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

  • Capitalogix Commentary 08/16/09

    The unemployment numbers came in slightly better than expected, and the market reacted very favorably. Then quietly, adjustments were made for other months, which were very unfavorable. Moreover, examining recent numbers a little closer suggests that some portion of the slowing growth of unemployment is probably due to the way the number is constructed. Some people are being dropped from the ranks of the unemployed, even though they haven't found jobs, because their unemployment is now long enough that they no longer qualify for benefits.

    Let Go from the Unemployment Ranks

    Market Commentary.

    There has been a lot of bad news in the press lately.  Nonetheless, the markets have held up well. There have been several
    sharp drops, which made me expect much worse; only to be met with
    another rally. As much as my gut wants to warn about "head fakes" and
    "finding the last buyer", this is the type of market action we see during
    bull market trends.

    Comparison of World Index Performances.

    The next chart shows how some of the big, thickly-traded, world equity indices (like the DAX, CAC, and FTSE) have performed year-to-date.  I like using a chart like this to get a sense of the bigger picture.  Last week's chart showed that the Emerging Markets have done much better so far this year.  Both charts show highly correlated trading.

    090815 World Indices Lag Emerging Markets

    The chart
    is interactive; so by clicking the picture, you can drag the
    yellow-highlighted date range slider to see how the change
    plays-out over time.  Try going back 232 days (which is the past year
    of trading days).  You can also add or change the markets this
    comparison uses.

    Disaster Readiness.

    "If this were an actual emergency" … would you have learned anything from the events of the last year?  As a trader, I've been burning the midnight oil and studying the bear market data to
    figure-out which of our systems held-up best during those periods.  In addition, I'm looking for early indicators that would signal a
    phase shift out of the bullish trend.

    090816 Exchange Certified Bullion Governments are probably going through a similar exercise, even though the Fed says the recession is ending and that it would take a step back toward normal policy as things return to normal.  Frankly they'd hope so, because the alternative is pretty scary.  How many things are left in their bag of tricks?

    Exchange Certified Bullion.

    Coincidentally, I'm hearing a lot more about investors and hedgers taking delivery of precious metals, like gold, silver, platinum, and palladium. Why? Apparently, unlike ETFs (like GLD), buying Warehouse Depository Receipts conveys title to specific, numbered, metal bars, which means they are not reportable as financial assets, yet you can still pledge them as collateral or sell call options against them.

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • FriendFeed Updates Status: Married to Facebook. (NYTimes)
    • Hold Innovation Tournaments to Find the Most Promising New Opportunities. (Wharton)
    • Sony Adopts Open Book Strategy Against Amazon. (MediaPost)
    • Mobile Phones Get Augmented Cyborg Vision. (BBC)
    • DriveSharp Claims It Can "Train the Brain to Think and React Faster On The Road". (WSJ)
    • More Posts with Lighter Ideas and Fun Links.

  • Capitalogix Commentary 08/16/09

    The unemployment numbers came in slightly better than expected, and the market reacted very favorably. Then quietly, adjustments were made for other months, which were very unfavorable. Moreover, examining recent numbers a little closer suggests that some portion of the slowing growth of unemployment is probably due to the way the number is constructed. Some people are being dropped from the ranks of the unemployed, even though they haven't found jobs, because their unemployment is now long enough that they no longer qualify for benefits.

    Let Go from the Unemployment Ranks

    Market Commentary.

    There has been a lot of bad news in the press lately.  Nonetheless, the markets have held up well. There have been several
    sharp drops, which made me expect much worse; only to be met with
    another rally. As much as my gut wants to warn about "head fakes" and
    "finding the last buyer", this is the type of market action we see during
    bull market trends.

    Comparison of World Index Performances.

    The next chart shows how some of the big, thickly-traded, world equity indices (like the DAX, CAC, and FTSE) have performed year-to-date.  I like using a chart like this to get a sense of the bigger picture.  Last week's chart showed that the Emerging Markets have done much better so far this year.  Both charts show highly correlated trading.

    090815 World Indices Lag Emerging Markets

    The chart
    is interactive; so by clicking the picture, you can drag the
    yellow-highlighted date range slider to see how the change
    plays-out over time.  Try going back 232 days (which is the past year
    of trading days).  You can also add or change the markets this
    comparison uses.

    Disaster Readiness.

    "If this were an actual emergency" … would you have learned anything from the events of the last year?  As a trader, I've been burning the midnight oil and studying the bear market data to
    figure-out which of our systems held-up best during those periods.  In addition, I'm looking for early indicators that would signal a
    phase shift out of the bullish trend.

    090816 Exchange Certified Bullion Governments are probably going through a similar exercise, even though the Fed says the recession is ending and that it would take a step back toward normal policy as things return to normal.  Frankly they'd hope so, because the alternative is pretty scary.  How many things are left in their bag of tricks?

