Ominous Signs in this Market Indicator

The stock market has been on a rip lately. The S&P has risen well above 3000, and currently sits at 3120.5 (^GSPC Chart). But how high will we go without a pullback? More importantly, how big will that pull back be?

Yesterday, while trying to find clues, I put the ‘On Balance Volume’ indicator on my SPY chart. This indicator basically gives you an idea of accumulation and distribution in the market; it tells you, in general, if the market is scooping up shares, or selling shares. I use the OBV from time to time, but have not used it in a while. What I found was scary.

SPY chart as of 11/15/2019

Notice the descending trend on the OBV indicator? More importantly, notice the pullbacks that have happened each time the OBV dropped in relation to the market rip higher?

At the end of last year we had a correction. The markets tanked for a couple months, and finally bottomed out on December 31. Since then the market has climbed to all-time highs setting record after record.

Our first substantial pull back of this year happened right after the May high. This is when the Trump administration basically said a deal with China was currently off the table. The markets did not like the news one bit, and down it went. From there it rallied to new all-time highs in July.

Same story in July – more negative trade news, and the market soon fell. However, the fed started to talk about lowering interest rates, and the market liked that. It soon rallied again in September and met up with the July all-time high. Then, of course, another pullback on… you guessed it… negative trade news. Since the pull back bottom in early October, we have rallied to even higher highs. The market is on a rampage!

But there are ominous technical signs that this is not sustainable without some sort of pull back or correction. Take a look at the chart one more time:

SPY chart as of 11/15/2019

The blue vertical lines are meant to show the market highs in relation to the OBV. The red arrows, of course, are pointing to the highs of the OBV in relation to the blue lines. The blue dashed line on the indicator shows the May OBV high, and the purple dashed line shows the July OBV high.

Notice, each all-time market high comes with a lower OBV high. This is divergence. The On Balance Volume indicator is showing divergence with the overall market.

After the July market high, the market pulled back. The OBV might have predicted this, as it could not reach the May OBV high. Same story for the September rally – the OBV might have predicted that one as well. This time, the September OBV could not reach the July OBV high or the May OBV high. And here we are today. The OBV is right at the September OBV high, but well below the July and May OBV highs.

Quite a tongue twister that last paragraph was. LOL! But you get the idea.

There is one other ominous sign the OBV is giving me. Notice the OBV has been slow to rise during this current rally when compared to the other rallies? That is showing that there is lack of conviction in this move. It seems market players are leary about moving forward on the current trajectory. The other rallies showed steeper OBV rise.

As I always say, this does not guarantee a pull back or correction will happen any day now. There is no “holy grail” of market indicators. The OBV is no exception to that. This is just something I noticed and wanted to share.

This post is my opinion only, and should not be taken as advice. Always do your own research before making any investment decision. Seek professional and licensed advisers if you are unsure.

The Holy Grail of Strategies

Have I got some news for you or what!? Are you ready… are you sure? Here it is….

The Holy Grail may exist! Woo hoo! But, unfortunately, the Holy Grail of trading strategies, most certainly does NOT exist! I know, bummer, right?

Some claim to have the “perfect” strategy, or the “best” strategy, or the strategy that will make you a multi-gazillionaire over night. I got news for you – they’re lying!

There is no such thing as a perfect trading plan or strategy. If that existed, we would all win our trades 100% of the time, and we would all be wealthy beyond our wildest dreams.

But, the good news is that there are strategies that increase your odds. There are also ways to mitigate risks before you even choose the strategy you want to implement, and that is by utilizing solid analysis skills (doing your homework).

I never enter a position based solely on a “gut feeling.” I never enter a position based solely on “well, it’s gone down this far, it has to turn around.” Yes, I will admit, however, that I do sometimes think those things, but only AFTER I have done my other homework first.

I utilize both technical and fundamental analysis. Some people just use one or the other, and that is 100% OK. I just personally think that they work best when used together. One compliments the other, so to speak. In specific, I believe that technicals compliment fundamentals. What I mean by that is – technicals move based on the underlyings fundamentals. That’s just my opinion. It works for me.

Back to the “Holy Grail” of trading strategies… They don’t exist! You will NEVER find it! So stop looking. Instead, find a strategy that works for you. Make sure that strategy has logic and reason behind it, and make sure that strategy involves some kind of risk management. Over time, if your strategy is solid and it works, you should make money. Will you become a millionaire with it? I don’t know! It’s possible, of course. Anything is possible with hard work and dedication.

Ignore the people that say their strategy is better than yours, or they know more than you do. Blah blah blah! These people, in my opinion, have nothing of value to share with you. They just want to brag and sound cool, but probably are not as smart as they think they are. I’d rather follow the people who are humble and do not push their strategies on me. The people I like to follow have tons of information to share, and never brag about it.

For example: I “ran into” a gentleman in a Facebook group named Nicholas. He runs ‘Option Alchemist.’ He’s a very smart and humble options trader with many many years of experience navigating the markets. I have been talking to Nicholas for only a couple of weeks, but I have already learned quite a bit via “small talk.” These are the types I’m looking to learn from, not the bragger.

If you are interested, you can find Option Alchemist on Facebook, Twitter, and their website. Here are the links: Facebook, Twitter, and website.

Ok, my rant/lecture is done. I hope you gained some insight if you are a new trader. The market is full of gimmicks and “get rich quick” schemes. Ignore them. They don’t have the answer you’re looking for. They don’t have the Holy Grail!

ZERO COMMISSION AT TD AMERITRADE

Woo hoo! My broker, TD Ameritrade, now has ZERO commissions. I am very excited about this.

TD Ameritrade announced this a couple days ago, after Charles Schwab announced they were doing the same. The zero commission trades on stocks, ETFs and options started this morning; Charles Schwab rolls their zero commission out on October 7.

I can only assume this is the latest, greatest, and next big thing to hit the online broker market. We can all thank Robin Hood for this, as they were the first to do so a while back.

This is really fantastic news in my opinion. Prior to this morning, I paid TD Ameritrade $6.95 for stock and ETF trades, and $6.95 PLUS .75 cents PER contract for option trades. YIKES! For options, that adds up quick! There is still a per contract fee for options, but it’s only .65 cents per contract and that’s it.

If you are a long-term investor and hold your investments for 6 months, year, 2 years, etc., then the fees were probably no big deal to you. However, for people like me – swing traders and day traders – the fees added up QUICK!

I placed my first option trade this morning with the new zero commission thing, and it felt GREAT!!