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

  • Weekly Market Commentary from 5/23/08

    Wow that was quick. The Dow lost 500 points this week, as oil continued to rise, housing continued its decline, and inflation and recession fears flared. No wonder the markets went down.

    From a technical perspective,
    several markets also lost their trend support levels.  Adding insult to
    injury, not only did the markets fail to stay above their 200-Day
    moving averages … most markets are now back under their 50-Day moving averages.

    This is a daily chart of the S&P 500 Index with price just beneath the hotly contested 1400 level.  It shows that price broke below the uptrend from March (shown by the thick red diagonal line); but is resting just above the down-trend support line from October (the thick blue diagonal line).

    080523 SPX Decision

    We are now oversold no multiple time frames. However, we'll see how long it lasts.  Bulls are quick to point out that we went from overbought to oversold too quickly, with low volume, and not much re-testing.  Bears respond: that's the definition of weakness.

    Of course, most market watchers were expecting a pull-back. As noted, the markets had run-up quite a bit and were facing their 200-Day moving averages. It's quite normal to stop there once you had such a long multi-month move upward. Also, the lack of negative sentiment deprived the rally of fuel. It will be interesting to see the Commitment of Traders data and new bull bear percentage when it comes out later this week.

    Things that caught my eye this week:

    This should be an interesting week; respond intelligently.

  • Evolution of the Cell Phone

    With Apple's 3G next generation of iPhone rumored to launch in the next few weeks, I have to admit wanting one, sight un-seen.

    We've seen a lot of changes since the first cell phones.  As a persistent early-adopter, this brought back a lot of memories.

    Make sure you check-out the piece at the end with a peek into the future.

    Ray Kurzweil wrote an interesting piece in the Washington Post called "Making the World a Billion Times Better."  It talks about the exponential progression of technology.

    It sure makes a lot more sense in hindsight. 

    It
    is exciting to think about what it means, going forward.  But,
    counter-intuitively, you often have to look back to know what to focus
    on.  You often can
    logically segment what happened in the past to see which pain-points,
    new capabilities, or paradigm-shifts triggered the leap to the next
    phase.  Once you understand the gating process, you can project
    forward.  Then the next steps come into focus.  And cycle starts fresh,
    again.

    I've done this with the tools and techniques we use to trade.  The
    progression makes so much sense, now; even though it seemed so random
    as it happened.

    It is fascinating to look back at how far we've come.  I'll bet you could do the same.  More
    importantly, no matter how far you've come to get here … realize that
    sometime in the future, you can look back and smile as you realize how
    small the game was that you used to play.

  • Evolution of the Cell Phone

    With Apple's 3G next generation of iPhone rumored to launch in the next few weeks, I have to admit wanting one, sight un-seen.

    We've seen a lot of changes since the first cell phones.  As a persistent early-adopter, this brought back a lot of memories.

    Make sure you check-out the piece at the end with a peek into the future.

    Ray Kurzweil wrote an interesting piece in the Washington Post called "Making the World a Billion Times Better."  It talks about the exponential progression of technology.

    It sure makes a lot more sense in hindsight. 

    It
    is exciting to think about what it means, going forward.  But,
    counter-intuitively, you often have to look back to know what to focus
    on.  You often can
    logically segment what happened in the past to see which pain-points,
    new capabilities, or paradigm-shifts triggered the leap to the next
    phase.  Once you understand the gating process, you can project
    forward.  Then the next steps come into focus.  And cycle starts fresh,
    again.

    I've done this with the tools and techniques we use to trade.  The
    progression makes so much sense, now; even though it seemed so random
    as it happened.

    It is fascinating to look back at how far we've come.  I'll bet you could do the same.  More
    importantly, no matter how far you've come to get here … realize that
    sometime in the future, you can look back and smile as you realize how
    small the game was that you used to play.

  • What Do Bancruptcies Tell Us?

    Bankruptcy lawyers in Texas have been busy recently.  Past cycles have shown a surge of Chapter 11 Bankruptcy Reorganizations as early indicator of the end of tough economic times. 

    Makes sense though; Reorganization happens when someone wants to preserve an asset, but credit is tight.

    So, it is just a data point, but if it was a football game, my guess is that we'd be in the third quarter.  What do you think?

  • Weekly Market Commentary from 5/16/08

    2008_bear_on_bull_payback_time
    Is The Bear Still Lurking?

    Great market action for bulls recently.  If this has been a head-fake, it certainly was a convincing one.

    The major US Equity Indices are all moving up to their 2008 highs – into their 200-day moving averages.

    There has been a prolonged rally off the March lows, so you are going to hear lots of bearish predictors. It makes sense from the standpoint of price, time and logic.

    Right?

    For example:

    1. We are now "overbought" and the rally is approaching the 61.8% Fibonacci Retracement level;
    2. A re-test of the 50-Day moving average is a likely next move;
    3. That the Put/Call ratio is too bullish, and so is dumb-money confidence levels;
    4. The VIX is simply too low, and readings at these levels often precede big drops;
    5. Consumer confidence levels are at dangerously low levels (add inflation, housing, and gas …); and
    6. We are still in that range-bound congestion area, and the longer we stay here the more we spend upside momentum.

