Tuesday, November 17, 2009

16/11: Stocks soar on a bullish retail sales report. Also, words on Wicker Park!

Before this evening's tardy report on Monday's market action -- a happy day, with strong gains in my desk's prop trade -- a few tangential words.


The past few days, to which some readers of this living document can attest, have seen the author make a significant discovery of a vibrant, uplifting neighborhood just down the life-blood Milwaukee Avenue from more usual haunts. These new environs are Wicker Park / Ukrainian Village. And what an emphatic improvement on my hitherto-frequented portions of the city: Jefferson Park, Portage Park and Six Corners! This near-northwest side district boasts independent, cutesy coffee shops (if one knows where to peek); young, purposeful people on the sidewalks; sushi spots and legacy Polish bars in unlikely side-by-side existence (this area used to be the primo Polish 'hood). I could go on, and should, yet it's a topic for another day.

In sum, I've energized my routine during the last few days by repeatedly returning to this oasis of existential salvation; and upon this fortunate scapegoat and the associated investments of time, the most precious resource of all, I project the blame of my missing Monday report. Yes, such is my story!


Monday's markets, in any event, witnessed soaring equities trade in the United States and its geographic precursors into the new trading week. A bit of keyboard tickling about these foreign locales and their trading: It's interesting to note that the forex markets, some of which I recently started tracking closely -- (even though I can't trade them at present, currencies' pronounced correlation of late with equities merits keeping a close eye on them and, in particular, upon the 500-pound gorilla of the group: EUR/USD trade) -- are only closed for some 48 hours a week: in roughly New York City time, no trade occurs only between late Friday afternoon and Sunday evening, when Monday morning trade in Tokyo commences. I mention this because, by Monday evening, nearly 24 hours of continuous trade has already elapsed on the world's interconnected, virtual marketplace -- a calming consideration to the trader primarily obsessed with the P/L of the local stomping ground, i.e. Wall Street, only. (I raise a guilty hand.)

Sentiment on Monday was buoyed by a bullish retail sales report released in the pre-market and, in the all-important technical analysis sphere, by the S&P500's durable break above 1100 -- prior attempts in the last few sessions were all short-lived -- and the Nasdaq's flirting with 2200. The last hour of trade, however, brought a sharp, though not menacingly deep, correction catalyzed by the caustic comments of noted banking industry analyst Meredith Whitney, which were carried by that quintessential soapbox of market-makers, CNBC. Ms. Whitney, in her infinite wisdom, -- she did, after all, delphically prophesy the banking industry's existential crisis as early as October 2007 -- proclaimed on Monday that she's currently more bearish on banking than at any time in the last year. Why? I haven't seen any reasoning behind her brash, hyperbolic pronouncement but, then again, missed the CNBC special. (I had seen a teaser and incorrectly assumed the forthcoming would be with the less-exciting Meg Whitman, the eBay founder).

The post-Whitney selling pressure, in any event, did not hurt indices by much more than a half percent, although the bite from the (hitherto soaring) value of my QQQQ calls was nonetheless felt. Whitney, 2; your fearless author, 0. Yes, I was already burned by Meredith once this summer, when my ownership of Goldman Sachs (GS) calls coincided with one of her trademark uber-bearish publications.

Charts shall have to wait for the next installment. In the meantime, a few brush strokes of Ms. Whitney (did I mention she's surely one of Wall Street's most attractive analysts?) --

Sunday, November 15, 2009

13/11: Friday the 13th is kind to equity markets

U.S. markets closed-out the week with modest gains. The S&P500 index advanced 6.24 points (+0.57%) to 1093.48 on November 13th while the NASDAQ outperformed with a gain of 18.86 points (+0.88%) to settle at 2167.88.

Intra-day high and low values for the S&P500 were 1098 and 1088, respectively. These levels for NASDAQ index registered as 2172 and 2157. Ten-day, hourly charts for both indexes follow, produced at bigcharts.com:


Notice, reader, how the NASDAQ has been outperforming the broader market -- a stark contrast to the pullback of late October and early November, when the tech-heavy index lagged the broader market. The NASDAQ, nearly nudging 2170 at Friday's close, is oh-so near its 10-day highs, while the broader market is about a percent removed. Also, the last session's MACD and RSI values for the NASDAQ are more bullish than those for the S&P500. And the 'naz' did not come as close to its 50-period SMA as did the S-and-P during lows of the last two sessions.

