Stock Market Update (9/18/15)

It has been a long time since we posted.  Our stock signals have mostly remained steadily long during the stock markets's rise over the past year-plus.

Recent volatility due to "China worries" and the "FED interest rate watch" have increased volatility and led to several relatively sharp declines.  Although there have been several sharp moves downward, investors should note that the S&P 500 is only about -5% to -7% off of recent peaks.  In addition, stocks are 15% to 20% higher than they were two years ago.

Still, based on recent market action, here are our stock market indicators:

• Long-Term Indicators are currently neutral, and are looking towards market action for a potential change in signal.
• Intermediate-term models are currently mildly short; the market seems overbought. 
• Short-term indicators follow the current trend and are too short-term to report regularly.  

It is noteworthy that other markets we trade - such as currencies and commodities - helped to cushion the decline in the equity markets the past few months.  

Good luck!  

Bitcoin - Good Q&A

Here is some of the best information we have read about the Bitcoin. It comes on the form of Q&A (questions and answers) from the Washington Post.

Q: What’s a bitcoin?

A: Bitcoin is an online currency that allows people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit card issuers or other third parties. As a result, this exotic new form of money has become popular with libertarians as well as tech enthusiasts, speculators — and criminals. Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next.

Q: Is bitcoin particularly vulnerable to counterfeiting?

A: The bitcoin network works by harnessing individuals’ greed for the collective good. A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction. The blockchain prevents rogues from spending the same bitcoin twice, and the miners are rewarded for their efforts by being gifted with the occasional bitcoin. As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.

Read more here:

http://www.washingtonpost.com/world/europe/whats-a-bitcoin-a-look-at-the-digital-currency/2014/02/25/97f081a2-9e3e-11e3-878c-65222df220eb_story.html

Some thoughts from another trader 9/26/11

Here are some thoughts from a hedge fund manager (J. Taylor):

... believes that Greece is going to default, that the euro will fall, and that the U.S. dollar's rebound has just started. It was his kind of week last week.

... positive on the commodity-based ones, such as the Australian and New Zealand dollars, despite their run-up. "We use commodities to forecast currencies," he notes. For instance, Norway's krone is a function of the price of oil, which he thinks is a solid long-term bet on the next growth cycle. In five years, he says, "we could see oil at $500 a barrel. I would be a buyer on dips of oil." But that's a trade for another week.

Read more here:
http://online.barrons.com/article/SB50001424052702304336204576582692220816096.html 

Volatile Commodities & Futures Markets

Just a quick report on the volatility in the commodities & futures markets.  Our risk management approaches got us out of oil and gold before the steep declines today.  On the other hand, the downdraft crept into many other markets (industrial metals, agriculturals, foreign currencies, US Dollar) -- and reversed long-standing trends in early May.  This caused us to give up much of the recent profits we have earned over the past several weeks.  Our Diversified Programs are down about -3.5% this month.

As reported by MarketWatch, commodities suffered their worst decline since 2009.  Please read more here:

http://www.marketwatch.com/story/commodities-suffer-worst-slide-since-2009-2011-05-05?dist=afterbell

CRB Index Past 3 months (as of 5/5/11; see the last bar on the right...)

Thank you to INO.com for the chart.

***

Today alone, crude oil declined $10/barrel to below $100 and gold declined about $50/ounce to below $1500.  The Liquid Commodity Index reflected the recent volatility -- declining -5% today (May 5, 2011); and is down -8.6% for the month, after rising to new highs in April.   

We currently have relatively small positions, reflecting the reversals and volatility in the futures markets.  We will, of course, continue to "do what we do" -- and will follow our trading system/risk management strategies. (Unfortunately, this kind of market action is not unprecedented.)

Please let us know if you have any questions.

Trading Systems: Managing the Ebb & Flow of Futures Markets

Here are some excerpts from an article Carlton Chin of Adamah Capital wrote at SeekingAlpha on the recent sharp reversals in the futures markets -- and how trading systems need to find balance between profit opportunities, risk management, and potential losses (drawdown).

...The futures markets (both financials and commodities) -- and in particular, currencies, metals, energy, agriculture, and several softs -- have presented profit opportunities to futures traders. However, after a strong December, early January has seen some sharp reversals in the future markets.

...

