Friday, November 27, 2009

Market-Moving Events

Today, the stock market opened about -2.5% lower due to the Dubai debt worries. This caused dislocations in many markets -- ranging from currencies (US dollar higher against all currencies except for the Yen), to commodities (precious metals, oil, etc. all lower, as the dollar strengthened), to fixed-income (bonds higher as global stocks dropped).

Times like these are why we like following our computerized and systematic trading approaches. Our disciplined approach takes much of the emotion out of trading the markets. Market-moving events create both opportunities as well as a warning sign to control risk (money management!).

Risk Management and Trading Systems
The core strength of many trading systems is the risk management approaches they use to manage and minimize losses. Today, our systems will "take some chips off the table" -- but will most likely re-enter many of these markets (as this will probably prove to be a "buying opportunity" to enter some of the more-established trends that have developed in the markets).
Some of these longer-term trends include:
  • Short US dollar; long foreign currencies
  • Long gold and other commodities
  • Long bonds; long stocks
Stock Market Indicators
At current levels, our overbought/oversold indicators have shifted to "Long." Our Long-Term indicators remain long. Our short-term indicators are mixed because the market has rallied off of today's opening lows. Several sources believe that the Dubai worries will be a "blip" -- and our indicators currently agree.

Volatility Trading
Market-moving events cause big moves in volatility -- and today's downdraft allowed us to collect some good option premium.

Wednesday, November 4, 2009

Climbing the Wall of Worry

Our indicators -- and in particular, our overbought/oversold indicators remain bullish. The past week or so has seen some scary declines, where analysts have been predicting larger declines and mini-crashes. We may see that, yet, but for now, our indicators remain bullish.

This "stance" has led us to some pain over the past few trading days, although our Short-term models helped to reduce the losses to some degree. The Shorter-term systems follow the tape and had to turn bearish as the market declined on some of the recent volatile days.

While some people are surprised that we remain bullish, some contrarian investors like the fact that people are very emotional these days. With so many people predicting a large decline, it means that the markets are "balanced" a bit. It means that we can "climb this wall of worry" perhaps a bit more...

Emotions are very difficult -- and the reason we like to use systematic trading systems for our investments and trading approach. For now, we will continue to follow our bullish indicators -- AND we will alert our readers (at least via Twitter; but often with a Twitter and blog post) when the Overbought/Oversold indicators turn to neutral or bearish.

Today's opening "gap up" has us getting ready to enter more bullish positions after a typical "gap fade" decline.