Given these observations, I decided during Friday's session to transition from COF puts -- which I unfortunately sold at a slight loss -- into QQQQ December calls. With this move, I'm betting on an advance in the markets and, in particular, in the NASDAQ index, as QQQQ is a so-called exchange-traded fund (ETF) designed to track that index. To conclude this evening's entry, I include a six-month chart of QQQQ for broader perspective:

And to add a post-script tangent, I'm presently moments away from the commencement of a screening of the Polish-language film 'Ile Wazy Kon Trojanski?' (How Much Does the Trojan Horse Weigh?), a 2008 release directed by Juliusz Machulski, at the Polish Film Festival in Chicago. (To readers of the Polish language, apologies about the lack of true Polish script in some of the title's letters.) Perhaps a few words of commentary will follow in the upcoming week?

Thursday, November 12, 2009

12/11: Market flips off the risk trade, but for how long?

Various asset classes moved in textbook-correlated fashion during today's exciting trade -- with the textbook being market performance of recent memory. The S&P500 declined a percent -- 11 points -- to 1087, after an intra-day high and low, respectively, of 1102 and 1085. In impressively correlated lockstep, the dollar advanced (the EUR/USD trade dipped from above 1.50 to about 1.484) and oil sunk (the front-month WTI contract closed under $77 per barrel). All these moves signal risk aversion: a drop in equities indicates risk aversion for obvious reasons; a rise in the dollar suggests weaning risk appetite as the greenback is a safe-haven currency and, furthermore, its appreciation curtails the carry trade, whereby a low-yielding asset like the USD is sold to fund the purchase of a high-yielding asset (the Australian dollar -- AUD -- is a recent favourite); and a decline in commodities prices, such as oil, points towards a risk-off sentiment among traders as an increasingly bearish appraisal of worldwide growth (and especially Chinese growth) would naturally entail decreased demand and lower prices for commodities. The usual ten-day chart of the S&P500 follows, courtesy of bigcharts.com:

In brief, my own trade today was auspicious, though it could have used more luck still. I exited the Vix Nov 22.5 calls which I had entered on Monday, as I found myself increasingly spooked to be holding a November-expiry option (which I shouldn't have entered at such a late stage). Lucky for me, the market was unexpectedly holding up the expected volatility on these options -- and hence their time value, too. I was able to sell at a decent profit.

Yet my timing was unlucky. I sold early in the 13:00 (CST) hour, as the markets seemed poised to gain ground (which would have caused my Vix calls to undoubtedly depreciate). But it was only a head-fake. Immediately after the sale, I left for an invigorating run at my gym and, upon returning, found the markets down a further three-quarters of a percent. But I'm not bothered by having left money on the table; trading is a profession of managing probabilities, and I acted in accordance with my best analysis. To end the day, finally, I entered a position in COF December-expiry puts, essentially placing a bet that markets will continue their decline into tomorrow's session. I chose COF (Capital One) as it pierced through a significant support level -- $38.75 -- just prior to today's close, which makes further declines more likely. I see support around $36.00. As for the S&P500, a decline to at least 1080 certainly seems plausible, which would in all likelihood afford me a profitable exit opportunity from the COF puts. A 10-day of COF follows:

Happy hunting! Give it 480 percent, your bestest! (Yes, the latter is a tribute to the one and only Martin Lukes of a-b global, suddenly resurrected in the pink pages. What joy!)

Wednesday, November 11, 2009

11/11: Veterans' Day trade is light and positively biased

Markets put in a tepid 390 minutes of trade today, with the S&P500 rising a half percent -- 5.50 points -- to 1098.5. Intra-day, the benchmark noted a 52-week high of 1105, and the day's low was 1094. Most of the session was just water-treading, however. The sprint north of 1100 occurred in the first hour and then swiftly atrophied as the U.S. dollar reversed earlier losses. Here's the customary 10-day chart:

Note that the MACD, Slow Stochastic and Relative Strength Index are all generally inconclusive or ambiguous.

