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June 21, 2009

Advantage Credit Spreads: Weekly Update
by Angelo Campione

6/21/2009 7:41:38 PM

In a market that went up 3.9% for the month, ACS just generated its best return this year at 10%. When you consider that at the start of the year the S&P opened at 902, if you'd simply bought and held, you'd be up less than 2.5% in 6 months and gone through a lot of anguish along the way. On the other hand, the ACS strategy has added 36.5% on an uncompounded basis and has done it relatively comfortably. At this point, the average return is 6.08% Per Month and right on track with the average we aim for of 6% per month.

We made some changes to the system late last year that has added a new dimension to this strategy and the results are speaking for themselves. In a market that's gone through major turmoil, it certainly hasn't been breeze for newsletter writers to produce consistent gains this year and so we remain humble that we have been able to do well under the circumstances.

It's certainly no time to get cocky, losses are always possible for any system and while we can't make any guarantees for future performance, we can state that we remain committed to being vigilant in producing the best returns for the lowest possible risk.

Here's the performance for ACS so far this year:

To learn more, please click here.

Note, this service can also be auto-traded (without charge) through Think or Swim brokers.

On to the weekly report.

Current Positioning:

SPY: Short 50%
QQQQ: Short 50%

General Commentary:

The current market conditions underwent a break down of sorts during the week although support held and the up trends for all markets remain in place.

With trends holding, the potential for a rise to new highs from here is still quite possible, although in a wider scale, the down side potential remains greater than up side potential, so we continue to be wary of any rises.

On to the analysis..

SPX Chart - Bigger Picture

The bigger picture is showing how the downtrend line is passing through around the 960 region, this could be insurmountable resistance in the near term and if the downtrend channel drawn is correct, then chances are the target is around 800 for the medium term.

Note also that the linear MACD is approaching zero, if we are in fact in the middle of a bear market rally (as so many suspect), the MACD will begin to turn lower over the next month or so.

SPX Chart - Shorter Picture

The shorter term picture is at an interesting juncture, on the one hand support at 925 - 930 broke during the week, and on the other hand, support around 900 at the 50 and 200 DMA held.

If we can get a close above 930 this week, then the high between 950 and 960 will most likely be tested. Having said that, the MACD is showing negative divergence, which leads me to think that we'll be heading lower at some point soon. In the mean time we can still get a bounce here just to give the crowd the impression that the bull is alive and well. It's a tough one to call but watch for 900 to break in order for the bears to take control.

For this week, support on the SPX is 900 - 910 and resistance 930 - 960.

NDX Chart - Shorter Picture

The Nasdaq fell quickly during the week but found support around 1440. The uptrend channel remains in place and there is potential for this one to climb again.

If Friday's strength continues into the week ahead, we'll most likely close our shorts, as there is potential for a decent run up from here. What we're looking for is a close below 1440 as a sign that the bears are preparing to take control. Until then the bulls have the upper hand.

Note also that the MACD is potentially turning bullish from here. The start of the week should hold the key for the near term.

For the week ahead, support on the NDX is 1400 - 1440 and resistance is 1500.

The VIX Picture

The VIX spiked up early in the week giving the impression that the wheels were about to fall off the market, although by the end of the week it was back to where it finished the prior week.

While the MACD is showing the potential for a resumption of the downtrend, the most likely scenario is that we go sideways a little more and form a good base before heading higher. This scenario favors the probabilities that we'll see a significant drop in the markets within the next few months.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance

I thought I'd begin a record of performance so that you can compare your own performance to ours. We'll begin with the current open positions:

QQQQ

Entered	L/S	Price	Closed	Price	P/L (%)
26 May	Short	33.21
11 June	Short	36.72

SPY

Entered	L/S	Price	Closed	Price	P/L (%)
21 May	Short	88.96
11 June	Short	94.05

Quote of the Week:

I thought I'd give a couple quotes this week for those celebrating Fathers day today:

Small boys become big men through the influence of big men who care about small boys. Fathers Day Quote by: Unknown

My father gave me the greatest gift anyone could give another person, he believed in me. Fathers Day Quote by: Jim Valvano

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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Regards,

Angelo Campione

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The signals we have are:

BUY - This means go long in your desired investment vehicle.
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PRELIMINARY BUY or SELL - This means be alert to a potential change of signal and be ready to take action shortly but DO NOT take action yet.
STOP - This means close your positions and go to cash

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Important Disclosure:

Futures, Options, Mutual Fund, and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.

In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.

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Copyright © 2007-2009 Angelo Campione

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