2014 Performance Update

It has been a while since I have done a blog post but I figured I would provide an update on the year.  This year was the first year I have really been able to do some consistent trading.  In recent years, I may trade for a while then stop due to frustration or due to work and CFA studying so I never really got a true sense of results over an extended period of time.

Through the close of trading on 8/29/2014 I am +8.99% for the year AFTER commissions.  Before commissions I am actually +15.02%.  The fact that 40% of my profits have been eaten by commissions is fairly ridiculous so I may look into other broker options.  Believe it or not, I actually had Thinkorswim lower my commissions about 4 months into the year too!

The S&P 500 is up 9.89% over the same period YTD.  By comparison it makes my results look modest at best however, the real benchmark to use should be the Russell 2000.  The Russell 2000 has actually lagged the broader market and is up only 1.75% YTD.  The reason I use the Russell as my benchmark is due to the fact that a majority of my trading has centered around positions on the Russell 2000 index.  One thing I need to determine is a way to get my volatility of returns and compared it to the index volatility.  This will be useful because it will allow me to measure my risk-adjusted returns and see if I am truly providing better returns and low correlation.  I am fairly confident that I do not have 5x the vol while achieving 5x the return of the Russell but I would like to prove it empirically.

So far the year has not been without its obstacles and draw downs but I have remained disciplined and committed to my goal of examining my results after a complete year of trading.  As long as I have the ability, I plan to continue to manage my portfolio for the remainder of the year.  Obviously I would love to keep up my current pace of returns for remaining four months of the year but we will see.  If I can achieve 10% returns after commissions and significantly outperform the Russell 2000(both returns and volatility) I will be happy.

Stay tuned...

CFA Level 3: Pass

August 6th, 2013, a day which will live in infamy; I am finally done with CFA exams.  Surprisingly, the results email came in at 8:17 CST and I began to scan the preview line on Gmail waiting to see "I sincerely regret...", but surprisingly saw "Congratulations...".  I smirked as I opened the email since I could barely believe it.  Not because I didn't feel like I deserved to pass or that I didn't put in the time but because a journey that I started in June 2008 was now finally at an end.  I threw my hands up and yelled "Booyah!", and that was the extent of my celebration.

Passing level 3 on the first try also gives me a bit more satisfaction than if I could have done it on any of the other levels.  The reason being is I have always considered myself to have a "Portfolio Manager" type mind set based on my own trading/portfolio management and interest in markets.  This gave me a bit more feeling of "validation" in being able to pass on the first try.  I did have a couple other advantages in that some of the level 3 material was a bit more familiar since I work at an institutional investment consulting firm and my own interest in options made the options section a joke.  On test day though the options background was of little help unfortunately(damn you CFA Institute!).

I was fairly surprised that the the pass rate was only 49%, which is the second time in history it has been below the 50% level(last year was 53% pass rate).  I think time management is definitely an issue on the exam with the essay format so I tried to be as diligent as possible in sticking to the time guidelines.  I am not sure if this really helped me pass since I still had to write what they wanted to see but I will say that doing multiple practice exams of the essay format likely made me more comfortable on test day(note to any CFA takes who read this ;-)).

Part of me is left wondering what I will do now that I don't have to study for an exam approximately half the year.  Literally just the other day I was thinking about not eating 3 meals a day at my office while studying and part of me was a bit sad, for some odd reason haha.  I am sure I will have plenty of other things to fill my time.  I am currently working on designing and building my own mid-engined super car which I will discuss in another blog.  I am also planning to try and find some C++ or Java programming crash courses to learn how to code.  Another consideration are the CAIA exams.  They are much less material, only 2 levels and supposedly quite a bit easier compared to CFA exams so I will likely sign up for the first level in March.  We use quite a bit of that material at my current employer so it also makes sense to consider CAIA.  I am definitely not one to just get designations for the sake of getting them, but there is some incentive to do CAIA in addition to CFA. Even though CFA encompasses more of what I ultimately want to do, I don't really know how the future will unfold so I may as well keep my options open and learn more where I can.

As a trading update, I am roughly up 6% YTD after expenses.  Technically it is 8% gross but after crazy fees(I may need to find a new broker) it is only 6%.  That may seem poor compared to the move in the S&P, however my actual time in market is under a month so I am fairly happy with that return.  Many have been volatility plays around earnings, in between earnings I am planning to do more passive index vol strategies.  I am hoping I can pull off a 10% year(after expenses) with very low correlation.  I will likely update at the end of the year with an analysis of my performance and trades.

I'm glad CFA is finally done.  I can check one accomplishment off my list and move on to the next challenge!

CFA Level 2: Pass!!!

It's crazy to look at the last time I posted and realize it was nearly 2.5 years ago.  I basically had to stop blogging since it would just be complicated from a compliance perspective at my employer.  I am still very involved in following the markets and options strategies I just can't really discuss it that easily anymore.

Many things have happened in my life in those 2.5 years. It seems like even more things have happened in just the past 6 months, some very bad things, and some very good things.
Luckily, I received the best news in my life to date: I passed level 2 of the CFA exams.  I honestly can't begin to describe how big of a hurdle this was and how great it feels to pass it and be on to level 3.  I always said I never understood those people who completely thought they failed but ended up passing, but now I understand.  It's not that I didn't think I had a chance, because I did study a lot but I figured I would have had to get the best case scenario in regards to how I felt about certain sections.  I also lost probably 1.5 months of studying dealing with some of those bad things right in the middle of it.  I wanted to pass despite all of the obstacles and with a lot of work and a bit of luck I ended up clearing.

I will say though, even after clearing that level I am trying to keep things in perspective.  For anyone who is taking the exams that may read this, they are just tests.  That doesn't mean you shouldn't worry about them or try and do your best or not be disappointed if you don't pass, but there are just more things in life.

For example, yesterday was the actual day results were emailed, but I didn't get an email for some odd reason and no one could tell me why.  I had to wait until it was put on the site this morning to find out.  So I just went to go meet up with some other car guys at Lake Calhoun after work to try and put it out of my mind.  I live probably 1/3 of a mile from the lake and about a mile from the meeting spot so I decided to get some exercise and run over there.  As I'm running I run past a guy who is walking around the lake with some arm crutches that he needs due to what I'm guessing is a genetic disorder.  That right there helped put some things in perspective, especially because at that point I was assuming I failed the exam.  He was out going around the lake enjoying it and here I was jogging past completely taking the ability to jog for granted.  He probably has a lot more to worry about than some stupid financial exam.  Again, that's not to say it isn't a big deal to me but I was glad I had my health and the ability to run or even the ability to worry about passing or failing an exam.  Worst case scenario, I could always take the test again if I wanted.

