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Key Change That Nobody Talks About

Key Change That Nobody Talks About

By: Arkadiusz Sieron | Tue, Feb 13, 2018


Last week, everyone focused on the stock market sell-off. Reasonably enough, given the pace of the declines. But the analysts failed to pay enough attention to the very important shift. That change may be more important than Trump’s victory in the presidential election. Will the critical switch make gold shine – or dull?

Three Important Legacies of Yellen’s Fed Tenure

A crucial change is behind us. Powell is the new boss. Yellen is out. For better or worse, she doesn’t serve as the Fed Chair any longer. Although economists rated Yellen’s tenure very highly, President Trump didn’t renominate her for the position. Rightly or not? We don’t care. Let journalists debate endlessly – we will analyze the crucial Yellen’s imprints on the Fed, which could affect the gold market in the future.

First, Yellen focused mostly on the labor market, not without some successes. We don’t attribute it solely to her, but the unemployment rate fell from 6.7 to 4.1 percent under her tenure. As a reminder, the Fed has a dual mandate: maximum employment and stable prices. Although many Fed officials used to worry about high inflation, she was different. Yellen didn’t fear the uptick in inflation as long as there was a slack in the labor market. She, thus, believed that ultra low interest rates could and should stay near zero for far longer than previously thought to combat unemployment. Yellen hiked them not earlier than in December 2015. Since then, she gradually raised them to the range of 1.25 percent to 1.5 percent, which is still very low. The gradual tightening was positive for gold, which would have likely struggled more, had monetary policy been more aggressive. If Jerome Powell continues this cautious policy, gold may shine, despite rising interest rates.

Second, Yellen managed to start the unwinding of the Fed’s massive balance sheet, without triggering stock market turmoil. After unconventional actions of Bernanke, she had to get back to normal monetary policy, but not too fast. She definitely succeeded. If anything, the Fed is behind the curve. This is why gold wasn’t strongly hit by the Fed’s tightening. The U.S. central bank raised interest rates a few times, but the financial conditions remained easy.

Third, Yellen mastered communication with the public. She held quarterly news conferences and smoothly telegraphed the Fed’s moves well in advance. Thanks to well-planned expectations guidance, Yellen – contrary to Bernanke who triggered a taper tantrum by his unexpected remarks in 2013 – avoided any major stumbles. The clear communication transformed gold’s reaction function. The yellow metal now reacts more to the changes in the rate hike expectations than to real monetary policy decisions. Sell the rumor, buy the fact – as one can see in the chart below.

Chart 1: Gold prices under Yellen’s Fed tenure

Jerome Powell – Great Continuator or Game Changer?

Jerome Powell is now the new Fed Chair. Analysts expect that he will continue Yellen’s stance. But will he? How you play depends on your opponent. Yellen faced a sluggish recovery. But Powell sees tax cuts, higher economic growth, very low unemployment and perhaps finally rising wages. He will have to deal with the accelerating inflation, so Powell could move faster on normalization. Actually, such a scenario scared some investors last week into deciding to sell their equities. As people weren’t sure what to expect of Powell, good economic data turned out once again to be bad news for the financial markets. Surprisingly strong payrolls make traders to worry that the Fed will tighten its stance more. Hence, unless Powell convinces the markets that he will continue Yellen’s gradual approach, gold may react paradoxically for a safe-haven: decline on bad news and rise on good news.

But will he intervene to calm the financial markets? We don’t bet on that. Greenspan cut interest rates after the stock market declined 35 percent in the three months after he became the Fed Chair, but the current downturn is much smaller. Actually, we have seen some rebound since Friday. Another paradox: the correction in stock prices may help Powell in doing his job, because lower equity prices could relieve concerns about the formation of dangerous asset bubbles.

Conclusions

The conclusion is clear: although the latest declines were a tough welcome for Powell, they may actually be helpful for him. He is expected to continue Yellen’s policy. It is generally true, but economic conditions changed as well as the composition of the FOMC in 2018. It is now more hawkish than last year.

Given these developments, the shift from Yellen to Powell may importantly strengthen the hawks among the Fed. Hence, unless the correction evolves into turmoil, we still expect three (or even four) hikes this year. Indeed, according to CME data, the Fed remains on track to lift the federal funds rate in March. The market odds of a hike are above 75 percent. Higher interest rates should theoretically be negative for gold. But the usual link seems to be broken now. The part of the answer is the U.S. dollar. Another issue is that we are in the late stages of the economic cycle – as the cycle matures, volatility increases and investors start to buy more gold as a hedge.

By Arkadiusz Sieron


Arkadiusz Sieron

Arkadiusz Sieron
Sunshine Profits’ Gold
News Monitor
and Market
Overview
Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Arkadiusz Sieron

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious
metals market enthusiast, currently a Ph.D. candidate, dissertation on the
redistributive effects of monetary inflation (Cantillon effects). Arkadiusz
is a free market advocate who believes in the power of peaceful and voluntary
cooperation of people. He is an economist and board member at the Polish Mises
Institute think tank. He is also a Laureate of the 6th International Vernon
Smith Prize. Arkadiusz is the author of Sunshine
Profits
‘ monthly Market
Overview
report, in which he keeps subscribers up-to-date regarding key
fundamental developments affecting the gold market and helps them prepare for
the major changes.

Copyright © 2014-2017 Arkadiusz Sieron

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Published at Tue, 13 Feb 2018 13:44:05 +0000

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Data overload: commodity hedge funds close as computers dominate

A computer screen showing stock graphs is reflected on glasses in this illustration photo taken in Bordeaux, France, March 30, 2016. REUTERS/Regis Duvignau

Data overload: commodity hedge funds close as computers dominate

LONDON (Reuters) – “Chocfinger” made his name and his money by taking bold bets on cocoa markets. But after nearly four decades of trading, sometimes winning, sometimes losing, Anthony Ward threw in the towel.

Ward blames the rise of computer-driven funds and high-frequency trading for forcing him and some other well-known commodities investors to close their hedge funds and look for opportunities where machines can’t make a difference.

While computerized trading is not new, Ward and others argue its steady rise has reached a tipping point that is distorting prices and creating uncertainty not only for investors, but for chocolate firms, carmakers and others who rely on commodities.

It was in January 2016, after a slide in cocoa prices, that Ward decided the days of traditional commodity investors doing well from taking positions based on fundamentals such as supply and demand may be numbered.

“It was just too big, too quick, too dramatic. And completely against the fundamentals,” Ward told Reuters.

Commodity markets fell across the board that month after weak factory data in China raised fears of lower demand from the world’s top consumer of raw materials.

Ward blamed the slide in cocoa on what he regarded as misplaced selling by computer-driven funds reacting to the Chinese data, given China has scant impact on the cocoa market.

“The actual fundamentals in cocoa were extraordinarily bullish in January 2016. We were forecasting the largest harmattan in history, which is exactly what happened,” he said.

His prediction that a hot, harmattan wind from the Sahara desert would hit harvests in Ivory Coast and Ghana and drive cocoa prices higher did come to pass – but not before the fund had been forced to cut its losses when the market slumped.

At the end of 2017, Ward closed the CC+ hedge fund that had invested in cocoa and coffee markets for years.

And at the end of January, commodity hedge fund Jamison Capital Partners run by Stephen Jamison closed. He told investors that machine learning and artificial intelligence had eliminated short-term trading opportunities, while commodities did not offer obvious benefits in the long term.

Also in 2017, renowned oil trader Andrew Hall, who earned $100 million in 2008, called time on his main Astenbeck Commodities Fund II.

He had said in an earlier letter to investors that extreme volatility caused by “non-traditional investors and algorithmic trading” made it difficult to hold onto long-term positions when the market moved against them.

In 2016, Michael Farmer, founding partner of the Red Kite fund that specializes in copper, also accused high-frequency traders using super-fast computers of distorting the market and getting an unfair advantage.

DISTORTION?

Other investors have taken refuge in related sectors or left commodities altogether, exasperated by the automated trading that drives about half of U.S. commodity futures trading.

A study by the U.S. Commodity Futures Trading Commission last year showed computerized trading on the world’s largest futures exchange, CME Group, accounted for 49 percent of the volume in agriculture contracts and 58 percent for some energy contracts.

At the same time, data from industry tracker Hedge Fund Research shows the average hedge fund returned 8.64 percent in 2017 but commodity hedge funds eked out returns of just 0.43 percent.

Ward estimates that while in the past automated trading would distort the market by 10 percent to 15 percent from prices justified by fundamentals – which he said was irritating but often manageable – it can now reach 25 percent to 30 percent.

Algorithmic, or systematic, funds use computers to make decisions after processing vast amounts of data, or trade on signals such as market momentum or when prices hit key levels.

Those who run automated funds argue that they inject much-needed liquidity while capturing the dynamics of the market more efficiently than traditional trading strategies.

