05/13 RUT - Technical look 1h chart

I'm looking at the 1 hour chart looking for clues as to what is the next probable move for RUT. It broke the past up-trend and now I'm looking for possible "stopping points". I believe it is due to a retracement, Today's movement of 2 st. deviation is likely to leave people itching to take profits, and that could swing RUT back up to the 480 zone.

Now, if we don't even look back, that is not a good sign, it will indicate the bear is out and looking for food.

I'm attaching a few 1-hour chart for further discussion. I'm using the Mini futures, as they provide 24h trading and one could see what overnight sentiment was (if any).

First a "longer-term" view. Notice that the 475/480 price zone was the resistance to the previous up-movement, that in itself would be argument to expect it to be support as RUT comes back down.

Now I'll post a few charts with possible scenarios.

My VIPES spreadsheet Explained

I have been posting my VIPES study on the blog without further explaining what it is and how I use the information. This post provides detail explanation on what it is and how I use it.

First and foremost, VIPES stands for (V)olatility, (I)ndustry, (P)rice, (E)arnings and (S)kew. This is a concept I learned with Dan Sheridan on his mentoring program. It is a way for traders to evaluate a stock/etf/index before placing any kind of income strategy. I won't spend too much time on the details, but in a nutshell, it forces you to look at the potential trading candidates with a bit more detail.

I have adapted a spreadsheet to help me with 2 elements of VIPES: (V)olatility and (P)rice. My goal is to look at a several potential candidates and filter the ones that are not moving too much. So let's look at the chart and I'll explain it:

The first section of the sheet studies 1-day Price Action. I look at how many st. deviation the candidate is moving lately. The questions I'm answering are: Has the candidate moved 1.5 or 2 standard deviations several times in the past 30 days? How about in the past 90 days? For each candidate It will show the number of times and percentage of times these type of days happened.

So, If one candidate has moved 2 st. deviations for over 5% of times in any period, It suggests it is not behaving as per the "normal distribution", so the warning light goes on.

The next section looks at how many standard deviation the candidate has been moving for a 5-day period. Each bar on the chart represents a 5-day period, so if the candidate has been moving 1 or more st. deviation for 5 days, it is also a warning sign that it is not so quiet.

Let's look at an example:

You can see from the two charts bellow that SPY has a better price profile, it has not moved over 2 st. deviation more than 5% of the time on both the 90-day and 30-day periods, not the same story for USO, it has moved 2 st. deviation 7% of the time in both periods. Looking at the 5-day chart, you'll also notice that USO hav moved 0.5 st. deviations for the 5-day periods several times in a row very recently, which didn't happen for SPY.

I hope this helps, if not, please ask your questions and I'll do my best to answer.

VIPES as of 05/12/09

05/12 DIA 40-Day Double Diagonal

DIA was the only index closing on the positive side Today. Markets were mixed, seems like waitting for new fresh data to come out. Let's see what Tomorrow will bring with Retail Sales. The double-Diagonal is slightly positive Today, Volatility has dropped 6%, not a big deal, but I bet this is keeping some profits from the trade.

I like the Vega Neutral double diagonals better, only pumped a bit of vega on this one because I was expecting a down move with increase in volatility. Let's see how it goes.

05/12 RUT 50-Day Condor

The trade is in great shape. Notice the 1 st. deviation range for tomorrow on the profile chart, you'll notice most of the money will stay in the trade is we go either direction. RUT is sitting nicely right in the middle of the chart. Closed just shy of 7% on the trade Today.

05/11 DIA 41-Day Double Diagonal

DIA came back down, P&L back at B/E.

05/11 RUT 50-Day Condor

Real short post Today, RUT back around the 500 area. I anticipate it at around 480 if we break Last Friday's low. The position is doing really well.