The same thing happened today on the way to a happy hour as a little celebration.  As we are waiting at the crosswalk there was a lady with a walking stick who was blind.  She asked my co-worker a question on directions and then we went on our way.  We all remarked at how stupid we were to be complaining about some test and how difficult it would be to have to deal with something like that and here she was with likely a more positive attitude than we had.

So in closing, definitely study hard and try your best on the exams but remember, it's just a test.  I had basically just figured I failed and was ready to take the exam again, my view was that even though it sucks to have to wait a year, to try again, I likely picked up that much more material and was that much closer to passing on the next try.  Someone said that regardless of what happens, you are technically always only 2 years away from finishing at any given time(once on level 2).  This is true.  I'm going to put an extra hard effort in on level 3 so I have a good chance of passing the first try.

Good luck to anyone taking the exams!

Ben

Monthly Strategy Update

I plan on doing updates at the end of each month on how the strategy is performing and some thoughts about what is working and ways to improve it.

After a week of action the market finds itself essentially flat. I had a rough start initially but my strategy has done decently so far but obviously one week of testing is nothing sufficient to base a conclusion. Sell disciplines have essentially been the difference so far which will likely be true moving forward as well.

Market wise I am fairly surprised we have held up so far even though friday volume was very light. Economic data is getting progressively worse and the market has stayed bullish, reversing a fairly large drop on Thursday. Overall I think investors are in a "buy the dip" mode but I am predicting a more prolonged pullback over the next month or so as we get panic that positive ecnomic progress is slowing down. I of course could be wrong and I will watch the market to tell me the next move and attempt to position accordingly with the strategy.

Total Strategy Return Since Inception: 2.17%

Follow-Up to 2009

So overall 2009 was a decent year. I am disappointed in how it ended though. I ended up 117% overall however considering where I was that is not very good. The Amazon trade was a big loss that should not have happened and it was hard to recover the rest of the year. The good news though is that I learned a valuable and expensive lesson and will trade smarter because of it. There are some key take aways from 2009 I think:

In general, I think I managed risk fairly well considering I was essentially trying to short the market since July and still managed to make gains until AMZN. I over traded for the market environment we had but obviously in the moment it is harder to be objective and hindsight is 20/20. That said, I did fully support and participate in the rally from March-May and then started to become skeptical but a major pull back did not materialize.

For 2010, I'd like to see myself with more consistent performance with smaller draw downs and less trading. That is obviously part of the plan with my new strategy so we will see how it goes. I have to put full faith in my trading system to truly test its worth so I will need even more patience and discipline. I often wonder if making it completely mechanical would be ideal but at the same time I think I have become disciplined enough over the past 3 years to intervene at my discretion.

Key Metrics to track for 2010:
Theoretical vs. Actual Expectancy
Drawdown analysis
Standard Deviation of portfolio vs. Index
Absolute and Relative performance
Attribution Analysis
Average Capital at Risk

I am looking forward to this challenge and hopefully a good year, but even more so I will look to learn from things that don't work. Ultimately I want to have a sustainable long term strategy that can return consistent profits in different market environments. Stay tuned.

Strategy Launch

I have developed a potential strategy I feel could be fairly profitable that I will be officially launching tomorrow. I would like to track the strategy performance over a year and hopefully develop a successful track record. This is a more conservative and passive approach than my typical trading so it will be interesting to see the results. It has the potential for great success in terms of theoretical expectancy but of course the reality could be different which is the whole point for testing it.

I won't go into specifics at this time for obvious reasons but the main focus will be on risk management and the exploitation of market behavior. The strategy is fairly simple yet not necessarily obvious which I think could be a good recipe for success.

I will track its performance on here each month and update with some commentary and thoughts about what tweaks could be beneficial. I will look into ways to audit the performance so it can ultimately be verified if it is successful.

Total Strategy Return Since Inception: 0.0%

Breakdown

MARKET ANALYSIS

So we finally had the break down of the flag. It was somewhat suspect yesterday as we bounced off of old support at 1015 and rallied into the close making me wary of a continued move down. This was not helped by the initial move up today as well. It was fairly interesting because clearly people were just waiting for higher prices to sell into, because pretty much as soon as we hit 1025 we sold off the rest of the day finishing on the lows. Technically that is very bearish. The VIX spiked up today moving back above the 50 SMA and will likely test 30 in the short term.



The tough thing now is the breakdown and nearly the whole short term move came in a single day as what usually happens so if you weren't positioned for it initially now you need to wait. Ultimately I think we test 980 again, but I will look for a rally to short into again. In the short term though the MO is near its most extreme oversold levels meaning there is more risk to the upside than downside however that does not mean we can't sell off more.

Ideally I'd like to see a gap down tomorrow, and I'd buy the open. I want to see a re-test of 1015 before I get short again. In the longer term we may be forming a Head and Shoulders pattern on the S&P but that way too early to tell. The funny thing is that most of all the metrics today were positive yet the collective market decided to sell it off. It is like they are coming to the conclusion I came too a month ago all at once. That is the inefficiency of the market and if you can anticipate shifts in psychology well you would be very successful. Obviously I may be correct in the long run but the reality is that I missed a near 20% rally because I was too early in my prediction. I may keep getting proven wrong but I think metrics will start to turn downward again shortly.

I decided to lighten my shorts into this move like I had planned. I got out a bit too early in the day because obviously finishing on the lows would have benefited my positions, however it was still a decent day. I am now long biased and will look to get short again into a rally. I just bought corn futures again as it is near support. I likely should have gone long soybeans and short wheat as a hedge but we'll see what happens. I feel slightly too long at the moment but will have a tight stop on it.

Total Return for 2009: 144%

Summer-End Stall

MARKET ANALYSIS

The past 5 trading days we have seen almost a perfect flag. Nearly identical ranges and finishes generally means we are setting up for a large move once we break one way or the other. Depending on who is looking at this chart depends on their opinion on direction. Bulls will assume this is a continuation pattern getting ready to move higher and the bears will take this as a sign the market is starting to top out unable to move beyond 1035. In reality, no one knows the future so it is best to wait until it confirms one way or the other.

