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From Wall Street to weed: How the financial crisis lit up the pot industry

From Wall Street to weed: How the financial crisis lit up the pot industry

NEW YORK (Reuters) – As a senior vice president at Wachovia and then Morgan Stanley during the dark months of the 2008 and 2009 financial crisis, Derek Peterson watched as colleagues lost their jobs and life savings and wondered if he was next.

At the time, he was managing approximately $120 million in client assets, but was growing disenchanted with what he saw as a U.S. stock market driven by high-frequency trading and algorithms rather than fundamentals. He started looking for other opportunities, and soon stumbled on some of the first legal medical marijuana dispensaries that had opened in the San Francisco Bay Area.

“I started looking at this through a finance guy’s eyes and saw that maybe there was something going on here,” he said.

He soon discovered that dispensaries were bringing in sales of more than $4,000 per square foot, a rate higher than any U.S. retailer but Apple Inc , and more than 12 times the average $325 per square foot among all companies in the sector.

“You had places the size of Starbucks bringing in $15 million a year, which is absurd,” Peterson said.

He quit his day job at Morgan Stanley in late 2010, and in 2012 became chief executive officer and president of Terra Tech Corp, which is now a $247 million company that cultivates medical marijuana and whose shares trade on the over-the-counter market, making it one of the few publicly traded pot stocks.

Peterson is not alone in the jump from Wall Street to weed.

Ten years after the start of the financial crisis, what was once the province of shady stoners and drug cartels is now a thriving industry, with recreational marijuana legal in states ranging from California to Massachusetts. (Map:

Powering the expansion of the industry are former Wall Street executives like Peterson that hail from such staid firms as BlackRock Inc , Goldman Sachs Group Inc and Prudential Financial Inc, all of whom say that they might not have ever left traditional finance if not for the lingering damage of the 2008 crisis.

There are few reliable numbers on how many former Wall Street professionals who now work in the cannabis industry, though those in the sector say that they expect the migration to accelerate as revenue growth continues to attract talent.

Companies in the U.S. marijuana market posted revenues of approximately $6 billion in 2017, a 500 percent increase from the roughly $1 billion in 2011, according to estimates from Marijuana Business Daily, a trade publication.

FILE PHOTO: A billboard advertising marijuana in advance of the upcoming legalization of recreational marijuana in San Francisco, California, U.S., December 29, 2017. REUTERS/Jim Christie/File Photo

Approximately 250,000 people work in the sector, and both jobs and revenues are expected to double or triple over the next four years, the publication estimates.

“The financial crisis and the stagnation of many industries in the U.S. in its aftermath have led many people to consider this a viable career,” said Chris Walsh, editorial vice president at Marijuana Business Daily.

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Despite the growth prospects, many financial professionals are still too leery of federal law, which considers marijuana an illegal drug, to take a job in the industry until there are clear signals from Washington or a change in the makeup of government, said Ruth Epstein, a partner at San Francisco-based BGP Advisors, a business advisory firm that focuses on companies in the cannabis sector.

In January, the Justice Department reversed a policy from the Obama administration which allowed states to legalize marijuana without fears of a federal crackdown. That has had a “chilling effect” on recruiting within the industry, Epstein said.

“People have really been scared away from investing and to a large extent that same mentality is keeping the talent away,” said Epstein, a Harvard Business School graduate who spent nearly 10 years on the corporate finance desk at Goldman Sachs. That, in turn, has “created a massive opportunity for someone who understands finance and is willing to be out on the vanguard,” she added.

Morgan Paxhia, co-founder of San Francisco-based Poseidon Asset Management, a $25 million hedge fund that focuses exclusively on the marijuana sector, was a trader on the municipal debt desk at UBS in New York during the financial crisis. He would pass by the Lehman Brothers building each day on the way to work, and it felt as if “the building were just cratering around you,” he said.

He was laid off on March 9, 2009, the day that the U.S. stock market finally bottomed out. He spent a few years at a registered investment adviser before starting Poseidon with his sister, Emily, in 2013, attracted by the possibility of growth at a time when financial companies seemed to be overly cautious, he said.

“If the financial crisis never happened we would have banks in this industry already, but they won’t push this industry forward because they’re too afraid,” he said. “It’s opened up huge opportunities for those who are willing to come in and capitalize it.”

Peterson, the Terra Tech CEO, said that he now routinely fields calls from employees of large banks and investment firms who are looking to enter the industry. That is a steep change from his first few years in the pot sector, when it was still largely ruled by black-market growers and questionable outfits.

“When I first started out, the fact that I had worked on Wall Street made me seem like a real outsider, to the point where people would ask, “Are you a narc?’” he said, referring to a federal narcotics officer. “It’s in the last two years that we’ve seen a tremendous influx of people from traditional business backgrounds.”

Reporting by David Randall; Editing by Jennifer Ablan and Lisa Shumaker

Published at Tue, 20 Mar 2018 10:25:14 +0000

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The Importance of Idea Velocity in Trading

The Importance of Idea Velocity in Trading

One’s skill as a trader is only as good as one’s ability to generate ideas worth trading.  This is an underappreciated aspect of trading performance.

Specifically, we can look at the idea velocity of a trader–the number of independent ideas generated per unit of time–as an important component of trading success.

Why is this?

Imagine a trader who generated one good trading idea per year.  That one trade would have to be sized quite meaningfully and held for quite a while to generate a year’s worth of income.  Indeed, it really wouldn’t be a trade; it would be an investment.  But with only one idea per year, it would be an undiversified investment.  If the idea didn’t work out, losses could be significant, but more importantly there would be no other source of returns.  Over time, such a low velocity trader/investor would have a very lumpy set of returns, unless they just happened to hit one big idea after another infallibly.

At the other end of the spectrum, imagine the skilled daytrader who notices many different trades setting up among many different stocks or instruments.  That trader is highly diversified on a serial basis, as each day’s returns reflects the probabilistic outcome of many bets.  That will produce a smoother equity curve.

The skilled hedge fund manager generates many independent trade ideas at one time and weights them properly within a portfolio to achieve diversification benefit.  The idea velocity is achieved by researching across multiple markets and strategies and putting on many bets at once.

In my recent webinar (you can listen to it here), I emphasized that there are two broad sets of skills that define successful trading:  pattern recognition and analysis.  I also pointed out that extraordinary returns in trading come from unusual talents and skills in at least one of these areas.  An important way that these skills are manifest is through idea velocity.  When someone is a great pattern recognizer, they recognize many patterns.  When someone has great analytical skill, they research effectively and generate many ideas.  Profound talent and skill manifest themselves in creativity.

