Archive for August, 2008

Short Sytem for Choppy Market

In the last of the Trend vs. Chop articles, Rob Hanna, at Quantifiable Edges, discusses a simple system for trading in the choppy market environment. 

A Short System For Handling Chop

In my recent Trend vs. Chop series I showed how over the last 15 months or so the market has become more prone to chop and less prone to follow-through. Tonight I will show an incredibly simply system that would have fared exceptionally well over this time period. I’ll then discuss the possible value of such a system.

Entry Criteria:
1) The S&P 500 closes higher 2 days in a row AND
2) The S&P closes below its 200-day moving average then sell short on close.

Exit Criteria:
1) If the S&P closes under the entry price of the trade, cover on close OR
2) Cover on the close of day 4 if not profitable.

Time Period: 6/1/2007 – present

Results:

There have been 26 trades, 25 (96%) of which were profitable. The average trade made about 0.75%. They are listed below:

If you relax the entry criteria and don’t require the S&P to close below the 200ma, then there will be 43 trades – 41 (95%) of which were profitable.

Some thoughts:

Although the performance has been stellar over the last 15 months, this is not a great system. In fact, if you run performance back to 1960, it’s not even a winning system.

I’m not a fan of the exit criteria. It keeps winners small. With a little effort I’m sure traders could come up with a more profitable exit strategy – even if it meant suffering a few more losing trades.

The bottom line here is that the market has been especially choppy over the last 15 months. Once aware of this, traders should look to take advantage. Seeing the market move in one direction for even a couple of days should alert traders that they may want to take profits or consider a strategy to benefit from a swing in the opposite direction.*

Lastly, this environment will certainly change. While the above system may not be a great “trading” system, it does appear to be a very useful “tracking” system. In other words, moves higher of 2 days or more


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Thrilling Thursday Wrap-Up

That was fun!

We got everything we wanted today – good, solid moves in the financials, a decline in oil and good breadth to a strong rally that hit all our modest level.  Unfortunately, the volume was low and we are probably going to have to wait until next week for confirmation that this wasn't just window dressing at the end of a bad month.  The weekly Dow chart actually looks pretty good but those bottom tests almost every week are a real killer.

Anotthe killer last night was DELL, who may have ruined our chance for strong follow-through tomorrow with a big miss on earnings but REVENUES were up 11.2% and above consensus so don't be fooled into thinking that Dell's business incompetence is a negative reflection on the economy, even though they whined about it in their outlook.  INTC sold off on the news and that dip is a great chance to pick up the Oct $22s for under $2.

MRVL beat with a 28.4% rise in revenues, also over estimates and margins held firm but gave weak guidance and NOVL beat as well AND raised guidance but DELL spooked them all so I like the NOVL Oct $5s for $1 too.   Overall, the market's performance was excellent, despite being dragged down by a 0.8% drop in the energy sector.  Oil closed near the low of the day at $115.55, one of the surest signs yet that this bubble is popping as even the winds of a hurricane can't keep it inflated anymore.

The overall Financial Sector tested the 5% rule and finished up 4.5% with Diversified Financial Service companies up 5.4% on the day while Thrifts and Mortgage Lenders jumped 10.4% on the back of FRE and FNM, who continue to tear it up with 100% gains off their lows of last week.  We got good Russell leadership (+2%) but the Nasdaq lagged as the 4 Horsemen (GOOG, AAPL, AMZN, RIMM) were under attack in what seemed to be a sustained effort to hold down the Nasdaq, which posted a 0.8% gain regardless.

What a difference a week makes on the Big Chart, we just ran the chart on Monday night as we needed to watch our lows and the Big Chart gave us the courage to stand by our positions on
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Conspiracy Theory Psychology

Covering a number of market events, from the rise of the dollar to the manipulation of gold to the bailout of JPMorgan/Bear Stearns….  Conspiracy or no conspiracy?

