Saturday, April 25, 2009

"You might want to consider putting your protective stop at a level that isn't "logical" to the market and that is still beyond the noise. Let's assume that noise is represented by the activity of the day-i.e., the whole day's activity is mostly noise. The activity of the day could be represented by the average true range. If you take an average of this activity over that past 10 days (i.e., a 10-day moving average), you have a good approximation of the daily noise. Now, multiply the 10-day moving average of the average true range by some constant between 2.7 and 3.4 and you'll have a stop that's far enough away to be out of the noise. This is probably a good stop for most long-term trend followers. Your response to a stop that far away might be something like: "I'd never want to put that much risk in any one position." However, there's another way to look at it . . . A wide stop is not a lot of risk if your position size is small or minimal. And if a minimal unit with that big of a risk seems like a lot of money to you, then you probably should not be trading that particular instrument--either it's not a good opportunity or you are undercapitalized." Van K. Tharp, "Trade Your Way to Financial Freedom," p. 237

Correction in Progress - Carl Swenlin. "The market continues to behave in a positive way in spite of being overbought. Support has held, and the needed correction has so far proceeded with virtually no price damage. It is still early, but it is possible for the internal correction to continue without a substantial decline, or even with prices moving higher. My opinion is that bullish influences still have the upper hand, and that the bear market will not resume yet."

1 in 9 US housing units are vacant - USA Today

Increased Home Vacancies Expected to Moderate Inflation - David Enke on Greenfaucet. "rising home vacancies across the U.S. are depressing rents, the largest item in the consumer price index released by the labor department. Home and apartment rents, as well as owners' equivalent rent, make up 30 percent of the CPI. . . . an environment with lower inflation will allow the Fed some extra time before it needs to start raising rates"

Insider Selling Jumps to Highest Level Since ‘07 as Stocks Gain - Bloomberg

Yeeee - Haaaa!

U.S. Stress-Test Accounting May Make Banks Raise Capital Levels - Bloomberg

Should the bank stress tests be made public? Sy Harding. "the information will be released May 4. Unintended consequences may be a roiling of the financial sector that the government's efforts are aimed at stabilizing, in the same way that a list of financially troubled individuals or businesses in your home town could roil confidence and conditions there for awhile. For instance, will depositors create runs on their banks if they are named as not doing well in the stress tests? Will investors bail out of their stocks in panic and send the financial sector reeling again?"

Starent (STAR) Clears Handle Of Long Base Pattern - IBD. "The stock approached new highs in mid-March, but slipped into its latest correction. It's the handle to a base that began last June. As a handle, it sank a steep 28%. That's a concern, especially with fairly active volume in that area. The wireless technology company broke out Friday after reporting its first-quarter results late Thursday. Volume was busy as shares gapped up in a clear signal that institutional investors were rushing into the stock. The relative strength line has not confirmed the breakout"

FT.com - China reveals huge rise in gold reserves

Potash fertilizer sales reach ‘Virtual Halt’ - Bloomberg

Pregnant woman running from bear hit by car - The Denver Post

Photo of disabled midget Ku Klux Klan member in wheelchair

High and Low Finance - Subprime Loans, Corporate-Style, Will Fuel Defaults. 'Calculations by Moody’s Investors Service show that as of the beginning of April, a record 27 percent of speculative-grade debt issuers had a rating on their senior debt ranging from Caa down to C. These are the lowest rungs of credit quality — rungs that once rendered a borrower ineligible for a loan. The default rate on leveraged loans and speculative grade bonds is rising rapidly. “We expect the default rate to get to the range of 14 percent by the end of the year,” said Kenneth Emery, a senior vice president of Moody’s. That compares to peak default rates of 10 to 12 percent during the last two recessions, in 1991 and 2001.'

Microsoft earnings drop (for first time in 23 years) as netbooks take chunk of PC sales - Ars Technica

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Friday, April 24, 2009

"the channel breakout entry is a good entry system that ensures that you will never miss a trending signal. However, it does get whipsawed a lot. As a result, its reliability is not much better than random entry. . . . If you plan to trade a channel breakout, I would make the following recommendations. First, use a setup with the entry that involves a sequential condition with price (i.e., something that happens to the price before you are willing to take a breakout signal). For example, you might require (1) a narrow band of volatility before the breakout occurs, (2) an "efficient market" before you take a breakout signal, (3) a clear sign of a trend signaled by a high relative strength in the stock you are considering." Van K. Tharp, "Trade Your Way to Financial Freedom," p. 207.

