Swing Traders LinkFest-The Best Is Yet To Come

Make or Brake For Commodities –Dana Lyons

Buy Halloween, Sell At Year End–Chad Gassaway

The Best Six Months Start Next Week–Jeffery Hirsch

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Photo; DeWaun

SSPY $IWM $DIA $VIX

Don’t Short In The Hole, Try Now

I have never been a fan of shorting breakdowns on any of  the major indices.  By nature indices are mean reverting vehicles, when they get stretched in either direction they tend to slow down or snap back in the opposite direction especially when it is stretched to the downside.  Normally when the indices get stretched to downside they can also become oversold and that can lead to a dead cat bounce which gives the shorts a better risk reward entry if they are inclined to short.

The SP500 has now bounced from stretched/oversold levels, to a level that should offer some resistance.  Normally the first pullback you see after a strong trend or the first pullback after big breakdown is actionable and one can assume continuation.  In this case the SP500 has bounced, its up 3 days in a row, to a declining 10 day moving average and the underside of the 200 day moving average.  This level offers a much better risk reward ratio on the short side than last week when the social stream was full of bears.

One difference that I do see in this most recent pullback/bounce is that I’m not seeing any decent swing set ups which is something that we saw in all the previous pullbacks as I remember them.

Rule #3 Of How To Properly Short Technically;   Do not short a stock that is down multiple days in a row, wait for the bounce (3-5 days) then short preferably with some of the moving averages above the price of the stock.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

$SPY $VIX $XIV $UVXY $TVIX

Photo; Wil Freeborn

Not As Bad As It Looks

The action today was not as bad as it looks regardless of what is happening in the after hours.  Since 2013 the perma bears have been harping about how the Dow Jones that has 30 stocks and the SP500 with its 500 were masquerading the horrible action underneath the surface, and that was true, but not actionable until it was blatant which we wrote about here.  Today the complete opposite happened, while the Dow Jones and the SP500 were deep in the red the majority of stocks were doing fine.  The Russell 2000 outperformed the SP500 by 1.83% while closing up 1.06%.  It turns out that the Dow and SP500 were again masquerading the action underneath surface, only this time it was masquerading positive intraday action. There was no mention of this due to confirmation bias;The tendency to search, interpret, or prioritize information in a way that confirms one’s beliefs or hypotheses (or position in the market).  As a matter of fact when the Dow was down 300 points we had more stocks up for the day than down.  We ended with 2,403 stocks up for the day versus 708 that were down (link), looking at the Dow 30 and the SP500 you would’ve never thought that, this is why it is important to look underneath the surface.  We have seen a relative out-performance of the Russell 2000 in the last 5 days.  This is a big change because the RUT was the first to get hit and normally the first to get hit when the market is correcting is the first one to come out of the correction, so that is a step in the right direction.

By no means do I think that we are out the woods but I’ve never been a fan of pointing out negatives when the market is oversold and down 300, 400 points, I rather point out the negatives when we get the dead cat bounce.

Going forward the reaction to negative reaction to earnings from NFLX, INTC, C is something to watch very closely like @TraderStewie pointed out on twitter.  And if you believe that in order for us to have a true bottom we have to have that classic textbook capitulation, well, we have not seen that yet aside from maybe the energy names.  Like I pointed out yesterday we have not seen the type of selling in individual names like we saw the last time we had a real correction, the summer of 2011.  To put it in perspective, during the summer of 2011 the Russell 2000 lost 20%+ in 12 days, withing those 12 days we saw a few days in which we had 2,000 plus stocks down 4% or more in a day, so far in this sell off the most we have seen is 462, you can see the charts here.  Heck, in today’s sell off (based on the dow and sp500) we had  475 stocks up 4% versus 239 stocks down 4%, no real selling, no capitulation, why all the panic I ask…  For traders that are nimble then you probably know that you can get a few trade-able bottoms before “THE BOTTOM”.