This evening's post shall be abridged, and I will just add that the Vix performed quite unusually today, rising in the midst of overall market strength -- positive news for my calls, which I continue to hold. Generally there is a negative correlation between the markets and the Vix. And I do apologize for not supplying a chart tonight -- or even further information about this elusive entity of the Vix. To my knowledge, specialized software is generally required to obtain charts of asset classes beyond simple equities, and I haven't the stamina to drill around with screenshots from my own trading platform, thinkorswim from T.D. Ameritrade. That said, I shall endeavor to provide further information posthaste.

11/11: In the interests of free expression...

CNBC has today referenced a bombshell of irreverance, yet one that I -- an otherwise God-fearing believer -- must admit is spot-on. The composition in question quite creatively captures the public discomfort towards the almighty Lloyd Blankfein and his coterie of fellow Masters of the Universe over at Goldman Sachs, the bank recently described by Rolling Stones magazine as a 'great vampire squid wrapped around the face of humanity.'

Without further adieu, here is The Lloyd's Prayer:

Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.

The Rally's Come.
God's Work Be Done,
We Have No Fear Of Correction.

Give Us This Day Our Daily Gains,
And Bankrupt Our Nearest Competitors,
Just As You Taught Lehman And Bear A Lesson.

And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever And Ever.

Tuesday, November 10, 2009

10/11: Equities tread water

For the stereotypical, adrenaline-fueled prop-shop day-trader, today's equity market action was surely a letdown. Markets neither continued their thunderous advance of Monday nor suffered from volatile profit-taking. Instead, the S&P500 declined infinitesimally to settle about where it stopped 24 hours earlier: 1093. Today's intra-day high and low were, respectively, 1096 and 1087. Yes, the trading range was indeed shy of one percent.

My strategy of holding Vix calls -- particularly as these are November, only slightly ITM calls, which have a relatively fast decay of time value at this stage of their life -- has therefore proven itself as ill-timed, although it may yet settle as profitable. A pull-back in the markets continues to look feasible; although, on the other hand, the post-March market rally has put together more vertiginous rallies than that of the past seven sessions. Adding to the probability calculus is tomorrow's status as a quasi- market holiday -- bond markets will be closed in honor of Veterans' Day, while the equity markets are to remain open for business; certain European bourses may have curtailed operations, too. Will the reduced volumes potentially amplify any upside or downside moves? Or will the tepid flow of money produce even more indecision than that in today's ennui-filled performance?

6-month and 10-day charts of the S&P500, courtesy of bigcharts.com, round-out this evening's update:


Get some sleep, traders of the world!

09/11: Markets shoot higher on dovish G20 comments

Markets maintained their moon-shot trajectory on Monday, with the DJIA vaulting to a 13-month high (10,227 to close; 10,249 intra-day) and the broad-stroke S&P500 appreciating 2.2 percent to close at 1093. That value -- only seven points shy of 1100 -- was likewise the intra-day high, while the day's low stood at 1072. Investors were cheered by a gathering of G20 finance ministers, at which market-soothing, dovish rhetoric proliferated. A 10-day'er of the Standard and Poors Five Hundred follows:

Although I am too pressed for time at present to provide a thorough explanation, notice the two indicators below the MACD: the Relative Strength Index (RSI) and, below, the so-called Slow Stochastic. Both are indicators used for timing entry and exit points and both, like the components of the MACD, are oscillators, meaning that they hug a mean of zero. Applying RSI and Slow Stochastic to the 10-day of the markets, both signal a significantly overbought condition, and the Slow Stochastic further hints that a turnaround might be imminent.

Which leads me, swiftly, to my own trades. I'm pleased to report that the C calls, purchased on Friday 11/6 and off-loaded during Monday's session, have been proven as an exceedingly prescient move. In fact, the trade merits the happy descriptor of most profitable in my career, in percentage return terms: 45.83 percent (earned overnight, no less) before commission and capital gains taxes. Now dear reader: I underscore this outcome because, after many losses along the path of my trading education, I feel I've earned this win. Also, I have clearly not risked thousands upon thousands of dollars on an exceedingly speculative options trade and, as such, 45 percent of a modest investment is not very much money. And, as a final point, for every impressive advance there often lurks an equally-menacing monetary setback.