The McClellan Oscillator is also not really helping us as it is in the middle of its range so risk is equally skewed both ways in the short term. Most Bullish percentages are still at very high levels however oddly enough we can see that the Nasdaq 100 which led the rally has sold off significantly while the S&P 500 has held up.

This could make the S&P the better play to the downside if we do pullback as it would have more to fall. I am personally still skewed bearish at the moment on the S&P. Even though there is generally a bearish tone to the market this time of year I feel like some of numbers we have seen lately could become less rosey. My macro view is we see the end of the real estate season which will slow down the entire ripple effect it lends to all sectors. The stimulus injected into the economy has helped sustain it to this point and I understand it is like they are trying to push start a car where the stimulus gets us through until we actually get going on our own. However, it can only do so much. From my own metrics employment may improve over the short term as more jobs seem to be getting posted even in the finance areas even though still limited. I still think we hit 10% measured unemployment in the long run and don't recover for a while. Eventually the lack of ability to spend will catch up with companies even with their cost cutting measures to help numbers last quarter.

TREASURIES

We have a divergence again in terms of equities and treasuries. I am kicking myself that I did not buy /ZN after it collapsed on friday. It pulled back to an area of support and I missed a decent snap back rally that would have been a very nice gain but since buying /ZN is essentially bearish on stocks I didn't want more risk to the downside. I find it curious /ZN sold off so much if we are planning an extended pullback, however it could still be feasible we get a pullback and people are just starting to demand higher rates. I was looking to buy at 116.035, it is currently 116.305. 270 ticks could have made my month, but oh well that happens. This was a perfect retest of the flag breakout so we should continue higher from here pointing to downside in stocks. Until we get evidence of real inflation rates are likely to stay at the lower end of the range.


FOREX

Most major currencies were unable to make new respective highs and lows on the latest rally attempt, which is another bearish divergence. Even though places like Australia remain relatively strong they will not be immune to another downturn if it comes. Although AUD does remain in its uptrend it could be starting to signal a consolidation or reversal. It could be a good pair trade to go long AUD/USD and Short EUR/USD as the hedge.

COMMODITIES

After testing 75 like I assumed would happen oil was rejected fairly quickly back down and has yet to make any significant rally since. The other materials have also sold off recently as the prospect of no real demand or inflation coming on for some time likely took a bit of wind out of the recent rally. I am still a long term bull on commodities overall but think we could pull back here along with the rest of the market. Many people seem to like gold however I really think another metal would be a better choice because it really has no industrial demand. Sure people may want to own it for an inflation hedge or an end of world type scenario but I'd rather have something that is both physically needed for a use and affected by inflation such as silver or platinum or copper. The soft commodities have somewhat lagged. Corn tested 320 again but did not successfully break back above 330. We could stay in this range for the time being but it may be difficult for it to sustain a sell off in equities and if we see a breach of 320 again it could woosh to 300. I doubt it stays there for long though and I would be a buyer at that level. Again long term how can you argue with a growing population and decreasing land and resources with increasing demand?

OPTIONS

With the indecisiveness of stocks my account has made minimal fluctuations but also minimal progress. Overall I made a 1% gain on the week but that basically came on friday when a majority of my longs and shorts were working nicely. Again, a push is a win but I'd like to be more efficient with my time in market. In my recent article on position sizing, I talked about buying puts on IBM. This is currently one of my short positions and I like the setup a lot. It is rolling off 120 nicely, my OTM puts have suffered a contraction in volatility but my target is 112 with an exit on a close above 120.
Visa is one of my long candidates and the chart looks nice as well. It is nearly at a new 9 month high. If it can take out the previous high we could see some good upside. If it gets over its longer term resistance at the IPO price of 75 things could really take off however I suspect that won't happen until we see a more substantial recovery at the same time. I am targeting 75 in the short term with an exit below 68.

I still have long calls on LVS with a far OTM strike short call hedge. For my other bearish positions I am long SDS and SRS calls. If we get a decent pull back in stocks I wll look to lighten my bearish positions. With 18 days left till expiration I may start looking at good stocks to sell premium on into next week in both directions.

I know I have slacked in my posting lately due to being busy with some other projects and travel but I will be more active again next week once I get back into town. As I write this futures are selling off a decent amount down 6 points. We'll see how Monday shapes up as there isn't a ton of economic data coming out in the US.

Total Return for 2009: 139%

Reversal of Fortunes

MARKET ANALYSIS

After the confirmed breakdown across multiple benchmarks we have essentially rejected that move down and reversed higher much to my dismay. After the break down I did flip and go long which worked out well, then I decided to go short biased again as we were approaching the 990 level. As we can see the market has since made a new higher high:

This was also confirmed by the VIX breaking back down as well. The only thing to note is that that VIX is testing the top side of its downtrend so we could see a bit of a pull back into next week but besides that things look poised to keep going up as much as it puzzles me.
From here we look to not have much resistance until 1100 on the S&P. With existing home sales coming in better than expected that should really give the bulls confidence. My concern is once we get out of the housing season things start to turn down again but who knows. It would be stupid for me to doubt the recovery the entire way, this could be the forward looking and turn before unemployment that people expect. Technicals suggest a rally so I may as well go along for the ride until shown otherwise.

Of course we saw a huge contraction in volatility before expiration, big surprise right? 15% drop in the VIX in a few days means the market makers are printing money. The only divergences to note is the fact that materials did not make a new high and they have been leading the recovery so far so it will be interesting to see if they lag now or pick up again in the coming weeks. Also the 10 year treasury did not sell off significantly when a new high was made meaning that the bond market is clearly not expecting inflation at the moment otherwise they would be demanding significantly higher yields.

It's annoying to see my account make a decent advance then give it back over the week. I guess being break even for a week isn't terrible but isn't what I'd like to be doing ultimately.
COMMODITIES

Crude oil made a new high breaking out on this most recent advance after we saw a draw in inventories which was unexpected. Corn has somewhat lagged after the crop report and sell off in equities. This again could mean it is a relative weakness play or we could see a more acute rebound as it catches up. I may look to play it to the long side if it gets back above the 330 level or test 320 again.
FOREX

We did see some strength initially in the USD as we broke down but have since regained a decent amount. However, most currency pairs are still not at their recent highs/lows which is another odd divergence. AUD came down near support but not quite far enough for me to buy it but as we can see others wanted to own it. I still feel like it could be the currency to own if the recovery continues.