The UVXY was up 12% in the after hours after NFLX and EBAY came out with their numbers, with the VIX 80% above its 50 day sma the stats say that you should not chase long VIX instruments here.

p.s I write this from a swing traders perspective, which is different from a long term perspective, even a day traders perspective.  I have not been kicked in the teeth during this sell off so my mind and thought process is a little clearer than someone who is behind the eight ball.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Market Participants Have Short Term Memory

Over the last week or so there has been an outright panic on twitter in regards to the recent market action.  Just yesterday the CBOE put to call ratio printed its highest reading in 4 years, higher than any reading we saw in the summer of 2011 when the Russell 2000 lost 23% 12 trading days (7/22/11 -8/9/11).  During that time we had a real panic, forced liquidation, on 8/4/2011 we had 2,006 stocks down 4% for the day, on 8/8/2011 we had 2,483 stocks down 4%, on 8/18/2011 we had 2,066 stocks down 4% for the day, so far in this sell off the peak reading has been 462, no panic, no real selling, or forced liquidation like many are saying.  The over reaction so far has been amazing.

Stocks Down 4% in 1 day 7/1/11 to 11/1/11 click to enlarge

Stocks down 4% in 1 day 9/1/14 to 10/14/2011 click to enlarge, and as you can see no panic, no real forced liquidation, yet. (data courtersy of Stockbee)

It will be real interesting to see how negative sentiment would get if we actually saw some real selling like we did in the summer of 2011, so far aside from the energy names this has been a walk in the park. And with the average 5% plus correction lasting 22 days since 2009 then the bears better start doing some real whacking because we are now on day 18, ht @MktOutperform.  Understand that in this post I’m not stating what will happen or what will not happen, just simply stating that we have not seen real panic like many are saying, and the charts above clearly state that.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

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Tune Out The Noise

Now more than ever you have to tune out the noise.  This is something I strongly suggest in bullish environments, but it’s a MUST during corrective markets.  During corrective markets you get the most emotional, confusing, bitter, angry, I told you so, and the silly prediction tweets.  At any given moment half of the stuff you write will be interpreted the way the reader wants to based on his bias, in corrective markets I can almost guarantee you that this will be the case 90% of the time.  As readers of other people’s tweets/blogs we have no idea what their positions is, the size, the risk they are taking, why they are taking the trade, are they actually taking the trade etc….We also don’t know their emotional state at any giving time which can and will affect their trading or thinking.  Did they wake up in the morning and had an argument with the wife, have they been getting hit in the market so now they want to have their purge day on the stream, etc…During these times we are all a little more emotional, combative, and many wear that on their twitter stream sleeve.  For those who are new to the game and or can’t control their emotions this is not the time to get your market information from the twitter stream. Even in markets that don’t bring out all this emotion from people you will realize or soon realize that the best day to get quality information from the stream is on Saturday’s, when the market is closed and emotions are not going rampant.

Take a look at these message volume charts, they are inversely correlated to actual price charts except for the VIX.

SPY MESSAGE VOLUME ON STOCKTWITS

RUT MESSAGE VOLUME ON STOCKTWITS

VIX MESSAGE VOLUME ON STOCKTWITS

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

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Swing Traders LinkFest

Gold Timers Buying The Dip    Mark Hulbert

Catching A Falling Knife In Gold  Bernie Schaeffer

Technical Analysis Would’ve Kept You Out Of GTAT   Tischendorf Letter

A New Sentiment Indicator  Brett Steenbarger

How Expensive Is Shorting GoPro   WSJ

How To Protect Your Portfolio From A Bigger Correction  Frank Zorrilla

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

Photo; Miles

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

How To Protect Your Portfolio Just In Case This Is The Start Of A Bigger Correction

Today by definition the Russell 2000 is officially in the correction camp, down 10% from its high.  According to sentimentrader.com ”after the Russell 2000 first enters a “correction” it takes a median of 16 days and -5.4% loss to hit an intermediate-term low.”

Let’s for a few minutes make believe that this is the start of a deeper correction, one that’s inline with the average intra-year decline of the last 30 years which is14%.  Here are some of the things that you should know and do from a swing traders perspective.

 1. If you are a trader you must reduce exposure.

2. You should probably take some time off or reduce your activity and risk to a minimum.

3. You must protect your confidence because BIG money is made after corrections, the deeper the better so embrace the correction.

