The first chart is a daily NYMO (red dotted line and right scale) and daily SPX (black line and left scale) three-year comparison chart. The second chart is a weekly SPX three-year chart, with 10 & 40 week MAs and volume, which can be compared to SPX in the first chart. SPX rose over 49 points last week, which was its best week in years.
The first chart shows the daily NYMO fell to roughly negative 100 three times recently, in Mar '07, Mar '05, and May '04. Typically, when NYMO falls to negative 50, SPX is severely oversold. After the Mar '05 and May '04 NYMO lows, SPX rose to lower highs and then fell to lower lows. After the Mar '05 NYMO low, SPX reached a lower low in Apr '05, and after the May '04 NYMO low, SPX reached a lower low in Aug '04. Consequently, SPX may fall below 1,380 in or before Jun '07, although only two prior observations aren't statistically significant, which often don't make a difference in the stock market.
However, the third chart shows CPC (CBOE Put/Call) is extremely SPX bullish, while VIX is roughly SPX neutral. CPC suggests an SPX pullback will be limited, or a volatile range will take place, and then SPX will rise to new highs.
A new portfolio began in the Trading Log category Dec 1st with $100,000.
1: To eliminate overtrading, all trades will take place within 30 minutes after the market open and 30 minutes before the market close, except trades to lower risk.
2: Two ways to make big gains: 1) Identify a big winning stock. 2) Wait for an excellent opportunity.
3: Primary trades are buying "the best" calls or puts on fundamentally undervalued or overvalued stocks. The cost of these options will be 1.00 or less. Half will be sold if they rise over 50%, to lower risk, and the other half will be kept for a longer-term trade. If the options become too close to expiration, next month options will be bought before the closer to expiration options are sold.
4: OEX options may be traded in the week they expire, including the Fri of expiration.
Three costly mistakes:
1) Trading in irrational markets
2) Daily overtrading
3) Moving out of calls (or puts in bear market) on individual stocks (not ETFs) too soon
****This system may also fail, unless "irrational" market downtrends and uptrends, which take place once or twice a year, are identified early and cash is raised, until irrational periods are completed.****
Performance of previous system: Trading index options, e.g. SPY OIH SMH, etc, had mixed results, because of huge losses during "irrational" periods. However, in the intermediate-term, they turned out to be winners, except in the second half of 2006, which would have resulted in huge losses (although, intermediate-term indicators didn't really turned market bearish). Trading before earnings had mixed results and were worse than index options. Puts on individual stocks were generally losers (although, in a bull market). Calls on individual stocks, i.e. fundamentally undervalued stocks, were huge net winners, although most were sold too soon.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years. |
