tag:blogger.com,1999:blog-71063724930242139952024-03-13T15:12:21.424-04:00TRADESTRONG MANAGEMENTGary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.comBlogger66125tag:blogger.com,1999:blog-7106372493024213995.post-64522929720134861262014-10-19T14:49:00.003-04:002014-10-19T14:51:03.223-04:00trading realities<i>back in the day, markets were inefficient and dominated by heavy retail
participation. pricing was a value oriented phenomena that actually
reflected the laws of supply and demand. technical analysis was more
effective back then, because markets were more auto-correlated, and
retail participation in the markets contributed to the self-fulfilling
prophecy that drives ta. historical price patterns were more reliable,
and price reacted in predictable ways after this conditionality was
presented. if one could identify these repetitive patterns, then
determining path dependency was easy. the markets are now dominated by
commercials, commodity funds, indexers, etfs and hfts. the
financialization of traded instruments has resulted in more cross asset
correlations which have stripped individual assets of their uniqueness,
and price discovery and risk transference functions.</i><br />
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<div style="text-align: justify;">
<i>
<br />
over the past decade, institutional management of equity portfolios has
increased from 54% to 81% and over the same period, “real institutional
trading” has declined from 47% of trading volume to 29%. there are far
fewer market participants today than just ten years ago, managing much
larger portfolios across more asset classes, and using much less
trading. the retail trader has all but disappeared, and traditional
traders are predominantly competing against professionals and machines
in a relatively illiquid market. this perspective is important to
realize, because it underscores how markets have changed. given the near
extinction of retail participation, and the almost total dominance of
professional and algorithmic trading, it is unlikely that the biases and
readily "available" cognitive reference points that are the hallmark of
the retail trader, still exert their influence on pricing today.<br />
<br />
more than ever, the market is predisposed to preying on unsophisticated
traders; and there is no shortage of material for the flexions to
practice on to refine their skills. the internet is full of trading
forums, venting the opinions of naive wannabe traders who don’t know the
difference between a stock and a bond, yet live in the delusional world
in which they believe they can better the traders who are rigging the
game. at the core of their beliefs is the illusion that they can grind
out a living i.e., they can overcome trading friction and be consistent
enough to collect a steady paycheck from the market, while taking very
little risk and very small profits. they continue to believe in the
existence of the exploitable edge that is reproducible on a daily or
intra-day basis. and, herein lies the biggest and most stultifying
misconception about trading -the belief in the existence of alpha and
the denial that the grind is gone.<br />
<br />
one of the many advantages of being a local trader on the floor of an
exchange was that a trader could earn the bid/offer spread as an
incentive for providing liquidity. when a local made a trade he could
buy-the-bid and sell-the-offer, which meant he was buying below fair
value and selling above fair value. in addition to this edge, traders
were able to transact business at a cheaper rate than the public, and
had first-hand knowledge of market structure and order flow. this
enabled them to trade ahead of large orders and "race" the retail stop
orders. a member trader did not have to go far in his quest for alpha.<br />
<br />
following decimalization and regulatory initiatives aimed at creating
competition between trading venues, the equities market fragmented, and
liquidity was dispersed across many lit venues and dark pools. this
complexity, combined with exchanges becoming electronic and for-profit,
created profit opportunities for technologically sophisticated players.
high frequency traders (HFTs) now use ultra-high speed connections with
trading venues and sophisticated trading algorithms to exploit
inefficiencies created by the new market structure, and to identify
patterns in 3rd parties’ trading, so that they can use it to their own
advantage in much the same way as the floor trader used his proximal and
informational edge to generate alpha.<br />
<br />
however, as a short-term, point-and-click, discretionary directional
trader, one does not have access to the same process required to
generate alpha. for traditional traders, the new market conditions
insure that the playing field is tilted against them. retail traders
continually find themselves falling behind these new competitors, in
large part because the game has changed and because they lack the tools
required to compete effectively. nevertheless, as the complexity of
trading increases, it is still possible for a trader to separate from
the pack and profit. the trader who has the better (more complete) and
more timely (current) analysis will enjoy the greatest edge and have the
greatest success, because they will have increased the gap between the
traders who have adapted to the new environment, and the less informed,
less diligent, and less talented ones.<br />
<br />
it’s not that alpha doesn’t exist- it just doesn’t exist for the retail
trader. what traders earn beyond the risk-free rate is not a true profit
but simply factor compensation—the market rate for the risks they take.
any positive expectation is the result of accepting that risk: the
payment for taking such a position is compensation for risk, not an
excess return. so, a trader must assess his approach to trading and
decide what steps must be taken to find a proxy for alpha; and it begins
with adopting an attitude, that is both realistic and relevant. the
best any trader can hope to achieve, under any circumstance, is an
incomplete, but probabilistic knowledge of the trading environment. so a
trader must realize and accept that the markets are dominated by the
rules of chance and randomness, both skill and luck come into play. how
traders cope with probabilistic uncertainty and their imperfect view of
the market is critical to their success. the essential job of traders
then is to reduce uncertainty, not risk.<br />
<br />
as a leveraged trader, one makes short-term decisions/trades, but
understands what is happening at time frames greater than the one he's
currently trading. the decision to trade and its management, flows from
an analysis of price action. he is aware traders operate at different
time-frames, markets are interconnected, themes abound in markets and
that probabilities and departures from value govern trading
opportunities. he understands and incorporates relevant informational
signals from a wide range of deterministic processes to arrive at a
summed probability that acts as deeper context.<br />
<br />
he manages the risk through diversification, keeps draw-downs to
manageable levels and strikes a balance between profit maximization and
loss mitigation by adjusting trade size and stop-loss levels, so that
only an extreme event will trigger the stop. he keeps losses in a
predetermined range, and prevents getting stopped-out of a potential
winner by managing expected value along with p&l, while allowing for
a margin of error, so that he may stay-in-the-trade.<br />
<br />
he is not concerned about how often he is right about the market, and
frequently adds to his winners and turns short-term winning positions
into longer ones. yet, never loses sight of the fact there is a downside
scenario with an associated probability. the way decisions are
evaluated affects the way decisions are made, so one does not allow
stress, cognitive load, emotions, and bias, to non-linearly affect the
decision process.<br />
<br />
smart traders have the capacity to aggregate and synthesize large
volumes of information, analyze it, and then derive an edge from it. the
primary step in this process is to develop the capability to gather
timely information from all the various sources and attach relevance to
the information as accurately as possible. then merge both data sets,
public information and proprietary tools, to derive insights that are
applied in making trading decisions. good traders figure out what game
is working and play that game. if they can understand the interactions
of the individual factors and their effects on the market as a whole,
then they will be able to identify higher order patterns that are the
result of these interactions. going beyond the standard
correlation/causation question, the trader must ask, does this source of
edge make sense? is there a behavioral or structural reason why this
source of edge should persist? and he must expect to be surprised and
have to make adjustments, and build that into his expectancy.<br />
<br />
good traders are always working on themselves, always refining what they
do. in an important sense, they don't just use introspection to improve
their performance. they work on their performance as a means of
extending their personal mastery. the best traders spend significant
time generating trade ideas, researching markets, and staying on top of
developments worldwide. the ratio of time spent in preparation to time
spent actually in trading, is a measure of a trader's professionalism<br />
<br />
every trade a trader makes provides an opportunity to learn. gathering
information from every trade, as opposed to a select few, helps give the
trader a better understanding of how those trades may perform in the
future. the more frequent the analysis, the more relevant the findings
will be. however, the findings serve a purpose only if they are acted
upon. the key is to use information to guide actions whose outcomes are
then analyzed and the findings reapplied. this creates a continuous
iterative loop that drives towards ever greater efficiency.<br />
<br />
if you look at alpha as various types of beta doing different things at
different times, then a trader's returns are going to be lumpy and
cyclical in nature and performance will revert to the mean. the central
message for traders then, is to trade efficiently, and make the most
money with the least cost. it's not how often you're right, but how much
you're right. if you want to make money, then maximizing geometric
returns should be front and center in your thinking.<br />
<br />
the market and its past is identical for all observers. yet, the market
and the future are understood uniquely by each trader. no matter how
crude or refined a method one follows in ascertaining the likelihood of
change, it still boils down to surviving against one's own incomplete
intellect, a misfired bout of randomness, in controlling the risk, and
in executing a set of consistent ideas day in and day out, so that
chance can prevail. the opportunity is there for the traditional
trader to capture his personal alpha. all he has to do is see the market
for what it is, and not what it was, or what it appears to be. </i>
</div>
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-9797498118555276682014-04-15T13:11:00.001-04:002014-04-15T13:11:23.873-04:00my solemn pledge<div style="clear: both; text-align: center;">
<div dir="ltr" id="docs-internal-guid-893419aa-665c-c971-82c6-3c6f12bbdc19" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">i must confess, i’d rather just guess</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">than be duped and fooled, by randomness</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">i rather think twice, than just roll the dice</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">since lines on a chart, do not drive price</span></div>
<div style="text-align: justify;">
<br /><span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">rather think like a fox, not be put in a box</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">as the markets are, a recursive paradox</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">if not arc sine laws, then ever-changing-cycles</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">if you are in denial, it can be almost suicidal</span></div>
