Option Strategies – Trading Options Video 27 part 10


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You have a chart that looks like that. I’m sorry, but it just doesn’t make sense to me.

I just tend to use the simplest charting method possible. Just these three alone is all I really need to determine trend. As you can see, we tried a little rally here again. Volume did not cooperate. There is no big bar. There is no big green bar here, indicating that people are starting to buy up shares like crazy. This market is not ready to bottom out yet. It looks like there is still a good deal of selling pressure going on.

As long as the difference between up volume and down volume is increasing, that means that there is increasing selling pressure coming into the market. It hasn’t ended yet. It’s a very steady decline. There is more selling pressure coming into the market, at that means prices are going to head a little bit lower here.

If we see a large green bar in here, maybe it could be the beginning of a new trend upward in the market, and the market could start to turn around. Until we see that, we don’t want to take any action.

That’s it for these three. I call these the Happy Family indicator. They’re all real-time. The last indicator that I’m going to show you – I take the NASDAQ QQQs ETFs. I take the QIDs. Let me just show you what both of these ETFs are. These are two ETFs. The QQQs – the indicator is the PowerShares Exchange Traded Fund for the NASDAQ.

In other words, it reflects the prices of the NASDAQ 100, in an ETF. The NASDAQ 100 is a very interesting indicator. A lot of small players, a lot of people in the technology industry, use that, and like to buy and sell this index. It’s more reflective of not professional money, but of the individuals.

The QID is just the opposite of the QQQ. The QUID is actually a ProShares UltraShort of the QQQs. In other words, it acts in the completely opposite direction of the QQQs. When the market is going up, the QUIDs will go down. You can see today that the QIDs are up for today, because the market is down. It’s up $1.57 here.

The reason they do that is because sometimes, it’s very hard to sell short the NASDAQ 100. Instead of using the NASDAQ itself; instead of shortening the QQQs, they provided an ETF that allows you to just buy this, if you think the market is going down.

It’s very similar to the VIX, in the fact that it correlates negatively with the market in general. In other words, this one is going up, and the market is going down. When this one is going down, the market is going up.

What I’ve done is set up my chart here, by taking the QQQQ – that’s a symbol, the four Q’s – a minus sign, and then the QID. The goal of this type of indicator is to simply measure the enthusiasm or disappointment of the participants who are trading the Qs and the QIDs.

In other words, what I get is an emotional indicator, a sentiment indicator, by taking the difference between these two. My reasoning is that when people are buying the QQQs, you’re going to see prices spike up. What will happen is, people will ignore the QIDs, and they will buy the QQQs, if they think the market is going up.

When people are buying the QID, prices will decline rapidly. It’s an emotional buying. Then, they will ignore the QQQs. They will go ahead and buy the QIDs, as a substitute from shorting the market. People, in general, feel more comfortable actually buying something, rather than selling it short. To some people, selling stock short is considered to be extremely dangerous, or something like that.

It’s not, but they feel that there is more risk in selling something short. They wouldn’t short the QQQs. They would actually go out  and buy the QID rather than short the QQQs. Remember, since this is on the NASDAQ, it gives me a general feeling for the emotional state of the market.

You can see the way I have this set up, is that I trade, and I follow the overnight sessions. The overnight session is in this light blue area right here. Right around 8:30 this morning – trading started opening up around 7:30 this morning, like it does every morning – it started going up a little bit. It was a little bit of enthusiasm here.

It looked like things were really positive, especially after the day we had the day before. We went up 217 points on the Dow. Then, when some negative news came out…look at that down bar right there. Those really long red bars are an indicator of emotional pain. That emotional pain is translated into prices.

It sets the tone for the rest of the day. When you see those large red bars like that, you get a feeling that people are extremely nervous. They are nervous about prices declining, so they are selling. They are actually buying the QID, in this case, because that’s what we’re tracking.

In order to track each one of these different symbols, the QQQs and the QIDs, you would have to have two different charts open.  Because the TOS charts allow you to do pair trading in this window, I can put both the QQQs and the QIDs on the same chart, and then measure the buying and selling pressure of those indexes and ETFs.

When I see a long bar like that, I had a feeling that the market was going to sell off dramatically today. In fact, even if you hadn’t gotten into a position early on in here, you could have waited until the market opened. It did trade up for about 10 minutes, before going back down. You could have established a short position at that time, and profited from this move down.

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