SP500 ETF Trading Strategies & Plan of Attack for This Week

Index ETF Trading Strategies: Stocks have kick started this week with a 0.85% pop in price but the big question is if the market can hold up. Last week stocks repeatedly gap higher and sold off with strong volume telling us that institutions are slowing phasing out of stocks (distribution selling) unloading shares into strength and passing them onto the a average investor to be left holding bag.

I want to show you a couple charts which show the price action, volume and money flow of the SP500 so you have a visual of what I am talking about.

30 Minute Intraday SP500 Chart – ETF Trading Strategies

In the chart below you can see the price gaps followed by selling. Why is this important? It is important because during a down trend the market makers and big money plays who have the money and tools to manipulate the markets will allow the market drift higher or they will run price up in overnight or premarket trading when volume is light. Once the 9:30am ET opening bell rings volume and liquidity spike which allows the big money player to sell remaining long positions and or add to short positions they have.

If you look at the blue on balance volume line at the bottom of the chart you can clearly see that more contracts are being sold than bought which is typically an early warning sign that the market is about to fall farther.


 

Automated Trading System – 30 Minute ES Futures Chart

Below is a marked up screen shot of my automated trading system which I use for timing both futures and ETF trading strategies. The color coded bars tell you the market trend along with the strength of buyers and sellers.

When you couple market cycles, trends, volume/money flow, along with chart patterns we can forecast and trade markets with a high degree of accuracy in terms of market direction and timing.


 
My Index ETF Trading Strategies Conclusion:
 
Just to be clear on the current market trend and my overall outlook let me explain a little more. Overall, the broad stock market remains in an uptrend. Thursday and Friday of last week we started getting orange bars on the chart telling us that cycles, volume, and momentum are now neutral. It’s 50/50 on which way the market will go from here, so until the market internals (cycles, volume, breadth) push the odds in our favor enough for a short sell trade or a new long entry we will not add new positions to our portfolio.

It is important to understand that nearly 75% of stocks/investments move with the broad market. So we don’t want to add more long positions when the odds are not in favor of higher prices. Trading in general is not hard to do, but creating, following, executing properly money and position management is. If you have trouble with following or creating an ETF trading strategy you can have my ETF trading system for rising, falling and sideways markets traded automatically in your trading account.

Learn more here about my Automated Trading Systems

See you in the market! 
Chris Vermeulen



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Coffee - It's more then just Starbucks' Achilles' Heel

If you having been following us you know that coffee [ticker JO] has been one of our favorite trades for early 2014. Our trading partner Adam Hewison sent us this great post on coffee and it's effect on price action in Starbucks [SBUX].......

Today, I am going to be analyzing the relationship between Starbucks Corp. (NASDAQ:SBUX) and its main raw commodity, coffee beans.

Let me start off by saying that I really like Starbucks and the coffee it sells. In fact, my favorite drink at Starbucks is a Venti Coffee Frappuccino with one third the ice, blended five times. Major Challenges

Starbucks faces a major challenge, one it cannot control - the price of its major commodity, coffee.

With one of the worst droughts in history hitting Brazil's coffee belt region, it is rapidly pushing prices higher. This is no ordinary drought as it is forcing more than 140 cities in Brazil to ration water. Reports in Brazilian newspapers indicate that some neighborhoods are receiving water only every three days. This is serious, as Brazil produces most of the world's coffee.

With Coffee (NYBOT:KC.H14.E) prices at 14 month highs, there is little to suggest that this trend is going to change any time soon. It would appear as though early predictions are indicating that coffee supplies could be 5 million bags lower than consumption for the 2014–2015 season.

The other side of the coin is that there are more and more people drinking coffee. We are seeing that in developing markets such as Brazil, India, and China where they are acquiring a taste for this delicious beverage.

I'm sure that Starbucks can put pressure on the growers and the wholesalers, but that will only go so far in savings. Eventually, they're going to have to take a hit on their bottom line because of the drought in Brazil and higher raw commodity prices.

When does the consumer eventually say that cup of coffee at Starbucks is just too expensive? Will consumers, instead of having one cup every day, cut back to maybe every other day?

A Tale Of Two Charts

In the two charts below, you'll see a broad yellow column highlighting the same time frames on each chart. It shows the high period in Starbucks and a low period in coffee prices.

What Does This Company Do?

Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single serve products, juices and bottled water.




Chart Legend & Technical Picture For Starbucks (Black Numbers)

1. All Trade Triangles are red and negative
2. Yellow column shows high in stock prices and inverse in coffee price
3. Downtrend firmly in place




Chart Legend & Technical Picture For Coffee (Black Numbers)

1. All Trade Triangles are green and positive
2. Yellow column shows low in coffee prices and inverse in stock price
3. Uptrend firmly in place

To summarize, I expect the current downtrend in Starbucks to continue unless there is a dramatic reversal in coffee prices or a reversal with the Trade Triangles.