And so today's trade (11/10; I write this report during my morning coffee injection, or so it sometimes appears to be, given its inviolable regularity and the extortionate margins reaped by its supplier: Buckies, in this case) shall begin in the next hour. I took a position in the last seconds of Monday's trade in Vix calls, which is a bet on market volatility, i.e. a pullback. Given the RSI and Slow Stochastic data I referenced above, the bet seems well-founded. But it's an old (and exceedingly wise) Wall Street adage that the rational investor can expect the market to remain irrational for longer than she can remain solvent. I do hope I haven't jumped into the risk aversion trade prematurely.

So far, so good though. I'm exceedingly pleased with yesterday's trade -- did I mention that I entered and exited the C calls at the respective trough and peak of price action? ;) -- but I'm mindful that a mountain of further work remains. As for today, stock index futures are pointing to a modestly lower open, good news for my Vix calls.

Good luck; ad astra!

Sunday, November 8, 2009

06/11: Markets are resilient in the face of a difficult U.S. jobs report: 190,000 jobs shed

With apologies to the reader for the delay in the production and publication of this post -- finally getting around to Friday afternoon's business on Sunday evening is distinctly reminiscent of long-gone high school days -- I am pleased to report that Friday's trade revealed the U.S. equity markets as resistant to downward pressures from further ill news from the anemic employment front.

The benchmark S&P500 index closed up a quarter percent at 1069, after descending as low as 1059 in opening trade (when investors provided initial reaction to the weak U.S. Department of Labor report) and tip-toeing as high as 1071. The jobs report, released sixty minutes prior to the market open, indicated that 190,000 jobs were lost in October and that the national unemployment rate had increased to 10.2 percent, crossing the psychologically important ten percent level. The number was slightly below economists' average estimate of negative 175,000, and the reading validates the improving trend of job losses over approximately the last ten months, with the hemorrhage abating from a nadir of about 800,000 monthly job losses. A ten-day chart, courtesy of bigcharts.com, follows:

I'd like to briefly call attention to the diagram below the customary price-vs-time chart in the above schematic. That collection of a histogram and two correlated lines (one blue, one red) is known as a Moving Average Convergence / Divergence indicator (known universally by its acronym: MACD), a tool used by technical analysts to test for attractive buying or selling opportunities. In brief, MACD generates 'buy' recommendations when a security's recent price movement (usually defined for this indicator as a 12-period exponential moving average, or EMA) is more bullish than the combination of both its recent price movement and its more dated price movement (usually defined for the MACD as a 26-period EMA). The underlying assumption in the above argument is that recent price strength correlates with future price strength. To explain the diagram then: the blue line is 12-period EMA minus 26-period EMA (subtracting one EMA from another 'normalizes' the plot, i.e. transforms the data into an oscillator with a mean of zero); the red line is a smoothing of the blue line, namely a (usually) 9-period EMA of the blue line; and the histogram is the difference between the blue line (the MACD) and the red line (the MACD Signal Line). A 'buy' signal occurs when the blue line crosses the red line from below, or in simpler terms, when the histogram goes from negative to positive. The signal is strongest when the 'buy' signal occurs while both red and blue lines are deep in negative territory. A 'sell' signal is the opposite, i.e. when the histogram goes from positive to negative. A Wikipedia article provides a more complete explanation of the MACD indicator.

To apply the MACD to the above 10-day chart of the S&P500, then, notice a 'buy' signal occurring late on Monday, 11/2, just prior to the beginning of a rally that lasted the remainder of the week. Yet there were other false warnings, for instance the 'buy' on the morning of Monday, 11/2 and the 'sell' on Friday, 10/30. It must be said that the MACD is not a silver bullet, although it certainly is useful when used in context with other technical analysis techniques.

My trade of Friday wrapped up with the opening of a long position (consisting of December $4 calls) in Citigroup (C), our government-owned bank. :) C is showing, on a 10-day and 3-month chart alike, a bullish consolidation pattern with a possible nascent breakout. I'm hoping for a pop to above $4.20+ in Monday's session; shares ended Friday at $4.06. Here is a pair of charts:


As a final note, forthcoming soon will be posts regarding two fantastic Chicago Symphony Orchestra performances I recently attended!

