website header 2

website header 2

Friday, April 28, 2017


“Some people have all the advantages in trading technology!”

Everybody looks for that edge; HFT’s want that extra nanosecond to front run your order, hedge funds look to bribe the banks to have a “peek” at the order books, but real trading pros got the gizmo above ... TRADERPRO2017 ... to give them the edge. “Best $200 I ever spent at WalMart”!

And while not all of you can afford this “bad boy” and get the trading edge when you need it most, in the spirit of public service I feel it’s my obligation to pass on the “instructions” for use to any and all who may feel the urge to go down and pick one up; Behold!

“You can follow directions … right? Safety is my top priority!”

It’s Friday, and the investment world looks yet again for more data; this morning we got consumer confidence, Q1 GDP, & Chicago PMI for all the econometric porn addicts out there, who will immediately tell you what it means for stock prices and stock indices. SHORT ANSWER: “It means whatever it is you want it to mean; too weak and interest rate rises from the Fed may be delayed which is good for stocks; too hot and interest rates may go higher but that means the economy is picking up which is good for make believe GAAP earnings, which of course is good for stock prices.”

“I dunno, but anybody but me see a pattern here”?

And what I’ve told people for what seems like forever, is that while stocks in the Dow30 & SP500 have their collective “heartburn” days, in order to make a living trading this stuff, you have to “buy in” to the fact … not my opinion … that stock indices go up 80% of the time and are down to flat 20% of the time. And it’s as hard as a diamond to make consistent money from being short the indices; now, a lot of people don’t want to believe that … they think somehow my “facts” are wrong, that recent history notwithstanding [“ummm yea, like 35 years worth and counting!”], that it just can’t be. MY RESPONSE: “Fine, take the other side; we need others to fund our trades”.

And it bears repeating on this Friday, to ponder over the weekend 2 key critical facts; 1) stocks go down in a bear market [defined as greater than a 10% correction from the most recent high] only when there is an overwhelming case to be made that the underlying economic structure of the U.S. economy has turned down or there is a threat to overall corporate earnings that has no end in sight at the moment, and 2) collective human behavior is different for stocks and stock markets than it is for markets like crude oil, EURUSD, USDJPY, GOLD, or anything else on the MT4 that isn’t a stock index market; in essence people want and demand, and through their actions get, higher stock prices which begets still higher stock prices.

In no other human endeavor does this make any sense; for example, would your demand for bread at the grocery go higher if the price for a loaf went up 25 cents every week? How about clothing or shoes if the price went up a couple of bucks a week? Of course not, you’d stop buying; this does not happen with equities or the indices. PEOPLE WANT MORE! [Until at some point a bear market sets in, prices go down for a bit, an entire generation swears off stocks forever, and the process repeats endlessly over time.] And the dirty little open secret is that demand for stocks increases as prices go higher, and demand lessens as prices go down. “I’ve told you before, you cannot take other life experiences and try and “square them” with trading; 2 different dynamics in 2 different universes, and they don’t mix. Try and mix them and things will not go well for you”.

One thing that does worry me, though, is the rise of “passive investing” on the part of the public [retail & institutional] and the total proliferation of ETF’s and “indexing” as an investment strategy. To their credit, Zero hedge has had some really good articles on this trend, and the total catastrophe that awaits investors really is not understood. The main problem is one of 1) necessity, and 2) liquidity; index & ETF [exchange traded funds] managers have no choice when faced with redemptions, and if people collectively “hit the redemption button” at the same time, who’s gonna be on the other side when they have to sell billions upon billions of dollars in the SP500 stocks”? Remember, if you own an SP500 ETF, you theoretically own all the stocks [500 of ‘em] in the index; when you redeem, all those 500 stocks have to be sold. When there is billions of dollars for sale with the 320th stock on the list, and average daily volume is in the millions, who’s going to be there to bid knowing there is an avalanche of selling going on and they are likely to get buried if they buy; “well, nobody is who”. And that dries up liquidity and makes another type of “crash” a lot more likely, with far greater consequences.

In other words, it’s 1987 all over again, where institutions thought they could hedge away their portfolio risk by selling futures; only problem is there isn’t anybody on the other side who can do a 10,000 lot, and behind that guy is another 10 institutions looking to do the same; and I’m supposed to step in front of this? “Are you F-ing nuts”? Only now it will be a lot bigger and more damaging because the sizes of the ETF’s and index funds are in the trillions. If you’re looking for potential disaster ahead, here’s a great place to start!

Before the open, not much in terms of market reaction to more dismal economic statistics; “so what else is new”? From the looks of it, they could shut Friday down and I don’t think 5 people would care right now. Market is awfully quiet as we await the start of trading; as usual this week, Pols will have their affect one way or the other with more “blah blah yada yada” as the day moves on.

Here at the open, again the SP500 a little stronger than the Dow30; yet, the HR1 on the SP500 starting to look a little over extended; needs a move down to the low 2380’s at a minimum after 6 days in a row up. If that happens, it means sub 20900 for the Dow30, which more than likely would drive a few sell stops into the weekend.

