Markets in Transition – Crude Oil

crude_CL

As I began my last post I continue to understand the trading mantra, “I don’t care.”  I do care as to whether the shift in trend is towards buying or selling, but I don’t care about the why or what or where.  This, for the most part, allows me to concentrate on the momentum. The strength of the momentum determines the trend, whether that be on an hourly basis or a tick basis.  When you consider momentum on an hourly or daily basis it becomes more attached to a “binary event.”

Binary Events come in various sizes with regard to “strength” and “intensity”.  Tsunami’s are predicted according to the strength and intensity of an earthquake.  The stronger the quake the greater probability for a larger,  more intense tsunami in the form of a massive wall of water carrying literally tons of momentum.  As it rolls over land it obliterates everything in its path.  Weekly reports on crude can and often do provide many opportunities to trade once the violent knee jerk motion subsides and I would not consider some of them to be major in strength or intensity.  However, the further the “quake” goes up the chain towards reaching – foreign currency reserves – namely the U.S. dollar the resulting tsunami will roll across many commodities and sectors.

binaryeventHere’s the caveat, the canary in the coal mine, the domino that kicks off the race to the exits in all it’s forms, being either from the long side or short side.  China is expected to report that its total FX reserves declined $3.2125 trillion from $3.3 trillion.  A drop of approximately $118 billion.  Which the world needs to see in order to keep the “status quo” or a continuance of the quietly higher massive December 2015 outflow of $108 billion.

So, a reported number that would be below $118 billion or substantially below for January 2016 outflows would kickstart in mass  a short squeeze across the board in most commodity and materials linked sectors.

Here’s what BofA strategist Claudio Piron is expecting – a far smaller outflow.

“We forecast China FX reserve changes and estimate a USD37.5bn fall in January – (USD29.1bn decline adjusting for a negative FX valuation effect). Note that the standard error of the forecast is large at USD24.5bn, which would give us a downside of USD84.5bn fall. We caution that this is guidance and we attempt to be as transparent as possible so investors can gauge the odds in what is a key release for the markets. Note too this is based on onshore CNY FX volumes and our estimate maybe biased down as there are no real time volumes for offshore CNH.”

 

Futures Traders Should Participate Not Anticipate– the current volatility should remain high in that the markets may be bracing or be subject to a larger “trend change” from short to long – ala a massive short squeeze.  Should that be the case – do your best not to trade with emotions and let your signal generator do its work.  A larger “player” short squeeze should switch the “runners” to the upside.  Protect yourself against the urge to succumb to “counter trend” trading.  You don’t want to be missing out on all the fun so participate instead of attempting to anticipate the next turn in the other direction.  Which, by the way, is likely to be much shallower than you think because those needing to cover shorts will create an avalanche of demand as the various derivative traders get involved.  It will be best to keep focused on the trading mantra –  “I don’t care” about the “who, what, when, or wheres.”

Check out the chart below for a snippet of Friday’s trade in Crude – “CL”  I trade using a tick chart and with prices moving all over the map to squeeze together the day would be to miss the trees in favor of the forest.  The chart included is the time I traded, which is 6 to 8 AM PST.  The balance of Friday’s session reflected a quickly changing market as it appeared several larger traders were “somewhat” squaring positions or just plain out taking sides.

2016-02-06_17-22-53_CRUDE

The gross ticks from the indicator “signal to signal” performance was +123 ticks.  Net numbers depend on your commission rate and “slippage.”  Deducting 25 ticks as “cost” would put the net ticks at +98 ticks or $980 per contract trading the front month – in two hours.

Sunday brings the perfect front for US retail traders – The 50th Super Bowl.  China will report their FX reserve numbers during the game — Globex opens at 6 PM EST – 3 PM PST – Do you know where your position is?

 

 

 

 

 

Markets In Transition – Economies Too?

steerclearsignals

financial money economyI fully understand today’s trading mantra of ” I don’t care!”  It makes total sense if you are just trading the number according to what your signal generator is telling you.  However, it can become a nagging problem when the trader in you surfaces and begins to haunt the thought process by questioning the “Who, What, When, and Why family.”  In case, you don’t recall them they usually show up along with their cousins, the twins “Doubt and Fear.”  They often invite themselves in for a “quick” cup of coffee and stay for the day and eat you out of your emotional house and home.  There are many days when being a “gnat on the elephant’s ass” is more difficult than imagined.