Farmer and others say, however, that it is unfair for exchanges to allow high-frequency trading (HFT) groups to have co-location platforms, allowing them to put super-computers in the same data center as the exchange servers.

They say that gives HFTs the tiny advantage they need to jump ahead of incoming orders, effectively piggybacking. Traditional investors say this exacerbates market moves and in turn makes it more costly for them to take out hedges when price moves go against them.

MIND-BOGGLING DATA

Systematic fund managers see the rise of their sector as a part of a trend that is transforming not only financial markets but wider society with the advent of artificial intelligence, robots and machine learning.

“I don’t feel too sorry (for traditional fund managers),” said Anthony Lawler, co-head of GAM Systematic, the quantitative part of Swiss money manager GAM Holding, which had assets under management (AUM) of 148.4 billion Swiss francs ($158 billion) at the end of September.

“Information, which used to be expensive, difficult to get, not easily shared, is now ubiquitous. It’s truly mind-boggling the depth of data available,” Lawler said.

“That means it’s much more difficult to have an information edge and advantage to the player who can digest and analyze the data the quickest.”

GAM Systematic, which had $4.3 billion of assets at the end of September, regards commodities as one of many markets it monitors for opportunities by crunching data such as weather forecasts and shipping data that shows how full a vessel is.

He acknowledged that algorithms can lead to mistakes and over-generalization, but said that should just open up opportunities for traditional fund managers.

“If you’re a great discretionary trader, then sit on the sidelines and wait for those missteps … I would be super happy if that trader is successfully picking off some of these missteps,” said Lawler.

Systematic funds also make decisions based on the structure and technical levels of markets. Some analysts argue that markets absorb fundamental information before many analysts are aware of it and automated funds are simply more efficient.

“I used to do a lot of fundamental analysis when I was in equities and I realized it doesn’t really matter, it was a waste of time,” said Guy Wolf, global head of market analytics at commodities broker Marex Spectron.

“The truth is fundamental analysis is effectively the work of a historian, seeking to provide explanation for what has already occurred,” he said.

SCHIZOPHRENIC MARKETS

Some fund managers and analysts say computerized trading has been amplified in commodities because other participants such as banks and pension funds have cut exposure to the sector.

Total global commodity assets under management more than halved from 2012 to 2015 to under $200 billion, though the total has since recovered to just over $300 billion, according to Barclays.

“There’s less liquidity, and therefore prices are more choppy, more schizophrenic, because of the exit of so many market counterparties,” said Robin Bhar, head of metals research at French bank Societe Generale.

Not all those who have closed commodity hedge funds put the blame on computers.

“Either you read the information badly, or you have bad information,” said Christophe Cordonnier, who co-founded the Belaco Capital fund in 2012 after heading investor sales in commodities at Societe Generale.

Cordonnier says Belaco Capital made a bad decision on timing, launching the fund in 2012 and counting on a global economic recovery to boost commodities. After a rebound failed to materialize, the fund closed in 2015.

Other fund managers have survived by being creative, such as Christoph Eibl, chief executive of Tiberius Asset Management, whose commodity assets under management have dwindled from $2.5 billion at its peak to about $350 million.

“Seven years ago we started diversifying our business operations,” said Eibl. He now operates a merchant business in metals with a turnover of more than $1 billion a year, runs tungsten and tin mines in Africa and Asia and is soon to launch a metals-backed crypto-currency.

Ever the risk taker, Ward still plans to trade cocoa and coffee – but only with his own money – while looking for opportunities in the underlying physical commodities markets. And he’s keeping a close eye on computerized trading.

“In the end the whole thing will blow up because when there’s a big problem, a black swan event, they won’t be able to get out. It will be very messy,” said Ward.

Additional reporting by Nigel Hunt and Maiya Keidan; editing by Veronica Brown and David Clarke

Published at Mon, 12 Feb 2018 12:22:46 +0000

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Bounces Happen

Bounces Happen

by THE MOLE

Equities as well as cryptos are seeing sustained buying interest, which given the respective corrections over the past two weeks isn’t surprising. Bounces happen, especially after significant sell offs, and the main question in the minds of investors and traders is whether or not it can be sustained. I saw ZeroEdge claiming yesterday that Goldman had announced confirmation of a regime change in equities, and although I would generally agree I’m always a bit suspicious regarding anything that comes out of Goldman’s PR machine.

Thus it actually increased my confidence that at least a temporary reversal in equities was in play. And this would be a favorable time for it as week #7 is historically positive. But if you look at the remainder of the month and early March then at least seasonally speaking there absolutely is the potential for a larger take down.

If you swung by the comment section or if you caught my tweet on Friday then you may as well hold a few SPY calls. The futures weren’t an option for me – way too risky. And although I absolutely despise buying options on a Friday afternoon the formation on the Zero didn’t leave me much choice:

Those bullish divergences, both on the hourly and the 5-min panels, were absolutely text-book and way too juicy to pass up. By the way, if you’re not a sub yet and don’t want to miss out on entries like these moving forward then you hopefully know what to do. And here’s a link to the tutorial/intro page if you’re a naturally born skeptic and need more convincing.

Anyway, stop management is a bit more involved when it comes to calls or spreads. I usually use alerts on my futures charts (not the Spiders) and you have to increasingly account for theta burn of course. Meaning if I get stopped out at ‘break/even’ I’ll of course will have lost premium. As I used a debit spread (of course) at least I won’t be worrying about vega which I’m sure will get squeezed hard should we continue to ascend higher in equities.

By the way if you don’t understand why I would by a debit spread instead of naked calls after a spike in IV then you definitely need to swing by here more often 😉

I mentioned cryptos in my intro and I also should show you a chart of BTC which is fairly representative of what’s going on in that space right now. Basically we’ve had an extended series of LHs and LLs which to up to this moment remains unbroken. And that is an important fact that bodes repeating. Until BTC pushes > 9500 we technically remain in a sell off formation. Once again bounces happen but it’s the follow up after the first leg higher that really matters. Should BTC fail to overcome this threshold and fall < its spike low at exactly 6000 (how cool!) then I’m afraid that we’ll be seeing quite a bit more pain in cryptos as well.

Quick update on our Dollar campaign which miraculously has survived the weekend. Seems like our trail was well placed and the short term SMA is now starting to push above it. Nothing to do here but wait and see – emotionally I’m still waiting for the big shoe to drop 😉

More goodies below the fold, so please grab your decoder ring and meet me below the fold:

evil_separator

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Crypto Tease

After literally weeks of hard work I finally am able to pull large amounts of historical 1-min data from top-tier crypto exchanges like Gdax, Bitfinex, Gemini, Bitstamp and others. See my pertinent blog post from back in January. Anyway, I’m collaborating with a few quants on some internal projects the details of which I am unfortunately unable to disclose. But if you are attracted by the notion of trading crypto currencies this may spike your interest.

This is a backtest of a very simple strategy we put together to test a new crypto trading platform we are busy refining. That’s BTC tested back to 1/1/2015 running against a 1-min series. So a s…load of data and returns seem to be mindbogglingly consistent with only shallow draw downs. What freaks me out about this to some extent is that we literally threw this strategy together in one day by leveraging a few alpha factor concepts we extracted during our IV related research.

If nothing else BTC over the past years has been the proverbial paragon of risky high volatility and I would have not expected that throwing together a few simple alpha factors would produce a P&L curve like this over such an extended time frame. And by the way it does very well on other crypto pairs as well, which isn’t hugely surprising given the high covariance across the entire space. Clearly this is an area I will have to devote quite a bit more time and resources into.

Unfortunately I won’t be able to spill the beans on what makes this system tick. But if there is sufficient interest I may make a strategy like this available as a signal service at some point (email/jabber alerts only). So if you’re interested shoot me an email to admin@ and I put you on the list.

Published at Mon, 12 Feb 2018 14:10:51 +0000

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Picking Over The Survivors

Picking Over The Survivors

by THE MOLE

Long term survival in the financial market is just that, surviving the myriads of traps and tribulations you will invariably encounter during your trading career. Although the risk of a complete wipe out on a day to day basis is pretty small it only has to happen once in order to dissolve years of hard work and compounded assets, sometimes in mere minutes. Of course what spells disaster for those unfortunate or dumb enough to have gotten a tad to greedy near a market peak or those attempting to catch a falling sword, means exciting opportunities for the patient and more seasoned survivors.

Lest we become victims of explosive market volatility ourselves, lets however review a bit of technical evidence and then decide if the time has come to strike. Shown above is the VXV:VIX ratio I mentioned yesterday and of course many times over the past few years. This particular chart is more of a long term version with a slower BB in combination with a slightly smoothed SMA of the VXV:VIX.   What that does for me is to cancel out some of the noise and appreciate the big picture.

But as always we are not taking trades courtesy of indicators alone – all we are doing here is to assess the momentum in implied volatility. Based on prior observation there seems to be a decent possibility that we’ll see a snap back, meaning that IV is ready to revert to its mean. But you can also see that the smoothed signal has not yet pushed > the lower BB. So we don’t have confirmation yet and any entries taken here would be speculative.

