Monthly Archives: September 2014

Sittin’ by the Stock Market Bay….

…watching the trend roll away.

Once I gain I apologize for the lack of posting activity of late.  It just seemed that there wasn’t much that needed to be said about the seeming perpetual state of affairs:

Step 1. Each day the world descends a little further into chaos

Step 2. The financial markets couldn’t care less (i.e., stocks go up, interest rates remain mostly unchanged and gold goes down)

What else do you need to know?

Despite the fact that I spend a pretty fair amount of time gazing at the world around us and shaking my head I have remained steadfastly in the bullish camp throughout 2014 – despite the fact that my “gut” said it would be a good year to “Sell in May” (Sometimes I wish gut would keep its big mouth shut) – for no other reason than the simple fact that the stock market has remained in a pretty obvious uptrend throughout.  Which reminds me of:

Jay’s Trading Maxim #129: Despite all the information that swirls around us every minute of every day, sometimes, sitting around doing nothing is a pretty good investment strategy.  Ironically, sometimes it’s also the hardest one to follow.

And now we stand on the cusp of what historically has been the most bullish time of the decade (September 30th – Mark Your Calendar).  In regards to the article in that link I recently had an “interesting” discussion on the topic.  It went something like this.  

Other person (heretofore, OP): So I see you are bullish on the stock market for the next 18 months.

Me: Really?

OP: Yeah, I saw your article where you predicted that the stock market would rally sharply during the mid decade months.

Me: Um, that wasn’t really a prediction.

OP: Well, what the hell was it then?

Me: Um, it was mostly a history lesson to alert investors to an interesting historical trend.

OP: So you don’t think it’s gonna work this time?

Me: I don’t know if it will work or not this time around.

OP: Well then what did you bring it up for?

Me: Actually, I didn’t bring it up, you did.

OP: Huh, what?  No you wrote the article – what for?

Me: I thought it was a pretty interesting and persistent historical trend.

OP: Yeah, but if you don’t think it’s gonna work this time around then what’s the point of bringing it up?

Me: I don’t know if it will work or not this time around – and I didn’t bring it up, you did.

OP: Well (frustration building – not to mention alcohol beginning to kick in), what kind of market forecaster are you anyway?

Me: I’m not a market forecaster.

OP: Sure you are, I read your stuff all the time.

Me: God bless you for that sir, but I don’t really try to predict what will happen next.

OP: So you don’t even have the courage of your convictions!?

Me: Well, there’s a very fine line between courage and stupidity…

OP: What’s that supposed to mean?

Me: Precisely.

OP: You wanna step outside pal?

Me: Um, we already are outside…..this is your back yard, remember?

OP: So you don’t know anything about the stock market AND you’re  a smart aleck.

Me: Well……

And so on and so forth.

Which leads us to:

Jay’s Trading Maxim #127b: Sometimes not thinking about and not talking about the financial markets is a pretty good thing to do. Ironically, sometimes it’s also one of the hardest things to do (especially when there is alcohol involved).

Also to:

Jay’s Life Maxim #33: When you are the only sober person in an argument, remember, time is on your side.  Be patient, wait for the inevitable unforced error, quietly declare victory and move away quickly but quietly (or, if all else fails, wait for your opponent to lose consciousness).

So even despite the recent weakness in the stock market – and what my gut tells me is an “obvious” topping formation forming (SHUT…UP!) – anyone who came into 2014 fully invested and has yet to make a trade this year is doing reasonably well (unless of course you were invested in small-cap stocks, but I digress).

For those who can’ fight the urge, sometimes a simple trend-following technique combined with a simple pullback and a simple entry trigger can work pretty well.  For example:

1. 10-day simple MA > 20-day exponential moving average and 20-day exponential moving average above 30-day exponential moving average (this is Dave Landry’s Bowtie Method which I learned from Dave Steckler at

2. An oversold indicator becomes, well, oversold, what else?  For our purposes we will say that the 3-day RSI drops below 45.

