Sunday, December 19, 2010

Existential Volatility

Here lies a short post regarding the decline in market volatility. May it soon rest in peace.

This last week, due to the further trend of reduced volatility, combined with the season (my SEC Celebrity Hawksters calendar indicates we're into mid-December now), I changed gears and traded ahead of market moves instead of following along right behind them.

I had a little help. Besides this period of the calendar being a little easier to trade in general, by late in the session Wednesday I found most everyone I follow (good traders as well as my fade-parade) leaning on the negative side.

There was a scent of rat, I'll grant us that. The most pronounced warning signs included a distributive deterioration of leadership growth Monday and Tuesday, coincident to modest gains in the Dow and S&P500. You never want to see the leaders falling while the Dow is shining, if you're long. And recent extremes in measures of bullish sentiment have become perhaps an even greater concern.

But Rome wasn't wrecked in a single work week and even if we are setting the stage for trouble ahead, topping is more of a process and less like an event. The market was stable late in the session Wednesday, unlike Monday and Tuesday and I pressed onto the accelerator; ahead of any turn higher.

Now, when volatility is high and especially when measured moves tend towards severe, front-running these directional moves can be deadly; while keeping just slightly behind the market can be a license to print money.

We all like to demonstrate our brilliance and insight, but the act of anticipating direction in a volatile market creates occasional tremendous losses when you happen to get things wrong (known to happen). Such setbacks even-out and sometimes obliterate ones more brilliant, cowboy profits.

I'm much more profitable in the long run saving my spurs for special situations only. There are some very good traders who can do manage to get away with this (Jim Rogers comes to mind), but you need to be extremely rich and importantly - extremely right. Anyone else making a routine of getting ahead of the trade is extremely dead; sooner or later.

When volatility shrinks, however, as long as I'm reading the market well I'm more or less obliged to position ahead of moves. If not, I end up mediocre compared to my benchmarks, like so many other pros (client money is well aware most money managers under-perform index-funds and index-ETFs, and it has a way of disappearing when a simpler, cheaper strategy is generating more profit than you are. Fortunately for me, I'm an independent thinker and not afraid to go against the herd when I see the opportunity, but I am also willing to go with the herd as long as the music is playing. Unfortunately, however, I was not born a computer. So while I may have demonstrated a nice history of out-performing my peer group, my peer-group has turned into a machine; a machine that is still improving relative to my former peers and indeed, myself as well).

We saw lower volatility before the world began blowing-up in 2008. Volatility from 2005 to early 2007 was low enough that I was beginning to fear my days were numbered. The machines are better in this environment, better than I at squeezing the most out of a lackluster market. Fortunately for me, when the shit hit the fan and volatility exploded in 2008, a large number of machines were blowing-up right along with it, spectacularly in some cases. For a time I was able to capitalize on programs and typical human pros alike, neither of whom were equipped for what was taking place. Perpetual white swan models and long-term value beliefs were getting a major dose of - irreality.

Anyway though, it's clear the machine is only going to get only smarter, while I am myself (and maybe you) will only evolve weaker, certainly on a relative basis. It won't happen overnight (three cheers!), but I suspect it will announce itself more in a period of lower volatility.

In that case - long live higher volatility!

Note: I'm (still) working on a couple of larger posts, which might be good if they are ever finished.

Follow Centrifugal to fade trades in real time

Total Position: Currently 1.31-to-1 net-short, 107% invested

Currently Long
(according to size): PPO (9.6%); WLT (9.5%); CRM (9.1%); BA (6.1%); COH (6.1%); OVTI (re-increased Friday, 6%); SYT (6%); ARBA (re-loaded Friday, 6%); NOV (6%); RVBD (5.2%); BEXP (4.9%); BSFT (added Friday, 4.9%); VRA (thin, added Friday, 3.3%)

Currently Short: AAPL (added AH Friday, 10%); GMCR (7.1%); DSX (6.7%); VMC (added Friday, 6%); DISH (5.9%); ERTS (re-loaded Friday, 5%)
Note on AAPL short - this is a temporary hedge stemming from the distributive close on Friday. I will be covering early Monday if there is no sufficient market selling pressure. I expect to trade AAPL short again on December 31st, for different reasons. I'll discuss in better detail before then.