The SPX:VIX ratio shows me a little divergence near the close that could possibly drag prices lower again. On its own it’s not a signal but if it subsists we should definitely take note.

The SPX on its own shows us a volume hole between 2700 and 2735ish. That one may be difficult to cross and there may be push back.

UVOL vs. DVOL. The bears were putting up a haphazard fight yesterday morning but then simply walked away in the afternoon. That looks pretty bullish to me and alleviates some of the concerns mentioned above, but it does not outweigh them obviously.

What pushes me back towards equilibrium in my outlook is the Zero signal which looked rather supportive yesterday. There were clear attempts by deep pockets (+2 and +3 signal spikes on the Zero in the right panel) to bang the tape higher and pin a positive close.

I have decided to take out an early exploratory entry near 2680 with a stop < 2610. We are talking a tiny 0.2% position and if it survives the day I’ll add more meat to it. The odds here are probably < 50:50 as it’s equally possible that we’ll see one more retest of the lows. Please don’t make big BTFD bets here, I don’t think we’ll return to business as usual anytime soon.

Update on the EUR/USD campaign. I’m taking profits here at about 1.2R much to my chagrin. To be frank I was quite disappointed by the lousy performance of the USD on Monday and Tuesday. Not sure where all the money went but it’s not going into Dollars or bonds.

Speaking of which my trail on the DX campaign now advances to about 0.5R. Better than a loss but come on – this thing should have exploded higher but the old greenback seemed completely unimpressed and barely pushed higher.

Two more special goodies below the fold for my intrepid subs:

evil_separator

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Published at Wed, 07 Feb 2018 13:03:55 +0000

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Lessons in Trading and Psychology – 3: Identifying Intraday Reversals

Lessons in Trading and Psychology – 3: Identifying Intraday Reversals

OK, so recall what we talked about in the previous post that looked at how we can use volume to understand market movements:  each day in the market offers us one or more important learning lessons.  Our job in reviewing the day is to extract these lessons, so that we can improve our ability to recognize opportunities in real time.

Above we see yesterday’s market (SPY) plotted against five minute closing values for the NYSE TICK.  Recall that we visited the $TICK measure in the first lesson post that dealt with changes of market regime over a period of days.  Now we are examining the change of market character that occurred intraday in Friday’s market.  Note that the scale for the $TICK values is in standard deviation units, so that we can see how stocks are trading relative to a recent lookback period.

Note how the $TICK line quickly moved below zero during the morning session and largely stayed below zero for most the morning.  This tells us that stocks were persistently trading with weakness (on downticks) throughout those morning hours.  Something interesting happened midday, however.  As we made new lows in SPY, we were seeing much less selling pressure.  Indeed, the final low was preceded by a sizable spurt in buying.  From that final low, we saw a significant spurt in buying and stayed above the zero line for most of the remainder of the day.

In short, we saw in transition from selling pressure to buying pressure, with a waning of selling preceding the upsurge in buying.  The trader seeing this shift in supply/demand was alerted to the likelihood that this was not a trend day to the downside and, indeed, there were many traders leaning short who might need to cover.

Notice also that once we surged above two standard deviations in the $TICK measure (both to the downside in the morning and to the upside during the afternoon), we tended to get follow through of price movement (momentum).  Just noticing these dynamics helps keep a trader on the right side of market movement, knowing when to trade a market move and when to fade it.

Published at Sat, 10 Feb 2018 11:55:00 +0000

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Mutual Funds: Brand Names Vs. House Brands

Mutual Funds: Brand Names Vs. House Brands

By Ken Hawkins | Updated February 9, 2018 — 6:58 PM EST

If you stroll down the aisle of any large supermarket today, mixed in with the merchandise of well-known national brands is similar merchandise in the store’s brand. Next to a major brand-name can of creamed corn, you might also see a can of the house brand of creamed corn.

In the financial supermarkets that house today’s large brokerage firms, banks and insurance companies, banks often sell their own investment products and services alongside of those from outside suppliers. And, on the virtual shelves of a large financial company, the mutual funds of major companies—like Fidelity or Franklin—sit side-by-side with the house-brand mutual funds. In this article, we’ll show you how to decide between purchasing a house-brand fund over a major-brand fund. (See also: Picking the Right Mutual Fund.)

House-Brand (Proprietary) Funds Vs. Third-Party Funds

A house-brand, or proprietary, mutual fund is created when the bank or brokerage firm that distributes the fund also acts an investment advisor for the fund. The mutual fund business has two components: managing fund assets and distributing (or selling) funds. Each side can be very profitable and the creation of proprietary mutual funds is considered a form of vertical integration—not to mention a profitable way to leverage an existing sales force. Typically, these mutual funds are developed, managed and sold in-house. (See also: An Introduction to Mutual Funds.)

Third-party mutual funds, on the other hand, are managed by outside, independent managers. These include the big brand names of the business such as Vanguard, T. Rowe Price, Franklin and Fidelity. They might be sold directly to the investor or they may be sold by other companies or by an independent advisor. Those who sell the funds are often totally independent from those who manage the funds. In theory, this should result in totally unbiased advice when advisors recommend these funds to their clients.

Sellers of Proprietary Funds

Proprietary funds can normally be found at just about every company that has a large sales force that can sell mutual funds. This includes banks, credit unions, brokerage firms, insurance companies and wealth management companies. In-house mutual funds were developed by companies to be sold by their own distribution networks, and are now part of an overall move into wealth management.

The brokerage industry entered into the proprietary mutual fund business as a means of averaging out their revenues. The fees generated from managing assets tend be smoother and more predictable than the potentially volatile revenues of their traditional lines of business of investment banking, trading and commissions.

Although most sellers of in-house funds will also offer third-party funds, some advisors or firms may only sell and promote their own funds. Companies that have their own sales force may only sell their brand of funds. If an advisor recommends an in-house fund, investors should ask if they sell third-party funds as well, because they may be required to promote internal funds first.

Issues Surrounding Proprietary Funds

Although there are hundreds of mutual fund companies and thousands of mutual funds to choose from, if you are purchasing funds from an advisor or a company that is only offering in-house funds, this narrows your choices considerably. This could be a problem for a number of reasons:

  1. The investment style they use might currently be out of favor and buying from an in-house fund could result in lagging performances.
  2. The bank may not offer an international growth fund among its proprietary offerings, which may be needed for diversification. (See also: Introduction to Diversification and The Importance of Diversification.)
  3. If the bank does offer a growth fund, the foreign assets that have been selected for the fund may be out of favor for the duration of the client’s investment horizon. This would be less likely to occur if there was a larger offering of international growth funds available.
  4. The type of fund or style you desire might not be found within the fund family.

Pricing
Proprietary funds can be priced differently than third-party funds. The sales commissions and management fees can differ. This will depend on a number of factors:

  • First, the in-house funds might be relatively smaller in size to third-party funds. This means they may not enjoy the same economies of scale, resulting in relatively higher costs. (See also: What Are Economies of Scale?)
  • Secondly, because the same company manages and distributes the funds, it has more leeway about how to charge. For example, some companies might decide to charge lower fees on their proprietary funds as a means of building market share and keeping more money in-house.
  • Thirdly, the company has a captive market, which means it can offer advantageous pricing to catch the “lazy” investors who don’t comparison shop and would rather continue to work with only one broker.

Transferability
Unlike third-party funds, typical proprietary funds may not be transferable from one firm to another. If an investor wants to move his or her account, the units of the in-house funds will have to be sold. This can result in additional fees, commissions and administrative costs. Also, there is some additional market risk between the time the mutual funds are sold and when the proceeds are reinvested. Investors may purchase proprietary funds without appreciating portability restriction and the firms do not necessarily tell their clients that the assets of proprietary funds are not transferable.

Sales Incentives
Because there is the potential for advisors to steer client money to in-house mutual funds that may not be in the clients’ best interest, the Financial Industry Regulatory Authority (FINRA) has outlawed the use of sales incentives for the sale of proprietary funds. The reason FINRA barred this action is because it gives brokers a financial reason to put their interests ahead of those of their clients—which is completely prohibited according to advisor rules

However, some firms may still have incentives in place; although they might meet the letter of the regulations, they do not meet the spirit of the underlying rules. As a result, some advisors and customers have taken the opposite position and will not buy or offer their in-house funds at all in order to avoid any nuance of indiscretion.

Further Buying Considerations

Proprietary funds can be found at almost all large financial institutions. Like third-party funds, they can be excellent investment products. However, before buying these funds, you should make sure you understand what you are buying and how it will fit in with your portfolio. The same due diligence that is necessary for buying mutual funds in general should be carried out when purchasing those developed in-house. Some might argue that even more due diligence is necessary, especially when an in-house fund is recommended over a third-party fund. Advisors should be able to disclose all incentives to the client in writing to ensure they do not offer influenced advice. (See also: Due Diligence in 10 Easy Steps.)