Friday, November 6, 2009

05/11: An ode to Metra. Also, markets jubilant; Dow re-crosses 10k. And, a brilliant evening at the symphony!

I make this evening’s post while comfortably ensconced aboard Chicago’s excellent commuter rail network, Metra. Before I commence the meat of this post, an ode to you, sweet Metra:

A maze of many lines, not modes, my Metra, a robust, reliable rail network you are! Rotund is your reach, and your rolling stock, too, has two levels of seating. But you run smooth, your pace swift as you race, kissing the rails. So superior are you to CTA, the sorry alternative, where shooters may silently lurk, which boasts interminable waits, where patrons are shuttled to sorry, sullied districts. Metra! Oh, an altogether amicable, amazing alternative! Brilliant, beautiful, the antithesis of belligerent bellicose; I beam when we blissfully be. So be!


Winding our way to Clybourn, I’m pleased to report that markets rallied strongly in today’s trade, with the S&P500 closing above 1060 and the DJIA settling just over 10,000, under which it hovered for most of today’s session. Today’s trade was an exuberant release of collective enthusiasm over yesterday’s Fed decision, after it sunk in during the overnight. Yes: monetary conditions are blissfully loose, and so they shall remain for a good, long while. There could not be a better cocktail for equities.

Forgive me, reader, for a dearth of supporting evidence (read: charts) to the above claims. You’ll just have to take my word for it. Or wait for tomorrow’s 10-day!

My own trade was positive today, as I have had a position of call options. Perhaps a bit of primer on these instruments is in order. Well then:

Options are a Chicago contract. Financial engineering, of which options contracts are a chief example, have a rich history in this trading capital of the then-developing world. Nineteenth-century Chicago traders began the financial alchemy heritage by refining the futures contract, a method for actual producers and consumers of various commodities to hedge their exposures to the risk of fluctuating prices. The hub for these instruments became the twin pillars of the Chicago financial establishment: the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME). Both still operate to this day!

Now flash forward a century. With the death of the worldwide gold standard in the early 1970s and the concomitant increase in the volatility of currencies, there became a market need for hedges against currency volatility. As with wheat or lean pork bellies, there were naturally short market participants (e.g. manufacturers and exporters in the home country) and naturally long ones (e.g. manufacturers and exporters in foreign countries). Hence, currency futures were born.

Not ones to miss a market opportunity, the whiz Chicago boys next set their sights on a hedge against volatility in equities: the humble options contract. An option is nothing but a contract that, when bought from a seller in exchange for a fee, gives the holder the right -- but not the obligation -- to buy or sell a particular security at a particular price, termed the strike price, on or before a particular date, called the expiration date. (A technical note: so-called “American” options can be exercised on or before the expiry date, as noted above; “European” options, in contrast, can only be exercised on the expiration date.) The term ‘option’ owes its name to the fact that its holder can either exercise the contract or allow it to expire sans exercise -- hence, there exists an inherent option. As with stocks, options have healthy trade on a secondary market, meaning that a trader need not take an options position with the aim of actually exercising it; instead, he can sell it prior to the expiry date, hopefully for a higher price.

But enough about options for the time being. Back to today's trade: my MOT and SLB calls both appreciated, and I sold those based on the shares of the former, mainly to trim risk exposure before tomorrow morning’s much-anticipated jobs report. I dare say that I should even have sold the remaining calls too, yet by holding them I can at least enjoy some upside if the jobs report pleases (but, of course, I’m also exposed to downside disappointment).

Here’s to hoping for a jobs number tomorrow morning better than negative 100k! And thoughts regarding tonight's (brilliant!) Chicago Symphony Orchestra performance shall have to wait until tomorrow; apologies!

Thursday, November 5, 2009

05/11: Travel tidbits!

My erstwhile intention for this blog was to create a forum for more than just trading discussion. With this big-picture in mind, allow me to share in this post some of my most valuable travel resources, ranging from online tools, to communities of travellers, to insightful blogs.