Mish’s Conspiracy Theory Psychology

In recent posts I have taken a look at various conspiracy theories on the rise of the dollar, the shortage of silver, and the manipulation of gold. Here is a synopsis. (Warning, some of these are very lengthy)

I discussed US dollar manipulation claims in

In The Great Gold, Silver Conspiracy Explained I took a look at many manipulation claims in the gold and silver market, notably the COT report, large short activity, trader concentration, and other so called "Smoking Guns".

In Jon Nadler, Senior Analyst Kitco, Chimes In On The Precious Metals Conspiracy I noted that one conspiracy theory about gold lease rates that blew sky high when the alleged manipulation was actually a bad data feed on lease rates.

Occam’s Razor

I am a big fan of Occam’s Razor which states "All other things being equal, the simplest solution is the best." In other words, when multiple competing theories are equal in other respects, the principle recommends selecting the theory that introduces the fewest assumptions and postulates the fewest entities.

Competing Theories

Theory 1: The US government, foreign governments, central banks, various broker-dealers, and a consortium of 10 large US banks are all acting together in some massive conspiracy to suppress the price of precious metals for 15 years running, and not a single insider has stepped up to expose the fraud even though housing fraud stories from insiders are being disclosed at a rapid pace, and government, CIA, and other intelligence leaks have been running rampant throughout that entire timeframe.

Theory 2: There was huge selling by over-leveraged hedge funds in response to fundamental changes in regards to the US dollar vs. the Euro.

Silver Monthly Chart

click on chart for sharper image

Simple logic would dictate that nothing ever goes straight up or straight down. There are always pullbacks in any bull market. Interestingly, one of the arguments for manipulation was based


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Goldman Sachs

Here’s an excerpt from Bespoke Investment Group on Goldman.  Click here for more. 

Goldman: What Have You Done For Me Lately

"Remember when Goldman Sachs (GS) was considered the cream of the crop in the Financial sector and could do no wrong?  After avoiding the subprime mortgage crisis, Goldman Sachs justifiably cemented its reputation on Wall Street that it was the most adept trading firm on the street.  But just like everything else on Wall Street, investors may have taken this line of thinking to extremes.  Suddenly, it seemed that any time Goldman Sachs put out a research report,  the call made headlines regardless of what the specific analyst’s record was.  When one of their analysts said oil could hit $200 in the not too distant future, rather than question the analyst’s thesis as to what besides a rising price justified the increase in his target (which had been $95 in December), investors just wanted to know when.

Recently, sentiment on Goldman Sachs (GS) has turned negative, as more and more analysts are questioning its King Midas reputation.  In our weekly look at analyst earnings estimate revisions for Bespoke Premium subscribers, Goldman Sachs showed up on the list of stocks with the most negative estimate revisions…."





Kill or cure for AIG?

Today’s tickers: AIG, XLK, MRVL, VPRT, FNM, XLF, PMCS, AFL

AIG – American Insurance Group Inc. – It’s kill or cure for AIG according to options patterns evident on Thursday. With shares higher by 2.3% at $20.45 we’re sniffing out what appears to be a long strangle on the stock using options in the November contract. The trade involves volume of 14,000 contracts of the 20 strike put and the 24 strike call. In buying both of these the investor seeks to see shares in AIG significantly shift out of its torpor at relatively depressed levels. If we’re right that this is a long strategy, the breakevens on the trade are at $15.70 and $28.30 calculated by using the value of the net premium of 4.3 to implement the trade. The investor expects the company to shake off its illness, meaning its shares will recover dramatically to leave the upper breakeven behind. Or it expects the current weight of bad news to bring the share price to its knees following a similar path to that followed by the GSEs. Further out in the January 2010 35 strike straddle an investor likely sold a 2,000 contract straddle at a net 17.50 premium. While this is well away from the money today, this may reflect the anticipation of ultimate recovery for the company and a gradual pull back to a central share price of $35.00. The losses on the trade mount beneath an expiration-time share price at $17.50 to zero, while the investor’s captured premium is eroded should the shares rally as high as $52.50 beyond which losses would accrue. Implied volatility on AIG today stands at 71.1%.