A recognition of the importance of idea velocity helps us appreciate why, increasingly, we’re seeing superior returns among discretionary portfolio managers who make use of quantitative models and trading strategies.  Computers simply have more bandwidth than people, both in terms of the number of patterns that can be recognized and the number of markets and strategies that can be researched.  Moreover, the use of automation enables the trader to not only generate many ideas but trade them simultaneously–again vastly expanding the number of sound, independent bets placed per unit of time.

A recognition of the importance of idea velocity also helps us appreciate why traders learn and perform better in team settings.  Teams model more and different ideas and ways of generating ideas and teams share ideas they generate.  A team of discretionary traders, each of who generates independent models and automates their trading strategies, is powerfully diversified, able to make money in dozens of ways.  

Idea velocity encourages us to get broader, not just bigger.

Published at Fri, 16 Mar 2018 12:16:00 +0000

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Trump spending spree may speed up the Fed

Who is Jerome Powell?
Who is Jerome Powell?

Trump spending spree may speed up the Fed

1. Will the Fed pick up the pace: Everything seems to move faster in the Trump era. Perhaps even the deliberative Federal Reserve.

The US central bank has long telegraphed a no-rush attitude about lifting interest rates from historic lows.

But the Fed may be forced to pick up the pace over the next two years, in part because of a spending spree by President Trump and Congress — spending aimed at stimulating the already healthy American economy.

If the Fed doesn’t raise rates more quickly, it risks falling behind. The $1.5 trillion Republican tax cut, as well as a bipartisan $300 billion spending plan, could overheat the robust labor market.

That extra stimulation for the economy will push inflation higher and lead the Fed to raise interest rates four times this year instead of the expected three, Capital Economics chief economist Jonathan Loynes predicted in a recent report.

Wall Street will be hunting for clues on Wednesday, when the central bank wraps up its first meeting under new chief Jerome Powell.

Virtually everyone expects the Fed to raise rates this week, and at least twice more later in the year.

The real drama is over whether the Fed will signal a more aggressive stance, perhaps by adjusting higher its “dot plot” of projected rate hikes. And if it does, will that spook a stock market accustomed to low rates.

The strong economy, coupled with the burst of spending and tax cuts from Washington, will likely prompt the Fed to raise its rate hike projections in March, according to Goldman Sachs chief economist Jan Hatzius.

Powell, Trump’s pick to lead the Fed, recently told Congress he doesn’t want to “get behind the curve of inflation and have to raise rates quickly and cause a recession.” For now, Powell said he sees “no evidence” that the economy is “overheating.”

Trump has made no secret of his desire for the Fed to take it nice and slow. “I’d like to see rates stay low,” Trump told The Wall Street Journal last summer. At the time, he called then-Fed chief Janet Yellen a “low-interest-rate person.”

All this raises questions about the wisdom of borrowing more money to stimulate an economy with low unemployment and high budget deficits.

“I’m not sure whether the tax cuts were necessary,” said David Leduc, chief investment officer of active fixed income at BNY Mellon Asset Management. “But people forget this expansion has been so anemic and unsatisfying.”

Rick Rieder, BlackRock’s chief investment officer for fixed income, was loudly calling for help from Washington — years ago, when growth was sluggish.

“The timing has been off,” Rieder wrote in a recent report.

“It is almost as if the economic party was well under way, and then the punch bowl was just spiked (rather than taken away),” he said. “It will be fun for a while and then maybe tougher afterward.”

2. Tense time for a global summit: Frictions over global trade loom over the G20 meeting of major world economies, which opens Monday in Buenos Aires.

Trump’s plan to impose tariffs on steel and aluminum sent a tremor through global markets and angered US trade partners, who said they aren’t afraid to retaliate. The administration has offered exemptions to Canada and Mexico. It’s unclear whether other countries will be spared.

China, which has been the target of frequent attacks from Trump over its trade practices, could be hit with separate tariffs on its products. How China reacts will go a long way toward determining whether a trade war breaks out.

If it does, American companies will suffer. Boeing(BA) in particular has a lot to lose. It’s the nation’s single largest exporter, and China is a critical market. The Chinese government has signaled that it will consider ordering jets from Airbus instead of Boeing if the United States steps out of line on trade.

3. AT&T trial begins: Corporate America will be paying attention when the Justice Department’s lawsuit to block AT&T(T) from buying Time Warner(TWX) goes to trial thisweek. Opening statements are scheduled for Wednesday in Washington.

The Justice Department argues that the deal would give AT&T the power to charge its competitors more for Time Warner content, or to block it entirely from other providers like Comcast(CCZ) and Verizon(VZ). The outcome of the case will help shape the media industry. (Time Warner is the parent of CNN.)

It could also influence the thinking of other companies considering deals. So far, they don’t seem to be afraid. Over the past few months, CVS(CVS) announced that it is buying Aetna(AET), Disney(DIS) said it would buy Fox(FOXA), and Cigna(CI) put in a bid for Express Scripts(ESRX). The deals are all massive in scale and could pose antitrust problems.

4. Food news: General Mills(GIS) plans to report earnings on Wednesday, and Darden Restaurants(DRI), which owns Olive Garden, reports on Thursday.

General Mills has been struggling to sell yogurt and cereal, although cereal sales ticked up last quarter. Darden, on the other hand, is enjoying success with Olive Garden. We’ll see next week how the food giants fared last quarter.

Starbucks(SBUX) holds its annual shareholder meeting on Wednesday.

5. Coming this week:

Monday — Oracle(ORCL) earnings; G20 starts

Tuesday — FedEx(FDX) earnings

Wednesday — General Mills earnings; AT&T trial opening statements; Powell’s first press conference

Thursday — Darden, Nike(NKE) earnings

Published at Sun, 18 Mar 2018 12:12:15 +0000

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A decade later, three lessons from the financial crisis

by geralt from Pixabay

A decade later, three lessons from the financial crisis

By Chris Taylor

NEW YORK (Reuters) – It is difficult to describe to someone who did not live through the financial crisis of 2008-09 how it felt at the time.

But Perry Rahbar will give it a shot. He was 26 and a managing director in the mortgage division of Wall Street legend Bear Stearns, where he worked his way up from intern. He ran a large trading book and had a glittering future.

Then, in the space of about a week – exactly 10 years ago – Bear Stearns blew up in spectacular fashion, before being picked up for next-to-nothing by J.P. Morgan.

That was the opening salvo in a crisis that would bring many of the nation’s largest financial institutions to their knees, eventually claiming the scalp of Lehman Brothers, which was driven into bankruptcy.

“It was like being punched in the face and getting knocked out,” recalls Rahbar, now founder at dv01, a hub that links lenders and capital markets. “Then you wake up and go: ‘What the hell just happened?’ “

For a while, it seemed like the entire financial system – the lenders who owned your mortgage, the banks and brokerages who held your accounts, the ATMs that gave you cash – was coming apart at the seams. And if it did, what then?

