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

Trading Psychology 2.0 from Brett Steenbarger, Phd.

I've been so busy over the last six months that somehow I missed that Dr. Steenbarger released a new book.  He is one of only a few authors that are on my list to buy whatever they release, without question.  His work is also on the short list of material that I can say absolutely has been instrumental in helping me learn how to be a profitable trader.  It's on amazon here.  

General Update

It's been an interesting year for the market.  Coming into the home stretch before the holiday season we've seen the indexes not really make or gain anything significant.  There has been a noticeable increase in volatility since August and the active traders, especially the day traders are having a field day.  With elevated vol levels, we've seen short term trading opportunities that are better than have been around for a couple of years.

The quantitative fund that I run saw incredible performance in both September and October..hopefully it will continue through the end of the year.  With the fed failing to raise rate and with the street discounting the chance of a rate hike in December, it seems that the market has nowhere to go but higher for now.  For those that can stay nimble, there will be continued profit opportunities as this market is very fickle and is looking for reasons to sell off quickly.

I'll be checking in a little more afternoon.  Have been back and forth about whether to continue blogging but I think I will for the time being.

TLT

Markets Very Oversold: SPY is a short term Buy

My favorite short term over bought/over sold indicator is the 2 period RSI.  There have been papers, blog posts, books, etc. on the effectiveness of this indicator.  If you're not familiar with it, I would encourage you to google it and read up on the 2 period RSI.  Larry Connors has some great research on it.

As you can see from the chart below, the SPY etf is very oversold.  I'll be buying a little today and a little more tomorrow if we close down again.

Happy trading.

TLT

ThinkScript Indicator: CalmvVolatile

This is a pretty basic stud that compares the current Average True Range (ATR) with a long term average of the ATR.  The default periods are 14 period for the ATR and 500 period for the average.

This indicator can be helpful as a quick reference when taking short term trades.  If the instrument is volatile, you know that there's a better possibility of a quicker and farther move than if it's calm.  Enjoy.  The code is below.


#######Delete this line in TOS#############

input atrlength = 14;

input avglength = 500;

input plotlower = {default "yes", "no"};

def vol = AverageTrueRange(atrlength);

def avgvol = Average(vol, avglength);

def calm = vol < avgvol - (avgvol * .1);

def neutral = avgvol + (avgvol * .1) > vol > avgvol - (avgvol * .1);

def Volatile = vol > avgvol + (avgvol * .1);

AddLabel(yes, Concat("Market is Currently ", (if calm then "Calm" else if neutral then "Neutral" else if Volatile then "Volatile" else "Neutral")),  if calm then Color.GREEN else if neutral then Color.BLUE else if Volatile then Color.RED  else Color.GRAY);

declare lower;

plot window =  vol - avgvol;

window.SetPaintingStrategy(PaintingStrategy.HISTOGRAM);

window.AssignValueColor(if Volatile then Color.RED else if calm then Color.GREEN else if neutral then Color.BLUE else Color.GRAY);

plot zeroline = 0;

######delete this line in TOS##############

Trade Opportunity: TripAdvisor

TripAdvisor (TRIP) has taken it on the chin lately and there might be some good short trade opportunities for those that are nimble. Trip is very oversold right now and will likely bounce a little which will provide a potential trade with a decent risk to reward opportunity.  I'd look for a bounce up to the $80-82 range and I'd place a stop at $87.  After the trade is on, I'd set a profit target to sell half at $69 and trail a stop down to the ultimate target of $60 and change (i.e. $60.30).  Check out the chart below.

I am going to start posting at least once a week on this site again.  I'll do random trade ideas when I see them and then some general market update.

Have a great day.

TLT

In Between Domains

Well, something happened and I lost my domain.  Somehow, the perfect storm events occurred--didn't get notice that my domain renewal period up running out, my credit card on file had changed and someone "back ordered" my domain so now I'm domainless.

Not sure how many people will find this post now that its www.thelawyertrader.blogspot.com but we'll see.  I'm probably going to get a new domain and might even use this opportunity to change things up a bit.  If you've found this, thanks for your patience and please check back soon.

TLT 

A Pivot Point Trading System for Ninja Trader: Are pivot points profitable?

I've never been that big on pivot points, however, I do find them interesting and began dabbling with them recently.  Pivot points are generally used on an intra-day basis, however, for this system, I used them on daily bars and calculated the values off of the weekly time frame.  As it turns out, there is some decent profit potential with a simple pivot point system.  I devised a basic mean reversion system and have applied it to Sector ETFs.  Here are the rules:

Enter Long

• Close is greater than 200 day simple moving average;
• Close crosses below S2.
• Close crosses below S3, enter a second long position.

Exit the trade when the close crosses above the PP (middle point)

Enter Short

• Close is less than 200 day simple moving average;
• Close crosses above S2;
• Close crosses above S3, enter a second short position.

