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

  • Capitalogix Commentary 07/19/09

    Goldman_Sachs_logoGoldman Sachs announced massive profits of almost $3.5 Billion this Quarter.  On one hand that is great.  On the other, does it make you wonder where and how they made that money? 

    On a related note, Bespoke notes that, in the first half of the year, Goldman set-aside over $11 Billion to compensate its employees.  Nice work if you can get it.

    The Stimulus Plan.

    The economy, and the mood about the economy, seem to be doing a little better. I give credit for the effort.  Though, I am watching spending and employment numbers to tell me more of the story.

    090719 Stimulus Cartoon - Stimulator 3000

    Some Market Charts.

    For the past few weeks, many people have been watching the potential head and shoulders pattern. Its failure to trigger caused many people to cover their short positions. This was probably the primary catalyst for the “Oops” trade that took the market back near its recent highs.

    090719 SP500 OOPs Trade

    Those recent highs are interesting to me for several reasons. First, they’ve held since early June. Second, and potentially more importantly, they may be part of a much bigger pattern forming on the major U.S. equity indices. 

    Here is a picture of the S&P 500 Index. Notice the potential inverse head and shoulders bottom pattern (marked in orange).  If it triggers (shown by the green neckline of resistance), and if it hits the measured target (shown by the purple arrows), then it is certainly worth watching.  Of course, that is a lot of “ifs”.

    090719 SP500 BottomingTrade

    Some Things to Watch.

    So, the upside is clear, take out the June highs and see if we get some buying volume. However, I can’t get excited, yet.  There are a number of things holding back my enthusiasm. Right off the top-of-my-head: jobs, spending, lack of volume, and the failure to trade above recent highs.

    However, another thing I’m watching is that recent moves up in the market were met with an increase in the VIX (instead of the expected inverse relationship).  Here is a picture from Marty Chenard’s chart service called StockTiming.com.

    090719 SP500 VIX Behavior

    Recently, it bothered me that the VIX failed to show a spike of fear when the market was going down. And now, the VIX is bothering me because it’s going up when the market goes up. So, either this is not a good time to follow the VIX for trading guidance, or the VIX is indicating that something unusual is happening in the markets.  Either way, it makes me cautious.  What about you?

    While I expected a short-term rally, I still believe that the markets are due for an intermediate-term move downwards. However, neither logic, intuition, nor economics are primary indicators. Price is the primary indicator; and it has been moving upwards.

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

    • Wall Street 2015: Has It Changed Forever? (Forbes)
    • Goldman Had Huge Profits – Why are Executives Selling? (Dealbook)
    • Intel Gives Upbeat Outlook as Sales Revive. (WSJ)
    • Dell Shares Dive as PC Market Still Looks Rough. (Technology Review)
    • McGraw-Hill’s Seeking a Buyer for BusinessWeek. (WSJ)
    • Ways Apple Is Extending Its Lead Via 3rd-Party iPhone Apps. (WSJ)
    • Help Is On the Way for Credit-Starved Small Businesses. (Forbes)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Impressions About the New iPhone

    Hello, my name is Howard; and I'm a gadget addict. This week I went out and upgraded to the new Apple iPhone 3GS, even though my 3G worked fine. I had to, though; didn't I?

    090712 iPhone impressions It's the fastest, most powerful iPhone yet. It has video, and my old phone didn't have video. It has a compass; and you know I need a compass. Okay, I don't need a compass; but apparently the new turn-by-turn mapping capability needs a compass to understand which direction you're turning (and that's pretty cool). It has voice control to dial the phone, play music, and otherwise avoid typing. And it has double the storage capacity, which I'm sure still won't be enough.

    Actually, I'm very happy with the new phone and the upgrade process. I connected it to my computer, and all the applications and settings from my prior version migrated all by themselves. Even the high score lists for games I play transferred. More importantly, the phone does everything I expected, and seems faster.

    And, of course, I no longer have iPhone envy. The fact that I waited a week after it came out to order mine took amazing willpower. I thought about it so many times that it was no longer worth it to wait. So Happy Birthday to me, a few weeks early.

    Joking aside, the iPhone has become an important business tool for me. I am more surprised about how much less I use my laptop, than I am about how much I use the iPhone.

    Even when I'm in a meeting, I have access to the internet. I can search Google.  Or even better, I can use Twitter or Facebook to crowd-source an answer. It's almost like being able to "Call a Friend" or "Ask the Audience" on "Who Wants to Be a Millionaire".

