Rhody Trader

The webcast video of my LA Traders Expo presentation has finally been posted. You can find it here. Watching the video requires being registered with the MoneyShow.com site, but that’s free.

What I find interesting is that while my presentation was an hour long, the video was cut down to only 39 minutes or so.

Hmmm….Methinks there’s been some editting. I’ll have to give it a look to see what got left on the chopping room floor when I get some free time to go through it. My guess is several of the questions asked were cut.

While I was at the Expo I was also interviewed seperately by Tim Bourquin of Trader Interviews. I’m not sure when those segments will get posted at MoneyShow.com.

A bond market analysis post by Chuck at Rebel Traders suggests that the interest rate market is at a pretty key juncture. Given that he seems to have a generally bullish near-term view on bond prices, I’m not sure why he titled the post Bond Market Blues, but whatever. Bonds, of course, were the subject of a recent strategy idea by a colleague of mine based on the If the US is Japan, Buy Long Bonds idea.

Chuck’s post is mainly technical in nature, but it’s worth tossing in a bit of non-technical information which relates. First of all, it’s quarter-end, which often involves capital moving around to fulfill reporting desires and/or requirements. Second of all, this is a very heavy data week, albeit a short one given the July 4th holiday at the end of it. This includes Thursday’s Non-Farm Payrolls report, which is often a source of market volatility. How bonds navigate this week could tell us alot about what the future may bring.

For some time now I’ve been trying to figure out how best to help as large a group of people as possible to develop their analytic and trading skills. I’ve certainly done quite a bit of blogging and writing and speaking and presenting in an effort to do so, but it’s not quite what I’m after. That’s more instructive than collaborative.

Don’t get me wrong. Instruction is a necessary part of the education process.  I’ll continue to provide that sort of uni-directional work, but what I really have wanted to do for some time now is to create an environment whereby people and look over my shoulder, so to speak, as I do market analysis and come up with trading ideas, where I can do the same thing in return, and where people can do it for each other. This is something I know from feedback that folks are very interested in seeing.

I’m getting close to having things set up. I think it should be ready to go into full action in September.

This new program will basically be a focal point of all my trading education efforts moving forward. I’m expecting it to include things like:

• Specific market analysis leading to trading ideas
• Videos and other materials explaining the techniques and methods I use
• Podcasts and write-ups discussing market developments
• Trading education videos, audio, etc.
• Interviews on an array of subjects
• Additional videos and other materials to provide further perspective

One of the things that I’ve struggled with for some time is how to encourage participation. This has been a consistent problem when I’ve tried to do interactive programs in the past. While I realize it will never be the case where everyone is going to become an active participant – which is fine – more is definitely better for the cummulative educational effort.

Furthermore, I figured out many years ago that teaching is a fantastic way to learn. Anyone who’s ever coached or taught anything with any kind of intent will almost certainly agree with me on that. That’s a big part of why I want to encourage interaction.

So my thought to encourage the interaction is to create a monetary incentive for doing so. It would be something whereby the top X number of contributors on a monthly basis are paid rewarded for their efforts. This basically sets up a situation where those who are strictly there to take advantage of the available information and materials pay to do so, while those who give of their time and effort to help out their fellow traders are recognized for doing so.

I’m not totally locked in on how those top contributors will be determined, but I envision it being some combination of voting and editorial review. Any suggestions or thoughts on that subject would be appreciated.

Actually, any thoughts or ideas you have, things you’ve liked in other sites or would like to see, are very welcome. Just leave them via comment below.

You may be wondering if I’m bummed out about the USA losing the Confederations Cup final to Brazil. Not really. Here’s why:

1. It was great just to see the team in the final, a please they’ve never been in any FIFA competition.
2. The team played well. Brazil didn’t run roughshod over them as they’d done in the group stage meeting.
3. I think the loss, the feeling that they could have (perhaps should have) won will make them that much hungrier for next year. If they’d won I would have had some serious concerns about a let down through the remainder of qualifying and into the World Cup. This way they know they need to push a bit harder, to keep improving as individuals and as a team.

What’s going to be interesting for me is seeing what happens with all these players during the transfer window.

Onyewu is out of contract after his time at Standard Liege, and supposedly has been getting interest from both English and Turkish clubs. That could expand. DeMerit’s Watford team was relegated from the Premier League, so he could get picked up by a top flight team. Donovan is out of contract with MLS at the end of this season and you have to figure he’s not going to resign. It would make no sense.

Carl Futia announced the publication of his new book earlier this week. He’s rightly proud of being published and it sounds like the book got off to a good start. He’s so excited that’s looking to write a new one. That’s all well and good, but he said the following:

But I need my current book to sell well so that I can find a publisher interested in my tape reading book.

Here’s the irony of that statetment. The better Carl’s current book does the better off he’s going to be self-publishing his second book.

Wiley ain’t going to be happy with me for saying this (they published Carl’s book and my book, The Essentials of Trading), but if you’re already established and can promote the book yourself, going the traditional publish route just doesn’t make a lot of sense. The publishers take most of the revenue and don’t do that much for you beyond printing the copies and putting them in the distribution chain. There are plenty of other options for that, especially in print-on-demand.

I’ve had this discussion with the folks from a popular forum site with whom I’ve talked about a joint book project. The owner of the site likes the cache having a traditionally published book provides, but with a 6-digit membership to his site he can do a lot more in promoting the book than the publisher can. That being the case, why should he accept a 10-15% cut?

