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PositiveDev's trading journey

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It was a frustrating day today. Due to other commitments I haven't been able to spend as much time on the markets or on GEI as I would ideally like. But today as soon as I woke up I felt compelled to check the markets before I had to get onto my other commitments for the day....

 

 

One of the types of analysis I do is look at divergences between equity futures and currency markets, or divergences between the equity markets themselves; typically;

 

NASDAQ 100 futures contrasted with AUD/USD, AUD/JPY, EUR/USD

 

or

 

 

NASDAQ, DOW, S&P 500 and RUSSELL 2000 futures

 

So anyway this morning at 7:56 this is how the markets were shaping up;

 

 

NASDAQ, DOW, S&P 500 and RUSSELL 2000 (late Feb to present)

EM_zpsf3222b59.png

 

Russell 2000 clearly not only diverging lower compared to it's peers but also breaking prior lows.

 

 

NASDAQ 100, AUD/USD, AUD/JPY, EUR/USD (Nov to present)

CM_zpsb13e4993.png

 

Here all the currency markets were diverging lower compared to NASDAQ. You can see that it appears that AUD/JPY isn't in fact diverging lower but this is as a result of Bank of Japan intervention and therefore AUD/JPY would also have been headed lower if normal market forces were allowed to pay out. So in my book this was all the green light to go short.

 

Unfortunately my timing was off and I got stopped out just before the drop. I went short DOW futures at 8:05;

 

short1_zps3d1ba5c1.png

 

 

I had a stop in at 14520, I lowered it and got taken out. Even if I hadn't the market rallied back up to that exact level (unbelievable) before selling off 159 points...

 

 

I have some new ideas relating to entering into positions whereby I take the intended position but then immediately take an opposing position in a highly correlated market as a hedge, only removing it when it's clear the market is heading in my favour. I've not yet developed a new strategy to trade yet though and consequently hadn't formed rules on how to implement this new execution strategy. Certainly for these types of trade where market direction appears fairly clear and timing is difficult - it makes a great deal of sense.

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short1_zps3d1ba5c1.png

 

 

I have some new ideas relating to entering into positions whereby I take the intended position but then immediately take an opposing position in a highly correlated market as a hedge, only removing it when it's clear the market is heading in my favour. I've not yet developed a new strategy to trade yet though and consequently hadn't formed rules on how to implement this new execution strategy. Certainly for these types of trade where market direction appears fairly clear and timing is difficult - it makes a great deal of sense.

 

 

Thinking back to this trade I had last Friday, the analysis was great, but the execution was poor. I have previously traded futures spreads and I realised I could not only trade the spreads themselves but also open a spread as a prelude to a straight long or short position.

 

In the above case my analysis suggested the market moving in a particular direction and I was right, but I got stopped out. In the future if a similar scenario developed the correct action would be to go short Dow Jones futures and hedge immediately by going long S&P 500 futures. The two are very closely correlated, here's a chart showing the correlation between proxies for the two - the SPY ETF and the DIA ETF.

 

Correlation-1_zps794f981d.png

 

The correlation is 97.32%, they are the most correlated indexes, among the main ones that are actively traded. Clearly this strong correlation isn't likely to be quite so consistent as you shorten the timeframe but it's a good general indication of the correlation.

 

 

The strong correlation is also visually clear, as shown on one of the analysis charts;

The grey and black lines are Dow and S&P

 

NASDAQ, DOW, S&P 500 and RUSSELL 2000 (late Feb to present)

EM_zpsf3222b59.png

 

This next charts shows Dow Jones futures at the bottom, and you can see where I went short and got stopped out. The chart at the top in the S&P 500 futures, and the black line in the middle is the spread between the two;

 

Actual_zpsa9c1577b.png

 

 

So for this type of trade, I should go short Dow Jones futures and take a long position in S&P 500 futures at the same time (green arrow in the upper section of above chart refers). Then I only keep emergency stops well wide of the market for each position just in case something very dramatic happens. Once it is clear that the Dow Jones is headed in the direction my analysis suggests and starts a downtrend, that is where I then close the long in the S&P 500 position (red arrow on upper section chart refers), and then put a stop above the market for the Dow Jones position.

 

Another way to look at this is that I am initially going long the S&P500 - Dow Jones spread, prior

 

The advantages of this type of entry;

  • Initial timing is less critical
  • Trade far less likely to get stopped out whilst waiting for market to go in direction of analysis (since the opposing position is taken as an initial hedge in a closely correlated instrument)
  • Non-significant market moves are cancelled out by the initial hedge
  • It's possible yield could be generated from the spread initiated before the full long or short position is taken.

