Wisdom Quote

"America is the largest debtor nation in the history of the world..note, I said 'history' of the world, not just the world."

--Jim Rogers

This Too is an Asset Bubble, but this time is different..lol.

https://www.zerohedge.com/news/2018-09-10/hedge-fund-cio-2000-and-2008-too-asset-bubble-it-differs-fundamental-way

I'm seeing more and more commentary like this (for both equities and real estate) that sound good, but they ultimately are fancy commentary that can be translated into the simple phrase "but this time is different."  We heard it starting in 2006 about the fed's manufactured "soft landing" and if you read in the history books, every sell off in the past has similar commentary.

I believe we're just in the part of the cycle where debt is high, people and companies are loose, and vulnerable people/companies will get exposed when there is a significant pull back.  The vulnerable folks that get hurt will then lead to a major sell off.  Whether it's the 2-3 year interest only term notes that need to be refinanced on speculative commercial property (apartment and hotel acquisitions where the buyer paid a premium) or just the average Joe that is walking a fine line between his income and his increasing credit card debt, it will hurt.  A pension that cannot meet its outgoing cash obligations will certainly start a panic, and there's some pretty smart people out there saying that's a major concern.

Ultimately, it doesn't matter what the cause is, it will play out the way they always play out.

TLT

Market is Looking Short Term Bullish..but I'm bearish over the next couple of years

Glancing at some charts today, the market is showing some short term bull signals.  The bump in volatility early this year looked more like the beginning of a regime shift than a normal pullback but only time will tell.  We've had quite the run in the indexes over the last few years and the market looks like it will give another push to new highs.  Here's a weekly of the SPY:

You can see the dramatic shift in price action starting in late January of this year.  Highs and lows are more extreme on each candle and the back and forth is very quick compared to the drawn out dips and slower climbs of the past 4 years.

Here's a very bullish chart.  This is a pair chart of the Consumer Discretionary (XLY) over the Consumer Staples (XLP).  If the chart goes up it is generally bullish because discretionary is outperforming the staples.

Of course, all of this is subject to change in about 5 seconds with something new hitting the market.  This just tells me that more money is still being placed in discretionary(bullish) rather than staples(bearish).  All things staying about the same, the market will likely try to push back up to the highs.

As for the long term, I still think we will be seeing some major volatility and a bear market coming out.  Real estate prices across the country are in a bubble on almost all levels and some signs of a slow down are already showing.  For all of the talk of lack of inventory, the real demand for housing for the lowest priced newer homes and those are the homes that builders have not been building.  Why build a $250k home to make $35-45k in profit when you can build a $750k home and make $100k in profit?  I expect this to be the last strong year in residential real estate and then for commercial to start slowing down too.

Still the most bearish yellow/red flag is the yield curve.  Short term rates have gone up, which we new would happen and the FED has been pretty open about it.  The problem is in the longer term rates that are flat.  This is the beginning steps for an inverted yield curve.

With the real estate market looking fragile and developers continuing to finance new development projects with 1-2 year interest only bridge loans (happening a lot!), the stage is set for people to get burned and then the real wave of panic will hit the market.  I'm not a big doom and gloomer but I like to be realistic.  Being realistic also means respecting the market action that is currently occurring and not trying to push your views on the market.  Just because I see the storms on the horizon doesn't mean I'm out shorting the market now..it just means I'm being defensive with longer term plays and gathering cash so that I'm ready for when things to get crazy.

Have a good week!

George
TLT

David Solomon is the man..

The most awesome wall street exec. by far..do what you love!




https://ca.news.yahoo.com/goldman-ceos-deputy-cant-stop-wont-stop-spinning-184220506--sector.html

Think or Swim Indicator -- Fisher Scalper Color Bars with Thinkscript

I've got a whole bank of indicators and strategies that I've coded over the years for think or swim and have decided to start randomly posting them along with the codes.  They'll be posted weekly for the next month or two..depends how many good ones I decide are worth posting.