OPTIONS

Expiration came and went and my short August options expired worthless. In both instances where I sold options it would have been much more profitable to buy long positions in the direction I wanted but oh well. On Monday the capital held in margin will be available again so I can use it to take on more positions as they present themselves. I am still inclined to keep my position sizes small until I get on a better track record. I am still in my LVS position and V position with calls, however I am more short biased with SRS, SPY and IBM and SDS. I will likely add a call position on monday or cut a short position to help balance myself out more.
I am highly annoyed I didn't get into FSLR puts like I had planned. There was only a brief moment to be able to get in but it has since collapsed 20 points.

I need to spend tomorrow creating a watchlist for the week of potential candidates. As of dips should be bought again. I just wish I could shake the feeling that I will get whipped out again as soon as I get long.

Total Return for 2009: 138%

Sell the Rips

MARKET ANALYSIS
We can see as evidenced by the confirmation in the VIX that things finally broke down today. Asia was down quite a bit overnight and we gapped down about 2% and stayed down all day. Across the board on multiple stocks I finally saw breaks of previous uptrends. Notably in the financials and materials and tech sectors which have led the rally up until this point.

This gap down was significant because it definitely signaled a shift in sentiment rather that just a normal pullback. Even when better than expected readings came out from the housing index that did not lift the market at all. The bright side for the bulls was that we did not break down going into the close even though we tried but we did finish near the lows. People may be coming to the conclusion that we have experienced a period of better than expected readings but that may come to an end shortly. I of course could be wrong but I will wait until better readings come in before I change my view point. Until further notice I will be looking for rallies to short and then selling into weakness. This is likely what most people are thinking as well so it could help it become a self fulfilling prophecy.

Even though I plan to sell rips I am cautious to be excessively short right here as that move down did take us into oversold territory according to the McClellan Oscillator so this skews risk to the upside.

Ideally we could see a gap down tomorrow and then buy the open on the expectation we reverse but as of right now the futures are pointing to a bounce tomorrow ahead of housing starts. If we get better than expected starts it could cause a rally, however I do feel like it will be misleading because it is really the end of the buying season so the good numbers are unlikely to continue in my opinion.

FOREX
Dollar strength essentially across the board weighed on materials and commodities today. We can see that the EUR/USD finally broke its uptrend.

The AUD/USD sold off but is still a relative strength candidate holding its uptrend. I would like to buy near these levels but feel like it could be hard to fight the trend of a down market even with their stronger than normal economy. If I do get in I would like to buy it around .815
It was more of the same across the rest of the currency space as we saw a flight to quality fortold by the flag break of /ZN which continued higher today as well.

COMMODITIES

As you can imagine the strength in the dollar and weakness in equities was not good for the commodity space especially with the prospect of continued weak demand in the future. We can see things looking fairly similar across the commodity space.

I remain glad I exited my long /ZC position at 335. It touched 311 today before getting rejected and reversing back up. Had I been around I actually would have liked to buy it close to that level because I expected this type of action. Oil broke its recent uptrend, and is near longer term uptrend support which should be at 65. If this level breaks though watch out below. Ultimately unless things start to turn bad fairly quickly I doubt we really break down a lot but instead stay in a range. This could be an opportunity to do some swing trading in the futures.

OPTIONS
Interestingly enough the day that signals me to be short, I have reversed my bias to long. I cut my ADM and WFR positions at the open, along with my SPY puts which finally filled no thanks to thinkorswim. I sold half of my SRS calls after we saw a 10% move in a day which is one of my general rules. With FAZ spiking I bought back my short puts for .05 and decided to flip and sell some calls expecting somewhat of a reversal before option expiration.

I am still holding my V calls just to balance out my bearish positions and I am still short UYM calls which should expire worthless. I did nothing with my LVS position, it lost some decent value today but is still profitable so I will let it go. I have noticed that there seems to be quite a bit of buying in DSX at the 12 level, so I would like to see it ultimately get close to there again and i will go long some calls. Considering the recent trend it is hard to not go out and go long some good names thinking you are getting a bargain but if we really are starting to roll over they will keep getting cheaper. I think we find support at 970 on the S&P at least temporarily if we touch it, then test 995 from the underside. I have my eye on some good candidates to short on a good rally. So I'll post those up when I enter, stay tuned!

Total Return for 2009: 141%

Outlook: Cloudy with Chance of Falling Prices

Friday brought some interesting action in the markets which makes things still uncertain going forward. In the morning 30 mins before the open I had noticed that /ZN had finally broken a month long flag to the upside which pointed to downside in stocks. I tweeted as much and once we opened we held up for a bit until we got the consumer sentiment numbers which were worse than expected on top of jobless claims being worse and CPI coming in essentially flat with no inflation in sight.


We can see that the EUR/USD has pulled back to its trend line with recent strength in the dollar. If the rally in equities is likely to continue we need to see this level hold. If it happens to fail it would be a good idea to be short the market in my opinion. If we look at /ES daily action we can see the sell off after the release of consumer sentiment, we then flagged all day near the lows. Those who day trade and know the market profile would say that this generally means the market is "accepting" this new price level which is significant because it is back below the 1000 level. However, we can see right at that 3:30 mark the market rallied into the close. This rally is suspect in my opinion due to the fact that it came right at a time stamp indicating program buying/short covering. Nonetheless it did move 10 points in 30 mins. Typically when this type of action occurs the market profile believer would tell you that the higher probability event is a break down from the flag.

We can see clearly /ZN break it's recent down trend and more significantly its long term down trend of the past 6 months which I hadn't noticed until I zoomed out. This is a big tell in my opinion and generally points to downsie in stocks but sometimes the correlations do not work and it is just readjusting risk. However, if we use history as a guide it has made a decent move after breaking channels. Lastly, we can see that oil failed to make a new high and is dangerously close to breaking its month long up trend as well.

Because some of these other metrics have not necessarily confirmed what /ZN is possibly telling I wouldn't be racing out to go 100% short(that would be stupid at any time). However I would be careful initiating any new long positions at these levels that aren't extremely strong candidates.

It is always frustrating to watch your account flucuate especially when you have larger gains in the beginning of the day and give back most into the close. On the bright side I guess I can be glad I had a gain on a down day even if it was small. If I was able to be break even on down days and up on up days I'd be rich! Alas that won't happen but I can do my best to try.

