Mylant's Money Blog

ETF SPY: Still Undecided where it wants to go

Analysis for short term option trading!

Technically Speaking-

Trade Recommendations- literally, we have not changed position all week. Do not look for much to happen in the markets to day either. We may move a bit up but we do not expect any grand mover considering we have not had any yet this week. Trade either way, but best to be neutral.

Bollinger Bands— nothing changed from yesterday but a widening of the bands a little; for the last three days the SPY has pushed the top of the bands. We have ever slight widening as SPY attempts to push itself up. This is important as we wrote about before. The SPY may be attempting to move itself out of this wide trade zone and move up. So we will watch the fight today.

RSI- no changes, still bullish; the SPY continues to move with strength. This is the one thing that we can see as a fight. The SPY continues to have bullish strength as it fights to stay up and not move back down to the lower 112 level. It just does not appear to be where it wants to go.

Balanced Volume- volume continues to remain high at close. There still is a lot of interest in the SPY and money continues to flow.

Money Flow- money went out yesterday but we are still looking for the breaking of support before we really consider bearish strength.

Outside Market Influences-

Markets were in a resilient mood Friday, remaining hopeful that Europe will come up with a comprehensive plan to deal with its crippling debt crisis, albeit a few days later than initially thought. Europe's main stock markets all opened higher despite the surprise news Thursday that a European debt deal won't be clinched in time for a summit on Sunday. Germany and France said a second meeting will take place by Wednesday at the latest

Microsoft hits profit forecasts as Windows decline halts. Microsoft's (MSFT) FQ1 EPS grew 6.1% to $0.68 and met analyst expectations as revenue topped predictions with a 7% increase to $17.37B. Income rose throughout Microsoft's product line-up, including at its Windows division, where strong corporate sales helped end three straight quarters of declines.

Gaddafi's death has little impact on oil prices. Reaction in the oil market was muted yesterday following the death of Muammar Gaddafi, as efforts to revive Libyan oil output have been underway for months. Still, getting back to regular production won't be easy, as the government is still in its infancy and infighting could spark a second uprising.

Bollinger Bands- Fundamentals

Bollinger Bands (shows price movement)

As one can see from this picture, Bollinger Bands consist of three lines. A middle line that is a “stock’s Moving Average” and two other lines above and below that are standard deviations. The bands expand and contract. They expand as the stock becomes more volital and contract as it trades in a tight pattern.

Why use Bollinger Bands? How are they helpful to us as traders?

The upper and lower Bands will help us detemine what we call “over-bought” and “over-sold” levels in the stock.

When a stock pushes through the upper band, it is considered “over-bought.”

When it pushes through the lower band, it is considered “over-sold.”

This is very heplful when we are looking at a stock that has a “trading zone” and is moving sideways. If we are using a “Spread” strategy, it will help us determine when to get in because the stock will usually trade between the top and lower bands. Buying when the stock breaks into the lower band and is considered “over-sold” is a good signal.

As we will continue to learn, we should always use more than one indicator to make a trade. When we do make a trade, we should always have an exite strategy in case our observations are wrong. A stock may hit a lower band, but if it does not correct, it may continue on a dowward pattern riding the lower band.

The middle Band can help us determine the strength of a movement. As a moving average, the middle band can help us determine how strong a particular trend is.

If a stock is trending upward and consistently bouncing off the middle band for its lows, then we know we have a very strong upward trend.

After the same manner, if a stock is moving downward and bounces off the middle band like a ceiling, we know the downward trend is very strong.

The middle band is a gage for us to determine how strong the trend really is. It will help us identify strength and weakness in the movement of the stock.

There are two different formations that we can find in a Bolinger Band indicator that may help us with buy and sell signals that are important.

Double Top Sell Signal

A Double Bottom Buy Signal—when a new low forms and pierces the lower band and is subsequently followed by another low that does not pierce the lower band, we have a possible bullish buy signal.  The second low may be lower than the first, but the important thing is that it does not pierce the lower band like the first one did. This “bullish set-up” will be confirmed by a movement through the middle bands.

A Double Top Sell Signal— is just like the double bottom buy signal, this is a “bearish set-up” to get rid of the stock. It is opposite of the previous one. We are looking for two tops. The first top breaks through the upper band. The second top does not break through the upper band. The bearish turn is confirmed as the stock moves downward through the middle band.

What will we use Bollinger Bands for?

Determine the strength of a trend, up or down.

Identify “over-bought” and “over-sold” points.

Use “double tops/bottoms” as “signals in a possible trend reversal.

 

Using Bollinger Bands alone is not a good idea to determine buying and selling. It is one indicator we will use with a series of others.

 

ETF SPY: JPM did not Met Earning Expect Weakness Today

Analysis for short term option trading!

