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The selloff is nearing the end. Volatility is exploding in nearly everything. There is blood on the streets. The news is everywhere. Let’s look at the chart.

This shows our buy and sell signals.

The signal of a bottom has two components

1. Volatility expansion (as seen on the third graph)
2. Russell sentiment selloff. (as seen on the fourth graph)

We currently have the first and I anticipate the second to occur this week.

After the signal I would go long on a trailing stop above the daily high. It may take a few days to get this signal so stay tuned.

The short position at 127525 started out well. The sharp rally yesterday is cause for concern. I’m moving my stop to 129150. If it trades through there we could see a big pop upward. In order to stay alive the Russell needs to start getting hit in the next few days.

A new short was triggered on Thursday’s price action at 127525 in the SP 500 Sep futures contract. That was the low from the previous day. The Russell has led this bounce back from the low on Jul 15. The ISM and employment report will determine the next couple week’s market direction. I’m playing this short tight with reduced size since it hit so quick after my cover at 123650.

The stock market has rebounded quickly from the exit of our long puts. The Russell has dramatically outperformed the other indices since the bottom. The daily volatility has also declined. This has given the short signal. The entry is the trailing stop below a previous day’s low. The low today was 124875. That is our first trailing stop point.

An alternative to online stock trading is contracts for difference. Contracts for difference are a contract between two parties concerning the price of an underlying. They are similar to futures contracts but don’t have a fixed size or expiration. They do require margin. Typically, the margin is about 1% to 10% of the underlying. A daily financing charge is assessed like margin trading. the financing charge fluctuates with the underlying value.Contracts for Difference are not regulated by the SEC. Typically, it is a foreign traded market. A good primer for beginners can be seen at CFD for beginners.

One of the CFD providers is One Financial. At One Financial a client can trade FOREX crosses, international indices,ETFs, soft commodities, and a products similar to major futures markets.

Advantages of trading through One Financial include the following

• lowest margins
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Beginners

They offer a free demo account for beginners. A good place to start is the Academy workshops. They offer classes covering CFD basis, charting, technical analysis, and strategy trading. The software is state of the art and easy to use.

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If you are unfamiliar with CFD, then open a demo account. It allows simulated trading to familiarize yourself with the software and differences between CFD and conventional trading. Upgrade to the private client status and receive more services including… The next higher level is VIP which includes all of the Private services but includes more services like …

Free Commentary

One financial offers free commentary on several topics including energy, FOREX,international and Arabic markets. Click on the analysis section for examples.

A few good articles for your reading pleasure

How Bernanke’s Banker Rescue Spells Their Demise   Michael Lewis Bloomberg

The Fed and the Price of Rice WSJ

How Obama and McCain Will Affect Your Fund Investments Marketwatch

We start with the first niche, Spinoffs. Companies may spinoff a unit for varying reasons. It may be a way to shift debt or concentrate a segment. It creates an economic anomaly with a few properties

1. Investors may be forced to sell the spinoff since the new entity may be a different class of investment. This forces undue pressure on the price of the spinoff initially.
2. The new spinoff may give insiders a chance to buy at a reasonable price. The new spinoff has management and investors aligned with a big incentive for new management to prosper on a rising stock price.
3. It can give tremendous leverage to the upside if structured properly. Usually the spinoff is a high ROE entity with added debt which can post impressive results.

A couple case studies are included. First, is Marriott International and Host Marriott. The second case is Liberty Media and TCI.

SEC filings are the major source of information on the new Spinoff. Investors should read the material carefully. Pay close attention to the three points above. Look for entities that will force initial selling where insiders are given a stake and that has the potential to pop earnings. Some additional research on spinoffs can be found at these websites and articles.

I’m back and will begin blogging on a regular basis now. I will still have posts on trading but will add daily links for good articles and a section on market wizards and gurus and their knowledge and it’s applications to you.

A big gap open is expected in the stock market Tuesday morning. I analyzed a selection of past -2% gaps lower. After careful analysis, I designed my anticipated pattern and game plan. My game plan is to buy after the open on a strength violation in the 5 min chart. A similar violation after 9 am is another buy target. A mid morning high will be established around 10am and I hope to have locked in a good 75% total position profit by then. I’ll look for some finishing strength after 1 pm for a strong finish into the close.