My longs actually seem to be hanging in there fairly well. V and WFR have done decently with V slightly above my exit of 67.50 and WFR holding its support level nicely. Much more movement lower and I will have to cut them. ADM will likely get the boot on monday as it has acted fairly poor all week and is dropping below support AND now the 50 SMA meaning people do not want to own it and I likely shouldn't either even though I have long dated options.

Even though the McClellan Oscillator is showing that we have worked off a decent amount of our overbought condition the bullish percent is still in extreme territory. We can see below that the bullish percent on the Nasdaq 100, which has led so far, is potentially topping out with a double top at its extreme reading.


If this does set up to reverse I will still need some long plays. The tough thing is that most stocks will get dragged down regardless and the shippers seem to be doing poorly even with the market going up. The hard thing though is that the Baltic Dry Index has been flagging and is currently at the lower end of its recent channel and at the support line of its longer term uptrend(which unfortunately can't be seen).

This could make it a lower risk long entry as a hedge if we do start to go down. I had a synthetic long position in DSX that I had to cut with a loss recently so the shippers are not seeming too great to me in the short term but I like them long term.

My short options are currently in decent shape to expire worthless however I do expect the usual expiration week shenanigans. Currently I am short OTM puts on FAZ and OTM calls on UYM. In addition I am long puts on SPY and long calls on SRS to balance out my other long calls on ADM, LVS, V and WFR.

LVS has worked nicely so far, not as nicely as if I had gone only long calls but still a nice gain regardless and with the uncertain nature of their contract negotiating it would be stupid to not be hedged in some sort of fashion. I may not have chosen the best method for hedging but that is what learning is all about so I can do better next time.

I cut my /ZC position which so far has been a good move as it broke back below 330. I may look to get long again either soybeans or wheat in the near future but I will see what shapes up next week first.

Past couple days I gave back a percent then gained it back friday so I am where I was before. I guess as long as I don't lose money like I have recently I'll be in decent shape to make more of a recovery.

Total Return for 2009: 138%

Dip Buying Continues

Even with the technical break back below 1000 buyers emerged again today taking us back above that key level. The Fed left rates unchanged, no surprise there but did announce they would end their purchases in short order. This raises the question of if they think the recovery is actually starting and the even bigger question of if it REALLY is starting.

Even though stocks advanced there were some mixed signals at least in my positions. V actually ended up down on the day which is supposed to be my relative strength candidate. ADM is pushing my loss limit and looks like it may be on the verge of breaking down. With the crop report coming out today it apparently was not favorable for their company. /ZC was actually fairly quiet after the announcement, we had the initial sell off then rally, which I think point to further upside in corn in the near term. My futures position was essentially what gave me a gain today.

Currencies seemed to catch a bid at their trendlines today, both the Euro and AUD were bought. I had wanted to get into the AUD/USD but still don't have funds transferred to my forex account.

Financials and materials were fairly strong again across the board. I think I will wait for a true direction to unfold until I move any hedges around. In the mean time if we remain range bound I will get to collect some more premium wih my short option positions. LVS had a nice pop today but left me wishing I was more directional. I hope volatility contracts and if things are looking up in the market I may buy back my shorts and let my long calls ride. Jobless claims could be a catalyst in either direction tomorrow. I have noticed that job posting have increased on local websites fairly decently which could signal better things to come in the next few weeks.

We shall see what happens, either way we go I hope my positions do what they should.

Total Return for 2009: 138%

Pride Before The Fall

I made a gain today! Sad to have to celebrate something that should be a regular occurrence but I have to take it one step at a time. However the bad part was the fact that I decided to take on some more long positions to help even myself out as my short bias was doing well today. I assumed the hedges would help insulate from a move back up into the close like we have normally seen. In today's case the tide seems to have changed, we did not make a significant attempt to rally and actually finished near the lows below 1000. This is the signal I was looking for originally. The paper profits given up were mainly the cause of my new long positions losing money into the close. Obviously I can't pick ultimate bottoms and they were at low risk entry points, but finished right at support.

I will likely be quick to cut longs because even though I like to try and pick relative strength candidates 75% of stock movement comes from the index and we look to be finally setting up for a decent pull back if some things start to confirm. The $VIX traded right up to the 50 SMA and bounced off as resistance. If we take a step back and look at the chart we can see if we get above 27.50 there will likely be a decent reason and cause a decent sell off.


We are in a precarious spot right now in the markets where things are pointing to bearish action but nothing is totally confirmed. The /ZN has been flagging for the past month and looks like it may break to the upside which would likely be bearish for stocks. The EUR/USD has come off it's highs but is currently sitting at nice uptrend support. Oil also failed to make a new high but is sitting at a recent diagonal trendline. If these start to break down it will likely point to more downside.


I did take a couple long positions, all were longer dated options because I ultimately do expect a pull back. One was Visa, which has held up very well and was sitting at a low risk entry point. If my own card use is any indication this company should be in great shape. I got long some Dec 70 calls. 67.50 will be my line in the sand even though it is longer term.

I also decided to get into WFR, which may be a stupid play but if materials do happen to continue along with tech it could play some catch up. Not a relative strength candidate per se but a good place to manage risk. Went with Oct 17.5 calls.

Lastly I decided to attempt a speculative but semi-hedged play in LVS. There is a lot of talk surrounding these covenants and whether or not they will be renegotiated or cancelled. The theory is that if they go through it should be worth a 5-10 dollar pop in the stock. I decided to take a long position in the event this happens but also sell a strangle against it so that if it doesn't actually happen all it needs to do is finish within my range and I should limit my losses quite a bit if not eliminate them. My range is from $6 to $22.5. I am slightly limiting my upside if I happen to be right but not much because again the amount the short call gains should be mostly offset by the amount the short call loses (assuming it doesn't get all the way to 22.5). I gave myself until December for this to play out which will hopefully be enough time.

Two of my positions could be affected by the USDA crop report tomorrow. One is obviously corm futures but the other is ADM. I actually don't know if ADM benefits from higher corn prices, I would assume so as they could pass prices on to customers more than the cost they incur meaning higher profit margins. I will be curious to see how the report is because ADM held up decently well today which could be a tell in how people are leaning for this report. Futures have held around that previous breakout level of 330 for most of the day.

Currently S&P futures are slightly down so I think tomorrow could possibly be a very telling day for the next intermediate move we have.

Total Return for 2009: 137%

Recovery In Progress

After my recent terrible performance I have since scaled back my positions and decided to sell some options. Taking a few higher probability trades should help in terms of confidence and help me make some money while I take a break.

