The Summer Doldrums have officially started

Summary:
  • S&P 500 shows strong upward momentum.
  • Expect sideways trading action with occasional up/down extremes from now until September.
  • Come Fall, expect news out of Asia and EMEA to give markets a downward Jolt.
  • Have you ever noticed that the largest market-moving news headlines happen between September and May? Russia/Ukraine, Abenomics, the European crisis of 2012… it is no coincidence that news with the greatest impact occurrs outside of Summer vacation season.

    Market trends happen based on large capital flows, but capital only flows when the keepers of that capital are engaged. In the Summer, investors, politicians, and military leaders are more concerned with planning family vacations, enjoying the weather, and locking in gains they earned over the winter months. Even the President of the United States is on a working vacation this summer touring Europe with his family.

    With fewer players at the poker table what we end up with is a wild game of 5 card stud that produce swings and sideways trading which can last for months.. at least until the kids are back at school.

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Largest Oustanding Short Positions indicate more pain for Momentum Stocks (IB)

Interactive Brokers – popular among the ‘smart money’ crowd – released the top 15 outstanding short positions of their customer as of April 17.

Again the Momentum names appear on this list from last week: Tesla, Amazon, Google, Netflix, Yelp… most which have seen some heavy price drops this past week.

A new notable entry on the list:  Coeur d’Alene Mining (NYSE: CDM) :  This stock is 50% off its 52 week high of $17/share and is trading at a new low of $8.43.   When this many short sellers appear on a beaten down stock with negative revenue and no dividend, it’s usually a good sign that the company is cash strapped.

Another notable entry is Google Inc. (NASDAQ:GOOG) – the shorts are selling both A and C class shares alike.  Perhaps the recent stock split was a desperate move to keep the shares afloat in a deflationary advertising budget environment?  The amount of insider selling at Google would seem to indicate as much.

Top 15 Outstanding Short Positions as of 4/17:

https://wit1.interactivebrokers.com/images/insights/1958/losp042114.jpg

 

IB’s posts can be found here.

Top 5 Shorted Securities by Sector (IB)

Interactive Brokers – popular among the ‘smart money’ crowd – released the top 5 shorted stocks by sector as of today (April 15) and the top 5 largest short positions (4/11).   It seems the energy sector is ripe for a correction like we called 2 days ago (April 13) with our “Short Big Oil” call.

Other notable entries:   Blackberry ($BBRY) which has unsuccessfully been trying to put in a base, and a number of high profile banks such as Citigroup ($C) which has been trading well below its 200 day moving average.

Top 5 Shorted Securities as of 4/15:

Top 5 shorted stocks by Sector (source: IB)

Top 5 Largest Short Positions as of 4/11:

Top 5 outstanding short positions by Sector (source: IB)

IB’s posts can be found here and here.

HFT reminiscent of Naked Short Selling in 2002

At some point in the early 2000′s, it was fashionable to manipulate stocks down by shorting them without borrowing them first.  The practice of Naked Short Selling wasn’t against the law per se, but stock manipulation was and still is.  Unfortunately, as is the case with precedent-based securities law, governing policies are reactive and therefore ripe for loophole exploitation.  It took some investigative work by Bloomberg and some very public, brazen manipulation of stock before governing bodies tightened up the rules.

Those rules to ban manipulative Naked Short Selling were introduced in 2008.   5 years later we are again hearing about manipulation in the form of High Frequency Trading (HFT).  High Frequency Traders using latency arbitrage techniques are now in the public spotlight and much of the debate is reminiscent of the Naked Short Selling complaints 10 years ago.   In fact, this Bloomberg special on Naked Short Selling could easily be re-purposed for an expose on HFT.

As Mike Schneider reports:  “While naked short selling is legal, manipulation of markets is not, and regardless of intent the effect of naked short selling can be the same – driving prices lower”.  Sounds a lot like HFT…

Bloomberg Special: ‘Phantom Shares’

Gold is getting the bounce we anticipated – what’s next?

On March 30 we warned to stay away from Gold (‘Right now, the best way to play Gold is to stay away‘).  At the time, Gold was trading at $1295 and subsequently dropped $30 to the $1375 range.

We also called for Gold to re-test $1300, and today it did just that.

Our original post outlined some very key factors that would make us go long Gold.  Here is an update on how those factors are playing out:

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Right now, the best way to play Gold is to stay away

Summary:

  • Medium term algorithmic signals show a rebound:  Expect a re-test of $1300
  • Long term algorithmic signals say Sell
  • With no catalyst on the horizon to push Gold in either direction, it’s best to stick to the side lines

At Intellikon, we have no bias in any market.  We are not thrill seekers, and we only take short positions when the statistical probabilities favor it.  We also understand that market conditions are not always conducive to profits, and these are the are times when it is best to stand aside.