    Exchange Certified Bullion.

    Coincidentally, I'm hearing a lot more about investors and hedgers taking delivery of precious metals, like gold, silver, platinum, and palladium. Why? Apparently, unlike ETFs (like GLD), buying Warehouse Depository Receipts conveys title to specific, numbered, metal bars, which means they are not reportable as financial assets, yet you can still pledge them as collateral or sell call options against them.

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • FriendFeed Updates Status: Married to Facebook. (NYTimes)
    • Hold Innovation Tournaments to Find the Most Promising New Opportunities. (Wharton)
    • Sony Adopts Open Book Strategy Against Amazon. (MediaPost)
    • Mobile Phones Get Augmented Cyborg Vision. (BBC)
    • DriveSharp Claims It Can "Train the Brain to Think and React Faster On The Road". (WSJ)
    • More Posts with Lighter Ideas and Fun Links.

  • What If You Outsourced Your Job Overseas?

    News satire from The Onion. It is funny, well done, and like most good humor … it has an insightful kernel of truth.  This one provides a different perspective on employment and outsourcing.


    More American Workers Outsourcing Own Jobs Overseas

  • What If You Outsourced Your Job Overseas?

    News satire from The Onion. It is funny, well done, and like most good humor … it has an insightful kernel of truth.  This one provides a different perspective on employment and outsourcing.


    More American Workers Outsourcing Own Jobs Overseas

  • Capitalogix Commentary 08/09/09

    The rally continues, and the S&P 500 has gotten back above 1000.  Pretty impressive on many fronts.  How does it compare to other markets though?  This chart shows how several other world markets have done so far in 2009.

    090808 World Markets Comparison

    The strength of the rallies don’t make sense to me based on logic.  But trends don’t depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking bronco.

    Why Citigroup’s Volume Is Significant.

    Last week saw some interesting trading in Citigroup, as it recorded an “utterly insane” amount of volume – 2.7 BILLION – in a single day. That huge volume value caused problems throughout the financial information world. Financial systems are designed to handle certain ranges of values. If a number is outside that range, it “overflows” the data field for that value. Citigroup’s volume overflowed, which should tell you something about how likely that level of trading is to occur.

    I watch volume patterns.  Capitulation bottoms typically happen on huge volume spikes.  I don’t know if the reverse holds true as well.  But the markets are extended so I’m watching things a little more closely.

    What About Gold?

    If the Markets start a deeper pull-back, then Gold looks poised for a break-out to the upside.  Here is a chart showing a potential Reverse Head-and-Shoulders bottoming pattern.  There recent shoulder is a triangle pattern, which indicates we should expect expanded volatility soon.

    090808 Gold Trying to Break-Out

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

    • Can ‘Cash for Clunkers’ Help Jump-start the Auto Industry? (Wharton)
    • More Stimulus: Senate Adds $2 Billion to ‘Clunkers’ Plan. (WSJ)
    • Job Losses Slow to 247,000; Unemployment Rate Dips. (WPost)
    • Will Apple’s iTouch Tablet Will Become Its Flagship Product? (Seeking Alpha)
    • What the Hotness of Your Waitress Says About the Economy? (NY Mag)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 08/09/09

    The rally continues, and the S&P 500 has gotten back above 1000.  Pretty impressive on many fronts.  How does it compare to other markets though?  This chart shows how several other world markets have done so far in 2009.

    090808 World Markets Comparison

    The strength of the rallies don’t make sense to me based on logic.  But trends don’t depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking bronco.

    Why Citigroup’s Volume Is Significant.

    Last week saw some interesting trading in Citigroup, as it recorded an “utterly insane” amount of volume – 2.7 BILLION – in a single day. That huge volume value caused problems throughout the financial information world. Financial systems are designed to handle certain ranges of values. If a number is outside that range, it “overflows” the data field for that value. Citigroup’s volume overflowed, which should tell you something about how likely that level of trading is to occur.

    I watch volume patterns.  Capitulation bottoms typically happen on huge volume spikes.  I don’t know if the reverse holds true as well.  But the markets are extended so I’m watching things a little more closely.

    What About Gold?

    If the Markets start a deeper pull-back, then Gold looks poised for a break-out to the upside.  Here is a chart showing a potential Reverse Head-and-Shoulders bottoming pattern.  There recent shoulder is a triangle pattern, which indicates we should expect expanded volatility soon.

    090808 Gold Trying to Break-Out

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

    • Can ‘Cash for Clunkers’ Help Jump-start the Auto Industry? (Wharton)
    • More Stimulus: Senate Adds $2 Billion to ‘Clunkers’ Plan. (WSJ)
    • Job Losses Slow to 247,000; Unemployment Rate Dips. (WPost)
    • Will Apple’s iTouch Tablet Will Become Its Flagship Product? (Seeking Alpha)
    • What the Hotness of Your Waitress Says About the Economy? (NY Mag)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • How Much Is a Burger at the Cowboys’ New Stadium?

