Weekly Commentary

Aug 11/07 - It is the white knight to the rescue of the markets in the form of the Fed and the ECB.  It was a volatile week but the markets ended virtually unchanged.  Why did the Fed feel the need to intervene since we have not had a healthy correction in over 3 years?  The main reason may have been that banks do not want to lend to other banks in the form of overnight deposits because they may wake up to another bust company.  After all, why does your bank have so much leverage?  One of the reasons is that this may be has do in fact to do with the low volatility that we have had.  This makes the return on some assets much lower and may also reduce the risk but you have to get leverage.  The other important point this week has been for corporations that borrow from commercial paper sales.  This week the CP rate jumped to 5.5% which is up 0.32% for the week.  This is important because if they are now having a harder time getting short term funds it will be that much more difficult for consumers.  Look for credit card rates to move higher in the near future and our estimate for commercial paper is rates of 6.5%.   The widening of credit rates does not bode well for the economy into next year as capital now has a higher hurdle to produce good  returns.  Finally, our studies of commodities have signalled a top in the CRB index and the market may have called Bernake's bluff of not saving the market.  Look for the potential of a rally on the Bernake PUT.

July 21/07 - The week was going good until GOOG came out with earnings that were great but the market was looking for reasons for a sell-off.  However, we feel that this is a temporary shift in market behavior as even string earnings are temporarily now considered not to be enough to push stocks and markets higher.  Let think of it like this - if google has great potential and has great earnings then my stocks that have just average earnings are not likely to perform.  This seems a bit flawed in our opinion and we expect the market to bottom sometime mid week as volatility is likely to spike over 19 as measured by the VIX.  In the bond markets there was a flight to quality even as subprime hit new ABX lows and the Alt A mortgages also began to decline.   This decline in the Alt A mortgages is disturbing and any signs of further weakness should be regarded as coming higher default rates from the re-setting of mortgage rates as the teasers begin to come to maturity.  The USD continued to make new lows as more bad news about the presidents ratings fell to record lows but if the dollar is so low then why is everyone buying the treasuries - including foreigners (perhaps there is no where else to move all that liquidity).  That liquidity is what we expect to move back into equities.

July 14/07 - The best comparisons in investing may not come from the world of psychology as has been the recent revival of behavioral economics.   In games of psychology the end is often know and games are played in attempts to get the maximum payoff.  Total profits can only be increased at the expense of the competitors and the brokers take a guaranteed slice of the pie as "we" compete against "them".  In comparison to biology the end of a life cycle can only be estimated and there is not some attempt at a one time maximum payoff but a steady stream of food for conversion into energy.   Nutritional intake is of up most importance as starvation can lead to stress and eventual death, often as short as a few hours for bats and a few weeks for people.  So why do people play the markets based on theories of the Prisoners Dilemma, Game Theory, Home Run Hitting or random behavior like coin tossing?  Coin tossing may not be all that random as its outcome is impacted by the force the coin is tossed, wind speed and in some cases cheaters may be at work fixing the system by extracting a fee for each toss.  A need for a steady income stream is the promise in hedge fund as there profits are from alpha as opposed to beta which tends to be too volatile.  The markets may have an upward drift but an aging population does not have time.  Our SPX/USD trading model held long through the biggest one day rally in over four years but volatility is suggesting that the rally is limited and next week earnings release promises more variance in stocks.  In the bond markets our systems point to higher rates as 10 year rates are coming off lows of 5% and short term corporate rates are starting to move higher.

July 8/07 - Interest rates dropped briefly below 5% on the 10 year notes but then reversed course and made a run to 5.20% and short term rates also moved higher.  The sub prime fiasco continued with rumors that BS hedge funds were being offered 10 cents on the dollar for their subprime bonds.   This is hard to believe and if the fund would have been forced to liquidate then there would have been a firesale.  Anyways the truth is that the market has already built sub prime issues into the market prices and that if further adjustments are needed , well at this time we do not know.  Next week will bring earnings reports from Alcoa and Pepsi and a host of smaller companies and we expect volatility to pick up in anticipation of the week after when Intel and Yahoo among others report.  As Yahoo recently replaced the CEO we can expect some surprises on the downside there perhaps.  Short term upside on the SP seems limited at this time.  With rates rising and the China market having slipped 15% from its high it appears that our commodity call last week  may have some time to run on the downside. 

June 30/07 - It was a volatile week but volatility and interest rates fell by the end of the week. to that tune we will no longer be providing signals on the SP or the nasdaq and have discontinued our COT service. It is of our opinion that COT is delayed and that upon analysis there is margin value being added by delayed data.  On the equity front we can get much better information from variables such as interest rates, inflation, and market volatility.  For it is these factors that lead us to the equity market in search of better returns.  There was an interesting development this week as our CRB index is flashing a sell signal for Monday.  The CRB index has been moving sideways for a number of months but the one wildcard will be oil.  On the interest rate world short term and long term rates continue to signal higher rates over the coming month.  In particular this may be lead by higher commercial paper rates as investors start to move into other investments.

June 24/07 - It was a volatile week and the bond market was the place of the flight to quality.  Most of the news was about the sale of bonds at Bear Stearns and now Merrill was wanting to sell off some of its hedge fund bonds as sale prices but at the last minute Bear came up with collateral for the fund. In the markets there was little news but investors  jumped back into bonds for now. We continue to look for a higher yield curve and higher rates.  Please click on the graphs on the right for more insight into our model predictions.

June 16/07 - Are projection of higher markets came to bear fruit after a down early week and the bond market delivered higher rates.  By week end it was clear that the core rates are falling on the inflation front but the inflation rate including food and energy is on the rise and fast.  Will this filter into the core rates?  That is the million dollar question as the Fed's do not want to pay further benefits and the biggest core of inflation is the Owners Equivalent Rent.  The biggest jump we noticed in commodities was the jump in the prices of wheat (read as bread and dough for donuts amongst other items).  We believe the yield curve will continue its upward move and rates will be higher in the coming months unless there are changes in the flow money and inflation expectations.

June 9/07 - The bond market does not answer to equity holders, it only needs to be compared to other countries.  The bond market took a beating this week as the 10 year bonds topped the magical 5% mark with a jump.  The 10 year bonds last topped on June 28/06 at 5.24% and began heading south.  Bonds need to be compared to rates in other countries as money is liquid and currency fluctuations can be hedged.  Further, the demand for money from the big takeovers is up 50% over last year as the smart money has been issuing the junk bonds as fast as they can.  The yield spreads have been incredibly low considering that deficits are climbing, and as we see from the Canadian and European  Markets higher rates are not just a US issue.  A strange occurrence happened this week as all three of our daily directional timing systems issued a strong sell signal.  Further, the SP-USD strategy gave a sell mid week and the markets turning strongly lower Thursday.  In the coming weeks there will continue to be pressure on US bonds and the yield curve will move into higher positive territory as investors remain anxious about parking there funds into either equities or bonds.  The Group of Eight summit also this week may not be going all that well as Russia had some tough words prior to the meeting and this may have changed the agenda and sentiment of attending members. In the coming week we expect further equity market upside and decreased market volatility. There may be unwinding of the carry trade as the Japanese Yen is projected to move higher.  On the 30 year bonds an important point will be at 107.00 on the futures market.

June 02/07 - The week set new highs in the S&P and bonds made a run to the 5% mark.  The missing piece of the puzzle is the projected rate of inflation.  Our models are looking at a jump in inflation over the coming weeks.  The other inflation (hedge) GOLD is also going on a buy on Monday.  Retuning to the main story of bonds this week we expect rates to move higher leading to lower bond future prices (this includes the bond ETF TLT).  The yield curve is moving higher and short term rates remain low relative to upcoming inflation expectations. Amazingly, our earnings expectations system is pointing to higher earnings and some of this is most likely due to corporate buybacks (such as IBM).

May 26/07 - The markets continue to flirt with record highs but for some reason are unable to penetrate into new highs and remain there.  In particular the small caps have been hit hard after making new highs on the Russell2000.  The equity markets may experience a small sell-off early in the week to make a recovery over the next few weeks as our volatility strategy is jumping in with both feet early Tuesday morning.  There is however a different picture over on the bond markets as the recent sell-off has left a few bond traders scratching their heads as the economic indicators have been conflicting over the last few weeks.  Finally, the REIT market seems to moving lower in sympathy with bonds and we are working on a strategy for this volatile market.

May 19/07 - Wall Street was abuzz with takeover rumors as Microsoft finally made a play to buy out aQuantive Inc. for about $6 billion in cash.  Will this be the bet it makes to offset the technological advantages that google currently has?  The equity markets fell then rose and ended where they basically started the week.  The story was different for the bond markets as the 10-year rates moved from 4.68% to 4.80% and bonds trended lower.  Our expectation has been for both short term and long term rates (next critical move of 5 year rates above 4.7%) to move higher with a flat yield curve in the near future.  Rates have stubbornly stayed low with world liquidity looking for places to park their excess funds, this week however China made a 3 billion investment with Blackstone in a sign that they are looking for higher yields and have tolerance for more risk (but 3 billion is not a sign of a significant change of policy).   Alan Greenspan joined the Bond King of Pimco, as pimco was right last year on the housing market but incorrect on the path of interest rates.   Gold finally made its move lower and our systems have been on the wrong side for some time with this commodity but correct with anticipation of a higher Canadian Dollar (another commodity play).  Finally, there was a paper released by ANDREW W. LO of Massachusetts Institute of Technology (MIT) - Sloan School of Management on Where do Alphas Come From?: A New Measure of the Value of Active Investment Management.  Among other items it discusses the returns of funds based on "measures the portion of the manager's expected return due to static investments in the underlying securities, …the forecast power implicit in the manager's dynamic investment choices".

