Friday, November 11, 2011


I have pointed out days that have huge one day moves and you can see that with all but one of them, the one day was it. This is what I call One Day Wonders. Any time we take a trade we all want the market to just move huge in our favor immediately. I would argue that is exactly what we don't want. As you can see here, virtually all of these trades wound up scratches or at the very least you had to sit through a lot of crap before they wound up working out. We don't want the market to move so far one day that it immediately becomes overbought or oversold. If that happens we often get the painful retracements.

It seems to be more of a phenomenon of against the trend than it is with it. The logic is the you get these moves that start and all the scared money panics and exits their positions that are with the trend. This accelerates the intra day move into the close. Cooler heads prevail overnight and the huge move gets consolidated or reversed a good portion of the time. We do seem to be seeing a lot more of this now than we used to. It seems to me that the large funds with the brain power they have, index all their trading off the S & P 500. When it starts to decline they sell everything, when it starts to rally they are all in buying. 

The question becomes, how do we handle these types of days? If you get in the habit of being a jack rabbit and just taking profits quickly on these days you will get a good feeling initially. You can take good profits for hours of work. However, I can assure you that you will never ever catch even a medium sized move if you get in the habit of doing that. The big move and the one day wonder are going to look the same at press time. The fourth arrow is one such instance. You got a big initial move down, that almost immediately retraced it's full move. However, look at what followed. Those are the types of moves you want to catch. My argument would be that you should live with getting a lot of scratches trying to get these larger ones and just accept that one day wonders happen. However, if you just want to always look to hit singles, take the money.

We had what appears to be a one day wonder at the moment the other day in many markets, the currencies, stocks, etc.. We are now retracing that move back up and for all I know we will just take off. However, if we happen to take out the lows of the one day wonder day, we could have a very big down move on our hands, somewhat like that Crude Oil move on the chart above. For me it is worth keeping my stops back in case that happens and being willing to scratch my trades if we just keep rising. Some of my short term indicators are pretty weak here, so they would confirm price if it happened to go back down again. I don't really have an opinion as to whether we just take off again or move down more, I just have no idea. What I do know is that my indicators show weakness that supports the move if it starts going down. They do not support it rising yet. I also know that they are not always right.

I also have something I do not recall ever seeing before. There is a triple negative divergence on both the daily and intra day tick charts in Crude Oil right here at the same time with one of my proprietary indicators. This is extremely rare and should in theory mean a large move down is about to happen in that market. As with it is with any divergence, if price continues up this can work itself off, but it is there at the moment.

The chart below is just showing the possible one day wonder in the SP 500 from the other day.

Here is a market I have been talking about recently, Bonds. I suppose this all depends on whether the one day wonder in the SP 500 turns out to be one or not. However, this is a market that is setup bullishly for the most part. As per our topic of late, divergence with POIV is not there in the traditional sense, but it is lagging the price quite a bit. I have labeled prior more traditional POIV divergences which you can see have signaled nice moves recently here.

YA I know you are struggling with this issue of divergence so I would suggest not worrying about it. It is one of many tools I use, and is not the grail. It is one little thing I point out occasionally. I think you are trying to look at one bar and when that bar moves and POIV does not as much you think that is a divergence. For me it has to just be obvious on the chart. You cannot force anything in trading. If you have to think too long about whether something is or is not something you are looking for, it generally is not and you should wait or move on. I suppose a really aggressive trader could buy Bonds today on an upward breakout, but I am not going to. I am however looking for a buy signal here.

The divergence I have marked at the high is not a traditional one in that price did not make a new high, but it was close and POIV was a lot weaker. That type of thing is also acceptable to me. You just have to understand that there is no magic to any one thing. There is no holy grail in trading. It is all about making decisions based on the tools you have at hand. I may use the same tools completely differently than someone else does.

Good Trading


Unknown said...


This isn't a trading question/comment but instead a question about trading accounts.

After what happened at MF Global, should we be worried that our money will go "poof" in our trading accounts?

I trade through IB.

Please clue me.

Thank you.

BTW, love your blog !!


Unknown said...


After what happened to customer money at MF Global, how worried do we have to me that it could happen to any of us?

I trade at IB.



Chris Johnston said...

this is something we always need to be worried about. Unforunately there is absolutely nothing regardless of the laws that can stop people from doing things like what happened at MF. The best defense is just to monitor the credit situation of your brokerage firm the best you can. I use the Weiss service which is free to monitor PFG where I have a good portion of my money. I also suggest having some at another firm, diversifying some if you can. This is especially necessary once you get big account balances.

In theory the SIPC should make you whole up to 500k, but you could be hung out for months due to litigation etc..

In the case of MF the senior execs lied right up to the last second, so company statements are not reliable. I think the best you can do is make sure your broker is not doing a lot of trading. However, if someone can just move funds like they did at MF, they could do it to steal them anyway and not just use them for trading.

Net Net, don't keep more than 500k in any one place. If you have millions and it is not realistic to split it that small then be as diligent as you can in studying the financial standing of where you have it.

I think we will see more of this type of thing before all of this is over. The window dressing the governments are doing is just hiding the trouble many firms are really in.

Sandor said...


Thanks for the tip about Weiss. However, I could not find a section for broker's ratings. I searched for Principal Financial Group (PFG) and could not find their rating on the site. Do you have to special order these ratings? I am very interested in getting a rating on my broker but I am not sure where to turn.

I agree with your comment re: MF Global and theft. Do you think that having the margin collateral in T-bills would make it any safer in the event of broker theft?

Alain said...


Here an other link: http://www.saxobank.com/ sure not cheep but you get what you pay for. They do no investments with clients money - THE key point. Very rigid professional platform, trading all futures.

My savings money is in governmental guaranteed (not bailed out!) banks with minor amount of stocks quoted on local exchanges. I avoid big multinationals.

Btw, my first broker was Man (MF Global); found IB's customer service highly unsatisfying...


Alain said...


see several daily and weekly PP short signals, mainly on metals and energy. Famous MACD seems to be turning south. CL, HO are of these candidates. RB is in a down trend but see some support coming near 250.

GC, SI, HG seem weak at this point too.

Dow may have strength to pull near its old high early in the week, however momentum seems to suggest a pullback thereafter evtl. into end of the month.

Above tells me that the rally may be in a late stage for now. Found PP signs indicate market turns prior.

May be the better buying point will be end of the month, early December?

Comments welcome,


Chris Johnston said...

Sandor, there is not a special section for brokerage. I think I typed out Peregrine Financial Group to find PFG but do not recall exactly.

There was a comment about T Bills, and yes, having your money in them should in theory be safer. I used to always do that until the rates got to basically zero.

I used to use IB many years ago until I got whacked for about 10k on a mistake by them. They referred me to "helen" in ukraine like in that credit card commercial and I was done. Their customer service is in other countries with people who often don't even speak english.

I will never use them ever again. As to your comments ALAIN, I have been looking for an end of this month spot as a better buy in as well. My shorter term things have been telling me we should have a dip but so far even a one day decline gets bought aggressively, so I am not sure if we are going to get one or not.

I will cover my views on things in today's post