Trades kitchen

Since current day i will start posting some of my trades marked with the tag «trades kitchen». The purpose of it is not to indicate you my current bias, or just give you an advice to sell or to buy. But to show you my way of thinking, what i'm using while trading, what reasons i'm emphasizing to open & to close a trade. I don’t plan to unveil all my approaches, but still hope new «trades kitchen» posts will be good & useful reading for you.


So here i go with the 1st, let it be profitable, example of the short-term trade. Below you can see the chart of the morning 9th september 09’ trading in ES (S&P 500 futures). ES was on the brink of strong break out above volume cluster 1022.5p – 1028.75p (red background), that corresponds to the free open room to fresh year highs above 1038.75p – ESU9 contract (which tracks ES from june to september current year) 28th august past high.



ES have managed to climb above top line of mentioned volume cluster but it was made with multi divergences with majority of popular oscillators, including one of my favorite 3/10 oscillator (see chart above). In the same time, financial & material sectors were underperforming SPY. While market had made fresh high, those two sectors did not confirmed it (see chart below).



Keeping in mind that fact, when NYSE TICK (short-term indicator covering bulls/bears placing) have finally appeared not to post fresh high in tandem with ES (so, bearish diver with TICK showed up), I have entered normal size sell position.



Soon ES pulled back to downside. But later there went following factors I had interpret like a buy signal – in a matter of opened short – fix signal. 1st – at 16:33 Zurich time (10:33 NY time) NQ (Nasdaq Composite) & ER (Russell 2000) CME index futures didn’t make fresh lower low as ES have posted.



2nd issue – ES have breached VWAP (volume weighted average price), calculated from the beginning of the main session.



And the 3rd factor was continuing bullish TICK. At the first 15 minutes of the session bears have tried to take market under their control. But as we can see it was useless, and TICK, that didn’t manage to post number below minus 600, nicely demonstrated bulls superiority (see 3rd chart from the bottom).

Mixed messages

Shortened week caused by observance of the Labor Day holiday have started with the upside session. S&P 500 managed to close with plus almost 0.6% on remarkably weak dollar (caused by pulling out of safe-haven investments into more risky assets against the background of G20 finance ministers optimistic weekend statements) & commodities rally, particularly strong gold (that finally broke out above 1k$/oz but still closed below psychological level) and oil rally (on bullish OPEC members commitments ahead of tomorrow meeting plus environment on other notable markets i have mentioned above).

But there goes thing, bulls to worry about. As one ES trader fellow wondered today: “Isn't summer trading over? I thought summer was over. This sure feels like a summer trade.” The truth is near. Today’s volume, putting into numbers, was minus 21% relatively to the median volume of ESU9 contract, (which tracks ES from june to september current year) & minus 41% relatively to 1st september volume, meaning of which i have pointed out lately.



Yes, after tremendous volume expenditure on 1st september breakout back below 1000p on S&P 500 (as did E-mini S&P 500) we now have pared all the losses and breached today 1022.5p – 1028.75p ES volume cluster of late august – the only resistance separating bulls from the new year highs (see chart below). But the market increase was on a very low volume, never exceeding volume ES posted on Tuesday 1st september. That’s just something to remember while entering long & calling for fresh highs.



Back to my summarized post after the past week finish, i have shared with you intention to monitor energy & financial sectors, cause of reasons I have described there. Today XLE, energies, was the strongest sectors relatively to the other 7 sectors i’m tracking, on the reason of oil case, i have described above. The sector have soared more than 2.6% and since 31st august when SPY was near its highest point of the year, energy back from that day is already in small, but plus (0.3%). Moreover, it has pared all of its losses back from the beginning of last summer week, 35th from the year start. Such recovery corresponds to be very bullish signal. But still closer to the OPEC meeting, volatility in oil can expand dramatically with hardly predictable short-term movements and inevitable influence on energies.



Financial sector today was slightly underperforming SPY, but the real movement took place in the 4 financial giants stocks I mentioned in one of the previous post. C, AIG, FRE & FNM have shrunk today on the median of almost 7%. Since its peak on 31st august, they have fallen on an average of more than 20% for just 6 last trading sessions. But XLF, financial sector overall, today have managed to stay up 0.43%. Good for him, but 4 mentioned remarkable financial guys plunge is something to keep in mind & not to be surprised to see weakness of financials in the upcoming sessions.

Troubles in the rally continuation.

All the way up to the stars, where it seemed like bears are tired of calling for pullback, lately battered financial sector has got up its over 120% increase for just half a year. There was no secret that current rally from march lows was pushed by financials, that skyrocketed more than twice relatively to S&P 500 index with its plus near 50% from march 9th 09' lowest point. But financials seemed to play even huger role on the market when it was revealed that in the 35th and also final summer week, more than 20% of volume on NYSE was accounted by Citi, AIG, Fannie Mae & Freddie Mac only.



On monday 31st financial sector opened with huge downside gap. Still it have got back morning loss to the closing bell, but there rung first alarm bell to bulls, when four financial giants, i mentioned above, have plunged on the median of minus 6% that day. Profit tacking in those guys, after their increase in august for an average of more than 200%, have continued on tuesday 1st september. On dramatically volume expand, S&P 500 plunged back below 1000p. But on the following sessions any bears attempts to push the market downside have failed.



On the chart above we can see how on wednesday 2nd september morning bears try to dip ES below 990p. have failed and subsequent session hours ES was oscillating near open swing on the low volume, that have totally declined relatively to past session on 27%. Endeavour was repeated next day, on thursday, but bears didn’t appeared to have volume accumulation (total ES volume that day have plunged 41% in comparison with tuesday) and closer to the session finish, bulls back ES above 1k.

Bears failed to have volume confirmation of their plans and on friday ES have pared half of its early week losses. But still it was done on the weak volume, relatively with tuesday plunge volume jump. It could be easily explained in the matter of shortened week ahead with Labor Day holiday on monday. But the volume story can have two conclusions.

In the past week financials appeared to be the most underperforming among 8 leading sectors with the decline of roughly 3,5%. The decrease looks less dramatic in comparison with median week result of C, AIG, FRE & FNM. Four financial giants have shrunk on an average of almost 15%.



It doesn’t corresponds with market sell signal but with financials playing leading role in the current rally there goes the question are they able to recover and if not, who will be the next to lead the market upside? Somehow, starting with the beginning of next week we have to see strong recovery of those stocks to see subsequent fresh market highs. Indeed, the early signs of four financial giants recovery already in place.

In the previous post I have revealed that TRIN (the indicator that in past showed interim, short-term bulls-bears placing environment) was partly nicely indicating what was going on with volume in the four mentioned financial stocks. On monday & tuesday the indicator was extremely bearish while already on wednesday kind of mayhem was in place. After already usual inadequate bearish opening, closer to the middle of the session TRIN dipped below 1 that corresponds to buy signal. And it has managed to stay pretty bullish on thursday & friday.



Still, one more trouble for the bulls is continuing to stay energy. Under the pressure of numerous failed attempts to break above resistance level of 75$/b for light crude oil, the sector still didn’t manage to make new highs with S&P 500 and 7/8 leading sectors, back from the end of july to the beginning of august. And for now, we still do not see any energies recovery while tracking it back from the beginning of last week or from the start of last summer week when majority of sectors were near their highs. Both, energies and financials are the leading laggards, to continue the rally bulls have to deal with.