    But, you have to trade what the market brings you.  And the market has digested bad news well recently. More importantly, we know that markets don’t have to trade logically.  So keep your eyes open and respond intelligently.

    Here are some of the things I read this week.

  • Weekly Market Commentary from 5/16/08

    2008_bear_on_bull_payback_time
    Is The Bear Still Lurking?

    Great market action for bulls recently.  If this has been a head-fake, it certainly was a convincing one.

    The major US Equity Indices are all moving up to their 2008 highs – into their 200-day moving averages.

    There has been a prolonged rally off the March lows, so you are going to hear lots of bearish predictors. It makes sense from the standpoint of price, time and logic.

    Right?

    For example:

    1. We are now "overbought" and the rally is approaching the 61.8% Fibonacci Retracement level;
    2. A re-test of the 50-Day moving average is a likely next move;
    3. That the Put/Call ratio is too bullish, and so is dumb-money confidence levels;
    4. The VIX is simply too low, and readings at these levels often precede big drops;
    5. Consumer confidence levels are at dangerously low levels (add inflation, housing, and gas …); and
    6. We are still in that range-bound congestion area, and the longer we stay here the more we spend upside momentum.

    But, you have to trade what the market brings you.  And the market has digested bad news well recently. More importantly, we know that markets don’t have to trade logically.  So keep your eyes open and respond intelligently.

    Here are some of the things I read this week.

  • What is Your Intention?

    Mellensmartblow_rough_sea
    Fear, greed and hope comprise the Bermuda Triangle of trading. Many dreams were battered or lost because of them.

    In trading, my goal is to make and keep money, consistently. It isn’t to be right, or clever, or even creative. Reducing human bias and error are benefits of using automated trading systems; and ultimately that helps us intelligently respond to the markets.

    How does that apply to life?

    Oh, a small question …

    A friend of mine called me this week to share a thought. He said that he was trying to stop simply responding automatically to situations. Instead, he was going to consciously focus on his "intention" before responding.

    Imagine how different the world would occur to you if you brought "intention" into focus instead of mindlessly surrendering to your first feelings and actions.

    Triumphant_man_on_water_200p_2
    My first reaction often is to ask "what is the best next step?" Perhaps you do something similar? On many levels that is a resourceful question. Yet, what would happen if, instead, you brought your intention into focus and asked what role you could play to best support that intention?

    Your role directly affects the options you perceive.

    Let me know how that works for you.

  • What is Your Intention?

    Mellensmartblow_rough_sea
    Fear, greed and hope comprise the Bermuda Triangle of trading. Many dreams were battered or lost because of them.

    In trading, my goal is to make and keep money, consistently. It isn’t to be right, or clever, or even creative. Reducing human bias and error are benefits of using automated trading systems; and ultimately that helps us intelligently respond to the markets.

    How does that apply to life?

    Oh, a small question …

    A friend of mine called me this week to share a thought. He said that he was trying to stop simply responding automatically to situations. Instead, he was going to consciously focus on his "intention" before responding.

    Imagine how different the world would occur to you if you brought "intention" into focus instead of mindlessly surrendering to your first feelings and actions.

    Triumphant_man_on_water_200p_2
    My first reaction often is to ask "what is the best next step?" Perhaps you do something similar? On many levels that is a resourceful question. Yet, what would happen if, instead, you brought your intention into focus and asked what role you could play to best support that intention?

    Your role directly affects the options you perceive.

    Let me know how that works for you.

  • Travel IQ

    Trip Advisor has an interesting game called Traveler IQ Challenge.

    brought to you by TravelPod, the Web’s Original Travel Blog ( A TripAdvisor Media Network member )

    I thought it was fun. 

    080516_farecast_when_and_where_3On a related note, here are some of my favorite Travel sites.

    Farecast:  This site has lots of nice features.  This link shows cheap fares from a city.  The graphic to the right shows other features to look for on that page.  For example:

    • when to travel (which days have the lowest fares), and
    • where to travel (which cities have the best deals).

    Kayak: Search 140+ travel sites at once to find and compare the cheapest fares from all sites together – great grids and filters to find what you are looking for fast.

    Airfare Watchdog:  Up-to-date list of low fares from major airlines (including Southwest).  You can subscribe to alerts too.

  • Travel IQ

    Trip Advisor has an interesting game called Traveler IQ Challenge.

    brought to you by TravelPod, the Web’s Original Travel Blog ( A TripAdvisor Media Network member )

    I thought it was fun. 

    080516_farecast_when_and_where_3On a related note, here are some of my favorite Travel sites.

    Farecast:  This site has lots of nice features.  This link shows cheap fares from a city.  The graphic to the right shows other features to look for on that page.  For example:

    • when to travel (which days have the lowest fares), and
    • where to travel (which cities have the best deals).

    Kayak: Search 140+ travel sites at once to find and compare the cheapest fares from all sites together – great grids and filters to find what you are looking for fast.

    Airfare Watchdog:  Up-to-date list of low fares from major airlines (including Southwest).  You can subscribe to alerts too.