Overall, I do still ultimately think we may have a significant pull back coming shortly, however in staying with discipline it makes no sense to hold through some large losses for the hope of a reversal that doesn't come. Just look what happened from 870 to now, barely a pullback in sight and not significant one at that. I decided to take some higher probability short biased plays instead. Since materials have ripped lately and started to stall I thought it would be a decent play to sell some OTM calls on the UYM with only 10 days to expiration. I did the same strategy for the financials selling OTM puts on FAZ. They are working so far and clearly I would be making more money had I just went long put and call options respectively, but given my recent history I would rather be a seller and have the greeks working in my favor.

I still have calls on ADM and am long /ZC again. I took a bit larger position in corn this time around however once I found out about the USDA crop report coming on weds I decided to scale back again ahead of the announcement. The old me would have likely held but the smart thing to do is to wait until after the announcement and see how the market reacts and then act accordingly. This is the higher probability trade, if it gaps up then that tells me that I should be able to buy dips. If it gaps down I take a smaller loss which is what I need to do at the moment.

I am content to sit on my hands until expiration unless something very compelling presents itself or I need to exit a position prematurely. I may take on a play in LVS but other than that I am not looking at much long until we get a decent pull back.

Total Return for 2009: 134%

Trading Funk

The past two days my positions have continued to do poorly. SRS seems destined to go to zero with me along for the ride. Yesterday I lost another 4%. Today was actually shaping up to be a success in my opinion only being down slightly even after DSX gapped down after earnings. This seems to be happening now that all my positions are not performing their roles. I would have made back some gains had it not been for DSX. Can't live in "would have, could have" land, have to accept reality that sometimes this happens but I am trying to determine why. I may need to sell all of my positions and step back for a few days and reassess. I hate to do that because all it does is put money in thinkorswim's pockets and not mine but it may be necessary.

I ended up bailing out of my /ZC short because I didn't want more risk to the downside and here it is another 40 points lower and I would have made bank...there I go again with the would have's. To make matters worse I decided to go long at 340 which is now going against me and fouling up my day. It was at a reasonable entry point but I still need to consider why I went short in the first place, because I expected a pull back in equities and they are mostly correlated at the moment.

My only winner as of late has been CHK, doing great the past 3 days, which I sold half my position ahead of earnings and wouldn't you know it goes up the next 3 days at half my size. So I decided to replace that long with the /ZC to help stay balanced but that is clearly not working either. These are the pull backs I wanted and expected and I am still losing money, even with ultra short positions and that is not right.

So why is that? Am I entering and exiting at incorrect times? I definitely feel like my timing is off and maybe I am being more emotional and not really recognizing it? I do still anticipate more of a sell off coming, we likely see some increase in unemployment that gives people a reason to sell stocks. At this point it will likely just be profit taking because there is not good enough evidence for the majority to shift themselves bearish but who knows. I want to lean short biased and slightly am but I feel like as soon as I get more short the market just reverses on me and I lose more money. Possibly a week off could be good, I could set some stops and walk away or just sell everything and sit in cash but that partially seems unnecessary with some of my longer dated options.

I would like to see a pull back in CHK and roll into some options with a higher strike price. I will be curious to see what happens because we had what I would consider to be a distribution day, where we had a very large volume day with decent movement but it finished well off it's highs after touching a resistance level of 25. I would like to get back in around 22 and go up a strike.

I may shuffle some things around before the weekend and sell some options if I feel like I can collect some premium over the weekend. If things end up poorly again tomorrow I may just set stops and shut things down for a while. It actually could be a good experiment to try where I am trading purely mechanically. All I know is I need to do something to get myself out of this funk and account slide so I don't start doing dumb things and forcing trades.

Total Return for 2009: 138%

Treading Water

I can't seem to make consistent forward progress and I am trying to determine why. I was pleasantly surprised yesterday when I figured the gap up would cause me losses but my balance worked out well and I ended up even on the day. I shorted corn last night from 370 down to 364. I decided to not let it go over night because I skewed myself short at the end of the day since we didn't really finish significantly over 1000 and figured I didn't need more risk to the upside.

Same old story today, gains at the open then turn into losses. This market will not go down and maybe that is my issue. I have been looking for a pullback since 950 and it has not come, which to be honest is completely ridiculous. But that is how the market goes sometimes, remember the old saying. I am still skewed to the downside currently due to the vehicles I am using, but have a decent long exposure as well and will increase it once we get a pullback, if it ever comes...

DSX was a pain today and I don't like the relative weakness. If this is a true recovery it should pick up and it is a synthetic long position so I am less concerned but the Baltic Dry index continued its downward flag and has not been able to get above the 50 day moving average. ADM released earnings and apparently people either didn't like them or just decided to take profits because it sold off fairly heavily on high volume. It finished nearly right at it's break out level of support so I decided to take a long position to help counter my shorts.

My positions were holding up fairly well until the end of the day everything fell apart. This happened with the combination of volatility decay making me lose even more money.

Everything I posted in the last post was essentially proven wrong the past two days. Things basically came in line to support the rally but we still remain in historically high overbought territory that will need to be worked off. We are at a point that I feel like any single piece of fairly bad news could bring us down in a hurry but I really don't see what the catalyst would be. I thought housing might be it but that likely won't be till next month as it was better than expected data today with people buying during the last rush of the housing season. Financials are starting to take over the lead which points to further upside. It could be good to go long financials and short tech since financials have lagged so far and tech is extremely overbought.

I am more and more tempted to make a larger portion of my portfolio dedicated to forex and commodities. They have lower commission and seem less prone to some of the things that happen in equities. I have visions(delusions) of grandeur following in the footsteps of Jesse Livermore trading cotton and wheat futures. One thing he may say is that I would be stupid to be short because "afterall, this is a bull market."

We will see how tomorrow shapes up, hopefully better than today and my relative strength and weakness plays will perform. I took a position in SRS to try and catch a snapback rally but catchign a falling knife is generally not a good idea but if you manage risk properly it can pay off when it works.

Total Return for 2009: 144%

Losing Steam

Two days in a row the market has closed at essentially the same point unable to make it to new highs. Month end brought on shenanigans normally seen around options expiration. Everything seemed like a back to back bear or bull trap sucking as many people offside as possible before reversing. Daytrading was likely a frustrating affair unless you were contrarian at the extremes each time. Most price action hovered around VWAP. I partially feel like there is an understanding for month end not to make any huge waves and screw up people's performance but again there is no way you can get so many independent people to collude with one another. Of course if 2% do 70% of the trading then I guess it becomes much easier.

