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

  • Weekly Commentary through September 26th, 2008

    This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.

    So what is it going to take for the markets to finally bounce?  History shows
    that most intermediate or long-term bottoms are characterized by panic
    selling, hopelessness, and people simply giving-up.  If that is the standard, then we may be close.

    Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:

    • This week reversed most gains from the prior week's rally and short-squeeze.
    • The markets continue to flirt with lows for the year. 
    • Because of the volatility and gaps, trading simply hasn't been normal recently. 
    • The economy and the markets dominate news and popular culture. 
    • This week, the President of the United States basically said that
      if a radical bail-out wasn't done, right now, it would damage our
      economy – and many others across the globe. 

    However, as bad as the markets did last week, they held up
    reasonably well considering how much bad news there has been and how
    close to the edge things really were (or are). Also, while markets went
    down, it was on lower volume than last week, and we didn't break last
    week's low. 

    The Calm After the Storm.  It's
    also probably worth noting that, historically, periods of great
    volatility are often followed by periods of much less volatility.

    With that in mind, I do believe that the government will reach a
    reasonable compromise to end the "Deal – or No Deal" situation very
    quickly. It's also likely that this agreement and the liquidity that it
    brings will give the markets some room to breathe and some fuel for a
    meaningful rally.

    On the other hand, there is a long way to go
    from here to recovery. Some people see this as the end of the crisis.
    At best, I see this as the end of the first step on the road to
    recovery.

    You Can't Bounce Until you Hit Bottom. 
    There are many corollaries in nature. This troubling time created a
    clearing. Much of the fear, uncertainty, doubt, and baggage from past
    mistakes are being wiped away. Firms are closing, the landscape is
    changing, Wall Street and our economy will literally never be the same
    again. And, yet, this kind of clearing is often the catalyst to new
    beginnings and fast growth.

    Noise Reduction. 
    When creating automated trading systems, one of the things that becomes
    increasingly important is to recognize the difference between signal
    and noise. Right now, there's a lot of noise. The markets, market
    players, and even governments are spooked. Under those circumstances,
    it doesn't take much to stir things up.

    The bailout and worldwide
    cooperation can be looked at as noise reduction. Temporarily, there
    will be a forced and tenuous peace. The hope is that as things calm
    down, people will make decisions from a stronger position (or at least
    from a position that's less fearful than where they are now).

    Remember, a journey of a thousand miles begins with one step.  Here's to progress.

  • Weekly Commentary through September 26th, 2008

    This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.

    So what is it going to take for the markets to finally bounce?  History shows
    that most intermediate or long-term bottoms are characterized by panic
    selling, hopelessness, and people simply giving-up.  If that is the standard, then we may be close.

    Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:

    • This week reversed most gains from the prior week's rally and short-squeeze.
    • The markets continue to flirt with lows for the year. 
    • Because of the volatility and gaps, trading simply hasn't been normal recently. 
    • The economy and the markets dominate news and popular culture. 
    • This week, the President of the United States basically said that
      if a radical bail-out wasn't done, right now, it would damage our
      economy – and many others across the globe. 

    However, as bad as the markets did last week, they held up
    reasonably well considering how much bad news there has been and how
    close to the edge things really were (or are). Also, while markets went
    down, it was on lower volume than last week, and we didn't break last
    week's low. 

    The Calm After the Storm.  It's
    also probably worth noting that, historically, periods of great
    volatility are often followed by periods of much less volatility.

    With that in mind, I do believe that the government will reach a
    reasonable compromise to end the "Deal – or No Deal" situation very
    quickly. It's also likely that this agreement and the liquidity that it
    brings will give the markets some room to breathe and some fuel for a
    meaningful rally.

    On the other hand, there is a long way to go
    from here to recovery. Some people see this as the end of the crisis.
    At best, I see this as the end of the first step on the road to
    recovery.

    You Can't Bounce Until you Hit Bottom. 
    There are many corollaries in nature. This troubling time created a
    clearing. Much of the fear, uncertainty, doubt, and baggage from past
    mistakes are being wiped away. Firms are closing, the landscape is
    changing, Wall Street and our economy will literally never be the same
    again. And, yet, this kind of clearing is often the catalyst to new
    beginnings and fast growth.

    Noise Reduction. 
    When creating automated trading systems, one of the things that becomes
    increasingly important is to recognize the difference between signal
    and noise. Right now, there's a lot of noise. The markets, market
    players, and even governments are spooked. Under those circumstances,
    it doesn't take much to stir things up.

