Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Using Mind-Maps in Business – Part 2

    Mind mapping tools have been around for many years. However, I'm starting to see a much wider adoption of mind mapping throughout my company and with the wider business audience.

    Part 1 of this series, Using Mind Maps, examined mind mapping and why you might want to use its "radiant thinking" process.  Here, in Part 2, we will look at some specific business uses for mind maps.

    Below are four examples where mind mapping has proved useful to me recently.

    Meeting Agendas: A mind map provides a great graphic overview of everything relating to the meeting, from attendee lists, meeting notes, web links, documents, to-do items, and parking lot issues.

    110606 Mind Maps - Meeting Agenda 
    Using the map during the meeting helps the team move above the details to keep the bigger picture in mind.

    Employee Reviews: A mind map is helpful during the complete review life cycle.

    • First, it's a great place to keep notes on how someone's doing and areas for improvement.
    • Second, it's a great template to prompt the reviewer to look at the whole picture in a  fair and balanced way.
    • Third, the map is easy to share and revise.

    In addition, while you may take the notes based on business categories like performance, potential, flexibility, and attitude  -  you might deliver the review based on a "Green", "Yellow", and "Red" metaphor that makes it easy for the employee to understand and act upon.  Here is an example of that type of map.

    110606 Mind Maps - Employee Review

    Business Planning and Project Management:  This was one of the first areas where mind maps proved useful. It's a great tool to see the forest and the trees. 

    Here is a simple decision-making template.

    110606 Mind Maps - Visualizing Decisions

    You will find that a mind map is a great tool to use interactively during meetings. It gives the team a common focus, yet allows the facilitator to adjust that focus efficiently and effectively.

    In addition, Project View makes it easy to see the plan as a GANTT timeline or task table.  This is a terrific added capability.

    Communication and Presentation Tool: Mind maps allow great flexibility an structure during presentations. This facilitates a logical and organized presentation, as well as ad hoc interactive discussions.

    More experienced mind mappers tend to use fewer words, opting to use images and the heuristic structure itself as a catalyst and reminder for deeper meaning.

    An added bonus of using mind mapping software to present your ideas is that the map can be updated and re-ordered while you are using it.  The map becomes the common-focus for an interactive discussion.

    Cool special effects, like 3-D Views, turn your map into a 3 dimensional object, allowing you to glide around it from different angles, zoom in on different areas and transform presenting mind maps into a whole new experience.  Here is an example.

     

     

     

    Obviously, there are many other things you can do with mind maps.

    Here is a link to Buzan's Gallery of Mind Maps and here is a link to BiggerPlate's Mind Map Gallery.  In addition, here is a link to product tutorial videos.

    The current generation of mind mapping tool is considerably more powerful, yet easier-to-use, than its predecessors. It's time to try it for yourself.

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  • Want to Know What to Invest In? Watch the U.S. Dollar

    The United States government paid the Brazilia...Image via Wikipedia

    Typically there are a few major inflection points in the year where assets either switch gears and reverse their prior trends or undergo an acceleration of their current trend.

    One of the key predictors of these inflection points, over the last few years, has been a reversal of the general trend of the U.S. Dollar.

    Consequently, determining whether the Dollar is at a major inflection point may have considerable implications for asset allocation (bonds, stocks, commodities, currencies) and sector allocation (cyclicals, non-cyclicals) strategies.

    Here Is Why the Dollar Can Tell You What to Invest In.

    Many traders believe that when the Dollar is weak, the following general relationships are seen:

    “RISK ON” Trade

    • Stocks outperform bonds
    • Investment grade and high yield bonds outperform US Treasuries
    • Foreign stocks outperform US equities
    • Commodities are strong
    • Commodity currencies outperform USD
    • Cyclical sectors (Technology, Cons. Disc., Materials, Energy) outperform non-cyclical sectors (Cons. Staples, Utilities, Health Care)

    When the dollar is strong, you typically see the reverse of the above relationships.

    You can see these themes in the data below. 