An hour into this Friday clusterfark, and off the low no signal from the M1 candlesticks. The 2 prior “hammers” I didn’t take for 2 reasons; 1) they are below the open aqua line and we have a very tight range, and 2) unless “hammers” when lower than the open get some kind of confirmation move up, they more often than not are immediate market “fake outs”, as in these 2 cases.

For all the negative news these last 3 days, both SP500 & Dow30 have taken all the shots down with a grain of salt; today, we’ve rallied off that low in the Dow30 of 20932 in pretty quick fashion back up to the 20950 -60 area. If this stuff gets higher on the day, and the SP500 happens to punch through to new highs for the day later, look out above for the melt up panic, especially if there is news on no gov’t shutdown or something else. Shorts are already hurting, and on a Friday going higher into record territory would only make it worse … a lot worse. Daily ranges are still very tight, so anything can happen; it wouldn’t take much to light the fuse on this rocket ship and it’s still very early in the trading day. Not predictin’, just sayin’.

Here at Noon in New York, “anymore trading in butter? … butter? … any more trading? … Bueller? … Bueller? … CLOSED”!! My goodness, can it get any more slow than this? … seriously … don’t expect signals to work or be effective in this, cuz there’s a reason it’s called the “volatility” algorithm. This is really a strange day and has been a very strange week; outside of the open on Sunday night and again the mystery 200 point rally 2 hours before the open on Tuesday, what has there been in terms of any movement in either the Dow30 or the SP500?
“Well, glad you asked Skippy, cuz the HR4 in the Dow 30 since the Tuesday open directly below”!

“Err, what happened? … did the machines break”?

That’s an awful lot of nothing for 4 days worth of trading; sure, the NDX100 screamed to “recorder-er-er” highs on Amazon & Google, but outside of that, what? And it isn’t like anything else is doing anything; how about USDJPY & gold? One look at those and it will make you cry it’s so bad; I can only wonder what the scumbag LP’s are doing to fills to make up for the lack of volume, in no small measure caused by themselves.

On the plus side, you can look at this week and say it’s positive because nobody has been able to break the indices lower in price much, after the complete insanity of “France saved the world” and up 400 points in the Dow30 on nothing. On the minus side, the last 3 days hasn’t had anything to cheer about on the upside, with even the tiniest rallies met with selling. I’m not an analyst, but it doesn’t make a lot of sense to see the NDX100 up almost 50% since February 6th; that’s pricing in a whole lot of President Trump MAGA, and if by chance this market starts to stumble? … well … what’s that mean for the Dow30 & SP500?

Meanwhile, another hour goes by, and if trading got any lighter it would be considered closed. Looking at the Dow30 M1 over the last hour, you’d be lucky to get outside of the 2 index point spread on any trade long or short it’s so bad. This paralysis is unnerving, cuz traders everywhere, I’m sure, are feeling the same thing; “what’s the next shoe to drop, and how do I avoid getting caught in it going into the weekend”? Of course, for those Apparatchiks at the FED, this is exactly how they’d like to see every day … no movement and slam the VIX.

And while nobody thinks it’s “sexy” to just sit, losing money in chop doesn’t get anybody to clap their hands together either, especially if you’re flying blind and everything is basically a flip of a coin … this too shall pass, but it’s important to keep focused on algorithm rules and procedures, and remember that patience & discipline in trading stock indices is critical for success … otherwise, when opportunities come, where will you be?

Here a little after 2 P.M. in New York, a new low in the Dow30 after hours in a ± 20 point range yields nothing; simply a stop hunt that took out a few longs, the market now rallying a little. Like I said before, “do not buy/sell off of breaking support / resistance levels; if you do, most likely it’s a loser cuz you’re gonna get trapped”. A very small hammer near the low here [5 points, big whoop], not really a buy signal cuz it didn’t come on the low; again, we’re below the open aqua line and so far today, none of the dozens of “hammers” that have shown up have meant anything because volatility is so low; why should this one be any different? Maybe it goes somewhere, I dunno, but the range today is still so damn tight and small, there is a real possibility the market could still move 40-50 points lower here and still be considered a “normal” range day; given the fact no rally the entire day has held, why would the range for the day expand with action to the upside? Sorry, I don’t see it, and it looks like a very low probability trade at best. “And just to sum it up, the whole day with less than 90 minutes to the close can best be summarized by the fact the SP500 hasn’t seen a 4 index point range the entire day outside the open … yea, less than 4 index points … pretty pathetic, but exactly what the Central Planners love to see”.

Half hour to the close, and time to mercifully close this day out and erase it from memory; the only thing to learn from today is, “please don’t come back anytime soon”! An absolute nothing burger, with nothing to see and nothing to do; back at it on Monday.

PAMM/MAM spreadsheet directly below.

And here before the weekend, remember to live life like somebody left the gate open!

“Weekend! … More beach! … More roast beef! … Yessssss!”

Ok, Fang’s screamin’ at me to get my donkey in gear and let’s hit the beach! … “oh yea,  first here’s some roast beef for energy” … Ok, we’re outta here … until Monday mi amigos!

Have a great weekend everybody!



No comments:

Post a Comment