AAPL

This week AAPL closed into a new weekly channel high. Despite the selling pressure coming later into the week, AAPL managed to hang on to its weekly gains with weekly trend continuation. Referencing the chart below, we can see that AAPL generates an 'SE-C 599.55' which reflects some weakness coming into the short term bias of this market, or evidence of weakness of the short term trend. We can see this as AAPL closed below its 3 day pivot regression, which is what triggered the 'Type 2' Closing signal. Structurally, the market is still intermediate term bullish, with evidence of shorter term weakness. More importantly, to trigger a complete reversal of this market - or a liquidation event - we would really need to see a 'Type 1' Intraday momentum reversal signal, which was not the case in AAPL. Notice from the chart below how AAPL struggled to generate new 'short interest' as it failed to sell aggressively < 600 - an important psychological level for this market. The selling pushed the market back down to the 'top' of the previous weeks weekly high level as indicated by the 'blue' horizontal line. This is still a bullish market and so we should expect continuation of trend, although caution to the bulls at these levels. We can also observe the 'b-distribution' in the 'shape' of yesterdays (3/30) composition, which implies old inventory liquidation early in the day with new long-term buying to support the market, as evidenced by the 'b-shape' to the day. If the day timeframe shorts were strong enough in combination with the long liquidators of old inventory, they would have 'broken' the market. This was not the case. We still see long timeframe supportive buying in AAPL.

Fertilizers: Momentum Sell Signals This Week

Going into MOS earnings this past Thursday morning (3/29), there were strong momentum reversal signals generated across the Ag space, and more specifically in the fertilizer sub-group; MOS, CF, POT, AGU. When I look for a trade in a specific issuer, I like to see signal breadth across the sector; this was the case in the fertilizer's - all generating momentum sell signals - 'Type 1' - liquidation indicator. This can be seen by referencing the above mentioned fertilizer names, and the the 'IntraS' column, which indicates 'Intraday' system signal. These 'Type 1' signals, when consistent across a group, represent aggressive long liquidation of inventory and momentum initiating the short bias.

Lets have a look below at what POT did this past week: We can reference 3/28 'SE 45.43' early in the trading day and the 'red arrow' indicating the sell signal. We can observe POT breakdown, below the 3 day regression structure, which is our short term directional bias indicator -- implying that when price trades < the regression, the market is transitioning into a short, short term bias - in line with the aggressive ATR expansion to the downside. When we have rotation initiated from this signal type (IntraS column - from the screen above) there is an activity of 'urgency' demonstrated from larger funds as per the 'nature' of the outflow. We can capture this display of behavior and align with the new bias. This signal is consistent with the other fertilizers  in  the group and so confirming the breadth and quality of selling behavior.

In the next screenshot below, we can reference the 'structure' of POT. The 'Blue' horizontal lines represent the weekly channel structure of POT; 47.65-43.91. I've also referenced the 'sell signal' with the red arrow as discussed above. POT moved into the top of its existing weekly channel structure and rotated back down, initiated by the 'SE' at 45.43 (above). The trade destination would be the lower end of the weekly channel at 43.91. As of Friday (3/30) the market was stabilizing within the regression structure. Any closing above the structure would violate the short signal and short bias generated on 3/28. So we keep a tight stop above this channel.

Gold Space: Is it time to buy?

Following on yesterdays thought process of determining 'rotational quality', as it related to the ETF's, and knowing when we have a reliable short term directional move developing is something that is always very difficult to understand with certainty. And this has been the case with the unloved gold sector of late. The space has been very frustrating for those with interest in the sector, really since August 2011. Since the Feb 29 2012, $100 crash in the gold market, which took the entire space down with it, we are now starting to see some recovery as per the the $XAU gold/silver index above, which is a glean into the activity of the large cap space.

The columns we want to be keeping are eye on are the 'CloseS' and 'IntraS', which refer to the Type-1 intraday momentum and Type-2 closing signals. These signals are implied reversals of the short term bias or trend of the market. This trend can be characterized as having duration of  < 1 month and is often much shorter. Now, when we view the $XAU which is a good proxy for breadth in the equity space, we can see that essentially everything is generating buy signals. Now, looking closer, we can see that the majority of the long signals generated are fairly recent as per the indicated values (in days) within the column 'CloseS'. If larger funds felt the market price was an opportunity to participate, they would be buying aggressively. These are the quality rotations we are looking to capture, and they would be reflected within the 'IntraS' column, as a momentum signal intraday. As traders and investors we want to be aligned with this flow.

The screen shot above does not reflect 'urgent' or 'aggressive' fund flow back into this sector, as demonstrated by the heavily influenced 'CloseS' buy signals, which implies that the buying signal is an end of day occurrence, and not a momentum generated signal. So if we do participate as buyers of this sector we would have to scale in gradually until prices are accepted and confidence develops.

