Archive for November, 2008

SOMETHING TO THINK ABOUT

By trader7757, 28 November, 2008, No Comment

Sometimes I log onto this blog of mine and see the glaring headline I have chosen and cringe…..

“Learn to earn $1000-2000 a day”

The key word in that statement is “learn” and I want to emphasize that trading, like all skills, is acquired skill, and it would be a mistake to arm yourself with a thimble of knowledge and expect to conquer the markets, it’s just not that easy. If you read much of this blog, you have seen days when I lose money, make mistakes and in general do a poor job. Mind you, I do not intentionally go out and decide to do a poor job, but the market is a mysterious creature, at times.

To be sure, I want to emphasize the learning aspect of trading as oppose to the greed that all of us feel at the thought of effortlessly earning thousands every day. It takes time and patience to be an effective market trader. I strongly suggest trading on “paper” for an extended period of time before you consider risking your capital. Learn to trade just one of the indexes, they all have subtle nuances that can be distracting. I would suggest the YM or the NQ contracts as great starting places. They both are fairly liquid and behave well, so to speak.

Don’t rush into a trading account and expect to conquer the world. The fact is, most traders bust out in the first 90 days. Keep that statistic in your mind. 90 percent.

Of course, most people tend to rush into the futures markets after having read a book or two and traded on paper for a month…..that’s not enough. Become a student of the markets and test your skill regularly, and for an extended period of time. Get real good. Then start conservatively and trade a single contract. It’s different when you trade with real money, believe me.

From Calculated Risk

By trader7757, 28 November, 2008, No Comment

CB Richard Ellis: CRE “Conditions have deteriorated” Rapidly
by CalculatedRisk on 11/28/2008 09:10:00 AM

“Conditions have deteriorated on a scale and with a speed that no one could have predicted just a few months ago. Market conditions of unprecedented strength are roiling the world’s financial markets. The global economy is either in, or close to, recession and 2009 is not likely to be a year of great recovery.”

Brett White, president and chief executive officer of CB Richard Ellis, recent letter to clients, from the LA Times: CB Richard Ellis feels industry’s painAnd a few months ago White wasn’t exactly optimistic:

“Decreased investment volumes have now become evident in all parts of the world. … I can best describe the current environment as being very challenging and still having a high probability of getting worse before we see improvement.” Brett White, president and chief executive officer of CB Richard Ellis, July 30, 2008

GDP revised downward, but new loans carry the day

By trader7757, 25 November, 2008, No Comment

ESZ8 11-25-08 Click on image to enlarge

The wacky world of bailouts and bad news continued today as the market took a liking to the Fed’s new loan program, and , for the most part, ignored the downward revision of the GDP to -.5%. Volume was heaviest during the last hour or so as the ES climbed into positive territory. Most behavior in the market, strange as some of it is, has rational explanation but today was one of those days you chalk up to experience. For the most part, the day was fairly tradable and didn’t pose any huge problems.

here is todays chart

By trader7757, 24 November, 2008, No Comment

ESZ8 Click on chart to enlarge

It just keeps getting stranger and stranger….

By trader7757, 24 November, 2008, No Comment

Obama Transition Team Considering Bankruptcy “Prepack” for Automakers

President-Elect Barack Obama’s transition team is considering a prepackaged bankruptcy for the automakers as a potential solution.

This may be the answer for the beleaguered automakers. Although many have been calling for a bankruptcy solution for GM, F, and Chrysler, the implications of a potential bankruptcy have been weighing on the markets like a ton of steel. A Chapter 11 filing during ordinary markets wouldn’t necessarily be catastrophic; the airlines seem to do it every couple of years. The biggest concern about a bankruptcy filing by the automakers right smack in the middle of the credit crisis has been the lack of availability of debtor-in-possession financing. DIP financing is crucial during a Chapter 11 in that it allows companies to continue to fund operations while working through complicated negotiations with creditors. GE Capital, the largest provider of DIP financing, recently announced it was exiting the business. Without access to this type of financing, the probability of a Chapter 11 bankruptcy leading to a liquidation has increased dramatically for any company seeking protection from creditors. The thought of all three automakers needing a huge amount of this type of financing during a period of such constrained credit is just too much for the markets to bear.