Before I embark, however, allow me to present an overview of my involvement with the realm of travel. A product of Chicago's Northwest side, I grew up with a steady stream of low-flying aircraft on arrival to the then-busiest airport in the world, O'Hare; airplanes were a part of my daily milieu. Moreover, my father was a one-time airline mechanic and glider pilot, both decades ago; hence, stories about the field (aviation) and business (airlines) were omnipresent. Day-trips for us included jaunts aboard Chicago's Blue Line to O'Hare, where we'd clear security and walk the terminals, my dad serving as guide and noting the difference between a Delta DC-10 here and a United 727 there.

My travel interest jumped into an altogether higher gear during the sophomore and junior years of high school, when I became cognizant of and excited about managing my dad's and my own frequent flier accounts. Neither of us was a frequent traveller by any means, yet my father began using an airline-branded credit card and I, too, was seeing more intensive mileage accrual by virtue of VFR (visiting friends and relatives) trips to Europe and some domestic travels for skiing or introductory scoping-out of colleges. At this time, I developed affinity for United Airlines and the Star Alliance. Given my relatively meager quantity of mileage-earning possibilities, it became imperative to focus on one travel program, and United won-out thanks to a heavy Chicago presence, partnership with Lufthansa, LOT Polish Airlines, and SAS (carriers that were most conducive to my VFR travels), and certain emotional goodwill earned by the airline's artistically inspirational Gershwin-based advertising campaign and avant-garde O'Hare terminal, particularly the psychedelic neon-light and surreal audio (I'm mindful of croaking frogs meet a Steinway, for some reason) of the inter-concourse, under-tarmac walkway.

Finally, and as indicated in earlier posts on this blog, my travel interest really took-off (apologies, urbane reader) with commencement of mileage running during my freshman year of university. Whether this pivotal move, which led to flying -- and especially the labor-intensive search for airfare deals -- becoming **at times** a psychological crutch and/or an avoidance mechanism, was utility-generating or -destroying is up for debate. It's undeniable, however, that my move towards flying one hundred thousand miles (and up) per annum was monumental in the development of my interest in travel and airlines. The experience has been profoundly instructive, and I shall now endeavor to share a sliver of the online resources, communities and blogs that I personally find most value-creating:


Online resources

Without a doubt, the greatest online travel resource I've come across is ITA Software, a powerful booking engine through which an advanced user can conjure up elusive travel options according to her criteria. (Note: If clicking on the above link, choose to log-in as a guest.) What about Orbitz, Expedia, et al, you might ask, and rightly so. ITA is head-and-shoulders more powerful than any other booking engine, but only if the user takes the time to learn its jargon -- which, incidentally, is too much for this post, but can be accessed via the 'Help' link on the site and, additionally, on Flyertalk.com, the subject of the subsequent paragraph.

Online communities

Forgive me, dear reader, for the audacity of including but a single resource in the above, plural-labeled 'Resources' section. I shall not cheat you in this section; I promise. The most important online community in the travel universe is undoubtedly Flyertalk.com. The website is a hub for travel geeks -- and, after having met dozens of site users, many are indeed 'geeky'! -- yet one should not be put off by that veneer. Flyertalk is awash with travel-related tips and tricks, and the treasure trove of information is conveniently arranged on message boards grouped according to specific travel program, e.g. United Mileage Plus, Starwood Preferred Guest, etc. The community can be a tremendous resource; yet, that rose of information is surrounded by unusually vitriolic thorns of waste. In my experience, Flyertalk can become addictive and ultimately utility-sapping (as can any endeavor-turned-addiction), and the travel aficionado should be on perpetual guard.

Another interesting community is airliners.net, a hub for minutiae relating to airline operations and strategy, and also the online mecca for aircraft photography. I've less experience with airliners.net, but I do sometimes venture there for insightful analysis of airline news.

Travel blogs

It's risky to make recommendations on travel blogs, as this category is most temperamental and volatile. Blogs pop-up constantly, and the majority have Lilliputian half-lives (and lives). That said, I value the contributions of One Mile at a Time and Wing and a Prayer. Neither is everything to everyone, yet One Mile is valuable for its breadth and Wing earns accolades for literary flair (an accomplishment that's certainly rare for the dime-a-dozen format that is the blog).

Thanks for reading!