Exit the trade when the close crosses below the PP (mid point)

Here's a screen shot:

As you can see, this system buys dips and sells rallies.  The 200 day moving average is a basic filter to screen for trades that are in the same direction as the trend.  It's not the most sophisticated filter but it works just fine.

And the results please.  I back-tested this system from 2008-today (Aug. 16, 2013).  It is profitable, although not overwhelmingly, jaw-dropping profitable.  One very positive factor is that it has pretty low drawdowns.  With a basket of 12 etfs, it trades all through the volatility of 08' and 11' and the trending markets of 09' and 13' and it has had a max drawdown of -5.68%.  That's pretty good.  The cumulative profit is 39% but when you consider that profit with such a small drawdown, it makes this system look more attractive.  (Note, I did not take out commissions or slippage.  These will affect results some, but not too much as this is traded on a daily time frame.) Someone could apply 2x1 leverage and get a return of nearly 80% with a -11-12% drawdown, which is much more impressive.  Another nice quality is the rather high winning percentage of 78.87%..which is about normal for a profitable mean reversion system.  This can be good for traders that "have" to win more often than they lose, which is not necessary for a profitable system but it may be more in line with a trader's psychological makeup. 

Here are the reports for the portfolio as a whole and the individual etfs.  They were all profitable, some much more than others.

Here are the stats for the portfolio as a whole with couple of annotations pointing out some of the more relevant metrics.

So am I going to trade this system?  Probably not, at least not right now.  I've actually got better performing mean reversion systems that I'm currently trading (and by better performing, I don't just mean more profitable--that is part of it but the other systems also have a better history and they trade in a manner that I am 100% comfortable with and that I completely understand).  I will however, still play around with this idea and see if I can tweak it a little more to my liking.  Another thing that's worth is exploring is working a similar system on an intra-day time frame.  That will take a little more work and I'll gladly post an update later to let you know of any progress.

For those of you who use ninja trader, below is the ninja script (NT7) for the system.

Hope everyone is enjoying that last bit of summer.  

TLT

*******Delete this line when you paste into NT*******

#region Using declarations
using System;
using System.ComponentModel;
using System.Diagnostics;
using System.Drawing;
using System.Drawing.Drawing2D;
using System.Xml.Serialization;
using NinjaTrader.Cbi;
using NinjaTrader.Data;
using NinjaTrader.Indicator;
using NinjaTrader.Gui.Chart;
using NinjaTrader.Strategy;
#endregion

// This namespace holds all strategies and is required. Do not change it.
namespace NinjaTrader.Strategy
{
    /// <summary>
    /// Enter the description of your strategy here
    /// </summary>
    [Description("Enter the description of your strategy here")]
    public class DailyPivotTrader : Strategy
    {
        #region Variables
        // Wizard generated variables
        private int ma = 200; // Default setting for Ma
        // User defined variables (add any user defined variables below)
        #endregion

        /// <summary>
        /// This method is used to configure the strategy and is called once before any strategy method is called.
        /// </summary>
        protected override void Initialize()
        {

            CalculateOnBarClose = true;
        }

        /// <summary>
        /// Called on each bar update event (incoming tick)
        /// </summary>
        protected override void OnBarUpdate()
        {
            // Condition set 1
            if (CrossBelow(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).S2, 1)
                && Close[0] > SMA(Ma)[0])
            {
                EnterLong(DefaultQuantity, "");
            }

            // Condition set 2
            if (CrossBelow(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).S3, 1)
                && Close[0] > SMA(Ma)[0])
            {
                EnterLong(DefaultQuantity, "");
            }

            // Condition set 3
            if (CrossAbove(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).R2, 1)
                && Close[0] < SMA(Ma)[0])
            {
                EnterShort(DefaultQuantity, "");
            }

            // Condition set 4
            if (CrossAbove(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).R3, 1)
                && Close[0] < SMA(Ma)[0])
            {
                EnterShort(DefaultQuantity, "");
            }

            // Condition set 5
            if (CrossAbove(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).PP, 1))
            {
                ExitLong("", "");
            }

            // Condition set 6
            if (CrossBelow(Close, Pivots(PivotRange.Weekly, HLCCalculationMode.DailyBars, 0, 0, 0, 20).PP, 1))
            {
                ExitShort("", "");
            }
        }

        #region Properties
        [Description("")]
        [GridCategory("Parameters")]
        public int Ma
        {
            get { return ma; }
            set { ma = Math.Max(1, value); }
        }
        #endregion
    }
}

*******Delete this line********

Although it's Changed Hands, It's Still Worth Following: Libor Spread Still Helps

I've posted before about how the 30 day and 90 day Libor spread tends to be a good leading indicator.  I also posted about how it sucks that there's been crazy manipulation and that it might not be good anymore.  Well, Euronext is taking over Libor and it appears that the Libor spread that I so love to watch is still worth keeping bookmarked and watching.  Here's the chart:

Not saying it's the end all be all...just might be worth keeping an eye on.

Hope everyone's having a good summer!

TLT