Saturday, August 14, 2010

The 5% Club...

Some really good things to take note of. Not directly what I was talking about in my previous post...Emotions, style and substance... but a lot of interesting points in this video and some good correlations.

Thursday, August 12, 2010

Great William Black Interview

Hedgpoint and the current SSO short trade

I am currently long a hedge, the system issued a secondary buy signal today on the open short position, capturing an extra 1.2 points or an additional $28,000 on the close of the primary short for the trade we did. That's over 50% increase in the profit on that trade. We are now long for free and will hold the hedge till the next short or expiration.

Wednesday, August 11, 2010

SSO Hedgepoint and EOD trigger (less than 2 seconds before close)

all the new modules working perfectly

Over throw over?

Often a Fed day closes are a fake out. The market attempted to show strength...that strength was not supported by the small and mid caps. This is not a good sign... additionally, my systems have NO longs right now although there are a few mixed biases for some of them. There are however, systems that are short as of today's close and over the last few days. I think that a very many people are looking at both an inverse head and shoulders and a bearish wedge, my preferred scenario would be to see the market over throw and confuse both of those views. What I am pointing out is that the market is at a high risk of failure - the ripe looking retracement in the EURO and bearish indications on my earlier charts of the TF (among others) are not to be underestimated. We may yet get our over throw, and my systems may not be piling into shorts here but the next confirmed system entries should be large trades. If there is a further bounce up, it is likey that the systems will use that opportunity to take shorts - as many of the mixed signals among them have reverted back to "bias short". For reference, further bounces up in the SP500 should find very hard resistance at the 1160 area - a previous trending cycle breakdown level.

One other note: If you are wondering why I have not included charts of the system trades as I usually have done, I have, due to inappropriate/unauthorized action of a few individuals and additionally, for other reasons I have previously discussed, reduced the publishing of trading charts of the systems. I will continue post information I feel is relevant and will likely post systems at major market inflection points as, hopefully, a neutral opinion for reference. I have set up a non-public managed blog to continue to share proprietary systems activity etc with clients and selected individuals. If you are interested in participating please email me directly at by clicking here.

Some additional comments and my overall opinion: There are very good probabilities of a 30+% drop in average wages in the US in the not so distant future. I see that already happening for quite some time now. In the software development world I see plenty of people with earnings power reduced by a magnitude of 70 to 80%. In many other fields I see similar though less extreme compression. 

Real Estate is currently highly unaffordable assuming the quite optimistic earnings power factored into current valuation assumptions. Additionally, there will be further contraction of credit as indicated by my recent charts of treasuries. Considering what I anticipate to be the highly deflationary earnings power for the average US and even global employees, housing is still in a bubble of similar magnitude to that of 2005 to 2007 (much worse in China, Canada and Australia and a few other countries) and will likely have very far yet to fall... very likely well in excess of 50% lower than current already depressed(?) prices over the next years. As for the equity markets, I would not be surprised to see 20 to 25% drops in the major indexes before the end of the year and much more as the total volume of money continues its dramatic contraction (40% in the last year alone). As far as GDP, I would expect greater than 10% contraction over the next few years - after the Government gets done revising the numbers downward it will be 5 years later however.

Though I do not trade fundamentals, none of the above analysis is fundamental valuation based, its liquidity based. All of my systems analyze liquidity and price. Fundamentals are just another derivative and of similar value for measurement and decision support as an out of the money option on a futures contract or a structured product promoted by Goldman Tax or JPMorgan. They tell you nothing since they are completely arbitrary. 

For reference, I would like to point out that the SP500 has vacillated from a PE of 1 to a PE of something over 50 (based on casual recollection) over a large sample of time. At both of those extremes people were equally confused. Why because the fundamentals always change in interpretation since they are derivative values. Book Value is important if a company does not face a calamity or a drain on cash or a decline in book value assets. In other times, future earnings and earnings growth mean you need to worry about book value much less or better can mark them up like JP Morgan likes to do (calling that earnings). in most instances, you can attempt to use book value (or any other fundamental metric) to base asset purchase decisions on and you only end up with the worst companies around because those are the only ones that trade as substantial discounts. Of course there are exceptions, but as a general rule, trading below book value tells me as much information as Moncia Lewinski's ads for handbags do about President Clinton. Both of them are completely arbitrary and essentially non correlated to the question at hand. What we are going though here and now is a change in the measurement of monetary units...fundemental values, assumptions and collateral will be distorted drastically in this process.

One last comment...I hope I am wrong.

Tuesday, August 10, 2010

EURO update

Nice pullback from .786. Below you can see the controlling price... interesting setup.

Russell 2000 Futures Technical Behavior

Monday, August 9, 2010

Oil that has been said to have "disappeared" waiting in the wings

This video tells the disturbing story. While Matt Simmon's may have been an alarmist or attempting to push an agenda...I do believe that the heavy use of dispersants is similar to the heavy use of HFT or manipulations that are occurring in the financial world. The problems looks like they are dissipating but they are really still there...most of the oil in the gulf has NOT been eaten by oil eating bacteria or has been dispersed and has sunk to the sea floor.

Nearly any government of large economies puts out deliberately deceptive financial reports

China is just playing the same game we have played in the US. Clearly, Geithner's trips to china had an effect and that effect is not good for any of us. Lessons in spin by consummate executioners of the craft are truly difficult to find. So, now we are at the stage where, any employment report, manufacturing report, retail sales report, banking report, GDP report are all stuff of a few imaginations and and spin doctors and can not be believed.

Euro getting ripe...

