Well I'm back in the saddle again trading Forex and I'm short the USDCNY pair. This is a beautiful trending pair and I couldn't resist establishing a small position in it. My plan is to establish this as a longer term position because I believe the USD will continue to weaken and the CNY will continue to strengthen. How can you not love that?
Also, I want to check out the Forex options available via ISE (hat tip Soren) as this will be the year for me to learn about trading options and their strategies.
January 2008 Archives
Well I'm back in the saddle again trading Forex and I'm short the USDCNY pair. This is a beautiful trending pair and I couldn't resist establishing a small position in it. My plan is to establish this as a longer term position because I believe the USD will continue to weaken and the CNY will continue to strengthen. How can you not love that?
Also, I want to check out the Forex options available via ISE (hat tip Soren) as this will be the year for me to learn about trading options and their strategies.
Just for fun and to test out the robustness of the Stock Neuromaster system, I've decided to create a small selective portfolio of stocks and ETFs, generate BUY and SELL signals, and follow along in this blog to see what happens. To kick this off, and in honor of Wallstrip's new host Julie Alexandria, I've decided to add the Brazilian iShares ETF (EWZ) to the portfolio.
Although this happened last week, the model issued BUY signal on the evening of 1/22/08, which was executed on 1/23/08 @ $66.11 (open) for EWZ and the current recommendation is to HOLD at today's open (I previously wrote the wrong signals because I was looking at the wrong model, sorry.)
If you have any suggestions for which stocks or ETFs you'd like to see in this portfolio, leave me a comment with the symbol. To play around with Stock Neuromaster, you can get a 14 day free trail here.
Although this happened last week, the model issued BUY signal on the evening of 1/22/08, which was executed on 1/23/08 @ $66.11 (open) for EWZ and the current recommendation is to HOLD at today's open (I previously wrote the wrong signals because I was looking at the wrong model, sorry.)
If you have any suggestions for which stocks or ETFs you'd like to see in this portfolio, leave me a comment with the symbol. To play around with Stock Neuromaster, you can get a 14 day free trail here.
Ugly posted this interesting LA Times article his Del.icio.us link role a few days ago. It seems that people with upside down mortgages (where your mortgage is greater than the value of your house) are voluntarily letting their properties be foreclosed on.
A homeowner who can't sell his house tells the L.A.Times, "Foreclose me. ... I'll live in the house for free for 12 months, and I'll save my money and I'll move on." Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: "... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties..."It sure makes business sense to me why homeowners are doing this, cut your losses and get out but is it the right thing to do? I don't know if its right or wrong but I do know that the Banks need to start being more accommodative to all borrowers now. Lending has gotten so tight that our mortgage company wants to charge us $5,000 just to refinance our investment property, and we have great credit! With all this voluntary foreclosure activity, is it time to be a foreclosure vulture capitalist? Not yet, wait till the banks are choking on supply.
Ha! Just as I thought, something does smell fishy in this whole SocGen vs the Rogue Trader thing. I never believed that Jerome Kerveil concocted such an elaborate scheme all by himself. The Daily Mail reports (emphasis mine):
Executives at Societe Generale had originally insisted that 31-year-old Jerome Kerviel acted alone. They compared him to a "lone arsonist who burnt down a big factory". But yesterday they conceded that he was unlikely to have carried out his deception without accomplices. And in interviews with detectives, Kerviel was said to be "naming names" and refusing to be a scapegoat.What's even more interesting from this article is,
But Societe Generale has made it clear that Kerviel did not personally benefit from the fraud.If he didn't benefit from this elaborate fraud, then who did at SocGen?
I've decided that this is the year I focus on understanding the option markets. I'm interested in not only Stock options but Forex ones as well and to prepare my mind for this crazy endeavor, I started re-reading Natenberg's book, "Option Pricing and Volatility," and Taleb's "Dynamic Hedging, Managing Vanilla Options and Exotic Options" book again. This time I'm really focusing in on the equations and esoteric calculations which I can embed as Excel macros running in TraderXL Pro. I'm doing this for two reasons, one I'm interested in the mathematical rigor of the options market and two, I'm trying to understand how to make money off Black Swan Events in the markets.
