This is my first weekly market recap. We’re going to take a look at few different markets from a technical perspective (any fundamentals are presented for entertainment and/or snickering only). The weekly recap is made up of two parts: a discussion related to the 4 markets and an inventory summary with trades I’m watching next week.
Do me a big favor: if you have any questions about any of this, please post in the comments below or send an email to dan at thetatrend dot com. Additionally, let me know what you think. Specifically, let me know what you do or don’t like and what you’d like to see if it isn’t here. Thanks and read on.
How we’re going to define trend:
Trend on the daily timeframe is defined using Donchian channels and an Average True Range Trailing Stop. There are three trend states on the Daily timeframe: up, neutral, and down. On the weekly timeframe, I’m looking at Parabolic SAR to define trend and there are two trend states, up and down. In reality, there are always periods of chop and I’m using the indicator to capture the general bias of both the trend and those periods of chop.
The weekly stats:
Stocks (SPY – SPDR S&P 500 ETF and IWM – iShares Russell 2000 Index ETF):
US stocks had a little bit of a pullback this week with the Russell 2000 falling slightly more than the S&P. The Russell fell enough to take out the ATR trailing stop and put it into neutral mode on the daily timeframe. On the weekly timeframe, the primary trend is still up. The S&P 500 remains in an uptrend on the daily and weekly timeframes, but price is sitting right around the ATR trailing stop level. A close below the ATR trailing stop will put the SPY into neutral.
Gold (GLD – SPDR Gold Shares ETF):
Gold took a big hit this week on Thursday and my timing was lucky on Wednesday when I sold the call. We saw a little bit of a bounce on Friday and GLD closed up slightly on the week, but the primary trend is still lower on both the daily and weekly timeframes.
It seems like there are numerous articles about “why” Gold should go higher and “why” it’s a great investment. However, as long as price remains in a downtrend, I will be short gold. It is very much my view that we buy investments we want to appreciate in price. If our goal is to buy things that will appreciate in price, there isn’t much reason to buy them as they’re going generally lower. The entire notion that we should buy things that are becoming cheaper is based on a retail or consumer mentality. When we’re trading, we need to think in terms of being the store rather than the consumer and buy things that are appreciating in price (ie there is a demand for them). We can talk about this more another day . . .
Bonds (TLT – iShares Barclays 20+ Year Treasury Bond ETF):
This was a choppy week for US Treasury Bonds with stronger finish on Friday that put TLT into positive territory for the week. However, the daily and weekly trends are still pointing lower. While it doesn’t matter, and I won’t trade on it until the trend confirms my feeling, I think Bonds could move higher (yup, I’m still short).
It seems like people have wanted Bonds to go down for a couple of years now and there has been a lot of attention paid to the notion that rates are at all time lows and must go higher at some point. I feel like the 12% move down in bonds this year might be pricing in higher rates. As price moved down in 2013, I think the party in Bonds ended and people believed they understood why they should unload their bonds. To some extent, I wonder if the move is overdone and we’ll see prices stabilize or even move slightly higher in 2014. All that being said, I won’t take any long trades in Bonds unless the market confirms my theory. Remember, fundamentals are presented for snickering only.
Trades This Week:
USD/CHF – Sold Short 4,000 Notional Units
GLD – Sold March 2014 139 Call for .53
SPY – Short Jan 2014 Strangle 188 Call/162 Put
IWM – Short Jan 2014 96 Put
GLD – Short March 2014 139 Call
TLT – Feb. 2014 106/106 Call Credit Spread
PGJ – Long 102 shares from 29.42
NZD/JPY – Long 3,000 notional units at 80.56
USD/JPY – Long 4,000 notional units at 100.61 and long another 4,000 at 101.64
USD/CHF – Short 4,000 notional units from .8874
Next week is expiration and I’m looking to sell March 2014 SPY or IWM puts at around a 10 delta. While I think it’s unlikely that the weekly trend direction will change, it is possible and that would lead me to sell calls rather than puts.
Thanks for reading and please comment below or send me an email to dan at thetatrend dot com to let me know what you like/dislike about this summary and what you’d like to see more of going forward. Enjoy the weekend.