<div style="text-align: justify;">
<br /><span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">these damning effects, must be circumvented</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">but not with the invented, nor the misrepresented</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">not with tools that are myopic, or simply synoptic,</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">lest the retail hypnotic, not benefit the agnostic</span></div>
<div style="text-align: justify;">
<br /><span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">a causal understanding, is certainly demanding</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">but in-or-out of sample, it sets the best example</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">there’s so much more, than just trade and win</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">like adding to profits, when others are cashing in</span></div>
<div style="text-align: justify;">
<br /><span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">immune to the tout, trading without any doubt</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">entering trades, where others are stopped-out</span></div>
<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt; text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">not stepping out-on-the ledge, with an illusory edge</span></div>
<div style="text-align: justify;">
<span style="background-color: transparent; color: black; font-family: Arial; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">there’s no need to hedge, this is my solemn pledge</span></div>
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-29446021695559583922014-04-02T14:44:00.000-04:002014-04-02T14:47:49.156-04:00it ain't over till it's over...<div style="clear: both; text-align: center;">
<div class="separator" style="clear: both; text-align: justify;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoCZFWykiYx_uQBG25zQo0dpr5hOzGnc-NbvM1DuWS0CWVgWQDSegB_C3fMUwQqvtAU9pqOhip5CvgDfk3Qg7K0C8iXf47G-TGqYC1BTn_JbpAQoS08Ps-vokHmEUzCG4I5oZic8LKgrHD/s1600/bull_bear_boxing.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoCZFWykiYx_uQBG25zQo0dpr5hOzGnc-NbvM1DuWS0CWVgWQDSegB_C3fMUwQqvtAU9pqOhip5CvgDfk3Qg7K0C8iXf47G-TGqYC1BTn_JbpAQoS08Ps-vokHmEUzCG4I5oZic8LKgrHD/s1600/bull_bear_boxing.jpg" /></a></div>
<div style="text-align: justify;">
last friday’s end-of-the-week bullish festivities failed to endure past the
european markets’ close, and couldn’t even reach a level lofty enough to
allow thursday morning’s longs the opportunity to escape at
break-even, before the es began it’s daily swoon. after all was said and
done, the spx was still trapped in the ~40pt trading range that had
defined the market for the past +1 month. emerging markets <i>re-emerged</i>
and displayed very good relative strength as money rotated out of past
over-performers (bio-techs-naz and momentum stocks-rut) into past
under-performers (EEM). the yield curve continued to flatten and credit
spreads widened as the market discounted yellen’s and others, hawkish
comments. once again, internals were mixed, with bearish p/c ratios and
breadth, juxtaposed against a benign and bullish $vix. after settling
the week midway between the weekly S1 and the weekly pivot, the market
appeared to be waiting for long-term traders at-the-margin to finish
weighing their options before stepping in full force. relatively low
vix and skew readings indicated an unreasonably complacent mood in the
market, although a $2.8BB put position was executed last week - so
someone <i>was</i> concerned about downside tail risk. the market had
taken on the visage of an aging fighter who had absorbed an inordinate
amount of blows to the head and body, yet still remained standing;
willing, but not as eager as he once was, to continue fighting. of
course, the market couldn't stay in the current trading range
indefinitely; some endogenous or exogenous event <i>had to </i>cause the threshold to be breached, so that the market could make it' move away from current value. perhaps
the fix was in, but somebody was betting a lot money, that an overextended
and beaten down mr. market, would finally utter <i>no mas</i> on his way to a hard landing on the canvas. but like it has , so often, the past 5 years, the market summoned up it's courage and strength and rallied once again, forging new historical highs. it was a comeback that many had thought to be unattainable; and in it's aftermath, there were the usual accusations that the fight was "rigged". mainstream media denied the rumors and in another classic example of<i> hyperbolic hypocrisy, </i>the game's biggest promoter denounced the practice and announced it was getting out of the game. or as the boys at goldman would say, timing's everything.</div>
<br /></div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-24699598888353275832014-04-02T14:07:00.002-04:002014-04-02T14:07:13.732-04:00 Zappa said it best...<div style="clear: both; text-align: center;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgk_p9MkTsxPnF8dOUBLClcypBekivUjPQ2wD5gywOKYOysN2cwegY9Vuse5WZElSHqmJomECxQqfTpyGpGW8imjK41HKGeHOGFGypBM7-vYVbMuD-vstGtTAlKCMb5vVXWcMrAjtlIS_FZ/s1600/index.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgk_p9MkTsxPnF8dOUBLClcypBekivUjPQ2wD5gywOKYOysN2cwegY9Vuse5WZElSHqmJomECxQqfTpyGpGW8imjK41HKGeHOGFGypBM7-vYVbMuD-vstGtTAlKCMb5vVXWcMrAjtlIS_FZ/s1600/index.jpeg" /></a></div>
The market may not appear to be portrayed
against a bullish backdrop, but irrespective of fundamentals,
geopolitical perturbances, inter-market context, and lofty location, it
is the willing beneficiary of the matriarch's munificence and investor
inflationary expectation.<br />
<br />
you are what you is<br />
you is what you am<br />
you ain't what you're not<br />
so see what you got<br />
a cow don't make make hams<br />
and a bear don't make clams<br />
five years since its birth<br />
the bulls still inherit the earth<br />
<br />
p/c ratios, breadth and volatility are all sanguine — but not overly so, it is what it is — and that's all it is
<br />
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-89480750933819692632014-04-02T14:00:00.002-04:002014-04-02T14:00:58.433-04:00are we in store for another structural change to the market?a long career in the markets has afforded me the perspective to see how
the markets have changed over the years. when i first started trading
more than 40 years ago, markets were undeniably less efficient;
information was extremely asymmetric, spreads were large, audit trails
were virtually nonexistent, and there weren't any computers, nor the
internet. however, the law of ever-changing cycles has had some help
along the way; not the least of which are:<br />
<ul>
<li>government regulations</li>
<li> changes in order handling rules/reg ats</li>
<li> market fragmentation (dark pools)</li>
<li> financialization/indexed instruments & etfs</li>
<li> electronic trading</li>
<li> decimalization</li>
<li> for-profit exchanges</li>
<li> systemic market shocks (flash crash)</li>
<li> global economic shocks (credit crunch)</li>
<li> advances in information processing and the internet</li>
<li> algo/hft driven trading and market-making</li>
<li> central bank policy/qe-zirp</li>
</ul>
<br />
so, if we were to see hft banned or regulated, and a return to normal levels of human market activity, would the markets morph, once again?<div style="clear: both; text-align: center;">
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-68357355974835051292014-04-02T13:58:00.000-04:002014-04-02T13:58:02.912-04:00never trade retail...uncertainty is a fundamental reality in trading. the best we can hope to
achieve, under any circumstance, is an incomplete, but probabilistic
knowledge of that environment. most new traders neither understand the
markets are dominated by chance and randomness, nor possess the ability
to cope with the day-to-day gyrations of the market. the natural
inclination is to find a comfortable resolution and a shortcut to order
amongst all the chaos, while never understanding the structure of its
source. ironically, they tend to herd with other naive neophytes into a
socialistic like trap, incorporating cliched and anachronistic methods,
strategies, and approaches to the market. like churchill remarked, it is
a philosophy of failure, and a creed of ignorance, whose inherent
virtue is the equal sharing of misery. paradoxically, the less they
really know and understand about the market, the more they<i> think</i> they know, and the more likely they are, to have a predictive bias to the market. <br />
<br />
as previously mentioned, strategies with the greatest commitment to
predicting the future, maximizes the probability of failure. trading
today's markets requires a new approach that must be built on an
analytical framework that is relevant to current drivers of price. what
dramatically distinguishes today's markets from yesterday's trade, is
market structure and fed policy. to a very large extent, <a class="vw-link autolink" href="https://www.bigmiketrading.com/wiki/trading-wiki/Price-Action" id="autolink_14406_399878_1" target="_blank" title="Price Action">price action</a>
is no longer controlled by humans, and to an even larger extent, price
action has been contaminated by qe/zirp. unless we see a return to
normal levels of human market activity, and an absence of artificially
controlled markets by the fed, we will never see markets that even bear a
resemblance to markets of the past, nor will yesterday's approaches to
market analysis ever be applicable again.<br />
<br />
how traders cope with probabilistic uncertainty and their imperfect view
of the market is critical to their success. incorporating relevant
informational signals from a wide range of deterministic processes is
the foundation for a trader’s success. this means resisting the sirens'
call to assign causality to traditional ta patterns, trend-lines, fibs,
and other hackneyed tools that were created for highly auto-correlated
markets, driven by human decisions and real risk/reward considerations.
the new-normal approach begins with recognizing the current dynamics of
liquidity provision and developing an informational framework with
signals that reflect the machine driven reality of hft, along with an
understanding of the the impact of qe/zirp and risk-on/risk-off on
relative value and carry strategies. there is a right way and a wrong
way to deal with the inherent fuzziness and noise in today's markets,
and without the right tools and the proper perspective it's easy for
human decision makers to be misled by the machines and policy makers.
or, you could just wait for a head-and-shoulders top, trend-line
resistance, or a moving average crossover to get short, and then hope
and pray.<div style="clear: both; text-align: center;">
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-39513526102445342312014-04-02T13:50:00.000-04:002014-04-02T13:52:41.966-04:00don't blame the player, blame the game OR if i could, i always would<div style="clear: both; text-align: justify;">
i must (somewhat) sheepishly admit, that i don't see that much
difference between yesterday's human-driven liquidity providers (floor
traders) and the machine-driven liquidity providers of today (hfts). the
only difference is that as a local in the pit, we often possessed
exogenous information, that was yet to be incorporated in the market.
predatory algorithms must rely on their endogenous actions to trigger
the desired outcome. of course, in my own version of strategic
sequential trading, i would often hit bids and lift offers in search of
stops, just not as efficiently and unemotionally as hfts. of course,
our rather dubious actions were as summarily and similarly rationalized
back then as they are today; as our privilège intitulé and due
compensation for the risk we incurred for providing liquidity. after
all-was-said-and-done however, we did it for the same reason that a dog
licks his balls... because we could. perhaps, if goldman wasn't obama's
largest campaign contributor, sec employees didn't have quid pro quo
agreements with private sector bd's and wall st. law firms (for post
govt.-service employment) and the exchanges hadn't gone for-profit, mr.
lewis would have had to write a book on a different topic.