One top of this I've recreated my option volatility neural net model to forward forecast the historical volatility for the $VIX. I realized after testing it last year on the QQQQ's and S&P500 that I had better success on the latter index and perhaps forward forecasting for the $VIX might be a better option (heh).
There's a lot of confusion going on in the markets right now and some believe that there are market rallies right around the corner while others think we're going down. I was talking to the Market Doctor yesterday and he's convinced that, 1) we are in a Bear Market, and 2) this is a Bear Market Rally we're experiencing. Based on the global carnage we saw this week, and several major indicies are now trading 20% below their peaks (aka as a Bear Market), I'd say he might be right. He's not the only one who's seeing the market action with Bearish eyes.
Sudden Debt poses a valid question in his latest post (emphasis mine):
In 25 years looking at the US economy and global markets, I have never seen such swift action from the Fed and the government, theoretically designed to avert or ease a looming recession. For example, the Fed's 75 bp one-day cut was the largest in its history and the fiscal stimulus bill was approved by Congress in record time. Everything is being done in a great big hurry. Why? And what further conclusions may be drawn from such action?Yes, what was it with this sudden 75bps rate cut? Was it a Fed knee jerk action to the major Monday sell off, which we're finding out now was probably a result of Société Générale's $7 Billion USD unwinding of a rouge trader's fraudulent trades, or does the Fed know something we don't know? Chances are the former and latter scenarios are correct, at least for me, and the Market Doctor might be onto something.
I'm starting out the year with my Forex account down 20%. Ouch! Well its all my fault, I shouldn't have been trading while sick. I let my positions get away from me and I made some stupid buys. Plus the market was so volatile it kept stopping me out right and left!!! I have to study the Forex markets in detail now that my time at the Spa is coming to an end. Things have changed in the currency markets, especially in the Yen crosses. I wonder how many Kimono Traders blew out with its recent strength?
The beauty of trading Forex is that you can recover easily from a 20% drawdown just as easily as you can add another 20% loss to that amount!
It sure looks like we might have a short term (possibly even longer) bottom in place on the S&P500. The surprises this week are creating a beautiful "hammer" on the weekly chart as the Fed bailout is starting in earnest.
I dipped my toe into the markets yesterday and moved some cash back into the markets. My Timing Model indicated that it was a great day to Buy but since I'm risk averse, and the markets are gyrating like I've never seen them before, I took a small position concentrating mainly in Asia/Pacific area.
Only time will tell if this is the Bernanke support we all so badly want or if we are heading down to 1250 on the S&P500. Judging from the futures this morning it looks like I made a wise decision to take a small position and the markets have no confidence in Ben.
I emailed my members yesterday morning and told them what my plans were for the day, why don't you join up?
The global market are getting hammered, things are looking ugly out there. I'm so glad that I'm mostly in cash and bonds right now, all thanks to my timing model. If you've been a reader of my newsletter (free to members) then you would've known that I got out of the market in mid December. The sell signals my model gave me in October and December have saved my ass from a whole world of hurt.
It looks like all the time I spent building neural net and genetic algorithm models has paid off.
I will be making changes to my membership and no longer toll gating any posts. From now this point forward, I will be charging for my market timing newsletter. The newsletter will be mailed out to paid members every week.
The last installment of this really well made documentary on Globalization. When I was young, and stupid, I believed in the miracle of Globalization. Now I see it for what it is, global governmental interventionism using the protocols set forth in Keynesian Economics but calling it Hayek Free Market-ism
I'll write a review about the documentary and my thoughts on Globalization later.
I'm still at the spa enjoying the recent market insanity. It's days like these where I'm reminded how awesome my S&P500 Timing model is (members get my weekly report). I'm glad I took its advice and sold my major holdings in mid December (and October) and moved my money into more defensive assets like bonds and cash.