Back in November, we wrote about the sharp reversal in the futures markets. At the time, we saw severe reversals even sharper than this week's moves... However, at the time (back in November), traders had to manage their risk -- and protect profits from potentially severe drops.

...

Managing the Ebb & Flow of Markets

There is a trade-off between "potential profit opportunities" versus losses -- and a "decline or drawdown" for any trading strategy. In a nutshell, traders must "surf" the waves of the markets -- and manage their positions and strategies through the inevitable "ebbs and flows" of the markets.

...

There are always risk and return trade-offs, but good research can help traders and investors capture profit opportunities in the financial markets. We have studied and developed trading methodologies that attempt to capture profits while managing risk. Please check out the results in this FX/Forex trading challenge (top few percent). In addition, several of our trading strategies can be tracked at this third-party tracker, Collective2.

We will follow our trading methodologies and continue to monitor and research the markets. Ongoing research and a systematic, disciplined, approach can help put the numbers -- and market action -- on your side.

__________

For the complete article at SeekingAlpha, please click here.

Recent Market Action; Near Top in FX (Forex) Trading Challenge

This continues to be a good period for many markets. Stocks continue to reach recent highs. In addition, the markets we focus on -- futures and commodities -- continue to trend. In particular, the currencies, metals, energies, and agriculturals -- have led to profitable trades. Our trading approaches won't always work -- but we should capture the profit opportunities that present themselves in the futures markets.

We entered a Forex (FX) contest -- and currently rank # 46 out of well over 1000 entrants. The contest has an interesting slant -- and ranks traders by risk-adjusted performance (return / daily standard deviation).

Please click here for a look at the leaderboard:

https://sites.google.com/site/caratcapital/contact-us/media

In addition, several of our programs are tracked on Collective2 as a third-party tracker:

http://www.collective2.com/cgi-perl/system51201525 -- zFutures

http://www.collective2.com/cgi-perl/system56282350 -- z-Trader Financials

Happy New Year!

Trading Signals and Current Outlook

Our stock market models remain long right now. Depending on market action, our intermediate models may go neutral at the end of the week. The long-term models will remain bullish so that the net position will remain at least slightly bullish. In addition, there still appears to be enough bearishness out there so that contrarian investors can see a continued rise in the equities.

Futures Markets

Many of the futures sectors saw a vicious reversal from the middle of January until the end of the month. This caused losses for trend-followers. Our models had to manage risk and reduce positions a bit, but we generally remained long commodities and rode the recovery over the past two days. The long-term trends have not broken down, so our technical models look for some sustained moves. A look at some markets:

• Metals (precious metals and copper) - long
• Energy - long
• Grains - long
• Meats - short
• Softs - generally long (especially sugar, coffee, cotton)
• Currencies - transitional, so generally flat

Market Update: Stocks and Futures

The stock market saw its first big drop in months, with stocks dropping about -5.5% from their recent peak. We avoided part of the early decline in stocks, but our stock market models went long as "some of the air was let out of the recent balloon." Both Long-term and Intermediate-Term (overbought/oversold) models are currently long.

Futures Markets

After a nice run early in January for our futures portfolio, the dollar's recent strength and weakness in commodities caused whipsaw losses. As a result, we currently have small positions in the currency markets. We are still long several commodities markets, including metals and energy -- as well as several softs.

Traders need to monitor these positions because a deeper decline means positions should be closed out. Traders have to manage that risk...

A Look at the Currencies, Stock Indicators

Our overbought/oversold stock market indicators are going neutral after being slightly bearish for a few weeks. Depending on market action, they are looking to go long in a day -- or a few days. Our long-term indicators remain bullish, while our short-term indicators are getting a headache from the flippant stock market. Net-net, as you can tell, we have been slightly bullish, riding the general trend upwards in the equity markets.

Today, the US dollar is taking a breather from its recent steady decline. Most foreign currencies have been gaining ground relative to the US dollar. In particular, high-yielding currencies like the Canadian $ and Australian $ have made big gains. Many markets are now discounting the risk in the general global economy. Only time will tell how things shake out -- but for now, sell the US dollar on dips (and buy all foreign currencies on dips).

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.

Markets we trade

We have traded just about every liquid futures market around the globe. Today, our focus is on the US markets, including all liquid futures markets (index futures, interest rates, currencies and commodities) as well as stocks and options.

We also trade foreign index futures such as the Nikkei.