</div>
Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-83101012882216913542012-05-24T15:09:00.003-04:002012-05-24T15:14:26.043-04:00And in the "Hypocrisy Never Takes a Holiday" Department<div style="clear: both; text-align: center;">
<div style="text-align: left;">
<span style="font-size: small;"><b>In response to JP Morgan's much more aggressive approach to
investing the bank’s own funds than its competitors, Brian Moynihan,
Bank of America's chief executive told an investor conference this week,
that his bank did not pursue a macro hedging strategy of the type
thought to be responsible for losses at JP Morgan’s CIO. Other bankers
are questioning JP Morgan’s approach to customer deposits, and as these
banks rush to distance themselves from JP, hypocrisy reigns supreme</b></span></div>
<div class="content" style="text-align: left;">
<div id="post_message_22473">
<blockquote class="postcontent restore">
<span style="font-size: small;"><b><br /></b></span><br />
<span style="font-size: small;"><b>Of course, it would have been quite refreshing if Mr. Moynihan would have gone on to say...</b></span><br />
<span style="font-size: small;"><b><br /></b></span><br />
<span style="font-size: small;"><b>"We don't put the banks money at risk. At B of A we're old school, we
prefer to rip-off our customers the "old fashioned" way. We like to<i> nick</i>
our customers to death with inflated over-draft fees, and abuse them
with improper, robo-signed mortgage foreclosures. We especially enjoy
taking advantage of minorities, by selling them riskier sub-prime
mortgages, even though they qualify for safer fixed-rate ones. And then
to top it off, we like to reward our executives whom implement these
policies with inordinately high executive compensation, and keep it a
secret from the shareholders. However, we are extremely circumspect and
conservative, when it comes to investing the bank's capital."</b></span><br />
<span style="font-size: small;"><b><br /></b></span><br />
<span style="font-size: small;"><b>However; Hell hasn't frozen over yet, so I don't think we'll ever actually hear Mr. Moynihan, utter the truth.
</b></span></blockquote>
</div>
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br /></div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-20566597004407189322012-03-11T16:04:00.004-04:002012-03-11T16:10:41.305-04:00The Importance of Being Earnest, A Serious Thought about Trivial Effort<div style="clear: both; text-align: left;">
Trading itself is a naturally solitary endeavor - everyone needs to
develop their own individual methodology and execute and manage their
trades by themselves. But, we all benefit greatly from collaboration in
all the events that lead up the actual trade, i.e., research,
methodology development, and support.<br />
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Please continue to post your thoughts and observations. The flow of
ideas is the lifeblood of creative process and the raison d' etre for
forums and blogs.<acronym title="Big Mike Trading"></acronym> It is also,
the most efficient way to build and expand a network of collaborators.
This will geometrically increase the odds for generating new ideas
which may add further robustness to our trading.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
It is always interesting to look
at market variables in different ways. Adding a new class or creating
additional classes out of an existing class, creates a portfolio effect.
Different classes of measure do not behave in the same way or at the
same rate; similar to a portfolio of stocks not acting the same way as
an individual stock. The portfolio effect then, diversifies our
methodology, creates more viable trades, and adds robustness to our
overall results.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Even a competent trader’s long run edge is smaller than one would
think, due to variance, ever-changing-cycles, and emotional pressures.
Add the deployment of HFTs, and the problem is compounded to the point
where the whole is now greater than the sum of it’s parts. The result
is a finite sample of viable trades in any trade population, in any
given time period, that defines a point of diminishing returns
(over-trading). It follows then; to be exposed to the full sample, you
would have to be in front of the screen the entire time period, and
have the ability to recognize every trade opportunity.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In order to take full advantage of the sample, the trader must then be
able to hold a position (that goes against him), be able to add to a
position (that goes his way), and always be able to take the next
trade. The less skill a trader has, the less likely, the trader is
going to be able to recognize a good trade, or manage it properly once
he is in it.. Think about how many times a day, week, month, or a year,
a trader fails to execute properly, and you will have an idea of how
easy it is for a trader to diminish his probability of success. Now
consider the sample size of viable trades, for a trader with one set-up,
or a trader with a limited knowledge base and skill-set, compared to a
trader with a portfolio of knowledge and skills.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The novice trader must have a sense of purpose and immerse himself in
gaining trading knowledge. After the trader has reached the level of
competency and profitability, he must continue to put in screen time,
in order to add dimensionality and nuance to his trading. And in an era
when markets are continuously changing, a trader needs to continuously
develop fresh insights and perspectives, in order to adjust his
trading and maintain expertise. There is a saying attributed to Woody
Allen that states, “80% of success is showing up” which must mean, the
other 20% is making the most of your time.</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-22932780221836947402011-11-20T00:31:00.001-05:002011-11-20T12:33:59.279-05:00LIQUIDITY SHOCK<div style="clear: both; text-align: center;">
<div style="text-align: left;">
<span id="internal-source-marker_0.9788901249049671" style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Futures
exchanges and stock exchanges were created to justify separate economic
needs yet both have been called into question as to whether a genuine
service was being provided, or if the exchanges and traders were just
redistributing the wealth for the benefit of themselves. Commodity
futures exchanges were intended to be a venue for price discovery, risk
transference, and price speculation, while stock exchanges were
developed as a source for raising capital for extant companies and a
co-location for investors who wished to share in the profits of these
companies. In both marketplaces, customer orders flowed into the
exchanges, where liquidity was provided by market-makers, fair value
was determined, and price
information flowed back to the customers almost simultaneously. Competition
among the MMs resulted in narrow spreads and deep markets, which
resulted in efficient price discovery.</span><br />
<br /></div>
<div style="text-align: left;">
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Decimalization
eliminated the majority of market makers willing to provide liquidity
in the equity arena, while the end of open-outcry and the migration to
electronic trading, eliminated futures market makers. The majority of
liquidity is now being supplied by unregulated high-frequency traders,
who according to the TABB Group, are responsible for 56 percent of the
NYSE’s volume (includes proprietary trading shops, market makers, and
HFT hedge funds), while institutional traders comprise 17 percent
(mutual funds, pensions, asset managers), hedge funds-15%, and
retail-11%. In an Orwellian twist of fate, the business model of the
stock exchanges may have been permanently altered as a result of the exchanges going public.</span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"> </span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Now
driven by their </span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: italic; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">own</span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">
shareholders’ need for returns, </span><span style="color: black;"><span style="font-family: Verdana;">c</span></span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">apital formation appears to taken a back
seat, as the exchanges roll out new technology</span><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"> to attract even more high
frequency traders.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Investors
have yet to return in full force since the “flash crash”, leaving the
market vulnerable to the machinations of the algo-bots, indexers and
other short time-frame traders. In 1960 the average holding period for
stocks was 8 years, in 1970-5yrs., 1980-33 mos., 1990-26 mos., 2000-14
mos., 2010-6mos, and in 2011 just a little over 2 mos ( NYSE Factbook).
In addition, markets have become fragmented. Mary Shapiro admitted, as
little as five years ago, the NYSE executed nearly 80 percent of volume
in listed stocks. Today, the NYSE executes approximately 26 percent of
the volume in its listed stocks. The remaining volume is split among
more than 10 public exchanges, more than 30 dark pools, and more than
200 internalizing broker-dealers. 30 percent of volume in U.S.-listed
equities is executed in venues that do not display their liquidity or
make it generally available to the public.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">The
trader initiating a transaction is said to demand liquidity and the
opposite side of the trade supplies liquidity. Liquidity demanders place</span><a href="http://en.wikipedia.org/wiki/Market_order"><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"> </span></a><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">market orders and pay the spread, and liquidity suppliers place</span><a href="http://en.wikipedia.org/wiki/Limit_order"><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"> </span></a><span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">limit
orders and earn the spread. The algorithms that drive high frequency
trading respond quickly to order flow and price . Quotes are revised in
response to trading, and trading is done in response to changes in
quotes, giving rise to a two‐way dynamic relationship.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Algos can easily take into account common factor price
information and adjust trading and quoting accordingly, moving away or
cancelling existing bids and offers. Other algos are designed to
identify order flow and other information patterns in the data and react
in the same way or shut down altogether. Liquidity demanders will wait
until the supply of liquidity is ample, therefore, volatility is more
often a result of liquidity being pulled by suppliers e.g., the flash
crash, than an increase in buying or selling that demands liquidity.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Markets
tend to function well when a sufficient number of diverse investors
interact (liquid markets), and they tend to become fragile when this
diversity breaks down (illiquid markets). In an illiquid market weak
hands will act in concert, and take the same position based on the
observations of others; independent of their own. This of course, leaves
them vulnerable to getting blindsided by predatory traders and
parasitic algorithms. The attendant volatility and velocity of current
moves, along with the absence of follow-through, is evidence of this
phenomena. In spite of the Fed’s almost daily injections of liquidity,
headline risk regarding sovereign debt spreads continues to embolden the
strong hands to pull liquidity when they sense the timing to be
advantageous. The bulls have stepped up to the plate and continue to
bring the market back each time, like a game of Pong, but professional
money is still short. They continue to blame the volatility on
Euro-uncertainty, but it is simply the flag of convenience under which
they sail, and the corollary of their self-interest and bias. It also
the reason why they will continue to do it.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Market
structure continues to evolve at a rapid pace while traditional market
practices quickly disappear. Obligations to provide liquidity and
restrictions prohibiting practices that would disrupt market stability
are disappearing, which gives rise to some very relevant questions.</span><br />
<br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Is the market more (evolving)or less (devolving) efficient now?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Is high volatility caused by a lack of liquidity, or is the lack of liquidity caused by high volatility?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Does higher volume mean greater liquidity?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">What happens when HFTs make up 80% or 90% of the volume?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">What happens if the market continues to fragment?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Should liquidity providers be allowed to pull liquidity completely?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Is attendant volume still valid as a metric of price action?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">What happens when the average holding time for stocks is a a day?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Should there be a transaction Tax for HFTs?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">What does the increased velocity of price moves mean for price discovery and market stability?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Is price discovery nothing more than a negative feedback loop?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Are the major equity indices just a de facto measure of the money supply?</span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"></span><br />
<span style="background-color: transparent; color: black; font-family: Verdana; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">Is the Volker rule to be blamed?</span></div>
<br /></div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-61100835594268143792011-10-24T16:34:00.001-04:002011-10-24T16:36:49.357-04:00Dreamers& Schemers<div class="separator" style="clear: both; text-align: center;">
<a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"></a></div>
<b><span style="font-family: Verdana;"><span style="color: black;"><i>Anyway, no drug,
not even alcohol, causes the fundamental ills of society. If we're
looking for the source of our troubles, we shouldn't test people for
drugs, we should test them for stupidity, ignorance, greed and love of
power. </i></span></span><span style="font-family: Verdana;"><span style="color: black;">P.J. O’rourke</span></span></b><br />
<div style="clear: both; text-align: center;">
<div id="post_message_164208" style="text-align: left;">
<span style="color: black;"><span style="font-family: Arial;"><br />
</span></span>It was rollover and I was standing close to the center of the bond pit so that I would have access to both the <a href="http://www.bigmiketrading.com/wiki/trading-wiki/Spread" target="_blank">spread</a>
paper and 2nd month brokers, when Darrell Zimmerman walked up to me.