In retrospect, of course, we identified the primary culprits: Complex derivatives, often comprised of subprime mortgages, which were torpedoed by the housing bust. When people were no longer able to pay off their homes, these highly rated securities turned out to be little more than junk, which blew up the balance sheets of much of Wall Street.

We talked to a few traders who were in the trenches at the time and the many crises that followed. These are the three lessons they took away from those months of financial shock-and-awe:


Most of the time, the stock market lulls you into a comforting sense of security. For instance, with the current bull market into its ninth year, most investors expect that pleasant run to continue. That is called “recency bias” – the expectation that what you have seen recently, will extend into the future.

Not so. Cataclysmic, unforeseen events – so-called ‘black swans’ – have happened before, and they will happen again.

“When you see that kind of once-in-a-lifetime event, it makes you appreciate that anything can happen at any moment,” says Rahbar. “I was sitting in a Fortune 100 company one day, and the next day the rug was pulled from underneath us like we were some random startup.”


During the crisis, Saeed Amen was on the London foreign exchange desk of Lehman Brothers, and had a front-row seat as the Titanic headed for the iceberg. What did it all boil down to for him? Too much risk taken in products that most people, even seasoned market professionals, did not fully understand.

Amen subsequently wrote a book, “Trading Thalesians: What the Ancient World Can Teach Us About Trading Today”, about the various market tumults of human history.

His conclusion: Economic booms-and-busts have happened for time immemorial and will continue in future. Investors take on too much leverage, get slammed, eventually forget about it, and then another boom-and-bust happens in yet another asset class.

What we can do as investors is be aware of our natural tendency to roll the dice, properly measure the risk in our portfolios and put adequate controls in place to stop things getting out of hand.


Rich Marin was a famed character at Bear Stearns, head of asset management and colloquially known as “Big Rich.” His advice to all, 10 years on: Do not invest in what you do not know, and do not think you are talented enough to outsmart everybody else.

For investment pros, that means staying away from securities that are so complex and arcane that barely anyone knows how to value them, let alone desires to bid on them – which can trap you and take away liquidity.

For mom-and-pop investors, it means listening to Vanguard’s Jack Bogle, a fan of low-cost, passive index funds, and calling it a day.

“The little guy has almost no chance of beating the market, and he shouldn’t even try,” Marin says. “Do what Warren Buffett does: Invest in what you know and stay in for the long haul.”

Editing by Lauren Young and Bernadette Baum

Published at Fri, 16 Mar 2018 15:36:28 +0000

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It is axiomatic that surprise actions cause the biggest moves.

So it’s no surprise at all that when everybody expects support to hold, and it doesn’t… hilarity ensues.

That really looks like a completed retest of the lows that should kick off at least a test of the old highs.

Aww sheet… that’s gonna leave a mark

So now we really are retesting the lows. Except THIS time, notice the volume is rising to the downside. Odds now favour breaking support again.

But that’s not the whole story, BTC is a heavily manipulated market, and a concerted effort by the Tether/Whales crew could jump in and save it.

By the technical analysis this SHOULD make new lows and fall and keep falling…

But I smell fuckery. I think there is a significant chance that this drop is engineered bullshit games. No way to tell at this stage.

Scott Phillips

Published at Thu, 15 Mar 2018 06:11:15 +0000

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Is Your Trading Authentic?

Is Your Trading Authentic?

My subway ride to the hedge fund where I’m working today was an interesting one.  I was standing on the platform waiting for the next train.  I was thinking about something I had read on the train ride from Connecticut to the city.  The gist of what I read was that, in biblical times, people worshiped by sacrificing animals.  Today our worship can take a different form:  by sacrificing our animal needs and desires and using them for spiritual growth and development.  Thus, for instance, I can work as a trading coach to accumulate money and material things, or I can work to become a meaningful part of people’s and use the money earned to better my family and the world.  It’s not that we fight against our animal nature; it’s that we tame it, elevate it, and direct it wisely.  We can eat for gluttony or we can eat for health.

So that’s what I was thinking about standing on the subway platform.  A young woman walked in front of me listening to music on headphones and bopping about.  She then turned around, walked in front of me again, and kept grooving to the music.  By the third time she did this, I felt a little distracted, a little annoyed.

The train stopped, we got on, and Ms. Headphones continued to bop on the train.  I was going to sit down, but I noticed a man lying down on the seat.  He was noticeably dirty and smelled bad.  My impression was that he was a homeless person.  I stood nearby but chose to not sit next to the man.

Ms. Headphones, still dancing to her music and smiling, took off the shawl she was wearing and wrapped it around the man.  She then offered him a piece of gum.  He looked up bleary eyed, took the shawl off of himself, wadded it up, and used it as a pillow.  She looked at me, we both smiled, and she continued her dance.

So I’m reading and thinking about using the animal/material world to achieve a higher purpose, but this young woman was actually living the lesson.  Out of her happiness–her dance–she freely gave of herself, oblivious to the man’s appearance and smell. 

Authenticity is about living our truths, not just talking them or studying them.

How authentic is your trading?

If someone watched you trade, would they know what your plans were for the day?  Would they know what you were working on?  

There is talking the talk and there is walking the walk.  If we are not authentic in our trading–actually acting on our beliefs and understandings–all our plans and journal entries are empty.  There is a profound message in the young woman’s actions:  we find our authenticity when we live our joy and we find joy when we are who we are meant to be.

Published at Tue, 13 Mar 2018 12:40:00 +0000

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3 Charts That Suggest Now Is the Time to Invest in Agriculture

By monicore from Pixabay

3 Charts That Suggest Now Is the Time to Invest in Agriculture

By Casey Murphy | March 13, 2018 — 8:36 AM EDT

It is not exactly news that the prices of key agriculture commodities such as wheat and corn have struggled to overcome dominant downtrends over the past couple of years. However, based on the recent price action shown on the charts of key exchange-traded products, it looks as though the story is changing and that prices seem to be poised for a move higher over the coming weeks and months.

In this article, we take a closer look at the patterns and try to determine in more detail how active traders will position themselves so that they can take advantage of what looks to be the best trading opportunity in this space in quite some time. (For more, see: Soft Commodities Could Bounce Higher This Week.)

PowerShares DB Agriculture Fund (DBA)

One of the most popular funds that is used by retail investors for gaining exposure to the agriculture sector is the PowerShares DB Agriculture Fund. In case you aren’t familiar, this fund offers investors a cost-effective and convenient way to invest in commodity futures such as wheat, corn, soybeans, cocoa, live cattle, sugar, coffee, lean hogs, feeder cattle and cotton.