4. If you are a trader then be a trader not a macro/news dissector tourist. You will only get yourself into a deep hole by trying to make sense of news, interest rate hikes, taper, etc…

5. You should not short into the hole because rallies within deep corrections are the strongest.

6. Buying breakouts is probably not your best bet, mean reversion trades normally work best in corrective markets.

7. When doing mean reversion trades you should limit your universe to index etf’s, name brand companies, and or so the so called “LEADERS”.
Most of the time corrective markets will get to every stock, even the ones that held up well.

8. Normally the stocks or index that went down first will be the first to bounce at the latter stages of the correction, in this case keep an eye for out-performance from the RUT and XLE.

9. The stocks that held up the best are the last ones to get hit, and once they finally get hit the correction is probably near an end–at least in the short term.

10. Breadth indicators tend to be more useful in corrective/oversold markets.

11. In oversold markets don’t dare short the first rip higher, wait at least 5 days.

12. Sentiment usually is more useful in corrective markets.

13. While mean reversion trades are great, remember when the flood gates open and oversold becomes more oversold you will realize that mean reversion trades eat like birds and shit like elephants.  Look at the $SPYchart in August 2011 below.

14. Try to understand what type of pullback/correction we are in—regular catch your breath pullback or one in which a little emerging country tail wags the big dog.  We get these every now and then.

15. Understand that fear and or margin selling knows of no support and overshooting is extremely common in markets that are in a correction.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets

The Quarter That Was

The third quarter ended with all the major indices RUT DJIA SPX COMPQ QQQ down for the month of September.

Here are the stats;

• -IWM -6.19% for the month, down -7.97% for the quarter, the weakness here which explains the horrible breadth while the DOW and the SP500 hung near highs fooling the home-gamers.
• -The Dow Jones was down -.03% for the month and up 1.39% for the quarter.
• -Nasdaq Composite was down -1.89% for the month but up 1.92% for the quarter.
• -SP500 was down -1.5% for the month but up .60% for the quarter.
• -QQQ was down -.96% for the month but up 5.29% for the quarter.

Breadth has been horrible for the last couple of months and its getting worse, it will be interesting to see how this plays out since we are entering what historically is the best quarter of the year.

These charts that start at the beginning of the third quarter gives you a better picture of what transpired in the last 3 months.

Nasdaq vs NYSE New Highs – New Lows Difference 10 day moving average.

Nasdaq vs All stocks above their 40 day moving average

Nasdaq vs Stocks up 25% for the quarter and Stocks down 25% for the quarter.

Here’s a recap of those charts;

• -We are now seeing more new lows than new highs, this has been the case for the last 7 days on the NYSE.
• -The percent amount of stocks above their 40 day moving average peaked a month ago, while the nasdaq went sideways for a month the stocks underneath were deteriorating.
• -The amount of stocks up 25% for the quarter also peaked a month before the nasdaq saw any selling, currently we have 317 stocks up for the quarter versus 608 that are down 25% for the quarter, ht Pradeep Bonde.

 More stats;

• -1,560 stocks out of 1960 in the  Russell 2000 stocks were down for the quarter, that’s 79% that ended lower for the quarter.
• -2,238 stocks out 2,980 in the Russell 3000 were down for the quarter, in other words 75% were lower from their 6/30/13 close.
• -We now have 37% of the Russell 3000 stocks down 20% or more from their 52 week highs.
• -48% of the Russell 2000 stocks are down 20% or more from their 52 week highs.

Many active traders probably got chopped around in this mess trying to make something happen when they was really nothing to do (swing trading perspective), less was better.

Here is the Fidelity Contrafund (large cap) versus the Fidelity otc stock fund and the Fidelity low price fund.  Clearly a select few large caps was the place to be this quarter.

Very simply all I’m doing is pointing out what happened in the third quarter.  I’m not predicting what is going to happen based on these stats, but when you get your monthly statement and you scratch your head and say what the hell happened, now you know.

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Frank Zorrilla is the founder of Zor Capital LLC a New York based investment management firm.  Our goal is superior performance, with preservation of capital as our number one priority. Zor Capital manages separate accounts (both taxable and retirement) for accredited investors and institutions. This structure gives clients access to a hedge fund like strategy while maintaining 100% control of their accounts.  Managed Assets