I do feel like this should be a temporary top. Technicals support a pullback, as well as bullish percent figures. Let's take a look at some individual charts courtesy of stockcharts.com.



Here we have the NYSE bullish percent chart. Currently it is in "bull confirmed" status. As we can see we are very near historic highs, but also have come from historic lows. The down trend line was broken at the beginning of 2009. Generally if you have a bearish view it is a low risk entry point to enter at the "X" that is even with the previous high column of X's. The reason for this is because if it makes a new high that should signal that the trend will continue.






Let's look at the Nasdaq 100. Tech has obviously been on a tear recently and this shows a divergence between tech and the NYSE. We can see that on this chart there is a new high that was established today for the bullish percent figures. This would generally signal a continuation but we have to be aware of where it is occuring. It is literally at an all time high meaning tech is very overbought. As always things can become even more overbought but this should support at least a short term pullback.

Energy came from even more extreme oversold conditions, it actually reached "0" on the PnF chart. We can see the status is "bull alert" meaning it could move into bull confirmed. This could be a good place to go long because it is not extremely overbought by bullish percent figures so there is more risk to the upside as compared to the NYSE and NDX.

In regards to today my positions basically performed how I expected. I am currently skewed to the downside but do have my longs in DSX and CHK and ACH which were mostly positive. With the help of my /ZC position I ended up squeaking out a gain today. I ended up exiting my position in corn because it reached my short term target. I wanted 350 but got out at 347 since I didn't know if it would reverse early and didn't want to be greedy. I ended up catching 25 points in the trade so I can't complain. I will likely look to get back in on a pull back.


I entered near 320 because it has been long term support for 5 years so it seemed like a very low risk entry point. We did dip below it initially but I held strong because it wasn't at my loss limit and I figured there would likely be a shake out. Now that it has broken the 3 month down trend 330 should be the next support level. If we have a sell off in equities we will likely test that level again, but if things remain bullish it may only get down to 340. I may take a slightly larger position the second time around but I'll see how the market conditions are before doing so and what I think the outlook is. If it happens to break above 350 I will get long again as there is not much resistance until 400. The appealing thing about getting into trading more commodities futures is the fact that the commissions are a lot lower than options but still offer leverage.

Another divergence that is bearish for the market is some of the action in FOREX and futures. The EUR/USD did not continue over the 1.43 level. Here is a screen shot of a 1 month daily chart of 10 year treasury futures, crude oil futures, S&P futures and EUR/USD.


We can see the level of resistance in the Euro has diverged as the S&P has continued higher. Oil has also lagged the S&P making a lower high. One of the bigger tells in my opinion is the action in the 10 year treasury. Notice how it has broken it's wedge to the upside which means higher bond prices and lower yields generally signaling a flight to safety. One could argue individual supply and demand factors for each chart which is obviously true but generally they are correlated in some way.

As of now I am still looking for a pullback to at least 960. Now that we don't have earnings as a catalyst the economic numbers coming out will have to be constantly above expectations to warrant the latest move and a continuation which I think again skews risk to the downside. GDP was -1%, with consumption worse than expected. If GDP is 70% consumer spending then that definitely doesn't help things going forward. However if we do come out with a positive number in Q3 which is possible, I think that changes psychology again to proof of a recovery even if it is weak. This makes people think things are getting better so then they spend and again self fulfilling prophecy! We are surrounded by them!

Total Return for 2009: 149%

Lack of Follow Through

The market definitely erred on the side of caution yesterday. It held up above VWAP all day long which statistically points to a rally late in the day, however I held the belief that we would not rally simply due to the factors I already described which are month end and risk to the downside. The rally yesterday I feel skewed the risks even more to the downside because I feel like we will need a decent beat for GDP to have this rally continue and get over 1000.

We are again in a scenario like we were at 950 where we are overbought and close to resistance. We are admittedly a little ways away from the all important 1000 level. This is a psychological level which means it is a technical level because if it is paid attention to it becomes a self fulfilling prophecy like I have said before. If GDP comes in light or worse than expected we could see a decent reversal of this rally. Although I don't think that will happen I am decently prepared for it.

Yesterday almost at the exact high of the day on the S&P I decided to get into SDS calls as a hedge going into the GDP number. I ended up buying back my short IYR calls because it ran significantly yesterday close to my strike and was eating up a significant amount of capital in margin. This proved to be a great move as the sell off I expected into the close materialized and my SDS calls are nicely profitable.

Corn recovered and finally broke out of it's downtrend of the past 3 months. This should signal a run to 350. It should encounter resistance there but if it gets above that we could see a fast back to 400. If the S&P does happen to get above 1000, there is not much resistance until 1100 so the party may continue. However, we are currently at extreme readings in the bullish percent on the NYSE and on the nasdaq. The $BPNDX is at new extreme highs where we have historically seen a reversal and the NYSE is close to extremes as well. Interestingly the bullish percent on energy is at fairly low levels, which means they could see some significant movement if things continues to the upside. Lastly, the Baltic Dry index still couldn't get above it's 50 day MA yesterday so the flag continues.

DRYS reported earnings last night and beat estimates by a couple cents. Their outlook was actually decently positive saying they were seeing improvement and signs of a recovery. The stock was up after hours and I am hoping that will help my DSX position and the Baltic Dry to break out of it's flag. If I were extremely lucky DSX will hold up well even if GDP does not beat expectations or we have a sell off. Overall I should be decently positioned going into this number either way. I may look to change my bias depending on how things shape up.

With this sleep schedule I am on I may as well be a money manager haha.:-)

Total Return for 2009: 147%

GDP Holds the Key

I can't really tell right now if the lack of conviction selling is a positive or if this is simply just propping up the market so we can sell it off hard when GDP comes out regardless of results. I have come to realize over the years that in the absence of real news to push stocks, the illusion of performance can be predictable. This is obviously based on the psychology of traders and money managers since ultimately they move the market and the market trades on psychology. Take this week for example, going into month end the market is moved by those people getting in and out of stocks ahead of the time when their performance is measured. By deducing what we know about people, that they are greedy and fearful, we can determine probabilities for short term movement. This is by no means a hard and fast rule but so far things have acted fairly predictably up until this point.