If I am correct in my analysis and these two trends continue, Starbucks could move down to the following Fibonacci support levels:

38.2% @ $67.85
50% @ $63.31
61.8% @ $58.77

I hope you found this Starbucks Corp. (NASDAQ:SBUX)/Coffee (NYBOT:KC.H14.E) comparison informative and helpful.

Adam Hewison
President, INO.com

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Is it Too Late to Get into this Monster UNG Trade?

Natural gas looks to be breaking out and it has John's attention. With monthly and weekly charts breaking out he is looking at futures contracts having the possibility of easily moving up to the 4.48 level which means there is a lot of options open for us options traders. And if you have been following us this week you know John is on a roll.

John has put together a detailed free video to show us just exactly how to play UNG and natural gas while limiting our risk, just click here to watch "Is it Too Late to Get into this Monster UNG Trade?"


And if you haven't had a chance to see it yet take a few minutes to watch John's wildly popular webinar replay....."Nine Reasons Why You Should Trade Options on ETFs"

See you in the markets, the natural gas markets!

Ray @ The Crude Oil Trader 

Crude Drifts Lower As Volume Drops Out

Crude futures drifted lower Monday amid light volume as trading was halted for clients of MF Global, one of the market's largest commodity brokers that filed for bankruptcy Monday.

Volume was less than half of normal levels, with fewer than 300,000 contracts traded compared with the 200 day moving average of nearly 660,000, as exchanges informed clients of MF that they would be limited to liquidating positions and otherwise unable to trade until they moved their accounts to other brokerages.

Brokerage firms such as MF provide vital "clearing" services for the markets, acting as escrow agents of sorts to match orders, handle payments, and execute and settle trades. The firm counted many major hedge funds and commercial hedging clients among its customers. The chaotic process got under way shortly after the opening of the market in New York on Monday, frustrating traders with untold delays as they processed papers to move accounts and positions elsewhere.

"I'm unable to trade," one trader and client of MF said, on the condition he not be identified. "Nothing can go in or out of your account until it moves over to another clearinghouse, and that is a function of paperwork, begun during the trading day, which is not the way to do it".......Read the entire Rigzone article.

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Bloomberg: Talk of $100 Oil Returns as Options Jump Most in 3 Months

Oil’s return to $100 has become the biggest bet in the crude options market.

The price of options to buy December 2011 futures at $100 a barrel jumped 14 percent on Nov. 24, the largest one day gain in three months, according to data compiled by Bloomberg. So called open interest for the contract has risen 51 percent this year to 45,424 lots, the highest for any crude option on the New York Mercantile Exchange.

The increase in trading of $100 options shows some investors anticipate oil will rise at least 19 percent to levels last reached in 2008. While crude is up 5.5 percent this year as the economy recovers, Morgan Stanley said Nov. 1 that prices will reach $100 next year as spare production capacity shrinks. At the same time, BNP Paribas SA said Nov. 18 further price gains “will be difficult” as the Federal Reserve seeks to revive the U.S. economy through an extended stimulus program and Europe struggles to contain its sovereign debt crisis.

“The tug of war in oil prices continues as the short term debt market concerns obscure improving oil market fundamentals,” Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York, said in a Nov. 26 report.

Futures for January delivery on the Nymex snapped two weeks of declines last week, rising 2.8 percent to $83.76 a barrel as of Nov. 26. Options contracts that give investors the right to buy December 2011 futures at $100 a barrel rose to $5.55 on Nov. 24, from $4.87 the day before, the largest increase since Aug. 27, Bloomberg data show. They have averaged $6.40 this year and ended last week at $5.46.......Read the entire article.


Why Diversification Doesn't Work

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Natural Gas Producers Seek Long Term Contracts

In a sign that low natural gas prices are probably here to stay, big U.S. energy companies are pushing to sign long term contracts with electric utilities and other customers. Major producers such as Chesapeake Energy Corp. and Devon Energy Corp. are trying to reach multiyear deals, likely five or 10 years long, that would guarantee them buyers for their gas but would deny them the benefits from any sudden price increases.

For a decade, energy companies have shunned such agreements because they wanted to profit when gas prices soared, as they often did, especially in advance of rising winter demand for gas heat. But huge new gas fields in Texas, Louisiana, Pennsylvania and elsewhere have led to a surge in U.S. natural gas production, glutting the market even as the recession has sapped demand for all forms of energy. Prices have plummeted to less than $6 per million British thermal units, less than half their price in July 2008.....Read the entire article.

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UNG Takes Baby Steps Toward Reopening

Sponsors of the United States Natural Gas Fund, UNG, took baby steps toward restoring the fund’s ability to issue new shares yesterday.