     

    110602 USD Relationships - Risk On or Risk Off 

    Notice that US stocks (S&P 500), commodities (CRB Index), and emerging market equities (relative to the S&P 500) tend to have an inverse correlation with the Dollar. In the chart above, the USD Index is shown in green (and inverted for directional similarity).

    In general, when the USD is rising (falling in chart) commodities and the S&P 500 are weak, and emerging market equities underperform the S&P 500 (2008, early 2010).  As stated, the converse is also true (e.g., 2009, late 2010-early 2011).

    So, the question is whether you think the Dollar is bottoming?

    For more, visit Financial Sense.

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  • Want to Know What to Invest In? Watch the U.S. Dollar

    The United States government paid the Brazilia...Image via Wikipedia

    Typically there are a few major inflection points in the year where assets either switch gears and reverse their prior trends or undergo an acceleration of their current trend.

    One of the key predictors of these inflection points, over the last few years, has been a reversal of the general trend of the U.S. Dollar.

    Consequently, determining whether the Dollar is at a major inflection point may have considerable implications for asset allocation (bonds, stocks, commodities, currencies) and sector allocation (cyclicals, non-cyclicals) strategies.

    Here Is Why the Dollar Can Tell You What to Invest In.

    Many traders believe that when the Dollar is weak, the following general relationships are seen:

    “RISK ON” Trade

    • Stocks outperform bonds
    • Investment grade and high yield bonds outperform US Treasuries
    • Foreign stocks outperform US equities
    • Commodities are strong
    • Commodity currencies outperform USD
    • Cyclical sectors (Technology, Cons. Disc., Materials, Energy) outperform non-cyclical sectors (Cons. Staples, Utilities, Health Care)

    When the dollar is strong, you typically see the reverse of the above relationships.

    You can see these themes in the data below. 

     

    110602 USD Relationships - Risk On or Risk Off 

    Notice that US stocks (S&P 500), commodities (CRB Index), and emerging market equities (relative to the S&P 500) tend to have an inverse correlation with the Dollar. In the chart above, the USD Index is shown in green (and inverted for directional similarity).

    In general, when the USD is rising (falling in chart) commodities and the S&P 500 are weak, and emerging market equities underperform the S&P 500 (2008, early 2010).  As stated, the converse is also true (e.g., 2009, late 2010-early 2011).

    So, the question is whether you think the Dollar is bottoming?

    For more, visit Financial Sense.

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  • Here Are Some Reading Links That Caught My Eye Last Week

    Business Posts Moving the Markets that I Found Interesting Recently:

    Lighter Ideas and Fun Links that I Found Interesting Recently:

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  • Here Are Some Reading Links That Caught My Eye Last Week

    Business Posts Moving the Markets that I Found Interesting Recently:

    Lighter Ideas and Fun Links that I Found Interesting Recently:

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  • Does Your Health Depend On the Temperature of Where You Live?

    It was over 100 degrees, here in Texas, as my son graduated high school. 

     

    110605 Zach's Graduation 
    Our out of town guests weren't buying the "But it's 'dry' heat" line. So, much of the weekend was spent eating and searching for air-conditioning.

    Sometimes it is just too hot to trot.

    Exercise Frequency Goes Down as the Heat Goes Up.

    The Economist recently printed a chart showing that people who live in colder states exercise more than those who live in warm ones.

     

    110605 Exercise Frequency is Heavily Influenced by Temperature 
    A recent report by the Centres for Disease Control and Prevention declares that only 64% of Americans surveyed can be described as physically active (defined as over 150 minutes per week of moderate exercise or half as much vigorous activity). Almost a quarter get no exercise at all outside the workplace.

    The report offers a breakdown of exercisers by state. In general, it seems that people who live in cold states like Alaska are more likely to get their weekly work-out than those in sunny Florida.

    The biggest outliers from this correlation are Hawaii, where 70% are energetic, and Tennessee, which has the lowest percentage of active people despite a lower average temperature than several other states.

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  • Does Your Health Depend On the Temperature of Where You Live?

    It was over 100 degrees, here in Texas, as my son graduated high school. 

