint was provided by the market that perhaps the shorts were the better side in the morning. Noting this could have stopped a trader from chasing long near the top end of the range. Likewise, it could have been used as a clue to initiate some shorts- particularly in the QQQQ's.

Everyday part of my game plan is to have enough bullets to shoot all day. If I lose too much in the morning and have to shut down for the day I did not save bullets. Any good sniper does not run out of bullets. In fact any good sniper only needs one bullet.

We often say the same thing at Trading RM: "it only takes one good one..."

At Trading RM LLC, we are constantly striving to make ourselves better traders. One way we accomplish this is that all of our traders call out each of their trades to the group. This is very helpful for numerous reasons. It is our belief that when a trader actually executes a trade it speaks volumes to his or her confidence and commitment to the trade idea. This results in less opinions and more facts. We alert each other to entry as well as exit points which assists our traders with their timing in and out of positions. The sharing of trade ideas leads to the speeding up of the learning curve for all of our traders. Less experienced traders have the ability to learn from more seasoned traders in real time. We believe that the average learning curve for a new trader is at least 6-12 months of live trading, however, we are confident that Trading RM Real Time will speed up the learning curve for traders at every level of experience. Stock selection and timing in to positions are two of the more difficult aspects of trading equities and options. Trading RM Real Time has proved to be an excellent tool in aiding with these aspects of trading.

In an effort to improve our communication on our trading desk we developed Trading RM Real Time. We utilize Trading RM Real Time everyday on our trading desk and our traders have benefited since its inception.

Trading RM Real Time is a new and exciting product which allows traders from all over the world to benefit from our trading desk’s knowledge and expertise. Each exit and entry along with other pertinent information to help the trader is displayed all day long.

Our goal is to provide useful information as well as real time reporting of the trades made by our experienced traders. This service will assist traders in every aspect of trading. No matter where you are, we can help your trading. Our system utilizes a Blast Instant Message technology. Trading RM prides itself with being able to listen to the market in order to profit from it. The information we provide is geared towards helping traders assess what kind of risk profile he or she should be trading with as well as which stocks and options are in play.

We are offering Trading RM Real-Time on a monthly basis. Feel free to click the Real-Time link on this blog to sign up. Please e-mail us at info@tradingrm.com for a free trial.

I am happy that I am a short term trader and not an analyst. Here are a few great headlines today after HGSI had a 200% move.

• Human Genome fair value raised to $16 at Leerink Swann ahead of BLISS-76 data expected in November (10.17 +6.85)
• Human Genome upgraded to Outperform at JMP Securities
• Human Genome upgraded to Hold at Lazard Capital Mkts

Today’s Department of Energy data was mixed and in a somewhat different manner from the American Petroleum Institute numbers and were slightly bearish overall. Crude oil inventories fell by 2.8 million barrels, which was more than expected. Refinery runs rose by 139,000 barrels a day and imports were up 325,000 barrels a day on the week. Distillate inventories rose by 600,000 barrels, which was less than expected, but still a new high. Gasoline came in with a build in stocks of 1.5 million barrels, which was on the high side of the expected range. Last night, the American Petroleum Institute reported crude supplies fell 1.2 million barrels last week, gasoline stocks dropped to 69,000 barrels, and distillate inventories rose 625,000 barrels.

The USO sold off after the DoE results came out, but then continued moving up as the equity markets were showing extraordinary strength. Yesterday, INTC reported much better than expected earnings with strong guidance. Their earnings and guidance reflect an increase in consumer demand and as we enter earnings season the consumer demand trade may trigger a bounce in oil as traders might be playing the consumer demand trade.

While many people are aware that the VIX index is a broad measure of market volatility (currently at 25 and nearing 10 month lows), there are further indicators that traders can use to gauge actual volatility in individual stocks.
For example, if we know the volatility ("vol") of the at the money options of a stock, then we can figure out a one standard deviation price change that accompanies this level of volatility. Similarly if we want to check whether the daily price changes reflect the actual current option volatility in the stock we can calculate this as well.

The formula below breaks down the 1 standard deviation price change we would expect from a stock. That is, on 2 out of 3 trading days the price change in the stock should be less than or equal to this amount.

Daily Volatility:
[(% volatility)/(16)]* underlying price = 1 std dev price change

Where 16 is the square root of the approximate number of trading days per year (256)


Utilizing this equation we have a sanity check to see if the option volatility we are buying or selling is accurately reflected and priced in the daily moves we are seeing in the underlying. If the daily moves we observe are greater than what the current volatility is pricing than perhaps the options are relatively cheap. Conversely, if the daily moves are significantly less than what we would expect, buyers may be paying too much for the options.

(Formula taken from Natenberg, Sheldon: Option Volatility and Pricing)

I finally got a picture for my blog. Thanks MM. I hope everybody likes it.