    The bailout and worldwide
    cooperation can be looked at as noise reduction. Temporarily, there
    will be a forced and tenuous peace. The hope is that as things calm
    down, people will make decisions from a stronger position (or at least
    from a position that's less fearful than where they are now).

    Remember, a journey of a thousand miles begins with one step.  Here's to progress.

  • Weekly Commentary through September 19th, 2008

    Wow!  That was some week.  As I went back through what happened, it is hard to believe it all happened in one week.  There was:

    Here is what it looked like on a weekly chart of the Dow.

    080819 Dow Weekly

    Wall Street experienced several of the best and worst days in its history.  Fear spiked early in the week, and there were two days that saw markets lose
    about 5%.  Individually, each of those down-moves was bigger than
    anything we've seen since 9/11. Then after what many will call a Key Reversal Day, there was a breakaway gap higher of more than 4% on Friday. 

    Somehow, foreign markets were even more
    volatile. For example Russia's RTS Index
    had a 17% loss in one day, and had trading halted for two days, only to
    gain 22% when it opened again on Friday.

    It all happened last week.

    So, where do we find ourselves?  Somehow, pretty much where we were at the beginning of the week.  Except you know something important happened.  It even trickled down to Saturday Night Live.  This week there were several SNL skits related to the market and the market action.  People were spooked.  More importantly, governments were spooked.

    We are witnessing unprecedented market action.  I suspect that they will be writing about this period in history books.

    Hopefully the actions taken by the government will ultimately have a positive impact. From a trader's perspective, it sure hasn't been easy.

    So, how did the interventions affect the markets. One way to see is to
    look at how various sectors performed this week. This chart, from
    Bespoke, shows that Financials and Energy were the beneficiaries this week.

    0080919 S&P Sector Performance

    Here are a few of the posts I found interesting this week:

    • Bush Defends Bail-Out (WSJ)
    • "The Week That Changed American Capitalism" (Big Picture)
    • Chart Showing Big Gains in Global Markets late last week (Bespoke, FT, NYTimes)
    • Does Thursday Qualify as a Key Reversal Day? (MarketWatch, Quantifiable Edges)
    • VIX Spikes to 42 on Fear last week (VIX and More)
    • A Market Indicator that Shows What Panic Looks Like (Trader's Narrative)
    • Swenlin Analyzes recent charts looking for perspective on the Bottom (Decision Point)
    • How common is a week with multiple daily losses greater than 4% ? (Bespoke)
    • Short-Selling Ban Spreads to Foreign Markets (Big Picture)
    • Treasury to Guarantee Money Market Funds (Intl. Herald Tribune)
    • Treasury Seeks Authority to Buy $700BB of Toxic Assets (Bloomberg)
    • Interactive graphic of $1.86 Trillion of Losses in the Financial Sector this year (NYTimes)
    • Goldman Sachs and Morgan Stanley to become Bank Holding Companies (WSJ)

    And, a little bit extra:

    • SEC Bans Frowning (Financial Sense)
    • How Wall Street Lied to Its Computers (NYTimes)
    • How close did we come to Armageddon in the markets (NY Post)
    • Here is the text of the Plan Paulson presented to Congress (Kedrosky)

  • Weekly Commentary through September 19th, 2008

    Wow!  That was some week.  As I went back through what happened, it is hard to believe it all happened in one week.  There was:

    Here is what it looked like on a weekly chart of the Dow.

    080819 Dow Weekly

    Wall Street experienced several of the best and worst days in its history.  Fear spiked early in the week, and there were two days that saw markets lose
    about 5%.  Individually, each of those down-moves was bigger than
    anything we've seen since 9/11. Then after what many will call a Key Reversal Day, there was a breakaway gap higher of more than 4% on Friday. 

    Somehow, foreign markets were even more
    volatile. For example Russia's RTS Index
    had a 17% loss in one day, and had trading halted for two days, only to
    gain 22% when it opened again on Friday.

    It all happened last week.

    So, where do we find ourselves?  Somehow, pretty much where we were at the beginning of the week.  Except you know something important happened.  It even trickled down to Saturday Night Live.  This week there were several SNL skits related to the market and the market action.  People were spooked.  More importantly, governments were spooked.

    We are witnessing unprecedented market action.  I suspect that they will be writing about this period in history books.

    Hopefully the actions taken by the government will ultimately have a positive impact. From a trader's perspective, it sure hasn't been easy.

