Market Curiosity: Exploring Markets And Systems

November 9, 2011

10 sigma events, Rambus’ 30 year silver look, Jeff Clark’s new canary XOM

Filed under: Just Watching — Tags: , , — Jeff @ 10:30 am

Notice that labels went from volatility –> 4 sigma –> 6 sigma –> and now 10 sigma. (Presenting Today’s 10-Sigma Move In BTP-Bund Spreads) So the system is entering a parabolic blow off phase. Expect the dancing sigmas to keep increasing at the same or faster rates, or collapse back to rest a bit. When will it all finally blow up?

Rambus’ Silver long term 30 year look. Next major target is $141.

Jeff Clark: I’ve Found the Market’s Newest Timing Indicator …I’ve been following the minute-to-minute action in XOM shares for several months. The action is remarkably similar to the way shares of Merrill Lynch used to trade. If the market is rallying and shares of XOM start to pull back, sure enough, the stock market pulls back moments later. If stocks are falling and XOM begins to bounce, the market bounces, too.

So if you want to profit off the short-term direction in stock prices, pay attention to the action in XOM. It’ll give you an early clue as to where things are headed.

Interesting how the canary is a commodity stock, not a paper stock. :-)

February 28, 2011

Did the Hunt’s really “corner” silver?? Framed causation and correlation

Filed under: Systems — Tags: , , , , — Jeff @ 9:15 am

Thanks to sez_me_man for pointing out this interesting article from Jeff Clark:

…I’m skeptical that the reason silver went as high as it did was primarily due to the Hunt brothers’ activity in the market. It’s interesting to note that they bought silver primarily because they mistrusted the government, and because they thought silver was going to be confiscated. Remember … gold ownership was illegal when they first started buying silver in the early ’70s.

Yes, they bought a lot of silver … But if you look at the correlation, you’ll notice the price didn’t necessarily move up when they bought. In fact, when the rumors that they were trying to “corner” the silver market really started going mainstream, which was in the spring of 1974, the silver price dropped solidly for the next two years. One would think that the price would’ve risen, not fallen, if silver was being “cornered.”

Secondly, if you look at price charts, silver moved in lockstep with gold back then. They rose and fell pretty much together. They both peaked on the very same day, January 21, 1980. So unless the gold market was equally spooked by what the Hunt brothers were doing with silver, it seems a stretch to assume they were the primary cause of the rise.

Last, as my editor pointed out, you have to consider that it was the mainstream media that largely promoted this idea the Hunts were “cornering” the market… I’m sure they had some effect, but to suggest they were the main impetus behind silver’s tremendous rise doesn’t seem wholly accurate. And look at the price today … It’s outperforming gold in our current bull market, just as it did in the ’70s, and there’s no Nelson Bunker Hunt around.

I once saw a reporter explain that the day’s rise in gold was because of some report. Turned out the rise was in the morning and the report was released in the afternoon. Hmm…

These types of framed causes can have big consequences. This chart suggests that the polio vaccine was administered as the polio epidemic was near the tail end of burning itself out and caused a rise in cases a few years later. Apparently the reason kids got polio was due to improvements in sanitation so that infants were not exposed. I’m ignorant about the current dynamics.

The pathogen is nothing. The terrain is everything. — Louis Pasteur

Ignorantly messing with a system, even with the best intentions, usually proves foolish.

December 7, 2010

Response To Those Who Suggest People Can’t Make Money Trading

Free stuff I happen to have handy:
- This System Works So Well, I’m Not Sure I Should Tell You About It, By Dr. Steve Sjuggerud

Meb's trading system

- There’s a 98% Chance Stocks Will Be Higher in 90 Days, By Dr. Steve Sjuggerud

- Turn $10,000 into $2 Million with My Simple Gold Strategy, By Dr. Steve Sjuggerud
Sjuggerud Gold ROI

- My Simple Oil System, By Dr. Steve Sjuggerud

There is no curve fitting here, nor optimiztion skews, nor fancy HFT, nor blood, brains, luck — it’s TOO SIMPLE.

The party line seems to be, “The market can’t be timed (but give us 2 and 20 and we will give it a go)”.

Because our monetary system is inflationary, just buy profitable stocks every time a fast moving average closes over a slow one, or price closes over a moving average — The 5 EMA seems to work best, or when the moving averages are trending up buy every time the the 20 ema is touched. Then, and more importantly, SELL when the buy condition reverses. And don’t go short! (in these examples)

The 5-Day Exponential Moving Average (EMA) crossover is the best simple trend-following indicator we tested against daily DJIA daily closing data from 1900 to 2001. Starting with $100 and reinvesting profits, total net profits for this 5-day EMA Crossover Strategy would have been $16 billion, assuming a fully-invested strategy, reinvestment of profits, no transactions costs and no taxes. This would have been 78 million percent better than buy-and-hold … one trade every 5.88 calendar days. There would have been 2,417 profitable trades and 3,889 losing trades, for a winning percentage of only 38% profitable.

Stansberry’s Dan Ferris: buy dominator stocks and reinvest dividends over a long time. Add Jeff Clark’s: Acquire stock via selling puts at the money when an oscillator dips and sell covered calls when an oscillator tops out. If you do it really conservatively you can readily make 10%/year.

He is Karl Denninger’s long term system: “Buy when the 20 week simple moving average crosses above the 50W SMA by more than 1%.”