It is for these reasons why we are staying away from Gold in either direction… for now.  Here’s why:

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How to play a sideways market

Navigating through this market can be a challenge

It has been a strange, choppy start to 2014 on the S&P 500.    After the 120 point emerging market sell-off in January, the index rebounded to hit new highs on March 7th, only to pull back to where we started in January.
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S&P 500 Sell-off confirmation with historical patterns – avoid going long

We ran the algorithm on the S&P 500 cash index from January 2013.  The historical trading pattern it picked up provided a sell signal near the start of the sell-off on Thursday, March 13.   We would avoid taking positions in new longs until the selling pattern subsides, or the S&P trades above 1870.    Shorts should target the 180Day Weighted Moving Average to take profits.

In the chart below, Green arrows are buy signals, Orange arrows are Sells.  Green dashed lines are profitable trades.

S&P 500 Daily
(click for larger image)

What to expect in 2014

At times it seems like being invested in today’s stock market is like playing a ‘scratch n win’ lottery ticket:   An investor might believe they are close to winning, when in reality the end result has been predetermined.

In 2012, the financial crisis of 2009 was still fresh in our minds.  The European crisis was just getting started, and markets were volatile.

In 2013, Europe stabilized.  Greece nearly collapsed and left the EU, but the market moved on (even under the new precedence of using bank depositor cash to save the country).  The U.S. Government even shut down for awhile, but the market played onward and upward.

If you were a short seller in 2012 and, especially 2013, you got your clock cleaned.  It didn’t matter that all the news and evidence and statistics supported your position, markets were going up with or without your approval.

10 or 15 years ago, the bears might have been right about the negative fundamentals and their effect on the market, but in today’s centrally-planned global economy it’s a different game.  So what has changed since then? Continue reading

The most accurate Gold price indicator we have seen yet (and it’s been bearish for months)

Update Dec. 30, 2013:

The indicator finally broke through the key $8.00 level on a move of over 2%,even as the GLD and GDX (gold miner) ETFs had limited gains on the day.  It could be that large money is coming back into this market, thus driving up the price of the fund.  Could this be a bottom on Gold?  Look for a follow up post on this subject based on our quantitative analysis.

Update Dec. 20, 2013:

The indicator wasn’t able to break through the $8.00 barrier, and likewise, Gold experienced a massive slam-down to break down below $1,200 this week.  Still waiting for the indicator to turn before trading Gold at all.

Update: Dec. 18, 2013:

Gold had a very volatile afternoon after the FOMC announcement, putting in a trading range of $40 from high to low.

So where did our indicator settle after all the dust settled?  Up 2% (13 cents to $7.81, which is 19 cents shy of our $8.00 bullish line in the sand.  This should be an interesting week.


Dec. 8, 2013

In April of this year, we were approached by a elderly lady who asked us to help with an investment portfolio left to her by her late husband.

The portfolio peaked in 2011 when it was worth in excess of $100,000 with capital invested of approximately $83,000, but since then the value had declined to $28,000 – a final investment loss of $52,000.

If you guessed that the portfolio was mostly invested in Gold, you would be correct.

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Short Waddell & Reed (NYSE:WDR)

The algorithm picked up a strong trading pattern on Waddell & Reed Financial Inc. – the same company apparently responsible for the flash crash of 2010…  and we say ‘apparently’ because this has since been debunked by none other than the high frequency crime scene forensic experts over at Nanex.

This pattern has proven more profit efficiency while long than short, but it seems the stock is quite extended.  It seems analysts gave up covering the company a while ago and there is no recent news catalysts, so perhaps it’s just a correction… we will see…

WDR 240min – click to enlarge

The “I’m Mad As Hell And I Can’t Take It Anymore” Trade

Update: Nov. 29, 2013:  Revisiting this trading pattern for Thanksgiving:   Today was a half trading day and markets continued to melt up… could Monday be the reversal that this setup predicts?


Nov. 11, 2013:  It’s a holiday Monday for most traders today, which reminded us of one of our favorite market psychology studies from Mark Fisher in his book The Logical Trader.

It goes something like this: Give traders 3 days away from the markets to think about how much money they are losing in their current trade, and they will get out of the position entirely on the next trading day.

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Case Study: Is priceline.com a short?

Earlier this month we asked our subscribers to give us the symbol of a stock, ETF or Future contract they are watching and we would run it through the algorithm to see which signals come up.

Priceline.com (NASD:PCLN) was mentioned as a possible short candidate, to which we responded on 11/15:

We discussed PCLN this evening and ran it through the algorithm. It looks like a short, feels like a short, but definitely not a short… yet.

A number of traditional technical indicators however would seem to show that the stock is poised for a correction:

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Apple Inc. (NASDAQ:AAPL) – New Algorithmic Sell Signal

 

 Update: Nov 26, 2013

Signal: Stopped Out (2% loss)

While AAPL did collapse from the algorithm’s initial entry point of $520.51 to a low of $514 (for an unrealized profit of 2.4%) it’s not profit until you book it.  A breakeven stop here would have protected against loss, but we decided to let the short run.

