to us this day…

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A New Market Maxim?

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The Russell 2000 (RUT) cash index with 240 day simple moving average

The RUT traded to the 240 day simple moving average and closed above it by a nickle on Thursday. Friday, it traded below it briefly to scare the chickens and then traded strongly the remainder of the day. The VIX term structure below shows that, if anything, put sellers were hard at work but for less money than they would have realized in years past. Retail put sellers complain that the premium they receive for their offerings of insurance is much less than in years past. With even Warren Buffet in the put selling game, there is no wonder. So do we now have two trading maxims? The old: when the shoe shiner speaks of stocks, sell them. And the new: so long as giants are selling puts, we might has well buy them?

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VIX cash and futures structure

 

 

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Aristotelian Virtues

So far as I’m concerned, the study of virtue in relation to excess and deficiency is probably a superior course of action for the trader who seeks to improve his or her trading psychology.

It takes long effort to learn to trade; it cannot be accomplished without balance. Balance is what all my best Taiwanese/Chinese friends seek in daily activities– an objective recognized and realized via the study and application of Taoism and Confucian thought and practices of physical discipline, such as 太極拳, taijiquan.  Re-reading the Nichomachaen Ethics, I am reminded that the conduct of a person of balance was well conceived and expressed in ancient Greece. (For the record, Confucius, 551-479, lived and taught about a century prior to Aristotle, 384-322 BC).

Much of our lives remain mysterious to us. We can dig for a lifetime in precisely the wrong directions or give up the pursuit of self-knowledge and fold our cards, so to speak. So long as people look to the stock and derivatives markets for hope, we might as well turn to time-tested means for dignity and well being, too:

ARISTOTLE’S ETHICS

TABLE OF VIRTUES AND VICES

SPHERE OF ACTION OR FEELING EXCESS MEAN DEFICIENCY
Fear and Confidence Rashness Courage Cowardice
Pleasure and Pain Licentiousness/Self-indulgence Temperance Insensibility
Getting and Spending
(minor)
Prodigality Liberality Illiberality/Meanness
Getting and Spending
(major)
Vulgarity/Tastelessness Magnificence Pettiness/Stinginess
Honour and Dishonour
(major)
Vanity Magnanimity Pusillanimity
Honour and Dishonour
(minor)
Ambition/empty vanity Proper ambition/pride Unambitiousness/undue humility
Anger Irascibility Patience/Good temper Lack of spirit/unirascibility
Self-expression Boastfulness Truthfulness Understatement/mock modesty
Conversation Buffoonery Wittiness Boorishness
Social Conduct Obsequiousness Friendliness Cantankerousness
Shame Shyness Modesty Shamelessness
Indignation Envy Righteous indignation Malicious enjoyment/Spitefulness

Aristotle (1955). The Ethics of Aristotle: The Nichomachaen Ethics. (rev. ed.) (J. K. Thomson, trans.). New York: Viking. p. 104.

 

 

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Personal Finance, APR14: Historical Regression

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Future Present: Pairs

Receding: Momentum Plays

Dim Past: PLUG

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Captain’s Log: Supplemental

The ship is under assault from numerous time-independent entropy initiation devices (E.I.D.’s). We have Scotty and the entire engineering staff at work, patching, rewiring, and rigging new lines to new civilizations.

In the meantime, the following trades have worked for me over the past 10 days: short puts in the indexes; gold/silver and silver/gold pairs; at-the-money vertical credit and debit spreads in stocks with cup and handle formations on weekly charts.

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Despite the latent work of E.I.D.’s, the key to trading is to stop watching and begin interpreting.

 

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Return to Origins

As an anthropologist, I was taught not to trust talk about cultural or personal origins. The 20th century showed us pretty clearly that cultural or even personal attempts to recover something lost have had enormous deleterious consequences. The obvious example is the Nazi movement in Germany or, depending on your political point of view, the “morning in America” in the 1980s. Such movements of thought and people tend to gloss recent history and produce instead radical reconstruction. At the same time, the back to the future kick also gives symptomatic form to real yearning for what has been lost. At the piano, ragtime music does it for me. I wish we lived in a world where lazy, sophisticated, syncopated reconstructions of military marches welcome one to the parlor of friends, so to speak.

Nostalgia for innocence.  As a trader I have my own nostalgia. It goes like this:

When I began to test the waters of the market, I was very hesitant. I opened a position or two in thinkorswim in 2010, but closed them quickly. I was afraid of the power the market wielded. Money flowed in and out with a speed beyond my imagination. I read books during the summer to get ready for real entry, and the book the made the most sense was O’Neil’s How to Make Money in Stocks. The title itself was so vulgar– it seemed to me– that I apologized to the bookstore clerk about it. But I loved it. The first 100 pages or so were devoted simply to charts which showed the price/volume trajectory of some of America’s great stock stories. The book didn’t make great claims on my capacity to find the value stocks, which it seemed and seems to me computers can do better than any of us. Instead, the weird book tells its readers to buy high and sell even higher. This made sense, too; for I had always considered the whole market to be something of a Ponzi scheme. O’Neil told me that the story was as important as the fundamentals. It still makes sense to me today, three and a half years in the future.