Clients should also check to see if in-house funds can be transferred to other firms and, if so, whether this transfer would involve any costs or fees.

The Bottom Line

If you are careful in your research of these house-brand funds, you may find that you don’t need to put your money in with the major brands to experience good growth and a personalized investing experience.

Published at Fri, 09 Feb 2018 23:58:00 +0000

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Lessons in Trading and Psychology – 2: Volume

Lessons in Trading and Psychology – 2: Volume

Every day the markets teach us lessons in trading and psychology.  Our job is to become good students and learn from these lessons to improve our craft.  In the first post in this series, we took a look at detecting regime changes by assessing shifts in buying and selling pressure.  In this installment, we’ll take a look at volume and its significance.

On any time scale, volume correlates very highly with volatility.  During the recent decline, for example, we traded well over 200 million shares in SPY.  During the low volatility push higher prior to the decline, we commonly traded under 100 million shares.  Who are these additional participants?  For the most part, they are value players trying to take advantage of unusually high or low prices; short-term directional traders trying to take advantage of the movement; and longer time frame participants stopping our of positions.  In short, when we see added volume, it means that the proportion of directional traders relative to market makers has increased.  This facilitates market movement.

Conversely, when we see volume dry up, it means that directional traders are not perceiving opportunity in that instrument.  That leads to less movement on all time scales and what short-term traders experience as “choppy”.

OK, with that in mind, let’s take a look at yesterday’s trade in the ES futures depicted above.  A number of traders who sent me their journals made money on the opening drive.  They recognized that we were oversold and that volume was strong at the open, with buying significantly exceeding selling.  The combination of high volume, buying interest from value participants, and short-covering from those leaning the opposite way created a momentum thrust.

An important way we can identify high volume at the open is with the measurement of relative volume.  In relative volume, we take the average volume for each time of day (above we have five-minute time intervals) and see how today’s volume from 9:30 AM EST to 9:35 AM EST compares with the average volume at that time of day.  High relative volume tells us we have high participation from directional players.  In the first three five-minute segments of the day yesterday, we had volume between 2 and 4 standard deviations above average.

Note how having the right data helps you make the right adjustment in your trading.  We commonly think of psychology as helping our trading, but approaching trading the right way–with the right information–is a big part of having the right mindset.

Interestingly, a number of the traders who wrote to me and who made money in the early morning move gave back money midday.  Why is that?  

Click on the chart above and you’ll see how volume moved meaningfully lower in the midday hours.  By the time we bottomed during the 2 PM EST hour, the average five-minute volume had fallen to about one-fifth of what we saw in the opening periods.  With that waning of volume, we have waning volatility:  no more momentum.  Traders who did not pay enough attention to volume implicitly assumed that we were still in a momentum market.  Every move was taken as a potential breakout–only to reverse due to the lack of participation.  The trader who paid attention to volume was able to adjust expectations and either scalp smaller moves or stand aside altogether.

When we get excited about making money, we often become tunnel-visioned and don’t step back to see what volume is doing.

Even worse, when we get excited, we don’t step back to observe what is happening on the larger time frame.  Notice how volume is drying up as the sellers are coming in.  We had quite negative NYSE TICK readings during that 2 PM EST period and yet volume was drying up.  Moreover, with all that selling pressure, we couldn’t retrace more than about half of the early morning move.  Recognizing that larger pattern set us up for the late day continuation of the upside momentum trade as volume picked back up.

This is how psychology integrates with trading:  The cognitive flexibility to shift between price action and volume and the flexibility to shift from moment-to-moment to the larger time frame complements the ability to track buying and selling pressure and its shifts.  When we become self-focused and P/L focused, we lose that cognitive flexibility.  We no longer trade with perspective.  So much of trading success is using our psychology to detect patterns in the market’s psychology.

Further Reading:
 
 
 

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Published at Wed, 07 Feb 2018 11:54:00 +0000

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Factors that influence Bitcoin And Cryptocurrency Price Changes

Factors that influence Bitcoin And Cryptocurrency Price Changes

By: Dafa Zaky | Wed, Feb 7, 2018


Although blockchain technology has experienced a fair share of problems, the sector is growing. Bitcoin is one of the most widely used cryptocurrency. Its circulation is regulated. Currently, there are 13 billion bitcoins in circulation. By design, only 21 million bitcoin is supposed to be in circulation over 100 years. The adoption of cryptocurrencies by companies and platforms such as Ethereum has made the currency reliable and valuable. Some of the factors that affect bitcoin and cryptocurrency include;

Demand and supply
The demand and supply curves always influence the price of any commodity.When the demand of cryptocurrency is low the supply is high. When the demand for cryptocurrency is high, and the supply is low, the price of bitcoin and other cryptocurrencies goes high. This has been the case because the supply or circulation of bitcoins is regulated. Only 21 million bitcoins are supposed to be in circulation within 100 years. The popularity of the digital currencies is increasing, and more companies are adopting the use of the currency. Demand is thus growing while the supply is minimized.

Government regulation
Any time the government announces that it is looking for ways to regulate the digital currencies, people panic and the demand for the coins goes down, and so is the price. A perfect example of such a scenario is when the government seized funds during the Cyprus banking crisis

Technological advancement
As people become more innovative, the benefits of technological advancement are being realized in the digital currency industry. More companies are starting to accept crowdfunding platforms which allow bitcoin as a mean of payment. PayPal is a good example of companies that are using technology to integrate bitcoin as one of their payment currency. This has created more awareness of cryptocurrency among many people across the globe. Blockstream is yet another platform that aims at encouraging innovations in the cryptocurrency industry thus add their value and popularity.

Acceptance by mainstream companies
As more companies especially the ones transacting online accept bitcoin as a form of currency and means of payment, the value of cryptocurrency increases. Some brick and motor companies have allowed their customers to pay using bitcoin thus increasing the demand for the currency and therefore the price. Reddit and WordPress are some of the companies that have accepted the use of bitcoin for transactions.

Media influence
The media has the power to kill something or steer it forward. When the media reports on the benefits of using bitcoins, then the value increases. The opposite happens when the media reports on the dangers, risks and how the government is putting some regulation to control cryptocurrency. Every time there is a wave of negative or positive news about digital currencies, the demand changes and so does the price.

This happens because people tend to go by their “animal spirits” instead of doing critical analysis. Animal spirits apply when people decide to follow other participants in a particular sector are doing together with their instincts.

Increased dumping to fiat currencies
Although the use of bitcoin is gaining popularity, many companies have not accepted it as a means of payment or any form of transaction. For those businesses that are already trading with bitcoins, they are forced to sell the coin in cryptocurrency exchange for the fiat currencies so that they can transact. This is called dumping especially when it is done in large quantities. Dumping lowers the value of bitcoin significantly.

Stability of bitcoin network
Unlike traditional currencies that have value on their own and offer the users security, bitcoin is viewed as a bubble currency that can burst anytime. Most users only appreciate the value of bitcoins when they are traded. If people and most businesses stopped using bitcoin, then their value will fall.

The value of any currency is dependent on what people think of it. Cryptocurrency will continue to gain popularity as long as people find it secure and reliable. The media can affect cryptocurrency positively making the value of the currency to rise, but when the news is inherently negative, the value will do down. But once someone invests and benefits from it is is difficult to change their view on cryptocurrency.Demand and supply of cryptocurrency, as well as government involvement, are inevitable factors that will continue to affect the new digital currency.

By Dafa Zaky


All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

Published at Wed, 07 Feb 2018 12:18:42 +0000

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Annualized Total Return

Annualized Total Return

What is an ‘Annualized Total Return’

An annualized total return is the geometric average amount of money earned by an investment each year over a given time period. It is calculated as a geometric average to show what an investor would earn over a period of time if the annual return was compounded. An annualized total return provides only a snapshot of an investment’s performance and does not give investors any indication of its volatility.

BREAKING DOWN ‘Annualized Total Return’

When comparing annualized total return between two funds, take for example the following two hypothetical mutual funds and their annual returns over a five-year period:

Mutual Fund A Returns: 3%, 7%, 5%, 12% and 1%

Mutual Fund B Returns: 4%, 6%, 5%, 6%, and 6.7%

Both mutual funds have annualized returns of 5.5%, but Mutual Fund A is much more volatile. Its standard deviation is 4.2%, while Mutual Fund B’s standard deviation is only 1%. Even when analyzing an investment’s annualized return, it is important to review risk statistics.