The disadvantages of this type of entry;

  • Despite the high correlation the spread could widen/narrow opposite to the spread initiated
  • A loss could be generated prior to the full long/short position being intiated.
  • Higher commission cost.

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From Albertarocks;

 

http://albertarocks-ta-discussions.blogspot.co.uk/2013/04/hindenburg-omen-issues-first-signal_15.html

 

 

 

"Hindenburg Omen Issues First Signal Since Aug. 2010

 

 

Today the Hindenburg Omen has issued a signal, it's first since August of 2010. But's with a god damned asterisk courtesy of the WSJ. I'm going out on a limb (but not by much) by making this declaration because according to the official source of the data, the WSJ, only 84 new 52 week lows were attained today while 87 were required. The minimum required number of 87 new highs was attained. We've seen enough of this my friends. At least a half dozen times in recent years we have seen the data from the WSJ get "pinned" just shy of requirements for the HO to go off. Each time that happened a sharp market sell-off ensued in the days and weeks following. There comes a time when we have to recognize that just as in the game of "hand grenades", sometimes close is close enough.

 

I also think we're at that point when a person just has to step up to the plate and say "Ok, enough of this false reporting shit habit". Or call it "incomplete market data" or whatever you want. According to StockCharts there were 132 new lows registered today and that's such a giant disparity that we can be pretty damned confident that the WSJ is being disingenuous today. It's not the first time either. Just telling it like it is folks.

 

Contrary to claims by some very well known and respected analysts, people I myself respect a great deal including Dr. Robert McHugh, Sentimentrader and Stockcharts' contributing author, Mr. Arthur Hill (along with a few others), the Hindenburg Omen has not issued any signals in recent weeks or months... not once since August of 2010. It did not issue any signals in December as claimed back then. The signal issued today is official, because believe it or not it's important to use the correct rules for crying out loud. Why so many 'analysts' insist on using the old rules and still screw up half the time even with those ones is something I can't quite understand. That practice is one heck of a good example of the truth in the old saying "A little knowledge is a dangerous thing". Having said that, I do want to make it clear that I have a ton of respect for the names above even though they are either using old rules or, as in the case of Mr. Hill, they are simply misinterpreting one very strict rule... and that being the rule regarding the 50 day moving average on the NYSE. In fact, to his credit, Arthur Hill upon learning that he'd 'misread' the rule regarding the 50 day moving average, corrected his article so that it stated the Hindenburg Omen "almost" went off. Well the truth be known, it didn't really "almost" go off at that time either because it was simply "off-line" due to that rule violation. You can't watch your favorite game show on television if it's not plugged into the wall.

 

I also want to make it very clear, I consider the sources mentioned above to be very credible... it's just that with the recent declarations of a UFHO sighting they've just made an innocent error. A couple of years ago when the inventor of the HO, Mr. Jim Meikka, made a few fairly important and very reasonable rule changes in order to account for the increased numbers of ETFs and bond funds, those changes were not broadcast widely. So it's understandable that some analysts are unaware of them. I only discovered them myself by keeping close tabs on what Tom McClellan has to say each week (more on that below)."

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Are we nearing a top is the NASDAQ?

 

NASDAQ-1_zps0d991dc8.png

 

 

lH_zps46e4a2a0.png

 

Lower highs in the NASDAQ, Russell 2000 (RUT), Dow Transportation and NASDAQ Transportation.

 

 

 

Are you long equities?

 

 

 

Don't.

 

 

Look.

 

 

Down.

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Nice chart!

Another sign of a Top, that Tony C also seems to be seeing

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http://www.youtube.com/watch?v=kROymC3tTTs

 

Druckenmiller, ex-Soros business partner sees storm coming, potentially bigger than 2008. Based on demographics.

 

popdis3.gif

 

Seniors numbers are heading up sharply over the next few years.

 

 

 

Smithsonian mag;

 

Excerpt;

 

 

"The Changing Demographics of America

The United States population will expand by 100 million over the next 40 years. Is this a reason to worry?

 

 

Estimates of the United states population at the middle of the 21st century vary, from the U.N.’s 404 million to the U.S. Census Bureau’s 422 to 458 million. To develop a snapshot of the nation at 2050, particularly its astonishing diversity and youthfulness, I use the nice round number of 400 million people, or roughly 100 million more than we have today.