    One of the features I like best, is being able to use my voice instead of typing. So, I can quickly look-up a contact by saying their name. It's surprising how many places voice control like this comes in handy. For example, Google has an iPhone application that allows you to search by speaking. So I could speak an address, and the Google map comes up. Or, I could say "stock price for Apple", and the current quote and chart comes up. Similarly, I use an application called Jott to verbally capture tasks, ideas, and to-do items. The service transcribes what I say and puts it into my task list. It's important because I'm now capturing things that used to slip through the cracks.

    I'll review some of the more helpful iPhone applications in a later post. In the meantime, if you don't have the new iPhone, I recommend you go check them out. It's a very fine piece of technology.

  • Impressions About the New iPhone

    Hello, my name is Howard; and I'm a gadget addict. This week I went out and upgraded to the new Apple iPhone 3GS, even though my 3G worked fine. I had to, though; didn't I?

    090712 iPhone impressions It's the fastest, most powerful iPhone yet. It has video, and my old phone didn't have video. It has a compass; and you know I need a compass. Okay, I don't need a compass; but apparently the new turn-by-turn mapping capability needs a compass to understand which direction you're turning (and that's pretty cool). It has voice control to dial the phone, play music, and otherwise avoid typing. And it has double the storage capacity, which I'm sure still won't be enough.

    Actually, I'm very happy with the new phone and the upgrade process. I connected it to my computer, and all the applications and settings from my prior version migrated all by themselves. Even the high score lists for games I play transferred. More importantly, the phone does everything I expected, and seems faster.

    And, of course, I no longer have iPhone envy. The fact that I waited a week after it came out to order mine took amazing willpower. I thought about it so many times that it was no longer worth it to wait. So Happy Birthday to me, a few weeks early.

    Joking aside, the iPhone has become an important business tool for me. I am more surprised about how much less I use my laptop, than I am about how much I use the iPhone.

    Even when I'm in a meeting, I have access to the internet. I can search Google.  Or even better, I can use Twitter or Facebook to crowd-source an answer. It's almost like being able to "Call a Friend" or "Ask the Audience" on "Who Wants to Be a Millionaire".

    One of the features I like best, is being able to use my voice instead of typing. So, I can quickly look-up a contact by saying their name. It's surprising how many places voice control like this comes in handy. For example, Google has an iPhone application that allows you to search by speaking. So I could speak an address, and the Google map comes up. Or, I could say "stock price for Apple", and the current quote and chart comes up. Similarly, I use an application called Jott to verbally capture tasks, ideas, and to-do items. The service transcribes what I say and puts it into my task list. It's important because I'm now capturing things that used to slip through the cracks.

    I'll review some of the more helpful iPhone applications in a later post. In the meantime, if you don't have the new iPhone, I recommend you go check them out. It's a very fine piece of technology.

  • Capitalogix Commentary 07/12/09

    Obama told the G8 that the "World has Staved Off Economic Disaster." So, it's all good now.  You are safe to jump back in the pool.  If there was still risk, he couldn't have said that in front of world leaders, right?

    Is This the New Normal … Or Just the Calm Before the Storm?

    Here is a chart that shows how volatility has reduced recently.  Putting on my curmudgeon hat for a moment, I remember the old trader's adage that lack of volatility begets volatility.

    090711 Volatility is Down

    That chart whispers "beware the calm before the storm" to me.  Others may see a return to normal.  What do you think?

    A Look At the Markets.

    The markets have given back close to 25% of their recent gains in the last four weeks. In many respects that was a healthy move. The news has been bad enough that I expected a bigger and steeper downswing.

    Also, there's been a lot of talk about the potential of a head and shoulders top. But when you look at a composite of the five U.S. Equity Indices (shown in the bottom-half of the chart, below), we haven't broken the neckline, yet.

    In addition, the 200-day moving average (red line) continues to provide support. If we don't have a sustained break beneath this level, the 200-day moving average will act as support.  Click the chart to see a full-size image.

    090711 SP500 and Composite

    With that said, sentiment is getting more bearish, and the move down
    has not created a spike in the VIX. So, again, there are clues that lead me to suspect that we might be witnessing the calm
    before the storm.  Earnings Season is starting; and a move down would trigger the head-and-shoulders topping pattern and the 200-day moving average would become overhead resistance.  And fear would increase … you get the picture.

    Sometimes, the right picture can be worth a thousand words.