The bond market was experiencing a brief respite from it’s usual
frenzied trading activity and Darrell had taken the opportunity to come
by and talk to me. He informed me that he was working with some large
institutional traders in New York and overseas, and that they were
going to be trading some size in the 30 year. He then asked me if I
would like to fill their orders, or at least a portion of them. I
explained to Darrell that although I occasionally did brokerage, it was
only as an accommodation to the floor brokers I stood next to, so
that they would be able take a break or have lunch.The majority of the
time I functioned as a trader, and I wasn’t interested in being taken
out of the market, to fill some orders. Besides, I didn’t know who
these customers were. Darrell went on to tell me that there was going
to be a considerable amount of business, and that if I did a good job,
I could have the deck. I respectfully declined his offer and Darrell
walked away. It wasn’t long before I saw Darrell talking to another
broker on the other side of the pit, and then another. Little did I
know, that I had just made one of the smartest decisions of my life.<br />
<br />
I had met Darrell and his wife Lisa, who doubled as his clerk, in the
lounge of my clearing firm. He was a very talkative and gregarious
guy, but in a used-car-salesman kind of way. He was a perennial
bust-out, kicked out of numerous clearing firms at both the Merc and the
Board, but now had an account where I cleared my trades. There were a
lot of <i>Darrells</i> that hung around the Merc and Board; ego-driven
dreamers that chronically blew up their trading accounts, yet always
found a way to get back in the game; hanging on a little while longer
before justice was inevitably meted out. A lot of them would quietly
disappear, while others would get jobs on the floor, evaporating into
the milieu of floor clerks never to be seen or heard from again, yet
always fantasizing about making it big one day.<br />
<br />
Every trader did it; dreamed about the big trade; fantasized about
taking a shot. Chicago’s traders had their own mythical way for
making this dream come true, the O’hare <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/Spread" id="autolink_4635_164208_1" target="_blank" title="Spread">spread</a>.
The idea was to put on an incredibly large position, get in a cab,
and head for O’hare airport. If the trade was a winner, you either
returned home or got on a plane to Hawaii - if the trade was loser,
you bought a one way ticket to a country that did not have an
extradition agreement with the U.S. We also had a saying, “If you are
going to blow out, blow out big” If your debit was too small, your
clearing firm would write off the loss, and then write you off. But in
the CBOT's version of “too big to fail", if you hurt your clearing
firm bad enough, they would arrange a way for you to generate the
income necessary, to pay them back. Apparently, Darrell had taken these
fantasies to heart having already already planned to put on an O'hare
spread, before he approached me in the pit that day. While I had refused
his offer, he did manage to enlist 9 unwitting brokers to assist him
and his partner, Tony Catalfo, in a scheme that would bring down one
of the oldest clearing firms at the CBOT.<br />
<br />
The bell rang at 7:20 AM on a Thursday morning and Tony, who had
strategically placed himself in the Bond options pit, was buying up
every at-the-money put he could get his hands on. Meanwhile, Darrell was
putting in huge sell orders in the bonds to the 9 brokers whose help
he had enlisted earlier. Tom Baldwin was on the other side of the bulk
of these orders, and when the options traders started to lay off the
puts they sold to Tony, with short hedges in the bond futures, panic
ensued and the market had nowhere to go but down. Darrell then entered
the pit himself and began to sell more bonds. In the Bond options pit,
the put options were going through the roof, and Tony was beginning
to take profits on his long put position. This all took place before
7:30 AM, when an economic release came out which was negative for bond
prices. In a stroke of incredible luck, the market broke even more
and Tony covered the balance of his position for about a 1.5 million
profit, while Darrel was now short about 12,000 bond futures, and up
about 5MM on his open position. The feedback loop of selling they had
created was working perfectly.<br />
<br />
Darrell had been dismissed long ago from my clearing firm, and along
with Catalfo, was now clearing Stern & Co., a family run business
that was founded by Lee B. Stern. Lee had made his fortune trading
grains, and owned the Chicago Sting soccer franchise, a piece of the
White Sox, and was one of the most respected members of CBOT. Lee
rarely came onto the floor anymore, but when he did make an appearance
in one of the grain pits, his actions were highly scrutinized by
other traders, as a possible clue to where the market was headed.<br />
<br />
Bad news travels fast in the futures industry and virally fast on the
floor, so it did not take long for word of Zimmerman’s and Catalfo’s
involvement in the <i>bond panic, </i>to reach Stern’s office. Lee’s <acronym title="Square of Nine">son</acronym>
and a few of the firm’s employees rushed to the floor and quickly
enlisted the help of the security guards. Zimmerman had lost his count
and was standing outside of the pit when they grabbed him, while they
physically pulled Catalfo out of the Bond options pit. After
witnessing this melee, traders in both pits began to piece together
what had happened. Tom Baldwin , who had been unsuccessfully taking the
opposite side of Zimmerman’s orders, realized the sell-off had been
artificially induced, and that traders would have to cover their
shorts. He quickly took advantage of the situation and began to bid up
the price of bonds. Bond futures and bond options prices reversed on
a dime and snapped back with a vengeance.<br />
<br />
Meanwhile, Stern’s employees, who had wrestled the trading cards out
of Tony and Darrell’s hands, were frantically trying to get a handle on
what was now, Stern's position. In addition to the trades that Tony
and Darrell had made, were the fills of the 9 floor brokers, which had
to be collected and aggregated in order to get an accurate count. It
took them 2 hours before they could figure out the position, and what
had been a $5MM winner, had turned into an $8.5MM loser by the time
the position was liquidated. Had they been able to figure out
Zimmerman’s position quicker, and not tipped off floor to what was
going down, Stern could have escaped with anywhere from a small loss
to a small gain. Instead, Stern had to make good for Zimmerman’s
$8.5MM loss, and as a result, lost it’s clearing status after 25 years
in business, and had to lay off 20 employees.<br />
<br />
Catalfo tried to collect on his $1.5MM profit on his options
position, but received a 42 month prison sentence instead.The proceeds
from his trades were awarded to Stern to help offset his losses, while
Stern went after the 9 filling brokers for the balance. Zimmerman
hopped in a cab to the airport and got on a plane to his parents home
in Canada, completing the other leg of the O’hare spread. He was
eventually extradited and sentenced to 42 months for <i>his </i>efforts.
Darrell Zimmerman came very close to pulling off his insane plan, but
he let his ego and his greed get the best of him. Had he executed his
plan on a smaller scale, in a more restrained manner, he might not have
aroused the suspicion of his clearing firm. He had the market right
where he wanted it, and had he not lost his count and tipped his hand,
he might have been able to cover his position while it was still a
huge winner. Whether they would have let him keep his profits is
highly dubious, because Zimmerman’s sole legacy from his lunatic
scheme, is the eponymously named rule, that allows clearing firms to
seize the profits of any trader that attempts to take a shot at them.</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-68692978527546616312011-10-22T13:54:00.001-04:002011-10-22T13:55:43.387-04:00Off To A Dubious Start<span style="color: black;"><span style="font-family: Verdana;">As stated earlier in the
week, price action warranted that a “modestly bullish discretionary
bias” be adopted for equities. Long time-frame participants made the
case as they finally asserted their dominance by marking up the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym>,
on Friday, closing it above the 200DEMA, the 10-day “mini” trading
range (1085-1225), and the +2 month trading range (1070-1230), with a
+90% day (charts 4&5).</span></span><br />
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<br />
<span style="color: black;"><span style="font-family: Verdana;">For the week, the Dow was up </span></span><span style="color: black;"><span style="font-family: Verdana;"><b>+1.4%</b></span></span><span style="color: black;"><span style="font-family: Verdana;">, scoring a fourth straight winning week. The S&P 500 gained </span></span><span style="color: black;"><span style="font-family: Verdana;"><b>+1.1%</b></span></span><span style="color: black;"><span style="font-family: Verdana;">, but the Nasdaq Composite Index was down</span></span><span style="color: red;"><span style="font-family: Verdana;"><b>-1.1%</b></span></span><span style="color: black;"><span style="font-family: Verdana;"> for the week, along with the 2K, which was down </span></span><span style="color: red;"><span style="font-family: Verdana;"><b>0.01%. </b></span></span><span style="color: black;"><span style="font-family: Verdana;">Friday
the trading volume total reported on the NYSE was higher, while volume
was slightly lower on the Nasdaq. Advancing issues beat decliners by
more than </span></span><span style="color: black;"><span style="font-family: Verdana;"><b>6-1</b></span></span><span style="color: black;"><span style="font-family: Verdana;"> on the NYSE and by </span></span><span style="color: black;"><span style="font-family: Verdana;"><b>3-1</b></span></span><span style="color: black;"><span style="font-family: Verdana;">
on the Nasdaq exchange. New 52-week highs expanded and in the process,
outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange
97-24.</span></span><br />
<br />
<span style="color: black;"><span style="font-family: Verdana;">Breadth followers
(McClennan, Hulbert), investment sites (Bespoke), and perma-bulls, were
quick to jump on the breakout bandwagon and herald the “confirmation of
a new uptrend”, even though key earnings reports and Wednesday’s EU
summit meeting developments, still pose a potential threat to the
viability of the very nascent breakout.</span></span><br />
<br />
<span style="color: black;"><span style="font-family: Verdana;">The past few trading days
saw long term breadth indicators hold onto their bullish signals (chart
