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« Strike 3 For 3DTV | Main | Dollar Spike on Friday May Be the Bottom »

Thursday, October 14, 2010

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Mamma Boom Boom

------------ CRASH ------------

Just practicing! Some day that will be my 'battle cry', ....again, ....and I don't want to forget how to embrace it.

Neo-Mamma

Wave Rust

michael,
i trade what i like to trade. i don't stray far away from the indexes and pairs.

stocks take too much work and have so many variables that can affect price. like some CEO getting fired for harrassing his barber, or some idiot analyst panning the stock.

stox are a mine field i avoid. but the spx sure does look like an energy ETF much of the time. :)

and energy is going to be a usd trade for a long time, until china owns all the forward production contracts. then, we will all go to china for the winter, just to stay warm and have cooked food again. :)

wave rust

Wave Rust

yelnick,

re: your QE II post here.

QE I didn't work very well, if at all, because all it did was barely counteract the "big effing deals" of Oblahblah and the incompetent socialist led Congress.

So if it didn't work as Plan A, then usher in Plan B. Plan B is always an variation of Plan A.

With results of Plan A sucking so bad, the obvious conclusion is either of two choices: Plan A wasn't big enough or Plan A wasn't soon enough or often enough ,,,, so, let's make it bigger and more often.

What's a another Trillion or two really going to cost?
What does a ton of ink for the printer cost and overtime labor for the copier attendants?

Plan B ! ! "B" stands for BIGGER and BETTER.

wave rust

yelnick

wave, I would put the plan B argument a little differently:
Before QE1 to prevent the interbank market from freezing the Fed centralized the liability, which put reserves on the Fed but created no new money. This worked to stop the freezing but did not get back to normal lendingAs part of pre-QE the Fed assumed a lot of toxic waste debt as collateral, so they started QE1 to fix their balance sheet (buying Treasuries and MBSs of higher quality) with the intention of keeping mortgage rates low to spur housing. It failed.QE2 is intending to keep long-term Treasuries low in order to spur private lending, but the Fed may have to buy a huge proportion of the long bonds (perhaps all of them) since the artificial lowering due to QE means that once QE ends the rates go up.  Outside buyers would take a bath on the long bondsHard to see how QE2 works since the inverse of low lending rates is low returns on capital, so why will banks lend if they get low returns? Banks can be thought of as mechanisms to borrow short and lend long, arbitraging the spread. As the spread narrows, less to arb. Better to speculate. 


Hence the QED on QE2 is the Fed should instead create an environment where rates rise, meaning the return on capital rises, which will spur lending. Banks do not lack for short term liquidity to start the lending process. They lack confidence in the returns. 


The Fed cannot just raise rates; it needs to create a market driver that raises rates. And maybe it is simply incapable of doing so in this climate. The trick used in 1933 was to cause inflation by changing the gold price from 1 oz=$20 to 1 oz=$35, making Dollars inflate. 


Problem is the huge overhang of debt has not been written off yet, unlike where we were in 1933. So again, maybe the central bank is powerless to cause rates to rise via inflation prior to the debt-deflation spiral. Japan may be an exemplar of what happens when you just roll the debt overhang forward - 20 years of no growth.


My reading of Bernanke's speeches and other Fed officials is that they are quite aware of this dynamic. The big irony is Bernanke lectured Japan about this not too long ago, and now he is doing what he told them to avoid. Bernanke would prefer more fiscal stimulus, whether thru tax cuts or increased spending, and knows it is highly improbable politically. So all that is left is the Fed to the rescue.  

Michael

"stocks take too much work and have so many variables that can affect price. like some CEO getting fired for harrassing his barber, or some idiot analyst panning the stock." - Wave Rust

Sorry, but what you have indicated above in your post are merely "Excuses" to me. These stocks are highly liquid trading vehicles/proxies for what is going on in the commodity sector.