2030capitalaztionchartglobalWhen markets are in transition it produces incredible opportunity at the speed of light as thousands of orders race across networks pushing prices in all directions often simultaneously.  Check out the 2030 forecasted capitalization of global equity markets.  The nominal value in US dollars is 284.2 trillion.  According to the Federal Reserve, as of 2015, there are $1.39 trillion in circulation, of which $1.34 trillion are in Federal Reserve Notes.  Doesn’t take a rocket scientist to do the math. I’m not sure how much longer the system can rob Peter to pay Paul when they are both within the top 1/10th of 1%.  With the US and China dominating the world economic stage at the moment it is not a surprise that any international hiccups coming from either country carry the potential to create a global tsunami with an urgency to exchange capital.

When the U.S. dollar makes a substantial move in either direction it forces massive readjustments across the board.  Remember at the top of the “food chain” sits interest rates which are tied directly to the flow of dollars in and out of the various markets.  The U.S. dollar remains the dominant international currency  for trade but the brewing battle amongst the top tier isn’t over, leaving the “pissing contest” between the uber rich in place.

Interesting thought – the list of missing Chinese billionaires continues to grow.  As of the end of 2015, there were 36 missing Chinese executives.  That and a softening economy moving towards experiencing  a good old fashion western economic recession has triggered a recent string of landslides (down 7% within the first 30 minutes of trade) on the Shanghai exchange.  Makes you wonder if the same thing happened to a string of TBTF exec’s on Wall Street would the reaction be one of bewilderment, confusion, and potential panic or one of extreme relief!

Wednesday was the type of volatile trading day that many day traders live for.  Successfully trading it though takes the ability to move very quickly in and out without much regard for anything else but how many ticks you are tossing into your pile versus someone else’s pile.  So here is hopefully the best advice I can give you in developing the skills to step in and trade volatile and incredibly quick price swings.  buybuybuysellsellsell

“Learn to trade without emotions.” 

This is honestly easier said than done.  Ridding oneself of any number of old and no longer useful habits, i.e. the family members I mentioned above, is a process that can be confusing and incredibly frustrating.  But one that commitment to, is essential towards succeeding in rejecting the old habit in favor of embracing the new change.  Often, I have found that the new change can be taking two steps back in order to reset your thinking, and then make the necessary changes to an “old” habit by retooling it to fit your current situation.

Remember the key is being able to reduce and separate the “noise” from “opportunity”. This takes knowing and executing a well-defined strategy which allows you to see opportunities amongst the “chaos.” By trusting the mechanics of your strategy, you will be able to take advantage of them. 

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of. 

Check out tomorrow’s post for charts of the $CL and $YM with trades and discussion.

Has the Bubble Burst?

bubblebursting

steerclearsignalsIt is not uncommon to move past a “bubble” bursting and not realizing it.  Denial plays a big part in the recognition of such a phenomena.  While I admit the speculation can grow extremely strong as pundits try to claim their 15 minutes of fame by making bold statements of impending doom only to get caught up in the hype itself.  It is unfortunate that for the most part a bursting bubble is basically only recognizable in hindsight.  Until then we witness what has become known as the Wile E. coyote period. Fans of the Roadrunner cartoons should get this picture – Wile E. Coyote running off a cliff, legs still moving forward with nothing underneath them and then that look of “oh crap” as gravity takes over.

I remember the “dot-com” implosion.  While the top occurred in March of 2000 there were huge swings to the upside as traders failed to see the “writing on the wall.”  The downside though was persistent.  Scattered and appearing small at first, it then avalanched until the end of 2002.  As a resident of the San Francisco Bay Area the layoffs were also scattered and small at first but when all was said and done the slide wiped more than 250,000 jobs from the local economy.  Local residents, though, either denied it was happening or were totally oblivious to it – at least for the balance of 2000.  The local economies were flush with cash bad business plans found funding, office space was quickly leased at any price and real estate listings drew massive crowds willing to bid well over the asking price.  Office parties were all the rage often resembling a grand New Year’s Eve celebration.

wile_e_coyote_2Sound familiar?  Could the next Wile E. Coyote moment be at hand – that moment when you suddenly realize that gravity is about the takeover and hurtle you back to earth.  Let’s take a look at several reasons the tech sector should be concerned:

  1. Does the market/investor still like your app?  Outside of the markets getting slam dunked to begin 2016 tech startups found it difficult in 2015 to raise capital.  Only 23 actually made it staging initial public offerings according to Renaissance Capital.  The total net cash raised was a paltry $4.2 billion  compared to $32.3 billion raised in 2014.  Many companies expected to launch via an IPO didn’t.  Dropbox, the cloud storage firm was highly anticipated to go public but chose to hold off.  Companies that did manage did not receive a ticker tape parade.  Square, headed by Jack Dorsey in his dual role CEO of both Square and Twitter was forced to price Square’s IPO at $9, which was well below the expected range of $11 to $13.  Fitbit priced its June IPO at $20 quickly catching an updraft to reach $50 by August with gravity taking over and the stock reaching a low of $15.52 last week.  ETSY Inc. the online marketplace for all things handmade debuted above $35 in April 2015 and reached a low at $6 last week.  Newcomers were not the only companies to suffer the wrath of gravity take a look at Yahoo and Twitter both of which continue to slowly drop off into the sunset.
  2. Shrinking Valuations – While venture capitalists remain willing to dump additional cash into the constant flow of new and must have apps the latest funding rounds are cutting the value of many startups by more than 50%.  This is a clear sign that investors are no longer comfortable with high(er) valuations for many tech firms, particularly private held startups currently carrying a $1 billion-plus valuation.  Take Dropbox and Snapchat for example – both firms saw mutual funds scale back estimated of how much the firms were worth.
  3. Layoffs – while not making the headlines several tech firms are cutting staff.  Yahoo is expected to cut its staff by 10% which may include its CEO.  GoPro announced in January plans to cut 7% of its workforce.  Last year saw eBay, Groupon, Intel, Twitter and Zynga all downsize its workforce.  Then there were the companies that didn’t survive, Homejoy, Plug.dj, PachIt, Rdio and Sidecar have all closed up shop.
  4. Sublease and Party like it’s 1999 – it would appear that nobody has taken note of Twitter’s desire to sublease part of its San Francisco headquarters.  Even with the huge tax break given by the city of San Francisco, it appears that Twitter just doesn’t need all that space and with rents averaging over $72 a sq/ft, Twitter stands a good chance of making a tidy profit over when combined with the huge tax breaks granted by SF.  Holiday parties, though, were once again “over the top” for 2015.  Twitter, for example, took over AT&T Park to host its employ holiday party.  Yahoo and Facebook though took the top honors for theme parties seemingly based on the “Roaring Twenties.”  And for those wondering the 1920’s were the decadent decade the proceeded the crash of 1929 and the Great Depression.

deceptionThe signs are out there.  Whether or not they will get noticed or picked up is something yet to be seen.  The huge influx of capital seems to be still in place as millennials continue to believe it’s all just getting started and any downside is a “buying” opportunity.  So how do you better prepare yourself.  One method would be to keep a closer look at what company “insiders” are doing and where institutional money is being placed.  As earnings season begins to unfold many firms will be moving capital around as well as many insiders take profits.

Next up – I’ll take a look at the some of the high flyers and tech titans to get a gauge on what is happening.  In advance of that check out the data provided by Sage Data Service, for the latest SEC filings.

Sage Data Service was founded on the concept of making financial data more available, more transparent and more affordable. Our objective is to leverage XBRL and our proprietary technology to deliver the most accurate data to our customers at affordable prices. Every piece of data presented is reviewed by an analyst based in the United States according to strictly defined processes to ensure that our data sets the standard for accuracy. Our Research Platform provides professional-grade tools to retail investors, while our Data Feeds deliver timely information to our customers. We seek to fill the needs of all customers including active traders, market analysts, fund managers, corporate competitive intelligence analysts, broker-dealers, online trading platforms, investment thought leaders and academic institutions at the most affordable price point on the market.

Happy New Year…Are We There Yet?

explorer-course

The first trading day of 2016 produced an awesome volatile day with many “decoupling’s” taking place.  The finish of one year and the start of the new year often produce numerous “decouplings” as money begins to shift strategy.  China got things going coming into Monday morning with the major equity exchanges shutting down after dropping 7% in 7 minutes.  Being a trader, I live for volatile days. I also freely admit that I need to be careful of what I ask for.  Monday’s markets were a solid case in point.  Major moves across the board complete with “decouplings.”  It became important to not “multi-task” and attempt to trade too many markets.  Even with a large pile of “fun chips”,  it can become frustrating and costly.

fainting_trader_China_2016Word to the wise: please accept and embrace that we used to have the capacity to trade from morning till night, on little or no sleep and trade 100’s of contracts in multiple markets and classes. — Accept that in a given trading today,  there are many strategies firing orders in and out of the markets. News travels at the speed of light as do most trading platforms and as is often the case, there are way too many opportunities to trade.  The added caveat is that all are not going in the same direction at the same time and support/resistance is being reduced to liquid magma flowing  up and downhill as volatility ramps everything up a notch.  The swings can be both joyful and frustrating when “normal” highly correlated  markets “decouple” as the fear factor is thrown into the ring.  This was the case on Sunday afternoon into Monday morning as new years trading started with China kicking a huge, huge can down the Great Wall that rolled around the globe in seconds.