Still though, the timing model actually issued a BUY signal today (see image), so it looks like we might have formed an interim bottom. I'm debating making a small buy here but I haven't made up my mind, I sometimes don't act on all the BUY signals the model gives me but I religiously follow its SELL signals.
Who knows which way the market will go but if it breaks down from here you can bet that 1250 will be the S&P500's next stop.
PS: I created this model using Rapidminer and TraderXL Pro.
The markets are having a rough time since the beginning of January and its beginning to look like the Greenspan liquidity bubble is (has) catching (caught) up to us. If you ask me, there’s no rally around the corner right now but the start of a race to a bottom. My guess is that we could see the S&P500 at 2006 levels (1250) or even 2004 levels if things get really ugly.
For the record, I’m not a perma-bear and neither am I perma-bull. I just believe that for the past 5 years our stock market gains were built on excessive liquidity and the ability of the
Can you blame Mr. Joe Consumer, who in my opinion hasn’t had real wage growth in years, skipping his credit card payments with “in your face†inflation, such as $4/gallon milk and $3/gallon gas? I surely don’t. Mr. Joe Consumer is finally tapped out.
Although my post sounds alarmist, it isn’t. The market will bottom eventually and then we’ll rally but I don’t expect that to happen anytime soon. You can argue till your blue in the face with me that stocks are really undervalued here, and they are if you add in the liquidity inflation. Look at how undervalued Citigroup (C) is now at $26/share? It was also undervalued at $45/share when I bought it. Subtract out the liquidity inflation and then tell me the price where Citigroup is truly undervalued at.
I'm still at the Spa but it looks like I'm on the mend. I might feel strong enough to put together a post tonight, maybe!
Keynesian vs Hayek. Love it! Too bad we still have a quasi Keynesian global market economy which pays lip service to free market Hayek!
What happens when you calculate the annualized volatility of the VIX Volatility Index and chart it? You see a violent spike in volatility in Feb 2007 which I suspect was when the "smart money" left the markets. Since that time the markets did hit new highs but they haven't really moved significantly higher than the highs hit in Feb 2007.
Good thing I listened to my S&P500 Timing Model and closed a lot of positions in mid December. I still remain 60% in cash and bonds right now and I suspect a lot of churn to be happening from now till the summer.
Volatility begets more volatiliy and it looks like every time the annualized volatility number crosses the 13 DMA of volatility, the QQQQ prices become very volatile. Right now the Q's are in a relatively low state of volatility but we all know that low volatility begets higher volatility and vice versa. I'm looking for more pain in the coming weeks.
It’s no secret that I use TraderXL Pro to download the majority of my Stock, Future, and Forex data that I use for RapidMiner modeling. I use the BulkquotesXL module because it’s able to download daily and weekly data from Yahoo and daily price data from the PiFin data source. Usually it downloads the data into separate tabs in your spreadsheet, which is nice but a pain to manipulate if you want to create a summary sheet to load into RapidMiner.
Have no fear, TraderXL Pro has a built in macro called “TickerHeader†that you can run automatically as you download your data into a nice summary sheet. This macro will runs automatically for each asset symbol you list and place it into a data column. The next symbol will be placed in the following column and so forth. You can download my template her: TickerHeader Macro Template
This should cut down, considerably, your data downloading process and get you modeling sooner!
However, if you want to build my spreadsheet from scratch, you have go through the following steps below and set a few parameters in the BulkquotesXL:
Step 1 – Create a new project
Step 2 – Enter your asset symbols into column A (see my example spreadsheet)
Step 3 – Enter the data range to download (columns B and C)
Step 4 – Select the period to daily (column D)
Step 5 – Enter the word “Summary†in column F
Step 6 – Enter the values "A1", "C1", "D1"… (Without the " ". Why you skip B1 will become clear as you read further along)
Step 7 – Set your data source (Yahoo or PiFin). If your downloading data from more than one data source, you have to enter its name in each row.
Step 8 – in the Data Field column enter “C†for close but in cell I3 enter “D;Câ€. This will place the Date field of the downloaded asset in A1 and then the closing price in B1.