Here's the first and it's an indicator.  The Fisher Scalper Color Bars.  Based on the fisher transform, this indicator is pretty easy to comprehend.  The bars are colored Green (bullish), Yellow (transition from bull to bear), Red (bearish), Blue (bearish transitioning to bullish).

I've played around with this indicator by using it on a higher time frame, like a one hour chart, as seen below, and then taking signals on a lower time frame chart (5m or 15m) in the direction of the trend based on the indicator.

Here's a chart:

Enjoy!

George
(TLT)

Here's the thinkscript code.

***delete this line***
declare lower;

input price = hl2;
input length = 10;

def maxHigh = Highest(price, length);
def minLow = Lowest(price, length);
def range = maxHigh - minLow;
rec value = if IsNaN(price)
    then Double.NaN
    else if IsNaN(range)
        then value[1]
        else if range == 0
            then 0
            else 0.66 * ((price - minLow) / range - 0.5) + 0.67 * value[1];
def truncValue = if value > 0.99 then 0.999 else if value < -0.99 then -0.999 else value;
rec fish = 0.5 * (log((1 + truncValue) / (1 - truncValue)) + fish[1]);

plot FTOneBarBack = fish[1];
plot FT = fish;
plot ZeroLine = 0;

input emalength = 50;

plot ema2 = expAverage(fish, emalength);

FTOneBarBack.SetDefaultColor(GetColor(1));
FT.SetDefaultColor(GetColor(8));
ZeroLine.SetDefaultColor(GetColor(5));

def bullish = if ft > ema2 then 1 else 0;
def bearish = if ft < ema2 then 1 else 0;

assignpriceColor(if ft>ftonebarback and bullish then color.green else if ft>ftoneBarBack and bearish then color.blue else if ft<ftoneBarBack and bearish then color.red else if ft<ftOneBarBack and bullish then color.yellow else color.gray);

***delete this line***

Equity Day Trading List for Monday March 19th

	ZSAN	Zosano Pharma Corporation	Healthcare	Biotechnology	USA	36.97M	17.44	12.52%	4,156,755
	RIOT	Riot Blockchain, Inc.	Healthcare	Biotechnology	USA	82.90M	8.29	10.39%	1,201,716
	OSTK	Overstock.com, Inc.	Services	Catalog & Mail Order Houses	USA	1.18B	45.7	-5.19%	7,597,563
	BITA	Bitauto Holdings Limited	Technology	Internet Information Providers	China	1.68B	24.47	-11.21%	4,357,359
	NETE	Net Element, Inc.	Technology	Internet Software & Services	USA	32.76M	9.58	6.21%	1,005,132
	KTOS	Kratos Defense & Security Solutions, Inc.	Services	Security & Protection Services	USA	963.73M	9.28	-11.20%	12,972,464
	ECYT	Endocyte, Inc.	Healthcare	Biotechnology	USA	638.26M	9.83	-4.93%	3,218,064
	IOVA	Iovance Biotherapeutics, Inc.	Healthcare	Biotechnology	USA	1.37B	16.85	4.01%	2,605,054
	KODK	Eastman Kodak Company	Consumer Goods	Electronic Equipment	USA	240.69M	5.6	13.13%	3,468,778
	EEP	Enbridge Energy Partners, L.P.	Basic Materials	Oil & Gas Pipelines	USA	4.02B	9.99	-7.76%	10,470,381
	PTI	Proteostasis Therapeutics, Inc.	Technology	Application Software	India	211.41M	7.29	2.97%	4,292,340
	ADVM	Adverum Biotechnologies, Inc.	Healthcare	Biotechnology	USA	382.97M	7.2	-5.26%	1,314,989

Above is the list copied from my spreadsheet.  These are the stocks that I'll be trading tomorrow.  I recently started testing some day trading systems on baskets of stocks and now I'm in the testing with real money phase.  I will not be trading ZSAN or NETE..those are very small cap stocks and the intra day spreads have been too high to trade.  