May 12/07- Interest in VIX Futures set a new record this week as some investors got the jitters on Thursday. This brings us to an important observation about market sentiment.  Investor sentiment is often identified as being at extremes at major market tops or bottoms.   However, market sentiment is being pushed as a market-timing tool, even with the following problems.   Often data is collected from individuals over the previous week and thus it is already delayed, other investors have access to this data before the user (people seem to forget about this lag), sentiment is most often a past reflection of the markets and not a harbinger of things to come and lastly sentiment is an observation of feelings and not where one is putting their money.  With the above issues, then one can conclude it would be useless in any trading models and that is why web pages that display this data (and often charge for it) do not show it in any useful trading model.  The eyes have a way of deceiving us on relationships / correlation's.  In the bond market prices moved lower as an increase in UK rates put pressure on this side of the ocean.  We expect to see continued weakness in bonds and a rise in VIX in the coming week.

May 06/07 - The markets have been up for five weeks in a row and the odds of a six are on the low side.  There has been much talk of market momentum but according to a new paper from Hwang, Soosung and Rubesam, Alexandre, "The Disappearance of Momentum" (March 2007) it has all but disappeared since 2000 from the markets.  If this is true then mutual funds and those that depend on momentum based strategies will continue to under-perform the market for the foreseeable future.  Market volatility will spike higher this week as we enter a critical zone in volatility over the next few weeks.  The bond market is on a sell on our daily system as the lower USD has yet to have a significant impact on other markets. We would go as far to say that the dollar does not matter as all the players have their eyes on the markets.

April 28/07 - Leveraged buyouts may be great for the stock world but for some bondholders (such as BCE) they are experiencing downside pain.  Why would a takeover not be so good for all?  One possible reason is that when the company is taken over and stock is retired (bought out) the new private company will issue new debt to finance the company and to some extent the buy-out.  This may hurt current bondholders as the company margin may cause rating agencies to cut debt from investment grade to junk levels.  In this case current bond holders are in ambiguity as they are uncertain if there bonds will also be retired along with the stock.  Investors in the bonds react asymmetrically to such ambiguous news.  In this case the current bond holders have some information indicating the arrival of bad news.  This is intangible information, yet the market has decided to act upon it as it was tangible information.  Future buyers of the bond (the people who set the price when ambiguity is high) require compensation for the increased uncertainty.  Ambiguity differs from volatility as volatility is about market expectations and ambiguity is about the quality of the information.  When investors begin to cast doubt on tangible information then the result is volatility. Our strategies continue to support a market rally but volatility will be making a comeback over the next two weeks unless new information leads us to believe otherwise.

April 21/07 - There seems to be a lot of pessimism out is the markets these days and the Margin Debt levels may not be a good reflection of real margin as the short sellers are part of the borrowing.   Previously short selling was not this big but with true hedge funds this has changed and we must re-evaluate some common markets indicators in this light.  I will also add that when any data is delivered with a lag that it losses much of its punch as others have access to the data prior to the public.  When traders start to look for market correlation's they are bound to see that B follows A and that it happens more often than not.  This off-course is just a quick computation and is often only tested on the last data period available (as this the most recent in memory).  I would caution that as follows B more and more that the scenario is more likely coming to an end, as other traders will have also picked up on the pattern.  The pattern is definite to end when someone publishes a paper of a book on it, just like the incredible January Effect, presidential cycle or the Dogs of the Dow.  In this end we will be changing our ES trading model to one that has been a more consistent winner and uses variable different than the current version.  The following week appears to remain bullish with the exception of volatility and lower earnings from the not so high profile stocks in the SP500.   If there is a market drop coming it will not be a buying opportunity as have been the past drops which were accompanied by earnings estimate increases such as 1987,2003 and even the recent 416 point plunge for the Dow Jones Industrials on Feb 27/2007 on our earnings model.

April 14/07 - Market Earnings are the lifeblood of the markets, if there was never any possibility of profits nobody in their sane state of mind would invest in stocks.  Thankfully, the earnings of the S&P 500 are positive and lately have been positive in a big way. As go earnings so normally goes the market and earning estimates are the biggest big business in the investment industry.  Why then are earnings difficult to predict even with good knowledge of a company or industry? 

Earnings Projections are just as difficult to forecast as the markets due to the number of variables in the economy.  For stock valuation, company specific earnings are in many cases he basis of buying the stock.  This is apparent on earnings day, as any deviations from the forecast are meet with extreme volatility.  Earnings forecast keep broker analyst busy writing reports for current and potential clients, this helps to sell as the firm appears to be providing investors something tangible of value that the client would not have the time to research.  It may produce a tangible report but the variables used in the report are far from being tangible to forecast - it is not like measuring how high a tree will grow using measurements such as soil condition, moisture and hours of sunshine among other factors that can be directly measured.

 The truth be told as the economy changes so do the fortunes of any individual company on average.  This means that earnings rise and fall along with the variables that impact the economy and the costs of doing business.   Some of those costs are the cost of borrowing (such as outstanding debt that most companies have) and the ability to price products based on costs.  This means that as these factors change so must earnings estimates.  Normally estimates are revised when earnings are released as investors have an appetite for the unknown.

Our model of SP500 Earnings Forecast is based on macro indicators mentioned above and on various estimates of potential risks (volatility of earnings).  As in the Black Scholes model of option pricing we believe that the best estimates are made with the most current information.  At this point we do not attempt to focus on individual companies but the market as a whole. The free cash flow model is the preferred method of corporate evaluation but that is more difficult to calculate (with fewer errors) so the earnings estimate may be the next best thing.  Further earnings come out quarterly and give investors something to bite into until the next quarter.

April 08/07- The market has been reduced by some to just a mathematical formula full of ratios and models. This may work for them in the current environment but unless they show the willingness to adopt then those models will in the future expire.  What has been neglected is the human will to change to new and unexpected events or to carry markets to an extreme.  These can not be measured with accuracy but we can attempt to time when these changes may happen by looking at volatility.  In the markets, volatility is the temperature of the markets - the higher the temperature the more extreme the markets tend to be.  At periods of high temperatures are the times of opportunity as market participants are open to new ideas as older held beliefs may have lead them astray and filled their thoughts with uncertainty.  This is also the point that collective behavior works its magic, the magic of leading the crowd in the right direction.  This is similar to a group of people guessing the number of jellybeans in a container even when individual guesses are very incorrect.  On the markets, interest rates may be at the point of high influence as investors have been placing bets on bonds at a higher rate (as witnessed by increasing futures volumes).  Rates now look poised to move higher.  Vix is also signaling more surprises in the coming earnings season.

March 31/07 -The markets are the home of uncertainty and of bears and bulls attempting to figure out the future course of the markets.  This uncertainty is all in the data according to the Fed and it will be resolved by the data, so if the Fed is unaware of the state of the economy how could other investors be too sure.  Well, nobody can be certain no matter how good our observations but we need to have the ability to out think our opponents in the markets.  This may be called gaming or a version of the predator/prey model but in the markets the net sum is zero minus commissions (some may argue that there is an upward drift in the markets that we have not accounted).  In gaming the market, the biggest mistakes are often the times that the market is moving fast and we are unable to cope with this sudden volatility.  There does not exist any single market model or formula that describes possible market outcomes.  The best we can accomplish is to identify the possible variables and give a probability of possible outcome.  Any possible theory we hold about the market has value in explanation, not of the future outcomes.  The most important factor in trading may be flexibility, to take corrective action to avoid serious risk. Market theory needs to take into account that people react, learn and anticipate other traders behavior.  Market uncertainty is not going to be solved by an abstract formula, as information itself is imperfect.  Finally, even if a pattern/formula were effective in determining the market direction, the markets nature would assure that the future pattern would be altered. 

March 24/07 - The market got a heart jumpstart after the Fed meeting and the shorts were scrambling to cover.  As the subprime market starts to stabilize and some hedge funds think they are getting a deal by buying these loans at 96 cents on the dollar.  Well, we think this will come back to haunt some of these early vultures.  This brings us to the leveraged bet that individuals and funds are taking these days.  The low volatility periods have been the best of days but making overleveraged bets are a sure path to ruin.  This is the equivalent of writing naked puts and getting a great sharpe ratio until some future point.  In the risk business this is called left tail risk or negative skew.  Why are we discussing leverage at this time?   Just think back to a few months ago when customer margin accounts were at record highs.  Well that seems to have also blown away but there now exists the potential that consequences from that event may hit the market.  It is consequences of consequences that moves the markets and not the latest number of the macro economy. 

March 17/07 - It was the week of options expiry and some believe that markets tend to decline in such week, but we have not been able to test this theory.  What we do know is that options expiry can not be as important as before as now we have option expiry every week on some options and month end expiry on many others. I would not suggest trading options (due to the time decay factor and the timing and directional factors) but it plays an important role in traders beliefs.  In for one, informs us of the implied volatility for stocks and indexes and this has historically been very accurate in predicting the variance of markets.  If this were not the case then we could arbitrage the opportunity to our benefit.  Alan Greenspan continues to warn of a slowdown in part to profit margins being at record highs and we are monitoring this closely, as employment and capital spending goes in the direction of profits.  In the bond world, interest rates continue to dance around in the 5% region for short term rates and the longer rates do not feel any impact from the subprime fiasco. The S&P based on USD returns remains bullish as does volatility.