I can understand someone saying that they do not have enough CAPITAL in their account to trade these names, and that's why they trade the E-Minis ... but the "laziness" factor that you cite is not part of my vocabulary. It's just not realistic to me and has no place in the world of trading when you are able to capture 30-40% gains.


Wave Rust

yel,
"They lack confidence in the returns"
yep, return of and not return on my capital.

the Japan model may not work for the US now. it may ne a model of the time it takes the American consumer to de-leverage enough to actually increase above subsistence spending. but the one thing that hasn't happened yet to make that a possibility, is for the Feds of any ilk to remove themselves from the equation.

that's what i think has to happen before RE can bottom, global currencies re-align, and demand becomes pull rather than the feds pushing.

"big govt kills" is now a common belief among many ordinary Americans. the coming gridlock, even if the Repubs take both houses of Congress, may be the spark to remove some of Oblahblah's big govt expansion.

That then, may give the economy, the consumer and the job creators that glimpse of the missing reality of what real market driven 'hope and change' can bring.


wave rust

Whitebear

I just don't understand all this talk about real estate crashing. As I have said earlier, if you look at the San Francisco Core region (pacific heights, presidio, etc) or Palo Alto, real estate is no where near crash level, and there are still bidding wars going on.

Wave Rust

Michael,

picking stocks is a skill i have never cared to develop. the analysis bored me. when i began charting and trading, i traded stocks, index futures and commodity futures(grains, metals and softs).

I learned to trade when it was very very expensive to trade anything. Commissions were huge, data was even more expensive, computers were expensive. "Free market data feeds" and "free trading software" were only dreams, like going to the moon. It wasn't like today where anybody can step up with $200 and open a forex account and get 400:1 leverage.

i traded trends, swings and daytraded all of them. i found out what i liked most. i focused on that. Then index options became liquid ways to trade and/or hedge. very attractive to me.

today, i would rather trade the metal rather than the miners index or a miners stock. but mostly, i'd rather trade an index future and hedge a position (if trending) with maybe an option or a quick spread.

I've seen your numerous comments about your 30-40% gains, which are just fantastic for you. I mean that. I have never poopoo'ed those picks or the gains. Thats your game. So, go for it. Nor have I ever tried to play "I can top that", here and now, or before.

but just consider this, the 80%+ net rally off of the spx march '09 low without any leverage. And, i have caught most of the up and quite alot of the downs in-between the ups.

now i could ask you if you use margin or not. and if you don't, then I could say that you really don't have the trading cajones you tout about your trading prowess. If you do use margin, I could say you are taking too much risk for only a 30% return ,,,, blah blah. But, I wouldn't do that because it's meaningless. I could say you have missed a huge rally, much larger than your 30% move. But, I wouldn't.

So, i would reply to your presumptive "laziness", emini capital, as foolish comments from someone who may be trading to at least, in part, satisfy some emotional need. maybe thats too generous of me. maybe you have an even greater problem. but, as far as I'm concerned, your 30% is great, whether levered or not. And like I said, I'm glad for you.

nevertheless, i still believe trading stocks requires much more work and time than trading indices. what happens when a stock plays out? you have to go find another stock or sector, analyze it versus other stocks or sectors, and so forth. i grant that stock scanning software is a big help.

but when energy plays out, you'll have to move on. menawhile I'll still be over trading what I know how to do very well. the old "rinse, repeat" thing. "Seeing the trade has become so much easier after decades of trading".

imo, managing the trade is the challenge and art of trading. And, I will use every tool and market vehicle available to me, if it fits all of my very simple trading schema.

So, if I can get only 100% on my trading capital with leverage of some sort, and keep risk within my tolerance parameters, I can see why you might think I'm lazy. but thats my game.

You might get to that point some day, or not. Just do it the way you want. I certainly do.

wave rust

I think that cnbc is going to have a show on soon about the Big Boys, like Buffet, telling about their worst trades. That will be an interesting watch, I think.

