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

  • Capitalogix Commentary for the Markets – 06/21/10

    100619 Weak IPOsInitial Public Offerings are an indicator of market health.  We got an interesting look through the IPO window last week, with six offerings.

    While some were weak, the long-awaited stock market debut of the Chicago Board Options
    Exchange     had a strong opening reception.

    In general, though, it has been a tough market for IPOs. However, the WSJ argues that this has more to do with fundamentals of the deals than a weak market.

    So, how is the market doing?

    Fighting the 200-Day Moving Average.

    Even people who are not big fans of technical analysis tend to look at the market's 200-day moving average. This is the simply the average of the closes for the previous 200 days. The 200 DMA has a decent track record — when the market is above the 200 DMA, it tends to rally, below it, not so much.

    In the daily chart of the S&P 500 Index, below, the 200 DMA is drawn as a red line.  The recent trades, back above the 200 DMA line, are circled in green with a yellow highlight.

    100619 SP500 Sitting Above Key Levels

    In the past few weks, the S&P 500 has tried to break out above its 200 DMA several times, but each attempt has sputtered out.  Let's see if it holds this time?

    There are a few other bullish reasons for it to hold.  The market has stayed above the light green 1040 support level, despite three tests (marked by the orange circles).  The last two tests count as a double-bottom, which indicates a bullish reversal (especially with price back above the orange-dashed down-trend line and 200 DMA).

    Sentiment towards the U.S. Markets is also getting better.

    The Pendulum Swings: Investors Starting to Pick U.S. Over BRICs.

    Bloomberg reports that the U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis. 

    Almost four of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That’s more than double the portion who said so last October.

    1006 US Ranked as Best Investment Prospect

    Business Posts Moving the
    Markets     that I Found Interesting This Week    :

    • Six Giant Banks Made $51 Billion Last Year; The Other 980 Lost
      Money. (Forbes)
    • Apple Reports 600,000 Orders for New iPhone On First Day. (NYTimes)
    • The Pain in Spain: On the Brink of Seeking Support From The
      Euro-Zone & IMF. (WSJ)
    • Trading Is Approved for Film Futures Contracts. (NYTimes)
    • State Crash Crunch: Arizona Sells Supreme Court Building for 3
      Month's Relief. (GEA)
    • More Posts
      Moving the Markets      .

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

    • I.B.M.'s Watson Supercomputer – Artificial Intelligence Smarter Than
      You Think. (NYTimes)
    • Interactive Map Shows Where Americans Are Moving.  Hint: Not to
      Detroit. (Forbes)
    • Obama's West Point Speech – Parsing the New Security Strategy. (Atlantic)
    • Things People Google When They Think Nobody Is Looking. Funny. (SEOLOL)
    • U.S. Identifies Vast Riches of Minerals in Afghanistan. (NYTimes)
    • More
      Posts with Lighter Ideas and Fun Links      .
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  • A Father’s Day Investment Guaranteed to Pay Dividends.

    My kids are getting older.  So Father's Day looks a little different than it used to.

    Fathers Day Cartoon

    But as I look back, there is an investment I made that paid-off in a big way, and I want to share it with you.

    Like many parents, I wanted to teach my children that, to a large extent, they control what happens to them. One of the first ways I did that was to set up a "compensation system" for them to earn video games.

    Some parents try to limit the amount of time their kids spend watching TV or playing video games. I tried something different.  Instead, my kids earned their games by reading books.  Here is a photo from way back then.

    BZandH_edited

    Paid With Play.

    Here's how it worked. When they were younger, 10 books was enough to earn a small game. When they finished a book, it was their right, and my obligation, to take them to the bookstore for us to pick up the next book together. Likewise, when they finished the requisite number of books, it was their right, and my obligation, to take them to the computer store or game store for them to choose any game they wanted.

    When they finished hundred books, they got a bonus of earning the next game system. That meant if they had a Nintendo, they could now also get a PlayStation 3 or Xbox 360.

    How Can You Encourage a Jump to the Next Level?