From a technical perspective, taking a look at the chart below, you can see that the bears have been in control of the trend for much of the past couple of years, as mentioned earlier. Active traders would have likely been keeping a close eye on the combined resistance of the 200-day moving average (blue line) and the descending trendline (red dotted line). The multitude of failed attempts to move above resistance was a clear indication that the downtrend would be in control of the momentum. Looking at the price action, the recent close above resistance is a technical signal of a trend reversal and is likely being used as a signal that many of the soft commodities are ready to move higher. Traders will now likely hold a bullish outlook on soft commodities, and many will likely use the newfound support near $19 to determine the placement of their stop-loss orders. (For further reading, see: Trade the Rise in Agriculture Commodities.)

Technical chart showing the performance of the PowerShares DB Agriculture Fund (DBA)


With 13.87% of the total net assets of the DBA fund, wheat is one of the soft commodities that seems to be the best choice for further attention on the part of active traders. Taking a look at the chart of the Teucrium Wheat Fund (WEAT), which is the most popular exchange-traded product to track this commodity, the recent break beyond the resistance of its 200-day moving average and influential trendline suggests that the bulls are taking control of the momentum. The surge in volume that followed the break higher is likely to be used as confirmation, and the support near $6.50 is creating one of the strongest risk/reward setups in the market.

(Want to learn about analyzing stock charts using trendlines and moving averages? Check out Chapter 2 of the Technical Analysis course on the Investopedia Academy)

Technical chart showing the performance of the Teucrium Wheat Fund (WEAT)


Traders who want to gain exposure to corn, which comprises 13.14% of the total net assets of the DBA fund, often turn to the Teucrium Corn Fund (CORN). Taking a look at the chart, you can see that the price has been trading below the long-term resistance of the 200-day moving average for most of the past year, and the trend has been dominated by the bears. The continued buying pressure so far in 2018 has managed to send the price above the key resistance, as shown by the blue circle. This buy signal could trigger a flood of buy orders and will likely be used as a guide for placing stop-loss orders in the future. (For more, see: Active Traders Are Turning to Soft Commodities for Answers)

Technical chart showing the performance of the Teucrium Corn Fund (CORN)

The Bottom Line

Soft commodities such as corn and wheat have been out of favor with investors for quite some time. However, given the bullish price action on the charts of key soft commodities exchange-traded products, it seems like the trend is reversing. The traders who watch the charts could stand to enter at one of the strongest risk/reward scenarios found anywhere in the public markets. (For more, see: Forget Stocks, Buy Soft Commodities)

Charts courtesy of At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

Published at Tue, 13 Mar 2018 12:36:00 +0000

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A Surprising Best Practice of Successful Traders

A Surprising Best Practice of Successful Traders

Here’s an interesting observation I’ve made about traders who are doing well recently versus those not doing so well:

It’s not just the quality of the trades that distinguishes the successful trader, but the quality of the time during market hours when they are not trading.

The least successful traders are glued to screens throughout the day and have very little structured, quality time away from the screens.  

The more successful traders take breaks during the day and keep themselves fresh and focused.

The most successful traders have a structured non-trading process during market hours.  They are just as plan-oriented in their non-trading time as in their trading time.  When markets are open and they are not trading, they have processes they follow to identify new opportunities and to maintain their performance zone.  

Productively planning and structuring your non-trading time:  that is an unappreciated best practice.  The great traders are highly productive when they are *not* trading.  A big step that can move your trading forward is to start keeping a report card where you grade the quality of your time during the trading day when you are not trading.

On Monday at noon EST, I’ll be joining Jigsaw Trading for a free webinar on three psychological techniques to improve trading psychology.  In that session, I will go into detail about specific practices I see best traders engaging in during non-trading hours.  Registration for the session can be found here; I hope to see you there!


Published at Fri, 09 Mar 2018 12:47:00 +0000

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How I learned to stop hating and love the Crypto

How I learned to stop hating and love the Crypto


Ask… and ye shall receive.

Let’s talk about Cryptos. I know for a fact most of you hate these bastard offspring. And I used to as well… until I learned to stop hating and love crypto.

I was biased against them because I was sick of hearing about idiots making millions who don’t actually know how to trade.

But I’m sure you couldn’t possibly understand 😉

Systems for crypto’s have some unique challenges.

In no particular order

  • The exchanges all have different data
  • There isn’t enough data for a statistically significant backtest
  • Some of the exchanges are crooked as a 3 dollar bill
  • The “stable” coin Tether is an obvious multi-billion dollar ponzi scheme
  • For things with half a trillion dollar market cap, the markets are THIN. Read this
  • You have to decide whether to do your charting against BTC/ETH or USD
  • The crypto-idiots have fetishised “HODL”ing (an intentional misspelling of holding). Apparently ignoring stop losses and holding through 90% retracements is smart now.
  • Correlations are insane. Most days 90% of coins are up OR 90% of coins are down. This makes developing systems difficult.
  • Because you can’t trust the exchanges, you can’t usually use stops (eek)

Now despite those inherent problems it’s highly likely that you and I will never see a bull market as strong as this one.  I’ve been crushing it (even with the recent 75% across the board drop) and I’ve figured out a whole lot of stuff along the way.

So, let’s put our System Building caps on and start figuring out workarounds for these problems.

For the next few days I’ll be fleshing out the mechanics of the System Building Process as it applies to crypto.

Firstly. If the crypto bubble is popped/over… then every last one of these shitcoins is going to zero. And bitcoin will be back under $1000.

The implications of this are obvious. You can’t put more than 5 or 10% of net wealth in these things, since they are all the same basic trade. No way around it.

You must bank regular profits. Trailing stops give too much profit back on markets this volatile.

Secondly. The all on/all off nature of crypto means that you want to run for cover at the first sign of rain.

Thirdly. Because we haven’t got enough data to really make a backtest mean anything, discretionary systems are probably an obvious choice here.

Anyway… discuss amongst yourselves and I’ll flesh all this out over the coming days.

Right now, we have NQ breaking out while ES is still lagging. That sets us up for the LAST CHANCE for the bears when ES tests the old highs.

Make no mistake… if the ES and YM break to the upside, there are a lot of shorts who will have to cover.

The EURUSD really has my spidey sense tingling. Bucky has been catching a beatdown and we are at the kind of extreme which indicates the tide might turn here.

Anyway… that’s all for today. Catch you again tomorrow.

Scott Phillips

Published at Mon, 12 Mar 2018 05:13:10 +0000

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How Fast is the Learning Curve for Traders?

How Fast is the Learning Curve for Traders?

Trading is one of the most challenging, stimulating, and potentially rewarding careers I can think of.  Every day is a new challenge.  Every day pushes us to overcome the biases and tendencies that get in the way of sound decision-making.  Like all great performance activities, trading rewards our self-development.

But what are reasonable expectations for a learning curve for traders?  Some years ago, I looked at research concerning the success rates of day traders and the numbers were sobering.  Over 80% of traders were unprofitable in the study and, after expenses, only a small proportion were profitable.  Not surprisingly, the smallest traders tended to be the least successful.  The larger ones, of course, were large precisely because they had accumulated some degree of success.