3. The next time a daily high exceeds the previous day’s high by 0.02 points or more, then buy.

In a nutshell:

1. Trend up

2. Pullback within an uptrend

3. Short-term reversal back to the upside

Let’s assume a trader buys when the previous day’s high is exceeded by 0.02 or more following the setup described above.  For simplicity’s sake we will assume that the trade is exited when the 2-day RSI rises above 75.

In Figure 1 you see a bar chart for FB with entry signals (i.e., price taking out the previous day’s high following a proper setup) marked with green up arrows.aapl 1Figure 1 – FB in Bowtie Uptrend with an RSI pullback (Courtesy: AIQ TradingExpert)

In Figure 2 we see exit signals (i.e., 2-day RSI >= 75) marked in red.  In some cases the entry and exit signal come on the same day. aapl 2Figure 2 – Exit signals for FB in red (Courtesy: AIQ TradingExpert)

This method is not presented as the “be all, end off” of trading.  It is simply an example of one approach for taking small bites out of a longer-term uptrend (for those of you who cannot fight the urge to “do something”).


Someday the stock market will experience another meaningful decline, interest rates will rise and gold will advance again (no, seriously) in a meaningful way.  Attempting to predict in advance when that day (or days) will come is not a valuable use of anyone’s time.  While traders can take advantage of trends by trading shorter-term – as I’ve just demonstrated – in the immortal words of Paul Newman in “Cool Hand Luke”:

“Sometimes nothing is a real cool hand.”

Jay Kaeppel

Options Related Article in October 2014 Stocks & Commodities Magazine

It’s self serving announcement time here at  Please see my option trading related article in the October 2014 of Technical Analysis of Stocks & Commodities (

The article is titled “Introducing the Open Collar” which details a slight twist on the “collar” strategy, which is mostly used by traders to limit the risk on a stock position for a period of time – while also limiting the upside potential.  The “Open Collar” is an attempt to alter things enough to limit risk on the downside while also retaining unlimited potential on the upside.  If you have ever considered using options to hedge a stock position or portfolio you might find this to be a useful idea (NOTE: in the interest of full disclosure, yes, my opinion is slightly biased in this case).

Jay Kaeppel

Let It Rain…a Little…For Now

Well it’s raining like crazy here in the greater Chicagoland area (which reminds me, have we usurped the title of “Murder Capitol” from Detroit yet?  I digress) and the stock market is – of all things – kind of going down of late.  Who knew that that was still possible?  Of course the truth is that we can probably use both – the rain and a “pullback” in the market, that is (the Murder Capitol thing, maybe not so much).

I have been on something of a hiatus.  Have gotten some nice comments of late from people who used to read my stuff at Optionetics and just discovered my blog.  I appreciate the kind words.  It kind of makes me wish I could think of something useful and/or intelligent to say about the markets.  Around late August I simply fell into the “stocks go up, bonds go up, gold goes down, period, end of discussion” zombie-like line of thinking, and couldn’t really find anything new to say regarding those particular trends.  Sort of a “Lack of a need to do any analysis paralysis.”

September and After

The most bullish portion of the Decade cycle – i.e., the Mid-Decade Rally – starts at the close of trading on September 30th.  Rather than regurgitate all of the relevant numbers I will simply encourage you to review this article (September 30th – Mark Your Calendar!) to get an idea of how the stock market has tended to move during the 18 months smack dab in the middle of the decade (Hint: “Up”).                 

In the meantime, a pull back in the stock market during the month of September might be “healthy” in the long run.  Of course, we can also file this idea under the category of “Be careful what you wish for.”  On a certain level it sounds logical to say “hey if the stock market experiences a nice, neat 3-5% pullback during September it may very well set the stage for the net leg up.”  Unfortunately I have on several occasions in the past seen this type of thinking turn into “hey don’t worry, this current pullback is just setting the stage for…………AAAAAAAAAAAAAAAAHHHHHHHHHHHHHHH!!!!!!!

So like I said, probably best to take it as it comes for now….and be careful what we wish for.   I promise to start posting a little more regularly soon.

Jay Kaeppel