XLK – Technology Select Sector SPDR. – A large trade went through in early activity on the tech fund involving the purchase of some 45,000 puts just out-of-the-money in the October contract at the 21 strike. The SPDR fund is actually higher this morning by 0.7% at $23.30 but this looks like a fresh long insurance position for a premium of 20 cents – unchanged on Wednesday’s closing price. The protection therefore kicks in should the fund decline in value to below $20.80. Open interest of 10,000 was in evidence at this strike yesterday. It looks like this position is growing as the minutes pass by this morning. Bought volume now stands at 115,000 contracts.

MRVL – Marvell Technology Group Ltd. – Shares…
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Trend vs. Chop – Intraday

This series of choppy market articles shows that trading within a choppy market environment requires different strategies compared to trading within trending markets.  In this article, Rob Hanna, at Quantifiable Edges, examines intraday strategies – buying up bars and selling down bars.  The results are similar to those when looking at longer time-frames.

Trend Vs. Chop For Intraday Traders

Yesterday’s post looked at the propensity of the market to chop vs. trend. The basic conclusion was that the market has shown less tendency to trend and more tendency to chop over the last few years. This was especially evident when looking at a long-term chart.

Today I’m going to show the tendencies on an intraday basis. The break down will be similar to yesterday. The first chart shows results of buying any up bar and then exiting on any down bar. 15 minute bars are used for all the tests below.


A rising graph would show a propensity to follow through and a falling graph would show a propensity to reverse. A flat graph wouldn’t favor either. One note about all these graphs is that the day is closed out flat. There is no overnight holding since we are only measuring intraday tendencies. Throughout most of the 90’s, the easiest way to make money intraday was to find an uptrend an jump on it. As with daily bars, that seems to have changed over the last several years.

What about shorting down bars? How has that worked?


Similar to buying strength, shorting weakness worked well in the 90’s. Over the last few years it has struggled. Even with the difficult stock market performance this year, down moves have shown a higher propensity to reverse than to continue. The May-June period was a notable exception.

Now for the combination. The rules are basically the same as yesterday buy on an up bar and then reverse and short on a down bar. Again – no overnight holding since intraday trends are the issue.

No surprise here –trending behavior was favored until around 2003 when the market shifted to a significantly more choppy environment. The most pronounced choppiness has occurred in the last year and a half, suggesting the last year and a half has rewarded intraday reversal


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Trend vs. Chop – Weekly

More on trading choppy markets, looking at weekly charts.  Courtesy of Rob Hanna, at Quantifiable Edges.

Trend Vs. Chop III – Weekly Bars

Last week I looked at trending vs. chopping tendencies for the market in both the daily and intraday timeframes. What I found is that in both time frames the market has evolved from trendy to choppy over time. Today I am going to look at weekly bars. I will also have some further follow-up later this week which look at the statistics of some of the “Trend vs. Chop” results.

I’m going to use the same “system” as last week to display weekly tendencies. The first test here buys on the close of any up bar and reverses to short at the close of any down bar. Like last week, the trades were at a constant $100,000 per trade for the entire period. No commissions or slippage are figured in to the test. A rising graph would indicate follow through is dominant while a falling graph would indicate reversals are dominant. Sideways action would suggest no tendency.

Unlike the daily and intraday time frames, which favored trendiness through much of their history until fairly recently, the weekly timeframe has been more prone to chop since the early 70’s.

As I did last week, let’s now break that down into upside follow-through and downside follow-through. You’ll see a large difference here. The chart below looks at the results of shorting down weeks.

In the bear market of the early 70’s this was profitable as the market tended to show persistent weakness. Since then, with the exception of a few short periods during bear markets, buying the dips has worked quite well.

Now let’s look at what happened if you looked to buy strength:

Upside follow through was strong through the 60’s and until January of 1973. That is where you see the peak near the left hand side of the graph. Since that time the market has gone through cycles that sometimes favored buying strength and sometimes favored selling strength. Thirty-five years later the equity of the system is right back near its peak 1973 level. It should be no surprise that the current spike down began in 2007.