This is not only true of day traders.  Research by Barber and Odean finds that individual investors consistently underperform the market and fall prey to trading biases.  Recent research finds that the average active trader not only loses money, but persists in trading after being unprofitable.

That’s the part that trading educators, coaches, brokerage firms, and others don’t like to emphasize.  Just like in acting, just like in music, just like in athletics:  many are called, few are chosen.  The proportion of people who can make their living from golf, chess, football, or car racing is a fraction of the people who participate in those activities.

What that means is that any developing trader has to approach their learning curves with eyes wide open and ask the questions, “Am I on track?  Is this where I’m going to find my success?”  It’s nice to dream of trading success, but it’s important to understand the realities of making it as a trader.

Bella at SMB recently wrote about a trader who was now earning a nice paycheck after 18 months of trading.  I happen to know this trader personally and heartily agree that he has a bright future.  I also know that we had recognized his potential during his first year of trading.  Still, it has taken a while to bring home that paycheck.  In his admirably honest post, Bella notes that it typically takes 18 months to two years for a trader to achieve significant profitability (i.e., to make a living from their trading).  And that is with considerable mentoring, support, education, and coaching.  

In an earlier post on the failure rate of prop traders, Bella notes that every developing trader needs to anticipate 6-8 months of hard work and study when they start out.  My experience is that it is during that initial 6-8 month period that we see the shape of learning curves.  During the first year, the trader develops his or her style of trading, builds a playbook of opportunities, and displays growing consistency in following and profiting from that playbook.

During the second year, the trader builds on that consistency to take more risk, manage that risk well, and find new sources of opportunity.  It is after the first year of trading better that the trader becomes bigger, and that’s when the paychecks start.  If traders are still struggling to find consistency and their own style after a year of effort, the conditional probabilities of meaningful success go way down.  When innate talents fuel skill acquisition, learning curves are quicker and steeper.  I have found that success in year one is highly predictive of longer term success.

And so it is in all performance fields.  If, by your junior year of college, you are only able to make the second team of your school’s basketball squad, you probably should be planning alternatives to an NBA career.  That doesn’t mean you can’t enjoy basketball as an avocation, and it doesn’t mean that your accomplishment is meaningless.  It just means that your greatest career success will be found elsewhere.

This month alone I have heard from several traders who have spent years–and all their family’s money–pursuing one trading strategy after another.  They are broken people, and they have hurt their families in the process.  They could not let go of the dream, and it became a nightmare.

If you’re a developing trader, pour yourself into learning.  Find yourself mentors and colleagues you can learn from.  Work as hard on your trading outside of market hours as when you are trading.  And then gauge your progress.  Have the courage to let your dreams become realities, and have the wisdom to not allow them to become nightmares.


Published at Sat, 10 Mar 2018 13:09:00 +0000

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A Quality Way to Reduce Volatility

A Quality Way to Reduce Volatility

By Todd Shriber | March 12, 2018 — 8:25 AM EDT

When equity market volatility spikes, as it did in early February, investors may be prone to stocks and exchange-traded funds (ETFs) that fall under the jurisdiction of the low volatility factor. That is a sensible approach, but other smart beta ETFs can help investors boost volatility protection.

Funds that emphasize the quality factor, such as the iShares Edge MSCI USA Quality Factor ETF (QUAL), can help investors endure periods of elevated volatility. Pillars of quality stocks often include low debt, dividends, strong management teams and robust return on invested capital (ROIC), among other factors. For its part, QUAL’s holdings are evaluated based on return on equity, earnings variability and debt-to-equity, according to iShares. (See also: Smart Beta: How Does Quality Factor In?)

Year to date, QUAL is up 4.61%, a performance that is mostly in line with that of the S&P 500. Quality stocks offer investors some compelling advantages to consider. “First, quality has historically delivered a return premium, i.e. the opportunity to outperform a broad benchmark over the long term. Since 1990, the MSCI Quality Index has beaten the S&P 500 by approximately 0.10% per month on average,” said BlackRock in a recent note.

QUAL, which is nearly five years old, tracks the MSCI USA Sector Neutral Quality Index. The $4.58 billion ETF does an admirable job of reducing volatility. QUAL’s three-year standard deviation of 9.76% is slightly below the comparable metric on the S&P 500. The ETF could be one to consider if U.S. stocks scuffle over the course of 2018. (For more, see: QUAL vs. PRF: Comparing Smart Beta Funds.)

“In addition, quality tends to perform best when other styles, and the broader market, are struggling,” said BlackRock, Inc. (BLK). “Quality typically outperforms momentum during periods of turbulence. During the most recent pullback, quality once again outperformed, albeit by a relatively small margin. Most likely, part of the reason quality did not offer more protection was the nature of the selling.”

QUAL holds 125 stocks, 25.7% of which are technology names. The ETF devotes 28.1% of its combined weight to financial services and healthcare stocks. Apple Inc. (AAPL), 3M Company (MMM) and NVIDIA Corporation (NVDA) are among the ETF’s top 10 holdings.

While growth and momentum have been winning factors for a couple of years now, historical data suggest that quality can reward long-term investors. “Over the long term, quality has proved its worth, particularly during periods characterized by rising volatility,” according to BlackRock. “Since 1990, in months when the VIX rose by 20% or more, quality beat the S&P 500 by an average of approximately 60 basis points (bps, or .60%). Nor is the average a function of a few, very good months. When volatility was rising sharply, quality beat the broader market 75% of the time.” (For additional reading, check out: Strategies to Volatility-Proof Your Portfolio.)

Published at Mon, 12 Mar 2018 12:25:00 +0000

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Off-The-Run Treasuries

Off-The-Run Treasuries

What are ‘Off-The-Run Treasuries’

Off-the-run treasuries are all Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. These are the opposite of on-the-run treasuries.

BREAKING DOWN ‘Off-The-Run Treasuries’

When the U.S. Treasury issues securities – Treasury notes, and bonds – it does so through an auction process to determine the price at which these debt instruments will be offered. Based on the bids received and the level of interest shown for the security, the U.S. Treasury is able to set a price for its debt securities. The new issues presented after the auction is closed are referred to as on-the-run Treasuries. Once a new Treasury security of any maturity is issued, the previously issued security with the same maturity becomes the off-the-run bond or note.

For example, if the U.S. Treasury newly issued 5-year notes in February, these notes are on-the-run and replace the previously issued 5-year notes, which become off-the run. In March, if another batch of 5-year bonds is issued, these March notes are on-the-run Treasuries and the February notes are now off-the-run. And so on.

While on-the-run Treasuries are available to be purchased from Treasury Direct, off-the run securities can only be obtained from other investors through the secondary market. When Treasuries move to the secondary over-the-counter market, they become less frequently traded as investors prefer to go for more liquid securities which is a characteristic of on-the-run Treasuries. To encourage investors to purchase these debt securities readily in the market, off-the run Treasuries are typically less expensive and carry a slightly greater yield.