Futures: no current position. Traded-out March 10-yr long Friday at 119'31 (from 118'30 Thurs); Traded-out March Silver long Friday, 29.175 ave. (from 28.845 ave. thurs.).

Monday, December 13, 2010

One Line of Thought (in 15 pieces)

Well, I'm really in the cone of silence lately.

It's not that I'm not talking. I'm spitting out material up and down lately (still unpublished). I'm posting every trade as well still + some thoughts; for now.

However, I'm not tuned into what anyone is saying about anything here, in terms of the markets; 3 calendar-days and running now.

Are you bullish? Bearish? What are you doing lately? ...I don't really know. I mean, I know in the universal sense - you are WILDLY bullish!! My god you're bullish. Where'd you get those cool moves? No wonder you're bullish.

But in the micro-sense - I don't know in terms of the folks I keep attuned to.

Yes yes, I tuned into CNBC today (during the normal-session anyway). This was not the day to go completely Zen. Seriously, put-to-call numbers are so outrageous right now I had to listen for certain people and certain octave levels; of excitement.

My favorite source there, whose name I cannot apparently mention anymore (I just read my last post, finally. What a smug bastard I'm becoming). Well, this particular gentleman did not show any particularly important levels of excitement. Pretty boring from him lately; and actually, rather boring all around over at that New CNBC these days; in terms of octaves; certain people's octaves; unnamed.

Otherwise I swear on my line I would have unloaded much much more (exposure long). Watch when it happens. I joke about it now, cuz it's fun and I'm into it. But I won't dance around and hope this time it's different. When he goes off I'm moving fast. I'm going to Disneyworld.

Good game market; when he goes off.

That wouldn't make me particularly bearish further out. Not necessarily. I can't say, the bull may roll further or things may just get worse. Telling anyone about that point now would be fool hearty. And I prefer hearty fool hearty.

As it is, I'm a little short now. I shifted to neutral all through Friday (from ~6-1 long) and I shifted net-short today; currently 1.31-1 net-short. It's a lot short, compared to anything I've been since August, I think, but not too short really.

I'm short enough that I can buy on weakness, instead of having to scramble-sell as this wave transpires, if it transpires at all. And in the event that nothing curls much, I'll let go hedges, accordingly, and paddle-out again; see what's left of the set.

One thing I will admit to though - I'm truly wondering when the year will actually end (if it wasn't today). I say this because I suspect, which is not to say I predict (or know, or think, etc)...

I suspect we're not going out Dec-31 at 2010 market highs.

Send me a line. Curious here what you might think about it.

Total Position: Currently 1.31-to-1 net-short, 107% invested

Currently Long
(according to size): NOV (8.3%); PPO (7.3%); CRM (6.7%); NFLX (reduced today, 6.1%); WLT (reduced today, 6%); MCP (sold today); COH (6%); ULTA (6%); OVTI (4.6%)

Currently Short: DXD (long the DJIA dbl-short, 9.9%); SDS (long SP500 dbl-short, 9.9%); CMCSA (8.1%); TNP (7.1%); GMCR (7.1%); DSX (6.9%); GE (6.9%)
(currently weighting DXD and SDS at 1.55 x's, not 2 x's, into the net-long calculation; based on relative beta of longs vs. dbl-short these indices)

Futures: no current position. Traded short 15% March NDX futs Monday for most of today's drop.

Follow Centrifugal to fade trades in real time

Wednesday, December 08, 2010

Updated Position (and becoming a kinder gentler scumbag)

I’ve been rather active lately and back to aggressive-long again today, after an absolute spray of neutralizing trades yesterday; beginning with that opening tick.

So why am I hanging my head out so long again, so soon? Well, I could bore you with the less colorful technical and fundamental stuff (like the fact that the market refuses to go down!), but it's more fun to paint the psychological drivers instead.

