Posts Tagged ‘Trading 201’

Can Money Supply Tell Us How the Funny Money Rally Will End?

Can Money Supply Tell Us How the Funny Money Rally Will End?

funny moneyCourtesy of Damien at Wall Street Cheat Sheet

This is a guest post by Precision Capital Management.

While much has been made of the expiration of the Federal Reserve’s $300 Billion quantitative easing program, there are still many more ways in which the Fed can pump the markets with liquidity that need never be paid back to the recipients.  In this article, we take a look at the ramifications of some recent developments with regard to the Treasury and Federal Reserve that will again provide fodder to the equities markets, as well as revisiting our previous work on how money supply has impacted the economy and what it tells us of the potential correction down the road.

As we wrote two days ago, Treasury is effectively winding down its Supplemental Financing Program, the stated intention of which on its inception in September 2008 was to, “drain reserves from the banking system, and therefore offset the reserve impact of recent Federal Reserve lending and liquidity initiatives.”  Delving into the mechanics of it, here is what happened:

Treasury announced special auctions for cash management bills, the proceeds of which were placed on deposit with the Federal Reserve in a special account (as opposed to the proceeds being kept by Treasury to fund the government).  This allowed the Federal Reserve to use these funds (which topped out at $558.9 Billion in November 2008) to borrow or buy securities primarily from banks and broker dealers to help “unfreeze the credit markets.”  The Fed could have simply borrowed or bought securities with money it printed, but this would have expanded its balance sheet by creating excess reserves in the accounts that banks are required to keep with the Fed.  These reserves can be multiplied by at least ten times and used by banks for lending.  At the time, the Fed was rightfully concerned about inflation becoming unmanageable once the credit markets thawed, and about being able to keep the Fed overnight lending rate (fed funds target rate) above zero.  Accordingly, Treasury’s SFP helped to keep the Fed balance sheet under control (if you can call a multiple hundred percentage increase “under control”).  The amount of money that flowed into the financial markets from the SFP was the same as it would have been had the Fed printed the money; however, SFP…
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Special Macro Chart Analysis by Master Trader Fari Hamzei

Special Macro Chart Analysis by Master Trader Fari Hamzei

Courtesy of Damien Hoffman at Wall St. Cheat Sheet

Master Quant Trader Fari Hamzei was scheduled to contribute a chart to this week’s installment of Chart Junkie, however he offered us a special proprietary treat we had to bring to you all alone:

 
SPX

SPX
 

This is our coveted SP1-MoMo Chart.  We have THREE components in an extremely overbought condition screaming a SELL to us all at once.

On the DAILY S&P-500 Cash Index (SPX) Chart (above), we see:

1) CI Diff, in the lowest subgraph, is now RED (crossed below 0);

2) CI reading is 27.5 !! This is an extremely high reading.  This is due to a very high ramp-up rate the market has traded at since Meredith Whitney woke us on that faithful Monday (July 13th) to remind us all that “in GS she trusts” — at least for this quarter; and,

 
SP1

SP1
 

3) Divergence between long-term [modified] Advance-Decline Line on the subgraph SP1 (above) and its short-term sister MoMo.  THESE DIVERGENCES always work out.  Note the previous three divergences: two bullish and one bearish, in mid-June, early March, and late November.

Bottom line: A pause is in order. In our humble opinion, at minimum to 954 (38% retracement) or down to the 937 area (50% retracement).

Good Trading to All!

 


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Demystifying High Frequency Trading

Demystifying High Frequency Trading

Courtesy of Damien Hoffman at Wall St. Cheat Sheet

High Frequency TradingThe media recently flipped the floodlights on the new black box de jour: High Frequency Trading (HFT). Only a handful of people who work closely with the exchanges truly understand HFT, so I asked for some color from my friend and top pro quant trader Fari Hamzei from Hamzei Analytics.

Damien: Fari, why is High Frequency Trading one of the hottest new topics in the financial media?