Since off-the run Treasuries have a higher yield and lower price than on-the-run Treasuries, there is a notable yield spread between both offerings. One reason for the yield spread is the concept of supply. On-the-run Treasuries are typically issued with a fixed supply. The high demand for the limited securities pushes up their prices and, in turn, lowers the yield, causing a difference to ensue between the yields for on-the run and off-the run securities. In addition, off-the-run securities are mostly held to maturity in an asset manager’s portfolio as there’s not much reason to trade them. On the other hand, when portfolio managers need to shift their exposure to interest rate risk and find arbitrage opportunities, they trade on-the-run Treasuries, creating liquidity for these securities.

Although on-the-run treasury yield can be used to construct an interpolated yield curve, which is used to determine the price of debt securities, some analysts prefer to use the yield of off-the-run Treasuries to draw the yield curve. Off-the-run yields are used in cases where the demand for on-the-run Treasuries are inconsistent, thereby, causing price distortions caused by the fluctuating current demand. By deriving yield curve figures from the off-the-run Treasury rates, financial analysts can ensure that temporary fluctuations in demand do not skew the yield curve calculations or the pricing of fixed income investments.

Published at Wed, 07 Mar 2018 05:00:00 +0000

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Who is Controlling the Market?

Who is Controlling the Market?

One of my favorite measures of buying and selling pressure is the moment to moment upticks versus downticks across all listed stocks.  Most of us are familiar with the NYSE TICK measure ($TICK), which tracks the number of stocks trading on upticks versus downticks for all New York Stock Exchange listed issues.  The U.S. TICK ($TICK.US-ST on the e-Signal platform) measure simply extends this measurement to all stocks, and so it is more inclusive of small cap issues.

Another strength of the U.S. TICK measure is that its opening readings look at upticks/downticks from the opening prices of stocks, not from the prior day’s close.  As a result, the numbers are not skewed by the overnight gap in prices:  we get a purer sense of buying and selling flows during the day session itself.

The major value of the U.S. TICK measure, however, is that it tells us who is controlling the market:  the buyers or the sellers.  If we get persistent and high positive readings, we know that institutions are lifting offers across a wide range of stocks.  Conversely, persistent and extreme negative readings tell us that institutions are hitting bids across the universe of shares.  (If your trading platform does not track U.S. TICK, the standard $TICK measure is also quite informative of who controls the market).

Notice on 3/2/18 how the evolving U.S. TICK numbers were positive and got more positive as the morning progressed.  We barely saw any net selling pressure whatsoever.  Even in the afternoon pullbacks, buying and selling activity were only relatively balanced (pullbacks to the zero area) and price held well off the morning lows.

(As an aside, the outperformance of U.S. TICK relative to $TICK was a nice tell for the relative strength of small cap shares that day).

This ability to see how the tug of war between buyers and sellers is evolving as the market unfolds helps us check our assumptions and adjust to how the market is *actually* changing.  I came into the day with bearish expectations, partly due to our difficulty in bouncing from oversold levels and partly due to the trade war news.  The early strength in buying pressure was a great indication that the market, in fact, was dominated by the buyers.  Sure enough we experienced an upside trend day, where we opened near the day’s lows and closed near the day’s highs.

Once we can observe the ebbs and flows of buyers and sellers, we’re in a much better place to trade what we see and not what we expect.


Published at Sun, 04 Mar 2018 13:25:00 +0000

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Your Money: You can do better financially by doing good

Your Money: You can do better financially by doing good

NEW YORK (Reuters) – It stands to reason that getting involved in your community helps others. But what if it helped your own bottom line, as well?

That is the finding of a new survey from financial giant MassMutual, which discovered that nearly half of the Americans surveyed in the 2018 Financial Wellness and Community Involvement Study believe that community involvement helped their own pocketbooks – not just their emotions or their sense of belonging, but their actual money.

Community can mean different things to different people, but wherever you happen to sink your roots, being connected to others appears to improve financial behaviors and decision-making. To wit, the MassMutual survey found that those who are community-minded are better at tracking their spending: 80 percent do it every month, compared with 61 percent of people who are not involved in the community.

They are also superior at putting money in an emergency fund every month (45 percent versus 30 percent), measuring their financial progress (56 percent versus 36 percent), and directing money into retirement savings (45 percent versus 29 percent).

Beside these enhanced money behaviors, there are also concrete ways that community involvement can power-boost your career and finances:

* It helps you get a job.

In one study by the Corporation for National and Community Service, researchers found that volunteering led to 27 percent higher odds of employment. And for those without a high school degree, it actually boosts your odds of finding work by an astonishing 51 percent.

* It provides a stream of new leads and business opportunities.

When 47-year-old Santa Monica financial planner Mitchell Kraus got involved with his local Rotary Club around 10 years ago, he found that the usual networking meet-and-greets did not lead to much.

But when he jumped into the club’s volunteer activities – from planting greenery to reading books to local elementary schools – he experienced a surprising byproduct: He started getting business referrals left and right.

Krause said he has had more than two dozen clients sent his way over the past decade by other attorneys and accountants in the club who volunteered right alongside him.“Opportunities started to open up when people saw I wasn’t just there to get business, but to give back to the community,” Kraus says.

* It acts as an informal social safety net.

If you are down on your luck, it helps if you have circles of supporters to turn to – whether that happens to be your cousins, your coworkers, or fellow parishioners.

In the MassMutual survey, more than half said they have supported others in their community during periods of financial stress. The reverse is also true: A quarter of people say their communities have kept them financially afloat, when they needed help the most.

* It helps you make better financial decisions.

If you are a butcher or a baker, you might not know a whole lot about what percentage to save, in what accounts to put that money, or what specific investments to consider. But if you were a member of Mitchell Kraus’ Rotary Club — and you find yourself surrounded by a group of financial planners, accountants and attorneys who like you and want you to succeed – that is a lot of financial advice you can tap.

Not only are those resources available to you, but you are likely modeling the financial habits of the successful people who surround you. That’s a financial win-win.

(The writer is a Reuters contributor. The opinions expressed are his own.)

Editing by Beth Pinsker and Jonathan Oatis

Published at Thu, 01 Mar 2018 20:22:48 +0000

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What Is Your Trading Battle Rhythm?

What Is Your Trading Battle Rhythm?

In a recent Forbes article, a special operations leader made use of the term “battle rhythm”.  His point was that businesses tend to operate on cycles of observing, planning, and implementing that are too slow for the business landscape.  SEAL teams have to work with rapid battle rhythms, as the battlefield is ever-changing.  This means that teams are highly active and interactive, continually gathering information and processing that information to shape tactics and strategy.  Operating in a fast environment with a slow battle rhythm is like drawing a sword in battle and moving slowly.  If it’s a sword battlefield, you need dancers, not plodders.