Still a little ways to go to get back to the mean...but we are getting there...good idea to keep an eye on the Euro around these levels...the mean currently is in the 1.365 to 1.38 area. We do not need to hit that level and can reverse earlier. Currently we are at nice .786 levels and as the post says the Euro is looking ripe...but the mean targets are a very significant area and may be even more significant if stocks manage to breakout to the upside of the bearish rising wedge that nearly everyone seems to be watching. Given the popularity of the bearish wedge pattern, I would expect at least an over through on the major markets to trap bulls and squeeze bears.

One more note, I see a lot of comments about another pattern...inverse head and shoulders. However, the best form for a head and shoulders involves a slanting neckline in the direction of the breakout level. Currently, the patten does not look like a very good quality head and shoulders pattern...if we do break out of the current pattern as it stands now, I would think its at high risk to fail not too long after taking out shorts and stops and sucking in buyers. The small caps are underperforming significantly...if they continue to do so if the market breaks out of the current patterns that would be a significant negative for any rally. If however the relative performance for the small caps gains strength that would lend itself to the idea that we could have more staying power to the markets current support levels.

Emotions, style and substance...

I spent the weekend working on a film project that is centered around a lot of the issues that people fight with everyday - especially in the markets. I thought I would take some time to discuss a few things in some more detail.

Firstly, I would like to say that I believe that when one is looking for something they are rarely likely to find it. The trick is being able to recognize things when they are happening. The irony is that what this means is that the hardest parts of being a living breathing human being get challenged by our incessant need to do something whether it is worthwhile or not. I make it a point, especially in my software development work never to feel too connected with any concept or achievement or lack thereof.  I look at it like "I was lucky to be there when it happened" - this view has done wonders and keeps me open for the next opportunities/possibilities.

The reality is we are only important if we recognize how unimportant we really are. The whole thing is completely arbitrary...just like the money system or the financial system as a whole. No matter how people try to explain how concrete the system is...the system is arbitrary. Arbitrary, however, does not mean, not challenging, interesting, beautiful, disgusting, important, significant, worthwhile, powerful, empowering or disastrous. Of course, we know that life, people and markets are all of those things at different times. What it does mean, is that the best way to view and interact with things is with a sense of play. To celebrate the experiences that we get. Our choice is how we react and in that lies the balance. Authenticity requires that our reactions be sincere and committed - balanced. This is what this post is about. And I think its especially important, given where we may be heading. Trading requires these things too... Real experience is a counterpoint.

While its our nature is to hoard, to protect or to feel that we have to covet things which we have achieved, built or think we must leverage, I can tell you from experience that those attitudes have not contributed positively to my life. They do not work for successful musical/creative exploration, performance or composition either. In order to be perceptive, we need to be without expectation. In order to act with decisiveness we need to be at one with the moment and our perceptions of them. These are not things that come naturally. As a musician, they don't and it is interesting that in this little film project called "3 seconds" they didn't come naturally either. But if one obsesses over the struggle they are not participating in the experience, but rather another experience. its subtle but its true. The experience leads you to the result you are in need of having.

Though, I try to have high expectations of myself, as it were, this "3 seconds" film project I worked on with Douglass (my partner in MQ38Advisors) is a classic example of perception, reaction and "embracing the travels not the road" attitude can have on naturally connecting us to where we need to go. (Yes this diatribe does have to do with markets...I am getting there) 

We participated in a 48 hour film festival. This means that the crazy people who came up with the festival/competition and the even more crazy people who participate in it, receive a "genre,  prop, some phrases and a character" on friday at 7:30 and are supposed to come back with a completed film using those parameters by Sunday at 7:30. I can remember many times in the past, I would have stressed out over everything and completed the project feeling incomplete and unsatisfied. That would be the natural result, ironically, of having artificial or contrived expectations. The trick is to have as few expectations as possible and as much character and sensitivity as possible. A few properly focused decisions can go a long way towards moving things in the right direction for us mortals. And who needs to be perfect anyway.

This is where this gets back to trading. We completed the project early. I still went on my Sunday walk with Moca and Claudia, did some programming on Saturday and went to lunch with Douglass. I was stressed for about 2 hours over the I believe Douglass was at 2 am last night. If you ask me about my perceptions or Douglass's for that matter at these times, I can guarantee those perceptions were totally wrong headed and ego based. Today we got together had lunch relaxed and popped out the final effort on "3 seconds". I think is a good result...and mostly it is what it is and will lead to another experience or opportunity. I have to tell you, I was amazed that Douglass (et-al) was sitting at this nice italian place for lunch when we were supposed to be going nuts trying to get all sorts of last minute "building of Rome" done. But that's where I, realize just how good it is to have good influences. Douglass's attitude celebrates the moment we are in not the one that could be or has already happened. We can not force something to become something that it is not. We can not even force something to be what it is. We just have to have experience, play and celebrate - every reaction we have, every perception we have and every choice we make is a reflection of a very simple and arbitrary reality. It is what we make of it. We can choose to be successful, by not fearing failure. We can choose to be strong by knowing weakness. We can choose to remain confident and powerful by recognizing insecurity and helplessness. We can make good trades by being comfortable with the bad ones.

How this plays out is that in my work with systems, I give away profits, do not need to get all the big trades. I hedge risks even if, as a person, it would feel better to hold on and be right. Ironically, to become wealthy, I think you need to share your opportunity and let others help you to grow your wealth. In the markets its the same thing, in order to make real money, I think you need to be willing to give away or up money that you think you need to keep or can make. The thing about not having expectations is that you can let things go where they need to go - profit or loss - without getting your perceptions into a distorted untrustable place and thus remain decisive and clear. Greed is indeed a very dangerous motivator...humility is much more constructive. We spend far too much time thinking about making money and that is not the objective of the markets! Think about it...they are really not about money at all.
© 2009 m3, ltd. All rights reserved.