March 10/07 - The markets moved higher and the subprime mortgage market has tanked along with the ABX index as some of the liquidity is drying up.  Can the subprime damage be limited to holders or will it spread to other mortgage providers?   One stock that will be impacted in the coming weeks is Fannie Mae (FNM). We suspect that most private equity and hedge funds have hedged themselves and that one need to closely follow the REIT market (^RMZ on http://finance.yahoo.com) to notice any cracks in this large market.  We have been working with a number of models over the last few months and the SP measured in USD funds appears to show good gains and has been benefiting form the "YEN carry" trade confusion.  The confusion surrounds how big this market is?  It has been our experience not to measure markets where there is no index for comparison but to stay informed on how investors may be affected by such news.  Market volatility topped off early Monday morning and has been heading south rather quickly as volatility sellers (option writers) have taken this opportunity to sell options to anxious bears.  It appears that many traders were hoping for a 10% correction (that much talked about number) before moving back into the markets but the market is least accommodating when investors have a set target.  This created a large pool of investors that were sidelined and have been coming back into the market over the week with the realization that the markets are moving against them. Next week we expect a top early Monday with the markets heading lower for the remainder of the week. In the bond markets a strong jobs report on Friday confirmed that the economy is still strong and that earnings are growing at an inflationary pace. Bonds at this point are also on a sell but Gold stocks (XAU) are signalling a rally ahead. Finally, we will continue to closely monitor corporate earnings as the earning margin may be at unsustainable levels and future corporate profits may be lower than anticipated.

Mar 03/07 - It starts in the east and spreads to the west that about sums up what we saw this week on Wall Street.  Our quantitative models remained locked in buy mode.  It is our belief that some of our models use similar inputs as those used by hedge funds thus they are subject to jumps in volatility.  A few weeks back (Feb 10) we advised being out of the market while the VIX models were signaling a rise in volatility.  This saved us a lot of headaches as we prefer to only play the long side while volatility is falling and diversify into plays on GOLD and the Bond Market.  Someone must have hit the panic button with investors as this was a total surprise for all involved but the ABX index might have provided some insight into credit problems.  There was not much news but the selling seemed to come out of nowhere but appeared everywhere, with the exception of long term bonds.   The selling is in fact playing upon the moral factors that produce panic and investors try to stay ahead of the selling on the other side of the world.  In the end it will depend on corporate profits but if a trillion dollars is wiped of the market in a week then buying power drop somewhere in the economy.  On a final note, the selling in Gold may simply be a result of traders not selling losing positions and taking funds out of the gold market to cover margin calls and our Asset Allocation Model is recommending buying bonds and shorting the Russell2000 as equity premium is too high for these small caps.

Feb 25/07 - Surging worldwide liquidity has been accompanied by rising bond and equity markets.  The equity markets have been helped by an ever rising corporate profits, as a percentage of GNP they are at 40 year highs.  this level has not been seen since 1965-1966 and the low was reached in 1982, the beginning of this great bull market.  Corporations are a mixed group that finds funding where it is cheapest ie. either by stock issuance or bonds and today they have expansion plans on their mind (private equity), they can get cheap financing from the bond markets.  this is evident in the junk bond market where the spread over treasury is razor thin.  Why has the default rate remained so low?  It is nearly impossible to default in the markets continue to purchase your new batch of bonds or they can be repachaged to appeal to investors.  An example of this is the housing market, people have had access to easy money - think subprime.  The subprime market is now having its own problems (see the implode o meter site at www.ml-implode.com ) or you can look up the ABX index, which has dropped like a rock.  The funds are beginning to draw up so I suspect it will be a tough year for that market.  This brings to mind the GM fiasco earlier this year as their debt was cut to junk but the stock continued upward soon after.  The difference that comes to mind is one is a corporation vs individual and liquidity was there for the taking vs todays liquidity.  In the bond market short term rates rates are moving higher (slightly) and longer term rates remain in a downtrend.  The equity markets look poised to move higher and Microsoft that we mentioned a few weeks ago as a short looks to have bottomed out with a 63% of moving higher over the next weeks.  Any sign of trouble continues to be in the low VIX readings but with all the bearishness out there it is difficult to not remain bullish.

Feb 17/07 - The world of asset allocation has a major impact on equity markets as funds flow into markets that are expected to benefit from a robust economy.  As all assets are in competition with each other, money has a tendency to be allocated to those who are able to best invest it in growing sectors of the economy.  This may not always be the case but in capital markets this is the general logic.  Our interest at Marketpit.com is to allocate funds between the 10 year treasury and the S&P equity market.  This is important as investors will have to decide to be conservative by buying bonds or to be expecting strong earnings from firms in the S&P.  A stock could be considered a bond in perpetuity with an uncertain rate of return but the bond has a constant stream of income.  The price of uncertainty is called the risk premium as investors do not want to hold stocks when they decline. Our strategy is to use the Stock vs Bonds analogy.  It is a comparison of the Russell 2000 divided by the 10 year treasury and tells us the ratio of  of the cost of debt vs equity risk.  With a current ratio of 7.5 you could buy 7.5 units of bonds or 1 unit of the small cap index.  It has moved between 3.5 and 7.8 since 1993.  It made a high in early 2000 and is just now approaching the same level.  What this means is that you could have invested in Bonds and have made the same return as the Russell 2000 over the last 7 years with much less volatility and a lot better sleep at night.  However based on our analysis you would have been invested in equities since 2006 and have made double digit gains as compared to bonds over the last year.  In the bond markets the yiel curve surprised us and is heading south with short term rates poised to head higher.  Gold and the XAU gold stocks remain on a sell and we may see some of that sell-off this week.  On the equity markets we are bullish on the SPY and the QQQQ with both strategies on a buy.  One caveat is that volatility remains at low levels and our volatility strategy is calling for an increase.

Feb 10/07 - Volatility waited till week's end to show that investors have become too complacent but was it just to shake out the so called weak hands as the economy hums along at a steady clip?  We at marketpit have our own measure of volatility and it is important to us in our own trading for one very important reason.  When volatility is rising (signaled by an up arrow) there has been a net market gain of  7 spy -the S&P 500 ETF- points since 1992 (when the SPY started trading) and a net gain of 25 spy points  when a second signal of rising volatility is added (these are gains on short positions).  What does this mean to risk?   This means that by being out of the market while volatility was rising we could have gained the entire upside potential of the S&P 500 by only being invested while volatility is declining (shown with a down arrow).  Our risk is lowered by almost 50% while maintaining the full potential of the upside.  What this does not mean?  Is that we would have caught every rally and avoided all declines ( that would be impossible and do not believe otherwise).  But over the time period covered 1992-2007 by being out of the markets while volatility rose we could have been safely invested in t-bills and made an extra few percentage on our capital. 

Feb 04/07 - Trading is not about being right on your opinion, it is about getting is less wrong on your trading than the competition.  The market place is a place of price discovery mixed with a large amount of noise and people seem to presume there is such a thing as smart money and that somewhere there are individuals who know what is the right time to invest long or short.  The being right should be replaced with being less wrong and we will make some great strides towards better trading (and less stress).  We all bring a unique perspective to the market, some are technical, trend following, fundamental, quantitative, momentum, risk adverse volatility traders etc.... and somehow prices get accurately reflected for the most part.  This week in the equity markets should mark a down week as both the emini and qqqq strategy are on a sell signal. There is also evidence that Microsoft will experience weakness as Vista sales may not go as expected and thus earnings revisions may be needed. In the bond markets are short term trading is long but over the course of the month we expect to see higher rates along with a positive yield curve over the next few months.  One of the big events will be a fed refunding this week and there is a possibility that it may not be as strong as in the past.  Market volatility is near all time lows and we continue to expect a jump in these numbers this week.

Jan 27/07 - It has been a challenge for us to develop high frequency trading models and we have spent countless hours with tick data and to date there has not been any major market anomalies that are tradeable (that we can find).  One approach would be to move away from a quantitative approach to a more qualitative approach. This strategy would be moving away from structure to an unstructured approach, move from a counting based system to an observation (interview) system, act like an insider as opposed to a part time player, move from the PC data figures and into the market (ie the market may have language),  and instead of having pre-defined data in advance just work out the numbers as one goes along the trading day.  Further, the cause-effect would move from looking for causes to one in which causes and effects could not be distinguished.  Finally, you would need a measure of risk aversion and a time limit for your trades. At this point these are just rough idea's but if we put effort into them, they could be the basis of highly profitable strategy.  In the equity markets there was a small pullback that the SP system was able to capture and volatility will continue to rise in the coming weeks.  The bond market displayed more weakness as there was a large number of issues hitting the market at the same time.  Gold remains strong but the XAU (gold index) remains on a sell and the 650.00 point on gold markets a temporary top.  If are strategies both turn up this week look for a strong rally to follow.

Jan 21/07 - There are a number of issues with fixed trading systems, non greater than the human desire to override them and the quest to optimize.  Readers of our site will have noticed two systems - one for the QQQQ and the other for the SP500.  Often they are in contradiction of one another and the investor needs to chose which one will give the better signal (choice).  It has been our experience to only trade the signals when they are both pointing in the same direction.  If we add in the weekly volatility then more confusion arises as volatility only has a 65% correlation with the markets but most of the bull market moves (85%) has occurred in periods of declining volatility.  This week oil remained under pressure and this has negatively impacted the Canadian Dollar, as Canada's major export is OIL.  The gold market remained in a small uptrend but the XAU remains bullish and we suspect that the price of gold having topped recently will limit any move in the XAU.  Our equity strategy is to remain bullish and we are attempting to reconcile differences when more trading systems are used (ie 5 separate strategies).  Readers advice welcome.