1), while their short-term components were negative, implying that the
market had underlying strength, but was overbought. If an overbought
market refuses to decline, it is usually a sign of strenth. This
typically happens early in a new bullish phase, and it appears to be
what's occurring at this time. However, the bulls haven't gained
complete control, and there are still some divergences present that are a
cause for concern.</span></span><br />
<br />
<span style="color: black;"><span style="font-family: Verdana;">Most notable, are the
respective negative closes of the Comp and R2K this week. Both of these
indices have shared the role of “leading index” in both directions,
among the four major indices (SPX,COMP, DJIA, RUT). The fact that these
two leading indices closed lower on the week, belies the supposition
that this latest move is indeed the beginning of a stronger
intermediate-term bullish phase in the broad market (chart 8). The most
bearish indicator however, has been the $VIX (chart 9), which closed
below 30.00 last week, only to rally as high as ~37.00 and close above
30.00 every day, this week, which may explain why the <acronym title="(COT) Commitment of Traders">COT</acronym> report shows smart money's short position increased as they sold into the rally (chart 3).</span></span><br />
<br />
<span style="color: black;"><span style="font-family: Verdana;">As always, there </span></span><span style="color: black;"><span style="font-family: Verdana;"><i>is</i></span></span><span style="color: black;"><span style="font-family: Verdana;">
a case to be made for the bullish camp. There is the very bullish
October, and 4th quarter seasonality associated with equities, and as
was alluded to earlier, there is the possibility that Operation Twist,
may indeed have the same salubrious effect on the market, that QE1 and
QE2 had on equities (chart 2).</span></span><br />
<br />
<span style="color: black;"><span style="font-family: Verdana;">That being said, I think the
market rallies from this level, but exhausts itself before ever
reaching the 1260.00 level. Then we’ll see if the bulls step back in,
support the market, and run it up in time for Santa to bring his annual
cheer to the markets.</span></span>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-24332654763988498742011-10-21T11:28:00.003-04:002011-10-21T11:32:09.204-04:00Stairway to Heaven or Highway to Hell<div style="clear: both; text-align: center;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiwCAUp3Kp8I6hQ-iAHx-8L5rStLusLDApZOkV1ohRg3brVde7tpIxU3xS1q9AL3knaseZIdKf4lFv6Jzl3sflZX5v0zvHgRR0q1osxAHkmvBeiBw-Ev9x2r3NPOCWTsVmQEghW0agHOF3/s1600/ES+12-11+%2528Daily%2529++12_21_2010+-+10_21_2011.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiwCAUp3Kp8I6hQ-iAHx-8L5rStLusLDApZOkV1ohRg3brVde7tpIxU3xS1q9AL3knaseZIdKf4lFv6Jzl3sflZX5v0zvHgRR0q1osxAHkmvBeiBw-Ev9x2r3NPOCWTsVmQEghW0agHOF3/s400/ES+12-11+%2528Daily%2529++12_21_2010+-+10_21_2011.jpg" width="400" /></a></div>
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The market continues to be event driven as it awaits a resolution
over the EFSF leverage issue. In the interim the market is in a holding
pattern hovering just above support at it’s 50DEMA and just below
resistance at it’s 200DEMA (chart1). The burning question is whether
the market is consolidating above support (1190-1185) or whether the
price action is distributional as a result of the market's continued
inability to break the 1220-1230 level. A break lower would result in
the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> testing 1170 and a break higher would result in an assault of 1260.</div>
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<div id="post_message_163617">
Unfortunately, signals are mixed. Cumulative market breadth ($ADD) and
cumulative $TICK are positive, however their shorter time-frame
constituents are negative, which implies that the market is simply
overbought (chart 5). Breadth was mixed today, with a slight positive
advantage on the NYSE and a modest negative margin registered on the
NASDAQ, however the amount of new lows expanded, while the amount of
new highs contracted, offering further evidence of short-term
weakness, while the continued strength of the $VIX issued a clear signal
of present danger, as it once again, closed above it’s 50DEMA and
traded as high as 36.87 today (chart 4).<br />
<br />
On the bullish side of the coin, market lows are usually made in the
month of October, and the fourth quarter has historically been the
strongest quarter for the market. Since1928, the S&P 500 has
averaged a gain of 2.44% in the fourth quarter, and over the last 20
years, the index has averaged a gain of 4.57% in Q4, which is more than
twice as strong as the next closest quarter. So even, if the market
were to break from here, there is a high probability that it would snap
right back. The yield curve is steepening once again as treasury
yields rise which may be a welcome presage for the bulls, if OT’s
effect on the market is similar to the effect QE1 and QE2 had in the
past (chart 2). However, as with the <i>market sell-off</i> scenario, I would expect a near term rally to quickly exhaust itself at the aforementioned level of 1260.00.
</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-59401853221408412682011-10-20T06:08:00.001-04:002011-10-20T06:10:11.574-04:00Opex Pump and Dump?<div style="clear: both; text-align: center;">
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The bulls failed to follow through on yesterday’s comeback rally, as
the event driven market ran out of steam at the 200DEMA, once again. As
was stated yesterday ,“the market needed to accept above Friday's VAh @
1215.25, and quickly make new highs with a close above the 200DEMA, in
order to meet it's 1260.00 target, otherwise the double-top reversal
scenario would take precedence going into opex,“ which is exactly the
situation the market now finds itself in, with 1215.25 now becoming
short-term resistance.<br />
<br />
While the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym>
still closed well above it’s 50DEMA, and held the bottom trendline of
it’s bull channel, the VIX closed above 34.00, and above it’s 50DEMA,
along with the $ TICK daily, which closed below zero for the first time
since the rally began on 10/04, casting doubt as to whether the
nascent rally is capable of being sustained.The October VIX Futures
settled at 33.15 this morning, down 57 cents from last month's
settlement. This is the third month in a row that the futures expired
with a value above 30. This hasn't occurred since the 2008 crash,
proving once again that fear is a stronger emotion than greed, and that a
break to 1170.00 is highly probable.</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-85774544682616341842011-10-18T17:23:00.002-04:002011-10-18T17:25:08.477-04:00Bulls Blast Off!<div class="separator" style="clear: both; text-align: center;">
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<br />
The bears failed to follow through with what they began early Monday
morning, allowing the bulls to regroup and maintain control. Once
again, the market quickly discounted the negative news out of Europe,
allowing the bulls to not only support the market, but to
unceremoniously, launch it higher. Market rebounds needs a certain
amount of strength showing up in the A-D numbers at the beginning of an
uptrend, or else prices roll over and head back down to the level of
the prior low, or even lower. The NYSE answered the call today, with
close to a 90% day, on 9-1 positive breadth, and 26 new highs to go
with the NASDAQ’s 24 new highs, on very good volume. And, in the
process, may have answered the question on everybody’s mind the past
few trading sessions. Are the bulls getting stronger, or were the bears
just laying in weeds, waiting for the right opportunity to deliver
maximum pain? While the question may have been answered resoundingly
today, I must admit, the price action still casts a sliver of doubt in
my mind.<br />
<br />
The market now needs to accept above Friday's VAh @ 1215.25, and quickly
make new highs, or the double-top reversal scenario will hang over the
market going into opex. Nevertheless, from the attached chart, it is
evident that the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym>
was still firmly ensconced in it’s recent upward trend channel. One of
the best indicators of a change in the short term direction of the
market in the recent choppy trading environment, has been the holding
or breaking of an extant trend channel, as we witnessed this morning.
Sometimes, it's best to keep things simple.</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-73603946989108076322011-10-18T08:33:00.001-04:002011-10-18T08:35:21.453-04:00Just When You Thought It Was Safe To Buy Equities...<div style="clear: both; text-align: left;">
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Last night’s rally on bullish follow-through momentum from Friday, ran out of buyers early Monday morning as the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> ran up against it’s 200 DEMA and <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/RTH" id="autolink_7397_162653_1" target="_blank" title="RTH">RTH</a> - R2. Once again, headlines out of Europe was the catalyst for another global equities sell-off, as the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> took it on the chin for 38 points (H-L) with the small caps (<acronym title="(TF) Russell 2000 Futures Contract">TF</acronym>) and European indices (FESX,FDAX) leading the way down.<br />
<br />
Liquidity was adaequate which resulted in an orderly trend-day-down
which never reached waterfall status. No doubt weak longs were the
target of the sell-off, which resulted in an only 9% day on the NYSE and
a 17% day on the NASDAQ, with declining shares leading advancing
shares 5-1 on both exchanges. Nevertheless, there were 30 new highs
combined on the 2 exchanges, but also 29 new lows.<br />
<br />
Market internals and price action still suggests that the bulls are in
control, as the bulls continue to support the market on bad news, and
rally the market on good news. Ranges have contracted, and liquidity is
not being pulled as often as it had been, along with the recent
improvement in market breadth and leadership.<br />
<br />
While all the indicators are not bullish, the major indices are still
above their 50EMAs and the VIX is still below its 50EMA, but they must
quickly consolidate at current levels (1190.00), and assert their
strength once again, (accept above 1220.00) if they are going to resume
the uptrend and fulfill their upside potential. <br />
<br />
Still, in the near and intermediate term, the market remains vulnerable
to headline risk out of the Euro-zone, along with negative economic
news at home. An $SPX close below 1170 and a $VIX close above 34 would
consequently, alter my somewhat bullish view.