Note that most of these stocks are what I'd consider turds that have run up or started falling after a run up..generally penny stocks that have traded their way up above $5 or $10..with the exception of overstock (ostk)..that one's just a turd..lol.  

If I keep up the day trading equities, which I'm pretty sure I will, I'll start posting more on it.  Basically, I trade around 10 stocks with 2 automated systems..nothing super fancy.  Then the real work is working on the scans the night before or the morning of.  I scan for volatility and volume with Finviz and build a list.  Actually, I build several lists and keep track of the trading performance on all of the lists and then narrow down the list for the actual trading.  The key is to save the daily screens to build data and then I can go back and test ideas.

Hope everyone had a great weekend.

George 

(TLT)

Wisdom Quote

"Better to not be in a trade and wishing you were in one than to be in a trade and wishing you were out"

--Unknown

Tools of the Trade

Every now and again someone asks me about software, charts, tools, etc. that I use to trade.  Here's a quick list.  I'm considering doing a series of reviews of some of the different services sometime soon.

Broker:  Interactive Brokers

Great executions and low commissions.  Bells and whistles are missing..I'm not a big fan of their charts and various tools.  Just use them for trade execution.  Their customer service has been helpful when I've needed it but can't really speak to most of the technical tools or research they offer.

Trading Software:  Ninja Trader

Ninja Trader is the main software that I use to trade.  Currently trading on Ninja Trader 7.  I've played with NT8 and like it a lot..just easing into the new platform before I start actually using NT8 to trade live.  Charts are friendly and everything is very customizable.  There's a script editor based in C#, so custom programming is available.  Moreover, there's a pretty robust strategy wizard that makes it easy to program and test strategies without even knowing how to code.  Most importantly, you can implement your automated strategy and have ninja trader implement the trades through Interactive Brokers via an API connection..this is the main reason that I started trading with Ninja Trader.

Server:  Speedy Trading Servers

I run all my trading software and brokerage software on a server with speedytradingservers.com.  They are very reliable, reasonably priced, and have had great customer service.  Highly recommend them if you're running automated strategies.

Others:  

Bloodhound by Shark Indicators

An add in to Ninja Trader.  Pretty nice tool that allows you to develop indicators and strategies within Ninja Trader.

Meta Trader 4

I use MT4 some for currency trading.  There are just some features with this platform that I like, especially on the automated side.  It's not as robust as Ninja Trader but it works well if you're focused on trading currencies.

Amibroker

Same as MT4 but for other reasons.  There are features in Amibroker that are cool for strategy testing and development that you don't find on other platforms.  I don't use this one that much but have found it to be useful at times.

ThinkorSwim by TD Ameritrade

I do a little bit of trading on TOS but not much over the last 4-5 years.  I still like some of the features in TOS and really like the ease of programming indicators and strategies.  Unfortunately, there's no way to actually automate any of the strategies which is why I made the jump to Ninja Trader.  Still, it has some nice features, especially for collecting data on multiple instruments or for options.  If I were sitting in front of the screens and discretionary trading all day, I'd have a screen with TOS open.

Futures.io

A great site.  The Admin and big dog, Big Mike, really did the trading community a service by getting this up and keeping it going over the years.  I've mostly been a lurker on this site but have found the members area to be very helpful for getting indicators and trading ideas.  It's a nominal subscription fee and is worth every penny.

IQ Feed

While I currently am not using IQ Feed, I have used them in the past.  I pay for the direct stream data from the exchanges for trading but have used IQ Feed for historical data for testing purposes.  It's very good and reasonably priced.

Tick Data Suite by EAReview

This is a must if you are testing strategies in MT4 or MT5.  The tick data is high quality and allows you to test strategies with a very high quality tick modelling rate.  Essential if you are testing strategies and want to have an idea of what they will actually trade like when you go live.  Very reasonably priced as well.

