‘March Market Madness’

  • SumoMe

Is there anything better than March Madness?  I mean after enduring a particularly brutal winter how great is it that we are rewarded by being offered the opportunity to show how utterly clueless we really are by sitting down and picking the winners of 60 some odd basketball games, most of which are to be played between teams that most of us know absolutely nothing about.  Like I said, what could be better than that? And just for the record, if my daughter beats me again this year I am sending her to military school (I mean it this time!)

But as much fun as all of this is, I am personally more excited about the March Madness opportunities shaping up in the financial markets.  So let’s look at “the brackets”:

(Going) North Bracket: Keepin’ it Simple in Stock Indexes Redux

In my last piece (http://tinyurl.com/luxu8r8) I wrote about a simple timing method for trading stock index options.  Well, as fate would have it the method fired off a “buy” signal at the close on Monday 3/17.  Lest anyone get too excited just remember that – like any system – this one can generate losing trades just as easily as it can winning trades. 

Anyway, let’s do a quick review and look at the latest “example” trade.

MACD as a Trading Catalyst

As you can see in Figure 1, for ticker DIA (I look at 4 tickers – SPY, QQQ, IWM and DIA – a signal from any one triggers a trading signal), the daily MACD historgram using the standard default values of 12-26-9 dropped to negative territory nd then reversed higher for one day.    jotm20140318-01Figure 1 – Ticker DIA with MACD “Signals” (Courtesy: AIQ TradingExpert)

Using the Signals

As I detailed last week, the next step is to use the “Percent to Double” routine at www.OptionsAnalysis.com and run a test on call options on the major stock indexes.  The output screen for 3/17/14 appears in Figure 2.jotm20140317-02Figure 2 – Percent to Double Output Screen (Source: www.OptionsAnalysis.com)

The top trade in the list involves buying SPY May 190 call.  The risk curves for this trade appear in Figure 3.jotm20140327-03Figure 3 – SPY Call Trade (Source: www.OptionsAnalysis.com)

The exit signal I described last time out is triggered when the MACD histogram moves to positive territory and then declines for one day.  As always, this example is for “educational purposes” only and does not constitute a trade recommendation.

(Going) South Bracket: Garbage in Gold Trade Redux

In another previous article (http://tinyurl.com/oex94tc) I wrote about about an “explosive garbage trade” (no seriously) using options on ticker GLD.  So far that trade is at a loss but remains an interesting case study.  In Figure 4 you can see that GLD ran up hard into the heart of the key 128-138 resistance zone and then (at least for one day) reversed. jotm20140317-04Figure 4 – Ticker GLD into the resistance zone

The “garbage trade” I highlighted can start to make money quickly if GLD falls back down.  The maximum loss possible on the trade is -$253. jotm20140317-05Figure 5 – GLD Explosive Garbage Trade

 (Other Going) South Bracket: Whack a VXX Mole Redux

In (http://tinyurl.com/kjwhsh7) I wrote about a simple way to play the short side of volatility using put options on ticker VXX.  In a nutshell:

*RSIAll is the average of the 2, 3 and 4-day RSI values for ticker VXX.

*When RSIAll rises to 80 or above, look to buy a put option on ticker VXX when VXX drops below the low of the previous two trading days.

As you can see in Figure 6, this will occur if VXX trades below 44.93 on 3/18. jotm20140317-06 Figure 6 – Whack a VXX Mole Setup

Midwest Bracket: It’s (G)rainy Season Redux

In (http://tinyurl.com/q2omcxm) I wrote about a Seasonal/Technical method for trading soybeans.  The “entry rules” are essentially as follows:

-If today is between January 1st and May 15th

-If the CCI Indicator (Commodity Channel Index) drops below -120 and then ticks higher for one day

-Then buy the next time July soybeans exceed the previous trading day’s high.

As the CCI indicator recently dropped below -120 and turned up this signal could occur on 3/18 if July soybeans exceed 1378.75.jotm20140317-07Figure 7 – Soybeans (G)rainy Season Setup

Summary

So lot’s of possible “signals” based on some mechanical setups.  Kind of like my own personal “Final Four.”  However, as always, because I am not a financial advisor but rather a financial, well – geek – you should not consider anything that appears herein to be a recommendation.  The purpose of these items is simply to educate you to the fact that there are mechanical methods available that can help you as a trader to put the odds on your side.

Jay Kaeppel

2 thoughts on “‘March Market Madness’

  1. For the percent to double scan why did you include SPY and SPX if the signal was for DIA? Or do you scan using all 4 (SPY, DIA, QQQ, IWM) regardless of which one(s) signal?

    Kevin H

    1. I use SPY, DIA, QQQ, IWM to generate the signal (i.e., a signal from any one of these is a signal). For the option trades I have a list titled “Stock Indexes” which includes SPY SPX OEX QQQ IWM DIA. Although I tend to lean more towards the most heavily traded option closest to the top of the list (typically SPY, sometimes QQQ, occassionally IWM and rarely ever DIA. Jay

Leave a Reply

Your email address will not be published. Required fields are marked *

This blog is kept spam free by WP-SpamFree.