In the world of algorithmic trading, attempting to electronically trade in most of the futures markets using different algorithms will become a daunting task that will sour your spirit if you’re not careful.  Narrowing your focus to two maybe three of your favored futures will allow you to keep tabs on the ability of your trading strategy to actually fire actionable signals properly.

High-resolution 3d rendered binary tunnel for technology backgrounds

Being that, there are numerous strategies trading everything under the sun and that, the desire to trade everything tends to suffer greatly from the ability to actually monitor multiple markets and adjust strategy in line with the larger move(s).  Periods of indecision often produce “choppy” or range bound trading.  Algorithms fire constantly and when a large group either pauses or stops within a particular strategy it creates a vacuum of sorts.  The market will trade in a much tighter range but continue to fire buy and sell signals that meet the strategy guidelines but end up being stopped and reversed for a quick string of losses.  Adjusting strategy to smooth out signals is important and I personally find it much easier to keep that control in line when I apply it to a maximum of three markets on extreme volatile days.

Monday was such a day.

Are We There Yet?

To get back to the question asked in the title of today’s post, the simple answer is no – not likely.  More importantly, though, I believe it remains important to trade each day without an opinion as to what the “fair value” is or should be.  I leave that up to someone else to figure out and trade on.  I do, though, keep track of the weekly and monthly charts and keep an ongoing Elliott Wave count for the S&P 500, the DJIA, the NASDAQ, the Dollar/Euro, Crude Oil, Gold, and Silver.  Over the next week or so I will be updating the “counts” and how that relates all the way down to tick charts.

In the coming week I’ll take a look at Crude Oil.

crude_CL

Crude the Gift That Keeps Giving , Chart – $CL

opportunity

crude_CL Crude continues to pay the early bird with a pre-opening move from the sell side followed by a sweet reversal shark attack from the buy side.  As they say, “If it walks like a duck, quacks like a duck..”, Tuesday’s opening moves had a purpose!  A purpose that is best left to someone else.  Remember, caring about the who, what, where, when and how of a move usually takes longer than the move.  Attempting to determine why a seller is selling or a buyer is buying can be best compartmentalised next to fear and doubt and replaced with moving averages and pivot points!

Voiding emotions and actually trading without emotion is a big key – and I do mean big!  When emotion comes into play – focus is diverted and what should have produced a 10 maybe 15 ticks winner turns into a 50 to 65 tick scream fest loser.  On Tuesday, though, it was enjoyable to employ strategy and  stand back to see the “bigger” market find its level and bring in the volume to change direction.  Squeezes in either direction created by the constant “baiting” of the algorithms presented some wonderful “gnat on the elephant’s ass” trading opportunities and for those trading an hour pre-market were rewarded with a net +42 tick slide to an early low.

This was followed by feeding frenzy to the upside that captured +76 ticks on strategy, (signal to signal) based trades. The balance of the trading session continued to give making trading the chop easier to handle.  On the day, strategy grossed +147 ticks allowing 25 ticks for slippage and commissions the net was +122.

Check out today’s chart for additional discussion and trades:

2015-11-10_18-42-00

Monday November 9, 2015 – Today’s Chart(s) $ES, $CL

volatility

I’m sure that many traders woke up with the Monday morning “blues” as most markets traded lower.  Regardless of direction, though, there were many opportunities across the board.  If you trade multiple products, it could have been a difficult day trying to keep up with all the signals.  Today was a clear case for good “audibles” from your signal generator.

crude_CLEarly birds in Crude were thrown a monster trade first thing out of the gate Monday with a short from 44.90 staying intact down to 44.25 for a quick 65 ticks.  An hour later the market added desert with an additional 42 tick decline, that ended up adding another 16 ticks to the day.  While the balance of the day provided ample op’s to trade from both the long and short side the net ticks per move contracted a bit.

Overall strategy in the CL netted +120 ticks per contract.  Check out the chart below for today’s trades.

2015-11-09_14-15-16

 

 

S&P500The equity market indices reeled in some of the “irrational exuberance” on Monday quickly forming a downside chain of kick or hit the bids.  The first two hours of trade were basically contained within sharp periods of selling interspersed with feeble rally attempts or running chop.  The ES began the session with a failed rally attempt as opening orders provided some of the best short entries on the day.  Once “lunch hour” kicked in there were periods of stronger follow through on rallies which ultimately culminated into the last hour push higher. Here as in crude traders were kept busy and I received the same feedback in the Trade Room from YM and NQ traders.

 

Check out the chart below for today’s trades and discussion:

2015-11-09_15-30-21_ES