Have to abdicate, unfortunately…

Hi,

I got diagnosed with dangerously high blood pressure today; I don’t know how much of that is due to the fun of the market, but I’ll be taking it easy for the next little while.

I fully intend to still trade a bit, and continue to frequent the UserNotes/PG gallery, but I won’t be here enough to post in the King’s spot… So I give up my crown, and I’ll ask Jeremy to pass that onto whoever was the next one in line…

Thanks for your support, guys, and who knows, maybe some other time 🙂 !

Cheers!

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Greetings,

A few comments were made last week, in the UserNotes section, about the decay factor, of leveraged ETFs. I have, in the past, run some numbers on those, and I thought, in the absence of anything interesting happening today in the market to write about:

why not do a little bit of charting, to provide a visual reference to what we’re talking about.

Before I go on: I realized, just doing this now, that in the past I was looking at the wrong index, for doing FAS/FAZ calc! I was looking at the Russell 1000, not the Russell 1000 Financial Services index, so that pretty much invalidates whatever numbers I has posted in the past for FAS/FAZ decay. The values contained in here are correct (I hope, he says 🙂 ).

I have only done this for the TNA/TZA and FAS/FAZ pairs, as these seem to be the most popular (just based on what I see, in UserNotes). I did also want to run these for EDC/EDZ, since EDZ is a popular hedge, but I couldn’t find the underlying index in freestockcharts.com (I’ve emailed their support people, so I might end up adding this later on, if they reply in time, and point me in the right direction).

To “study” decay I picked three points, about a month apart in the recent past, where the values of the index were (almost) the same (these could be open, close, low, or high daily values). I then looked at, and plotted the corresponding ETF values, together with the percentage gain/loss. In addition to this, I also included the values and the percentage gains (both index and ETF) for the Sept melt up – just as an FYI. This is just a single data point, so I wouldn’t try this just yet, but it APPEARS, just from looking at the past month, and just at TNA/TZA and FAS/FAZ that the bull ones increase more during a melt up than the bears decrease. If you’re thinking “I smell an arbitrage opportunity,” well, I’ll need to look into other past mono-direction market periods, and see how everything behaved then to get some kind of confirmation that this is not a fluke.

Here are the charts, with the values:

As mentioned before, it seems that the bear ETFs decay much faster than the bull ones (2-3x faster) – just something to keep in mind if your strategy includes the thought of “well, if it moves against me, I’ll just hold it until it recovers.” Yes, I admit – I still think that, sometimes, it’s a hard habit to break! Holding it for few days or couple of weeks, not a problem. Few months? Well, you’d need to count on the market moving quite a bit higher (or lower, as the case might be) than where you bought the ETF, to break even…

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Hi all,

Since I find myself throwing these into most of my posts (beyond the simplest ones), I figure I should just say it once, and we can take it as read, going forward:

I’m a piker… little over a year of day trading, then discovered PPT (thanks, @Equalizer!) in June, now learning from everyone here and trying to do The PPT swing trade thing. I trade my own money (mid/low 6 figures) just to make enough so I don’t have to go back to programming trading system for a living…

Nothing that I say should be taken as if it came from someone really experienced, or based on any non-mentioned technical analysis, education, experience, etc. This is why I tend to stick to posts which basically present data, with comments dealing more about the similarities IN THE DATA of the current position, vs some point in the past: I tend to avoid making predictions on the direction of the market, and you certainly won’t hear me recommend any stock 🙂

So, in all my posts, mentally add “in my (unsubstantiated) opinion”, “YMMV”, and (I love this, from Fly himself), “if you follow me, you’ll lose money!” 🙂

Having said all that, let’s get on with my first official post!

Through all of the second half of Sept I found myself on the outside of The PPT mainstream thoughts, re market direction. Ohh, I wasn’t calling for the awesome run we had, I didn’t go long, I made no money on it, BUT I was seeing enough warning signs that a move up could be in the cards that I did not go short. I simply let the market carry me up to here, where I was able to unload my old July TNA buys at a (very small) profit.

Now I find myself on the outside once again: the bullishness is palatable, you can feel it in the air, you can hear it on CNBC, lots of much more experienced people than myself here on iBC are calling for a meteoric rise (Danny, Scott, etc) – yet I have the same feelings now about the Oct melt up that I had in Aug/early Sept about the epic Sept melt down, hiding just around the corner: sure, it’s possible, but aren’t we jumping too quickly to the obvious conclusion?