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-2502203480667459912011-10-16T10:16:00.002-04:002011-10-16T15:51:54.508-04:00Trading With A Twist<div style="clear: both; text-align: center;">
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<div style="text-align: left;">
As a recent article in <i>Bespoke</i> pointed out,<i>
“It has been three weeks now since the Fed formally announced its $400
billion Operation Twist program on September 12th. If early
indications are a sign of what's to come, however, this will be the
third straight time the Fed has tried and failed to lower long-term
interest rates through the Treasury market. “</i></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Operation Twist involves selling short-term Treasuries in exchange for
the same amount of longer term bonds. The policy’s intent is lower
yields on long term bonds, while keeping short term rates little
changed, in essence, to flatten the yield curve. A failed policy in
1961, I seriously doubt that Bernanke himself, thought that increasing
the average maturity or “twisting” the Fed’s portfolio, would have any
effect on the economy or rates. In reality, it was more of a PR move
designed to reiterate the central bank’s policy objectives, and
maintain credibility with the investing public.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
While the Fed’s policy attempts have fallen short at bringing down
rates and invigorating the economy, there is no denying the impact they
have had on the broader market. Once again, the SPX appears to have
put in a swing bottom that is highly correlated with the Fed’s actions,
and once again rates are rising concomitantly. (Chart 1)</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Whether intended or not, the Fed’s machinations have an effect on the
markets, that can present observant traders with relevant opportunities
that have a high probability of success. Operation Twist, of course,
involves the simultaneous sale and purchase of both short and long-term
securities, so it’s impact will be the greatest on the Treasuries’
yield curve.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Investopedia defines the yield curve as,<i> A line that plots the
interest rates, at a set point in time, of bonds having equal credit
quality, but differing maturity dates. The most frequently reported
yield curve compares the three-month, two-year, five-year and 30-year
U.S. Treasury debt. This yield curve is used as a <a href="http://www.investopedia.com/terms/y/yieldcurve.asp#" rel="nofollow" target="_blank">benchmark</a>
for other debt in the market, such as mortgage rates or bank lending
rates. The curve is also used to predict changes in economic output and
growth.</i></div>
<br />
<br />
<a class="highslide" href="https://lh3.googleusercontent.com/qo5rvhhcWp2CCaWdOpXujEWscpSXcFqfju80etBlbc96oNbdwF5nNiPEWkSE2D1MYMfIdelbLpC8edp-X_JNMCg8QKqv_23SPFjsOKAMo5Ck62l2H8M" rel="nofollow"><img alt="" border="0" id="hs_imageresizer_container_1" src="https://lh3.googleusercontent.com/qo5rvhhcWp2CCaWdOpXujEWscpSXcFqfju80etBlbc96oNbdwF5nNiPEWkSE2D1MYMfIdelbLpC8edp-X_JNMCg8QKqv_23SPFjsOKAMo5Ck62l2H8M" style="max-width: 651px;" /></a><br />
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In futures terms , it is the <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/Spread" id="autolink_4635_162209_1" target="_blank" title="Spread">spread</a> between the yields of the same security with differing maturities, and the <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/NOB" id="autolink_7556_162209_2" target="_blank" title="NOB">NOB</a>
spread is one of the most heavily traded yield curve spreads. If you
expect the yield curve to to steepen, you typically want to buy the
spread. If you expect the yield curve to flatten, you will want to sell
the spread. </div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
If a trader expects the yield curve to steepen, he can buy the 10 year
note and sell the 30 year bond( buy the NOB). When the yield curve
steepens, the 10 year Treasury cash yield will fall relative to the
30-year Treasury cash yield, and the10-Year Note futures price will
rise relative to the 30-Year bond’s futures price.That is, a long
position in the 10-Year Note futures will gain more than a short
position in 30-Year bond futures will lose. Due to the inverse nature
between price and yield in Treasuries, the yield spread will increase,
but the price spread will decrease as with any bull spread.The converse
is true, for a trader that is expecting the curve to flatten.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
True yield curve spread filters out directional effects (i.e., changes
due to parallel shifts in the yield curve) and responds only to changes
in the slope of the yield curve (i.e., non-parallel shifts).The goal
is to filter out directional effects and design a spread trade that
will respond only to changes in the shape of the yield curve. In order
to do so, NOBS are usually traded as ratio spreads, with the current
ratio being 5:2, notes over bonds. This ratio matches the dollar value
of a 1-bp change (DV01) in the yield of the shorter-term maturity
futures position and that of the longer-term maturity futures position.
A DV01 indicates approximately what one futures contract will gain or
lose in dollars for every 1-bp change in yield.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
It is best to trade the NOB in the direction of the prevailing trend,
by buying weakness at or near support or selling strength at or near
resistance, however a mean reversion strategy can be utilized in a range
market. A daily chart can be used to identify the prevailing trend,
and a 15 minute chart is good for execution. Since the end of July/
beginning of August, the yield curve had been flattening, so selling
the NOB on rallies, was the best strategy. However, in an ironic<i> twist</i>
of fate, yields on treasuries have rallied, and so has the yield
curve, since Operation Twist was implemented on Sept. 21. Until a bottom
in yield and a change in the curve is confirmed, I would consider the
curve trade a trading affair. (Chart 3)</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Unfortunately, if you use NinjaTrader, their platform is not conducive
to spread trading, so if you want to put on a spread, you have to leg
it. You will also be unable to place a stop using the spread price, so
it must be done dynamically. Other platforms, i.e., TT and Cunningham,
cater more to spread traders. I like the “pairs suite” indicator,
along with a few others that can be found on <acronym title="Big Mike Trading">BMT</acronym> or <acronym title="NinjaTrader">NT</acronym>,
that work just as well. In addition, I overlay the PRC2 indicator on
the “pairs ratio” indicator, which provides me with support/resistance
and a visual of the near -term trend, and use the RSI of the spread for
confirmation. I trade the spread with a 2:1 ratio, instead of the
recommended 5:2, just for simplicity’s sake, but one can experiment
with different ratios to achieve different <i>deltas.</i></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
<i>“A yield curve spread trade is a speculative trade, but it shifts
the burdenof speculation from taking a position on interest rate or
price direction to taking a position on what you expect the yield curve
to do. This gives you an extra way to be right, for you have no
concern for rate or price direction, only for yield curve steepening or
flattening.”</i> CME Group
</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-56364839991295263212011-10-15T10:37:00.000-04:002011-10-15T10:39:15.961-04:00Bullish Breadth<div style="clear: both; text-align: center;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-Ik53cM3JqVz2rnGV1tLD2Lq0igmZqXPnPxcf1Isej2gyMIea6CBy_-atTCkWpdfwblPu6VRyniFkrsmjWNZgAokjknYSrVbkEFfErOjOHPY5zWMLbcmNr543CnJ8EbObvNO4plfbfnEU/s1600/spx1014.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="211" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-Ik53cM3JqVz2rnGV1tLD2Lq0igmZqXPnPxcf1Isej2gyMIea6CBy_-atTCkWpdfwblPu6VRyniFkrsmjWNZgAokjknYSrVbkEFfErOjOHPY5zWMLbcmNr543CnJ8EbObvNO4plfbfnEU/s400/spx1014.png" width="400" /></a></div>
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<br />
<div style="text-align: left;">
<a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a>While the war is certainly far from over, the bulls won the battle
today, staging a late afternoon rally, after what had been a day of
distributional action and indecisiveness. Retail sales rose in September
by the most in seven months, however, consumer confidence cast doubt
as to whether gains in spending could be sustained, as shoppers’
confidence waned. The market rallied briefly after the news, making new
highs, but a short term overbought market, was unable to overcome the
sell-the-new-high algorithms.The market then traded in a narrow range,
under the session <acronym title="(VWAP) Volume Weighted Average Price">VWAP</acronym>,
unable to get above it’s opening range for most of the day. However,
the market languished in a territory that was well above the previous
day’s value and never below the <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/RTH" id="autolink_7397_161983_1" target="_blank" title="RTH">RTH</a> session R1, as capital flowed into risk assets and out of treasuries and the dollar.<br />
<br />
While market breadth continued to swing wildly back and forth with the
market’s volatile movements, the past few sessions has seen breadth
expand to the point where breadth indicators began to elicit buy
signals. According to Bespoke,<i>“77% of S&P 500 stocks are now
above their 50-day moving averages, which is the highest level seen
since the April highs. Bulls have been waiting for a nice expansion in
underlying breadth for confirmation of a rally, and now they seem to
have it.”</i> Today’s internals confirmed, as the NYSE put in an 83%
day, with advancing shares leading the way, by almost 5-1. New highs
blew away new lows on the NYSE and NASDAQ, 49-15 as techs took charge,
once again. For the week, the Dow Jones Industrial Average rose 541
points, or +4.9%. The S&P 500 Index gained 69 points, or +6.0%, its
best week since July 2009. The Nasdaq was up 188 points, or +7.6%.<br />
<br />
Volatility continued to be drained, as the $VIX finally broke below
it’s support @ 30.00, signalling that it is now safe for any reluctant
bulls, to buy. According to Rennie Yang, the $VIX has fallen 7 straight
days, 37 times since 1990, and 91% of the time, the SPX was higher 2
months later. The <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> has now retraced 50% of it’s move from it’s 52 week high-low, yet unlike the <acronym title="(NQ) NASDAQ 100 Futures Contract">NQ</acronym>,
it has yet to trade above it’s 200DEMA at 1232.00. And while those in
the bulls' camp would prefer to see a more decisive "confirmation day",
with market acceptance above the 200MA as a sign of renewed
institutional demand, the bulls appear to have the upper hand, holding
the door open for a move to 1260.00 - which certainly suggests that a
modestly bullish discretionary bias is warranted in the short term.
