Preview of Friday's Mkt Action & How We Trade Mkts

In AH (after-hours) on Thursday evening, MSFT missed their quarterly earnings and revenue estimates. The market is currently calling down a little more than -1%. What does that mean for our trading in Asia overnight -- and as we enter Friday? As computerized and systematic traders, we'll follow our systems -- which are currently positioned fairly neutral in the equities -- and are poised to take their cue from overnight and early market action on Friday.

Recently, the "futures" portion (namely, currencies and commodities) of our portfolio has been the leader, helping our diversified portfolio to near recent highs. We'll talk more about the futures sectors in another blog post.

Trading Approaches

In our posts and Twitter, we talk about various time-frames -- such as Long-term (LT), Intermediate-term (IT), and Short-Term (ST). We trade many liquid markets around the globe using multiple time-frames and various approaches. These systems are all profitable and robust as stand-alone systems -- and are meshed together to produce excess returns with an eye on risk and robustness. We will often refer to our models' views across various time frames. Our Members have access to our positions -- as well as database (if they want to research their own trading systems).

Markets

We trade everything from equities, futures, options, fixed income, currencies, and commodities. Our focus is on the futures markets where we trade all major sectors including global stock index futures, interest rates, currencies, and commodities (metals, energy, agriculture, meat, softs).

Other Diversifying Methods

In addition to this core of trading systems across diversified markets, we are able to capture positive returns that are great diversifiers for the rest of our portfolio -- and are particularly useful for more traditional stock (and bond) portfolios. We'll discuss this investment approach in a different post when we get a chance to publish some actual performance that we -- and our Members have earned.

Stocks Open Down; Look to go Short after Gap Fade

After the stock market's recent run-up, the market opened lower today by about -0.7%. Our Long-Term and Intermediate-Term equity models are both neutral to short.

We'll use the typical "gap fade" (market often moves to close an opening gap) to PROBABLY enter short positions. That is, unless the "gap fade" is so strong that the market is looking stronger. With the longer-term models neutral to slightly biased to the short side, the Shorter-Term indicators will dicate our stock "trading" position.

Long-Term Model for Stocks turns neutral

Our long-term model shifted to a very slight short signal, the first time it hasn't been pretty much "pegged" to the short side since Jan 2008. That's a long time -- but this is a longer-term model that doesn't change signals often. This model did its job, keeping us focused on the short side during this rough patch. In Jan 2008, the S&P stood at 1400, a far cry from today's 950 (and even further from the scary 600/700 level we touched a few months ago). We, or course, (unfortunately) were not short this entire time, because we trade multiple time frames.

Our Intermediate-Term model remains moderately short.

Outlook for the Stock Market

The market is very interesting right now. We are truly at a crossroads... After the scary declines last fall (in Nov 08, the S&P hit 750) -- and then again this spring (March 09, we hit 670), the market has rallied strongly (to around 950 on the S&P).

Many gurus are calling for steep declines ("bear market rally"). Currently:

- Our Long-term models are bearish, and

- Our Intermediate-term models are bearish.

However, interestingly, if we rally much more, our Long-term models will lighten their stranglehold on the strong short position they have held for about 1.5 years. In this volatile market, you definitely have to let the "tape" tell you the story!