Part of this blog’s goal is to show our actual numbers in a more accountable way. Here are the signals sent by our current US market algo. These signals are drawn from meta-data derived from the whole market. Currently, we are struggling to find trade-able meta-data for any one stock. We have had some success looking for that data in sectors (and we may post a riskboard for sectors in the future.) However, the meta-data for whole markets is excellent.
Risk Change on Japan
So our risk system for Japan signaled a Risk Off overnight. Since we focus on ETFs and derivatives it is simple to scale-down exposure. Trading single stocks makes it difficult.
I remain long DJIA futures, and I’ve been short oil recently. Also, yesterday was so overstretched to the buy side that I bought some puts as a cheap hedge. I do not understand what is driving market, and unlike most people I will not pretend to. It is probably still a central bank liquidity function. But, like a remora, I follow the shark, not the inverse.
I am fully expecting a fear event soon. I welcome it. One should be suspicious of any market that just goes one way. But don’t sell. Ride it. Get a sell process. Does not have to be sophisticated. Use a 10 month moving average if you have nothing else. And follow the shark. You do not process information better than the market. You are not smarter than the market. Practice humility and laugh at all these “gurus” online. Who are so rich they need you to buy their ideas.
Closed ndx today at 1pm. Currently only long 10y bonds.
Just to be clear, I am still long NDX. Yes, yesterday hurt. And yes the system is very close to selling. But to be fair the system has had such a good year I’ve been expecting pain. It’s just an exististial truth. There is no easy money in this game.
I expect a puke is yet to come. Probably another 100-200 or more points down. But it will be intraday I suspect.
Trade update 8/6/17
Closed 10y bond long
Closed oil short
Close hogs short at open
Currently long ndx
I tend to trade the intermediate term setups. That means my commodity trades are fairly active, days to weeks in duration. My equity setups are somewhat longer in duration. The reason is that that is the time duration where I can find actionable algorithms.
I do not believe anyone can predict the market, not Warren Buffet, not George Soros, and certainly not the banks and institutions. Technicians, nor fundamentals, nor Elliot Wave wonks, nor Wychoffians. No one can predict it. It is folly to try. I want to position myself to follow the market, not predict the market. However, I love to read/listen to people who think they can predict the market –that strengthens the philosopher within.
Slow mo money is still in Europe
Fast money is seeing China A50 and Indian Nifty with a little more push than Nasdaq, I’m sticking with NDX for many reasons, including liquidity
Nvidia is still smashing the AI race, with twice the return of other companies.
According to the St Louis Fed Stress Index there is essentially no clearing or liquidity stress in the market. The bears rightly point out, OMG IT CAN ONLY GO BAD FROM HERE!!! Yawn. I have no opinion.
The term structure on the VIX is orderly, showing some flattening in Dec, which is to say, nothing bad happens in December.
The velocity of M2 money just keeps going down. Which probably says as much about demographics as it does economic growth or monetary policy. And the monetary base is going down also, which means it is going to be tough to Make America’s Growth Great Again!
The Cleveland Fed Yield-Curve GDP predictor has GDP growth at 1.7ish% Seems reasonable to me. No opinion.
If you like to play sectors, Financials just overtook Technology on my momentum models.
Have a good week.
Trade update 8/2/17
Long 10y bonds again. Yes, system is whipping us around. That’s the price of trading in really efficient markets. There is lots of confusion, cross-currents, bond markets disagreeing with stock markets. Current position, including commodities:
- Long nq (ndx)
- Long zn (10y bonds)
- short qm (oil)
- short he (lean hogs)
- very small short volatility position
Well, Ndx looked at 6000, panicked, and ran back for known territory. I added my 10y long bond hedge back on late on 7/27/17. I do not think it will make $ as a trade. But it may counter some volatility by having it as a sea-anchor.
Trade position update 7/23/17
Gentle readers, do not think I have abandoned you to the cold indifferent of the HFT algorithms. I am simply holding tight with my systems. Still long nasdaq, long gold, long 10y bonds. When my systems change I will inform you. We should all of us expect a 1 or 2% sell-off (or more) at any moment. That’s living with markets. Currently, I suspect that there are so many institutions that have missed this post-election market surge, their desire to get long will stop serious sell-offs. But that is just my thoughts. I do not trade on my thoughts or opinions. I’m a systems trader. And every time I read some trader raging on twitter because he or she believes the central banks are rigging the markets, I just smile. I used to be you. I could not admit that I just sucked as a trader and was too often on the wrong side of asymmetrical information. So I invented or imagined or descried a Conspiracy!!! Ah, human nature.
Let me share two signs of my current impudence, so you might use my folly to identify market tops! After listening to A16z podcast, and being reminded of the value of tracking what nerds do for fun, I’ve started mining crypto-currency! Yes! Shocking. I have no desire to trade it. But I want to understand where this is all going. So I’m learning. Reading. Thinking. Modeling. Secondly, I’m trading volatility again, at very small size. Yes, it is a tough market. But I believe it is the most sensitive of all the markets. I think it flinches first. It is my canary…
Happy trading. And the market is probably going to punch us soon. So don’t act surprised. Look at your brokerage amount. That is not your money. That is the market’s money. It will fluctuate.
Ps. I am traveling this week. So fewer posts.
So as of today at 9am for bond hedge /zn and 1pm for gold, my macro hedges are back on, seeking to buffer my positions from Knightian uncertainty. These positions are more a hedge against uncertainty than risk. They aren’t the same thing and I haven’t done a good job of explaining the difference in my portfolio construction.
In any case, the summer scare is either over or setting us up for a real summer of hurt. I hope to be secure in my process either way…