Wednesday, November 4, 2009

04/11: Markets volatile after Fed statement; end at lows

To follow-up upon my earlier post of approximately 1:10p CST, U.S. equity markets responded to today's FOMC statement by rising to touch session highs of the AM trade, and then promptly turned around to plumb fresh intra-day lows into the close. The S&P500 settled at 1047, near its intra-day low of 1045; the intra-day peak was 1061. Note, reader, that today's tumultuous trade took the index above and, then, below its 50-hour SMA:

Prima facie, it's hard to find fault with the Fed's policy decision and accompanying statement, and I certainly can't provide a coherent explanation to explain the topsy-turvy trade of today's final one hundred and five minutes. The body decided to leave interest rates unchanged, as expected, and furthermore issued an exceedingly benign policy statement, going to great pains to underscore that inflation expectations remain low and that loose monetary policy is yet to continue for an "extended" period of time. What more did the markets want to hear? Or might so much accommodation actually be spooking the markets, giving the impression that recovery may be more nascent than conventional wisdom suggests?

My own positions today delivered moderately negative results, and I continue to hold Tuesday's acquisitions -- SLB and MOT calls -- into tomorrow's session. Shares of both firms declined less than one percent, and Schlumberger even dazzled with an impressive (but ultimately fleeting) intra-day advance, and I remain optimistic about the near-term potential for both securities. MOT calls seem particularly poised, with open interest increasing smartly over the past few sessions. Happily, prospects for tomorrow's market open may be favourable, as Cisco reported street-beating figures after today's close of trade and its shares have advanced three percent after hours.

04/11: FOMC day!

The briefest post in the history of this fair blog: the FOMC decision is coming within the next five minutes. Will stocks shed the remnants of the pullback of the last fortnight? Or will the Fed language be greeted with a renewed bout of selling? Based on technicals, I'm expecting an up move, as markets remain slightly oversold and anxiety permeates the mood, but anything is possible.

Tuesday, November 3, 2009

03/11: Risk aversion & bullish sentiment fight to a draw

World markets noted an exciting November 3rd. Exchanges across Asia and Europe witnessed a sharply negative day, many down two percent, albeit with the notable exception of the Nikkei, as Tokyo celebrated a public holiday. Futures signaled a lower open in the U.S. too, but the morning States-side was saved by news of M&A in railroads. And not just any acquisition; the esteemed Warren Buffet is buying Burlington Northern Santa Fe (BNI) in a cash-and-stock deal that values the railroad at a nearly 33% premium over its close of Monday, November 2nd. And BNI is no guppie; its market cap is 33B (although I'm uncertain whether that is based on Monday's close or today's 27% higher one). The S&P500 would end today's session up nearly 3 points, or about a quarter percent, to 1045.

Obviously, the M&A news gave bulls fresh life. Yet the Buffet announcement was far from the only source of fireworks during today's trade. Critically, gold shot higher to close at a fresh record of over $1080 an ounce, on a strengthening dollar no less. Front-month oil futures also advanced nearly $1 to just over $79 a barrel. It's important to note that the strong correlation of late between rising equities, a falling dollar, and rising gold did not hold today. Of course, trade this week can be expected to be somewhat abnormal, with critical news due tomorrow from the Federal Reserve Open Market Committee (FOMC) on interest rates (less important; no rise is forecast) and outlook (far more important; will the policy statement be dovish or hawkish?) and Friday bringing the all-important U.S. unemployment figure (a number in the neighborhood of negative 100-150k is expected).

What's in store for the rest of the trading week? From a technical perspective, upside moves remain a strong possibility, especially for those leading stocks that declined only moderately in the last fortnight and that have built bullish bases over the last few sessions. I've picked up calls in one such stock, the Houston-based, oil services firm Schlumberger (SLB). A 10-day chart follows, and the reader should note the following bullish features: A) an inverse head-and-shoulders pattern, with the left shoulder (first dip) at the close of trade on Wednesday, 10/28 and on high volume; the head (second dip) at midday on Friday, 10/30, likewise on high volume; and the right shoulder (third dip) at midday on Monday, 11/2, and critically on lesser volume; B) a cross of the 50-period (i.e. 50 hour) simple moving average (SMA) today, from below; and C) a break upward from the downward price channel of the past 10 sessions.

