Archive for October, 2008

TED spreads

By trader7757, 9 October, 2008, 2 Comments

Here is the TED Spread from Bloomberg. The TED spread hit a record 4.13 this morning. This is far above the highs reached during the previous waves of the credit crisis.

Note: the TED spread is the difference between the LIBOR interest rate and the three month T-bill. Usually the TED spread is less than 0.5%. The higher the spread, the greater the perceived credit risks (compared to “risk free” treasuries).

From Bloomberg: Libor Dollar Rate Jumps to Highest in Year; Credit Stays Frozen

The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest-rate reductions worldwide failed to revive lending among banks for any longer than a day.
…
The London interbank offered rate, or Libor, for three-month loans rose to 4.75 percent today, the highest level since Dec. 28. The Libor-OIS spread, a measure of cash scarcity, widened to a record.

The credit markets are still in severe distress.

Courtesy of Calculated Risk

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The song remains the same

By trader7757, 8 October, 2008, No Comment

The charts today, along with the story is very similar to the last two weeks. The market is in the process of deleveraging and jettisoning the assets they have to raise cash. Unfortunately, many of the assets that are integral to this process are of dubious or not value, especially the CDO and credit default swaps that accompanied them. So it has been raining cash in the markets for the last few weeks, and today was not different.

The Federal Reserve flailed at the problem today by lowering interest rates 50 basis points, but this was of little consequence to a market focused on unloaded debt, and assuaging the fear that has become integral in the market of late. So the market bobbed up and down and all around with some of the longest bars to date, and finally settled on -189 and change. So much for interest rates solving the problem.

The chart below is from yesterday and you need only substitute todays comments for yesterdays comments as the song has remained fairly constant in the current economic environment. I would expect some bounces up in the coming day, but that is just a guess on my part. Of course, the interest cut was bad news for the dollar and it was roundly pummelled throughout the course of the day.

The volatility today convinced me to stay on the sidelines until more manageable volatility prevails….using 3 point stops, or even 5 point stops, it is virtually impossible to stay in a trade.
So I watched today with grim fascination.

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ummm…I don’t know what to say about this day of trading

By trader7757, 6 October, 2008, No Comment

Click on image to enlarge
ESZ8 10-06-08

The market correction related to the recession and the credit crisis was in full swing today as, at one point, the market was down a record 800 points.

Obviously, I stayed short during the morning session and tried to stay long in the afternoon session. It was not easy to stay in trades again today, as it took extremely wide limits and stops to take advantage of the price movement. The volatility was extreme and it took a steady hand and steady nerves to scalp trades with any effectiveness. Of course, my conservative nature was tested by this market action, and I bailed out of several trades when I had made my three points, but if I had let the trades run they would have been much more profitable. Past readers of this blog will be familiar with me self flagellation on this issue, but I figure a bird in the hand is worth two in the bush and have never been able to dislodge that thinking from my constellation of thought.

The blogs and posting boards have been chirping about a possible government intervention in the market this afternoon. I find it hard to believe that the market could back from 800 points down, especially with many small investors idled and the hedge fund cabal playing the markets conservatively of late, but come back it did, all the way to the mid-300’s. I’ll let you decide as to the nature of the dubious comeback the market staged, as I am not much of a conspiracy theorist by nature.

Anyway, the market did hold some nice support and resistance lines through the day, and when it did pierce those lines it was usually on exceptional volume so the calls were not difficult to make. As I said, tuning out all the noise and movement in the market was my primary objective. I even turned the television off at one point in the afternoon, as that lunatic on MSNBC went on rant of unparallelled intensity…at one point suggesting anyone who needed their money in the next five years to get out of the market now. Ah…the guy is more of a distraction to trading than a valuable source of news. I ended up 10 pts. on 1 contract on a day that there was far more for the asking.

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Can anyone make any sense of this?

By trader7757, 3 October, 2008, No Comment


ESZ8 10-2. 10-3 2008

I wish I could report to you that the markets have operated in an orderly manner the last two days, and that clear distinctions and indicators existed to point to an effective trading strategy. But that would not be the case. The chaos that has ruled the markets the last month intensified as the bailout, or is it rescue? bill worked it’s way through Congress. Also, problems were compounded by inflation and job reports that point out the our current economy is in recession, no matter what Washington would have you believe. Additionally, earnings and earnings guidance reports were dismal, at best. So it was a gloomy week on the street. You would have thought that the market would work through this information in an orderly manner and head south in a near straight line. As the charts above show, the markets were anything but orderly, they were a mess…..and weaved up and down in a manner not unlike a drunken sailor.

As for continuity of movement, the market rallied on the Senate passage off the bailout bill, and conversely, dropped like a rock when the House passed the measure on a second vote. In the midst of all this chaos, Warren Buffet methodically carved out equity positions in Morgan Stanley and GE.

My strategy for the week was to stay very conservative and not over trade, setting a limit of only 5 trades per day as my goal. For the most part, this turned out to be a good approach for this market. Time after time, setups would arise and the market would move in exactly the opposite direction one might expect it to move. I widened my stops some to counteract the wild volatility I experienced, and delayed my entries longer than usual to account for the tendency of the market to make unpredictable moves.

I threw the oscillator based entries out of the equation as they fluctuated will nilly and were more a distraction than help. Instead, I focused on volume, support and resistance, and price action and relied on the oscillators as confirmation. There was profit to be made, but it took a bit of restraint to not jump into familiar set ups, which often fluctuated to the losing side.

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