There is currently an +/- 8% spread between the two indices [QQQ/SPY] which would make a good spread trade.
July 29, 2011
This is my mate SC’s quantitative tool. I’ve been looking at it for about an hour. Some observations. First off, you need to look for correlations and confirmations. It is not a one trick pony. You can visit his blog here or go to my blogroll, his blog appears under spydercrusher.
In hindsight it is always easy to spot the confirmations. I’m not going to insult you by pointing out the bleedin obvious. What about the far right edge? This is the only place that we can make money after all.
First off, there is the initial trigger or move in price. The TT signals distribution. In this context distribution is bad. This is confirmed in both the breadth signals. So we know the following, don’t buy long currently. Will the trend lower continue? The interesting question.
At this point you might start following the newsflow, debt ceiling debates, drawing conclusions etc. This can be done, but it really has no impact on the signal that will eventuate. Again looking for confirmation, you want participation with breadth, that quantitatively indicates that the bulls are gaining ascendancy. Thus the top bar, the buy signal needs to be confirmed via price and participation.
Price is a funny one. Price confirmation can take two forms. Positive confirmation, viz. price moves higher, or, negative confirmation, where price is lower, but all other signals contradict price. Indicative of the market makers playing games, or these HFT algo’s playing with the bid/ask quotes.
Who is this for? Swing traders. No doubt at all. I’m sure you could work a Short based system off of it as well, but currently it is used predominantly by SC as a Long only system. I’m assuming this updates live, but even assuming it didn’t, as you wait on confirmation, it is still valid to take positions the following day based on a signal trigger based on today’s close.
Using Options, rather than stock, would provide a couple of advantages: [i] increased leverage [ii] stoploss not dependant on being placed in the market [iii] minimise time value decay.
Interesting. Watch this space for some trades that I’ll base on my interpretation, possibly with SC’s help, and place utilising the quant methodology, a trade, probably using Options. After all, we can’t have flippe-floppe claiming all his SHOMP nonsense unanswered.
So the conclusion is: sit and wait. Do nothing at this point. The signal is developing, damn your eyes, but that sounds familiar. Essentially wait, watch, and when confirmation is lined up with a buy signal, that green bar that lights up, we go long. Till then, chill.