 

The United States is also expected to grow somewhat older. The portion of the population that is currently at least 65 years old—13 percent—is expected to reach about 20 percent by 2050. This “graying of America” has helped convince some commentators of the nation’s declining eminence. For example, an essay by international relations expert Parag Khanna envisions a “shrunken America” lucky to eke out a meager existence between a “triumphant China” and a “retooled Europe.” Morris Berman, a cultural historian, says America “is running on empty.”

 

But even as the baby boomers age, the population of working and young people is also expected to keep rising, in contrast to most other advanced nations. America’s relatively high fertility rate—the number of children a woman is expected to have in her lifetime—hit 2.1 in 2006, with 4.3 million total births, the highest levels in 45 years, thanks largely to recent immigrants, who tend to have more children than residents whose families have been in the United States for several generations. Moreover, the nation is on the verge of a baby boomlet, when the children of the original boomers have children of their own.

 

Between 2000 and 2050, census data suggest, the U.S. 15-to-64 age group is expected to grow 42 percent. In contrast, because of falling fertility rates, the number of young and working-age people is expected to decline elsewhere: by 10 percent in China, 25 percent in Europe, 30 percent in South Korea and more than 40 percent in Japan.

 

Within the next four decades most of the developed countries in Europe and East Asia will become veritable old-age homes: a third or more of their populations will be over 65. By then, the United States is likely to have more than 350 million people under 65.

 

The prospect of an additional 100 million Americans by 2050 worries some environmentalists. A few have joined traditionally conservative xenophobes and anti-immigration activists in calling for a national policy to slow population growth by severely limiting immigration. The U.S. fertility rate—50 percent higher than that of Russia, Germany and Japan and well above that of China, Italy, Singapore, South Korea and virtually all the rest of Europe—has also prompted criticism.

 

........................................................................................................................................................................................................................................"

 

 

Read more: http://www.smithsonianmag.com/specialsections/40th-anniversary/The-Changing-Demographics-of-America.html#ixzz2RavUMGVN

Follow us: @SmithsonianMag on Twitter

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It's been a while since I've traded intraday, I seem to be pretty busy but know that I need to make time for it.

 

I haven't settled on a strategy per se, so in the meantime I'm going to see if I can carve out a style all of my own, using a discretionary approach, something I've not really tried before...

 

I'll be doing this on a SIM account for now.

 

Earlier looking at NASDAQ futures compared to EUR/USD, AUD/JPY and AUD/USD some divergence appeared suggesting a potential turn down;

 

1 month timeframe chart

Divergence-5_zps26554774.png

 

The divergence on the above chart suggested focusing on the downside.

 

Looking at the intraday chart for NASDAQ futures, I went short on a trendline break at 2868. The NASDAQ was also weakening relative to DOW 30 futures;

NQ-3_zpsde3e0f42.png

 

The market sold off 5 points, I closed the position. The market rallied to another area that I felt may offer resistance at 2867, and was rejected by the next trendline therefore I went short again, the market sold off another 5 points before I closed the position.

 

Up 10 points for the day.

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Hmm.

Many potential Tops are showing there

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Went long Dow Jones futures at 17:37;

 

YM_zpsbc511480.png

 

Market rallied and retraced a couple of times before rallying higher, closed out for a 20 point gain.

 

 

 

Oh and by the way, happy Fibonacci day to my american friends! 050813

 

Leonardo_da_Pisa.jpgj

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I expect that his torso and limbs showed Fibonacci relationships to each other

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http://www.youtube.com/watch?v=kROymC3tTTs

 

Druckenmiller, ex-Soros business partner sees storm coming, potentially bigger than 2008. Based on demographics.

 

Great find, PD !

I did not know he was back in the public, speaking out

Druckenmiller says "everything is over-valued" (stocks, real estate, Gold), because of the ZIRP (over-valued bonds):

 

I posted a copy of your comment on the US Bankruptcy thread, in the General section

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Great find, PD !

I did not know he was back in the public, speaking out

Druckenmiller says "everything is over-valued" (stocks, real estate, Gold), because of the ZIRP (over-valued bonds):

 

I posted a copy of your comment on the US Bankruptcy thread, in the General section

Wheres he putting his money?

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Wheres he putting his money?

 

Equities, I think, but ready to exit fast

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S&P 500

1096CF80-4D94-41B8-98B0-283AA044DC1C-325-0000002A357EC4DA_zpsb607a7ee.jpg

 

This just looks wrong , it's just going higher at too steep an angle. Nothing that a vicious correction won't sort out though.

 

And the 1 year chart;

3947B7B5-81CE-4A3E-ABC5-F9121D54DAD2-341-0000002C5277CB63_zps16f2701a.jpg

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