SKF Shorting Strategy Wins Again

My proprietary, yet highly public, SKF shorting system had its 5 day RSI cross below 60 today - signaling that it's time to cover. If like me, you feel more downside is possible in SKF, given the strength of today's rally, use a trailing stop. Since the inception of SKF, this system has been profitable 92% of the time (11 for 12).


FAS


Horizontal support/resistance in this market has been more reliable than trending price channels. See an alternate view of FAS below.


More upside seems likely in the short-term (1-10 days) but this is still nothing more than a bear market rally - some are bigger than others.

Buying Weakness in XLF

XLF recently experienced 5 consecutively lower closes. The following is a look at what happens historically when this weakness is bought and sold x days later:
As long as the trade is short term, consider using XLF to generate your signals and using SKF, UYG, FAZ, or FAS for the trade.

Friday

Today ended the worst week of the year (percentage-wise)
AAPL broke 85 but did close above it
Last hour of trading was suspicious
Perhaps next week will yield the illusive oversold bounce

The financials suck - it's stupid to short them down here and it's dumber to buy them...or is it the other way around? SKF is still a short with its 5 day RSI at 87.89 (cover when 5 day RSI crosses below 60)
SKF


2 day SPY

Short SKF

There is a significant edge in shorting SKF tomorrow - given that its 5 day RSI has climbed above 80. The buy to cover signal would come when its 5 day RSI crosses below 60.

Obviously, this trade is not without risk, especially given the fact that in time, all financial stocks are going to zero. This is a trade with an average hold period of 5 days.

Also, there is the slight uncertainty of the unemployment data tomorrow. This system is based on buying on the open; however, you might feel more comfortable waiting for an early morning or mid day reversal to get short.

Finally, if you'd like to further reduce risk (and reward), consider selling a call credit spread. In this case, you would do something like sell the March 240 calls and buy the March 250 calls.

MA | AKS | GOOG | SKF

Three caught my eye today (MA, AKS, GOOG).
MA looks like it would be much more comfortable at 120


AKS short at 7.50


GOOG possible bounce before further breakdown



Though close, SKF has not yet trigged a short signal.

Covered XLF | SKF on deck

I shorted XLF on Friday and covered today for a nice profit - probably a little prematurely - but it is off 18% in three days and I am in no mood to be on the wrong side of the next short squeeze around the corner. I would rather wait for a small bounce to do it all over again.

Plus, in the last 5 years or more, this is the first time that XLF has had two consecutive days where the high has been less than the low of the previous day (2 big down gaps). So I'm not real interested in gambling on how that will play out.

For those following the SKF short strategy, it is not yet time to short but it could be triggered as early as tomorrow.

SKF shorting strategy continues to outperform

SKF
This strategy sells short when the 5 day RSI crosses above 80 and covers when the 5 day RSI crosses below 60. Simple yet brilliant. This strategy has been successful 83% of the time with an avg win : avg loss ratio above 4.

SKF Shorting Strategy

When SKF has climbed to these levels, both in terms of price and 'overboughtness', it has presented a good shorting opportunity.

Note: SKF has only been around for about two years which limits the amount of backtesting that can be done on it. Also, it is amazingly volatile so use caution. I have not tested this strategy with puts; however, I would expect options to add just one more level of shenanigans that SKF is already subject to.

This strategy sells strength, using RSI as its overbought metric. It returns favorable results using everything from a 2 to a 5 day RSI (of course, what is considered overbought needs to be changed depending on which one you use). Below is shown using the 5 day RSI (screenshot 2). Anything over 80 was considered overbought. It covers when the 5 day RSI crosses below 60. Results are shown in the last screen shot. The strategy itself is nothing new but its results on SKF are noteworthy. It may prove to be a good strategy for some of the other derelict ultra long/short ETFs as well.

SPX

SPX - next stop 850, but be aware of a likely oversold bounce.


I will remain short this market via the XLF with an extremely tight stop. I chose to override my system which suggested I cover at the open. But since XLF was trading down pre-market there wasn't a sense of urgency to do so. Current trailing stop: 11.09.

See below for additional setups from 01/09 that still hold - XOM, CVX, SRS, SKF, GLD, etc.

Watchlist

XOM - Up against its lower trendline. You could go long with a stop beneath it; however, I would look to go short if/when the trendline fails.



CVX - same.



GLD - still bearish in the intermediate term.



AAPL - will ultimately resolve itself south of 85. Remember, there's rarely such thing as a quadruple bottom.



SRS - Get long (not necessarily a short term trade)



SKF - Get long (not necessarily a short term trade)



SPX - Actually looks okay on the 60 day chart but keep in mind the big picture. Plus, all of the so-called significant levels (920, 900, ...) keep failing so I wouldn't bank on any support levels on the downside. Overhead resistance continues to be dominant.

SKF

As a follow up to yesterday, SKF may be a good candidate for the following strategies:
Sell naked puts, south of 100
Buy shares of SKF outright
Enter a call credit spread 120/130ish with plenty of time

Also, since SKF is a little pricey, consider SRS.  Not necessarily a short-term play (although it could be) but I'd bet a testicle that SRS goes much higher in a reasonable period of time.

What I'm more interested in...

On a day when the market climbs 11%, I'm a lot more interested in the following:

1) Stocks that couldn't go higher on an 11% up day - (i.e. Goldman Sachs rose < 1%, while XLF rose almost 16%)

2) Stocks that moved more than 11%, after accounting for their respective beta - (i.e. MON has a beta of 1.17 but climbed 17% today)

Other overreactions may include SRS, SKF, and FXP (even though these are ultra shorts, they are down between 25%-35%)

I would like to see several follow through days to bring all stocks back to levels that make sense to get short at again.

For example, it would be very cooperative for AMZN to get back to the low/mid 60s for a great short setup...

Hindsight trade of the week

Best hindsight trade of the week goes to SKF.


















VIX (click to view) has never reached an intraday high of almost 65!

GM (click to view) has never dropped 31% in a day!

XOM has never dropped $9 in a day!


The market is poised for its worst week in history!
This fiasco will present one of the best opportunities in history but plan on some more downside first.
Late day selling has been popular as people are nervous to hold overnight; therefore, holding over the weekend likely won't be too popular either - so don't be shocked to see another down day. Not to mention (as per Homer Simpson) Officer Coo-Coo Bananas will be talking tomorrow at 10am and anytime he, Paulson, or Bernanke, have opened their mouth lately, the market drops.

That BIG BOUNCE might have to wait till next week.


Some Other Thoughts...

CVD

JPM



















AMZN



















GOOG