Jan 13/07 - It was a great week for the markets as all equity markets ended much higher.  As the 5 day January barometer ended and some people picked up stocks cheap.  Markets are not thinking in terms of diversification, they are looking for gains from alternate investments.  Some of the emerging markets had problems as Chavez nationalized and the India and China markets fell back from record highs.  Interestingly, these markets also are large user of Oil that coincidentally had a fall of its own.  Whether this is a correlation or causation remains to be seen.  Market volatility remains at low levels but may get some help in April with the SEC approving changes over at the CBOE that will allow trades to become leveraged with the help of options.  It will certainly get the options market heated and drive some volatility into the markets.  This is important because it will change investor trading behavior and we feel some trading systems will stop working and others will improve in performance.  Trading continues to be all about leverage, if it is offered then traders will use it esp. with the current environment of low volatility. We expect volatility has bottomed for now.  As the year starts it appears that interest rates are set to rise for durations over 5 years and the narrowing of the yield curve continues.  Gold has an excellent run up on Friday of 13.00 dollars and we remain bullish on XAU stocks of which we prefer Goldcorp(GG) and Iamgold (IAG).  We remain surprised as our CRB strategy has not given a sell signal and our Oil sell came late this time.  Our equity strategies are off to a great start with both the SPX and Nasdaq  long. 

Jan 07/07 - Lets start the year on the right foot and look at what matters in investing RISK - the four letter word that most money managers would rather not talk about because they think there clients are not sophisticated enough to understand.  The forms that risk comes in all lead to the fact that in some way it was unexpected.  You will hear managers of hedge funds cover themselves by saying something like " there are storm clouds gathering on the horizon" but that does not add value except when what you are really hedging is your opinion.  We have access to data other investors use and we make some of the same expectations as it is important to understand what others are considering.  Over the years our models have proven that they are able to anticipate changes in volatility and thus have us prepare a defensive position or establish short positions for more aggressive traders.  Risk is akin to a drivers blind spot,  you do not worry about what you do not notice until it hits you.  That is the importance of doing your own research.   In the equity markets traders were changing positions as conflicting information about future fed moves came in the form of lower employment numbers from ADP and then the opposite came from the Labor Department on Friday.  Job growth is important but not as important as corporate profits, as no profits then no new hiring.  The Bond Market reacted by ending the week virtually unchanged - it is still making up its mind even as Bill Gross from Pimco thinks there is room for a full percentage point off the current level. Over at out Bond Trading Site www.cmetrader.com commercial paper is actually signaling higher corporate rates  We prefer to let the market act and we make up our mind along the way from vital changes that are near tem.  Gold sold off for a number of reasons over the past few weeks but at this time the XAU (Gold Stocks Index) in again on a buy.  Click on chart name to the right for clear viewable charts showing long and short entry positions.

Dec 31/06 - We will not be making any significant market projections for 2007 as the next 24 hours are difficult to forecast with reasonable accuracy.  However, I will comment that there are two types of risk in the market - those that are close and those that are in the distant.  If you let your mind wander you will be able to come up with a number of outside risks, such as the political changes coming to the US Senate, the situation in Iraq, the value of the US dollar as the world standard, Middle East problems, etc....  The problem is some of them may evolve to become real problems and some will just linger the way they have for the last number of years.  What you can not do is base an asset mix on this type of logic.  But there are investors you bet on such outcomes and we can attempt to game them over the longer period.  One type of investor who likes worst possible outcomes are Gold investors.  They buy the metal not as a hedge but as a bet on chaos.  In the short term is where you may attempt to squeeze this type of player as the metal can fall faster than it rises. In the equity markets near term volatility remains low but we have sell signals on both the QQQQ and SPX.  The 10 year bond rates are headed higher and the yield curve may soon become flat from negative.  If the earnings announcements are not positive then expect that earnings have topped out.  If this happens we will display our earnings chart that topped out in early 2000, just as the sharp Nasdaq drop started. Best wishes to our readers for the new year.

Dec 24/06 - This is a time of reflection and pondering plans for the future.  On needs to tune out the TV and decide what is important to them and to view the future in an optimistic view as any other view will freeze out any plans we are making.  Life has a way of moving forward, the move can often be described as random but purpose full for a better life forward for those who embrace the future.  All our equity strategies are on buy signals for the week ahead.  This last week looks like those who wanted to relieve themselves of the pressure of holding into the new year (bears) sold into the hands of those with a optimistic outlook.  Looking forward to Santa Claus and a  rally by the bulls.  Best wishes to you and your family this holiday season.

Dec 18/06 - In the markets momentum is a force that has been recognized for some time and that came to investors attention in  Momentum Strategies LKC Chan, N Jegadeesh, J Lakonishok - The Journal of Finance, 1996. People are in search of some simple rules to explain market reactions and often times there comes along a theory to do just that.  The above in part was a function of the environment of the time and the time period over which the study was conducted.  Factors not recognized were trading costs were much higher and people committed to positions for longer periods and market liquidity was not as we have today.  Even today there are samples of market momentum in small cap securities but the liquidity factor makes it unavailable to larger traders to take advantage of.  We have read hundreds of papers on the markets and the more we read the more holes we see in such strategies and the one's that seem to be a market anomaly quickly disappear as traders take advantage of it.  just remember if you notice a market anomaly to not publish it ( now you know that it gets published because it most likely is not usable).  In Newton's world as in the world of momentum trading a body in motion stays in motion unless interfered by an external force or by friction.  In the market there is no need for external force as the markets are able to internally generate their own volatility.  The market volatility has been at rest recently, next week we expect this condition to reverse as the equity markets may start to head lower.  Why they may head lower is the yield curve is now heading higher and OIL prices are signaling higher prices.  In the bond markets a move in the 10 year yield above 4.63 will signal lower bond prices.  In the gold market the metal has been on a sell for the last few weeks but the XAU is signaling higher gold stock prices in the coming weeks. Finally, I think they rally we had recently came ahead of time in place of the Santa Claus week rally.

Dec 10/06 - Asset diversification is not the hot topic it once was as the words alpha and beta are now the in words in money management.  I t would appear that assets these days are moving more in synch than the days of the day traders in the 1990's.  In this regard the latest casualty is hedge funds as there returns as well as even small cap securities move along side the performance of the SP500. What this means to traders is that diversification is not giving investors the desired results of lower broader risk.  This of course means that is does not matter what asset group you own as they will all move as a group.  To the doomsayers it means that when markets drop there will be no place to hide, not even in alpha selling hedge funds.  The doomsayers are just too prevalent in the gold markets these days and that was why we advised selling gold last week.  Further, we expect market volatility to remain low and even a possible rebound in the Us dollar in the coming weeks. The qqqq market remains in a long position with the SP500 in a sell causing us to wonder if the market may be going nowhere fast. This week we will also be introducing a daily bond trading strategy based on the returns of the 30 year bond as our  readers have been requesting more bond analysis (based on search engine results coming into www.cmetrader.com our bond site).

Dec 02/06 - Asset Allocation is the major determinate of returns for mutual funds.  How much of the return is attributable to this strategy 40-100%?  In a quote from the paper by Ibbotson and Kaplan "We found that, on average, about 90 percent of the variability of returns of a typical fund across time is explained by asset allocation policy". This is one of the reasons why when markets drop funds need to purchase bonds but it is also a reason why when stocks rise funds buys bonds.  In the first scenario funds buy bonds to avoid further market volatility and in the second scenario bonds are purchased to keep an 60/40 allocation of assets.  There is no inverse relationship between stocks and bonds but there is a strong case for a rolling relationship or the theory of the Fed model.  In either case the above is partial evidence of herd/flocking behaviors in the markets (the behavior only helps to explain the market reactions - not the triggers or combinations that start them).  This brings us to month end and the above should help explain why market participants are in a flurry to shape up their portfolios and often invest access cash into stocks ( as 401K contributions roll in on a timely basis) and funds show that your cash is not idle ie. your fund manager is earning his pay.  In the commodity markets Gold along with gold stocks are now likely to head lower. In the equity markets the S&P was lower by 0.30% and the QQQQ fell by almost 2%. The bond markets were the stars as rates continue to fall.

Nov 26/06 - Company profits continue to propel the market higher, as the number of potential problems continue to pile up.  The problems are numerous such as the takeover of Congress, the Iraq war and the housing bubble to name a few.  The real rates for the housing market have us convinced that it no longer makes sense to continue to purchase housing  as going forward the volatility has increased. But the profits for corporations has stabilized according to their stock price movements.  In fact, our volatility indicator is showing a sell on Monday (lower volatility ahead) even as the bears are warning of low VIX reading as trouble ahead. The commodity markets continue to show strength with the possible exception of OIL and Gold (including gold stocks) are the best buys over the next few weeks.  The gold markets are helped by an up move in stocks and not by bear markets.  Further, market shorts may be establishing new short positions and that needs to be reduced prior to any sharp market drops. In the equity markets the QQQQ remains on a sell as the SPX (SPY) remains the better buy.  For investors, it may not be wise to take short positions due to the higher risks and as markets have an upward bias over the longer terms.  On the bond markets, lower rates are cause for concern in the US dollar and bonds remain a buy on the 10 year bond on any rates below 4.65% . 