UNG is an exchange traded fund that invests in the natural gas futures market. The fund stopped issuing new shares on Aug. 12, citing regulatory uncertainty in the commodities marketplace. The Commodity Futures Trading Commission is investigating the role of ETFs in the commodities market and is expected to announce strict position limits for such funds. Many expect the $4 billion UNG ETF to exceed the allowable limits, as it controls a significant portion of the front-month natural gas futures market.

Since halting the issuance of new shares, UNG has traded at a sharp premium to its underlying net asset value, as demand for the fund has outstripped supply. As of 2:32 p.m. ET, Aug. 21, it was trading at a 16% premium to NAV. The sponsors of UNG have been looking for ways to maintain exposure to the natural gas market while reducing the number of futures contracts they hold. Yesterday, UNG secured a $500 million total return swap that could help.

Total return swaps are privately negotiated agreements between two parties to exchange cash flows based on the performance of a target index. In this case, UNG entered into an agreement with a bank to exchange cash flows based on the performance of a front month natural gas futures contract. Because swap contracts are privately negotiated and not linked to any underlying holding, they should not count toward any new CFTC limits.....Read the entire article.

Are the U.S. Dollar and Crude Oil Joined at the Hip?

It would certainly appear that way, as continued weakness in the U.S. Dollar has sparked a stampede into the Crude Oil market lately. On Wednesday, the lead month December Crude Oil futures soared to yearly highs, nearly touching the $82.00 price level. This was the highest nearby futures price since October of 2008. Among the many reasons behind Oil's price rise are signs of an economic rebound, especially in Asia, and to a lesser extent in the U.S. and Europe. The recovery is expected to increase the demand for Oil worldwide as industrial demand improves. However, looking at near term supply and demand in the U.S., the high prices do not seemed justified. Oil stocks (excluding the SPR) are up 10 % from year ago levels. Gasoline supplies are up 7.5% and Distillate Fuel Oil up 33.2% as of October 16th, according to the Energy Information Administration (EIA). Not only are U.S. Oil inventories higher than last year, but poor refining margins have caused refiners to curtail production.

Wednesday's EIA energy stocks report showed refinery utilization stood at 81.1% last week. This compares to 84.8% in 2008 and the 3 year average of 86.03 during the same time period. So if refiners (who are actual users of Oil) are curtailing their Crude purchases, then who is buying and why? Large speculative traders are holding sizeable net long positions in Crude Oil, Gasoline, and Heating Oil according to the Commitment of Traders report. As of October 13th, large non-commercial traders were net long 151,631 Crude Oil contracts, 40,644 Gasoline contracts, and 35,271 Heating Oil contracts. This was up a cumulative 28,930 contracts for the week and shows that new buying was taking place as prices rose.....Read the entire article and charts.

Natural Gas Fund Issues First New Shares Since July

U.S. Natural Gas Fund, the largest exchange traded fund in the fuel, issued 7 million new shares today, the first new units for the ETF since July because of regulatory efforts to limit market speculation. The new shares, worth $79 million, are backed by a total return swap with an investment grade counterparty, the fund said on its Web site. The Alameda, California based ETF, known as UNG, has said it would offer new shares starting Sept. 28 to purchasers who bought creation baskets of 100,000 units, which are then sold on the open market.

“UNG continues to work to re-balance the existing portfolio of natural gas exposure by using a range of suitable investments including listed futures contracts, listed cleared swaps, as well as over the counter total return swaps,” John Hyland, the fund’s chief investment officer, said in an e-mail. The $4 billion fund grew 11 fold since the start of the year to 347.4 million shares outstanding before it ran out in July. The fund backs its shares with natural gas contracts or swaps, and has been unable to expand its fuel holdings on the New York Mercantile Exchange and the Intercontinental Exchange.....Read the entire article

The First Step in Trading Oil ETF's

Everyday I get emails and questions from traders and investors about trading crude oil using ETF's. And unfortunately most have had a bad experience with trading these ETF's based on crude oil futures because they did not do their homework first. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for an underlying physical commodity.

Very important to understand is the Dow Jones—UBS Commodity Index. It uses the settlement prices for the underlying futures contracts. The DJ—AIGCI rolls its contracts over the course of 5 consecutive business days, starting on the 6th business day of the month. Each day, 20% of each futures position that is included in the month’s roll is rolled. Not all contracts are rolled every month.

Before you take another step trading crude oil ETF's such as DXO, DTO, SCO and UCO read and download "A Primer on Index Calculation and Performance".

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Iraqi Parliament Declares it Can Halt Oil Contracts

Iraq's parliament has the authority to block a contentious oil deal with BP and China's CNPC, despite the oil ministry's insistence lawmakers can do nothing to derail the agreement, a top lawmaker said. "The government believes that such a subject is included in its authorities, according to existing law, but if parliament finds these contracts or this (bidding) round ... are not beneficial, parliament can prevent the government," parliament speaker Ayad al-Samarai said in an interview on Sunday.....Complete Story