Friday, March 25, 2011

Overbought Stock Indicators turn Slightly Bearish - 3/25/11, 1pm ET

A quick blog post:  our intermediate term overbought stock indicators have turned slightly bearish.  This indicator last changed a week ago, when the S&P stood at 1275.

The S&P is currently at 1318.  Our long-term stock indicators remain strongly bullish.

Our equity outlook is based on a combination of our long-term, intermediate (overbought/oversold) and short-term stock market models.    

Thursday, March 24, 2011

Anatomy of a Trade

I was talking to some friends and associates recently about market action and the "setup of a trade."  If you are interested in trading systems, below are some notes from our conversations.

By way of background, our quantitative trading systems are technical in nature and are tuned and researched for market action, time-frame, and execution.  We focus on the intermediate to long-term time horizon -- with shorter-term approaches "in the mix" for diversification and risk management reasons.

In particular, the notes focus on trade entry and execution.  We would all like to enter a trade at the best possible price/trade entry.  On the other hand, we have heard some great traders and "market wizards" such as Paul Tudor Jones, Bill Eckhardt, or Richard Dennis -- say they prefer trades and markets where execution seems bad; or markets that are "running away" from them.


In the long run (based on experience; also, data backs this up) -- our trading strategies are designed so that they can enter trades "at the market."  Sometimes, we'll be able to get a better price; other times, the trade will move away from us (along with profits) -- so going "at the market" is okay.  If we want to "be long" in a market, we should initiate the trade.    

Below is an example of why some market wizards PREFER buying markets that are running away from them. 
_____ 

Say, we want to buy Market X and the price is 100.00.
  • (A) Trade Initiation -- at trade initiation, our trade expectations might be something like this.  
    • 47% chance of Profitable Trade (yes, less than 1/2 the trades are profitable...)
    • Avg Gain = 1700 (but avg gain is greater than avg loss); 
    • Avg Loss = 1000
    • In the long run, this kind of trade action will lead to profits, even with less than 50% of the trades profitable.
  • (B) "Bargain" (?!) Trade -- if we wait a bit on pricing -- and the price is now 99.25, we might think, "Oh great, this is a good deal."  However, note that this is not the exact match of all trades in the bucket in category (A).  This "Bargain" trade is a subset of category (A).  
    • Note that "noise" will sometimes work for trade entries and sometimes against trade entry.
    • However, within the complete dataset of trades, there IS an area where "noise" becomes "information."  
    • And roughly, the numbers for this trade might NOW be something like this: 
    • 44% chance of Profitable Trade (market is moving against the desired long position)
    • Avg Gain == 1600
    • Avg Loss == 1100
    • Note that this subset has slightly lesser trade parameters -- because there is "more information" based on the lower price. 
Although this example is simplified, our technical and quantitative trading strategies take these factors --  as well as other quant research and volatility / risk management -- into consideration.  

Thursday, March 17, 2011

Oversold Stock Indicators Go Long 3/17/11 11:30am ET

Our oversold/overbought indicators have flipped to strongly long after their recent bearish signal on March 7, when the S&P was near 1310.  The S&P currently stands at 1275.


  • Traders should be cautious with the increased volatility (as well as news from Japan and the Middle East).
  • Long-term investors looking to add equity positions may consider increasing their equity allocations.  

Sunday, March 13, 2011

A March Madness Pool (Modeling the Madness as a Financial Marketplace)

We are pleased to be working with the University of Chicago on a free March Madness Pool.  Carlton Chin devised the pool with a Financial Markets class -- that models each game as a financial marketplace.  As a result, the pool is run "round-by-round."  The pool is open to all and several organizations have contributed prizes.  Note that entries are due a few days earlier than most pools to generate closing price information.

Opening pricing will be available for the first round on Monday morning.  Closing prices will be a function of market participant entries -- and will be used to award points for correct picks.  Pricing can be used as a proxy for the probability of a team advancing to the next round.  

For more information -- and to get your first round entries in -- please visit the March Madness link at CARATcapital.com.

Monday, March 7, 2011

Intermediate Stock Indicators Turn Slightly Bearish 3/7/11

Out intermediate-term stock indicators have turned slightly bearish from their previous bullish stance (last signal update on 2/25/11, early am).  Our long-term indicators remain bullish (as they have been for a while).

At the time of this signal, the S&P is near 1310.  Our equity positions are a function of these indicators -- along with short-term stock market models.  Together, these indicators over multiple time-frames are used in our z-Trader Short-Term System.  

Tuesday, March 1, 2011

February Recap for Markets

February saw rising stock prices, slightly lower bond prices -- and mixed results for managed futures programs. The Middle East unrest created volatility in the energy markets.  This resulted in both winning and losing trades in the energy sector, with net profits for the month in crude oil trades.

Our zFutures Diversified Program, tracked at Collective2, was slightly higher at +0.5%, while the z-Trader Short-Term Program registered a +10.6% gain.  

The zFutures Diversified Program can be carved into two main sectors (Financials & Commodities).  The z-Trader Financials Program gained +4.7% with profits in the currencies, bonds, and precious metals.  These gains, however, were offset by losses in the z-Trader Commodities Program (with the grains and softs being the main culprits), leading to a drop of -8.3%.  The Financials & Commodities Program offer good diversification to one another -- and together, will approximate the Diversified Program, at higher leverage (but offer the benefit of a lower account size). 

The z-Trader Short-Term Program rode the S&P to fairly steady gains during the month.

AN INVESTMENT IN FUTURES CAN RESULT IN LOSSES.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL RESULTS MUST BE CONSIDERED HYPOTHETICAL RESULTS, WITH MANY INHERENT LIMITATIONS.