Annualized Return Formula and Calculation

The generalized formula to calculate annualized return needs only two variables: the returns for a given period of time and the time the investment was held. The formula is:

For example, take the annual returns of Mutual Fund A above. An analyst substitutes each of the “r” variables with the appropriate return, and “n” with the number of years the investment was held. In this case, five. The annualized return of Mutual Fund A is calculated as:

Annualized Return = ((1 + 3%) x (1 + 7%) x (1 + 5%) x (1 + 12%) x (1 + 1%)) ^ (1 / 5) -1 = 130.9% ^ (0.20) -1 = 105.55% – 1 = 5.53%

Annualized return does not have to be limited to yearly returns. If an investor has a cumulative return for a given period, even if it is a specific number of days, an annualized performance figure can be calculated; however, the formula must be slightly adjusted to:

For example, assume a mutual fund was held by an investor for 575 days and earned a cumulative return of 23.74%. The annualized return would be:

Annualized Return = (1 + 23.74%) ^ (365 / 575) – 1 = 114.5% – 1 = 14.5%

Annualized Return’s Difference From Average Return

Calculations of simple averages only work when numbers are independent of each other. The annualized return is used because the amount of investment lost or gained in a given year is interdependent with the amount from the other years under consideration because of compounding. For example, if a mutual fund manager loses half of her client’s money, she has to make a 100% return to break even. Using the more accurate annualized return also gives a clearer picture when comparing various mutual funds or the return of stocks that have traded over different time periods.

Reporting Annualized Return

According to the Global Investment Performance Standards (GIPS), a set of standardized, industry-wide principles that guide the ethics of performance reporting, any investment that does not have a track record of at least 365 days cannot “ratchet up” its performance to be annualized. Thus, if a fund has been operating for only six months and earned 5%, it is not allowed to say its annualized performance is approximately 10%, since that is predicted future performance instead of stating facts from the past.

Published at Mon, 05 Feb 2018 14:10:00 +0000

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Convertible Bond

What is a ‘Convertible Bond’

A convertible bond is a type of debt security that can be converted into a predetermined amount of the underlying company’s equity at certain times during the bond’s life, usually at the discretion of the bondholder. Convertible bonds are a flexible financing option for companies and are particularly useful for companies with high risk/reward profiles. Convertible bonds are sometimes referred to as “CVs.”

BREAKING DOWN ‘Convertible Bond’

Convertible bonds are issued by companies for a number of reasons. Issuing convertible bonds is one way for a company to minimize negative investor interpretation of its corporate actions. For example, if an already public company chooses to issue stock, the market usually interprets this as a sign that the company’s share price is somewhat overvalued. To avoid this negative impression, the company may choose to issue convertible bonds, which bondholders are likely to convert to equity anyway should the company continue to do well.

Another reason for issuing convertible bonds is that investors demand a security that optimally protests their principal on the downside but allows them to participate in the upside should the underlying company succeed. A startup or relatively new company, for example, may have a risky project that loses a great deal of money on one end but may lead the company to profitability and outsize growth. A convertible bond investor can get back some principal upon failure of the company but can benefit from capital appreciation by converting the bonds into equity if the company is successful. Convertible bonds are a useful financing option for both investors and companies when the company’s success resembles a binary outcome.

Convertible bonds also allow the companies issuing them to lower their borrowing costs. From the investor’s perspective, a convertible bond has a value-added component built into it; it is essentially a bond with a stock option, particularly a call option, attached to it. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock. Otherwise, the bond just pays interest to the investor for his capital investment.

Example of a Convertible Bond

A company issues a $1,000 face value convertible bond paying 4% interest with a convertible ratio of 100 shares of the company for every convertible bond and a maturity of 10 years for $1,000. At the end of year nine, a year before maturity, the investor is entitled to $1,000 in principal plus $40 in interest payments, a total of $1,040 if the investor does not convert the bond into equity. However, the company’s shares are now trading at $11 after a successful quarter; thus, 100 shares of the company are now worth $1,100 (100 share x $11 share price), surpassing the value of the bond. The investor is likely to convert the bond into equity, receiving 100 shares in the process, and he could sell them in the market for $1,100 in total.

Published at Fri, 02 Feb 2018 04:08:00 +0000

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Strong iPhone prices, cash plans buoy Apple shares after muted revenue forecast

Strong iPhone prices, cash plans buoy Apple shares after muted revenue forecast

(Reuters) – Apple Inc on Thursday gave a disappointing revenue forecast for the first three months of 2018 and its sales of iPhones over the holiday quarter missed Wall Street’s expectations, deepening concerns that enthusiasm for the iPhone has permanently waned since its 2015 peak.

But the company’s disclosure that it plans to draw down at least $163 billion in net cash, potentially returning the cash to shareholders, helped boost shares 3.3 percent to $173.48 in after-the-bell trading while the market seemed to also greet the revenue outlook without alarm.

“Over time, we are trying to target a capital structure that is approximately net neutral. We will have approximately the same level of cash and debt on the balance sheet,” Apple’s chief financial officer, Luca Maestri, told Reuters in an interview.

“We’re going to take that balance down from $163 billion to zero,” Maestri said, referring to Apple’s current level of cash net of debt.

He did not say whether the reduction in net cash would come in the form of returning capital to shareholders, capital expenditures or acquisitions.

The cash plans are a “pleasant surprise,” Brian Colello, an analyst at Morningstar Inc, said. “This goes a bit against Apple’s historically conservative capital structure.”

Trip Miller, managing partner at Gullane Capital Partners and an Apple investor, said the move to a level balance sheet was good news. “Let’s face it, this cash has been doing nothing for us over the last six years,” he said.

Apple forecast revenue of $60 billion to $62 billion and gross margins of between 38 percent and 38.5 percent for its fiscal first quarter ending in March. Analysts were expecting $65.7 billion in sales and a gross margin of 38.9 percent for the March quarter, according to Thomson Reuters I/B/E/S, though some had forecast sales as low as $60 billion. The stock had declined to its lowest point since November in recent weeks.

Thrivent Financial analyst Peter Karazeris said the low revenue forecast had been expected by many analysts and investors following a string of “credible reports” that Apple had cut parts orders.

“I’m happy we’ve gotten the bad news that I was expecting guided into the stock. It was probably a little overbaked,” he said. “Now we’re focusing on metrics that really matter like free-cash generation and shareholder returns.” Thrivent holds Apple shares.

Bright spots in the fiscal first quarter ended Dec. 30 included average selling prices for the iPhone that topped Wall Street expectations, driven by demand for newer models like the iPhone X.

The weak expectations for the March quarter could signal that while Apple’s diehard fans are willing to pay the iPhone X’s steep price, the new phone remains too expensive to tempt mainstream shoppers, especially in countries like China.

The holiday quarter is typically Apple’s largest, accounting for more than a third of its revenue as fans line up for its newest offerings, but Wall Street often looks to the March quarter for clues about how well products launched during the holidays will carry over to mainstream buyers.

However, average selling prices for iPhones were stronger than Wall Street expected during the holiday – $796 versus expectations of $756.

“It was really driven by the success of the iPhone X and also the iPhone 8 and iPhone 8 Plus,” Maestri told Reuters. “The new lineup has done incredibly well.”

Analysts are counting on increased selling prices for iPhones as one factor that will help Apple increase revenue even as unit sales flatten out.

Apple met its prediction for its strongest-ever holiday shopping quarter on the strength of the iPhone X and iPhone 8. The company posted revenue of $88.3 billion and profit of $3.89 per share, from $78.4 billion and $3.36 per share a year earlier. The results beat analyst expectations of revenue of $87.3 billion and profits of $3.86 per share.

Apple’s services business, which includes Apple Music, the App Store and iCloud, grew 18 percent to $8.4 billion, missing analyst expectations of $8.6 billion. Maestri said the lower services revenue was because the holiday quarter was only 13 weeks rather than 14 weeks.

The services revenue was down slightly from $8.5 billion the quarter before.

“That’s something to watch as we roll further into 2018,” said Miller of Gullane Capital. “Does that continue to stagnate, or was that a one-time bump in the road?”

Maestri also said Apple’s installed base of active devices reached 1.3 billion, 30 percent higher than two years ago and representing an expansion of potential customers for the services business.

Apple said it expected its tax rate for the March quarter to be 15 percent following changes in U.S. tax law. The company said last month it plans to make a one-time tax payment of $38 billion on its overseas cash and has a five-year, $30 billion U.S. capital expenditure plan.

The company did not say how much of its overseas cash it would bring back to the United States in the short term and gave no new information about its capital return program, which it typically updates each April.

Reporting by Pushkala Aripaka in Bengaluru and Stephen Nellis in San Francisco; Editing by Leslie Adler

Published at Thu, 01 Feb 2018 23:32:46 +0000

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When Doing More Means Achieving Less

 

When Doing More Means Achieving Less

The research of Ed Diener is spot on:  happiness and fulfillment are not simply states of being, but ongoing life processes.

What I refer to as “personal process” is the life equivalent of a trading process.  A sound trading process consists of activities and procedures that align us with opportunity and optimal performance.  A sound personal process aligns us with our values and strengths, so that we’re not only doing things right, but doing the right things.