A prepackaged bankruptcy with the government providing the interim financing is perhaps the ideal solution. The automakers could restructure all of their burdensome obligations, allowing them to better compete with the foreign automakers. If a deal was reached with creditors prior to a bankruptcy filing, with the government’s financial support, consumers would not shy away from purchasing vehicles from the companies because a clear exit strategy would be in place.

what an interesting week

By trader7757, 22 November, 2008, No Comment

From the onset, let me say that I sure wish the volatility in the market would subside. I find myself tracking at either 2(ATR) or sometimes 3(ATR), which gives me the willys, for lack of a better term. Of course, the volatility is a double edged sword, if you are on the right side of the trade and the market accelerates, as it so often does, you get the momentary feeling that you are a genius. That illusion can easily dispelled on the very next trade however, and you can end up feeling just as foolish as you felt smart…all within five minutes.

And some rationality in the market might be nice, too. Granted, a new Treasury Secretary might turn out to be a wonderful thing. but his options are as limited as the current Treasury Secretary’s. We have the accelerator on interests pushed nearly to the firewall, and the next step will surely be a Fed. Funds rate of 0%, ala Japan for a good part of the last decade. For all the worry about inflation we have heard, I find myself much more concerned with deflation and demand destruction, which causes all sorts of problems in balancing money supply, interest rates and a host of other more subtle problems. The point is, the problems that were sending the market downward Friday morning did not change with the potential appointment of a new Treasury Secretary, regardless of how talented the man is…we have some serious problems at hand and no real remedy in sight.

And the credit problems are really what has been giving the market indigestion, if not a downright ulcer. The numbers on the CSO’s and accompanying credit default swaps are just plain staggering, and solution is not apparent to even the most gifted economists. My favorite economist, Paul Krugman, has a number of suggestions, but I have yet to see a solution. We are in a situation of treating the symptoms of the disease but are, so far, unable to cure the root problem. And I’m not so sure throwing a pile of money at the problem is the answer….but maybe it is.

That being said, we also find outselves bailing out just about every industry that is in any way related to finances….the automakers being the most prominent. The most important question that has to be asked is fairly simple….”are we chasing bad money with good money?” I don’t have a credible answer to the question either. And then there is real estate, and mortgages, and taxes….the problems are manifold with all the participants lining up to get a piece of the government hand out programs. Where does it end? I don’t know, nor does anyone else….but the implications for the entire scenario appear to be grave, and the patient is very ill.

There is some beauty in it all, though. As traders, we always have the chance to earn money, we always have a job. Just the same, I worry about our country and the direction we have taken in the last eight years. I pray we can find our way back home and rest on solid footing. What do you think?

Just another day at the office, I guess

By trader7757, 19 November, 2008, No Comment

ESZ8 11-19-08 Click chart to enlarge

The market fell out of bed this morning from the very start, which isn’t fully reflected in this chart because it had been trading down all night long. Again, lots of volatility and unpredictability…but there were a few good moves to be taken advantage of, especially when the risk oscillator and indicators were in agreement. You can see the Average True Range rose steadily in early trading, which forced me into using wider stops than I would have liked to use, sometimes in excess of 30 ticks, but if you were patient the market stumbled along in the right direction. Of course, it was enough to drive me half crazy watching the volatility….but I survived.

This interesting fact greeted me this morning

By trader7757, 14 November, 2008, No Comment

WASHINGTON (MarketWatch) – Falling for a fourth straight month, U.S. retail sales plunged a record 2.8% in October as sales of autos and gasoline plummeted, the Commerce Department estimated Friday.

Excluding the 5.5% drop in auto purchases, retail sales fell a record 2.2%.

The figures were worse than expected, with economists surveyed by MarketWatch looking for the headline sales number to fall 2.3% and sales excluding autos expected to drop 1.7%.

Falling gasoline prices accounted for about half the decline in total sales in October. Sales at gas stations fell a record 12.7% as the average price at the pump plunged. Sales excluding gas dropped 1.5%, the biggest decline in three years.Excluding both autos and gas, sales fell 0.5%.

Sales were quite weak across a broad swath of the retail sector in October, an indication that the fourth quarter could be worse than the just completed third quarter, when inflation-adjusted consumer spending fell at the fastest pace in 28 years.

Retail sales account for about half of consumer spending and about one-third of domestic demand. Retail sales are down 4.1% in the past year. Sales fell a downwardly revised 1.3% in September. Sales in August were also revised lower to a 0.7% decline.

The dismal report confirms what the business sector has been saying: Consumer spending is falling rapidly. This week, for instance, Best Buy said it saw a seismic shift in spending. The world’s largest retailer, Wal-Mart, reported better-than-expected revenues, but lowered its forecast for future sales.

For their part, the automakers are pleading for a lifeline from Washington, with per capita sales dropping to the lowest levels since World War II.

In a separate report, the Labor Department said import prices fell a record 4.7% in October, led by falling crude oil prices. Excluding fuels, import prices fell 0.8%.