I've also purchased calls in Motorola (MOT). This firm is being buoyed by the forthcoming launch of the Droid smartphone, a supposed 'iPhone killer', and as such, the stock is one of few today (after several sessions of overall market correction) that has a hands-down, strongly bullish chart pattern. Note the explosive volume of the last four sessions, the decisive break above the 50-period SMA, and the bullish trending of the last four sessions:

Finally, I include a 10-day of the S&P500. Several items of interest. First, the S&P500 has been rather markedly outperforming the NASDAQ 500 (not pictured) during the correction of the last two weeks. This is partly expected, as the NAZ has a higher beta and, as such, would tend to decline in a more pronounced manner; yet technology has been a market leader during much of the last months' rally, and as such, its relative performance (vis-a-vis the overall market) might be expected to persist into the correction, not reverse. Does this loss of leadership also portend the end of the overall rally? Aside from this (over-fleshed-out) point, note also that the S&P500 seems to have consolidated over the last few sessions around the 1030-1045 area; could this be a durable support level? Yet all this analysis is ultimately for naught; the FOMC and unemployment data are the 500-pound gorilla in the room, and these will ultimately move the market during the remainder of this trading week -- and perhaps set a course that shall be sustained throughout the rest of this month.

Happy trading!

03/11: Insight into my trading day template

As mentioned in this blog's introductory post of several months ago, behind your laptop display, LCD flat-panel, iPhone screen, or CRT monstrosity, dear reader, sits a Georgetown University student, although that's where the easy characterizations end. This brief post, after a few more words of auto-biography, shall touch upon my current methods -- and these have changed markedly over time -- in my current full-time occupation of trading on the U.S. equity and options markets.

A Georgetown University student by title, I am not taking any university courses this semester, nor do I anticipate taking any at Georgetown during the upcoming semester. I am pursuing a School of Foreign Service undergraduate degree -- not in finance as might be expected, but rather in the syllabic monstrosity of international political economy.

And so I am a maverick, self-employed trader, riding onto the lawless fields of risk and relative value. And that is tongue-in-cheek, it must be clarified. Although I do legitimately enjoy learning about and participating in the markets, and although I am firmly committed to making a profitable living from them, I do not consider my occupation any more glamorous, chivalrous or worthwhile than a whole host of others, not least of which is the happy, frugal and euphorically intimate relationship that ideally exists between a student and her endeavors. And I'm genuinely restless for the day when I will return to that role. But for now, I must make the markets my love. And 'make' is key: my current occupation is entirely a factor of my motivation and drive; it is what I make it to be.

In brief, then, I presently endeavor to begin my days at an early hour, before the sun rises. I have breakfast and am soon out the door, bound for Starbucks where, day-in and day-out, I religiously arrive around 7-7:30a, order a tall-in-a-grande cup bold coffee, and enjoy the drink with a copy of the day's Financial Times. I next sprint back home and load-up my three computers.

Yes, I concur this seems a bit outlandish, to work on three computers (actually, four total displays, as one of the computers has an auxiliary screen hooked up). Yet, following the markets requires a participant to tap information from a variety of sources, and the multiple screens facilitate this greatly. Furthermore, some of my information sources, particularly the thinkorswim trading platform and the software for streaming quotes, requires a fair amount of processing power to run smoothly; and thus, having software spread across three processors and RAM bundles is a significant aid. Finally, the networking requirements are solved with a simple wifi cloud connected to a high-speed (the greatest of four speeds that my phone company offers) DSL line.

To return to the narrative, I am at my desk of three machines well before the market open. And here's where the regularity ceases; every trading day is different. Some are more active, in which case I'm glued to my streaming quotes, news reports, and CNBC chatter with little down-time. During such days, I might print out dozens of physical (i.e. on real paper) charts, so that I can then mark these up with a galore of trendlines and bulleted thoughts. On other days, such as today, I'm away from my desk during times of market action, for instance to make a blog post at Starbucks (and conveniently replenish the caffeine tanks).

As is hopefully clear, my current trading days -- which are, first of all, an ad hoc aberration to my role of student -- contain deliberate structure and considerable activity. As a final point, the above-expounded modus operandi is certainly not without many improvements over my methods of earlier months. Perhaps that's a worthy topic for a future post...