Major change...

Looking at the P&F of our new indicator, the QQQQ Ultra Short, you'll see that today we broke below our newly established upward trend (downward for the QQQQ). I was bounced out of some short positions, but because I saw severe volitility in the VIX, I hedged with some long positions, which did well today (EBAY, SGMS).

So there is one problem with this reversal, we're using a double-short indicator, and as such, it is more volitile than the general market. Look at the S&P 500 on the left. There is still some overhead before this is a true breakout. Read this short blurb in the WSJ Market Beat. A well stated case that the market may very well be misreading the Fed statement, and that tomorrow may be the real test of the statement.

I fear a whipsaw. I'll be watching the market closely tomorrow. Expect a gap at the open one way or the other, then probably a strong reaction the other way by the end of the day. I'll be closing some long positions if we open significantly higher. I'd advise a short-term, hedged bet. Traditional short-term buy-low-sell-high + short-high-buy-low.

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Confirmation!

So, as predicted, there was more downside today. The S&P dipped over 2% on high (but not stunning) volume. Though it hasn't pushed below it's lows of last week, it is not safe... It has breached its recently established channel, and has reentered its old one, which has a current base at about 1285-1290 or so. That is a lot of possible downside. OTOH, its new channel is, well, new, and has barely been breached, so it may still be finding its baseline.

Though investor sentiment has become more bearish over the past ten days or so, it is still in the bullish camp. This suggests that there some possibility of downside, but the fact that investors aren't assuming this to be a massive buying opportunity means that it might actually be just that. On the other hand... Look at this P&F chart of the VIX. WTF?!?!

Volitility is through the roof. It's not just high, it seems to be estabishing a new, huge, major trend in high volitility. What this means, folks, is that we ought to baton down the hatches because the whipsaws aren't done. If I were me, I'd be looking at a high-risk hedging strategy, with a short-term horizon. Buy big dips, like today, sell big swells (as we'll likely have over the next few days).

Stocks to scan:

buy: SGMS, KELYA, EBAY, CMGI
short: ASPV, CME (short at apx 590), NCS

indicator test...

If our QID indicator is accurate, we have reached a level of downside resistance:


If correct, we ought to see a move upwards on the QID, and downwards on the Nasdaq 100 in short order, probably tomorrow, Monday or Tuesday. A move significantly below this point on the QID may indicate a trend change upwards for the Nasdaq 100. This should be a short term indicator.

New indicators

Over the past few months, I've been wondering if we might be able to use the new Ultra Short shares as trend indicators for the broader market. For those new to Ultra Shorts, the idea is that you get double the inverse movement of the index it tracks. Consider the Nasdaq 100. The Ultra Short gives 2x the QQQ's inverse. In other words, if the QQQ dips 1 point, the Ultra Short, symbol QID, should give you 2 points up.

I'm wondering if we could use this as a swing indicator of the QQQ itself. The problems are of course that the QID is double weighted, and that liquidity on the QID is ahort of total efficiency (I imgaine). On the other hand, the double weight might emphasize moves, making them more apparent. For instance, on the QQQ (left. Click for bigger view), there is no apparent pattern on the weekly chart, other than a possible breakdown of a shortterm trend.


Looking at the QID, it seems apparent that there is a breakout from a basing pattern, even perhaps a sloppy inverse Head and Shoulders, though the liqidity here plays a factor, since the rising and inconsistent volume brings the pattern into question, simply by by fault of the immaturity of the security itself.


I suppose one could even ask why that would be necessary, considering we have Point and Figure charts to give us a view of trend changes. True, and, looking at the Point and Figure charts for these two securities we see that they spotted the change in trend on the same day, Feb. 27th.

By using these indicators in tandem, we could spot shorter term indicators with the double inverse, and longer term trends with the QQQ P&F. Together, these indicators could help us buy and sell the QID for both short term and long term gains that would double the return (and loss) from the NDX 100.