Here are my thoughts:

1150 is, for one reason or another (details of which are not important), held as a big resistance level. Breaking through that level, in a “confident” way, would send a clear signal to the market: we’re going up. “Confident,” by the way, seems to mean different things to different people; my definition is somewhat fluid, but it certainly means closing above it, and holding above, ideally having it act as support in a day with some moderately bad news. Until that happens, I don’t consider 1150 breached.

Now, let’s look at what has actually happened, in the past several sessions:

What do you see? I donno.. But I can tell you what I see: the repeated inability of the market to breach the 1150 barrier, even in light of pretty good and unexpected economic data. Yes, I know that the Russell 2000 index made some new heights, and is considerably above the Jan level (back when we were last at 1150), but that’s just the indication of the small caps running ahead of the pack lately. When it comes to the market, as measured by the S&P500, we have jumped above 1132, but we have not jumped through/above/over 1150.

I was shopping for groceries today, and happened to see that the WSJ was available for sale (strange, in a Canadian grocery chain store 🙂 ): on the front cover I saw “Europe Crisis Slams Ireland”. There was also an article how a left-wing candidate is all but set to take over the presidency of Brazil. True, these might very well be meaningless by themselves, and the fact that seeing such headlines, at random, and getting a feeling about the market from them is probably more signs of my inexperience, BUT: given that we have not been able to break through 1150 in the face of good econ data, and that issues in Europe, while having subsided from June, are not going away, I’m not convinced we’ll have an uninterrupted run to 1200.

I think that this hover around 1150 is opening the door for SOMEthing to happen, in Europe, or maybe something in the China/Japan relationship over that ship’s crew/captain, or something about a trade way over China’s currency, or their rare earth metals policy, etc, to cause enough stink to drop us down. Not a lot, not a catastrophic amount, but enough to go back to, say, 1130-1120, before turning back up.

Just like, in mid Sept, I decided that I could “risk” 2-3K of TNA, leaving it long in my account, because I felt we just might keep running, I’m doing something like that now. I’m positioning myself for a dip, before we head back up. But, since I don’t like holding un hedged inverses in the face of a market melt up, I’m doing something which lots of people here will think makes no sense. Let me explain:

I bought, after close, 2000 TZA and 1100 TNA – the value of these positions is about the same. My intentions are:

a) if we suddenly punch through 1150, continue up past 1165-1170, at some point I’ll add to TNA, and either close the TZA position, or maybe average down. I consider this to be the least likely scenario,

b) if we suddenly have a catastrophic meltdown, I’ll hold everything until O/S, sell TZA, load up on TNA, and play my usual PPT OS strategy; I consider this scenario unlikely

c) if we hover around here a bit, maybe going up a bit, then reversing down, but without any catastrophic news, just a “normal” pull back, I’ll sell the TZA for a profit, and maybe add little more TNA. I consider this to be likely

(again, all my “I consider this” statements are just based on my own personal feelings and emotions, not any real data)

To those who are convinced we are heading straight up, I say this: I’ve seen several references to studies which show there is very little correlation between performance in one month and the performance in the next month. So, what happened in Sept doesn’t have any statistically significant impact on what will happen in October. Ask yourself: if Sept was basically a flat month, with us hovering around 1150, would you, right now, with the same econ data, the same political news, the same level of the S&P500, be gearing up for a monster rally up? If yes, ok, I respect that. But if no, then (IMO) you’re placing too much worth on the behaviour of the market in the past month – that link is not warranted by the past years’ data.
While you’re at it, ask yourself this: are you just as convinced now that we’ll go straight up as you were that we were going to crash and burn in Sept? Is the evidence for the melt up just as strong as it was for the melt down last month?

Just saying… Keep an open mind and don’t jump to quick and easy conclusions…

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Greetings all!

Seems enough people liked my number crunching and charts-galore posts to get me into the King’s seat for October. I promise to continue the trend, in this seat of power 🙂 !

I have a couple of ideas already, unfortunately, I’m off for the weekend at my parent’s cottage, so next time you’ll hear from me won’t be until Mon.

In the meanwhile, have a great weekend, everyone, and until next week!

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Like all good things, this one is my last post as the King of Peanut Gallery. Tomorrow I may rejoin the masses at Peanut Gallery and play death matches with villains punching one-star rating on my posts.