Technically Speaking-

Trade Recommendations- SPY still appears to have some bullishness in her. Though weak, it still looks like it wants to rise. News around the world is favorable for Slovakia. Oil is on the rise as the dollar slows. This usually means a more expensive market. So we are bullish on the SPY today. But do not be surprised at a slight move of no significance.

Bollinger Bands- SPY has neared the top of the Bollinger Bands with the weakest push yet of this bullish drive north. Forming a low doji signifies a weak reversal. Here we can just call it a lack of strength. Hitting a major point of resistance as well as reaching the top of this (possible sideways formation) we would now expect bearish influence over the SPY.

RSI- the RSI has continued to show strength in the SPY’s latest journey toward bull country. This indicator continues to follow the stock, not revealing any changes that maybe taking place. About all we can see here is a leveling out of yesterday. This possibly may reveal a lack of will power to continue up, but it is speculative at best. 

Balanced Volume- the SPY is still showing strong interest at the stock continues to bounce its way upward. Knowing this indicator uses volume and the “end day price” we can see a lot of strength. But now, will it continue to follow the upward trend or will it bounce back and people take profits from what it has gained?

Money Flow- money has consistently flowed into the stock. It still looks healthy; does not look like people are getting out of the stock yet.

Outside Market Influences-

JPMorgan Chase says its third-quarter income fell 4 percent on weaker investment banking and trading results. The New York bank earned $4.3 billion, or $1.02 per share, compared with $4.4 billion, or $1.01, during the same quarter last year. Analysts surveyed by FactSet forecast the bank would earn 91 cents per share. This is less than the $.93 forecasted. May not be a good day because of this.

Stocks in Europe fell Thursday as investors await more details over exactly how European Union officials plan to tackle their debt crisis and Chinese trade figures stoked concerns over the outlook for the world's second-largest economy. Stocks have been buoyed this week as eurozone officials finally indicated they are willing to take decisive action such as larger write-downs on Greek debt and a push to make banks strengthen their capital against resulting losses.

Foreclosures continued to plague the U.S. housing market last quarter, while a a growing backlog has caused the length of the foreclosure process to drag on and on. Nationwide, foreclosure filings totaled 610,337 in the third quarter, an increase of less than 1% from the previous quarter, said RealtyTrac, an online marketplace for foreclosed properties.

Google Inc's plans to acquire Motorola Mobility Holdings Inc and the health of its advertising business will be in the spotlight when the Internet search leader reports quarterly results on Thursday. Analysts expect Google to deliver solid financial results in the recently ended quarter, with revenue up more than 30 percent year-on-year at $7.21 billion.

FAZ Weekly Options Trade Analysis

FAZ Weekly Options Trade Analysis 

The investment seeks daily investment results, before fees and expenses, of 300% of the inverse of price performance of the Russell 1000® Financial Services Index. The fund normally creates short positions by investing at least 80% of net assets in financial instruments that, in combination, provide leveraged and unleveraged exposure to the index. It is non-diversified.

Trade Recommendations—we have a cup and handle pattern formation that signifies a continuation pattern. Weekly Option Trading should keep focus on a continued move up in the stock but watch for breakouts. There are possible signs that money has flowed in this and
momentum of money entering may be on the decline soon. This means our top will have been reached. Be aware of this as we trade your weekly options.

Bollinger Bands— the FAZ has been challenging the top of the bands as of late. We have seen a double push through the bands and this double top is a good indication that it will bounce back down now. Since the FAZ reacts positively to a negative market, we could have signs of a rise in financials coming soon, if only for a moment! Weekly option trading should keep this in mind.

RSI—The RSI has shown that FAZ has been very healthy and bullish for quite a while, this means falling financials. We continue to have a support level just below the ‘50’ mark and have mirrored the stock, pushing up and rising a bit higher as of late. This could mean financials will continue lower but we are absolutely trading in a very healthy bullish pattern here.

On Balanced Volume—Faz has ever increasing volume and when volume increases like it has, demand goes up and so does the cost of the stock. Presently we have a slight Symmetrical Triangle pattern forming. This tends to be a continuation pattern of rising volume. More and more people are getting into FAZ as Financial Stocks continue to fall. Bullish weekly option trading would be considered a money maker here. 

Money Flow— Volume is increasing, but money is going out of FAZ . The key to what is happening here is to watch support. Big money could have flowed in already and the rest are individuals. If we break support on our trendline, watch the OBV and see if it also starts down, this very well could mean the beginning of financial stocks building a bottom and not moving down anymore.

John Mylant is in high demand worldwide as an option investment trainer. Using Credit Spreads on weekly options, he teaches clients around the world how to grow their money at about 3% per week. Learn about Weekly Option Trading now…