My template for personal process involves making sure, each day, I am dedicating quality time to:


1)  Engaging in fun activity, and sharing joy and happiness with others;


2)  Engaging in meaningful activity, doing things that have a valuable purpose;


3)  Engaging in stimulating activity, doing things that energize body and mind;


4)  Engaging in connectedness activity, doing things that build significant relationships.


All too often, the reaction to such a template is:  I don’t have time for that!  We make busy-ness our business and, day by day, we lose the sense of fun, meaningful purpose, stimulation, and connectedness.  


Many years ago, I was coordinating a student counseling program and had a number of students seeking help.  I did not want students to have to deal with a waiting list, so I moved from 45 minute meeting times to 25 minute sessions.  My counseling office became an assembly line of meetings.  In the 25 minutes, however, we could not go into depth and detail into each student’s challenges.  Nor did I have time between meetings to take proper notes and process all that we had discussed.  For the first time that I could recall, I found myself hoping that someone would fail to show for their meeting, just so that I would have time to catch my breath, take my notes, research counseling approaches that could help each student, etc.


In short, the faster pace took away fun, made the work less meaningful, left no time for stimulation, and interfered with the true relationship-building of my work.  In trying to do more, I achieved less. 


Fast forward to today and traders talk with me about their trading.  They raise problems and concerns and usually their answer to the challenges is to do more:  write more in a journal; meet more with other traders; spend more time in preparation; follow more markets and generate more ideas; etc. etc.  They speed up their efforts, they get further from what they love in trading, and eventually the assembly line breaks down.


Imagine decorating your living room.  You acquire attractive furniture and wall hangings and the room looks good.  Then you decide it can look even better and you buy more furniture, display pieces, and pictures for the walls.  At some point, the items clash with one another:  one style of furniture doesn’t go with another, one type of decoration does not fit with the style of others.  With each addition to the room, tasteful decoration gives way to chaos and clutter.


So with our trading, so with our lives:  More can bring less.


Sometimes the answer, for traders as for me when I was doing the student counseling, is to do less and focus more on the parts of the work that bring true joy, fulfillment, stimulation, and connectedness.  Those facets of work yield positivity precisely because they draw upon our strengths.  When we focus on what speaks to us, we turn happiness from a transient state into an ongoing process.  That energizes our trading–and our lives.

Further Reading:
 

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Published at Sat, 27 Jan 2018 16:21:00 +0000

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Current Position of the Market – Jan 29, 2018

Current Position of the Market – Jan 29, 2018

By: Andre Gratian | Mon, Jan 29, 2018


January 29, 2017 – Current Position of the Market

SPX: Long-term trend – The bull market is continuing with a top expected in the low 3000s.

Intermediate trend –  A new surge  of buying has moved ahead the forecast for an intermediate term top.

Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends

Still Strong!

Market Overview

I have seriously underestimated the extent of the uptrend which started with the low of the 7-year cycle at 1810.  I was looking for a phase count to take us to a 2660 top, but that turned out to be a short-term stop with SPX only pausing briefly at the end of 2017 and, re-invigorated by the tax bill, it shot up another 200 points in less than a month.  An eventual move to the low 3000s had been anticipated and posted under “Long-term trend”, (above), but I did not expect it to be approximated this quickly.  In spite of its near exponential trajectory, SPX appears to be building the normal staircase pattern to its next significant projection target.  This means that driven by minor cycles, the index forms a re-accumulation pattern which gives us a good idea of what level will be reached at the next minor cycle high, and this process is repeated until it nears the next important price projection, begins to break uptrend lines and eventually reverses its trend.

Currently, we are coming to the end of such a process.  Last Wednesday, SPX started to build a new base after the minor cycle made its low, and it rapidly formed an impressive re-accumulation pattern which ended late Thursday with the start of a new short-term uptrend that has quickly reached the vicinity of the new price target (given in Thursday’s Market Summary).  Friday’s close fell a little shy of the stated projection but it is expected to be filled on Monday Morning.  A minor reversal should then take us to the next cycle low ideally due on Tuesday.  This is expected to be a very short correction following the partial completion of the total base count.  The next upside target will be included in Monday morning’s update.

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart

About two months ago, expecting SPX to top at about 2700, I mentioned that we would have a confirmed reversal when trend line #1 was broken.  At the end of December, the trend line was tested, held, and instead of giving a sell signal, the index started an accelerated rally away from the trend line.  This has brought the price above several top channel lines which should have contained prices – and there are higher projections directly ahead!  It’s clear that SPX has a definite objective in mind for this intermediate top .  After doing a thorough review of the 1810 base on the long-term P&F chart, I have a better idea of what it should be.  Only minor cycles lie ahead for the immediate future, and SPX is taking advantage of this favorable cyclic condition to reach its objective before a more important cycle threatens to reverse it course.

If you look at the chart below, you will see that a new trend line has formed which is much steeper than trend line #1.  This is obviously the one on which we must focus for an indication that we are near the top.  But a break of this trend line will probably not yet signal the beginning of the expected intermediate correction.  After it is broken, another will form at a less steep angle, and this process may have to be repeated once or twice more before we are in a position to break trend line #1 and to – finally –  start an intermediate downtrend.

One thing that I have found misleading has been the behavior of the breadth index.  I have never seen it show such a lack of support for prices for this length of time!  If you look at the lowest oscillator, you will understand why I say this.  It has been showing relative weakness to the price chart for a long period of time; once again proving the old adage that “Price is King”!

(Click to enlarge)

SPX hourly chart: 

I have often mentioned some of the advantages of the P&F charts over bar charts.  Here we have a good  example of this!  I have highlighted in green two consolidation patterns.  The one on the left  took two weeks to form.  The one on the right, a day and a half.  And yet, when converted into P&F charts, they are almost equal in length; which means that they have nearly the same projection count.  One could not realize this simply by looking at the bar chart.  We will compare the length of the two uptrends next week after the one on the right has been fully extended.

On the hourly chart, we can see that the newly formed, steeper trendline has five contact points, making it a very valid trend line, and warning us to pay attention when it is broken.  It also has five touch points on its top channel line; plus one which went above it about half way through the trend.  This gives us some good parameters to follow for each short-term move.  The one currently underway is close to the preferred top channel line.  If we did not know that the next minor cycle low is due on Tuesday and that the move has almost reached its initial target, we could still expect some resistance to occur slightly above Friday’s close which has the potential of turning the price back down.

On Thursday, the CCI dipped slightly into the red, but since it reversed immediately and had a good thrust into the green instead of giving a sell signal, it told us that the correction ended.  The bottom indicator (A-D plot) shows that the pattern of selling into first hour strength (which has been taking place for over a month) continues.  I thought that it was an indication that large holders were selling into the opening strength in expectation of having reached the proximity of an important top, but the market action has nullified this hypothesis.

(Click to enlarge)

An overview of some important indexes (daily charts)

Last week, Apple was out of sync with the rest of the FAANGs, but until they all stop making new highs and show a propensity for correcting, it‘s likely that we are not yet ready for a significant market correction.

There was a little more uniformity in the lower tier with all four indexes failing to make new highs, but with the market expected to push higher next week, this may be only a head fake.

(Click to enlarge)

UUP (dollar ETF)

Last week, UUP was buffeted by comments from the treasury secretary — who prefers a weak dollar — and the president — who now likes a strong dollar.  The net result was that the dollar ended significantly lower probably on its way to eventually re-test the 2011 low 

(Click to enlarge)

GDX (Gold miners ETF) 

With the dollar taking a plunge, GDX made a new high but obediently stopped at a former resistance level.  With its 6-wk cycle low due in just a few more days, it is likely that the current pull-back will continue until then. 

(Click to enlarge)

USO (United States Oil Fund)

USO is most likely ready for a minor pull-back, after which it should push at least to 14.50-15 before undertaking a more protracted consolidation.  Longer-term, 18-21 is not unconceivable and probably likely.

(Click to enlarge)

Summary

A new pattern of re-accumulation has formed which projects higher prices over the near-term.


Andre Gratian

Andre Gratian
MarketTurningPoints.com

The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.

I encourage your questions and comments. Please contact me at: anvi1962@cableone.net.

Copyright © 2004-2017 Andre Gratian

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

Published at Mon, 29 Jan 2018 16:19:22 +0000

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Mnuchin’s Falling Sword

Mnuchin’s Falling Sword

by THE MOLE

Earlier this morning Secretary of the Treasury Steven Mnuchin doubled down on well timed inflationary comments he made yesterday at Davos thus pushing the Dollar over our technical LT edge and tumbling even lower hence. This pretty much puts the death knell tp any remaining hopes for a Dollar bounce in the near future and puts the DXY on a trajectory toward 87.5 and most likely lower.