Nov 18/06 - High frequency trading is the use by managers of minute to minute data to find a statistical advantage over the competition.  Most of the competitors in this game are hedge funds and proprietary desks at major brokerage firms. It is difficult to access the returns on such strategies but it is fair to assume that because of the shortened time frame in use that the trades are highly leveraged.  Some of these firms may have discovered anomalies that allow them to take advantage of their competitors weakness such as limited capital, algorithm trading patterns unearthed, or simply luck.  In the field of high frequency trading, random walk is at home as can be expected so why do these firms exert such effort and time to find a tradable system/strategy. We would suggest that each firm by itself is too small to account for major moves in the market, but if most firms behave in a similar fashion then there may be some underlying strategy that may prove profitable.  One of the ideas that has been of interest to us lately is how traders view risk and the time allowed in trades.  As the risk has a limit as does time then traders risk is a moving target that gets bigger as time moves forward.  It is when the time horizons overlap that opportunity may become available - traders all act in concert.  This is best displayed by the recent rally as trading times collided with bigger risk (lower volatility).  Anticipating the reactions between groups of traders offers the best opportunity to profit that we are aware of.  In the markets the QQQQ strategy is short and gold continues to hold in rally mode.  As short term rates do not drop the yield curve is widening as longer term inflation expectations remain contained. On a final note, our cot data/charts are showing high levels of small trader bullishness, even as large traders are reducing positions.

Nov 12/06 - It has not been out intent to be a rehash of the weeks news, but investors seem to be looking for pages that somehow make sense of the markets by using the news.  Does the news make the markets?  Well if that where the case then it would be the journalist that were the wizards on wall street.  No, sadly it is the news that follows the price action of stocks. Companies are part of the accomplice in the news story also.  When there is good news to report then there is often a stock run up prior to the official news ( the news that the company could not hold in and let all their associates in on)  but when the story is sad and not favorable then all attempts are made at plugging any news leaks for as long as possible (in the extreme case like Enron).  Thus it is like currency traders running around with news that China plans to diversify its US dollar holdings, this was right after the election and seems more a political maneuver that policy change.  Come on, you never tell anyone what you are about to do before you do it in the markets - otherwise the sharks would beat you to the punch.  In the markets there was a short term upmove that most likely has run its course as the QQQQ is flashing a sell for Monday morning.  In the bond markets short term rates are on course to head higher but the longer term is less uncertain (currently signaling lower rates).  The Gold market has come back to life as well as the commodity game in general - look for higher prices soon.

Nov 04/06 - Risk is not just a four letter word, it actually has meaning in many languages but to big traders it means volatility and time.  Why is time important?  Time is the difference between a profit and loss, it separates the high frequency trader from the long term investor, it makes options decay, causes future's traders to roll over contracts and it makes investors nervous when time has not been good to them, there is only so much time to decide when the margin calls come, and finally as the saying goes "time is money".  We could not have said that better ourselves and how true is that statement.  Most profitable traders have time frames for trades to prove profitable, those that do not will  have time decide their fate for them. For long term investors time has the benefit of an upward drift in the markets and a historically 6-8% premium over t-bills.  Marketers use time to mark how well they have done and in this case they chose the time from when they bottomed.  If you have investments you need to make time to review them as needed, a trader daily and long term investors every few months or longer. The time for a fed rate cut is gone, the time for higher rates is emerging.  the markets are signaling a sell along with increased volatility.  In time we will also change our stance, or time will force us out of the game.

Oct 29/06 - The Sharpe ratio is a measure of excessive risk per unit and risk in the markets is known as volatility.  How do we compare risk/price?  These are two separate calculations/idea's and price is a function of so-called value. Simply, price is what you pay and value is what it is worth (according to some calculation). The best estimate of value is to know the prices of a similar security (ie. look at other stocks in the same sector).  There are often a number of unobservable variables that make a difference in how securities are priced (this is often a function of private information) but in general the group moves as a whole.  In an unknown future any two securities that will profit equally from similar economic variables should have similar current prices. The markets quants will attempt to model future economic situations and thus there work is often centered not on price projection but the future volatility/variance of a stock or groups of stocks. Thus the future path of stock may be unknown but it may be possible to estimate a scenario of possible future prices based on volatility.  Thus if two stocks have a similar future volatility then they should have a similar future prices.  In the markets we have been looking for volatility to rise over the last couple of weeks.  Short term the QQQQ and the SOXX index have least resistance on the downside along with financial stocks.  Financial stocks will take a hit as short term rates move higher due to pressure on the US dollar.  We suspect that the election will have many court challenges as computerized counting with no paper trail will leave open the validity of this technology thus spreading the risk of unknown makeup of the future senate and US policies.

Oct 22/06 - When the average investor decides to buy or sell a stock they will often be staring at the chart for longer than they would otherwise.  What are they thinking about? Is the chart somehow relaying them information that they may have previously overlooked?  Most likely they just need some kind of confirmation that they are making the correct decision and by looking over the chart they can conclude that they had spent the time needed to make a good decision.  Most of our readers will probably notice that they are viewing the same information as before (a chart) and that a chart has some value it does not display all the information about a stock.  Other variable to review may be insider trading, earnings potential, upcoming market launches (new products), personnel changes, partnerships, recent volatility, market strength etc.. the list is almost endless but we need to work with information that we believe has value.  This list will also change as the market participation changes - it the 1990's it was the individual investor who brought momentum back to the markets and after 2000 the hedge funds came with their quantative methods.   You need to have a strategy to deal with the changing times and individuals.  As Keynes said "When the facts change, I change my mind. What do you do, sir?  The markets this week were confused as the nasdaq declined and the S&P 500 posted a small gain. Volatility came to new lows even as we have been expecting a jump in volatility over the last week. In the bond markets any move to the upside (greater than 0.05 ) by short term rates will signal a jump for t-bills up into the 6% range. Inflation seems to have come under control and thus it would appear that short or long rates have to logical reason to rise.  Just as when we are reviewing a chart, we are missing a lot of the picture.

Oct 15/06 - The valuing of a public company is difficult work and often times even the CEO is unable to value their own company.  When analyst attempt the same they do no have access to the private info that the CEO has, thus their estimates will likely fall where others that have come before them have fallen. Our work is not to place a fundamental value on a company, only if there are likely to show increased profits and if they company is showing faith in itself by buying back its own stock.  Over the last few weeks many companies have done or announced both.  The other part of an investment strategy is the holding period one is willing to wait to see a profit on your investments, a week is probably too short and forever is a long time to wait.  In the end it will depend on the investor and how long they have been investing, new investors are likely to get nervous soon and the battle hardy will have seen it all before. Another method of your time horizon may be how one responds to market feedback - do you monitor your stocks inter-day, daily or weekly.  We are currently involved in working on a strategy that trades about 6-10 times a year and is focused on stock selection, unlike the charts that we have been posting on our site. The markets showed good strength this week with the exception of a small plane hitting a building ( a small event caused a large disruption in the markets) but they quickly recovered, plus some.  The important development this week was higher interest rates (esp the 10 year rates), in the shorter term the 3 month commercial paper is close (if they move 10 basis point higher) to busting a new move higher. 

Oct 9/06 - In the markets information and how one processes that information are known as the information ratio. One has to be able to produce high returns relative to the volatility of the strategy and this is often why investors prefer a 60/40 stock-bond mix. Some have even suggested that stocks are lower quality bonds with no repayment date.  This may have been the school of thought prior to the 1990's as the dividend and dividend ratio played a major role in investment theories.  Things change and we are constantly on the lookout for small and major possible changes to the economy and investor appetite.  This week will likely mark the low end of the volatility for the index markets ( with or without the North Korea test) as window dressing season is over and the US political scene heats up. The QQQQ looks to sell-off but the larger caps may continue to higher ground.

OCT 01/06 - The trader and the quant coming soon to a brokerage house near you.  It is expected that discount brokerage firms will soon make available to retail clients trading strategies that were once the domain of hedge funds.  Will this be too much power in many hands or is this a way to extend the life of failing strategies?  What we do know is that when in the late 1980's when technical indicators became standard on we sites and easy to calculate on home PC's , that was the end of any remaining value to technical analysis.  The success of technical analysis was that is was so easy a monkey could do it, one could argue that the quant systems now becoming widely available will come complete with order placement.  You just need to select the system that works for you (this says little of the system continuing to work).  This may be a blessing to people who understand how these systems function.  TD ameritrade may start rolling out this plan next month, Fidelity offers its WealthLab Pro Software, and Interactive brokers offers advanced order placement strategies. For all these brokers it will mean more trading and commissions in the long run ( people need ideas to trade, even if they come from older hedge fund  idea's).  The market this week displayed good upside and market volatility continued to stay at low levels.  The next week should  be more of the same as the QQQQ market should outperform the S&P 500. In the bond market bulls are running the show with pessimists looking for a slowing economy.

Sept 24/06 - The Risk - as this week highlighted the Risk in Model/Correlation trading and hedge funds that fail to diversify and what happened at Amaranth. I will not go into the detail over at Amaranth but it is fair to conclude that the risk was not contained. One of the core issues is that risk advisers are aware of the type of risk their traders are engaging in. For example they only hire risk managers who understand trading and global markets, they can build, stress test and back test models, understand the trades placed by their traders, are forward looking and keep an eye on these forward risks.  But how is it possible to keep a lookout on these forward risks if the forward risks are uncertain. The risk manager will tell you they have their own risk models (ie VAR) and understand the volatile nature of the markets. This is essentially a catch 22 as the risk is known to most and those willing to accept the risks will place the trades. Secondly, and much more important is that the volatility often makes the price of an asset a highly unreliable function of value.  It appears the US dollar as a store of value may once again be in question as lower rates prompt many to seek higher yields elsewhere and in other currencies such as the Euro Dollar or British Pound. Even as the equity markets ended lower this week our models continue to forecast higher prices in the near term for big cap stocks, the small cap stocks may be moving in the other direction as witnessed by the Russell2000 trading strategy.  In the bond markets the 10 year rates may be dropping as some investors move out of housing related debt and into the secure arms of federal debt.