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GDPhursday

Oil's back at $120 – Yipee!

We'll see if they can hold it there but the CNBC weather team is on the ball with the most pessimistic possible forecasts, repeating Katrina over and over like a mantra even though Gustav is projected to max out at category 3 and Katrina was a category 5 hurricane.  I gave the weather report in last night's wrap-up so I won't get into it here but, overall, I'm seeing this storm as a great opportunity to grab some oil shorts.

Meanwhile, it's still a day-trading environment as stocks continue to yo-yo up and down at an incredible rate (ironically as the VIX continues to decline).  We hit our target on the XOM play we initiated in the Tuesday morning post with a nice 37% profit and made similar profits on MRO, BAC, LVS and PRU from yesterday as I got nervous at 2:09 and decided to cut and run with the quick profits.  This is not a good thing though, you shouldn't be able to make 25-50% in a day trading that variety of options, it just shows how volatile the market has become and it's a very tough market to gut out as it twists and turns day in and day out.

As I said last week, the best thing you can do in a market like this is just ignore the madness and stick to your game plan – hoping your macro-view will win out over time.  We had a small victory in our macro view yesterday with a much better than expected durable goods report and those numbers had nothing at all to do with stimulus checks, which is the knock that is being used against today's GDP report, even before the numbers are released by bearish pundits – of which there is no shortage these days.

I'm not as bullish myself with oil back at $120.   Improvements in short-term consumer confidence in this week's poll were very much the result of a $35 pullback in oil prices, which helped to strengthen the dollar and drive down food and other commodity costs as well.  I've maintained for a long time that this is what we need to save the economy and clearly there are NO fundamental reasons for oil to be at $120, or even $100 for that…
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Investigation into CFTC’s report

There’s an article in the WSJ presumably providing more details.  As reported by Reuters:

CFTC inspector starts probe into oil report: paper

Excerpt:  "The Inspector General for the U.S. commodity-futures regulator has officially begun an investigation into an inter-agency report on commodity markets, the Wall Street Journal said citing a person close to the matter.

Earlier in the month four U.S. senators had sent a letter to Inspector General Roy Lavik questioning the Commodity Futures Trading Commission’s role in an inter-agency task force interim report that said "supply and demand factors" were responsible for the surge in fuel prices…

…The senators, including senior members of the Energy and Natural Resources Committee, allege that the CFTC knowingly included ‘seriously flawed’ data and the timing was ‘suspicious.’  The Inspector General was taking the issue "very seriously" and was conducting interviews in a number of CFTC offices…"  More here.

Additional note:  "The report was issued a few days before the Senate voted not to move forward on legislation that would have required the commission to set limits on trading in oil markets by investors and speculators.  "The report, which specifically addressed speculation, appears to have been created and released to influence that Senate vote, which would be highly improper, in our view," wrote Sens. Ron Wyden of Oregon, Byron Dorgan of North Dakota, Maria Cantwell of Washington and Bill Nelson of Florida."  Dems ask for probe into oil price report.





Dave’s Daily

MARKET COMMENT

August 27, courtesy of Dave Fry, ETF Digest.   

I was day-trading a quiet NASDAQ market today when suddenly the market spiked sharply higher a little after noon. What happened? I looked around at various sites for clues and the only comment was from Briefing.com: “…there doesn’t appear to be any catalyst for the gains.” Hmmm. Then at 2:00 PM another comment was: “…market breadth is positive although conviction behind the market is unclear.” Double, hmmm.

There really wasn’t any “public” news. But, evidently some rumors were swirling about trading desks that something was up with FNM. A rescue perhaps? Nope, as it turns out just a summer house cleaning of some useless and incompetent executives. But see more below in the closing comments.

We are also getting to the end of the month when, you guessed it, some of Da Boyz don their coveralls, get to work painting to make things look a little better for their beleaguered clients. 