I hope you’re not planning any extended road trips this spring or summer because you will most certainly start feeling it at the pump as crude is already pushing > 66. And while you’re at it you may as well turn down the heat a little as natgas is breaching its 3.0 mark and may now embark on a good old fashioned short squeeze (who can afford pumping NG at three bucks??).

Whatever you do, don’t step underneath Mnuchin’s falling sword as everyone hates the Dollar now and buyers are few and far in between. By the way I’m raising my monthly Gold subscription rates to $1000 now, which most likely won’t be enough to pay for decent toilet paper over here in Europe by this summer. [yes I’m kidding – kind of…]

Not surprisingly our EUR/USD campaign is unfolding nicely and I just raised my trailing stop to the recent spike low which roughly equals 2R in paper profits. You may want to do the same.

The VIX however threw a little monkey wrench into our IV short squeeze aspirations. That little spike higher thus far isn’t bearish (for equities) yet but it was sufficient to kick us out of our ETP campaigns:

Fortunately we had already wisely advanced our stops to break/even. Now I didn’t look at my ratio charts but it looks like the VXX is once again trailing the VIX and this may be another short entry opportunity. However I don’t enjoy getting into these setups unless the VIX is at extended levels, so I’ll have to pass on this one.

Here’s the XIV stopping us out where we entered. If you’re an IV trader you may want to watch this one closely for another long entry opportunity.

New delicious setups just popped out of the oven – come and get them below the fold…

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It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Published at Thu, 25 Jan 2018 13:26:15 +0000

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Bracketed Buy Order

Bracketed Buy Order

DEFINITION of ‘Bracketed Buy Order’

Bracketed buy order refers to a buy order that has a sell limit order and a sell stop loss order attached. The sell limit order gets placed above the buy order and the sell stop order gets positioned below the buy order. These three component orders are set at a price determined by the investor, typically when the order is entered. This type of order allows investors to lock in profits with an upside movement and prevents a downside loss, without having to monitor the position continually.

BREAKING DOWN ‘Bracketed Buy Order’

For an example of a bracketed buy order, suppose that an investor places a buy order for 100 shares of ABC at $50, along with a sell limit order at $55 and a sell stop order at $45. If the price moves up to $55 or down to $45, the position is sold. The trader either makes a gain of $5 with the sell limit or suffers a loss of $5 with the stop-loss order.

However, it is important to note that if the trader places the stop-loss order at $45, there is no guarantee of execution at that price. This is because once triggered, the stop loss turns into a market order and sells at the current market price after triggering. If the stock gaps down to $40, for example, the stop loss would be triggered and the investor’s shares would sell for around $40. Investors may, however, benefit if the stock price gaps above their sell limit order. For instance, if ABC released favorable earnings after the market close and the stock opened at $65 the following day, the investor would receive a fill close to that price, even though their sell limit order is at $55.

Advantages of a Bracketed Buy Order

  • Flexibility: A bracketed buy order can be set before or after a trade gets executed which gives investors flexibility. For example, it is an ideal order type for investors who have analyzed a stock and determined where they want to place their stop loss and sell limit orders before they execute the trade. Alternatively, investors could add a bracketed order to their existing open position if they are expecting volatility ahead of a major company announcement.
  • Discipline: Investors may find it easier to follow their trading plan by using a bracketed buy order. Once the order gets placed, investors don’t have to take any further action and can simply wait for their stop loss or sell limit order to execute. A bracketed buy order can also be easily programmed into automated trading algorithms. (To learn more about trading discipline, see: The Importance of Trading Psychology and Discipline.)

Published at Wed, 24 Jan 2018 22:49:00 +0000

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Truly *Leading* Our Lives

 

Truly *Leading* Our Lives

All of us lead lives of one sort or another, but how many of us are truly leading our lives?

When you are a leader, you not only have a vision and direction: you communicate and implement it.  How visionary is your life?  How well you do communicate that to yourself and implement daily?

What isn’t well recognized is that true leadership transforms us, cognitively as well as emotionally.  It brings us in more consistent touch with our strengths, with the activities that energize us.

A great exercise is to read this new article on leadership from the perspective of how you lead your life.  It’s a view from a Special Operations military commander who has seen leadership up close and under pressure.  It raises a great question for all of us:  How well am I energizing my life?

We push ourselves to move at a faster life pace when instead we should make sure we’re traveling the right path.  Truly leading our lives sets us on the right paths.

Key Reading:

 

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Published at Wed, 24 Jan 2018 12:13:00 +0000

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The Macro View: Amigos Ride On

 

The Macro View: Amigos Ride On

By: Gary Tanashian | Fri, Jan 19, 2018


As symbolized by the 3 Amigos, the macro backdrop is riding on to its destiny. That forward destiny is a top in stocks vs. gold (Amigo 1), a rise in long-term interest rates to potential if not probable limits (Amigo 2) and an end to the yield curve’s flattening trend (Amigo 3).

When our zany friends complete the journey, big changes are likely in the macro markets.

Let’s take a checkup on each Amigo and consider some implications as well.

Amigo 1: Stocks vs. Gold

Using the S&P 500 as an example, stocks/gold ratios are still trending up on the daily time frame.

spx/gold

The big picture allows for higher levels before this Amigo stops riding and the party crashes. Stocks vs. gold is a confidence indicator and confidence is intact and growing. In this case, confidence = mania. This is consistent with our ‘inflation trade’ theme since it is the US stock market that benefited first and most intensely from the Fed’s years of non-stop monetary fire hoses (ZIRP & QEs 1-3 with a side of Op/Twist).

spx/gold

Amigo 2: Long-term Interest Rates

Again sticking with the US for the example, 10yr and now even 30yr yields are gaining more attention out there among market analysts and media. This is 100% on track with our theme that by the time the 10yr hits 2.9% and the 30yr 3.3%, the sound of “BOND BEAR MARKET!!!!” will be deafening.

Here is the bullish 10yr yield. The daily pattern targets 2.9% and…

We have a handy cross reference by the long-term monthly chart. TNX is creeping through potential limiter #1, which is the EMA 110 (solid red line) with the EMA 140 out ahead around 2.9%. I like the target confluence by these two different time frames and views. If the 10yr is to move higher, that would come with ever increasing media noise about the new age of rising yields (and inflation).

Even the 30yr, which as been lagging, has been making a move of late and is in a bottoming pattern similar to the one that the 10yr has broken out of.

tyx

But the pattern above has not yet broken out like the 10yr and so, this is either a negative divergence or the 30 is going to play some catch up if it is going to go for its limiter at the monthly EMA 100. The question is, has Bill Gross already made a serious contrary indicator signal or is he going to be anointed the “Bond King” as the 30yr rises to the limiter? See: A Gross Signal Upcoming. His media-bellowed call was incredibly unfortunate in early 2011. Maybe this time he gets to look like a genius temporarily.

tyx

Amigo 3: The Yield Curve

The daily view of the 10yr-2yr is in a downtrend and flattening.

yield curve

The flattening goes with the macro boom that is taking place. The curve is far from inversion, but contrary to popular belief, it is under no obligation to invert before the macro turns. Then again, a downtrend is a downtrend as long as it is in force… and in force it certainly is.

yield curve

Bottom Line

Amigo 1 (Stocks vs. Gold): Stocks continue to trend upward vs. gold and this implies ongoing confidence in the boom. The last thing on players’ minds right now is playing defense. Insofar as gold has been strong, which we’d anticipated for this time frame for all the reasons (seasonal, CoT, ‘inflation trade’, etc.) belabored to this point, it’s real bull market will feature an end to the party in the risk ‘on’ stuff. Right now, it’s still party on Garth.

Amigo 2 (Long-Term Interest Rates): The rising interest rates story is gaining traction in the wider media. We have expected long-term yields to rise with the dynamic ending phase of the boom. The noise could become intense and set up a great contrary play as the 10yr and 30yr yields come to their long-term limits (if decades of uninterrupted history as a good guide) and Bill Gross – the Bond King – reclaims his throne.

Amigo 3 (10yr-2yr Yield Curve): It’s simple, it declines with a boom and it rises with a bust. We are in a boom. Risk is high and rising every week, but the trend is the trend for now.

How to play it? I am sticking to a regimen of deploying capital on opportunity, making sure to take ample profits, staying balanced (for example, currently balancing gold sector vs. broad market and favored commodity areas) and always being aware of cash levels.

By Gary Tanashian


Gary Tanashian

Gary Tanashian
http://www.nftrh.com

Disclaimer:http://www.nftrh.com does
not recommend that any trading or investment positions be taken based on views
expressed on this site. If you speculate or invest it is suggested that you
consult a financial advisor qualified in your area of interest.

Copyright © 2005-2017 Gary Tanashian

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Published at Fri, 19 Jan 2018 14:48:33 +0000

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When Trading Psychology Is NOT The Problem

 

When Trading Psychology Is NOT The Problem

I recently spoke with an active trader of the S&P 500 Index market who had been experiencing difficulty in his trading.  He had sought coaching and the coach worked with him on mindfulness strategies to help him tune out market and emotional noise and more clearly implement his ideas.  The trader felt he made good strides in gaining self-awareness, but his profitability still wasn’t there.