</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-47785666195466649902011-10-12T19:43:00.001-04:002011-10-12T19:50:33.273-04:00<div style="clear: both; text-align: center;">
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<b><span style="font-size: x-large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHP9EA2mCmdgfoibDhyuHPffgcZGbtLYWdKRQicUvEWwl1xCGs-Jq071GjrsaBz8a76jgI96SPyuG7MNnigRkIOu7NpJj7yBsUtSTnfvot9pqPwxE1i2hBPTYPESyRhY1INSm1x3fSYhEX/s1600/ES+12-11+%2528135+Min%2529++10_12_2011+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;">Recalcitrant Rally</a></span></b></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><img border="0" height="157" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHP9EA2mCmdgfoibDhyuHPffgcZGbtLYWdKRQicUvEWwl1xCGs-Jq071GjrsaBz8a76jgI96SPyuG7MNnigRkIOu7NpJj7yBsUtSTnfvot9pqPwxE1i2hBPTYPESyRhY1INSm1x3fSYhEX/s400/ES+12-11+%2528135+Min%2529++10_12_2011+2.jpg" style="margin-left: auto; margin-right: auto;" width="400" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: large;">ESZ 135min</span></td><td class="tr-caption" style="text-align: center;"><span style="font-size: x-large;"><br /></span></td></tr>
</tbody></table>
<div style="text-align: left;">
Although the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> closed up 1% today, on day 7 of the rally off the last Tuesday’s swing low, the market <i>was </i>wacked for 20 handles in the last hour of trade, as it approached it’s 200 DEMA, and the <acronym title="(6E) Euro EUR/USD Futures Contract">6E</acronym>
tested it’s 50DEMA. Ironically, the market had been enjoying a very
strong day, and still put up very good numbers on the day, with the
NYSE enjoying close to a 90% day, on good breadth( 9-1), and new highs
outpacing new lows 17-2. The NASDAQ experienced a 72% day, with
advancing shares leading declining shares by 4-1, and new highs
exceeding new lows 21-14.<br />
<br />
Waning momentum finally caught up with the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym>,
as it came within 5 points of reaching the 1220 level which was
previously identified as being an upside target, and an area of
resistance. Although the market’s rally is still intact and not
technically damaged, the inability of the market to stage a true
follow-through-day, should quickly attract shorts. Support now looms
below at 1180 and 1150. A break below 1150 would no doubt embolden the
bears for a run at taking out last Tuesday’s low.</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-53402365689980719202011-10-11T18:15:00.000-04:002011-10-11T19:22:05.660-04:00<div style="clear: both; text-align: left;">
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<span style="color: #38761d; font-size: x-large;">Crunch Time </span></div>
While both the <acronym title="(ES) S&P 500 Futures Contract">ES</acronym> and the $VIX closed unched for the day, the bulls managed to keep the trade above the <acronym title="(VWAP) Volume Weighted Average Price">VWAP</acronym>
for the majority of the day. This was the 6th trading day since the
swing low was made last Tuesday, and the first day the market didn't
close higher. It was also notable for the lack of volume, which was
lower than yesterday's, which was a bank holiday.<br />
<br />
Nevertheless, The <acronym title="(ES) S&P 500 Futures Contract">ES</acronym>
closed above it's 50EMA for the second consecutive day, and the $VIX ,
closed below it's 50EMA for 2nd straight day, also. Breadth was
slightingly bullish, and as could be expected, it was an approximately
50% day on both exchanges. Of note, however, was the fact that new highs
finally led new lows on the NYSE, as new lows led new highs on the
NASDAQ. In total on both exchanges, new highs led new lows, 40-25.<br />
<br />
<div style="text-align: left;">
<a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a></div>
<div style="text-align: left;">
Of greatest concern for the bulls, is the anemic volume, although some
leadership appeared today, with the slight expansion in the number of
stocks making new highs. A convincing FTD would confirm a continued
rally, however it is most ideal for a FTD to come between day 4-7 of a
new rally attempt - so time is running out.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Certainly, all the shorts who wanted to cover, have had their chance, so
it is doubtful, whether there are any weak shorts left, that could
continue to fuel the rally. Buying, in the form of new longs, is needed
for a sustainable second leg of the rally.<br />
<br />
Instead it is beginning to
look a lot like price exhaustion. As TD said the other day, tops and
bottoms are not made by selling and buying, but by an absence of buying
and selling. The lack of volume the past 2 days is indicative of buying
drying up, and a swing top.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Once again, the market is at a level, where it has rallied dramatically
to before, and failed, just as dramatically. It appears that tomorrow
(Day7), may be "crunch time" for the bulls, where a failure to rally on
big volume, with emerging leadership, will spell the end.</div>
</div>Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-55223095865903410602011-10-09T09:58:00.000-04:002011-10-09T10:21:14.524-04:00<div style="clear: both; text-align: center;">
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<span style="font-size: x-large;"><b><span style="color: #38761d;">Good News Bulls</span></b></span></div>
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<span style="font-size: x-large;"><b><span style="color: #38761d;">11/07/2011 </span></b></span></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr align="left"><td><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEissKKPkph5BxgZff-YnQVrJ2nR9I6r6E3V06NrFFIj9msK0C5PDfqXyMMWt55V3D6Pm7I-D6VAO_AL8KHm7J38b6iajg9uITnI5MjDcRGnHqaQLadnAdfNq1xLAjqDcJT23nXNRbf6x2km/s1600/%255EVIX+%2528Daily%2529++2_4_2011+-+10_7_2011.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="283" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEissKKPkph5BxgZff-YnQVrJ2nR9I6r6E3V06NrFFIj9msK0C5PDfqXyMMWt55V3D6Pm7I-D6VAO_AL8KHm7J38b6iajg9uITnI5MjDcRGnHqaQLadnAdfNq1xLAjqDcJT23nXNRbf6x2km/s400/%255EVIX+%2528Daily%2529++2_4_2011+-+10_7_2011.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">$VIX</td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqasStGCa7vONwj2B_d7cetRWHm7Y6CM_EFSQEMGxpmTWs899fuZjDNWqb31bv3k7FcCk5AwbmWsrQl2gGB_livfaWRpMPLUMom7IMhrNAOIVm3_32oV5pXmsnMDPuFADnZyGelR3B_tHg/s1600/ES+12-11+%252860+Min%2529++10_7_2011.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="295" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqasStGCa7vONwj2B_d7cetRWHm7Y6CM_EFSQEMGxpmTWs899fuZjDNWqb31bv3k7FcCk5AwbmWsrQl2gGB_livfaWRpMPLUMom7IMhrNAOIVm3_32oV5pXmsnMDPuFADnZyGelR3B_tHg/s400/ES+12-11+%252860+Min%2529++10_7_2011.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ESZ 60 Min</td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj47tFIdvPGCErUxMY5__WXkg1d0pEFO-n1rEAJ2RTub-zhokVi56zV-92KN7pW1JNrN9xz7TuWRsHg2j96I_FsCRVyzhfBFsnslA5xdZbRqoM_acpkqgLlqlFBGIszyeYLEG-LjRJ0wJ2C/s1600/ES+12-11+%2528135+Min%2529++10_7_2011.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="283" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj47tFIdvPGCErUxMY5__WXkg1d0pEFO-n1rEAJ2RTub-zhokVi56zV-92KN7pW1JNrN9xz7TuWRsHg2j96I_FsCRVyzhfBFsnslA5xdZbRqoM_acpkqgLlqlFBGIszyeYLEG-LjRJ0wJ2C/s400/ES+12-11+%2528135+Min%2529++10_7_2011.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">ESZ 135 Min</td></tr>
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<span style="font-family: Verdana;"><span style="color: black;"><acronym title="(ES) S&P 500 Futures Contract">ES</acronym> continued to trade within it’s 4 day up-channel, which had lifted off on<acronym><i> </i></acronym></span></span><span style="font-family: Verdana;"><span style="color: black;"><i>Turnaround Tuesday, </i></span></span><span style="font-family: Verdana;"><span style="color: black;">with
a 45 point rally in 45 minutes. Although the market dramatically sold
off just after the New York lunch hour today, the market held the lower
trend-line of the channel and a confluence of important levels (50EMA -
60 min. and the weekly pivot) @1145.00 (ESZ).</span></span><span style="font-family: Verdana;"><span style="color: black;">
Nevertheless the market did close lower, leaving a bear hook reversal
on the daily chart; certainly a negative development for the bulls
after having received positive news this morning from the BLS.<br />
<br />
Declining issues led advancing issues on both the NYSE and the NASDAQ
by 4 to 1 and new lows led new highs 51 to 21 on the 2 exchanges. </span></span><span style="font-family: Verdana;"><span style="color: black;">
Relatively low volume and a lack of leadership has been characteristic
of this week’s nascent rally, and large specs accordingly seized the
opportunity to get slightly shorter.</span></span><span style="font-family: Verdana;"><span style="color: black;">
The closely watched $VIX closed steady, but held it’s major up-trend
line, and closed above it’s 50EMA , while the NQZ traded above it’s
50EMA, but closed below it, as did the FDAX.</span><br />
</span> <span style="font-family: Verdana;"><br />
</span> <span style="font-family: Verdana;"><span style="color: black;">Time is running out
for the bulls to mount a serious offensive in the form of a
follow-through-day, as the market has not demonstrated strong
leadership from any of it’s major indices, and the pool of weak shorts,
yet to </span></span><span style="font-family: Verdana;"><span style="color: black;"><i>pay up</i></span></span><span style="font-family: Verdana;"><span style="color: black;">, is quickly </span></span><span style="font-family: Verdana;"><span style="color: black;"><i>drying up. </i></span></span><span style="font-family: Verdana;"><span style="color: black;">The past week’s short covering rally was due in part, to the fact that all the </span></span><span style="font-family: Verdana;"><span style="color: black;"><i>bad </i></span></span><span style="font-family: Verdana;"><span style="color: black;">news concerning Europe had been fully priced into the market. However, it now </span></span><span style="font-family: Verdana;"><span style="color: black;">feels</span></span><span style="font-family: Verdana;"><span style="color: black;"> that all the<i> good</i> news has been fully discounted by the market, and all that is left is the <b><i>actual</i></b> collapse of the banking system.</span><br />
<br />
</span> <span style="font-family: Verdana;"><span style="color: black;">Nevertheless, if the
market were to rally, the next area of resistance is ~1180.00 -1184.00
and if the market were able to breach that level, it could melt up to
1220.00, however such a scenario seems unrealistic.</span></span><span style="font-family: Verdana;"><span style="color: black;">
The governments and central banks in Europe continue to pour money
into the financial system in order to forestall the European Banking
crisis, which no doubt, fuels inflationary expectations, which
includes equity prices. This reaction probably contributed to last
week’s global equity rally, but will certainly not be able to sustain
any kind of a meaningful rally.</span></span><span style="font-family: Verdana;"><span style="color: black;">
Re-emerging negative headlines out of Europe, is more likely to occur,
and a failure from these levels would have very bearish implications.
Near term targets are 1130.00, 1115.00, 1100.00, intermediate term
target of 1050.00 basis the SPX, and longer term targets of 980, and
eventually, below the March 2009 low of 666.</span></span><br />
<span style="font-family: Verdana;"><span style="color: black;"></span></span></div>
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Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-89254798783611341572011-10-02T11:06:00.004-04:002011-10-02T11:08:35.217-04:00<div style="clear: both; text-align: center;">
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<b>Liquidity On, Liquidity Off</b>
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<a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrmL4HvI30qhW6tuXJbrAgcJ17iccKtyqtZ0lUbyk1ytjkEQScKBDVBxam7LyKdMs8TvhUIKbaA4nJEQ8_etMJeWeXZL9oCmuCFUyHC2vF8CQ4bm9d8W72apj6xpGbz73xua8e2NasShqN/s1600/ES+12-11+%252860+Min%2529++9_29_2011.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="305" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrmL4HvI30qhW6tuXJbrAgcJ17iccKtyqtZ0lUbyk1ytjkEQScKBDVBxam7LyKdMs8TvhUIKbaA4nJEQ8_etMJeWeXZL9oCmuCFUyHC2vF8CQ4bm9d8W72apj6xpGbz73xua8e2NasShqN/s400/ES+12-11+%252860+Min%2529++9_29_2011.jpg" width="400" /></a></div>
<div id="post_message_157956" style="text-align: left;">
For those of you that think that the market's current price action
and attendant volatility is a direct result of headline risk out of
Europe, or general economic uncertainty, you might want to think twice.
