The stock market meandered today, falling right at the open then rising into positive territory after lunch, and closing in the red at the end of the day. The Dow Industrials slipped 30 points to close at 10,467.16 on higher volume. It pulled back to its 200-day SMA and bounced higher from there. Volume was up over yesterday. The S&P 500 Index fell .42% and the Nasdaq Composite lost .57%. It closed below its 200-day SMA so now only the Dow is above this important moving average.
Oil prices rose as the U.S. Dollar fell, sending UCO, the levered crude oil ETF, up 4.12%. Palladium is a commodity most people don’t know much about but they “use” it every day since it’s in your car’s catalytic converter; PALL, the Physical Palladium ETF, rose 3.65%. Natural gas is following oil prices higher so GAZ (don’t you love these symbols?) rose 3.02%. Rising commodity prices means base metal prices are also rising so DBB, the base metals ETF, added 2.07% – resistance is likely at its 200-day SMA, currently $20.52. Please click on the symbols for details.
GLD, mentioned in Tuesday’s blog entry as a Connors buy candidate using the %b strategy, rose .45% today. It has a ways to go yet before the %b closes above .80.
The weakness in semiconductors is reflected in the rising price of SSG, the short semi ETF. Since SSG is below its 200-day SMA, the rise set off short signals in the Connors RSI 10/6 and R3 strategies. These are pullback/throwback strategies. I described the RSI 10/6 strategy in Tuesday’s blog entry.
The trading rules of the R3 short strategy are simple:
1) The asset is below its 200-day SMA.
2) The 2-period RSI rises three days in a row and the first day’s rise is from above 40.
3) The 2-period RSI closes above 90 today. Short on the close.
4) The Aggressive version shorts a second unit if prices close higher than the initial entry price any time you’re in the position.
5) Exit when the 2-period RSI closes below 30.
The chart below shows SSG in relation to its 200-day SMA and the 2-day RSI closing today over 90. Please click on the chart to make it full-screen:
Not everyone is comfortable with shorting or is able to short (e.g., your trading account is an IRA). You can go long the “inverse” of this inverse ETF with USD, the levered semi ETF. There are several unlevered semi ETFs but the “big boy” is SMH.
The R3 strategy on the short side has a pretty good track record. A portfolio of 20 unlevered ETFs from their inception date through Dec. 31, 2008 had an average %P/L of 1.15%; the average holding period is 5.2 days, and the % Winners was 70.4%. The Aggressive version of the strategy has an average % P/L of 1.58% and a %Winners of 75.6%. Running the short strategy against SSG from its inception through today had a % Winners of 85%. Of course, past performance is no guarantee of future results.
The market is frustrating many swing and position traders because it is trading within a range. It happens and letting your frustrations affect your trading decisions is never a good idea; you want your decisions to be data-driven, not emotion-driven. Put another way: Let the market come to you, don’t you run after the market.