We had a large run, those people who are somewhat reasonable will want to sell their positions and lock in their monthly gains if they just caught a 10% move in the S&P or more, they can afford to sell stocks down 2% while locking it in. After that selling pressure is relieved, the people who missed out on the rally for the most part want to jump into the stocks that went up so it looks like they were holding them the whole time. This creates a snap back or at least a temporary floor in prices. It is essentially the reverse if we have a large decline.

Keeping the typical money manager in mind and their quest for absolute return you then speculate as to what reactions may be for up coming events. This can help give you an edge(or at least a perceived edge). Overall, most people likely want stocks to go up because it is much easier when they do and everyone looks better for it and makes more money. We are somewhat in a pickle because we have run up quite a bit into this number so you wonder what is priced in for expectations. However, if we were to somehow get a positive GDP number I think we could see the rally continue because this will be a reason to buy stocks and it also coincides with the 31st of July so any added gains would be a bonus, adding pressure to the upside as shorts cover and longs pile in so they don't miss the rally.

The consensus on intrade is that we have a 75% probability of a positive GDP number. I was unaware of that statistic until today but makes me want to be long biased if people smarter than myself think there is a 75% chance of it coming in higher than estimates. Obviously I still have to manage risk properly but I am now skewed long.

Today was fairly boring, although I was fairly pissed off because my entire loss was due to my /ZC position until it reversed late in the day. Small losses, small gains and large gains are fine, it is the large losses we want to avoid which I didn't do last week so overall I consider it positive when I end up flat or higher after I get into new positions.

I am trying a long term trade on a stock and we will see how long I can be patient. I essentially took a synthetic stock position in DSX for March 2010 expiration. This is purely a play on the idea that we will have some what of a recovery going into next year and if not, as long as things essentially stay the same I will collect a nice premium in the mean time. The beauty is that even if it does nothing I will make 10%. I of course still have my exit chosen in case a recovery does not happen. I also decided to get into CHK on the pull back to near support. My concern is these stocks have all run up significantly recently but if the rally keeps going, so will they. Not to mention it held up nicely even as UNG was selling off.

I sold some front month puts on ACH as it pulled back to a pontential support level. I also decided to sell some front month calls on IYR as a hedge to the downside. One of the reasons I hate selling is it just uses up so much capital for margin and you have limited upside but I felt like this hedge was decent because it should be on a relative weakness candidate and even if it does go up the volatility should contract in my favor. In retrospect I could have sold less calls and bought long puts as my hedge but we'll see what happens.

Friday could very well determine the next couple months and 50 points in the S&P. Since I am net long I'd prefer a rally on better than expected numbers but I am willing to be flexible. Expectations on jobless claims seems fairly low so I doubt it is a factor tomorrow but could be a catalyst for selling if it is unexpectedly bad.

Total Return for 2009: 138%

CFA Level 1: PASS

Got my level 1 CFA results yesterday morning, I assumed the worst in that I thought I did pretty well but likely still fell just short but I passed! Probably one of the greatest feelings and best accomplishments I have had to date. It feels great to be done with that hurdle and move on to Level 2. I was actually surprised at how well I did I got above 70% on 7 out of 10 sections of the test and almost for sure got above 70% overall. I think this may be the first time that the minimum passing score was at least 70% or maybe a 69% after looking at some scores that were a band 10 fail(top 10% of failures). Even with the MPS much higher than 2008(likely closer to 65%) there was a fairly large jump in the passing rate from 35% to 46%. Either way, I passed and know that I know the material(and hopefully potential employers do too now) and get to study for level 2 now! :-)

In terms of the market I have recovered some over the past two days. Things have played out pretty much as expected so I have taken that opportunity to recoup some losses. ISRG had a pull back and I decided to cut it loose after I gained back half my loss. This was a great move at the time as it made a new high again yesterday but we will see what happens going forward. I was noticing on the monday down day that the financials were diverging and staying up when the market was down so I sold my SKF position fairly quickly thinking that if the market strengthened financials could take off. I took the opportunity to lighten my SPY puts as well. On Tuesday I closed more of my put position on the SPY and now have just a normal position size on. Each day it has still been that I have higher gains earlier in the day and the market rebounds into the close so essentially being disciplined and selling into weakness has been the difference of making back money and not.

I am now short the S&P 500 via Sept puts in case we do test 955 as we technically should before resuming the rally. To hedge this I still have my December Corn futures contract which continues to annoy me. It is sitting around this 33o level after breaking its downtrend it will likely consolidate here before moving up.

I am now just waiting and looking to get into some more positions when they are at lower risk entries. Futures are down slightly right now, Asia sold off decently with Shanghai pulling back 5%. S&P futures hit a low of 964 but have since rebounded. This could be seen as a bullish divergence however I partially feel like it is a head fake and we end up selling off. Materials will likely be under pressure all day but they have run a lot in such a short period of time it would be crazy not to expect some pullback.

I find it humorous, and it likely goes unnoticed, but since my interview where I was talking markets and I was asked what stocks I personally liked I said I liked materials and metals(for inflation and real demand eventually) and specifically FCX and ACH. Since that day which was June 13th FCX has moved 25% and ACH has moved 38%. I obviously wish I had been in on those moves, I was waiting a little too long to see if we broke down. I feel partially vindicated, even though that is short term outperformance I expect it to continue for years.

We could see a struggle today as a sell-off may be the logical choice but we have buying for month end window dressing as people get into the names they have missed so far and that helps put a floor under prices and prevents a larger decline. If materials take a hit today due to the Asian pullback it could offer some decent entry points. Oil is also pulling back which should cause natural gas to sell off as well. I am hoping CHK comes down and I can get into it close to 20. I'll be watching coal names as well, ANR at 30 is a good entry point. I will likely choose some longer dated options and possibly some synthetic stock positions. One thing is for sure though is I will definitely be hedging any longs with more S&P puts or individual weak stocks but I need to find some.

On a side note, one pairs trade that I think could work out well in the future is Long AAPL and short RIMM. Both do perform together however when Apple finally has the Iphone on multiple carriers I think RIMM will be much more hard pressed to sell Blackberries, same with PALM. The other trade could be long AAPL and short T as they will no longer get guaranteed revenues from people wanting the Iphone.

Things are looking up again, I just need to manage risk as always and trade the way I know how and I should hopefully resume my forward progress.

Total Return for 2009: 137%