    So, how did the interventions affect the markets. One way to see is to
    look at how various sectors performed this week. This chart, from
    Bespoke, shows that Financials and Energy were the beneficiaries this week.

    0080919 S&P Sector Performance

    Here are a few of the posts I found interesting this week:

    • Bush Defends Bail-Out (WSJ)
    • "The Week That Changed American Capitalism" (Big Picture)
    • Chart Showing Big Gains in Global Markets late last week (Bespoke, FT, NYTimes)
    • Does Thursday Qualify as a Key Reversal Day? (MarketWatch, Quantifiable Edges)
    • VIX Spikes to 42 on Fear last week (VIX and More)
    • A Market Indicator that Shows What Panic Looks Like (Trader's Narrative)
    • Swenlin Analyzes recent charts looking for perspective on the Bottom (Decision Point)
    • How common is a week with multiple daily losses greater than 4% ? (Bespoke)
    • Short-Selling Ban Spreads to Foreign Markets (Big Picture)
    • Treasury to Guarantee Money Market Funds (Intl. Herald Tribune)
    • Treasury Seeks Authority to Buy $700BB of Toxic Assets (Bloomberg)
    • Interactive graphic of $1.86 Trillion of Losses in the Financial Sector this year (NYTimes)
    • Goldman Sachs and Morgan Stanley to become Bank Holding Companies (WSJ)

    And, a little bit extra:

    • SEC Bans Frowning (Financial Sense)
    • How Wall Street Lied to Its Computers (NYTimes)
    • How close did we come to Armageddon in the markets (NY Post)
    • Here is the text of the Plan Paulson presented to Congress (Kedrosky)

  • Tune-Up Your iTunes Music Collection, Automatically

    For years I took my music collection for granted. I ripped many of my
    old CDs to disk, and simply allowed the computer to save the
    information anyway it chose to. Over time, it became clear that there were
    mistakes, missing information and, in general … a mess.

    After several limited attempts to clean my collection manually, I
    started looking for a better way. I certainly found something that
    worked for me. It's called Tune-Up.

    080919 iTunes Tune-Up Service
    Tune-up is a software add-on designed to clean your iTunes music collection. For me, that means fixing and standardizing the artist, album, song titles, and other data that helps me find the right music for my mood. I also appreciate how well it finds and updates cover art for songs and albums.

    Tune-Up accomplishes a lot of its magic by connecting to various data services (like Gracenote's MusicID).  While Tune-Up does most of the heavy lifting, I appreciate that it
    allows me to have the final say. It's very easy to accept its
    suggestions; yet, I still have the ability to ignore or override it
    based on how I want my music categorized.

    There's also feature that recognizes the song you're playing and displays other relevant information, like related concert dates in your area, links to videos by the artist, and recommendations about other songs or albums you might like.

    Bottom line:  This tool saved me a lot of time and works better than the other tools I've tried.

    If you don't use iTunes, or just want to check-out another good alternative, you can also look at MediaMonkey. And if you want a clean your music collection by finding duplicate tracks or to clean-out entries where you deleted or moved the actual music file, I recommend looking at Marklesoft's Dupe Eliminator.

  • Weekly Commentary through September 12th, 2008

    Volatility has been much higher than normal.  For example, the S&P 500 index rose or fell by more than 2% on five of the nine trading days so far this month.  There were only six such days during the last 4½-year bull run.

    Yet, for all that violent flip-flopping and massive gaps in both directions, the stock market ended last week essentially flat.

    We are back near the lows for the year.  Bears had a great opportunity to plunge through important psychological levels. Everything turned red for the ride down; and then the market reversed again. Part of me wonders whether short-sellers didn't press their luck because they "fear" another Sunday bail-out (in some form or fashion).

    The big news this week was about the fall of Lehman.  Here is a simple chart showing what happened to their stock this year.

    080912 LEH ChartAs I write this, it looks like Lehman is filing for bankruptcy and that Merrill Lynch is getting sold to Bank of America.  Futures are down.

    However, a big, quick, move down – here – might be the best thing to hope for if you are bull.