    "Everything's bigger in Texas" takes on new meaning while touring the new Dallas Cowboys football stadium. The stadium cost over $1.1 billion to construct; and it makes a big statement.  In addition to being massive (large enough that the Statue of Liberty would fit comfortably inside), the new structure is quite distinctive and technologically innovative.

    090808 Cowboys Stadium

    From inside the stadium,
    with the roof closed, it was designed to look like the old Texas
    Stadium's roof (with its visual trademark hole).  However, it can be fully-shut or fully-opened.  Actually, it does a lot more than open; it slides back and then the end-zone entrances shift sideways to create the appearance of a totally open stadium, all the way out to the parking lots. My sons and I tried to figure-out how they did this … and surmised that they spent a whole bunch of money and a lot of time to make this stadium act like a Transformer. 

    Another technological marvel is the high-definition video screen hanging above the field. It is a massive, and currently the world's largest screen.  It measures more than 11,500 square feet (72feet
    tall and 160 feet wide) and weighs over 1.2 million pounds.  In addition to experiencing the event live, they've tried to make the multimedia experience in the stadium better than you'd get on your television set.  It will be easy to follow the action from any seat in the stadium.

    090808 Cowboys Stadium Video Screen

    By the way – that screen, alone, cost more ($40 million) than the entire construction of the Cowboys' previous home, Texas Stadium ($35 million).

    In addition, the Cowboys owner, Jerry Jones, has shown that he is an innovative business man as well. He focused on selling far more suites than stadiums before this had available. Moreover, even though the stadium is designed to hold approximately 80,000 people for normal events, it can expand to hold over 100,000 people for special events (like next year's Super Bowl).

    He extended an olive branch to the common man. Not in the price of a pizza, which costs $60 at the stadium.  However, the Cowboys now offer a "Party Pass" that allows access to the game for $29, so long as you're willing to stand in the concession areas.  Believe it or not, that Party Pass idea is getting great press and opens the live game experience to a whole different range of socioeconomic backgrounds. At least until they see how much a burger costs of the stadium.  I cut off the price of the alcohol or you'd need a drink. 

    090808 Price of a Burger

    Here is my impression of watching a game there.

    Other Information:

  • A Trend-Following Book Worth Reading

    People often ask me which trading books I'd recommend. I've read a lot of books about trading; and though some of them are good, only a handful stand out.

    090808 Trend Following Book Cover Michael Covel wrote a couple of the trading books I consider worth
    reading. The first is called "Trend Following", and the second is
    called "The Complete TurtleTrader".

    Many books are little more than marketing for their author or an
    attempt to sell a "magic bullet" to less experienced traders. In contrast, both of Covel's books are simple enough that a novice would gain valuable information
    from them; yet there's enough content and nuance that experienced traders also will
    benefit from the books.

    I've always loved Jack Schwager's "Market Wizard" book series. Covel's books are different than these because they deal with a narrower subject … more deeply.  Yet they are similar in terms of the value-added content they provide and how accessible they are; and that's high praise from me.

    Covel has an engaging writing style. He keeps things interesting by telling stories rather than simply providing a mechanical "how-to" textbook.  You get enough narrative and detail about accomplished traders to give you a sense of their personality, thought process, and some of the key ideas and distinctions that help make them successful. In addition, he backs-up his research with lots of data, charts, and links to additional information.  This makes it easy for you to continue on your own.

    What is In the Trend Following Book?

    The "Trend Following" book:

    1. explains the basics of trend following;
    2. introduces you to the some of the great trend following traders;
    3. explains the positives and negatives of the technique from a
      performance standpoint;
    4. shows how trend followers did during big
      events, crashes, and panics;
    5. and the later part of book focuses on the
      human-nature side of trading, decision-making and building trading
      systems.

    I like how Covel segments his books logically, and in bite-size chunks.  That means I can pick it up and read something without feeling compelled to start at the beginning and read all of it at once.

    For example, I just opened Trend Following (to page 253) and saw "Five Questions for a Trading System". In this section he lays-out things to consider when evaluating a system.  Examples include how the system determines which market (and how much exposure) to trade, as well as what constitutes entry and exit triggers? Then, in addition to explaining the basics, there are examples and quotes from other traders about the topic.  And he extends the discussion to include emotional issues like how much money you intend to make, the level of time and effort you intend to invest, and the strengths and weakness you bring into the equation.  Bottom-line, he goes out of his way to give you a thorough
    understanding … while getting his points across in an
    easy-to-understand, informative, and interesting ways.