    Dow's Dead-Cat Bounce from GuidePostings

    So short-term, a bounce wouldn't surprise me. Nonetheless, a bigger correction still seems likely.

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

    • Businessman Pays $2.1 million for Lunch with Buffet; Banks More (DigitalJournal)
    • 11 Places With a Worse Economy Than Ours. (USNews)
    • Currency Funds Crushed on Dearth of Market Trends. (Bloomberg)
    • The Dollar's role in the global economy is Safe From the Yuan, for Now (WSJ)
    • Ex-Goldman Sachs Employee Arrested Stealing Secret Trading Codes. (StreetInsider)
    • Citadel Sues Firm Linked to Alleged Goldman Software Theft. (FinAlternatives)
    • Mark Cuban on Business Models: Succeed with Free, Die by Free. (BlogMaverick)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 07/12/09

    Obama told the G8 that the "World has Staved Off Economic Disaster." So, it's all good now.  You are safe to jump back in the pool.  If there was still risk, he couldn't have said that in front of world leaders, right?

    Is This the New Normal … Or Just the Calm Before the Storm?

    Here is a chart that shows how volatility has reduced recently.  Putting on my curmudgeon hat for a moment, I remember the old trader's adage that lack of volatility begets volatility.

    090711 Volatility is Down

    That chart whispers "beware the calm before the storm" to me.  Others may see a return to normal.  What do you think?

    A Look At the Markets.

    The markets have given back close to 25% of their recent gains in the last four weeks. In many respects that was a healthy move. The news has been bad enough that I expected a bigger and steeper downswing.

    Also, there's been a lot of talk about the potential of a head and shoulders top. But when you look at a composite of the five U.S. Equity Indices (shown in the bottom-half of the chart, below), we haven't broken the neckline, yet.

    In addition, the 200-day moving average (red line) continues to provide support. If we don't have a sustained break beneath this level, the 200-day moving average will act as support.  Click the chart to see a full-size image.

    090711 SP500 and Composite

    With that said, sentiment is getting more bearish, and the move down
    has not created a spike in the VIX. So, again, there are clues that lead me to suspect that we might be witnessing the calm
    before the storm.  Earnings Season is starting; and a move down would trigger the head-and-shoulders topping pattern and the 200-day moving average would become overhead resistance.  And fear would increase … you get the picture.

    Sometimes, the right picture can be worth a thousand words.

    Dow's Dead-Cat Bounce from GuidePostings

    So short-term, a bounce wouldn't surprise me. Nonetheless, a bigger correction still seems likely.

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

    • Businessman Pays $2.1 million for Lunch with Buffet; Banks More (DigitalJournal)
    • 11 Places With a Worse Economy Than Ours. (USNews)
    • Currency Funds Crushed on Dearth of Market Trends. (Bloomberg)
    • The Dollar's role in the global economy is Safe From the Yuan, for Now (WSJ)
    • Ex-Goldman Sachs Employee Arrested Stealing Secret Trading Codes. (StreetInsider)
    • Citadel Sues Firm Linked to Alleged Goldman Software Theft. (FinAlternatives)
    • Mark Cuban on Business Models: Succeed with Free, Die by Free. (BlogMaverick)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Here’s a Movie Worth Seeing

    What do you do when your wife and kids are out of town, and you find yourself alone?

    Besides catching-up on projects that I somehow avoided until now, I like to watch movies.

    TiVo now links to Netflix,
    and provides an instant viewing option. Upon opening that folder on the DVR, I saw a
    bunch of things I normally wouldn't choose to watch on my own. One of them
    was a movie called Saint Ralph.  And I chose to watch it anyway.

    My Dad had an "interesting" belief. He didn't watch scary or negative movies, because he felt that life was enough of a challenge on its own … and it was better to find things that raised our spirits. Well, I inherited that from him.

    Don't get me wrong, I still I love drama and thrillers. But in the absence of compelling circumstances, I tend to prefer positive stories.

    090711 Saint Ralph Movie Poster So a plot about a down-on-his luck Catholic High School student whose father is dead and whose mother is in a coma, doesn't sound like my type of movie. 

    But Saint Ralph was my type of movie.  It made me think and I enjoyed it.  The movie was lighter, funnier, and better than I expected.

    On one level, it's a coming-of-age story about perseverance and faith through uncertain times. On another level, it's a well-written comedy about a quirky 14-year-old boy who gets it in his head that the only way to
    save his mother is through a miracle (and the miracle he thinks will
    save her … is for him to win the Boston Marathon).