Details

Sales of durable goods remained weak. Sales at furniture stores dropped 2.8%, sales at electronics and appliance stores fell 2.3%, and sales at hardware stores fell 0.4%.

Sales at the mall were horrible. Department store sales dropped 1.3%, clothing store sales fell 1.4% and sporting and hobby stores sales fell 1.6%. As bad as those numbers are, they are slightly better than in September.

Sales at grocery stores were flat, while sales at bars and restaurants rose 0.3%.

Sales at health and personal care stores rose 0.4%.

Sales at nonstore outlets, such as catalogs and online stores, fell 1.8%

Rex Nutting is Washington bureau chief of MarketWatch.

As interesting as all this bad news seems to be, the market has inexplicably shrugged off most bad news and continued along it’s merry way….what’s your opinion on todays action? I just can’t imagine the latest slew of horrible employment and spending numbers can allow the market to continue upward….the very thought of it is absurd, but then again, the action in the market of late has been absurd, at best…

I really don’t know what to say

By trader7757, 13 November, 2008, No Comment

ESZ8 11-13-08 Click on chart to enlarge

Apparently bad news is good news, or at least by the end of the day the bad employment numbers had been forgotten and the market rallied 500+ points. I would like to give you a plausible explanation for this rally, but I cannot fathom the reason for it’s existence…it simply happened. There are some strange doings on the market these days, and while I am far from ready to join the conspiracy theorists, this rally has me absolutely baffled. Who in their right mind, given the extraordinarily pessimistic outlook for the future, could seriously consider buying equities at this point.

Now, one might argue that the time to buy is when the greatest pessimism exists, as this is the point where many recessions begin to rally, but there a wide chasms of doubt in our financial future, gaping holes in our financial system where no easy solutions exist….and yet people are buying stocks. I am perplexed. I didn’t trade today, as the volatility was beyond my risk tolerance.

thought you might enjoy this nutty looking chart

By trader7757, 12 November, 2008, No Comment

Decision Bar ESZ8 After hours chart

There was a time when the after hours trading was so boring that you did not even bother to take a serious look at trading. After all, the chart was basically a straight line with a little bit of movement, maybe a half point of so here and there, and the volume was so pathetic it was simply a waste of time. This is the after hours chart for 11-12-08 and the chart is so volatile you can barely trade it…and the moves occur without warning or any sense of order…of course, the random theorist can now stand up and applaud as this chart gives random movement new meaning.

I thought that I would talk some about the Average True Range indicator at the bottom of page, here is an an excellent technical explanation of True Range:

Developed by J. Welles Wilder and introduced in his book, New Concepts in Technical Trading Systems (1978), the Average True Range (ATR) indicator measures a security’s volatility. As such, the indicator does not provide an indication of price direction or duration, simply the degree of price movement or volatility.

As with most of his indicators, Wilder designed ATR with commodities and daily prices in mind. In 1978, commodities were frequently more volatile than stocks. They were (and still are) often subject to gaps and limit moves. (A limit move occurs when a commodity opens up or down its maximum allowed move and does not trade again until the next session. The resulting bar or candlestick would simply be a small dash.) In order to accurately reflect the volatility associated with commodities, Wilder sought to account for gaps, limit moves, and small high-low ranges in his calculations. A volatility formula based on only the high-low range would fail to capture the actual volatility created by the gap or limit move.

Wilder started with a concept called True Range (TR) which is defined as the greatest of the following:

The current High less the current Low.
The absolute value of the current High less the previous Close.
The absolute value of the current Low less the previous Close.

If the current high-low range is large, chances are it will be used as the True Range. If the current high-low range is small, it is likely that one of the other two methods would be used to calculate the True Range. The last two possibilities usually arise when the previous close is greater than the current high (signaling a potential gap down or limit move) or the previous close is lower than the current low (signaling a potential gap up or limit move). To ensure positive numbers, absolute values were applied to differences.

Of course, I am always interested in the volatility of the market when I begin to look at the feasibility of trading each day. The Average True Range can give me an excellent insight into how to set my stops. I generally like to set my stops at 2 ATR’s or maybe 3 ATR’s on a less volitile day. That being said, the ATR during morning trading on the ES contract was between 3 and 4, sometimes higher. So, if I wanted to effectively trade the market today I would need at least 6+ point stops to stay in a trade and not be stopped out on volatility alone. Many of the traders that email me talk about getting stopped out on trades that are heading in the right direction but one volatile bar stops them out for a loss. Using this ATR method, you can give yourself a good idea of the stop ranges you will need to use to compensate for the unweildy markets of late. Hope it helps

The Fractal Futures Trader