    There came a point when I wanted one of my sons to start reading grown-up books. He was comfortable reading a certain type of book, and didn't want to read the kind of books that I read.  So, I created a bonus system that counted a particular book as three books.  I didn't force him; I just let the easier path to a reward "whisper" in his ear what to read. Once he finished that, he never went back to teen fiction.

    It Is a Great Way to Learn About Your Kids.

    I also used the bookstore visits to get a sense of how the boys were doing. For example, I might say "I notice that you read five books in that series, maybe you'd like this book".  Or, "That sure is a lot of science fiction; what was the last biography you read?"  For the most part, though, I didn't care what they read.  The key was to get them to want to choose certain books for their own reasons.  Ultimately, their preference meant they were learning to love reading.

    It Puts Them In Control of Their Destiny and Rewards.

    My younger son likes competition. He also broke or misplaced many things. So, in order to earn back the Game Boy unit that he lost, I challenged him to read five books in five days. These weren't easy books either. It was designed to stretch him, and also to teach him that he could read a book a night. The bet was that he either finished all the books in the allocated time, or none of them counted towards games or Game Boys. On the other hand, if he read a book a night for two weeks, not only would he get to have his Game Boy back, the books would count towards a game too. It worked like a charm, and we were both happy.

    So, Who Got the Better Bargain?

    As they started to get into their teenage years, I needed to up the ante a little. So, 500 books meant they got a laptop of their choice. Both boys cashed in, and probably felt like they were taking advantage of their dad.

    I got what I wanted, though; both my boys love reading, and know that they can accomplish anything they put their minds to … one step at a time.

    100109-Boys-at-the-Cowboys-

    That's an investment that will pay dividends for a long time.

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  • A Father’s Day Investment Guaranteed to Pay Dividends.

    My kids are getting older.  So Father's Day looks a little different than it used to.

    Fathers Day Cartoon

    But as I look back, there is an investment I made that paid-off in a big way, and I want to share it with you.

    Like many parents, I wanted to teach my children that, to a large extent, they control what happens to them. One of the first ways I did that was to set up a "compensation system" for them to earn video games.

    Some parents try to limit the amount of time their kids spend watching TV or playing video games. I tried something different.  Instead, my kids earned their games by reading books.  Here is a photo from way back then.

    BZandH_edited

    Paid With Play.

    Here's how it worked. When they were younger, 10 books was enough to earn a small game. When they finished a book, it was their right, and my obligation, to take them to the bookstore for us to pick up the next book together. Likewise, when they finished the requisite number of books, it was their right, and my obligation, to take them to the computer store or game store for them to choose any game they wanted.

    When they finished hundred books, they got a bonus of earning the next game system. That meant if they had a Nintendo, they could now also get a PlayStation 3 or Xbox 360.

    How Can You Encourage a Jump to the Next Level?

    There came a point when I wanted one of my sons to start reading grown-up books. He was comfortable reading a certain type of book, and didn't want to read the kind of books that I read.  So, I created a bonus system that counted a particular book as three books.  I didn't force him; I just let the easier path to a reward "whisper" in his ear what to read. Once he finished that, he never went back to teen fiction.

    It Is a Great Way to Learn About Your Kids.

    I also used the bookstore visits to get a sense of how the boys were doing. For example, I might say "I notice that you read five books in that series, maybe you'd like this book".  Or, "That sure is a lot of science fiction; what was the last biography you read?"  For the most part, though, I didn't care what they read.  The key was to get them to want to choose certain books for their own reasons.  Ultimately, their preference meant they were learning to love reading.

    It Puts Them In Control of Their Destiny and Rewards.

    My younger son likes competition. He also broke or misplaced many things. So, in order to earn back the Game Boy unit that he lost, I challenged him to read five books in five days. These weren't easy books either. It was designed to stretch him, and also to teach him that he could read a book a night. The bet was that he either finished all the books in the allocated time, or none of them counted towards games or Game Boys. On the other hand, if he read a book a night for two weeks, not only would he get to have his Game Boy back, the books would count towards a game too. It worked like a charm, and we were both happy.

    So, Who Got the Better Bargain?

    As they started to get into their teenage years, I needed to up the ante a little. So, 500 books meant they got a laptop of their choice. Both boys cashed in, and probably felt like they were taking advantage of their dad.