Volume remains light while breadth was good overall. Below is a different Yahoo Finance view.

So, let’s check in on the problem children where Da Boyz were most active in playing around today.

A major reason bonds are rallying is a combination of there being little else of quality for fixed income investors to buy and an ongoing dollar rally.

An interesting and unique take on the dollar rally is in this article.


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Phil's Favorites

Being on the wrong side of this decade's investing mega-trend

 

Being on the wrong side of this decade’s investing mega-trend

Courtesy of 

Josh Brown and Michael Batnick discuss the recent post “I did everything I was supposed to do”, which is the story of a man whose spent his whole career working for asset management firms and now finds himself on the wrong side of the active vs passive debate. There are real world consequences of the massive outflows of cash coming from actively managed mutual funds. This was Josh’s attempt to look at the issue from the other side.

The post spread around the financial web like wildfir...



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Zero Hedge

BMO: Everything Will Change After Tomorrow's "Quad Witching"

Courtesy of ZeroHedge

Don't look to the Fed to explain today's torrid, global rally: according to a controversial take by BMO's bearish technical analyst, Russ Visch, yesterday’s FOMC announcement was a non-event "as markets shrugged off the interest rate decision and follow-up presser with Chairman Powell", and today's action has an entirely different catalyst, resulting in "no change" to Visch's short-term outlook.

And in another contrarian take, Visch claims that "the quality of the rally since late May (narrow participation, extremely light volume) suggest it’s nothing more than a relief rally within an ongoing medium-term downtrend" as shown in the chart below.

...



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Kimble Charting Solutions

Silver; Multi-Year Bull Market Getting Started?

Courtesy of Chris Kimble.

Is a multi-year bull market about to start in Silver? We should find out soon!

This chart looks at Silver since the early 1970s. It has spent the majority of the past 35-years inside of rising channel (1).

It created a series of flat bottoms and lower highs in the late 1990s. When it broke out at (2), it rallied for years to come, where it gained several hundred percent.

Silver hit the top of this channel back in 2011 at $50, where a long-term bear market started. The 65% decline over the past 8-years has it testing the bottom of this mul...



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Insider Scoop

10 Biggest Price Target Changes For Thursday

Courtesy of Benzinga.

  • Citigroup raised Accenture Plc (NYSE: ACN) price target from $194 to $211. Accenture shares closed at $183.95 on Wednesday.
  • Stephens & Co. boosted the price target for Adobe Inc (NASDAQ: ADBE) from $288 to $327. Adobe shares closed at $291.21 on Wednesday.
  • Credit Suisse boosted the price target on Ferrari NV (NYSE: RACE) from $158 to $185. Ferrari shares closed at $157.83 on Wednesday.
  • Goldman Sachs cut the price target for Tesla ...


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Biotech

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

 

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

If you’ve got the raw data, why not mine it for more info? Sergey Nivens/Shutterstock.com

Courtesy of Sarah Catherine Nelson, University of Washington

Back in 2016, Helen (a pseudonym) took three different direct-to-consumer (DTC) genetic tests: AncestryDNA, 23andMe and FamilyTreeDNA. She saw genetic testing as a way...



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Chart School

Silver Review

Courtesy of Read the Ticker.

The folks in the federal reserve will debase the US dollar currency to an extreme degree silver will finally lift off the floor.. 

Note: Readers should re watch the silver back screen news video, here.

The following video looks at price action and Wyckoff logic.

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Chart in video

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If gold moves, silver wi...

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Digital Currencies

Cryptos Are Crashing As Asia Opens, Bitcoin Back Below $8k

Courtesy of ZeroHedge. View original post here.

Having survived the day's bloodbath in US tech stocks, cryptos are crashing in the early Asian session, apparently playing catch-down to the day's de-risking.

While no catalyst is immediately evident, there are some reports noting 13 large global banks are preparing to launch digital versions of major global currencies next year, though we suspect this drop was more algorithmic that fundamental-driven.

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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