    It is a movie that asks, if you're going to dream for something, why not dream for miracles?

    Hope you enjoy it.

    Here's a link to the trailer for Saint Ralph. 

    Here's a link to find it at Netflix.

  • Here’s a Movie Worth Seeing

    What do you do when your wife and kids are out of town, and you find yourself alone?

    Besides catching-up on projects that I somehow avoided until now, I like to watch movies.

    TiVo now links to Netflix,
    and provides an instant viewing option. Upon opening that folder on the DVR, I saw a
    bunch of things I normally wouldn't choose to watch on my own. One of them
    was a movie called Saint Ralph.  And I chose to watch it anyway.

    My Dad had an "interesting" belief. He didn't watch scary or negative movies, because he felt that life was enough of a challenge on its own … and it was better to find things that raised our spirits. Well, I inherited that from him.

    Don't get me wrong, I still I love drama and thrillers. But in the absence of compelling circumstances, I tend to prefer positive stories.

    090711 Saint Ralph Movie Poster So a plot about a down-on-his luck Catholic High School student whose father is dead and whose mother is in a coma, doesn't sound like my type of movie. 

    But Saint Ralph was my type of movie.  It made me think and I enjoyed it.  The movie was lighter, funnier, and better than I expected.

    On one level, it's a coming-of-age story about perseverance and faith through uncertain times. On another level, it's a well-written comedy about a quirky 14-year-old boy who gets it in his head that the only way to
    save his mother is through a miracle (and the miracle he thinks will
    save her … is for him to win the Boston Marathon).

    It is a movie that asks, if you're going to dream for something, why not dream for miracles?

    Hope you enjoy it.

    Here's a link to the trailer for Saint Ralph. 

    Here's a link to find it at Netflix.

  • The Flow of Planning

    090705 Compass I was in Columbus Ohio last week for a series of meetings and strategic planning sessions.

    I love getting away from the business in order to work on the
    business. That means stepping back from day-to-day issues, to look at
    the bigger picture. It also means getting back in-touch with goals and
    intent.

    In a sense, the process acts like a compass, which sets the general direction for the journey.

    In addition, preparing for a series of meetings, like this, is a lot like working on a business plan.

    Personally, I've found that that one of the primary benefits of
    creating a business plan has almost nothing to do with the plan itself.
    Working on the plan, immersing yourself in the ideas and possibilities,
    and ultimately choosing what stays-in, versus what's filtered out …
    there is magic in that.

    Yes, the plan is important.  But it is the planning that takes you from thinking … to feeling … to knowing.  That's where the real benefit of business planning comes from.

    A Good Sign.

    Sometimes you hear a question and it takes the air out of an idea.
    Other times a question helps you make a new distinction or consider an
    alternate and better course of action.

    At our planning sessions, last week, there was a lot of those
    pushing, pulling, probing, and deep thought … yet it built momentum. 
    So, I felt like we were on the right track.

    How to Tell You Are On the Right Track.

    I
    tend to be analytical.  Yet, over time, I've come to believe that one
    of the best tools to measure whether you are on the right track is how
    you feel.

    Have you ever gotten a phone call from someone, and when you saw or heard that it was from them, you wilted?  In
    contrast, have you ever become more animated and energized while
    interacting with someone else?  It is easy to recognize the difference. 

    Each person has different thoughts, people, or situations that trigger these positive and negative states.

    In sports, this positive state is often referred to as being "in-the-Zone".  It is also called "Flow". 
    It happens when someone is fully immersed in what they are doing, and
    has a feeling of energized focus or awareness, full involvement, and
    success in the process of their activity.

    090705 Challenge_vs_skill

    Being in Flow feels good. On some level, when you are in Flow, you know you're on the right track.

  • The Flow of Planning

    090705 Compass I was in Columbus Ohio last week for a series of meetings and strategic planning sessions.

    I love getting away from the business in order to work on the
    business. That means stepping back from day-to-day issues, to look at
    the bigger picture. It also means getting back in-touch with goals and
    intent.

    In a sense, the process acts like a compass, which sets the general direction for the journey.

    In addition, preparing for a series of meetings, like this, is a lot like working on a business plan.

    Personally, I've found that that one of the primary benefits of
    creating a business plan has almost nothing to do with the plan itself.
    Working on the plan, immersing yourself in the ideas and possibilities,
    and ultimately choosing what stays-in, versus what's filtered out …
    there is magic in that.