This helps to explain why many traders either fail to make money or fail to perform consistently:  their battle rhythm does not keep pace with their trading frequency.  In other words, they may plan once a day (early in the morning) and then fail to adapt when markets change character and direction during the day.  If your trading is much more frequent than your planning, eventually you’ll get stuck when markets zig instead of zag.

When we see a trader who can place many trades per day and make money consistently, we tend to marvel at the speed of his or her pattern recognition.  In talking with these traders, however, what jumps out is the speed of their decision-making processes.  They truly work with rapid battle rhythms, constantly taking in market information, assessing its implications, and shifting tactics accordingly.  One trader I recently met with rapidly switched from trading individual stocks making idiosyncratic moves to trading the broad indexes and back again solely on the basis of how things were moving relative to each other.

When our battle rhythm doesn’t keep up with our trading, we set the stage for inevitable frustration.  The market will change more quickly than our planning will adapt.  Success requires that we trade a time frame that is longer than the time it takes us to observe market conditions, make sense of them, and figure out their relevance for our trading.  We overtrade when we place new trades faster than we can engage in new thinking.

Published at Thu, 01 Mar 2018 18:36:00 +0000

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Volatility Begets Volatility

Volatility Begets Volatility

Markets never move in a straight line and the 12% correction in the S&P 500 in late January sent an IV shockwave through the financial system from which it is still attempting to recover. What usually follows a large volatility event is a counter reaction followed again by smaller events until either the old market regime re-asserts itself or something even more dire happens.

We now find ourselves at that very threshold at which the market direction for the remainder of this year will be determined.  And that incidentally not only applies to equities but also to the FX and crypto space. What happens here will set the stage for whatever transpires over the rest of this year and beyond, so we’d better pay attention.

I best speak in charts, and I usually put my money where my mouth is. Which is why I just grabbed a long position here with a stop below 2705.25. For one the formation on the short term panel is looking very bullish to me, so does the sequence of higher highs and higher lows on the daily. Until I see a breach < 2682 I have to be long here.

Should we breach below that then I would have to get confirmation via a breach and retest of the 100-day SMA. Only a spike high below that mark would get me to take on short positions. The exception being that I see very concerning divergences on my momo charts and of course our trusted Zero indicator:

Which by the way consistently pointed downwards during yesterday’s sell off. However I don’t see any major warning signs on the hourly panel (left). It is slightly divergent but not sufficiently yet to warrant short positions. If you are a short here then I suggest you trail your positions and keep an eye on the Zero signal (in case we get a bullish divergence today or tomorrow). By the way if you trade the E-mini and you are not a subscriber yet then sign up here – you’ll be glad you did.

Now on the currency front the EUR/USD has been somewhat weakening recently and then stabilized in a ‘wait and see’ formation in anticipation of Powell’s speech. I wasn’t even aware that he was scheduled to speak until sometime Friday when I checked the event schedule for the coming week. Which once again speaks to the power of simple price action to tell you what’s up without having to follow a ton of fundamental or macro-economic data.

Since Jerome Powell’s slightly hawkish hearing in Congress the Euro has once again descended lower and in the process managed to trigger a short position I had proposed sometime last week (to the subs that is). It’s a bit too early to move my stop to break/even as price action is choppy and there may be another push higher. As a matter of fact I don’t think the odds are great for this campaign and it only was presented as the potential payoff could be large due to a potential long squeeze scenario. My target range for this campaign would be near 1.2 from where its 100-day SMA currently hails.

Crude is a stop out at about 1R of profits – not much given the time it was active but we always need to adjust our time horizons to the price action and not the other way around. Some symbols move slowly but steadily, some more volatile (BTC sends its regards), and some do both for extended times. Crude isn’t in an easy market regime right now and trading it takes patience. However when it starts trending then it usually makes a b-line for its target range – hopefully we’ll see it switch back to that soon again.


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Published at Wed, 28 Feb 2018 12:32:49 +0000

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Collaborative Learning: A Totally Different Trading Edge

Collaborative Learning: A Totally Different Trading Edge

What if the success rate among traders is low, not simply because of the complexity of markets, but because the learning methods traders employ are not suited to complexity?

What if the greatest edge we could achieve in markets comes, not from another indicator or software tool, but from revolutionary ways of learning and understanding markets?

Considerable research suggests that active learning methods are superior to passive ones, with particular benefits associated with team-based learning, including greater engagement of students and greater depth of learning in such fields as medicine and psychology.

As I note in the latest Forbes article, structuring mentoring and coaching within trading teams has greatly increased the success of training traders.  The technique of the daily report card, in which traders review key aspects of their trading daily and share their grades and observations with mentors, coaches, and peer traders, has meaningfully accelerated the learning curves of many traders who have adopted this framework.

If you have not achieved the trading results you desire, I encourage you to consider the possibility that the problem may not lie with your psychology or with your use of any particular set of trading tools.  Rather, you may be honing your skills in entirely the wrong way.  You would never learn and master basketball, chess, or surgery in a classroom or through videos, followed by solo experimentation.  Why would the performance domain of trading be any different?

I encourage you to reflect upon the daily report card framework and how turning learning into an active and interactive enterprise could accelerate your learning curve.

Published at Mon, 26 Feb 2018 23:54:00 +000

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Profiting From a Dirty Secret of Trading

Profiting From a Dirty Secret of Trading

Kudos to Downtown Josh Brown for picking up on a Bloomberg article by Ben Carlson that illustrates how it’s not rising rates that are a threat for stocks, but inflation.  Ben notes the human tendency to think in narratives:  this is happening because of that.  Such narratives quickly become consensus within and across trading floors.  That leads to a kind of conformity born of laziness.  Traders don’t develop their own models of rates and inflation, so pick up on dominant narratives.  Excellent shorter-term opportunities can arise when those narratives are driving trader and investor behavior and excellent longer-term opportunities can arise when those consensus narratives are disconfirmed.

Jeff Miller points out that trading problems typically arise when markets change and we are no longer in our comfort zones.  (His site, by the way, does a nice job of tracking inflation numbers, economic sector by sector.)  We become particularly uncomfortable when our dominant narratives are challenged.  When we can’t make meaning out of what we’re seeing, we understandably behave in reactive ways to lessen our discomfort.

We gain flexibility when we view market narratives as hypotheses and not as conclusions.  This is where tracking correlations among markets can be incredibly helpful.  So often, traders focus on their own markets, failing to notice macro drivers that–rightly or wrongly–are impelling near term market flows.  On Friday, I was chatting with a valued trading colleague and we noted early in the session that the market’s dominant cycle was cresting.  That led to a nice, early short trade in the ES futures.  As rates began to move lower, however, and stocks could not sustain downside momentum, I recognized that the “lower bonds, lower stocks” risk-parity bears had an opportunity to be trapped.  The unwind of that narrative led to nice trades as we detected the potential to move from a cyclical to a trending short-term trading environment.

