Wednesday, August 1, 2007
Market Update
by David Yu
I'm writing this at 4:30 am PDT on Thursday. Sometimes early morning is the only available time I have to work on my editorial updates. You may see some updates or trades posted a day later based on trades or market data from the previous day.
Anyway, it's been a very busy trading week. I'm loving the volatility, but that doesn't leave me much time to work on this site. So, here's a brief update to share with you. Incidentally, don't forget to turn off your phones, CNBC, and all other noises during the trading session. Just focus on reading the tape.
Chart 1 shows the difference between the number of issues that are Oversold and Improving and the number of issues that are Overbought and Declining. Despite all the turmoil and volatility, this indicator has been improving since it hit the recent low in the beginning of May. This tells me that the recent selling had been overdone.
Chart 1
And, my Unchanged Volume Index of the Nasdaq also displays pattern of an oversold market (Chart 2). It had already started to turn around after dipping into the oversold territory.
Chart 2
For short-term day trading purpose, it's a higher probability for the market to go up than down, barring any major surprises. And, just like buying put options to protect long positions, I've bought call options to protect some of my short positions (i.e. QID, SKF, etc.) that have gone up 15% - 30% just over the past month. One consideration to hold on to these short positions is that it may be unlikely for me to buy them back at the same low cost basis.
And, I've also closed 2 of the trades that I posted on this site. The Home Depot $37.50 August put option was bought at $0.20 and was sold for a 1,000% gain of $2.00. The Apple, Inc. August $110 put options was bought at $0.15 and was sold at $0.50, for a gain of 333%.
Both of these trades were posted as they happened. I didn't choose them after the fact for the bragging rights. I posted them right after I made the trades so that I could share my technical and fundamental perspectives with my readers. Win, lose, or draw, I'm hoping that we can all learn together to become better traders and investors.
At any rate, in a negative environment, the market may stay oversold for a prolonged period. And, one of these longer term negatives is quite evident in my NHNL MACD chart. Since I showed you this chart last week, my Nasdaq NHNL Moving Average Convergence-Divergence Indicator had deteriorated further.
Chart 3
Unfortunately, that's all the time I have for now. The market's about to open. I'll see if I could find time to add to this update later. I'm not sure.
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