As part of our conversation, I had the trader present me with his metrics.  We took a look at his number of winning and losing trades and the average sizes of these.  We examined the P/L specific to his long trades and short trades, and we examined profitability as a function of holding period and time of day.  Finally, I took a look at serial correlations in his daily profitability: whether there were distinct patterns of winning/losing periods being followed by winning/losing periods.

Nothing uncovers trading problems better than a hard look at trading metrics.

Well, it turns out that two metrics stood out:  the average size of losing trades was greater than winners and most the losing trades were on the short side.  Surprise, surprise.

So I walked the trader through a little exercise.  I explained that it only made sense to look for patterns to trade if you were operating in a stable market regime.  That is, if recent market history is unstable, with widely varying means and standard deviations of price changes, then there is no basis for using the past to guide the future.  On the other hand, if you have a stable regime, it’s possible that patterns occur during that period that can guide trading decisions in the near future.

I showed the trader how there has indeed been a stable regime since September of 2017 and I illustrated how several variables displayed short-term trading promise in that regime, including the percent of stocks trading above their short-term moving averages and VIX.  When these variables lined up, the next two days in SPY averaged a nice gain of +.41%.  All other occasions displayed an average price change of +.21%.

Wait a minute, I noted!  When the variables line up, you get better near-term returns.  When the variables don’t line up, you still have had positive returns during this regime.  In other words, the linear (trend) component of the regime is so strong that the indicators provide some upside  advantage on the short term, but no downside advantage.  In a more cyclical regime, we would see the indicators anticipate both positive *and* negative returns.

Bottom line, I explained, is that, even trading the best indicators I can find, I can’t objectively identify any sell signals.  Going short only makes sense if you assume you have a crystal ball and can figure out to the day when the regime will shift.  That has not been a good bet for the trader.

The big takeaway is that if the patterns you’re trading don’t fit the patterns existing in the marketplace, you are not going to make money.  All the emotional awareness, discipline, mindfulness, and motivation in the world won’t make a losing strategy win.  We are much too quick to assume that trading problems are psychological in nature and much too slow to truly drill down into the metrics and the markets and see if our strategies make sense.

Imposing your trading “style” on markets regardless of regime can be hazardous to your wealth.  Assuming that all you need to do to make money is double down on your “style” and work on your mindset only compounds the problem.  Sometimes markets are not stable; sometimes markets are stable, but display no predictive patterns within their regime.  Does it really make sense to actively trade during those occasions?  A passion for markets is best channeled through a clarity of vision.

Published at Fri, 19 Jan 2018 11:07:00 +0000

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Exclusive: Blackstone’s Hill hands hedge fund reins to McCormick

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By MabelAmber from Pixabay

Exclusive: Blackstone’s Hill hands hedge fund reins to McCormick

BOSTON (Reuters) – After nearly two decades of growing Blackstone Group into the world’s biggest hedge fund investor with some $74 billion in assets, J. Tomilson Hill is passing the baton.

Blackstone has promoted John McCormick to president and chief executive of hedge fund unit Blackstone Alternative Asset Management (BAAM) and Hill will become its chairman, the company told Reuters on Thursday. The change is effective immediately.

Hill, the face of hedge fund investing at the private equity giant since he was tapped to help put the partners’ money to work in 2000, plans to stay at Blackstone for now. He will remain on Blackstone’s board and its 11-person management committee.

By installing a younger chief at the hedge fund unit, which makes up roughly one-fifth of the company’s assets, Blackstone is laying the groundwork for a generational shift in an industry where many firms have struggled to move beyond their founders.

“There will be a lot of continuity but that doesn’t mean it will be boring,” McCormick, 50, told Reuters. He added that Hill, who turn 70 this year and has mentored him during his 13 years at the firm, urged him to continue shaking things up.

For a quarter of a century, Hill, who came to Blackstone after being ousted as co-chief executive at Lehman Brothers, has added foreign governments, sovereign wealth funds and pensions to the firm’s growing client roster.

When his clients complained about hedge funds’ hefty fees, he pushed for cuts, and when they worried about being lumped into investment pools he pushed managers to create separately managed accounts. When big data crept into investing, he was among the first to make big bets on so-called quant funds like Two Sigma and Peter Muller’s PDT.

He has established strong ties with some of the industry’s best talents, including Paul Singer’s Elliott Management and Paul Tudor Jones’ Tudor Investment Corp.

There have been some setbacks, including the shuttering of Senfina, Blackstone’s “big bet” hedge fund, amid mounting double-digit losses in 2016.

TRANSITION IN FOCUS

While the hedge fund industry has suffered record outflows in recent years due to high fees and sub-par performance, BAAM has pulled in billions in fresh money and manages more than twice as much as its nearest rival, UBS Hedge Fund Solutions.

In the 17 years since its launch, BAAM’s Principal Solutions Business has delivered an annualized net return of 6 percent, beating the S&P 500 Total Return and MSCI World Total Return Indices. It has done so with approximately 30 percent of the volatility, the firm said in a filing.

But Hill has watched fund managers big and small struggle with leadership transition and vowed to do better. It is a key topic in an industry where investors often lock up money for years.

“Succession planning has been on my mind for years,” he said.

Hill has worked closely with McCormick, who has been instrumental in creating and selling many of BAAM’s new products, including taking stakes in established hedge funds, which helped boost revenue.

As head of global strategy for the group, McCormick was instrumental in creating hedge fund products aimed at retail clients.

A plan to make these “liquid alts” widely available in employer sponsored, tax-deferred 401(k) retirement plans, however, has yet to pan out.

HILL‘S NEXT CHAPTER

A trained lawyer who worked at U.S. Treasury and management consultancy McKinsey & Co before joining what he calls a “a rocket ship poised for great things”, McCormick cuts a different figure from Hill, a billionaire art collector often seen on the Manhattan social circuit.

Befitting the secretive hedge fund industry, McCormick keeps a relatively low profile. He gets to the office by 7:30 a.m. and often stays to 8:00 p.m. or later. He recently learned Spanish and accompanies his in-laws to Cuba, he said, which has meant a lot of foreign language radio for his three children as he ferries them to soccer games.

“He is very orderly, thoughtful and very, very smart,” Blackstone Chief Executive Stephen Schwarzman said.

While Hill is stepping back from the day-to-day business, he will remain integrally involved.

“Tom has been at the table for all the major developments and he has done a fantastic job of developing BAAM,” said Schwarzman, who met Hill in the Army Reserves decades ago.

Hill, who is working on plans to build a museum to exhibit some of his Warhols, Lichtensteins and Bacons, has been captivated by using data to make investment decisions.

“I am looking down the road, I am not a looking in the rear-view mirror kind of guy.”

Reporting by Svea Herbst-Bayliss, editing by Carmel Crimmins and Bill Rigby

Published at Fri, 19 Jan 2018 03:38:18 +0000

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Crypto Stocks Plummet as Currencies Sell Off

Crypto Stocks Plummet as Currencies Sell Off

By Justin Kuepper | January 17, 2018 — 5:39 PM EST

Cryptocurrencies experienced a sharp sell-off over the past couple of days following reports that China and South Korea were cracking down on trading activity. According to Bloomberg, Chinese regulators are targeting online platforms and mobile apps that offer exchange-like services. South Korean regulators also attempted to tighten control over cryptocurrency, according to The Wall Street Journal, but there has been a widespread backlash among its citizens.

The sell-off prompted many crypto-related stocks to move sharply lower over the past couple of sessions, including Riot Blockchain, Inc. (RIOT), which is trading about 20% lower over the past two days. While some crypto-related stocks are more focused on blockchain technology, the sell-off has affected all areas of the market. The positive news is that there seems to have been a modest rebound and a reduction in price declines in recent hours. (See also: Is the Cryptocurrency Bubble More Like Housing or Dotcom?)

Technical chart showing the performance of Riot Blockchain, Inc. (RIOT) stock

From a technical standpoint, Riot Blockchain stock broke down from the 50-day moving average this week to its lowest levels since late last year. The relative strength index (RSI) appears moderately oversold at 41.01, while the moving average convergence divergence (MACD) remains in a bearish downtrend dating back to late December. The overall trend remains lower, with near-term support at around $15.00 at reaction lows.

Traders should watch for a breakdown from key support levels at around $15.00 to S1 support at $12.53 or the 200-day moving average at $7.81. If the stock rebounds from these support levels, traders should see a move higher to retest the pivot point at $29.37 or trendline resistance at around $40.00. However, the bearish MACD and falling RSI readings suggest that traders should maintain a bearish bias for the time being. (For more, see: What’s Behind the Latest Cryptocurrency Price Slump?)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Published at Wed, 17 Jan 2018 22:39:00 +0000

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