Step 9 – Enter “TickerHeader†into the Autorun Macro column J.
Then click Download/Refresh Data and your done! The TickerHeader macro comes stock with BulkquotesXL module and has made my data downloading life a lot easier.
As always, if you have questions please leave me a comment or email me via my contact page. On your way out, please subscribe to my feed!
What a brutal week for Forex and the USD.  My EURJPY longs positions got beat up bad and I had to reduce my aggregate position for a loss. I guess I should start looking at synthetic carry trades as some readers have suggested (thanks Soren).  Still my outlook for this pair is bullish BUT I'm reaching my last line of defense (stop), anything lower than a few pips from today's close and I'm "punching out maverick!"
I did sell my AUDUSD position for a profit this week and my short position in USDCNY is going well. I'm playing the Chinese Yuan right now and we'll see how well this will turn out.
Wow, what a brutal day to be long EURJPY. I guess the Kimono Traders (they drew first blood) bought back their Yen really fast today after the USD plunged on bad economic news! Everyone was trying to get out the the USDJPY carry trade because the Fed is likely to cut rates on the USD again. The better bet remains in the EURJPY carry trade for now and my guess is that this Yen "appreciation" is overblown. I suspect that the Yen will weaken relative to the Euro again in a few days, at least I hope it does! :)
Early last year I worked hard on building an Excel based Algorithmic Trading System (ATS) and I made considerable headway using TraderXL Pro and Yahoo real time quotes before I got distracted by the birth of my son. It’s since been ignored and sitting in a directory on my computer but I’m considering continuing its development this year. As part of getting my head around this task again, I decided to share with my readers some tips and tricks I learned so that you too can start building your own Excel based Algorithmic Trading System. I consider myself a power user of Excel and I use the backend modules of TraderXL Pro to do a lot of the basic analytic analysis.
For the more in depth analysis, I write my own macros and then apply them to any downloaded data I have. Tonight I want to touch on an old post again and share with you a trick on how to automate some calculations using TraderXL Pro. (The best part about the TraderXL Pro package is that I can simultaneously download stock data, apply my pre-built modules, and then link it to a real time (or delayed) quote interface. I did this all with “one click” of a button and used it extensively for my ETF Trend system.) I posted a free linear regression slope macro in my popular Build an ETF Trend System post which you could use to build a generic ETF trending system.
The post contained the Excel macro code, a spreadsheet with some ETF price data that readers could download, and that’s about it. You could apply the macro using Excel’s Run function but that’s about all you could unless you had the TraderXL Pro modules installed. So for this post, I’m going to apply that same macro to the BulkquotesXL module, download new data, and automatically create the linear regression slope data “on the fly” (automating this task can save you hours of hard work if you are downloading hundreds of stock symbols daily so pay attention!), this of course means you have to install TraderXL Pro (trial version) on your system.
Step 1 - Download and install TraderXL Pro (use this package because it has a macro viewer in it)
Step 2 - Download my Excel spreadsheet (MasterDownloadNMT010108.xls) and open it. You should see the TraderXL Pro modules install into Excel
Step 3 - On the BulkquotesXL menu, select Download/Refresh Data. This will download the new data and create the sheets automatically
Step 4 - Copy “MasterDownloadNMT010108.xls!Module2.LinReg” exactly and without quotes into the Autorun Macro column of the BulkquotesXL Settings tab
Step 5 – Select Download/Refresh Data again. This will re-download the stock/ETF data and simultaneously create an 8, 13, and 26 Week linear regression slope columns.
That should do it! You now have over 15 stock/ETF symbols downloaded into separate sheets and a pre-built macro applied to each one. You could then link this data into another spreadsheet or set of calculations that will help you generate buy and sell signals (more on this topic later) for your ATS. In my future Excel based ATS posts, I plan on sharing with my readers how to build bigger macros, transform more stock data, and how to apply it to real time watch list that generates BUY/SELL signals. As with all my other posts, if you have any questions please leave me a comment and don’t forget to subscribe to my feed on the way out!