We have sold down below the 875 "line in the sand number." There were some important moving averages down there and we have bounced off of them. It has been quite a while since we sold off on the open and then rallied and closed on/near the high. The rally stopped at 897.75 (last week's high). This is not random. 898 is the first level of resistance for the week. Remember, 898 is not a daily number, but a weekly number which heightens the importance. Was today's close a "pump and dump"? We shall see tomorrow.

The Digits:
Resistance- 898, 908, 929

Support- 883,875
We have earnings season starting this week. (GS tuesday morning.) This also happens to be expiration week so stay focused and in tune. Keep your eyes and ears open because we will have some great trades this week.

Stocks
MA is back at my upper channel. We actually closed above it (by a little). In play tomorrow
FCX holding support at $45.
NFLX closed below important resistance today.

Daily Technical Analysis:

Resistance: We have immediate resistance at 884 (wednesday's high and thursday morning overnite high). We rallied up to 884 late in thursday's session and sold off.

Support: 875 is critical. The line in the sand has been drawn here. The "smart money" that has been long for the last few months will be defending this level because it is at this price that they initiated back in May. We have traded below this level on weak volume and the weak longs have been stopped out.

Today was an inside day and I am waiting patiently for the break out above 884 or 875 on above average volume. Tomorrow is a summer friday so I do not expect volume to be heavy. However, we still need to be focused and alert because winning trades will occur. Use the Russell/Nasdaq as leading indicators to see if the break is for real or not.

Next week I will have new technicals daily and weekly levels. Stay tuned next week for when I talk about the July 1st high and what that means for us the rest of the month.

***In the coming posts, I expect to use pictures/charts, etc. Feel free to send any suggestions to me directly at MO@tradingrm.com ****

We often refer to "going to the well" too often. As noted in our chat, on our Trading RM morning worksheets, and in our Trading RM realtime chat ICE and CME have been in play the past two days. If a trader plays a specific name a few times successfully, he may want to leave them alone. The opportunity dwindles and the risk increases over the time line of a trade. Our office did a great job trading ICE and CME Tuesday and Wednesday, while leaving them along today throughout the many head fakes.



Notice how trendy the action was the first two days and how choppy they got today:

Green = ICE Red = CME

Wild market action, both ways; Trading RM oscillators continued yesterdays activity which is further confirmation the market and traders are about to experience a great money making environment.

• Market had a bigger range than the last 10 days average, as the “Range” oscillator suggested.

“Range” oscillator is continuing the push upward, which re-affirms yesterday’s action. Look for continued increase in range, which could be either direction, however, as you will see below, all of the recent bigger ranges have come with downside pressure, watch for more tomorrow.

• The “Going Big” oscillator was again showing the downside stocks with bigger percentages.

Ratio of downside to upside percentages was steep this morning, but in the midday slowdown, it came in quite a bit. This could show a breather in the downfall of the market, or, which Trading RM happens to believe, the downside is the side to look for predominantly

• S&P had a bit of a ‘U’ shapes, as such the “Future(s)” oscillator had a fluctuation at the end of the day

It again was straight down, with good time for the morning, then stalled, which tells us a big move is coming… it did. Suggests tomorrow will see continued action, possibly more, but looking for one direction again.

• “Gap DaP” was a touch mixed with futures up a couple points, a slight continuation, then the sellers came in and ripped it apart.

Trading RM feels a couple points is not a gap, just the same, the futures were trying to prop up the market to little avail. July 9^th has Jobless claims, so which ever way the futures go, the market will likely follow.

• “Trading RM Oscillator” our most clairvoyant of market direction, and tell-all for trading conditions, has too popped a bit, against a downward sloping trend.

A day, or several, of good market activity will determine the direction of this oscillator, and if it pops thru the trend, get ready to load up because trading will get really good. The steeper it goes, the better the opportunities are (provided traders are on the right side of the action).

Traders take heed, the market is changing, July could be a great trading month… be ready to get aggressive when the positions look good.

Good luck and Great Trading.

Commodity Roundup for July 8, 2009

Turning Bullish on the Dollar?

• Traders are realizing the gap between expectations and reality of recovery may have gotten too wide

• Corn prices have pulled back over 10% recently on larger than expected USDA acreage estimates and favorable weather conditions
• Soybeans prices are under pressure as falling oil prices make the prospects for soybean –based biodiesel less attractive to consumers
• Gasoline stocks rose 1.9 mmbls last week, also more than expected Gasoline production was up 13,000 bpd and imports jumped 228,000 bpd. Demand rebounded by 176,000 bpd, but four-week average demand of 9.191 mmbpd is off 1.4% unrevised figures from a year ago. Total petroleum inventories were up 5.1 mmbls last week.
• Gold prices moved sharply lower during today’s session as rumors are circulating that the Obama Administration and Congress have agreed to allow the IMF to sell portions of their gold holdings
• U.S. Dollar Index was under some pressure during the morning session of trading and gained strength in afternoon trading only to give back its afternoon gains in the last hour of trading

Key Technical Levels

GLD Resistance: 91.90; 93.00 Support: 89.90 – 90.00; 89.00
DBA Resistance: 24.50; 25.00; 25.60; 27.15 Support: 24.00; 23.00; 22.30

UUP Resistance: 24.30 (50 MA); 24.45; 24.55; 24.85 Support: 23.65; 23.45

USO Resistance: 34.00 – 34.50; 36.00; 37.30 Support: 33.00 – 33.25

Trading RM produces quite a few proprietary oscillators using historical data. These oscillators’ help traders determine not only the environment they are currently in, but also assists traders in capitalizing when conditions are different than recent history and allows them to see the change in the markets.