    I got what I wanted, though; both my boys love reading, and know that they can accomplish anything they put their minds to … one step at a time.

    100109-Boys-at-the-Cowboys-

    That's an investment that will pay dividends for a long time.

    Related articles by Zemanta
    Enhanced by Zemanta

  • Revealing Interview of Mike Novogratz, President of Fortress Investment Group

    100117-Howard-Getson-and-Mike Novogratz Mike Novogratz is the President of Fortress Investment Group, the first U.S.-based private equity/hedge fund manager to sell shares to the public. He joined Fortress in March 2002, and is responsible for the liquid hedge fund business, which includes running the Global Macro Funds.

    When we met earlier this year, I was impressed by his openness and perspective on the industry.  It also comes through in the interview below.

    In this revealing three-part interview, Novogratz shares his insights and reflections about:

    1.  How he earned his position.

    2.  The DNA, Risk Management, and Rules of Success in Macro Trading.

    3. The significance of Instinct, Luck, Intuition, and a "Real Intelligence".

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 1.

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 2.

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 3.

    Prior to joining Fortress, Novogratz spent 11 years at Goldman Sachs,
    where he became a partner in 1998. He held the positions of president of
    Goldman Sachs Latin America and Head of Fixed Income, Currencies and
    Commodities Risk in Asia, where he lived from 1992 to 1999. Mr.
    Novogratz received a B.A. from Princeton University, and served as a
    helicopter pilot in the U.S. Army.

    Fortress Investment Group
    (NYSE: FIG) is a leading global
    investment management firm. Total assets are around $41.6bn, with
    $4.3bln in a global macro and a commodities based hedge fund.

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  • Revealing Interview of Mike Novogratz, President of Fortress Investment Group

    100117-Howard-Getson-and-Mike Novogratz Mike Novogratz is the President of Fortress Investment Group, the first U.S.-based private equity/hedge fund manager to sell shares to the public. He joined Fortress in March 2002, and is responsible for the liquid hedge fund business, which includes running the Global Macro Funds.

    When we met earlier this year, I was impressed by his openness and perspective on the industry.  It also comes through in the interview below.

    In this revealing three-part interview, Novogratz shares his insights and reflections about:

    1.  How he earned his position.

    2.  The DNA, Risk Management, and Rules of Success in Macro Trading.

    3. The significance of Instinct, Luck, Intuition, and a "Real Intelligence".

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 1.

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 2.

    Mike Novogratz, President of Fortress Investment Group — Opalesque TV — Part 3.

    Prior to joining Fortress, Novogratz spent 11 years at Goldman Sachs,
    where he became a partner in 1998. He held the positions of president of
    Goldman Sachs Latin America and Head of Fixed Income, Currencies and
    Commodities Risk in Asia, where he lived from 1992 to 1999. Mr.
    Novogratz received a B.A. from Princeton University, and served as a
    helicopter pilot in the U.S. Army.

    Fortress Investment Group
    (NYSE: FIG) is a leading global
    investment management firm. Total assets are around $41.6bn, with
    $4.3bln in a global macro and a commodities based hedge fund.

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  • Capitalogix Commentary for the Week of 06/14/10

    The fear, right now, is whether the recent down-turn will continue.  Meanwhile, there are signs of strength giving hope to the bulls.

    For example, disappointing U.S. retail sales data, last Friday, failed to dent the stock market as it closed higher on the day and the week.  That marks the first weekly gain in nearly a month. 

    Last week's market action sets-up some pretty clear decision-zones to watch.

    First, Let's Look at the Dow.

    Despite the recent market correction and fears surrounding Eurozone sovereign debt defaults, the bottom line is that the Dow Jones Industrial Average is only down 10% from its recent peak.  That is not bad, especially considering the length of the preceding rally.

    However, a quick look at the chart shows a series of lower highs and lower lows.  This is the classic definition of a down-trend.  Two other bearish things to notice are that price is still under its 200-Day Moving Average and that volume has been weaker on the recent up days.