 


Nov 19, 2013

This is an algorithmic trading pattern that was originally used in the subscriber portfolio.  It turned out to be quite profitable, however because the algorithm is now short on an up-trending stock (and therefore does not fit within our portfolio risk parameters), we are publishing this signal publicly for anyone who wishes to use this in combination with their own due diligence.  We will track the trade performance tracker and it will appear under “Open Positions” for as long as it continues to be in play.  Entry price of $520.51 is today’s VWAP as of 2:45 PM.

Full Disclosure:  We are a little nervous posting a trade that goes opposite to that of a prominent 70 year old activist shareholder of the stock who is  known to destroy any and all adversaries, so we are attaching a relatively tight 2% stop to the position with a trigger price of $530.92.  If AAPL closes below $517 this week, expect additional bearish analysis to be posted here forthwith.

Click image to enlarge

Closing all positions, moving to cash.. for now (UAL,AVP,PCG,XLF,FLWS,CVX,ADI up 2.5%)

This morning we closed all our open blog picks (6 longs and 1 short) and went neutral on the portfolio for a total gain of 2.5% since September 3, and an overall portfolio gain of +8% since July 30.  In contrast, if you were to buy and hold the S&P in the same period you’d have a loss of about -2% today.

The clear patterns we were seeing in the markets earlier are starting to change.  This is could simply be some large portfolio re-balancing, or it could be the start of a period of volatility due to government shutdown.    Either way we expect many other investors who are seeing the same things we are to take the same action and go to cash.   We do not expect a market crash by any means, but at some point when this volatility is over there will be some good names available at good prices so it’s best just to keep the powder dry.

We are therefore moving to cash until the current environment resolves itself.  During this time we will continue to perform algorithmic scans to identify any new patterns that might be emerging this season.    Brief  commentary on each of our closed positions is below:

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Riding a tsunami wave of Gold selling (stopped out, break even)

At 7:00 AM this morning over 2,500 Gold futures contracts were sold into the market in a time span of a single second. We have seen volumes of this magnitude in Crude Oil, but not Gold.

Many would say that this is manipulation. Yes, we have read Harvey Organ and GATA and Zero Hedge even started following Ferguson’s blog when it first launched, so we are aware of the accusations from bulls and non-bulls alike. The explanations are certainly plausible, but our view of markets has always been agnostic: if ever we do see evidence of manipulation, our only real concern is how to profit from it.

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Still long, but Gold needs to prove itself (raising stop)

1 week ago on September 23 we made a very bold call to go long Gold based on a new signal generated by our predictive algorithm.

At that time, Gold was bouncing along new 52 week lows trying to find a bottom, trading below its 200 day average, and the sentiment was overwhelmingly bearish… so who are we – some boutique algorithmic trading consulting firm north of the 45 – to go against the trend calling a Buy on one of the most heavily traded metals in the world?

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Closing Gold short (+5%) going long

This morning our Gold algorithm closed out its short position for 5% gain and went long at the open at $1,320. We notified everyone on the Gold email list in the morning and tweeted the signal in the afternoon.

We wouldn’t normally go long after such a large leg down (10% from the August 28 high) as we like to see price recover and put in a base, so some of us are cautious about buying at this point. We also like counting waves and fibs and other trade school techniques to confirm these black box signals, but all of that is baked into the historical patterns on price action, volume, and time. The patterns have been strong all year so we’re going to let the algorithm run on this one with a stop at $1,285. If it turns out to be right then we’ll package these signals into a Gold Price Predictor and publish it on the home page.

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Calling the bottom on Gold

Earlier this week we posted and tweeted a warning to stay away from Gold. We did this in reaction to a strong historical pattern our computer algorithm identified which was rather sobering. Many investors know that the current trend in Gold is down, but the question is, how low will it go?

Much has been written about the fundamentals of Gold as an investment and we won’t re-hash it here, but the past year has shown a shift in these fundamentals and perceptions resulting in price volatility, confounding those still looking for a market bottom. This is where our algorithmic signals become a valuable tool in an investor’s arsenal.

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Computer Contradicts Cramer? Long FLWS

We love Jim Cramer (seriously). We read his book ‘Getting Back To Even’ which was released just after the financial crisis, and we were amazed at how well he authored some good practical advice based on strategies that  larger funds use.  He even included a great chapter on stock options that went down like a spoon full of sugar… Jim Cramer really does look out for the small investor, and that’s gold.