Real-time examples: Compare a one-year daily chart of NFLX with 65 day (13 week) price channels and a line showing relative strength to the S&P, to a chart of C with the same parameters. Note that when NFLX closed above its 65 day price channel in Jan. 2009, relative strength to the S&P was very high. Follow-through was excellent and the uptrend remains intact, although it is weakening now. On the other hand, observe that when C closed above its 65 day price channel in Oct. 2008, relative strength to the S&P was negligible; price soon collapsed, the shares ultimately fell 90%, and the trend remains down to this day.

Research Recap - Fitch says US House Prices to Fall Another 12.5%. "Fitch believes that most of the correction will be incurred in the next two years, with prices exhibiting more stability from late 2010."

Americans Upbeat on Future, Anxious About Present, Polls Show - Bloomberg

The Simpsons' rightful place in the universe

Moving Averages and Human Risk - Jared Woodard on Greenfaucet. "Strategies that follow crosses of two moving averages have been studied to death, and in their plain vanilla form, they don't seem to provide much of an edge over a buy and hold approach over the long term. But what they lack in absolute performance they may make up in ease of use. Until a few months ago, neither a long/short nor a long-only 50/200 simple moving average crossover strategy outperformed the buy & hold approach to the S&P 500. While both crossover strategies are now ahead by virtue of the recent bear market, that's not in itself a reason to give mechanical strategies like these a second look; what is a reason, however, is the fact that a long-only 50/200 crossover strategy would've kept you out of all of the bear markets and the worst trading days over the last 28 years. That includes the dot-com crash, October 1987, and the unwinding of the credit bubble."

Disciplined Approach to Investing - Dividend Increases Keep Coming: Johnson & Johnson (JNJ) and Kellogg (K)

Tree frog christmas light

VIX and More: The New VIX Macro Cycle Picture. "Since the dawn of VIX data, which extends back to 1990, the VIX has shown a tendency to move in cycles of 2-4 years that I refer to as VIX macro cycles. The chart below shows six distinct VIX macro cycle periods of declining, rising or flat volatility."

London Rats Feed Off U.K. Recession as Trash Mounts

Brink's Eases From Its High, Shaping Handle (CFL) This stock made an all-time high yesterday; however, looking at the CFL chart with the same parameters used previously for NFLX and C, it is apparent that CFL is having a hard time closing above its 65-day price channel, and relative strength to the S&P is actually deteriorating.

Can Technical Analysis Still Beat Random Systems? iPaper, Rudolf Wittmer, Oct. 2000

Oakland Cannabis Club 2009 Awards. Presented every year (on April 20th!) to outstanding medical marijuana dispensaries located in Oakland, California.

Doctor has 'cloned humans' - Yahoo! News

S&P 1500 Most Volatile Stocks - B.I.G. "the majority of the stocks on the list trade in the single digits and are from the Financial sector."

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Thursday, April 23, 2009

"Chuck LeBeau and David Lucas, in their book, Technical Traders' Bulletin Guide to Computer Analysis of the Futures Market, did some marvelous studies with entry. They used various types of entry signals to enter the market when doing historical testing. The only exit they used was at the close of business 5, 10, 15, and 20 days later. Their primary interest in using this approach was to determine what percentage of their trades made money and if the percentage exceeded what one would expect from entering the market at random. Most of the indicators failed to perform any better than random-including all the oscillators and various moving-average crossover combinations that are so popular." Van K. Tharp, "Trade Your Way to Financial Freedom," p. 201.

Refreshing News: A solar superstorm could return us to the dark ages in short order - and one is due in 2012.

China’s Copper, Aluminum Imports Climb on Government Stimulus - Bloomberg. "Refined copper purchases jumped 92 percent to 748,281 tons in the first three months of the year from the year ago period"

Corrugated box shipments rose in April. This is an obvious leading indicator, but is is reliable?

An emerging opportunity in U.S. housing - James Saft. "historically cheap long-term fixed-rate financing (less than 5 percent on a 30-year mortgage) and the prospect of some nasty inflation a year or two out, both courtesy of current Federal Reserve and government policies, make owning a real asset that is debt financed a lot more attractive than would have been the case just three or six months ago."

Nasdaq Bullish Percent Index Back To 2007 Level - Trader's Narrative. "In the past 10+ years, the Nasdaq Bullish Percent Index has had a tough time going higher than 50-60%. The only exception was in 2003 when we saw BPI pushed to 78% by the powerful new bull market. So not only are we back to Bullish Percent levels where the bear market started, we are at levels which have historically marked tops in the equity market. The only justification for new long positions here, or continuing to hold on to existing long positions, is the expectation that we are going to see yet another powerful non-stop rocket ride as in 2003." Well, maybe we are? The 2003 and 2009 year-to-date S&P charts are remarkably similar.

Programmable Tattoos: Digital displays for your body. Now I know for sure that I am living in the wrong century!

