Capitalogix

Phi on Fibonacci and Markets

As noted, 6/18 is "Phi Day" for Fibonacci aficionados. 

So, here is a link to a description of the sequence on Prechter's Elliott Wave website.

And here is a follow-up article.

"It's About Time" -- Or, Isn't it?

There is a difference between working on a problem and focusing on a solution.  Thus, trying to improve performance is different than focusing on limiting losses. 

Einstein said: "We cannot solve our problems with the same thinking we used when we created them."

It got me thinking. Most trading charts are time-based (meaning that price change is measured against time).  But maybe looking at price change in other ways would provide a different perspective.

 

There are several interesting techniques gaining favor among technical traders.  These include measuring price change based on a certain volume traded or a constant range of directional movement.  Here is a link to a brief article about this in StockCharts.com.

 

In some respects, these are "smoothing" techniques.  Nonetheless, they present a different picture of the market, and are something worth investigating.

 

Here is how the S&P 500 Index looks like in one of these charts.

 

Market Commentary as of June 6th, 2008

This week the Markets tried to rally several times.  Unfortunately for the Bulls, none of these attempts worked.  And Friday's move down was the worst for the market in a year-and-a-half.

So the headlines are "another week of a weak dollar, rising oil prices and falling markets."  One of the key take-aways, from my perspective, is that the Markets are not responding as resiliently to bad economic data as they had a few weeks ago.

You don't have to look much farther than this chart from FinViz.com.


Also, something I'm hearing more of are questions about whether you can trust the government's economic numbers?  Some people are saying that key measures have been distorted lately.

Some things that caught my eye this week:

• The weekly newsletter from StockCharts.com had some interesting insights.
• The International Monetary Fund published research on Herding Behavior in Markets.
• Self-Motivation & Other Hyper-Intentional Mistakes from the Financial Philosopher.
• Why the sky-rocketing VIX may not be so bearish, from VIX and More.

TraderDNA

If you treat trading like a business, you quickly realize that performance measurement is a key to better performance and risk management.  Over time I've developed a lot ways to measure what is working, and what isn't.  But I'm always looking for new insights.  And I was specifically looking for tools that helped traders spot their tendencies. 

Well, TraderDNA caught my eye.  I haven't used it yet; however TraderDNA Analyzer looks interesting.  It is an all-in-one application for tracking results, journaling, and analyzing your trading performance and system-efficacy. You can customize and construct your own statistics, tables, graphs and visual representations of your trading, and then save your views for later use and report generation.  Some of their suggested uses are to:

• Identify key differences in your winning trades and losing trades.
• Track your results and improvement through the week, month, and year.
• Understand exactly what causes your winning days, and your losing days.
• Analyze intra-day changes in your trading performance.
• Compare your trading across different markets.
• Measure your performance in adding to winning and losing positions.
• See your equity curve over any time frame and by account and market traded.
• Measure and understand the risk you take in various circumstances.
• See how efficiently you trade different contract sizes.
• Compare/contrast the performance of numerous traders or trading systems.
• Discover trends and patterns in your trading performance.

Some of their reports and ideas about what to measure were interesting.  I'll be curious to learn more and hear from users.

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Why Analysis Is Often Flawed

Imagine thousands of researchers asked to analyze the market, or an event like a Fed Statement. Each is searching for a substantial answer. Trouble is, there's bias towards "substantial."

Is there really an "Answer"? Doesn't each tick, each move, produce new questions?

It's sometimes like a "Magic Eye" hidden picture. You are searching for the vision and all you see is nonsensical chaos. Yet when seen from the right perspective, and with the right focus, there is a higher order and the picture becomes clear.

Time plays a role here. Timeframe plays a role here. But so does knowing when the signal to noise ratio tells you not to pay attention. Sometimes noise is just noise.

I've been thinking about how the market whispers when to play offense, when to play defense, and when not to play at all.  What gives us a clue that something meaningful is happening?  Is it:

• Price Moves;
• Volume;
• When Some Moving Average is Above or Below Some Other;
• Sentiment
• Fundamental Data
• Technical Indicators?

As someone who's played this game for a long time, I'm not looking for magic bullets.  But if I wasn't willing to look, it would be difficult find.  So, model-building and testing will continue.  I'll share more as the picture comes into focus.

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.

Want to See a Downtrend? Check-Out the Dow Priced in Gold.

I use a service called "Chart of the Day" - and as you might guess - they post one chart each day. I love preparing my own charts. But, I think the way I think. Sometimes, I get a new insight or perspective from how others see the market.

What follows is an example of a chart I wouldn't have thought of myself. The second chart provides a little context and contrast.

The Dow Priced in Gold: The Dow currently trades about 15% below its all-time record high. For some further perspective into how the stock market is actually performing, the chart below shows the Dow divided by the price of one ounce of gold.

This results in what is referred to as the Dow / Gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 12.9 ounces of gold to "buy the Dow." This is considerably less that the 44.8 ounces back in the year 1999. When priced in that other world currency (gold), the Dow is in the midst of a massive eight year bear market!

Gold versus the Dollar: Thanks in part to a large US trade deficit and a weak US economy, the US dollar continues to trend lower. For some perspective, the next chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line). As this chart illustrates, the performance of the US dollar has varied inversely to that of gold since October 2005. It is worth noting that the US dollar is currently testing support.

from <http://www.chartoftheday.com>

Custom Index Built with Worden Blocks

Worden Blocks is a fun and useful tool.  It is very easy to build and customize charts, indicators, and scans.  Here is an example of something built with Blocks.  It is a composite index of the five major US equity indices (Dow, S&P, Naz, Russell 2K, and MidCap).  On the version I use, I also have a tool that shows the percent change from any date to any other date.  I marked two of them on the chart below.

Market Commentary from February 29th

Who asked for the extra day in February anyway?   Certainly not me. The week started great.  Then investor confidence took another blow Friday as the S&P 500 declined by 2.7%; its worst day in a long time.

If you were watching, I don't have to tell you how bad it was late last week.  Bottom Line: oversold market conditions and a fair amount of manipulation from the sidelines has not been sufficient to move the market out of the consolidation range of the last several weeks.

The whipsaw volatility seen the last few weeks worsened Thursday and Friday. After attempts early in the week to take the market up and beyond the contracting Triangle patterns found on most of the US equity indices, the selling on Friday brought us down to levels where the lower-range boundaries of the Triangles are now clearly threatened.

On the other hand, DecisionPoint had an interesting chart that may indicate we'll see a major low soon.  It shows the percent of NYSE Stocks trading above their 200-day moving average.