Sept 17/06 - The markets are about business not politics, but the politics of business interfere in the markets.  This week oil prices began a steady slide after the OPEC meeting last weekend and on reports of Iran's willingness to possibly suspend any nuclear enrichment.  However, the bigger story not published was of states such as Saudi Arabia willing to pump oil as needed and thus keeping inflation levels contained and not becoming a factor in the coming congress elections.  These are the types of items that are difficult (impossible) to build into quant models. As per last we continue to see lower "market volatility" and more market surprises to the upside.  As we approach month end window dressing will pick up and corporate earnings continue to remain strong.  The Canadian markets are dropping as as result of lower gold and oil prices but there was news this week also of lower productivity levels.  The bond markets continue to show good strength as the inverted yield curve looks to possibly start moving back to a flat level in the coming month.

Sept 10/06 - The markets are composed of  group's of traders but they are not the sum of their parts.  In studying behavioral finance we have found it to place too much emphasis on how individuals act under certain conditions.  Most experiments are often carried out not in real world conditions, but on university students who may act in an manner that is expected of them.  In the markets people carry out sentimental studies of who is bearish and who is bullish and these studies at best are coincident indicators.  But people who are promoting such strategies will point to such and such at time that the gains were strong or when you may have been out of the market and missed a market decline.  Market decisions are made based on incomplete information ( much different than how we make other decisions) and decisions are based on what others intend on doing (they are also awaiting your decision). In the market, individual tendencies do not carry forward to group behavior. In the commodity markets both oil and gold came under heavy selling pressure as investors in those commodities gave up their middle east tension premium.  The market premium (as measured by the VIX) is also due to drop in the coming weeks and thus the likelihood of  rising equity markets.  The biggest development this week would have to be a buy signal by the "yield curve strategy".  What this means to either short or long term rates remains unknown at this time except that long term rates are closer to a bottom than a top.

Sept 03/06 - The rational trader most likely does not exist, among the general public that is, as institutions have implemented trading strategies that remove the trader out of the equation.  Trading rational is difficult as we face pressures within ourselves that cause one to react to market noise.  Trading on fundamentals may be one of the better strategies but investors know that prices often sway one way or another from the fundamental value ( we are not sure how to value the markets in this manner as even the future stream of company earnings is unknown past the next six months).  There has been much ado recently to inject physics into trading as particles also behave in a random fashion but there are mathematical ways to measure their movements and ranges.  One of the drawbacks from this theory is that atoms behave as atoms but people do not behave the same way in similar occasions.  People have till the last minute to make up their mind, and often that is when they make a decision.  All the talk of rational trader is often at a dead end due to all the conflicting evidence and the high level of noise in individual decision making.  Our tendency is to focus on groups as there will always be average behavior and we can expect traders to do as there neighbors as birds do in a flock (ie flocking).  Since not one trader determines market direction the herd instincts are better studies for changes.  This week the markets had a good run-up in both equity and bond markets.  The oil market came down as the political premium dropped out of the price but we still see a rising tend.  The GOLD strategy  continues to forecast higher metal and XAU stock prices. Finally, the rational traders seem to have driven volatility down to levels not seen for some time even as the worst months to be invested comes upon us.

Aug 27/06 - It is the last week/new month and this is the optimal time to be fully invested.  This is due to a number of factors but the biggest is mutual funds putting new money coming in into the markets and some increased buying of the stocks they already own.  The yield curve may be signaling a coming slowdown but this often leads the economy by about 3-5 quarters. The value of the yield curve is the expected change in short term rates - as falling short term rates indicate slower real GDP.  Further, at the end of an economic expansion long rates often fall as the decreased volatility in rates warrants a change in risk premium.  This is interesting a current market volatility remains below historical norms and is signaling a lower volatility starting Monday until the next signal.  Along with this we have a bullish S&P 500 index even as there is much reason to worry about the middle east and rising protectionism.  Do people feel the worst is over in the world political scene, are people starting to feel confidence as the start of student spending, are corporate earnings about to rise in general or are investors just becoming too complacent? 

Aug 19/06 - The market are a place for taking risks but we often take bigger risks than we need to.  Most people are often not even aware of the type of risk that they are dealing with so let me begin with a small list:  equity risk, duration risk, yield curve risk, liquidity risk, credit risk and volatility risk (to an extent even fraud such as has been witnessed with Enron). If the market is about who has the best information then we must define what type of information once is referring to and how does one quantify the correlations.  The customer is only concerned with the bottom line, thus fund managers carefully monitor their volatility in relation to their customer appetite for risk.  Many customers may want risk but they will move their funds when their account has been running a deficit in comparison to the benchmark.  Stock and bonds do have common features and it has often been stated the distressed debt trades just as volatile as the common stock.  A few things to keep in mind when comparing the two: stocks have unlimited upside, both may pay a yield ( dividend vs coupon), its just that stock do not have a maturity date - thus often the overextended P/E ratio's.  The Nasdaq had its best week and volatility fell to a new recent low, the momentum of small cap stocks remains strong. Finally, the yield curve (often considered a leading economic indicator) remains in negative territory.  It has been suggested that this is a harbinger of a recession and a downturn in the business cycle. It is of our opinion that short term rates will be heading lower as the Fed is foreseeing  slowing consumer consumption due to the housing construction (read sales) slowdown that continues to suppress lumber prices.

Aug 05/06 - It looks as the Fed will pause, we are issuing our first sell signal on commercial paper since our last buy in early 2004. It would appear that the Fed is aware that the economy is weakening and does not want to tip the US into a recession.  The housing market is the talk of the economy as it has driven both job growth and consumer spending.  Most of the housing gains can be traced to Real Interest rates as calculated by yield on 3 month t-bills less the rate of inflation.  Since approx. 2002 until the start of this year the real rate has been negative thus encouraging speculators to borrow funds and invest in real assets.  Assets were in effect rising faster than interest rates, thus the risk is reduced for investors. However, as the rate is now positive (but below historical standards) we are seeing a drastic slowdown is new home sales and will likely see foreclosure notices also on the rise, as property values increased the banks were willing to extend credit thus delaying any foreclosures.  However, if the Fed pauses here we will see inflation in the form of a lower US dollar (higher import prices) and after an initial mini rally in bonds an eventual sell-off.  If the Fed does not act as expected we will witness a sharp increase in investor fear (aka the VIX).

July 29/06 - If cash is King then mutual funds are holding a lot of cash these days, but after the run up this week I suspect the cash levels have dropped.  Why hold cash and is it not a contrarian indicator?  Cash is normally held by open end funds to pay expenses and investor redemptions.  In time of high rates, such as today with T-bill rates in the 5% range it offers an alternative to the market.  Some of these managers may however be attempting to time the markets when in fact investors pay them to select stocks, if they wanted to time investments they would buy a hedge fund.  Fund managers ( and those selling funds) should heed their own advise that missing the 5 biggest days (by not being fully invested) will reduce long run returns by X percent (to really put fear into you some may say up to 50%). With this weeks big up move the markets have again become complacent - or are they building into the market that the Fed will pause on rate hikes come Aug 08.  Remember, last time the rally started immediately after the Fed hinted a possible pause and this time investors wanted to jump the gun.  The problem with this is that earnings have not kept up with expectations esp. with tech stocks such as amazon and yahoo.  Expect upside volatility over the coming weeks, which most often implies lower markets.

July 22/06 - One day the Bernakie of the Fed speaks and investors hope onto the bull train before it is too late.  It would appear those who got on also got out the next day at the same price in the belief that the rally was now over and we should just wait for the next fed hearings. The markets may rally back as the sidelines are plump with cash as investors have been very gloomy as of late. Two important variable that should be considered about market risk is the yield curve spread and market (VIX) volatility.  The yield curve is indicating that it is going to be a tough environment for financials (banks) to make easy profits off interest rate spreads and the volatility is indicating that the bears may have gotten ahead of themselves.  The two factors also account for Keynes expectations of stocks in the form of enterprise (asset yields) and investor speculation ( as in forecasting what other investors believe).  It is only in the short term that emotions play a critical role ( is Microsoft really worth 100 million more in one day).  The 10 year bonds  appear to want to stay in the 5% range until the next Fed meeting or further inflation numbers come forth hinting the state of the economy.  The markets want to head higher but not till the weak hands have been shaken out and big investors jump in, afraid that they will under-perform their peers.

July 16/06 - Things just got a lot more difficult to place probabilities on the market direction as Middle East tensions (war) has now entered the picture.  The news will keep this issue in the investor's attention thus most likely freezing retail investor activity.  Investors will however flock to the new haven, OIL.  Along with oil , GOLD and the CRB index point to higher commodity prices and that means higher gas prices as the pump.  This in the end means less for the consumer to spend on discretionary items. Markets are in the short term ruled by chance, and in war the chance of things changing rapidly due to small events in enormous.  As weak as the market appears, the VIX index appears to be making a short term high on Monday July 17/06.  This would be confirmed by a move of the Russell 2000 index above the 690 level.  On the 10 year bond index the near term critical level is 5.04% .  Previously we had mentioned that the yield curve might be headed higher, we were wrong.  On a final note, the winners of war are the suppliers of weapons, and today the biggest supplier's are the members of the UN security council - interesting.