Now, that's a big file folder in my archives, labelled "Don't Do This". :)

yelnick

whitebear, the fall in RE is highest in areas with the most stupid mortgages, and is lowest where sound finance prevailed - such as palo alto

Dsquare

Bummer! (file under Phoney war on drugs)

The U.S. Justice Department will prosecute possession and distribution of marijuana in California even if voters approve a ballot measure to legalize the drug, Attorney General Eric Holder said.

The department “strongly opposes” California’s Proposition 19, Holder said in an Oct. 13 letter to former administrators of the Drug Enforcement Administration. The measure would “complicate” U.S. drug enforcement efforts, he said.

The Justice Department will “vigorously enforce” federal drug law “against those individuals and organizations that possess, manufacture or distribute marijuana for recreational use, even if such activities are permitted under state law,” Holder said in the letter.

The proposition, a referendum on the Nov. 2 ballot, would make it legal for anyone age 21 or older to possess one ounce or less of marijuana, and allow local governments to regulate and tax sales even though it is illegal under U.S. law.

http://www.bloomberg.com/news/2010-10-15/marijuana-legalization-measure-in-california-opposed-by-justice-department.html


OracleLurker

I would agree that, for the technically oriented, individual stocks have not been worth the extra effort required beyond trading the indexes with leverage. There are many reasons for this but two of the more obvious ones to me are the availability of cheap leverage whether through etf's, futures or margin, and the fact that alpha is a also zero sum game - it's not easy! Having said that, there are periods when so much capital starts to reach further out on the risk curve that the "silly" game of stock picking becomes the most profitable, and I think we have entered one of those periods in the market. I would like nothing more then to ignore the universe of stocks trading under $3 - most of these companies are completely worthless, but when baskets of this junk are returning 20-30% a month - well I can't ignore that. So in a nails on chalkboard kind of way I would say Micheal has a point - what to buy has become more important then whether to buy, at least for the next six months, though I'm currently just short es :)

DG

I would just add one thing to the discussion about individual stocks and that is that any honest wave theorist will tell you that the theory loses whatever trading edge it has when applied on anything less than a market index or commodity play, where "mass psychology" is weak to non-existent.

As for returns, position-sizing and optimizing value-at-risk will yield more impact on returns than what trading instrument you use. I've never understood the infatuation with beta (how much does a stock move, percentage-wise, relative to the S&P 500) when it's obvious under any rational risk management scheme that the number of shares you'd purchase would be smaller for a more volatile stock than it would for an index ETF or future to put the same dollar amount at-risk. I know I've read articles stating that most hedge funds don't add any alpha, they're just disguised beta and I don't see any particular skill involved in that, just luck, which is probably why so many of them either blow up or regress to the mean even before they get too big and start to impact the market with their trades. I trade 1 SPY set-up from both the long and the short side and can easily find the right position size per trade to make 20-30% a month using ITM options or futures.

If my risk-per-trade is $10K and I'm trading BRK and it moves $10,000 in a day, I buy 1 share and if I'm trading the SPY and it moves $1 in a day I buy 10,000 shares. That's the only rational volatility-adjusted position-sizing methodology (either based on dollars-at-risk or percent-at-risk) there is and anything else is probably more gambling than trading.

Anyway, I see no reason to trade anything other than the indices and maybe currencies, which I haven't traded before but I'm looking at now, because those are the biggest markets and most indicative of "mass psychology". If wave theory is going to work anywhere, it'll be there.

Mamma Boom Boom

>I would just add one thing to the discussion about individual stocks and that is that any honest wave theorist will tell you that the theory loses whatever trading edge it has when applied on anything less than a market index or commodity play, where "mass psychology" is weak to non-existent.<

That is just plain silly.