Having said that, it becomes apparent that the golds are relatively cheap vs the broad stock market. If we reference the chart below, we can see the ratio spread between Goldcorp (GG - NYSE) and the S&P500 ($SPX cash) is suggesting that the gold stocks are approaching valuations that have been seen as far back as April 2009, as evidenced by the arrows below.

We will have to continue to monitor the golds to see if this buy signal is sustainable in the short term and as it is relates to the macro view above as gold stocks get very cheap relative to the broad US stock index

Sector Screens -- It's All Green

We can view the latest in Short Term Trend Strength across US domestic sectors. What we're trying to develop as traders and investors, is to get a sense for discovering and understanding the nature of the directional bias in various products and most importantly the quality or strength of the developing directional move. This is an entirely systematic top down filter that you are looking at. The signals are based on shorter term structural changes in these respective sectors. This approach can be used as the starting point for developing a comprehensive look when timing sector based trades. From this view, I've filtered 2-3 ETF products/sector to ensure signal breadth and consistency as different ETF products filter different issuers. From this approach we can trade or invest in the ETF product outright or we can revert into leading or lagging issuers within the group. This screen shot enables us to view sector-based biases to allow for dynamic hedging through pairs trading or inter-sector  strategies, long and short.

I designed this system to filter rotational quality or short term trend reliability. This micro component allows us to manage our positional timing and strategy. We use this input in conjunction with a macro system that is based on larger trading time period boundary locations (weekly, monthly, etc) to develop a complete structural understanding of the market in question.. When observing the ETF screen we can see market breadth of the US stock market and directional confirmation from the signal type. We can drill in deeper and asses rotational quality determined by 'CloseS' and 'IntraS' - our 2 signal types - which reflect closing versus intraday (or momentum based) signals. If the product, for example, generates an IntraS (intraday signal), then we can associate aggressive accumulation of the inventory when confirmed with buying vs selling volume and in conjunction with our macro-time period structure locations. Combining the cascade of time frame input and micro signal type and knowing the nature of the bias and breadth within the given sector we start to make better trade decisions.

The values that are represented in the columns reflect the number of days in the short term bias (0.00 is a fresh signal, 1.00 occurred yesterday, etc). Depending on the type of participant you are, you may be looking for 'IntraS' signal types as a short term positioning catalyst in-line with other fundamental inputs or events that you may be suspecting; such as options activity, earnings releases, new deal flow, etc. As a longer term investor, the same logic applies, but I could then use either CloseS or IntraS signals to provide the signal necessary to enter or build positions.


We'll continue to monitor these screens going forward to see if we can detect early-stage weakness or erosion in the current market environment on a sector basis.

Trading AAPL

'Type 1 - Closing' system signal was generated for AAPL on 3/22, as per the 'red arrow' indication and reference price 599.28. The notation 'SE-C' indicates a system short entry at the 'close' of this day. 

To familiarize with the chart-anatomy; you can visualize the 15min intraday chart above with important overlays. First, you can see the 'blue' horizontal line tracking across the screen: This is the Weekly upper channel boundary or Weekly resistance for AAPL at 599.95. So, from the intermediate trend perspective, longer term investors would benefit from observing how AAPL behaves within its existing weekly channel, which also extends down to the Lower Boundary at 542. With the Weekly channel (blue line - 599-542) we have established the intermediate trend or time frame. 

Within the chart above, we can also visualize the structural overlay that tracks price-action. This is the 3-day structure or 'pivot' for this market. This structural area is defined by regression and references the mean price and first standard deviation on a 3 day basis. This structure defines the Short Term bias of the market. When AAPL price bars trade 'above' this regression, the market has a long bias and when the price bars trade 'below' regression, we have a short bias. 

The system-generated signal on 3/22 implies 'caution' to the short-term long trader in this market. For which there are 3 positional approaches: 

1.Begin scaling out of long position.

2.Complete Exit from long.

3.Do not get short.

Longer term investor do nothing at this signal reference. Their positional references come into effect at violation of the weekly (intermediate) boundary at 542 reference level. This would imply that AAPL is changing trend to Short on the intermediate time frame or weekly time frame.

Given the directional strength in AAPL shares across all time-frames, the 3/22 'Type-1 closing signal' does not imply a short trade set-up quite yet for the active trader. To short this market, I would need to see my 'Type-2' system signal, which is an intraday momentum signal (reversal signal) implying aggressive long inventory liquidation. The second tactical short positional approach in AAPL would begin at the close today because we would have 3 consecutive trading days closing below the 3-day regression structure or below the short term pivot structure. This would imply the bias is shifting away from the longs. 

For those of us accumulating a short in AAPL, use a stop at the 603 level. 

If AAPL closes back 'above' the 603 level, and above the 3 day regression, the short term trader would start getting long AAPL again. For aggressive short-term traders, any 'Type-2' intraday momentum reversal signal back to upside could imply the use of outright calls or a vertical call spread.