    Yes, the plan is important.  But it is the planning that takes you from thinking … to feeling … to knowing.  That's where the real benefit of business planning comes from.

    A Good Sign.

    Sometimes you hear a question and it takes the air out of an idea.
    Other times a question helps you make a new distinction or consider an
    alternate and better course of action.

    At our planning sessions, last week, there was a lot of those
    pushing, pulling, probing, and deep thought … yet it built momentum. 
    So, I felt like we were on the right track.

    How to Tell You Are On the Right Track.

    I
    tend to be analytical.  Yet, over time, I've come to believe that one
    of the best tools to measure whether you are on the right track is how
    you feel.

    Have you ever gotten a phone call from someone, and when you saw or heard that it was from them, you wilted?  In
    contrast, have you ever become more animated and energized while
    interacting with someone else?  It is easy to recognize the difference. 

    Each person has different thoughts, people, or situations that trigger these positive and negative states.

    In sports, this positive state is often referred to as being "in-the-Zone".  It is also called "Flow". 
    It happens when someone is fully immersed in what they are doing, and
    has a feeling of energized focus or awareness, full involvement, and
    success in the process of their activity.

    090705 Challenge_vs_skill

    Being in Flow feels good. On some level, when you are in Flow, you know you're on the right track.

  • Capitalogix Commentary 07/05/09

    Another grim report on unemployment casts doubt on the likelihood of a quick economic recovery. 

    The unemployment rate edged up to 9.5 percent in June, to its highest level in 26 years. The bigger problem is that many analysts expect joblessness to get worse in the coming months.

    A Different Perspective on the Job Market:

    Here is a chart that caught my eye on Barry Ritholtz's blog.  It shows the increased competition for jobs.  There are now close to six unemployed people for each available position.

    090705 Unemployed Per Job-Opening Chart

    The point is that as fewer jobs become available, it will get harder for normal citizens to obtain them.  The cycle continues because loss of jobs means reduced spending … which means tighter margins. 

    So, this next chart doesn't surprise me.  It shows that in addition to an increase in unemployment, there was also a decrease in hours worked.  Simply counting the number of people who lost their jobs misses something important. Lots of people have lost part of their jobs through a variety of techniques like furloughs and thirty-hour work weeks.

    090705 Not Just Fewer Jobs - Less Hours Worked

    Notice how consistent the decline in aggregate hours worked (purple line) has been over recent months. It is something to watch.

    For a longer perspective, here is a chart comparing the monthly national unemployment rates since 1948.  Click the chart to see the interactive version on WSJ.com.

    090705 Unemployment Since 1948

    Market Chart:

    How will all that play-out in the Markets?  So far, the markets have held-up nicely.  I've been seeing more negative divergences and selling on down days … and less positive momentum and market breadth. But price is the primary indicator, and it has stayed above support.

    Here is a daily chart of the Dow Jones Industrial Average Index.  I marked a head and shoulders pattern that many traders are watching.  Click the chart to see a full-size image.

    090705 Head and Shoulders Pattern on Dow Daily

    Short-term, a bounce still wouldn't surprise me. Nonetheless, a bigger correction seems likely.

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

    • Investors are Now Racing Toward Volatile Areas of the Market. (NYTimes)
    • Another Indicator Predicts Economic Recovery is Near. What do you think? (MJPerry)
    • A China Stock Bubble: IPO Mania Dangerous in Recession. (Time and Economist)
    • Why China Hates the U.S. and What It Means for Your Portfolio. (Motley Fool)
    • A Run on an Amish Bank Teaches the Risks of Modernity. (WSJ)
    • The Fed's Delicate Balancing Act On the Complex & Slow Road to Recovery. (SmartMoney)
    • How GE Reaped Bailout Dollars Even Though It Wasn't a Bank. (TDB)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Michael Jackson Insider on What Really Killed Him. (TDB)
    • Monkey 'Stock Market' Prone to Fluctuations Too. (NewScientist)
    • Calculating Consumer Happiness at Any Price. (NYTimes)
    • A Glimpse at the Future: Domestic Robots With A Taste For Flesh. (NewScientist)
    • Scientists Create First Electronic Quantum Processor. (PhysOrg)

    • Tomato Pill's new form of Lycopene Beats Heart Disease. (BBC)

    • Is an Ugly Baby Harder to Love? (Time)
    • More Posts with Lighter Ideas and Fun Links.