Fari: HFT firms deploy co-located servers at the exchanges/ECNs and Dark Pools. As a result, they take advantage of seeing some of the order flow using very high speed computers with very low latency. The computers execute trades ahead of both retail and institutional orders. The execution times are in milliseconds due to co-location.

HFT is an extremely profitable business — over a $20 billion run rate now. These days, HFT can account for up to 60% of the volume in certain equity names. HFT firms also get liquidity rebates from exchanges/ECNs for their order flow they provide to the exchange — about $0.005/share.

However, this is not market making. Rather, this is artificial volume creation. As evidence for this fact, please look at share trading volumes in Citigroup (C), Bank of American (BAC), and CIT Group (CIT). On some days their combined volume is 10% of all US equities! That’s unbelievable! We have three stocks out of over 5000 names with a constant bid/ask present in the three to five cents range!In addition to seeing the order flow mentioned above, HFT computers can see institutional flash orders.

The Associated Press reported that, “So-called flash orders allow certain members of Direct Edge, Nasdaq and BATS exchanges access (for a fee) to buy and sell order information for milliseconds prior to that information being made available to the public. High-speed computer software can take advantage of that brief period to allow those members to trade ahead of those orders — at better prices — and therefore profit from advanced knowledge of buying and selling activity.” Sen. Charles Schumer is fuming about this issue.

Damien: Is HFT the mystical black box de jour, or a fundamental change in the auction process?

Fari: HFT is a trading strategy, not a necessary component of the auction process. HFT is all high-speed algorithmically…
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Phil's Favorites

Stay The Course

 

Stay The Course

Courtesy of 

“Jack Bogle has done probably more for the American investor than any man in the country.”
– Warren Buffett

I didn’t have any worthwhile mentorship during the first half of my career. It wasn’t until I shed my brokerage licenses and became a fiduciary investment advisor ten years ago that I came into contact with the ideas and philosophies of John C. Bogle, the founder of Vanguard and inventor of the index fund, who died yesterday at the age of 89.

...

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Zero Hedge

SocGen Weighs Closure Of Prop Trading Unit After Stunning 20% Loss

Courtesy of ZeroHedge. View original post here.

Shortly after BNP Paribas closed its prop trading unit (reminding readers of the financial press that the practice of risking shareholder money for profit continued in Europe after the financial crisis, along with the sometimes enormous consequences of seemingly trivial human errors) and its US commodities derivatives trading unit, the Paris-based bank's smaller cross-town rival SocGen is weighing whether to close its own $4.7 billion prop t...



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ValueWalk

Steve Eisman: Short UK Banks On Brexit

By Jacob Wolinsky. Originally published at ValueWalk.

Steve Eisman gained fame when predicting the financial crisis of 2008. Now he is shorting British banks because of the risks a hard Brexit poses to the British market.

Image source: YouTube Video ScreenshotSteve Eisman: A Hard Brexit Is The Path Of Least Resistance

Q3 hedge fund letters, conference, scoops etc

Transcript...



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Kimble Charting Solutions

Triple Breakout Test In Play For S&P 500!

Courtesy of Chris Kimble.

Is the rally of late about to run out of steam or is a major breakout about to take place in the S&P 500? What happens at current prices should go a long way in determining this question.

This chart looks at the equal weight S&P 500 ETF (RSP) on a daily basis over the past 15-months.

The rally from the lows on Christmas Eve has RSP testing the top of a newly formed falling channel while testing the underneath side of the 2018 trading range and its falling 50-day moving average at (1).

At this time RPS is facing a triple resistance test. Wil...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

http://www.insidercow.com/ more from Insider

Digital Currencies

Crypto-Bubble: Will Bitcoin Bottom In February Or Has It Already?

Courtesy of Michelle Jones via ValueWalk.com

The new year has been relatively good for the price of bitcoin after a spectacular collapse of the cryptocurrency bubble in 2018. It’s up notably since the middle of December and traded around the psychological level of $4,000... so is this a sign that the crypto market is about to recover?

Of course, it depends on who you ask, but one analyst discovered a pattern which might point to a bottom next month.

A year after the cryptocurrency bubble popped

CCN...



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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

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

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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