I personally want to thanks the instantaneous plethoric rise of windbag warnings stemming from the financial media after but one near-reversal session. That was a killer drop, I hope everyone survived it.

Let me stop right there actually. I’m announcing (spontaneously as I write this, in fact) to keep mum on the culprits. Never again will I name individuals flashing traits of the inverse-genius. I’m turning a new leaf - no ill talk - that's a new and permanent promise born only just now.

To be fair, I’ve always contained these calling-outs to famous heads only. No matter, my low-road tactics of measuring my position against the backs of misguided brilliance will not call-out individuals, famous or not; profitable or otherwise.

Speaking of ticks (pricks!), I’ve studied my moods and come to discover a really nasty trait. The better my quarter, year, etc., the meaner I seem to get. Right now for instance, I want to chew on bunnies. That’s how I good I feel about countering against these more reasonable twits.

Good luck with your buying at lower levels and good luck continuing to feel like it wants to go lower. I’m sure it will go lower – just to help you out; eventually certainly; maybe now. When it does go lower, tell you what. Those bargain shares you're after - take mine. I'm going to Disney World instead. You can have all the money in that case. It just feels to me like you have an anvil on your head and I want you out of my boat.

You know you want to buy the Yahoo under $200 (the sucker printed 250!). Never mind that it was too expensive under $100 for you to ever buy it. But now that you saw a $250 price, looking at it trading under 200, 150, 100, 50, etc., those seem like reasonable buys, don't they?

Anyway, that’s enough market analysis tonight. Hopefully I’ve not committed to anything, in any direction. I love a live market, but I don't feel like telling the tiger where he’s going (publicly or otherwise). I'm holding the tiger by the tail - that's the best reason I have not to dictate the future.

Oh, I'm still working on Lecture IV of Battle. It may be done soon, or by the weekend at latest. Hopefully you've enjoyed the vacation, but as best as I can, I’m looking to drag all of you through the mud with the next two sections. It may even begin to be clear why I’m making a point of no naming names. I consider everyone more intelligent than I let on (true) and in fact more highly than my peers likely believe. That doesn’t eliminate blunders and errors though, those are only too human. We're all doing our best, so credit for that is deserved. Thus, when you see me referring to inverse-genius (in these upcoming sections), please don’t ask me for names of any accounts. I am mum to names.

The persimmon tree ripens once a year I think, but fruit hangs from the human mill on a regular basis. Go find your own!

Beast out.

Total Position: Currently 6.28-to-1 net-long, 103% invested
(into slight margin overnight; looking to resume under 100%

Currently Long
(according to size): WLT (reduced yesterday, increased today, 8.1%); NOV (reduced yesterday, increased today, 8%); PPO (increased today, 7.5%); CRM (reduced yesterday, 7%); NFLX (re-loaded last night and increased today, 7%); MCP (6.6%); ARMH (6.5%); WBC (6.3%); ULTA (6%); COH (6%); GMO (5.2%); FTNT (5.1%); ROSE (5%); OVTI (4.4%)

Currently Short: DSX (6.9%); TNP (7.3%)
[all out and flat SLW and X shorts, traded yesterday to today]

Futures: no current position

Follow Centrifugal to fade trades in real time

Friday, December 03, 2010

Reposted BUGnotes: Fumarole March - December 6, 1999

The money that has been lost "feeling" for the bottom or top never has been generally appreciated. The totals, if they could be known, must be staggering.

Gerald Loeb, The Battle for Investment Survival, originally published 1935

The following re-posted BUGnotes was originally published to at the end of 1999. BUGnotes ran from late 1999 to early 2001 and were edited by, and the more fantastic material co-written by, Jay Jurisich.

The end of 1999 is a fascinating period for studying markets and included one of the most amazing technical divergences you're ever likely to see. Beginning as early as 1998, the average NYSE and even Nasdaq stock began to trend lower in price, and continued to lower in price, throughout one of the greatest advances in US market history. Nasdaq moved from 1,492.40 in September, 1998 to an ultimate peak of 5048.62, one and a half years later, but the average stock was declining virtually throughout.