The 3 day break that began with the market topping out at ~1190.00 on
Tuesday afternoon, culminating in this afternoon's swing bottom at
~1133.50, most certainly belies that assumption.<br />
<br />
Please note how the market was<i> run up</i> each of the 3 <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/ETH" id="autolink_7398_157956_1" target="_blank" title="ETH">ETH</a> sessions and how the market was <i>taken down</i> each of the 3 <a class="vw-link autolink" href="http://www.bigmiketrading.com/wiki/trading-wiki/RTH" id="autolink_7397_157956_2" target="_blank" title="RTH">RTH</a> sessions. What's especially interesting about this pattern is the way in which this strategy is implemented.<br />
<br />
Notice how the relative volume drops off Wednesday and Thursday right
before the market sells off, and continues to remain low during the
duration of the move. This demonstrates how the algos pull liquidity on
the down moves in order to allow the market to fall. <br />
<br />
It is this<i> pulling and adding</i> of liquidity that is the major
cause of the recent increase in volatility. By observing these patterns
of on-again/off-again liquidity states,, along with price action
patterns, one can gain a much better understanding of how the market<i> actually</i> operates.</div>
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Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-40868396806252088922011-10-02T11:02:00.003-04:002011-10-09T10:24:40.207-04:00<div style="clear: both; text-align: center;">
<span style="font-family: Verdana;"><span style="color: black;"><b> PIIGS in a Poke?</b></span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYac5B-yVc2uqnfqSE4_oM5fmRYRb7VQxLZPcAWLRWVhHJMsa3E9EYH8TT0kHkU3drA57q8vQWV2O_1JQCvCaJAfMNYKuE6w3KezyRh4nV-c4V29Pdv0ZF8hbEaPnGtHObmM4JoZ0AWJfl/s1600/ES+12-11+%2528Daily%2529+_+FESX+12-11+%2528Daily%2529+_+FDAX+12-11+%2528Daily%2529++10_5_2010+-+10_1_2011.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="305" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYac5B-yVc2uqnfqSE4_oM5fmRYRb7VQxLZPcAWLRWVhHJMsa3E9EYH8TT0kHkU3drA57q8vQWV2O_1JQCvCaJAfMNYKuE6w3KezyRh4nV-c4V29Pdv0ZF8hbEaPnGtHObmM4JoZ0AWJfl/s400/ES+12-11+%2528Daily%2529+_+FESX+12-11+%2528Daily%2529+_+FDAX+12-11+%2528Daily%2529++10_5_2010+-+10_1_2011.jpg" width="400" /></a></div>
<span style="font-family: Verdana;"><br />
</span><br />
<div style="text-align: left;">
<span style="font-family: Verdana;">
</span> <span style="font-family: Verdana;"><span style="color: black;">While country after
country in Europe is either in the midst of a debt crisis, or on the
verge of slipping into one, European stocks posted their largest weekly
gain in 14 months. Positive news out of the U.S. and Germany did
nothing to stem the selling in U.S. equity markets, however, Germany’s
pledged support for an euro-area rescue fund, helped the European
markets pare quarterly losses.</span></span><br />
<span style="font-family: Verdana;">
</span><br />
<span style="font-family: Verdana;">
</span> <span style="font-family: Verdana;"><span style="color: black;">While the debt
crisis in Europe still appears to be far from resolved, the charts of
the FESX and FDAX, may be pricing in some kind of resolution or
stop-gap. While both indices had shown relative weakness to the SPX,
having already taken out their early August lows, hedging activity in
an attempt to circumvent the European short selling ban, may have been
the cause. For now, the FESX and FDAX have put in double bottoms and are
forming bullish falling wedges, although the volume has been
relatively low and liquidity relatively thin. The US. dollar meanwhile
has sold off from it’s August highs, which may suggest that Euro-zone
money that had previously sought safety in in the U.S., is being
repatriated to Europe.</span></span><br />
<span style="font-family: Verdana;">
</span><br />
<span style="font-family: Verdana;">
</span> <span style="font-family: Verdana;"><span style="color: black;">The main source of
the world's fears these days has been found in the Euro-zone sovereign
debt crisis, so it will be interesting to watch the European markets
next week, for further signs of real strength. It just may be that the
European market "got ahead" of itself due to the hedge activity, and the
market is now being run up to shake the weak shorts, trap some new
longs, and add to existing shorts.</span></span></div>
<span style="font-family: Verdana;"><span style="color: black;">
<br />
In either case, I’m sure the domestic bears will have their eyes fixed on the PIIGS.</span></span>
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Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-91658212353187835362011-10-02T10:59:00.001-04:002011-10-02T10:59:07.569-04:00<div style="clear: both; text-align: center;">
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<a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a href="http://www.blogger.com/blogger.g?blogID=7106372493024213995" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><b>Take Me by My Little Hand and Go Like This </b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRA1n93RTjUqOhprg8RxeRJotfRYjmK4UAE71-PzBBaDfXkwP54YvUNTMvdo07-EQeNNYPeOFyeZFV_1NsKqh8EiUJHCj7PU6IsdbvVpdgyhB3NU3SRuGMhF5CpiuSSnnhkQH_oSm8vRno/s1600/ZB+12-11+%2528Daily%2529+_+HYG+%2528Daily%2529+_+JNK+%2528Daily%2529++10_5_2010+-+10_1_2011.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="295" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRA1n93RTjUqOhprg8RxeRJotfRYjmK4UAE71-PzBBaDfXkwP54YvUNTMvdo07-EQeNNYPeOFyeZFV_1NsKqh8EiUJHCj7PU6IsdbvVpdgyhB3NU3SRuGMhF5CpiuSSnnhkQH_oSm8vRno/s400/ZB+12-11+%2528Daily%2529+_+HYG+%2528Daily%2529+_+JNK+%2528Daily%2529++10_5_2010+-+10_1_2011.jpg" width="400" /> </a></div>
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While the purpose of the Fed's Operation Twist program is to lower long
term interest rates, the reality is that the only long-term rates that
are falling are Treasury rates. Long term bonds are still in an
uptrend. and although Treasury yields are falling, spreads on high
yield debt are rising at just as fast, if not at a faster rate.<br />
<br />
The high yields are sending a message that risk to the economy and the
stock market remains above normal, as the high yield funds are now
breaking below their early August lows, (JNK with HYG on the verge).
Ironically, spreads had been essentially range bound until Operation
Twist was formally announced; it was then that yields on high yield
debt actually broke out of their recent range and made new highs. This
is especially bearish when you consider we are entering the strongest
performing time of the year for bonds.</div>
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Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0tag:blogger.com,1999:blog-7106372493024213995.post-25192669948237845472011-09-27T21:39:00.001-04:002011-09-27T22:30:31.108-04:00<div style="clear: both; text-align: center;">
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<span id="internal-source-marker_0.6232666043307344" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"><span style="color: #38761d; font-size: x-large;">Cryoport Technical Update:</span></span><br />
<span id="internal-source-marker_0.6232666043307344" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"><span style="color: #38761d; font-size: x-large;"><span style="font-size: large;">Another Look</span><b><span style="font-size: large;"> </span></b></span></span><br />
<span id="internal-source-marker_0.6232666043307344" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"><span style="color: #38761d; font-size: x-large;"> </span></span><span id="internal-source-marker_0.6232666043307344" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;"><span style="color: #38761d; font-size: x-large;">End of a Trend?<b> </b></span></span></div>
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<tr><td style="text-align: center;"><img border="0" height="295" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBN3iv_tfQqpwRuNpZ3yW-YcvEOxus7z9JQ_9llReVkuyuuhp_Sjt9Tpw7n0d5WltaaOft0kARA6rZUpeQSO5puxD8MUQEVGYokqjNhyphenhyphenG0YIThEBndprKvRqHFNPKII8usNQ2YMeXGbr7b/s400/CYRX+%2528Daily%2529++3_24_2010+-+9_28_2011.jpg" style="margin-left: auto; margin-right: auto;" width="400" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;">click on text to enlarge chart</td></tr>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBN3iv_tfQqpwRuNpZ3yW-YcvEOxus7z9JQ_9llReVkuyuuhp_Sjt9Tpw7n0d5WltaaOft0kARA6rZUpeQSO5puxD8MUQEVGYokqjNhyphenhyphenG0YIThEBndprKvRqHFNPKII8usNQ2YMeXGbr7b/s1600/CYRX+%2528Daily%2529++3_24_2010+-+9_28_2011.jpg" style="margin-left: 1em; margin-right: 1em;"><span id="internal-source-marker_0.6232666043307344" style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">The
purpose of looking at descending fan lines is to look at another indication of a
potential reversal of CYRX’s intermediate-long term trend, by drawing
trendlines from CYRX's lowest swing point, which marked the beginning of it's last
ascent, with a possible decline to below the third and lowest fan line, showing the start of such a reversal.</span></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBN3iv_tfQqpwRuNpZ3yW-YcvEOxus7z9JQ_9llReVkuyuuhp_Sjt9Tpw7n0d5WltaaOft0kARA6rZUpeQSO5puxD8MUQEVGYokqjNhyphenhyphenG0YIThEBndprKvRqHFNPKII8usNQ2YMeXGbr7b/s1600/CYRX+%2528Daily%2529++3_24_2010+-+9_28_2011.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: normal; text-decoration: none; vertical-align: baseline;">In
other words these descending fan lines offer an excellent tool to gauge
a possible reversal of the near term trend and something that
is worth watching now that CYRX is on the verge of taking out the lowest
fan line. It’s potential move below this all important line at $1.10
would mark the actual reversal in CYRX’s intermediate term trend from up to down,
and portend a subsequent rapid decline to the low 0.60’s, as
the Wolfe Wave also indicated below.</span></a></div>
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Gary Phillipshttp://www.blogger.com/profile/07320855023729818677noreply@blogger.com0