Strategy Quant

A very cool strategy development tool.  It uses random generation and genetic optimization to test thousand upon thousands of combinations of signals to develop strategies and then it lets you export the strategies into a code for Ninja Trader, Meta Trader, TradeStation.  The exported strategies are pre-coded with nice money management and profit target/stop loss features.  Overall its a cool program, however,  it is major curve fitting and there are some frustrating aspects to the program itself.  I've heard the customer support is not very good..I've never tried contacting them.  Needless to say, it's a decent program and I've pulled 2 strategies from it that I've live traded.

Build Alpha

Build Alpha offers the Traders Tool Box and I've only recently purchased it and started playing with it.  So far, I'm very impressed.  It's similar to Strategy Quant, in that you can use optimization to test thousands of entry and exit signals to develop strategies and then export trading code to some of the main trading platforms on the market.  David, the founder/owner is very helpful and responsive and he posts a bunch of helpful videos on the website that walk you through the whole program.  The main features that jump out at me so far are the various built in statistical tests for validating strategies and the ability to save multiple strategies into a portfolio and test the portfolio as a whole.  Very unique and very cool.  I'll be spending a lot of time on this one in the near future.

I'm sure there are a few things that I'm forgetting and I'll update this post later if I think of anything.  There are definitely plenty of tools readily available today that are mind blowing compared to what was available just 10 years ago.  There's no perfect software or tool, they all have their pros and cons but this is just a list of some of the resources that I have found useful.  FYI, I was not asked to post any reviews and I have paid regular prices for all of the services (I'm not big enough for people to give me free stuff in return for reviews..lol(although I was asked years ago to review a Harry Dent book in exchange for a review..I declined..lol)).

Happy Trading.

TheLawyerTrader
George

Almost 2 Years Since I've Posted...

Two years flew by.  Can't believe I didn't post anything in 2017..oh well back at it now.  Ironically, the last post from April 2016 was that the market was still where it had been for quite a while.  Obviously, its moved quite a bit since then..

After a two year bull market with a few blips of volatility, things are finally getting interesting.  I'm not usually too bearish, certainly not a doom and gloomer, but I'm getting a major 2007 early 2008 vibe right now.  Real estate is too hot, volatility is non existent (except for the last week), interest rates still have to rise at some point (don't they?) and we are due for at least a good hard pull back. Here's the chart that I'm watching on a quarterly basis..

Yep, the yield curve.  I've heard opinions from people that I respect about how the Trump tax cuts are going to propel this market much farther..blah, blah.   And they may be right but I still think it's interest rates.  I'll post again soon with a more in depth look at what I'm talking about but for the time being, here's the short of it.  The yield curve is flattening.  Short rates have been going up and long rates are not going up much in response.  This is the first time we've seen this in the yield curve in 10 years.  It's the interest rates..stupid.
So what am I doing in response to this?  Raising cash.  I've sold off most broad exposure to the markets and am just day trading and swing trading.  I've got a rent house that is way over valued based on the rental rates that the market gets..so I'm selling it in July when the tenant's lease is up.  Is this a run for the hills scenario.  No, probably not yet.  But I want to have ample cash when things do start moving so that I can a) not get hurt by a sudden sell off and b) have cash on hand to take advantage of deals and trading opportunities.

One other thing that I want to expand on soon is the blow up in XIV and the sudden scrutiny in the "risky" volatility products. It's such a bummer that the etn is going away and I'm worried that regulators are going to screw up VXX, TVIX and SVXY.  Those have been my cash cows for the last 5 years and what stinks is that there's not a good replacement for XIV.  More to come soon on that.

Trade well.

George
TLT

We're Still Here..Literally!!!