I must confess though. I loved being the King. In fact if you have any sense of courtesy left, I would like to be addressed as the King forever.

Regular readers know my calls on market movements have been fairly on the money in the last few days, with me pressing largely on the long side.  As always, I log my calls and trades close to real time in Twitter.  Today, as a special treat, I am going to deflect from my usual style of talking only about short term. I want to leave you with thoughts on four different time fractals.

But first, you all know about US creating the QE2 shit. You all know about Europe being in shit. And you all know about Japanese not being able to do shit. I believe these factors may contribute in different ways depending on the time horizon.

Short Term (2 days – 1 week)

Momentum is God. Right now no matter what your left brain says, you got to respect the momentum. At the same time we are possibly seeing the end post at horizon. The markets should remain in upward momentum for few more days. I am placing my bets around October 7 or 8^th with the NFP report acting as a probable catalyst for reversal momentum. For now, talking heads will use QE2 as their excuse to continue to go higher. In fact they will use QE2 as their excuse to eat the crappiest hot dogs, cheat on their partners, pick boogers in public and dabble in witchcraft.

Another reason why we may see continued momentum is because of Mommy’s basement trader. He is still bearish and not fully on with the program. In the past, the big boys had two sources of gullible idiots to loot from – Popcorn Investor and the Basement Trader. The Popcorn Investor seems to have disappeared from the market.  If that is indeed true, the poor basement trader is the lone insect caught in the web left to be pillaged. And until the bitch remains bearish, we will continue the uptrend. Another more quantitative example is the CBOE equity put/call ratio. It is by no stretch in panic territory.  It is at an elevated level though. Around the peak in April we saw the P/C dropping to less than 0.4. We are currently at 0.55. Yes the markets have sometimes bottomed around these levels too. However, what I am trying to point out is the fact that if the markets want, they still have more fuel to run simply based on the fear present in the market. Similarly, there are a few more indicators that are flirting with extended levels but can comfortably remain there for few more days.

Finally, my more esoteric indicators – the solar and lunar cycles are shining green too for few more days.

Intermediate Term (2 weeks – 2 months)

Momentum will be screwed by God. Let me explain. Everyone knows the ugly side of the macros. As far as I am concerned, here is the rub. A full knowledge of the ugly side of macros doesn’t move the markets. A news event, a macro report or a governing decision that confirms the ugly side of the macros is what moves the markets! In the intermediate term, I am confident we will get that catalyst. And when we get it, the markets will be ready to tank. I would guess that it could either coincide with the October 8^th date or may come shortly thereafter. Possible catalysts could be NFP, more credit contagion coming from Europe, QE appearing to lack fire power, delay in QE, one of the states or Sovereigns going ape shit default, currency wars creating major resistance, etc.

Long Term (2 months – 12 months)

Momentum is moot.  Keeping that aside, long term can drastically change based on new events.  My wild guess is that we shall see a resurgence of bulls.  This is assuming the bigger dropping shoes are discovered in the intermediate term. The reasoning is straightforward to me. It won’t be 2008 anymore as far as discovery of hitherto unknown credit problems or non-quantifiable risks are concerned. In other words, we will not see the same intensity of Nasty, even if the markets continue to drag a bit initially. That alone could contribute to a big but docile wall of worry with a “climb and fuck me” sticker on its back.

Long-Long Term (9 months – 2 years)

I believe that it is in our nature to worry and talk about the worst, because of a simple fact – we all are first grade melodramatic bitches. You hear about all the shit that is going to happen to the world. I pose before you a question – do you hear anyone chatting as much about a new disruptive technology taking shape and breaking barriers in the next two years? Do you hear about how a surprise big impact bio tech drug or the end of a dictatorship can move the markets? Exactly! So who carries the element of surprise? Not saying that I am bullish or bearish over long long term, but it is thought provoking, isn’t it?

I am not married to any of the above thoughts. I will adapt if future veers from my crystal ball. At the end of the day, ideas don’t make money. Discipline and action do.  That being said, it is still worth pondering.  Because ideas inspire action and the discipline.

StocksRider

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Think about it. What has a bigger element of surprise? Unexpectedly low GDP or In-line/Good GDP? It is the latter. In other words, bears have more to lose in an upward momentum environment.  Lot of people are pressing their shorts right now in the final hour. Imagine the short squeeze tomorrow morning should we get anywhere between 1.6% (expected) or above.

StocksRider

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