     

    110605 Zach's Graduation 
    Our out of town guests weren't buying the "But it's 'dry' heat" line. So, much of the weekend was spent eating and searching for air-conditioning.

    Sometimes it is just too hot to trot.

    Exercise Frequency Goes Down as the Heat Goes Up.

    The Economist recently printed a chart showing that people who live in colder states exercise more than those who live in warm ones.

     

    110605 Exercise Frequency is Heavily Influenced by Temperature 
    A recent report by the Centres for Disease Control and Prevention declares that only 64% of Americans surveyed can be described as physically active (defined as over 150 minutes per week of moderate exercise or half as much vigorous activity). Almost a quarter get no exercise at all outside the workplace.

    The report offers a breakdown of exercisers by state. In general, it seems that people who live in cold states like Alaska are more likely to get their weekly work-out than those in sunny Florida.

    The biggest outliers from this correlation are Hawaii, where 70% are energetic, and Tennessee, which has the lowest percentage of active people despite a lower average temperature than several other states.

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  • Simple Is Better – An Example for Trading the Markets

    Traders are often confronted by mixed signals. 

    Personally, when I have to choose between something straightforward or something complex – I remember the phrase "simple is better".

    For example, when large "Smart Money" traders show their directional bias, it often pays to follow in their tracks.

    Another technique would be to bet against the smaller retail "Dumb Money" traders (because historically they are often wrong at major turning points.

    However, if I have to decide between following "Smart Money" or doing the opposite of what "Dumb Money" does … then in the absence of other information, following Smart Money wins because it is more straightforward and simpler.

    Here is an example.

    Retail Investor Are Putting On Their Bear Suits.

    "Small traders" are showing extreme pessimism by buying a very low percentage of call options (bullish bets) compared to the total options purchased. 

    As a reminder, many traders consider excessive bearishness from small investors a sign that markets are set to go higher. This is considered a contrarian buy signal. The question is whether it is a reliable buy signal? 

    Over the last several years when this number gets below 30%, the market was at, or near, the start of another significant push higher. Here is a chart.

     

    110602 Contrarian Buy Signal 

    Something to consider is that the crowd is often wrong at major turning point because they are too bearish before a big push up (or too bullish before a big push down).  Here, we may have a different situation.  Small investors have lost confidence even though the markets are near recent highs.

    Before we look at what larger "Smart Money" investors have been doing, let's look a little deeper into the Put/Call Ratio.

     

    What Does the Put/Call Ratio Measure?

    The Put/Call Ratio is an indicator that shows put volume relative to call volume.

    Put options are used to hedge against market weakness or bet on a decline. Call options are used to hedge against market strength or bet on advance.

    The Put/Call Ratio is above 1 when put volume exceeds call volume and below 1 when call volume exceeds put volume.

    Traders use this indicator to gauge market sentiment because it shows what type of protection they are willing to purchase.

    A Different Put/Call Ratio Suggests that Smart Money Is Looking for a Pullback.

    Unlike the CBOE Total and Equity Put-to-Call ratios, the OEX Put-to-Call Ratio is not considered a contrarian indicator.  Why?  Because OEX options are normally traded by larger "Smart Money" traders. 

    Likewise, there is more put buying in the OEX because OEX options are one of the instruments that large money managers use to hedge their portfolios.

    To put things in perspective, historically, Smart Money traders buy 100 to 150 puts per 100 call purchase.  Consequently, a ratio hovering around 1.50 (150 puts purchased/100 calls purchased) is pretty normal.  However, you must take notice when Smart Traders are buying puts hand over fist.  Last week the Smart Money traders bought a little more than 3 puts per 1 call, closing the OEX Put-to-Call Ratio at 3.36.

    ZorTrades posted this chart.  It shows how often a high OEX Put-to-Call Ratio results in a market downturn. Click the image to see a larger version.

     

    110602 SPX Put-to-Call Chart from zortrades

    This chart marks the times where the OEX Put-to-Call Ratio has closed above 2.40 (meaning that Smart Money was buying more than twice the amount of puts than calls).  As you might guess, the outcome has not been pretty when this has been the case.  Notice above that 6 out of 7 occurrences resulted in significant moves down.