Today we decided to have some fun and run the algorithm on some of his stock calls from last week.  We used the screener on thestreet.com and came up with just over 30 stocks in the universe.   Continue reading

Warning: Steer Clear of Gold (for now)

The algorithm picked up a strong historical pattern on both the GLD ETF and Gold Futures (GC) contract, and the situation does not look good for either.  We will be monitoring the performance this week, and if the pattern plays out we will post it here on Friday.

More to come so stay tuned…

Algorithmic BUY signals on Avon (AVP), Financials ETF (XLF)

Our weekly scan of high-probability trading patterns has yielded two good signals on a pair of unrelated companies.  The patterns go  back to January 2013 and yielded a cumulative profit of 20% and 68% respectively.  We are adding these to our performance tracking sheet (as seen at after the charts) to demonstrate the effectiveness of the algorithm, which is the same one that has returned over 75% since May on Facebook alone as shown on our Facebook Stock Predictor page. Continue reading

Long United Airlines (NYSE:UAL)

We are quite liking this price/volume pattern our algorithm picked up on United Continental Holdings Inc. (UAL) which has shown positive returns since the start of this year (January 4), and our proprietary indicator shows this to be a relatively strong reversal to the upside.  We are now tracking this Buy signal generated on September 6th on our blog performance sheet below.

To get updates on these signals be sure to subscribe to our blog updates using the form on the right side of this page.

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5 things we know about Blackberry (closing short)

Here are 5 things we know about Blackberry:

  1. Prospects for the company as a stand-alone entity appear to be bleak, with shrinking market share and increasingly irrelevant operating system.
  2. Company buy-out seems to be Blackberry’s only hope to turn around their fortunes.
  3. Out of 293 institutional shareholders, 142 decreased their positions while only 115 increased their positions for a difference of about 8million shares or 15%.
  4. We are seeing a large number of Canadian Institutional and Retail traders alike bullish on Blackberry stock, but less enthusiasm for the stock outside of Canada.
  5. The last time we saw this much Canadian enthusiasm for a fledgling former Canadian success story was Nortel Networks.

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Closing ABT, UNH, DUK short trades, going flat

Our algorithm took profits on the ABT and DUK shorts signaled from our August 12 post for 7% and 9% gains respectively, and reversed course on UNH for a 0.5% loss.  Yesterday, the algo generated a buy signal on all three, however due to the dramatic collapse of ABT and DUK (=profit) we will wait for these to base and put in some realistic levels before going long again.

 

 

Closing out BBRY long.. going short

A relatively quick turnaround on the initial BBRY algorithmic buy signal:  The algorithm generated a long signal 2 days ago and suddenly went short this morning at the open as we notified our mailing list members immediately.  The average price for reversing the position was $10.16 for a loss on that last trade of $35.00 (0.39%), as per our tracking sheet below.  The algo is now short at $10.16.

It appears there is a fight between bears and bulls for the $10.00 handle, so some chop can be expected and the Market will decide where BBRY price goes from here.  Our algorithm works on probabilities, and right now it’s saying that based on past trading patterns, BBRY will weaken..  We’ve learned to listen to it over the years, but because this is a short call on a beaten down stock we are lowering our risk level on the trade which reduces the number of shares and thus the amount of capital that is exposed.

If you’d like to be notified of the next BBRY signal just send an email to our listbot at bbry_list@intellikon.com

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DUK collapses after our algorithm’s SELL signal.. is United Health and Abbott Labs next? (DUK, UNH, ABT)

The Intellikon proprietary computer trading algorithm continues to exceed our expectations.

Two weeks ago we posted some strong sell signals generated by the algorithm for Duke Energy (DUK), Abbot Labs (ABT), and United Health (UNH).   We shared these high-confidence signals free to the public as a demonstration of our technology.   Since then, each signal has been very accurate, as per our blog tracking spreadsheet: Continue reading

New algorithmic BUY signal on Blackberry BBRY

One of our analysts pulled an all-nighter last night and developed an algorithm on Blackberry (NASDAQ:BBRY – formerly Research In Motion) after picking up a clear trading pattern.   We’re really impressed with the algo’s accuracy and it generated a BUY signal yesterday.  We’re not really a fan of Blackberry (ever since they stopped producing the thumb wheel), but if there’s going to be a short squeeze in play then this algo should be able to call the upside. Continue reading

Tracking This Week: Abbott Laboratories(ABT), UnitedHealth Group (UNH), Duke Energy (DUK)

It seems July was the month to lock in profit for a lot of the stocks we scanned this week.  These three stood out as potential for further downside with high probability.  Performance of these picks are posted below.

Abbott Laboratories (NYSE:ABT) – SELL

Sell signal generated on 8/7/2013 – opening fill price was $36.06.


UnitedHealth Group Inc.
(NYSE:UNH) – SELL

Sell signal generated on 7/30/2013 – opening fill price was $72.87.

Duke Energy Corp (NYSE:DUK) – SELL

Sell signal generated on 7/30/2013 – opening fill price was $71.40.