Today, the market changed.

One such oscillator, the “Going Big” oscillator showed a huge variance in the number of stocks trading to the downside… which by itself means little, but not only were more stocks down, the percent they were down compared to the percent the stocks trading to the upside were up was very significant. And sure, this is nice and many can see such, but when a variance like this occurs, you know the downside pressure is immense and no sense fighting the action. As such, traders got short, traders got puts, and most importantly, traders got paid.

Another oscillator, which helps the Trading RM traders, goes thru the S&P movements and provides data as to the movement of the S&P Futures. Granted we trade stock and options, but knowing what the market is doing is crucial. The “Future(s)” oscillator has been in a range for the last two months, as the market has, showing little movement. This generally means the market is very stock selective and while there is opportunity, it is not overwhelming. Today was also a bit on the slower side, compared to last fall, but bigger for recent history. Furthermore, “Future(s)” didn’t oscillate within the day, rare, it went one direction… this is great for intraday traders showing there was a trend to follow. Great!

Moreover, the “Range” oscillator popped a bit today. The market has an intraday range, and as an intraday trader, the greater the range, so goes the opportunity for profits (or losses). Since the market was topping in late May / early June, the intraday ranges have been tighter… well, today the oscillator started to pop a little. And while any one can view the daily ranges, it is quiet helpful to know early in the day what historical data will suggest for the remainder of the day. Now, this information doesn’t mean tomorrow will have an incredible range, like any chart/oscillator, when it pops, it is time to start paying attention

So, that was today, what does this tell us for July 8^th?

Great question; First, when the “Going Big” oscillator is heavily one-sided, in either direction, history shows traders, going forward, it is time to get with the direction of the market, preferably the biggest movers, and not fade anything looking for a reversal. In addition, when there is steep one-sided direction, options opposite of the market (today calls) have more difficulty with vol.

Which coincides with the “Future(s)” oscillator, today was a very good trend. History would suggest, when the oscillator doesn’t oscillate, the coming days provide bigger moves in the same direction… as well as, faster action (stock moves will likely start to happen quicker, be ready).

Which leads us to the “Range” oscillator; as stated above, the “Range” oscillator started to pop, and when it does, traders take heed. Suggesting ranges are bigger might not mean a lot to some traders, maybe blatantly obvious during the day, but it does have a history of showing a change early… which allows traders to use this information to their benefit.

Perhaps, it means what used to be ‘chasing a stock’ might not be now because it is going to move further.

Perhaps, it means traders need to have looser stops because the stocks might whip more.

Perhaps, it means traders should have tighter stops because when they are wrong, they will know immediately.

The point is the “Range” gives traders information to incorporate into their game plans and styles, and the more information coinciding with one another, the more ability traders have to react appropriately.

Second, since three oscillators are starting to tell the same story, Trading RM fully believes something is brewing. As traders, we factor in levels, volume, news, etc. Having the oscillators tell us the trading is picking up, direction is one-sided for the first time in awhile, and the range of the trades are growing (rapidly) we conclude it is time to be prepared to get aggressive. Sure, there are dozens of trading styles, but being aggressive all the time isn’t necessarily a good one, so picking times and spots to start getting involved heavily is great knowledge.

And last, since Trading RM has been running the oscillators for a good amount of time, the historical data suggests the market is not looking to fade the opening gaps as much. Yes, it still happens, and yes the gap can fill a little, but the combination of oscillators above and the “Gap DaP” are showing the futures are starting to pick the direction of the market more often and the market pays attention to such direction.

As the days go by, Trading RM will start to provide daily information with regards to these oscillators and others. Hopefully, they will begin to provide information which is useful to your trading, since it is useful to ours.

Good luck and Great Trading.

After a recent downtrend in the CBOE VIX index, we have seen it close above 30 for the first time since June 23rd. The indicator is up nearly 25% since its intra day low last Wednesday.

As option traders we need to keep in mind key macro indicators and what they are telling us. Over the last week we have seen the SPY grind lower, and with it volatility creeping up. Are you positioning yourself accordingly? What signs are you looking for to determine what side of the market to be on? Sometimes a simple step back from the tick by tick action is enough to provide a clearer view.