    100613 Dow Jones Down-Trend
    On a bullish note, the Dow spent a good day-and-a-half below the 9,900 level, yet, sellers did not appear in force … and buyers once again prevailed. Analysts are likely to see a sustained break above the 10,300 level as a bullish sign.

    RSI Indicates That We Are Still in Bearish Territory for the S&P 500, as well.

    A chart of the S&P 500 ETF indicates that we may have some upside left in the recent bounce.  While the Relative Strength Index indicator remains bearish below its center-line for the SPY, it is close to turning positive.

    According to Arthur Hill at StockCharts.com, bounded momentum oscillators trade within a defined range. RSI trades between zero and one hundred, with fifty as the center-line. Think of this level as the 50 yard line in a football game. The bulls (offense) have the edge when RSI is above 50. The bears (defense) have the edge as long as RSI is below 50.

    In the chart, below, the yellow areas show periods with RSI below 50, which correspond with declines. RSI met resistance near 50 during each decline (red arrows). In fact, RSI met resistance near 50 twice during the current decline, and it is at that level again.

    100613 SPY Relative Strength

    So, while momentum remains bearish as long as RSI is below 50, this
    chart
    shows we are approaching a decision point.

    What Does the Extreme Fear Shown by Option Purchasers Mean for the Market?

    The public often uses the VIX as the standard measure of “fear” in the overall market.  Some prefer to look at option skew instead.  Skew tells the investor how much out-of-the money puts are being bid up versus out-of-the money calls. 

    If an investor is scared about the downside, then they buys puts.  If an investor thinks there is room for upside, then they are willing to buy calls.  SurlyTrader posits that when the difference between the implied volatility of OTM puts dwarves OTM calls, then investors are fleeing for the exits.  As the chart below shows, on May 20, 2010, the skew of 3-month options hit a five-year-high.

    100613 SPX_Skew

    Depending upon valuations and underlying market conditions, the skew can signal either prescient fear or undue panic.  Consequently, if the spike on May 20th is a positive signal, then we should soon find our own local bottom.

    SurlyTrader advises: "If you believe we are close to a bottom, selling OTM puts and buying OTM calls looks very attractive with a steep skew.  Always think about selling insurance when the building is on fire rather than buying insurance after the major damage has already taken place."

    Business Posts Moving the
    Markets     that I Found Interesting This Week    :

    • CEOs Made 11% Less in 2009; But Are Riches Ahead Because of Cheap
      Options? (LATimes)
    • Metal Mania Hits Mining Equipment – Many Models Sold Out Until Next
      Year. (Money)
    • Why is Europe Responding So Timidly to Its Economic Crisis? (Slate)
    • Germany's 'Desperate' Short Ban Triggers Capital Flight. (Telegraph)
    • Inflation in the U.S. Slides to its Lowest Level in 44 years. (WSJ)
    • More Posts
      Moving the Markets      .

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

    Related articles by Zemanta
    Enhanced by Zemanta

  • Capitalogix Commentary for the Week of 06/14/10

    The fear, right now, is whether the recent down-turn will continue.  Meanwhile, there are signs of strength giving hope to the bulls.

    For example, disappointing U.S. retail sales data, last Friday, failed to dent the stock market as it closed higher on the day and the week.  That marks the first weekly gain in nearly a month. 

    Last week's market action sets-up some pretty clear decision-zones to watch.

    First, Let's Look at the Dow.

    Despite the recent market correction and fears surrounding Eurozone sovereign debt defaults, the bottom line is that the Dow Jones Industrial Average is only down 10% from its recent peak.  That is not bad, especially considering the length of the preceding rally.

    However, a quick look at the chart shows a series of lower highs and lower lows.  This is the classic definition of a down-trend.  Two other bearish things to notice are that price is still under its 200-Day Moving Average and that volume has been weaker on the recent up days.

    100613 Dow Jones Down-Trend
    On a bullish note, the Dow spent a good day-and-a-half below the 9,900 level, yet, sellers did not appear in force … and buyers once again prevailed. Analysts are likely to see a sustained break above the 10,300 level as a bullish sign.

    RSI Indicates That We Are Still in Bearish Territory for the S&P 500, as well.

