Houston, We Have A Problem : GameStop

January 31, 2021 by

The recent movement in GME (GameStop) has been headline news in almost every financial newspaper and as the lead story on almost every network and cable news channel in the last week.

Whether by individual investors acting through chat rooms or multi-strategy hedge funds acting individually or in concert, or investor trading platforms or clearing and pay for order flow firms, they ALL should have realized that tracking momentum would have prevented the large losses, if short, and given hope to the long side traders.

The four pictures below show the story. The linear scale has been changed to Semi-log for better illustration.

The last sale is as of the close of Friday, January 29, 2021.

Green is GO LONG, Blue is the close position, Red goes short.

Weekly:

Daily:

720 Minutes:

130 Minutes:

It is pretty obvious that only LONG positions should have been established starting the week after September 18, 2020, based on the weekly close. LONG-only once again after December 22, 2020. And so on with the 720 minutes after January 12, 2021, and LONG only after January 13, 2021. with the 130 minute picture.

It makes no sense looking at the above pictures of the trading history of GME over the last few weeks to understand how anyone with a plan would make try to profit from the short side of GME in the last few weeks.

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Market Timing, another look

January 27, 2021 by

In one of my former posts, December 7, 2020, I discussed looking at the relative relationship between the bond market and the equity market to gauge investor sentiment. In that post I stated:

“In the past, which is certainly no predictor of future behavior, the movement of the U.S. Treasury note and bond market, has behaved in an almost opposite manner to the equity market. The avoidance of equity risk has shifted the money flow into the safe haven of U.S. Treasuries and vice versa. In the past then, the equity market has been negatively correlated to the Treasury market. So, when equities are getting strong, Treasuries should be getting weaker, etc.”

The following is a chart of SPY and EDV as of the close yesterday, January 27, 2021, and it appears from the attached that the equity market is still in a nice uptrend.

I have added a 200-day exponential moving average to the present illustration.

Some have noted, historically, that when the SPY is considerably above the 200-day moving average, that a correction may occur. Yesterday’s close meets those criteria. In February 2018, prior to a correction, the 200-day moving average was approximately 12% above the index. Yesterday’s close was approximately the same.

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Basic Swing Trading Strategy

January 18, 2021 by

I have been asked by many viewers of this blog for more information on the basic swing trading strategy.

As is true in day trading, a multiple time frame analysis will lead to better success than just looking at an individual time frame.

The longer-term, in this case, weekly, is the signal that determines which way the security is going, i.e. the long term direction.

The shorter time frame, in this case daily, is the signal to follow in the same direction as the longer time frame, weekly.

I am using FedEx (FDX) for this example. The up arrows indicate long, down arrows indicate short. Blue vertical lines indicate neutrality.

We can see by the above chart, that FDX was in an uptrend starting on July 10, 2020.

Swing trading decisions from that date until January 1, 2021, should only be on the buy-side.

 

The chart below is the daily chart of FedEx, the shorter time frame that should be used to make the actual decision.

On July 11, 2020, the opening price of FedEx was $160.00 and a buy decision could have been made based on the weekly signal.

The initial long position could have been closed, October 28, the day after the neutral signal, at a price of $262.73, the opening price.

As in any trading decision, proper trade management should be used, such as stops.

This is only an example of what could have been done, not any kind of recommendation on FedEx or any security mentioned in any of this blog. Illustrations ONLY.

 

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Relative Strength

January 12, 2021 by

In the many past posts, I have recommended that to be successful in swing trading, one has to be aware of the individual securities relative strength as it compares to some index of its peers.

The following chart is an example of  OIH which is the oil VanEck oil services ETF. I have compared this ETF to SPY, which represents the Standard & Poors 500 index.

 

The prices are as of the close yesterday, January 12, 2021.

The rules are very simple, and the action indicated by the up and down arrows reflects the result of following the rules.

  1. Buy when the target security is stronger, on a relative strength basis than the index.
  2. Buy ONLY when the target is stronger, has positive momentum, and the index is also going up.
  3. Close the position when any condition is violated. Shown by blue vertical lines.
  4. The rules apply to shorting when the actions are the opposite of the buy rules.
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Market Timing and Other Examples at Year end 2020

January 3, 2021 by

In many past posts, I have tried to illustrate the relative strength of market sectors. The example below is as of year-end 2020.

In my previous post on Market Timing in early December, the illustration below shows that the market trend as portrayed by the ETF “SPY” is still intact. Prices as of the close on December 31, 2020

I am also showing below, another example of relative strength with positive momentum is APPL versus QQQ.

 

The rules in this example are pretty straightforward. Only buy APPL when it is outperforming QQQ AND QQQ is also in an uptrend.

The green arrows show these events. There are many different strategies that can be developed based on these events occurring.

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