Capitalogix

Market Wizard Sings the Truth

This is a video done by Ed Seykota. He is a well-known trader and was featured in Jack Schwager's great series on "Market Wizards."  His website is here. http://www.seykota.com/tribe/

Here is the page link: http://www.youtube.com/watch?v=LiE1VgWdcQM

interesting ...

Weekly Market Commentary from 5/09/08

While the market did pull back, as expected, it was orderly and relatively mild.

The chart below shows daily view of a composite of the 5 markets we currently trade. 

The Markets are above the red support line and the yellow down-trend; both of those are bullish indicators.  Though not on the chart by itself, last week the S&P 500 index could not hold above the 1400 level that we've been following.  That is worth watching this week.

Also note that this chart shows that the rally from March 10 through last week retraced just over 50% of the loss from the October highs. 

The graphic below is a market heat map from FinViz that shows that last week was good for the Oil & Gas sector (because it shows up as mostly green) and bad for the Financials (shown mostly in bright red).

This free site has a simple yet powerful stock screener, maps that allow you to see sector and stock rotation, and insider trading info.  It is worth checking-out.

At least Someone Wants US Dollars

At least someone wants US Dollars.

In a cautionary tale about what happens when inflation gets out of control, there were riots in Somalia recently over rising costs, counterfeit money and local traders refusing to accept local notes (demanding US dollars instead). 

While the scale is different, human responses to fear and greed are universal.

Whack! What Happened to Real Estate?

Fear hits a little closer to home.  Recently, the US housing market has taken a pretty big hit.  Apparently, California has been hit harder than most other parts of the country.  Here is an LA Times article making that abundantly clear.

It made me check the value of my house.  Here is a site that makes that easy; it is called  Zillow.  Certainly worth the click.

All this led me to an interesting photo essay about crashes, stagflation and bear markets from US News World Report. 

This photo shows a bankrupt investor attempting to sell his luxury roadster for $100 cash on the streets of New York, October 30, 1929.

Hopefully, by listening to the whispers of history, we won't have to repeat it.

Focusing on the Right Things

A few years ago I had lunch with Larry Connors (who is a well-known trader and runs the website TradingMarkets.com).  We were talking about what makes great traders great, and what causes some of them to get in trouble.

Larry said he believes that many people with a real "edge" fail to exploit it because they get bored.  The personality trait that helped them develop their system often leads them astray; they focus on finding new things rather than on making money with what they know works.

As I think about this, I have a slightly different explanation.  Most systems with an "edge" only have a small edge.  That means that successful traders suffer frequent set-backs, drawdowns and situations where they did everything right, but still lost money.  It is natural for them to use their natural talents to avoid unnecessary pain, right?

Most successful businesses balance operational excellence and making money now with research and development (which helps ensure that they will make money in the future).  So, it makes sense that the best traders continue to grow, learn, and make new and better distinctions.

One of the Siren songs of trading, though, is that the fear of losing has so much gravity that it often pulls focus from more productive endeavors.  In other words, there is a difference between "working on a problem" and "working towards a solution."

Focusing on what you are trying to avoid is distracting and painful.  In my experience, the best results come when the focus is on what you want.

The Rhythm of Writing

Here is a trick I use to write better and more naturally. It is called "timed writing" and it has been easy and effective for me. This post will briefly describe how it works.

First, pick a song to listen to while doing the exercise. Then I get a piece of paper and a pen. When the song starts, begin writing. Don't type or use a computer. Don't pause, don't stop. Don't think. Don't correct your spelling or grammar. Just write. If you can't think of anything else to write write whatever you say to yourself; even if it is "what should I say here?" But, don't let the pen stop writing until the song stops.

Second, use another song to review what you wrote. When I do this step, I cross-out things I didn't like. I make notes, annotations, draw lines connecting one paragraph to another, insert comments or write trigger words. Sometimes I outline a different idea flow. But I don't stop until the song stops. This is a great time to check the intention and attitude of the piece. Sometimes I look at a paragraph and ask myself "what is this supposed to say?" And I write the answer. It is often a great headline, lead-in, or summary. When the song is over, I often take a break to clear my head.

The next step looks similar to the first. Put on a song, and re-write the whole thing … from the beginning … with the new structure, comments and whatever else comes out in the process. By this step, the piece is usually dramatically better than it was the first time. However, a few more changes often happen when I re-enter the piece into the computer.

Handwriting seems to access different parts of the brain and creative process than typing does.  Somehow the combination works for me.  Try this and let me know what you think.

Market Commentary as of May 2, 2008

The Bad News:

• The dollar has been very weak.
• Like the temperature in Dallas, the price of gas continues to rise.
• Housing prices, however, continue to fall to record lows.  Nice summary here.
• Despite the recent rally, the average stock is still 27% beneath its 52-week high.
• And market commentators point out that we are entering a period of negative seasonality.

The Good News:

Somehow the market is finding a way to rise.  It is often tough to remember, yet price is the primary indicator; and it is going up.  That is a good sign, especially during periods of apparent bad news.

This was another solid week for the major Indices, with virtually every index taking out their respective downtrend-lines for the week. Barron's called it the best finish of 2008.

The S&P 500 finally closed above the 1400 level for the first time since early January. If it holds, that upside breakout moved the S&P 500 out of a three-month trading range into an intermediate recovery.  The next major test likely will take place at its 200-day moving average and a trendline drawn over its October/December highs.

Here is a similar chart of the NASDAQ.

Please answer the poll below.

Do you like a good cup of coffee?

I use a Senseo ... and I love it. Great coffee or tea, a cup at a time, when I want it, with no clean-up.

Last week I got an e-mail from the company that makes these gourmet coffe machines. As a marketing experiment, they are giving away the Senseo to "influencers." To get yours, follow the link and let them know that you like tea and coffee and that you don't yet have a single-serving coffee maker.

This is the link to get your Senseo.

Loonie Commentary on the Dollar

Funny thing happened to me in Canada this week as I got off the plane and exchanged some money. I gave them $140 US - and they gave me $126 Canadian. Huh? That's Loonie.

As the Fed hints it may stop easing and the dollar may be bottoming,  an article on Bloomberg notes that "futures traders are betting for the first time since December 2005 that the dollar will gain against the euro."