NASDAQ A/D Line, April-1998 to March-2000; Credit: Optionetics

BUG notes
December 6, 1999

Fumarole March

The NASDAQ continues on its relentless upward path, but cracks continue to grow larger under the surface. The pied, sandpaper Pan piper still plays sweet music. Investors everywhere know that. But his breadth is getting more fowl as everyone gets into line.

With Friday's wiz-bang rally you'd have expected breadth to be on the sweeter side, but in the end it was not much better than a freshly Lysoiled Greyhound bus interior. The cumulative breadth of this rally could now be characterized as pathetic, medically speaking. Eventually the market is going to get clocked again, the question remains from what level? Nobody knows for sure, not even Mr. Piper, I suspect. So stay with the market leaders as long as they're singing. Never underestimate the power of a December NASDAQ rally. This time of year warrants holding onto the winners, at least through December 31st. Just be ready to get out if stocks violate your mental benchmarks or the momentum ends. Don't get patriotic if stocks start failing first. Drop them like hot lava, in that case.

Updated Position (cute bubbly longs)

I'm working on related postings, including Lecture-IV now for Battle, so I'm merely going to spit-out the updated position here. There has been more than enough activity lately to lose track.

Market action has kept cute and cuddly since the gap-higher Wednesday. I've continued to scale further long since the post that morning.

Fortunately for me, I remain an idiot.

Total Position
: Currently 4.59-to-1 net-long, 110% invested
(into slight margin overnight; looking to resume under 100%

Currently Long
(according to size): WLT (reloaded today, 9.2%); CRM (8.3%); NOV (7.5%); ARMH (increased today, 6.5%); ULTA (6.2%); WBC (6.2%); OVTI (6.1%); COH (6%); RVBD (re-increased today, 6%); ROSE (5.4%); PPO (reloaded today, 5.3%); FTNT (5.2%); IL (reduced today, 4.8%); SBUX (4%); TSLA (3.4%)

Currently Short: TNP (7.2%); RSH (reloaded today, 7%); DSX (reduced today, 5.5%)

Futures: no current position

Follow Centrifugal to fade trades in real time

Wednesday, December 01, 2010

Updated Position (ditto december lights)

While I did engage in some sloppy trading this week, I'm back on track now today. Similar to the market itself.

I've been reluctant to believe we'll see a typically ditto December (seasonality has been largely upside-down this year and a chorusing clamor in recent weeks has had my guard on high). But December is here and it's snowing out of the gate thus far; if you know what I mean.

I don't need to think, really. As long as the market moves continue to exhibit traction, I prefer to keep a half-step behind instead. As the market began to slide (and especially as the majority of leadership began acting poorly last week) I shifted gradually towards market neutral and eventually net-short by yesterday's close. Today's bang-up comes on strong, rising-volume though and positive internals are severe (implying the major indices will close at or near highs of the session).

I'm holding several shorts at the moment still. If we're rallying again tomorrow I'll be reducing that side of my line further (I let go TWM-hedges in the opening minutes today). In the meantime I haven't gotten too excessive (currently 2.54-1 net-long).

The first day of December is seasonally strong, but standard year-end seasonal strength does not find it's better gear
typically until around the 20th of the month. Again, I don't want to write any scripts, but to respond to the market's actual and present nature. If a downtrend resumes, I won't put my head on any Xmas turkey chopping blocks; not for very long anyway.

As of this writing - the corrective action may be over.

Follow Centrifugal to fade trades in real time

Total Position
: Currently 2.54-to-1 net-long, 95% invested

Currently Long (according to size):
CRM (8.4%); NOV (7.3%); SBUX (7%); LVS (Reloaded today, 6.4%); ULTA (7.4%); COH (6%); OVTI (increasing to 6%); WBC (added today, 6%); ROSE (5.3%); FTNT (added today, 5.1%); RVBD (3.9%)

Currently Short: TNP (7.1%); DSX (7.1%); ERTS (6.3%); DISH (6.2%)

Futures: no current position