Emerging-Market Short Sales Climb Most Since 2007 as Rally Ebbs - Bloomberg. EEM short interest rose 51% in March.

Roger Nusbaum's take on recent bank earnings reports: "Citigroup’s (NYSE: C) recent earnings report got a recent boost because CDS it holds on itself went up. It’s almost like it benefited from being short itself. The improved earning report could then cause the CDS to contract which could in turn then hurt the company. The opposite appears to have happened with Morgan Stanley’s earning report it was hurt because the CDS it held on itself went down. It has been an upside down world for financial stocks for a long time with no visibility for right side up any time soon. Every rule or modification put into effect to try to deal with the crisis results, almost immediately, in some sort of unintended consequence or even obfuscation."

Why Investors Should Avoid Bank Stocks - Brett Arends, WSJ.com

ProShares Files For 3X Leverage On 94 New ETFs

Ticker Sense: Leveraged ETFs - Beware the Performance Conundrum. "more and more investors have caught on to the fact that they don't perform as expected."

Protein engineering - scientists are designing novel proteins capable of performing some of biology's most powerful functions.

Russian Muslim man hires hit-men to kill his daughter for wearing mini-skirts.

Statoil’s Arctic Dominance Threatened as Exxon, Shell Make Bids - Bloomberg

Solar Panels and Parking Lots: An Extraordinary Dual Use - John Peterson. "Wouldn't it be supreme irony to see a perceived catastrophe of the '70s turned into one of the biggest energy opportunities of the new millennium."

Photo explains the difference between the sexes.

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Wednesday, April 22, 2009

"very few entry techniques beat a simply random entry-a coin flip at a random time to determine whether to go long or short in the market. Consequently you need to do whatever you can to improve your odds. The best way of improving your odds is to make sure the market is moving in the direction you are expecting before you enter the market." Van K. Tharp, "Trade Your Way to Financial Freedom," p. 172

Trader Planet - An Interview with Van K. Tharp, Ph.D. A clear and concise synopsis of Tharp's thinking.

Swinestoppers: UK man arrested for having an ornamental pig in his garden.

Are expensive running shoes a waste of money? Everything we've been told about running shoes may be wrong and it might even be better to go barefoot.

T. Boone Pickens sees oil at $75 at end-year. OPEC wants $75 by the end of the year and Pickens believes they will prevail.

Weak Fundamentals Suggest Oil Prices Will Remain Low.

Natural Gas Is Ready to Rally - Jeff Clark. "it now takes roughly 15 million BTUs of natural gas to buy one barrel of oil. Historically, this ratio has trended around 10. In fact, for most of the past decade, the ratio has been closer to eight. The current 15-to-1 ratio is the most extreme reading of the past 20 years. This means one of two things has to be true: Either oil is too expensive or natural gas is too cheap. If oil is too expensive, then oil prices will fall while natural gas holds steady. If natural gas is too cheap, then there's the potential for a huge rally in the works. Either way, the downside to buying natural gas right here is limited and the upside is huge." The potential is certainly enormous, but being long unhedged natural gas in this bear market would be foolish: price could fall a lot more, and even if it does stabilize, there could be years of sideways movement.

Outlook for Water Utilities - Seeking Alpha (AWK / AWR / CWT / WTR)

Financial markets face a lost generation of investors. Previous US stock market mega-meltdowns, 40%-plus drops, have permanently scared away a high percentage of potential investors.

The Definitive Guide To Trading Mastery & Success - Trader's Narrative. Gladwell's 10,000 hour principle: achieving world-class success in any field requires an initial investment of at least 10K hours of hard work.

Why is high-speed internet service so much faster and cheaper in Stockholm than in the US?

Chart: Roubini worldwide celebration tour marks major market bottom (courtesy of Maoxian)

Spain’s Falling Retail Prices Fuel Deflation Fears in Europe

Microsoft signs its own death sentence: Windows 7 to be crippled on netbooks. How can you morons not know that this will give Google a perfect opportunity to take away your core business with their free operating system?

Obama administration wants 5-year prison sentence for medical marijuana seller. Where's the "change you can believe in"?

Tesco calls bottom as profits rise. The U.K.'s biggest retailer by sales and the third-largest in the world thinks the global recession has bottomed. Tesco reported better-than-expected fiscal 2009 earnings, driven by a solid U.K. performance and expansion in Asia, and rising U.K. sales growth so far this year. This is a sharp outfit that's in touch with consumers so their forecast does have some credibility.

Low-tech Magazine: Small windmills put to the test. "small windmills are a swindle . . . (it takes) 47 windmills to power a household"

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Tuesday, April 21, 2009

Google shut down the blog for 24 hours while Mr. Monopoly was being investigated for suspicion of being a source of spam. The blog is working now, so apparently the charges have been dropped.