Yes, we are at the same spot (still here) that we were at one year ago..within a percent or two, and as you can see from the SPY chart above, the market has been trading in that same zone off and on for the year.  The sell off in August 2015 and the sell off this January/February broke out of the zone but then the market just crawled right back into its comfort zone after each sell off.  The crawl that was much to the dismay of the doom and gloomers that have begun beating the drums saying that this market is about the crash.  Maybe, but maybe not.  I think the price action does a good job of indicating that there is substantial uncertainty in the market..uncertainty about the market falling but also having a healthy respect that is could go higher.  While a bunch of people are concerned that a correction is coming, there also seems to be an unwillingness to dismiss the idea of the market heading higher.  That's why I think we keep seeing the comfort zone.

Moral of this story is that there have been a couple of exceptional opportunities for short term traders to catch some meaningful moves if they were nimble enough but the majority of the equity people out there are not willing to place substantial bets on a bull or bear.  While August and January have the look of a potential roll over in the market, the traders and investors that are betting on or believe in the downside have been burned twice in less than 12 months..ouch.  I would bet a good amount of money that the big guys are not willing to step in front of the Federal Reserve Train that could come barreling down the track at any moment.  QE Infinity is a tough opponent and many professionals and retailers (always retailers though..don't know why I had to mention them) have been crushed by getting in it's way.

Really, this is just a post to say that not much is really going on in the market.  Sometimes markets are flat and sometimes they are choppy and every now and then we see them consistently trend.  Just use this time to make sure and have an understanding about what your trading/investing edge is and determine whether this environment is good for it or not.  I know of a few strategies that are making great returns right now and I can probably name 3 times as many that are under-performing the market because this is not the right market environment for the strategy.  Jesse Livermore said something to the effect of that he made most of his money by sitting on his hands.

George
TLT  

Where we really are in the market...

It feels like we've been brutally selling off since the market started trading this year..especially if you've been watching news, reading market commentary, etc.  I've had people that don't have anything to with the market, except for a $10k roth ira, start talking to me about the awfulness of the market and the price of oil. My gut feeling is that we've probably already seen the short term bottom or are very likely to it..both in oil and equities.

Take a look at this chart:

We are basically in the same zone that we were in after the post August sell off.  We basically sold to the same levels, it just took several weeks to accomplish rather than a couple of days like in August.  So why are people freaking out so much and why are they so certain that we're entering a bear market?  This is what I've been asking myself.  The answer is probably that we just haven't had much volatility over the last few years and there hasn't been that much to be concerned about.  Now we have oil crashing, china imploding, rates rising, and a war in the middle east that America and Europe are not really talking about or calling a war.  While I think we have seen a regime shift in the market and we will probably stay in an elevated volatility environment, I doubt that we're entering a big bear market..unless we have a huge market impacting event (terrorist attack, china actually implodes, sovereign default, etc.).  Short of any of those scenarios, I think we just see bigger chop in a bigger range.

Another chart worth looking at is a VIX chart with the ATR indicator.  The ATR of the VIX is basically the volatility of volatility, and this chart shows that a regime change has been in place since late August (the on going higher ATR levels) and it shows that a short term bottom might be in place (the blue circle showing the only significant decrease in the VIX's atr that we've seen this month).

So where is the market really at?  Probably in a big choppy range.  What am I looking for going forward?  I'm watching the zones in the SPY chart above..if we trade below the August/January lows, then we're probably going to see higher volatility and more of a sell off.  If we don't see new lows, then we'll probably drift up and down between the highs and lows of the zone until we clearly trade out of the zone.

Just note that active trading in a higher volatility environment is different than we've seen for several years.  Moves up and down reverse much faster and day to day follow through is limited.  While this presents great opportunities for nimble short term traders, it can be devastating for traders that are anticipating that their older trading patterns will still work.

Stay nimble and alert.

George

Great Article on Volatility and Volumes/Market Depth

The article is here.  It is the most interesting thing that I've read in a while..in fact, I've bookmarked it and will be reading it again later.



Above is one of the more interesting charts from the article.  Market depth dropping that much is a little concerning..

George