There’s a dirty secret no one likes to talk about:  large traders often don’t do their own research.  They construct narratives based on recent price action and what others are saying on the sell side, trading floors, etc.  That conformity creates opportunity and is a great reason for tracking market chatter–but only as hypotheses!

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Avoid FANG Stocks Until Summer

Avoid FANG Stocks Until Summer

By Alan Farley | February 23, 2018 — 9:10 AM EST

FANG stocks sold off with the broad market into February, caught in a profit-taking wave after months of positive price action. They’ve bounced strongly off monthly lows in the past two weeks but are unlikely to reward newly minted shareholders with breakouts. More likely, the fabulous quartet has entered a consolidative phase that limits gains into the third quarter, making it tough to recommend opening or adding to positions., Inc. (AMZN) and Netflix, Inc. (NFLX) have bounced higher than Apple Inc. (AAPL) or Facebook, Inc. (FB), but don’t be fooled by minor thrusts to new highs. V-shaped patterns rarely generate new trends immediately, often reversing as soon as weak hands forget their discipline and take exposure. Deep pullbacks can follow, often testing prior lows before strong-handed buyers retake control. (See also: Hedge Fund Billionaires Bullish on FANG and Retail Stocks: 13F.)

Amazon stock broke out above a six-year rising trendline in January 2018 and surged higher, gaining more than 300 points in just five weeks. It then dropped 230 points in six sessions, trapping late-to-the-party trend followers. The subsequent bounce exceeded the prior high by five points and stalled out, ready to generate a fresh trend advance or downswing that traps complacent bulls.

The sell-off found support at the 50-day exponential moving average (EMA), which has jumped nearly 50 points to $1,330 in the past nine sessions and will soon reach the .618 Fibonacci rally retracement at $1,350. That harmonic zone looks like a minimum target for the next pullback, if it comes, with a bounce generating a strong uptick and breakout while a failure would signal the next leg of a correction that targets $1,100. (For more, see: Amazon Launches Its Own Line of OTC Drugs.)

Netflix shares broke out above October resistance at $205 in early January and took off on a trend advance that added more than 80 points. The decline into February relinquished 50 points, ahead of a bounce that stalled at range resistance earlier this week. The stock fell to a four-day low on Thursday, posting a minor sell signal that could presage a trip down to $250 in the coming weeks.

The Jan. 23 gap between $228 and $248 is partially unfilled and could act as a magnetic target, bringing the Feb. 9 low back into play. Alternatively, a narrow range consolidation lasting another one to three weeks could negate the bearish scenario, yielding a secondary breakout into the $300s. Whatever the outcome, there’s no good reason to jump on board right here, given volatile cross-currents. (See also: The Top 3 Netflix Shareholders.)

Apple stock plunged from an all-time high to a four-month low, bouncing at September support near $150 on Feb. 9. It has squeezed short sellers in the past week, carving a vertical bounce that has stalled at the .786 Fibonacci sell-off retracement level just above $170. A week of narrow range action has failed to move the needle, establishing a deadlock that favors a downturn into the Feb. 15 gap between $167.50 and $169.50.

That level has aligned with fourth quarter range support and the 50-day EMA, establishing a line in the sand that bulls need to hold at all costs or risk a slide back to the monthly low near $150. On-balance volume (OBV) has taken a major hit since topping out in November, signaling the reluctance of institutions to add exposure, given the company’s slowing growth curve. The recent bounce has failed to alleviate this bearish divergence. (See also: Apple Wants to Buy Cobalt Directly From Miners: Report.)

Facebook shares have carved the weakest pattern in the quartet, turning sharply lower after posting an all-time high at $195.32 on Feb. 1. The stock failed a channel breakout two sessions later, dropping nearly 30 points to a four-month low at the 200-day EMA. The subsequent bounce stalled under the 50-day EMA a week ago, with that level now aligned at the 50% sell-off retracement.

The recovery effort could reach stronger resistance in the $180s or roll over here, generating a test of the corrective low. The stock has not traded under the 200-day EMA in 14 months, adding importance to that support level, with a breakdown opening the door to $150. Given the high stakes, informed market players will likely keep their powder dry, allowing other traders to risk their hard-earned capital. (For more, see: Why Facebook’s Rally Is Lagging the Techs.)

The Bottom Line

FANG stocks have bounced off corrective lows but are unlikely to enter new uptrends in the coming weeks. More likely, they’ll carve range-bound patterns into the second half of 2018, working off overbought technical readings following months of higher prices. (For additional reading, check out: Facebook and Google’s Days Are Numbered: Soros.)

Published at Fri, 23 Feb 2018 14:10:00 +0000

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Prepaid Insurance

Prepaid Insurance

What is ‘Prepaid Insurance’

Prepaid Insurance payments are made in advance for insurance services or coverage. The period for which insurance is prepaid is generally one year, but may exceed a year in certain cases. Prepaid insurance that expires in a year is classified as a current asset on a corporation’s balance sheet.

BREAKING DOWN ‘Prepaid Insurance’

Unless a claim has been made, prepaid insurance is usually renewable by the policyholder shortly before the expiry date on the same terms and conditions as the original insurance contract. However, the premiums may be marginally higher to account for inflation and other operating factors.

How Prepaid Insurance Accounting Works

A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. Prepaid insurance is considered as such. When the asset is eventually consumed, it is charged to expense. If consumed over multiple periods, there may be a series of corresponding charges to expense.

A prepaid expense is carried on the balance sheet of an organization as a current asset until it is consumed. The reason why is because most prepaid assets are consumed within a few months of being recorded. If a prepaid expense were likely to not be consumed within the next year, it would instead be a long-term asset (this is not common). The payment of the insurance expense is similar to money in the bank, and as the money is used up, it is withdrawn from the account in each month or accounting period. Prepaid insurance is usually considered a current asset, as it will be converted to cash or used within a fairly short time.

To illustrate prepaid insurance, let’s assume that on November 20, a company pays an insurance premium of $2,400 for the six-month period of December 1 through May 31. On November 20, the payment is entered with a debit of $2,400 to prepaid insurance and a credit of $2,400 to cash. As of November 30, none of the $2,400 has expired and the entire $2,400 will be reported as prepaid insurance. On December 31, an adjusting entry will debit insurance expense for $400 (the amount that expired: one-sixth of $2,400) and will credit prepaid insurance for $400. This means that the debit balance in prepaid insurance at December 31 will be $2,000 (five months of insurance that has not yet expired times $400 per month; or five-sixths of the $2,400 insurance premium cost).

Published at Fri, 23 Feb 2018 04:38:00 +0000

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