"If you learn one critical thing from this book, it should be that a setup is about 10 percent (or less) of your trading system. Most people will place 90 percent of their emphasis on finding the right setups, but setups are actually one of the least important parts of the system." Van K. Tharp, "Trade Your Way to Financial Freedom," p. 166.

Quantifiable Edges: The Most Overbought Market At Least 23 Years? "returns have generally been positive following other times the indicator has reached extreme levels. On the low end the results are about the same as the long-term market drift. While not shown, periods leading up to 20-days are also all generally positive. As the indicator moves higher the results look even more bullish. But instances are incredibly low, so not much can be extrapolated. I see two points to take away from this exercise: 1) When the market gets extremely overbought that is not necessarily a bad thing, and on its’ own is certainly not a signal to sell short. 2) By this measure the market is now more overbought than it has been in at least 23 years."

Twin Charts Separated At Birth: Can You Guess Which Is Which?

Commercial Real Estate Problems Piling Up

CreditSights Sees Low Risk of Default by Major US REITs

Congress Should Wear T-Shirts With Endorsements: Caroline Baum - Bloomberg. “Members of Congress should be compelled to wear uniforms like Nascar drivers, so we could identify their corporate sponsors.”

Twelve Major Brands That Will Disappear

Market bottom a work-in-progress. "Repairing the damage from a bear market takes time"

Stock Market Symmetry "Watching market moves unfold can sometimes be a thing of beauty."

Runaway emotions shouldn't rule your portfolio - John Dorfman. "select an asset allocation you can live with for the long term -- 55 percent stocks, 35 percent bonds and 10 percent cash, for example. Then, rebalance annually to maintain it. You will sleep better, and your investment results might even improve."

21-leaf clover shatters Guinness world record for most leaves on a clover stem

Awesome party

Monday, April 20, 2009

"Most people try to find a high-probability entry with no concept of an exit or of adequate position sizing. This usually leads to a trading methodology with a negative expectancy. On the other hand, if people understand the role that exits and position sizing play in systems, they could be quite satisfied with an entry system that only produced 40 percent winners." Van K. Tharp, "Trade Your Way to Financial Freedom," p.82.

Emerging Markets May Be Due For a Rest - Jared Woodard on Greenfaucet. (EEM:$SPX)

As Natural Gas Prices Decline, Natural Gas Stocks Rise. (FCG:UNG)

Unconventional Natural Gas: Just a 'FRAC' Away - Peter McKenzie-Brown Seeking Alpha. Hydraulic fracturing pushes a mix of water, sand and some soluble chemicals into well bores at high pressure, both to spread cracks across the formation and hold them open for gas and oil to flow. Originally a simple operation, fraccing has evolved into a high industrial art that uses multi-stage techniques in horizontal wells. . . . Unconventional gas operations are not cheap. Drilling costs are in the range of $5 million to $7 million per well at Horn River, and $4 million to $5 million at Montney. Fraccing costs are estimated to be $2 million to $3 million per well. But the production profiles for these wells make them worth their costs. Each may produce 7.5 million cubic feet of gas per day in their first year. Production declines rapidly but typically levels off at around two million cubic feet per day then stays steady for years. When gas prices improve, the new wells will be cash registers."

Pork Scratching World?

Blindness from age-related macular degeneration to be cured with stem cells in 6-7 years. Pfizer is backing development of the technology.

How to turn on cows

Richard Donchian's 20 guides to trading commodities (1934), by Barbara S. Dixon (1978) (PDF).

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Sunday, April 19, 2009

"The fact that market price distributions tend to have an infinite variance, or nearly so, suggests that more extreme scenarios than you might imagine are right around the corner. As a result, any derived estimate of risk will be significantly underestimated. And unfortunately, most people take way too much risk in the market. When market wizards like Ed Seykota and Tom Basso claim that risking as much as 3 percent of your equity on a single position is being a "gunslinger," it suggests that most people are really crazy in the amount of risk they take." - Van K. Tharp, "Trade Your Way to Financial Freedom," p.32.

Chart: McClellan Oscillator not overbought, and remains bullish pending zero crossover - John Murphy via ChartWatchers

Chart: It is bullish that Financials are now leading the market higher, as they should be - Tom Bowley via ChartWatchers

Extreme RSI(2) Readings Becoming Less Common over time

US Wind Resource Map

Bad trip

California unemployment rate reaches 11.2% - Los Angeles Times

Smiles predict marriage success

Israel may bomb Iran's nuclear sites in the near future

London police delete tourists' photos 'to prevent terrorism'