To try my hand at– if not the method in its most precise sense- the general approach, I opened an account at a Wall Street stock-picking game. My method was pretty simple. I would look at “Investor’s Business Daily’s” website and grab the best stocks that I could find without paying the subscription costs.  I had 100,000 in the play money account. I would pick 4-10 stocks and put all my money in them. If one didn’t show results and lost more than 200! dollars, I closed the position and opened another one. The weird thing is that it worked. Here are some results and positions from February, 2011:

From a Wall Street Survivor game

Portfolio Value $165,349.61

My Rank My Return S&P 500
Weekly 72 12.82% 0.00%
Monthly 67 11.19% 0.25%
Lifetime 653 65.35%

 

Action Symbol Description QTY Price Paid Last Price Change MKT Value Profit Loss % Post
Sell Acme Packet Inc APKT Acme Packet Inc 263 $43.03 $69.99 $3.44 $18,407.37 $7,090.48 62.65%
Sell Riverbed Technologies Inc RVBD Riverbed Technologies Inc 850 $22.86 $37.11 $1.40 $31,543.50 $12,112.50 62.34%
Sell Lululemon Athletica Inc LULU Lululemon Athletica Inc 550 $50.28 $76.96 $4.95 $42,328.00 $14,674.00 53.06%
Sell Netflix Inc NFLX Netflix Inc 184 $144.60 $220.07 $8.58 $40,492.88 $13,886.48 52.19%
Sell Oil Service HOLDRs Trust OIH Oil Service HOLDRs Trust 65 $124.82 $155.49 -$1.29 $10,106.85 $1,993.55 24.57%
Sell Rovi Corp ROVI Rovi Corp 585 $51.50 $63.68 $0.73 $37,252.80 $7,125.30 23.65%
Sell NetApp Inc NTAP NetApp Inc 75 $48.69 $57.93 $0.92 $4,344.75 $693.00 18.98%
Sell Aruba Networks Inc ARUN Aruba Networks Inc 271 $22.03 $24.27 $1.13 $6,577.17 $607.04 10.17%
Sell Deutsche Bank AG, London Bra… DAG Deutsche Bank AG, London Branch 2,500 $14.79 $16.11 $0.33 $40,275.00 $3,305.00 8.94%
Sell ProShares Trust TBT ProShares Trust 672 $38.50 $40.89 $0.80 $27,478.08 $1,605.42 6.21%
Sell Fortinet Inc FTNT Fortinet Inc 65 $39.08 $40.87 $1.99 $2,656.55 $116.35 4.58%
Sell Nuveen Premium Income Munici… NPM Nuveen Premium Income Municipal Fund 2 Inc 200 $12.67 $13.21 -$0.07 $2,642.00 $108.00 4.26%
Sell Barclays Bank PLC JJG Barclays Bank PLC 550 $54.23 $56.20 $0.41 $30,910.00 $1,083.50 3.63%

In four or five months, I had a 65+% return on equity, including commissions. In fact, I had similar returns through April 2011 in my real accounts, too. However, I wasn’t applying the “throw mud at the wall method” that I used in the game. Instead, I became distracted and discombobulated by all the voices and approaches that I was studying. Was I attempting to make more of the “game” than it deserved? Perhaps. Was I too earnest in my willingness to study and try everything? Perhaps. Did I fail to trust my initial apprehension of the stock market and how one should trade it? No doubt.

I’d like to return to the level of success I had. And what has been lost during three years? I certainly lost the innocence– not to mention money and time. Maybe I lost touch with myself.  But I can’t return to this innocence; just as we can’t return to the era of ragtime music.

I can write in an optimistic manner that perhaps I’ve gone through a kind of Hegelian process. I started out with an idea, but in the process I have encountered many people and ideas that became trading stumbling (anti-thesis) blocks as I attempted to master the concepts. Following Hegel, I might say that my consciousness has become articulated. Others might say, I hope, that I’ve paid my dues.

When innocence disappears into its loss, people experience anxiety and the old good times start to seem better than ever (ragtime music moves out of the brothel and into my middle-class living room).  The truth is, I don’t recall much about the “throw the mud at the wall method” except that it worked. But the innocence only covers up the trepidation and experiences that changed me a long the way.

In another post, I’ll try to tackle some of the voices and ideas that educated me as they lead me away.

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Personal Finance, MAR14: The Good, the Bad, and the Ugly

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The Good, the Bad, and the Ugly (1966)

Good: Short S and P 500; long DOW.

Bad: Failing to take profits in momentum stocks.

Ugly: Unwinding weekly trades.

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