OracleLurker

Yes you would take a smaller position size in any one high beta stock but the idea is to diversify into a basket of these positions - and then really you are just trying to accomplish the same thing as you would with a futures position - out-performance. But in a fuzzier way based more on the group's overall alpha then beta - whether internet stocks in '99 or home builders in '04, sectors and stocks going up day after day whether the market is down or up. I agree with what you are saying most, maybe even 90% of the time in the market. I am just saying that occasionally we see sectors outperform to such an extent, that I would chose to step outside of my comfort zone - swing trading the indexes long and short - and additionally pursue a completely separate strategy to benefit from the action in these sectors. Not everyone is really interested in or suited to being a chameleon and getting away from their area of expertise but if the Fed is hell bent on generating another asset bubble then I want to adopt an approach that embraces the kind of market that will result from that. You can argue that by applying enough leverage in the form of index futures, margin, whatever you can always match the returns of a high beta group and you would be correct - but it is the alpha that really makes it worth going after these sectors and I think we are going to continue to see the kind of alpha in pm and certain commodity sectors to justify it.

Wave Rust

You cant make up stuff like this.

Rich Whitney is the Green party candidate for governor of Illinois.

His name is misspelled on 4,200 voting machines in Chicago's predominantly African-American voting precincts.

His name is listed as "R. Whitey". So, he's essentially 'Rich Whitey' for governor. :)

Rich Whitey is not going to win many of those precincts.

wave rust

DG

Yes you would take a smaller position size in any one high beta stock but the idea is to diversify into a basket of these positions

Depending on the correlations between each member of your basket, you might not be as diversified as you think. If I buy 20 pink sheet turkeys to take advantage of an asset bubble, chances are all 20 will be flying high and then won't be, all at the same time.

but it is the alpha that really makes it worth going after these sectors and I think we are going to continue to see the kind of alpha in pm and certain commodity sectors to justify it.

Well, the currency or commodity markets themselves would be the "mass psychology" play here, so I think you can go right to the source of the alpha without having to trade individual names. Yes, the operating companies in the commodity sectors are highly leveraged to pricing power vs. operating costs, so they can see huge profit increases on small moves in the commodities, so long as their costs rise slower than their pricing power, but that's not a game I find worth playing.

yelnick

wave, regarding the misspelling in Illinois, or the oops! I forgot! failure to send absentee ballots to soldiers by NY - incompetence? or clever fraud?

Roger D.

Ho,ho,ho So you want to print how much money? Sooner or later,you new the bond market would say screw you Bernanke.

http://www.screencast.com/users/fast996/folders/Default/media/4c4cfdf6-8522-443e-811d-cc376f4b49b2

Rich Y T

Yel,
I'll give the voting machine company the benefit of the doubt because they got it right everywhere else on the printable ballots. So, it's probably a typo.

but it's still funny to me, either way. it's so Chicago politics.

Rich Y T

Rich Y T

Yel,
I can't even discuss the absentee ballots for our service men and women.

I don't know what makes me sicker, the late absentee ballots, or the lack of outrage in the public and the media.

Rich Y T

Roger D.

The Vampire Squid is really this crooked? This is a monster scam if true. There's that MERS system and all the phony shell companies setup to do the dirty work of the big banks. The purpose to defraud not only the little guy but Uncle Sam also. This makess everything pale except the Fed being complicent in it all, Amazing.

Roger D.

http://market-ticker.org/akcs-www?post=169376

Michael

Wave,

You seem to have misunderstood my point about my trading style as an active trader that concentrates on one group.

I'm talking about 30-40% unleveraged gains (several times a year) in a handful of stocks that I trade within the coal, iron ore, copper and drilling sector as opposed to the much smaller 5-10% trading moves in the S&P.

You claim that such gains are not impressive given the lack of margin and lack of "cajones", but why would anyone need margin to trade a half dozen names inside of a seven figure account for 30, 40, and 50% moves that more often than not occur several times per year?

Moreover, I'm not sure what you are talking about when you say "when energy plays out, you'll have to move on."