July 09/06 - Inflation seems to have been the topic of the week as the volatile ADP figures showed a higher than expected jobs growth.  When the official stats fro the Fed came out Friday they showed a strong growth in yoy earnings and an increased overtime work.  This would suggest that consumers will be able to meet higher credit obligations and employers are delaying new hiring as the Fed signals it wants a slowdown in the economy (soft landing). The ECB delayed increasing rates and this gave a reprieve to a weak US dollar, but they have hinted of higher rates in the coming months. Further, the Japanese will raise rates soon and this will remove the free money available for taking ever increasing risk - as witnessed by the volatile emerging markets in May 2006.  One notable item this week was as the US dollar is a harbinger in times of political turmoil the the USD actually dropped from June 30 of 85.23 to July 7 of 84.96 and 30 year bonds remained flat.  It would appear that political problems are a plus to world oil prices (the new reality).  The small cap Russell 2000 index remains in the sell zone with potential for further market rally above the 720 mark.

July 01/06 - Market volatility moved swiftly to the downside but these times of faster moving volatility indicate future volatility.  Along with the swift changes comes a widening in credit spreads as witnessed by higher commercial paper rates against lower treasury bond rates.  Over the longer term the business the term premium can help predict market return variance and future economic activity, thus the vast amount of time and resources spend on predicting the yield curve.  Another are to watch will be consumption, as investors will consume less if they believe their future returns will be low. However, as consumption is a lagging factor it is difficult to model.  The Fed once again moved in a predictable manner even as the press was pushing for a possible .50 point rate increase in the Fed rate.  This expectation set the the mode for the 200 point plus rally on Thursday.  A rally that is not built on solid fundamentals is likely to see a reversal over the next month. The market is overvalued in the short term as our S&P strategy is in a sell mode and volatility will move higher over the coming weeks. Gold was not impressed by the Fed as rallied over 20 dollars (we missed this rally) but our models have signaled a buy  on Gold for Monday morning.  Further, the CRB index is also in rally mode starting Monday, this came as a surprise to us but considering the Fed is waiting fro signs of inflation - well those will be forthcoming soon now that the USD is once again heading lower.

June 24/06 - The Fed is set to raise rates again next week, and bonds adjusted accordingly this week.  The 10 year rates have risen for the last straight eight trading days to 5.23%, an increase of 27 basis points over those days.  The volatility in the markets is now spreading to bonds, the most sensitive being corporate bonds.  There may be technical buyers at this level early next week but the trend is your friend in this case. Speculation is also gathering that there may be a 0.50 percent increase as the new Fed needs to break the predictable mood or risk being told by bond traders of their next move.  As oil prices are headed higher into the hot summer the rate of inflation is not likely to drop in the near term.  Further, price hikes often take up to a year to filter into the retail level as companies have existing agreements in place to protect them from supply and price changes. This week also was the into of two new etf's from powersahres for trading the retail nasdaq  market, QQQ Proshares-QLD and the Short QQQ proshares -PSQ.  They claim to move twice as much as the underlying index but they have liquidity problems at this point. Gold continues to be weak and the entire CRB index appears to be heading lower as recent speculation is beginning to draw up with redemptions at hedge funds.

June 17/06 - Volatility is back in play but hedge funds are showing negative returns while complaining since the start of the year that low volatility is causing low returns.  Let see, what do they want - what the rest of the investing public wants - a rising market.  Cause is something that often happens and it is anticipated based on statistics to happen again hopefully with consistency.  Funds (including hedge and institutional funds) follow certain laws, the most important of them being to keep their jobs, having to satisfy their banker and to have returns with low drawdowns (ie volatility).  Most managers today have had no experience with either a bear market or market volatility.  Our most likely scenario is going to be higher energy (OIL) prices in an environment of lower commodity prices.  Further, the yield curve is turning higher as short term rates are moving higher as signalled by the Fed and company, thus the implication would be higher long term rates. Recent speeches by Fed members has almost a beyond our control tone (on inflation), this we feel does not send a message of confidence to the public.

June 10/06 - The yield curve has inverted, Ben Bernakie's credit is in doubt, gold bugs are on the run but the market is set to Rally.  Yes, we are expecting volatility to fall this week and market players such as asset allocation managers to move funds into stocks.  By the end of the month the Fed will not have even a more substantial strange yield curve to deal with as recent liquidity being pumped into the market will have undesirable effects.  Inflation should continue to rise but the commodity rally seems to be over with the exception of perhaps OIL. On the world currency market, Ben will step up to the plate and we are about to once again see the flight to quality even with all the negative press written about the US dollar (do not believe it). With the strong US dollar and falling metal prices the Canadian markets will likely continue their downward trend.

June 03/06 - The big question is will the Fed raise rates or will they take a pause as that is what Wall Street is betting on.  There have been 16 consecutive increases by the fed since June 2004 and they have hinted that any future increases are data dependent.  The one thing all fed members can agree upon is the containment of inflation - but this is impacted by energy prices but also other factors such as the weak US Dollar (and the rising Chinese currency that is not often mentioned in the news these days).  The action of the 10 year bonds to the 5% area is again concern for the Fed as the yield curve is flatter and the conculdrum is in replay. We expect the Fed to take action in getting the curve to its natural state and the foreigners will take advantage of strong bond prices to take some funds out of the USD. If the govenors are as data dependent as we are led to believe then there will be a credibility issue and we hope Ben will not speak unofficially to Maria again ( she spooked the market the last time).  As the major completion of the three gorges dam in China is complete we are expecting commodity prices to weaken in the coming months and GOLD is flashing a sell for Monday morning. we expect market volatility to remain in its recent range or less in the coming week.  In a final note the weaker housing market is beginning to impact the random lumber market as it finally dropped below the 300 mark.

May 28/06 - Language of Speech and the Language of Markets pdf. This is an early attempt to comprehend if the markets do in fact have a language that can override the market noise. For a complete picture of information theory see works by Claude Elwood Shannon on www.wikipedia.org . This is a very interesting field but difficult to apply to the markets, but some such as Jim Simons of Rentec have been rumored to applying such theories to the futures market. We will be posting a daily ES Emini (SP 500) trading strategy on the S&P that places trades overnight when uncertainty is high.

May 21/06 - The market once again continued to fall and the specter of 1987 raised its head. Some may feel there is a lack of liquidity in the markets but most liquidity players are of the short term nature.  Liquidity traders talk of the bid-ask spread and the availability of market depth, well any experienced trader knows this changes from day to day and week to week. It is of our opinion that illiquidity bursts happen frequently but have much shorter durations than the other market variable - volatility. In the current unstable market  players will switch strategies that will lead to market stability thus the switch that is happening is the cause of the current market liquidity issues.  Our VIX strategy is highly adaptive to this type of regime and has issued a second sell on volatility (should move lower over the week).  The other markets on sell include the gold XAU stocks which has fallen from the 170 area to 140.  The commodity markets including oil seem to be topping out and may be overextended due to momentum strategy players (we expect the players to also change strategy).  The current run to safety in the form of 10 year treasury bonds seems to put a cap on rates over the next few weeks.  Fed talk today rules the market, Snow and fellow treasury Fed members are only too happy to provide optimistic guidance (would you expect anything else).

May 14/06 - Is was a week not to be in the markets, including equities and bonds with the exception of GOLD.  Our only warning of impeding danger was an expected rise in volatility according to the VIX index. Those at our site early this week would have noticed the flashing volatility warning.  Interestingly the volatility index is showing a slowdown in VIX in the coming week (please check back Monday on this link) and NYSE new 52 week highs is also currently at only 29 and we are forecasting any close below 28 to be a good buy signal (we do not post this chart for proprietary reasons).  Commodities are a brand new game and we are showing that a top is imminent and traders should start lightening their positions. As oil and gas prices continue higher some counties have decided that they own the resources and they will be taking them back from corporations free of charge.  This is going to change the rules and the political response will be interesting.  The chase for gold does not extent to gold stocks such as the XAU index due to the changing in the commodity game. In the currency markets the US dollar is having problems find support against the Yen.  Further as China was not named as a currency manipulator by the Fed it will remain interesting to watch future political developments as this is the first time in recent history that a pegged currency is being used to help finance a debtor nation.

May 06/06 - Are expectations different than predictions, we thin not but is sounds better. Market participants can not operate in a vacuum and must take into account the thinking of others.  The group with the greatest mojo is the public, just look a what is happening to GOLD.  Sometimes it is not so smart to be a contrarian, like a train a full speed you will just get trampled but is does not hurt to hedge yourself using the XAU index.  The models taht the public use are well chaotic and not open to modelling as they will disperse as fast as they came. In the bond markets we are looking for a widening in rates due to credit quality (ie mortgage rates may rise faster than the treasury yields). The logic for this widening is likely to for a multifold of reasons, among them is the weakening US dollar - just look at the recent strength of the Yen, Euro or Pound.  One of the reasons for the weaker US dollar is that if China is going to peg its currency than traders are going make the adjustment with tools available to them.  Our CRB index continues to flash a warning sign, it is time to lighten up or even short commodities.