    Here are a few of the posts I found interesting this week:

    And, a little bit extra:

    • Sweet Dreams in Hard Times Add to Lottery Sales (NYTimes)
    • Niederhoffer's Ten Principles of Cricket and Market Power (Daily Speculations)
    • Wisconsin man eats 23,000 Big Macs since 1972 (Chicago Tribune)
    • Lehman Replaces Palin as Wikipedia Plaything (Infectious Greed 1 and 2)
    • McCain leading Obama in prediction markets and polls (Kudlow, RealClearPolitics)
    • Retailers Using Software to Increase Sales and "motivate" employees (WSJ)
    • Has the large Hadron Collider destroyed the world yet? (Click)
    • Biologists on the verge of creating a new form of "life" (Wired)

  • Weekly Commentary through September 12th, 2008

    Volatility has been much higher than normal.  For example, the S&P 500 index rose or fell by more than 2% on five of the nine trading days so far this month.  There were only six such days during the last 4½-year bull run.

    Yet, for all that violent flip-flopping and massive gaps in both directions, the stock market ended last week essentially flat.

    We are back near the lows for the year.  Bears had a great opportunity to plunge through important psychological levels. Everything turned red for the ride down; and then the market reversed again. Part of me wonders whether short-sellers didn't press their luck because they "fear" another Sunday bail-out (in some form or fashion).

    The big news this week was about the fall of Lehman.  Here is a simple chart showing what happened to their stock this year.

    080912 LEH ChartAs I write this, it looks like Lehman is filing for bankruptcy and that Merrill Lynch is getting sold to Bank of America.  Futures are down.

    However, a big, quick, move down – here – might be the best thing to hope for if you are bull.

    Here are a few of the posts I found interesting this week:

    And, a little bit extra:

    • Sweet Dreams in Hard Times Add to Lottery Sales (NYTimes)
    • Niederhoffer's Ten Principles of Cricket and Market Power (Daily Speculations)
    • Wisconsin man eats 23,000 Big Macs since 1972 (Chicago Tribune)
    • Lehman Replaces Palin as Wikipedia Plaything (Infectious Greed 1 and 2)
    • McCain leading Obama in prediction markets and polls (Kudlow, RealClearPolitics)
    • Retailers Using Software to Increase Sales and "motivate" employees (WSJ)
    • Has the large Hadron Collider destroyed the world yet? (Click)
    • Biologists on the verge of creating a new form of "life" (Wired)

  • Tough Week?

    Last week I wrote that trading is often stressful; and learning how to handle the emotional and physiological response patterns is an important step toward long-term success.


    This week the markets were at their manic-depressive best, which can be tough for traders.  Investors were like hyperactive first graders playing musical chairs.


    Here are some funny videos of how some people handle their tough week.


    The first video shows a man beating his computer.  There is something primal about it that makes it memorable.  I saw this many years ago.  Yet I find myself thinking about this one from time-to-time.  So, I put it first.





    Here is the direct link.


    I saw this one on on the Huffington Post.  It has a lot going on; way too much to describe.  It is more fun to just watch, anyway.





    Here is the direct link.


    Finally, this one shows a man in a coffee shop freaking-out after his computer hangs, apparently he has a presentation to give in ten-minutes, so getting arrested seemed like a good idea.





    Here is the direct link.  (Hat-Tip to Gelflog)

  • Tough Week?

    Last week I wrote that trading is often stressful; and learning how to handle the emotional and physiological response patterns is an important step toward long-term success.


    This week the markets were at their manic-depressive best, which can be tough for traders.  Investors were like hyperactive first graders playing musical chairs.


    Here are some funny videos of how some people handle their tough week.


    The first video shows a man beating his computer.  There is something primal about it that makes it memorable.  I saw this many years ago.  Yet I find myself thinking about this one from time-to-time.  So, I put it first.





    Here is the direct link.


    I saw this one on on the Huffington Post.  It has a lot going on; way too much to describe.  It is more fun to just watch, anyway.





    Here is the direct link.


    Finally, this one shows a man in a coffee shop freaking-out after his computer hangs, apparently he has a presentation to give in ten-minutes, so getting arrested seemed like a good idea.





    Here is the direct link.  (Hat-Tip to Gelflog)

  • Another Type of Image Toy – Deep Zoom

    The new Deep Zoom technology in Microsoft's Silverlight is pretty cool.  The smooth in-place zooming and panning that Deep Zoom allows is a true advancement and raises the bar on image viewing. High resolution images need to be prepared for use with Deep Zoom to control the zooming experience.

    Here is an example.

    Also, here are three links worth exploring about Deep Zoom:

    • This is a Deep Zoom site of Hard Rock Café Memorabilia (Hard Rock)
    • This is a Barack Obama supporter site using Deep Zoom (Obama)
    • And finally, here is a demo of a web site designed for Deep Zoom (Vertigo)

    If you want a little more background on this, here is a post about why this technology is new and different.