    A chart of the S&P 500 ETF indicates that we may have some upside left in the recent bounce.  While the Relative Strength Index indicator remains bearish below its center-line for the SPY, it is close to turning positive.

    According to Arthur Hill at StockCharts.com, bounded momentum oscillators trade within a defined range. RSI trades between zero and one hundred, with fifty as the center-line. Think of this level as the 50 yard line in a football game. The bulls (offense) have the edge when RSI is above 50. The bears (defense) have the edge as long as RSI is below 50.

    In the chart, below, the yellow areas show periods with RSI below 50, which correspond with declines. RSI met resistance near 50 during each decline (red arrows). In fact, RSI met resistance near 50 twice during the current decline, and it is at that level again.

    100613 SPY Relative Strength

    So, while momentum remains bearish as long as RSI is below 50, this
    chart
    shows we are approaching a decision point.

    What Does the Extreme Fear Shown by Option Purchasers Mean for the Market?

    The public often uses the VIX as the standard measure of “fear” in the overall market.  Some prefer to look at option skew instead.  Skew tells the investor how much out-of-the money puts are being bid up versus out-of-the money calls. 

    If an investor is scared about the downside, then they buys puts.  If an investor thinks there is room for upside, then they are willing to buy calls.  SurlyTrader posits that when the difference between the implied volatility of OTM puts dwarves OTM calls, then investors are fleeing for the exits.  As the chart below shows, on May 20, 2010, the skew of 3-month options hit a five-year-high.

    100613 SPX_Skew

    Depending upon valuations and underlying market conditions, the skew can signal either prescient fear or undue panic.  Consequently, if the spike on May 20th is a positive signal, then we should soon find our own local bottom.

    SurlyTrader advises: "If you believe we are close to a bottom, selling OTM puts and buying OTM calls looks very attractive with a steep skew.  Always think about selling insurance when the building is on fire rather than buying insurance after the major damage has already taken place."

    Business Posts Moving the
    Markets     that I Found Interesting This Week    :

    • CEOs Made 11% Less in 2009; But Are Riches Ahead Because of Cheap
      Options? (LATimes)
    • Metal Mania Hits Mining Equipment – Many Models Sold Out Until Next
      Year. (Money)
    • Why is Europe Responding So Timidly to Its Economic Crisis? (Slate)
    • Germany's 'Desperate' Short Ban Triggers Capital Flight. (Telegraph)
    • Inflation in the U.S. Slides to its Lowest Level in 44 years. (WSJ)
    • More Posts
      Moving the Markets      .

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

    Related articles by Zemanta
    Enhanced by Zemanta

  • Great Video Parody: BP Spills Coffee

    Humor says a lot about the underlying truth of a situation.

    Here is a video that pokes fun at BP's handling of the oil spill. 

    Here is an image about how to plug the leak, showing a sentiment popular with a segment of the population.

    100611 How to Plug the Leak

    Yet, here is a cartoon that points out how tough it is to avoid a no-win situation.

    100611 Holding Big Governement Accountable Cartoon

    Related articles by Zemanta
    Enhanced by Zemanta

  • Great Video Parody: BP Spills Coffee

    Humor says a lot about the underlying truth of a situation.

    Here is a video that pokes fun at BP's handling of the oil spill. 

    Here is an image about how to plug the leak, showing a sentiment popular with a segment of the population.

    100611 How to Plug the Leak

    Yet, here is a cartoon that points out how tough it is to avoid a no-win situation.

    100611 Holding Big Governement Accountable Cartoon

    Related articles by Zemanta
    Enhanced by Zemanta

  • Has Apple’s iPhone Lost its Mojo?

    Is Apple‘s magic still there?

    Here is the product introduction video for the next generation of iPhone.

    Here is a video that condenses Steve Jobs keynote address at Apple Developer’s Conference from two hours to less than five minutes.  All the data, but perhaps not all the magic you’d expect. 

    Strangely, that sums up the response to the new iPhone 4 product
    announcement.  Here is a link to a live blog feed from the event.  And here is a WSJ video questioning whether the iPhone is becoming a commodity product, rather than a consumer product.

    So, are you getting one?

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