April 29/06 - The week was marked by Ben Bernake's speech about a possible pause in the rates hikes by the Fed.  This option is likely to create further uncertainty in the markets about the true way the fed is heading and in turn cause further volatility in the bond markets. If by this conclusion we are lead to believe the fed will be swayed by current data, then we will likely experience larger moves on days of economic data releases or the alternate view (and valid) is that the policy is to lower the US Dollar. Please see charts on foreign currencies Euro, Yen and the Pound.  There are two types of risk in the markets - market and credit risk.  With credit risk to your ability to contain inflation and preserve the value of your currency or market risk of liquidity available for corporate/treasury funding which experienced weak bid to cover ratio's in the last week.  If the state of excess liquidity dries up (decrease) there will be undue risk exposure for long term debt holders.  In equities the poor numbers from Microsoft sent the stock tumbling 11% (in a single day), whoever said MSFT was a boring stock.  The market action of MSFT shows how investors compare recent returns of similar stock in the sector and create expectations based not on company projections but comparisons to hot stocks (in this case GOOG).  The commodity markets are racing ahead with Gold once again leading the pack. A new ETF for silver in now trading under the symbol SLV.

April 22/06 - The commodity markets are were everyone wants to be these days.  No more is this apparent than in the market capitalization of the Chicago Mercantile Exchange. They will also start to carry options on oil for the Nymex.  Oil this week was at the forefront of economic and general news as it topped 75.00 per barrel and gas at the local station was close to 3.00 per gallon.  Our statistical Oil trading strategy is currently on a buy signal from around the 65.00 per barrel  level. You do not need to be a futures trader to play the oil game as an oil etf is available under the symbol USO.  You will have no liquidity problem with this problem as there are over 1M shares traded daily.  Gold continues to be HOT and we now expect the XAU to also rally faster. In the equity markets, things are about to get shaken around as near term volatility is set to rise.  This is perhaps our best measure of risk, as volatility is the risk in an investment.  Two of the biggest reasons for a possible rising VIX are rising interest rates and the impact of inflation (oil) on consumer credit. In the bond market we expect the yield curve to continue rising slowly as short term rates may take a breather.  The possible impact of rising volatility is a widening of credit spreads as earnings become more difficult to forecast.

April 16/06 - The market can be characterized as three types of expected returns: the risk free rate (such as t-bills), risk premium of the market that is inherit in index funds, and alpha - the type of return  from assets that are uncorrelated with the markets. Excess return compared to the benchmark is the alpha, and today's investor expects good returns with little risk. Some investors are likely to believe that sophisticated funds, such as hedge funds, with complex mathematical formula's may deliver such returns. Hedge funds like other funds tend to invest in too narrow a field to deliver high alpha on a  long term basis.  If these managers do have skill, it is the skill to profit from the mistakes of other funds.  One of the reasons we suggest this is because 60-70% of the daily NYSE volume is from institutional traders (trading with each other). As we have alluded to in the past, the market is not about being the smartest but able to benefit from the mistakes of others (almost a zero sum game).  The market continued in its holding pattern, the 10 year bonds broke above the 5.00% barrier and gold is still HOT. We are not as optimistic on gold stocks as commodities (not the stocks) are in demand, esp with oil due to unrest in the middle east. One chart that we do not post but would like to mention are utilities, we believe they are headed for a long fall from current levels due to the most part of a rising yield curve and higher long term rates ( rates, yield curve and inflation are now part of the site www.cmetrader.com )

April 09/06 - The bond markets are talking and investors are now on board for a possible bear market in bonds for the remainder of the year.  How is that possible? One of the reasons is the attempt by the Federal Reserve to keep inflation contained. The reason to keep inflation low are multifold including pensions that are market to inflation, federal payroll, and keeping interest payments to a minimum on future debt. The GOLD market remains HOT but  gold stocks seem to be a sell at current prices. Oil prices will put a punch back into inflation as will a HOT economy.  This however represents a dilemma for policy makers to keep perform a delicate balancing act between a strong currency and low unemployment. Commodity prices remain firm with low copper taking the lead.  On the markets there continues to be a low VIX reading suggesting limited downside potential. On a final note we would like to inform our readers that the Hot Stocks trading strategy is aimed at small cap and micro cap securities or lower priced securities such as Nortel Networks.

April 01/06 - The markets were good this week as the S&P is once again hitting the 1300 range.  The asset allocator's are sitting up and taking notice, move out of bonds and into stocks as we have done over the last few weeks. Even the bond king at www.pimco.com is asking his investors to be patient as they move away from indexing and into less liquid bonds and in some cases they are dominated in foreign currencies. As we have stated over the last 2 months, bond rates are moving higher.  Even corporate bond rates issued a sell this week, this i index is composed of equal weights along the time horizon. It is our opinion however that long rates will move faster, evidence of this can be found in the yield curve. As bond move higher, the USD may suffer as funds move into Euroland. On the commodity front the CRB index moves higher thanks to oil (an oil ETF will be available on AMEX this week).  As stated last week the VIX continues to stay low, thus limiting any downside market moves (based on probability).

Mar 25/06 - The markets are continuing to show low volatility, is this due to investors becoming complacent. The VIX is the implied volatility of the S&P 500 index and is at multi year lows. Some have argued that the introduction of hedge funds and derivatives have allowed institutional firms to sell off risk to others willing to accept it, thus lowering risk premiums. We have attempted to model the VIX, the results appear to be reasonable and when we test it on the S&P index it showed that profits were made on a declining volatility index as when the index increased there was a small opportunity to make some profit on the short side. In fact over the last 10 years there has only been a 20% chance of losing any money after a sell on the VIX, indicating lower volatility levels.  The recent Fed tightening may in the near future induce lower liquidity and thus permanently higher VIX levels. Another factor often not referenced with the VIX is corporate earnings, as earnings estimates get further off the mark of analysts expectations the VIX moves higher.  This often finds its way into the  bond market as spreads between the corporate and treasury bonds will widen, making it more difficult for lower quality (small firms) to raise funds.

Mar 18/06 - The market continues to climb the wall of worry, as inflation remains tame and rates continue to be a central point.  Area's of risk increase as investors have different measurement styles, some investors compare the risk premium to t-bills and others compare them to T-bonds.  I guess the differences will arise from one's investment horizon, but today results are measured from quarter to quarter and if the numbers are too under benchmarks, money will look for a new fund to call home. Our analysis show the yield curve is the best correlation for market premiums.  As it combines both long term and short term investors its time frame it today (and the near future).  As we move along the time continuum the premium continues to be updated, and new expectations need to be measured.  In the Gold Stocks we are bearish as the XAU continues to be weak and there may be funds flowing out of gold as oil rich countries act to prop up their markets.  Further, political moves between the US and China will be played out by senators on their visit to china regarding currency manipulation and the possible passage of a bill for a 27% tariff on products from China.  Whether this is a political move / a way to get votes remains to be seen.  Evidence however can be found in the markets if one knows where to look. Political analysis is not our main focus, just risk one needs to keep in mind. Just like when countries come out about policy changes or clarification regarding currency policy.

Mar 12/06 - The markets continue to trade in a sideways market as the interest rate markets are attempting to work themselves out. The yield curve may start turning around this week as we see higher long term rates ahead along with a stronger US dollar.  The reason for this is that no market works in isolation and all markets are tied together in a sense.  However, in a rolling correlation study by Bridgewater Associates they showed the two were linked over time and need not be connected on a day to day basis. Thinking about this deductively if rates are moving higher then they are attracting capital that is converted into US funds, thus increasing the demand for the USD.  Taking this logic to the next level, markets are also not only tied to one another but to government and exchange regulations, the availability of stock ie new issues and buy backs, linking to an index (ie S&P stocks have been shown to have lower volatility), availability of funds (such as the money growth), risk of alternate assets (such as art, gold), and countless others.  One must decide which are important and which can lead to confusion and noise trading (trading on causation and gut feelings). As we do not want to give information only to those who have emailed us regarding rates, the following link will take readers to our 10 year bond/ usd index for your own analysis.

Mar 02/06 - The current state of the S&P 500 rallying to new highs is being driven by liquidity.  Liquidity is the maker of asset bubbles and the main driver is the economy.  The economy in turn is the driver of credit availability and interest rates.  The other variable in this formula is the productivity factor and I will leave the rest up to our readers to determine. What we would add is that no one factor is the driving force of the markets or the economy. This leads us to our next important issue - stock picking and asset allocation. Sock pricing is the losers game but playing the averages such as with the HOT STOCK strategy can give us the edge.  That edge is very thin and is dependent on being long during periods of liquidity and rising markets.  Just like being at a casino and betting it all is not prudent, in the markets the losers make the same type of bet.  In the markets we remain bullish on stocks and bearish on bonds.  Bonds are now returning to a period of increased volatility and people holding for income may be getting the short end of the stick.  Further, we see an increase in inflation and a rise in bullion prices (strategy long coming Monday) but the XAU index conversely issued a sell for Monday.  This may seem perplexing but the factors that move one are not exactly the same factors that move the other.

Feb 26/06 - It was a relativity unremarkable week marked by a decrease in volatility but we believe bond volatility is about to pick up.  The situation with the current state of the yield curve is making it difficult to forecast returns both on the equity and bond markets.  Interest rate expectations play an important role in future demand for funds and inflation expectations. Monetary policy may dampen real interest rates and thus future production. There has been much published information on the yield curve (eg Estrella 2005) for us to comment further and some are even suggesting the presidential cycle has slide into a normally downward part of the trend. Do president's matter as much as before? time will tell.  Our asset allocation models continue to favor equities and to continue to unload GOLD positions as the US dollar is about to gain strength on the back of increasing US rates. In a final remark some of our readers may be finding the QQQQ timing system a little boring but the fact remains that it is better to be long for longer periods of time due to a upward market drift over time.

Feb 12/06 - The answers to the markets are wide ranging but the only one's that matter are the one's that bring home the money.  Market data is dissected by the hedge funds such as DE Shaw or Jim Simons of Renaissance to find where there algorithms can give them an edge.  They have at their disposal a lot or