For someone that has been trading the market since 1980, I don't seem to recall a time when energy "played itself out."

The Long and Short of it is that this sector is by far one of the highest beta sectors to trade. It does take some BIG CAJONES and is not for everyone . . . especially those that are not all that comfortable pulllng the trigger in an active fashion and/or staying on top of their risk management.

On another note, my core INVESTMENT in shares of Exact Sciences (EXAS) since Christmas of last year has now more than TRIPLED this year ... and I believe that it is quite possible that this company will see its marketcap surge even higher.

This INVESTMENT has required a lot of homework. It has required a lot of due-diligence and research on my part. But I've found that some of my biggest percentage investment gains have been with companies that I have a tremendous understanding of the business plan that they are trying to execute, not too mention becoming comfortable with the management team. That takes time, and is not something that merely happens overnight.

I've never been LAZY.

The due-diligence that I crunch through when doing my research is something that I enjoy. The market place is quite competitive. It's high stakes, and people don't just "stumble" on impressive gains/performance by turning on their computer, or reading a newsletter, or depending on someone like a Robert Prechter and their all-elusive omnipotent THEORY to generate consistently solid performance.

I'm a former commodity floor trader of 10 years that has actually gotten away from scalping futures and who now prefers instead to position/scalp trade high beta, highly liquid energy names.

If you've got a more than adequate capital position, a rock-solid data feed, and a robust trading platform ... there's no reason for me NOT to trade one of the highest BETA sectors in the equity market.

But like I said before in my previous post . . . if you don't have a lot of capital to trade with and you are penny-pinching on data-feeds and trading platforms due to your capital base, then I can see where E-Mini futures would be more suitable for you.

Good Luck To All!

Wave Rust

let me be clear michael without sounding rude.

I don't care what you trade. I don't care why you trade it. I don't care how much you make.

What you do is irrelevant to my trading of whatever I trade and when I trade it.

And, that's what it should be for everyone else about anyone else's trading.

trading is personal. I have known several 'know-it-all' traders who never had a problem telling others what to do. It seemed that was their whole purpose in life.

Me, I just like the markets, and hearing what others have to say about them. Occasionally, a guy like Tepper says it so well and so clearly on TV, that it is stunning only because of its rarity. His hedge fund has a heavy weighting in bonds. I don't trade bonds anymore. But what he said was cool but it won't affect my trading either.

The question about how or what I trade should be irrelevant to you too. But, I guess it's not.

As I wrote before, I'm glad for your success trading beta. For me, I can see trading high beta means something completely different than it does to you.

Returns are relative to risk for my game. Low risk trades can occasionally get me to use high leverage. High risk, such as high beta, is anathema to me. Risk is perceived in part and quantifiable in part.

I prefer to exert effort to find the low risk of lower beta trades. The closer i get to a "sure thing" type of trade, the better I like it. Then use the appropriate leverage. It's pretty simple. I simply front loaded all the "work" years ago.

You keep on doing that investment homework.

I'll be over here keeping it simple, accurate and profitable.

wave rust

P.S.
As a former pit trader, you know the commercials and specs would laugh you out of the bar, with this rather foolish statement about the traders of the mini's.

"if you don't have a lot of capital to trade with and you are penny-pinching on data-feeds and trading platforms due to your capital base, then I can see where E-Mini futures would be more suitable for you."

Joe Russo

Why are things the way they are?

It's the money STUPID...

http://elliottwavetechnology.blogspot.com/2010/10/its-money-stupid.html

Back in Black

Wall Street seems to have hit bottom nearly a year ago. On the back of an 11th hour bailout by Main Street, Wall Street is enjoying a rather bountiful and robust V-shaped recovery.

Meanwhile, Main Street struggles with frustration, anger, and envy. How could this be justified? After all, Main Street bailed out Wall Street. Without Main Street, Wall Street would have collapsed, right?

Why is this?

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