    I found myself referring to both of these books several times in the past several months. If you're looking for something to read (or for some new ideas about trading and money management) I recommend you check out these books.

    090808 Covel's Movie Intro Other Links:

  • A Trend-Following Book Worth Reading

    People often ask me which trading books I'd recommend. I've read a lot of books about trading; and though some of them are good, only a handful stand out.

    090808 Trend Following Book Cover Michael Covel wrote a couple of the trading books I consider worth
    reading. The first is called "Trend Following", and the second is
    called "The Complete TurtleTrader".

    Many books are little more than marketing for their author or an
    attempt to sell a "magic bullet" to less experienced traders. In contrast, both of Covel's books are simple enough that a novice would gain valuable information
    from them; yet there's enough content and nuance that experienced traders also will
    benefit from the books.

    I've always loved Jack Schwager's "Market Wizard" book series. Covel's books are different than these because they deal with a narrower subject … more deeply.  Yet they are similar in terms of the value-added content they provide and how accessible they are; and that's high praise from me.

    Covel has an engaging writing style. He keeps things interesting by telling stories rather than simply providing a mechanical "how-to" textbook.  You get enough narrative and detail about accomplished traders to give you a sense of their personality, thought process, and some of the key ideas and distinctions that help make them successful. In addition, he backs-up his research with lots of data, charts, and links to additional information.  This makes it easy for you to continue on your own.

    What is In the Trend Following Book?

    The "Trend Following" book:

    1. explains the basics of trend following;
    2. introduces you to the some of the great trend following traders;
    3. explains the positives and negatives of the technique from a
      performance standpoint;
    4. shows how trend followers did during big
      events, crashes, and panics;
    5. and the later part of book focuses on the
      human-nature side of trading, decision-making and building trading
      systems.

    I like how Covel segments his books logically, and in bite-size chunks.  That means I can pick it up and read something without feeling compelled to start at the beginning and read all of it at once.

    For example, I just opened Trend Following (to page 253) and saw "Five Questions for a Trading System". In this section he lays-out things to consider when evaluating a system.  Examples include how the system determines which market (and how much exposure) to trade, as well as what constitutes entry and exit triggers? Then, in addition to explaining the basics, there are examples and quotes from other traders about the topic.  And he extends the discussion to include emotional issues like how much money you intend to make, the level of time and effort you intend to invest, and the strengths and weakness you bring into the equation.  Bottom-line, he goes out of his way to give you a thorough
    understanding … while getting his points across in an
    easy-to-understand, informative, and interesting ways.

    I found myself referring to both of these books several times in the past several months. If you're looking for something to read (or for some new ideas about trading and money management) I recommend you check out these books.

    090808 Covel's Movie Intro Other Links:

  • PC Prices – An Offer I Couldn’t Refuse

    Does it make sense to try and fix a broken PC?  I used to think so; now I’m not so sure.

    I’m often early adopter of technology. That’s kind of code for “I’ve had to reformat my computer many times over many years”. And when it came to hardware, let’s just say that the local CompUSA people smiled when I walked in the door. I love technology; and it seems that I never met a faster video card, bigger hard drive, or clever invention that I didn’t want to buy.

    Your Rules of Thumb May Be 090802 PC Retailers Out-Dated.  Mine Were.

    Over the years, I developed a strategy for acquiring new computers.
    I typically bought the absolute top-of-the-line, as soon as the second
    version of it came out. Oh, I bought many when the first version came
    out; but that’s how I developed a strategy to buy one-step back from
    the newest and best.

    A lot has changed in the PC industry.  For example, our local CompUSA and Circuit City stores are now closed, and today I got a pretty good idea why that happened.

    My laptop finally gave out; and all of my software utilities, Internet searches and efforts had failed to bring it back to life. My wife made me promise to go get a new machine before I drove myself (or her) crazy.

    What Kind of Deals are Available Today?

    So this morning I walked into my local Best Buy determined to find a worthy replacement. I was quite surprised to find that I walked out the door with a brand-new laptop, much more powerful than the one that had broken, for less than $500.

    I also found a desktop machine with Intel’s newest chip, 9-gigs of memory and a terabyte hard disk for about $1,000.

    That means hardware is becoming disposable. There comes a point where it’s literally not worth trying to fix something, or re-load an operating system and your programs to make something work reasonably well, when you can upgrade to a newer more stable platform for so little money.

    What Does This Mean For You?

    The point is technology is now cheap enough that you should look at your business and think about the point of diminishing returns. Which machines are calling-out to you that they are past their prime, and it’s time to replace them with something new?

    The PC manufacturers are trying to get rid of their Vista machines … because the new Windows 7 operating system officially comes out this fall. I recommend you take this opportunity to investigate what is out there … and bring some of it home.