by Philip Wu
Let's use the Owl Bundle on Thinkorswim to identify short term trade opportunities, To achieve this, we will begin with a market view and then compare various sectors to identify the one with the most abnormal condition. Next, we will examine the top ten holdings within the chosen sector to determine which ones are in a compounded critical state that are about to pop higher or lower quickly. The Owl Bundle on Thinkorswim comes programmed with indicators and metrics developed by Dr. Ken Long, aimed at finding trading opportunities.
Market view
Let’s first look at the current state of the market. The “Market Mosaic” view on the Owl Bundle provides various trend and volatility metrics. We see that SPY has been on a down trend, and a Risk off bearish condition is merited at the present time.
Market Mosaic provides a view of the market condition
The RiskZ VIX Z is a statistical indicator that identifies key turning points when the indicator is in an abnormal regime. Presently the indicator is still bearish and not indicating at a potential trend reversal.
RiskZ Zscore plot of VIX ratio
Sector Analysis
A Zscore plot of the RL30 slopes of different sectors is displayed to assess their strength and momentum relative to each other. The plot reveals that SPY, XLE, XLB, XLK, XLF, and XME are all experiencing a downtrend, with XLF being particularly noteworthy as it is approaching 2 standard deviations below normal. As XLF further deviates from the norm, we can expect to see a reversal towards the mean at some point. Based on this analysis, let's proceed to examine the top ten holdings in the XLF sector.
STOCK ANALYSIS
Below are the top 10 holdings in the XLF sector. It is worth noting that WFC exhibits the highest AutoFramer Reward to Risk ratio of 8.2:1, triggering the Regression line Fractal Framework at 2.7:1, and is currently in the "Godzilla" condition, which suggests that WFC is at the bottom of its historical range with abnormally high volatility.
XLF Financial Sector ETF major holdings
Let’s examine the WFC charts on the daily timeframe. We see that WFC had a steep price decline and appears that momentum is continuing to the down side.
Dalily chart of WFC
On the 30 minute chart, however, WFC appears to have bounced above short term support and is poised to move higher.
30 minute chart of WFC
Given that we are in a bearish environment, and XLF is the weakest sector at this time, and WFC is the one of the weakest holding in XLF that triggers various filters for abnormality, we should stalk WFC for a possible trade opportunity.
Scanning for other trades
Dr. Ken Long's Godzilla filter identifies symbols that are close to the bottom of their range over the past 10, 30, and 150 days and have unusually high volatility in the 5-day and 1-day periods compared to their historical data. These symbols are in a critical state and have a higher probability of breaking out or breaking down based on their statistical norms. Using the Owl Bundle on Thinkorswim, a scan for Godzillas in the stocks of the S&P 500 is shown below, and these symbols can be added to your watchlist to keep an eye out for potential trading opportunities. Happy trading !
Scanning for Godzillas in S&P500 3/15/2023