    As my Dad used to say: "You can fool everyone some of the time; but you can't fool all of the people all of the time.  Perhaps the small trader isn't always wrong?  And, perhaps, simple is better.

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  • Simple Is Better – An Example for Trading the Markets

    Traders are often confronted by mixed signals. 

    Personally, when I have to choose between something straightforward or something complex – I remember the phrase "simple is better".

    For example, when large "Smart Money" traders show their directional bias, it often pays to follow in their tracks.

    Another technique would be to bet against the smaller retail "Dumb Money" traders (because historically they are often wrong at major turning points.

    However, if I have to decide between following "Smart Money" or doing the opposite of what "Dumb Money" does … then in the absence of other information, following Smart Money wins because it is more straightforward and simpler.

    Here is an example.

    Retail Investor Are Putting On Their Bear Suits.

    "Small traders" are showing extreme pessimism by buying a very low percentage of call options (bullish bets) compared to the total options purchased. 

    As a reminder, many traders consider excessive bearishness from small investors a sign that markets are set to go higher. This is considered a contrarian buy signal. The question is whether it is a reliable buy signal? 

    Over the last several years when this number gets below 30%, the market was at, or near, the start of another significant push higher. Here is a chart.

     

    110602 Contrarian Buy Signal 

    Something to consider is that the crowd is often wrong at major turning point because they are too bearish before a big push up (or too bullish before a big push down).  Here, we may have a different situation.  Small investors have lost confidence even though the markets are near recent highs.

    Before we look at what larger "Smart Money" investors have been doing, let's look a little deeper into the Put/Call Ratio.

     

    What Does the Put/Call Ratio Measure?

    The Put/Call Ratio is an indicator that shows put volume relative to call volume.

    Put options are used to hedge against market weakness or bet on a decline. Call options are used to hedge against market strength or bet on advance.

    The Put/Call Ratio is above 1 when put volume exceeds call volume and below 1 when call volume exceeds put volume.

    Traders use this indicator to gauge market sentiment because it shows what type of protection they are willing to purchase.

    A Different Put/Call Ratio Suggests that Smart Money Is Looking for a Pullback.

    Unlike the CBOE Total and Equity Put-to-Call ratios, the OEX Put-to-Call Ratio is not considered a contrarian indicator.  Why?  Because OEX options are normally traded by larger "Smart Money" traders. 

    Likewise, there is more put buying in the OEX because OEX options are one of the instruments that large money managers use to hedge their portfolios.

    To put things in perspective, historically, Smart Money traders buy 100 to 150 puts per 100 call purchase.  Consequently, a ratio hovering around 1.50 (150 puts purchased/100 calls purchased) is pretty normal.  However, you must take notice when Smart Traders are buying puts hand over fist.  Last week the Smart Money traders bought a little more than 3 puts per 1 call, closing the OEX Put-to-Call Ratio at 3.36.

    ZorTrades posted this chart.  It shows how often a high OEX Put-to-Call Ratio results in a market downturn. Click the image to see a larger version.

     

    110602 SPX Put-to-Call Chart from zortrades

    This chart marks the times where the OEX Put-to-Call Ratio has closed above 2.40 (meaning that Smart Money was buying more than twice the amount of puts than calls).  As you might guess, the outcome has not been pretty when this has been the case.  Notice above that 6 out of 7 occurrences resulted in significant moves down.

    As my Dad used to say: "You can fool everyone some of the time; but you can't fool all of the people all of the time.  Perhaps the small trader isn't always wrong?  And, perhaps, simple is better.

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  • Chart Showing Home Price Changes in Various Markets

    There has been a lot of talk about housing lately.

    Some are predicting a second dip.

     

    110529 I Feel Another Housing Drop Starting

    What does the data show? 

    Here is a very nice visualiztion that shows the monthly percent change of home prices in various markets over time.

     

    110528 Housing Market Statistics

    Notice, that things got better after March of 2009 … but have been slipping since last summer.

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