Check out the Xiphos Trading group on Twitter — great info for free!

And remember William J. O’Neil’s CANSLIM. AAII’s implementation averages 27% per year. IBD newspaper has been published for a while now. At first it was not making any money at all — O’Neil bankrolled it from his trading profits. And some of these stocks are put into the Top 100 list because they had a huge gap up the week before — so they are included in the list at about the worst price one could buy them.

And then there is Mr. Dan Zanger! A pool contractor who turned about $15,000 into $20+ million in 1.5 years. Here is over 15 articles dating from ~2000. How often will those articles be presented in finance programs??? Let me guess … probably about 0.00.

How could a fancy college program charge money if people interested in numbers could just go to the library, study Market Wizards, find a trading/investing style that suits them — most are showcased in Market Wizards, blow out their account once or twice, get some therapy to get their emotions/self discipline properly managed, and then make money?

And Nicolas Darvas’ How I Made $2,000,000 In The Stock Market (in about 18 months) He was a full time dancer in Paris, WIRING trades to New York using data that was A WEEK STALE!!! And his book was first, that fully discloses his system, was printed in 1960! YET MIRACULOUSLY, business schools have never heard of him???

When dollar cost averaging, buy on the last day of the month.
+ “Since Sept 1 1997 the Dow has gained 4,417 pts. The first trading day of month has produced 6,021 pts. All other days? (-1603).” — John Benedict
+ “61% of the entire 2010 rally in $SPY was due to gap opens on the first day of a new month. Unusual, yes, but it was 65% in 2005.” — Jason Goepfert

From the GrowthStockWire: Taught by Chris Weber: When Nixon broke the U.S. dollar’s tie to gold in 1971, Chris figured out that holding foreign currencies would probably be lucrative for U.S. dollar-based investors like himself. Figuring out which currency to hold instead of the U.S. dollar was easy (for Chris). He simply looked around the world and bought the highest-yielding currency he could find… He began doing this way back in the early 1970s and has been doing it ever since. Each January, he simply buys the major currency yielding the most. This keeps his cash compounding, year after year. He’s made 14% annually with this method.

Long term strategy:

Dr. Steve Sjuggerud: If you had started with $100 in 1900, and invested in the highest-yielding countries each year, it would have turned into over $1 million at the end of 2010 – versus $370 from investing in the lowest-yielding countries.

Back to How I trade

May 1, 2010

Timing and trade setups (updated Feb 2011)

Time is everything: five minutes makes the difference between victory and defeat. — Horatio Nelson

Investments, timeframe of months
Buy when the 20 week simple moving average crosses above the 50W SMA by more than 1%. Karl Denninger has a great little explanatory video.

Swing trading, timeframe of weeks
I use Raymond Merriman’s astrological information. I like his turning points. He offers a free weekly preview, and a yearly forecast book. Bulkowski’s Book Review: Swing Trading 6 great summaries.

Entry timing
+ Consider buying when the CCI (10) of the inverted Put Call Ratio is around -100 ish.
+ Best time to buy is often the first 45-60 minutes after the market opens.
+ Wait for a correction and then a trigger that suggests the correction is over.
+ Triggers can be the high of a narrow range 7, a trend line, or the 34 EMA is turning up.
+ Buy when price exceeds the high of the previous day.
+ Can buy at the money calls that expire in 3 months or greater on the trigger too.
+ Exit if not profitable in a few days.
+ Exit if price breaks a major support.
+ Take profit on half the position at first resistance.
+ Immediately remove 10% of windfalls from trading account.

Shorting individual stocks
Only if S&P 500 is trading below a downtrending 34 EMA. Jeff Clark’s How to Trade the “Kiss of Death”

Selling options:
To worst possible time to buy options is typically in the opening 10 minutes or so when volatility is high. So that can be the best time to sell options.

Commodities:
I sometimes subscribe to the Moore Research Center’s Seasonal Action Report. Great for commodity traders. They offer free Monthly Nearby Commodity Charts.

Knowledge of the Commitment of Traders reports is also indispensible for commodity traders. Steve Briese offers the excellent COT Bullish Review. I used to subscribe, but found I like to generate my own signals. I check Commitment of Traders graphs before considering placing a trade. Starting to use Finviz.com more.

Timing charts
Jeff Clark using the bullish percent index of the transportation sector.
Xiphos Trading taught me this: On the daily Summation ratio chart, look for divergence to to be associated with the bigger changes of direction.

Other useful charts:
- Weekly Summation ratio.
- NYSE Bullish percent.
- Gold Miners Bullish percent.
- Energy sector Bullish percent.

SPECIAL CASES
Being long calls and selling on a gap up to avoid a significant down drop and possibly buy back cheaper.
- Exiting a bullish position in a bullish stock can backfire.
- The less extended the less this will benefit because price can turn very quickly.
- When quite extended and price opens above the previous high, exit calls, or sell calls at-the-money (I have never done this). You can also short the stock and cover on significant support. Cover on a new high.
+ Buy back on price reaching significant support, or scale back in as price hits lower supports.
- After about 5 minutes, buy back if a new high is made for more than a few minutes. Only the strongest stocks will open high and extended, and just keep going.
+/- Probably the stock will go down for at least a day or 2. The distance and time price corrects is usually directly related to the stocks strength.

Back to How I trade

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