And for those who might be thinking otherwise, there’s very little money in books unless you way, way, way up in the upper stratosphere of authors. It’s kind of like blogging in that way.

I was thinking about my 401k plan this morning on my way into work. This plan is only two years old at this point, so we’re not talking big bucks here. That’s a good thing, though. It means there wasn’t much exposure when the markets started turning south. So basically I’ve been averaging down my investments, which in this account are all in equity funds of one flavor or another. Moreover, because of raises my contributions are higher now than they were back at the beginning. That means my purchases at these lower levels are bigger than they were at higher prices.

The bottom line is that when the markets do get solidly back on the bullish path – whenever that might be – I’ll be in a decent position to benefit.

My thinking this morning revolved around ways one could adjust investment account contributions based on market peformance. Coincidentally, JD at Get Rich Slowly posted on the subject of market timing where investments are concerned. He did a great job of sharing his experience involving reducing some of his stock fund holdings for asset allocation purposes and the whole “Maybe it will go higher?” and “Shoot! I sold too early” thought process that always comes up in those cases.

JD’s main point is one I fully agree with. When it comes to long-term wealth building through investment, steer clear of market timing. You’re never going to get it just right, so focus instead on having a strong, solid investing strategy and sticking to it.

First, let me provide and update on the Eurodollar Convergence Trade, which a colleague of mind suggested.

As of this writing the December Eurodollar contract is trading at about 99.11. That’s a gain of about 35bps. I can’t see a current quote on the 98.75 Dec calls, but the 98.875s are quoted at 37.5. That option is 23 bps in the money, meaning 14.5 bps of premium. If we use that as a rough guide then the 98.75s are probably in the 49.5 area, a gain of 17.5 bps from when I wrote up the idea. The 98.75-99.00 call spread is probably at about 22 bps now (99s quoted at 27.5 right now).

In other words, one could close the trade out now with a pretty nice two week gain.

Now, that same colleague has a new trade idea. I’m not sure I necessarily agree with him on the premise, though. Basically, he thinks our interest rate profile is destined to look that that of Japan. That means our long rates are due to slide way down, potentially into the 1% range. That’s obviously a big rate drop from hear, meaning bond prices would shoot higher. The plan, therefor, is to buy long-dated well out-of-the-money call options.

Here’s a look at the front month T-Bond futures chart.

The peak was near 140 back at the end of 2008. That was when yields were down around 2.5%. If my colleague is right then the futures are headed for an even higher peak, potentially something in the 155 area. If so then massive gains are certainly possible.

Taking a look at the recent December 2009 options quotes (the only ones I have immediate easy access to at this moment, I see that you need to get out to the 127 strike before there are prices below 1 pt ($1000). Ideally, you’d probably want to go out further than that in terms of time, though, so the cost will be higher. Still, the risk/reward ratio would be fantastic.

I’m basking in the afterglow of Team USA stunning Spain in the Confederations Cup semifinal. I expected the home boys to put on a good show, but a win wasn’t something I was ready to expect. 

I saw the 1994 World Cup win over Columbia, which was a big deal at the time. I wasn’t that up on the global persective at the time, so while I knew we’d been big underdogs, to me it wasn’t as obviously a miss-match as the Spain match was supposed to be. Probably the most amazing US win I’ve ever seen was the 1998 Gold Cup win over Brazil when Preki scored on a free kick and Casey Keller had about as ridiculously good a match as any keeper has ever had. I will put that win above the Spain win because while we played Spain tough a year ago, offering some indication that we could make it hard on them, we’d never really been close with Brazil. The World Cup win over Portugal in 2002 is up there too.

So now it’s the wait until Sunday to see if we can put on the same type of performance in the final.

As a side note, on the hone front I saw one of the most phantom red cards ever when my home team Revolution was playing Kansas City in the second round of SuperLiga play. The way KC was playing there’s a very good chance that cost the Revs a win.

Once upon a time central banks intervened in the markets to keep currency exchange rates in line. Even the hint that one of them was in oftentime was enough to get rates jumping. That’s become less and less frequent of an occurance over the years, though. The Bank of Japan probably has the most active record of intervention and got quite good at timing it.

These days the perception is that the markets are too big – that the central banks just don’t have the resources (especially working alone) to move exchange rates the way the did in the past. To push prices around these days requires concerted intervention.

Well, maybe not always.

The Swiss National Bank (SNB) has decided to take the bull by the horns (so to speak) and intervene in the CHF. It did so a while back, mostly in EUR/CHF if I remember correctly. Today, though, the target was USD/CHF. They were said to have been in early in the US session and then around midday, the end of the European session. The intraday chart below shows the result.

Most retail traders don’t really focus on the CHF, so it’s quite likely that many never saw what happened. The SNB action, though, played a big part in driving the USD higher early today, which showed up in places other than USD/CHF, and then again around noon. The moves in EUR/USD, USD/JPY, etc. were not of the same magnitude, of course, but perforce when a lot of USD buying is happening in one pair it’s going to impact others.

I may be a professional forex analyst, but I watching pretty much all the major markets. That includes stocks. One of the things I’ve watched closely is how the S&P 500 has done during the rally from the March lows. Most especially, I’ve paid close attention to the divergence that’s developed in recent weeks between the price action and what’s been happening with volume and the market internals.

The chart below shows the SPY with subcharts that include volume, short interest, and an advanced/decline line. Notice how while the market has risen in price, volume has been easing back and the A/D line has been falling away.

I like looking for these sorts of divergences to let me know when trends are likely starting to weaken. If the market is rallying, but volume is fading and fewer stocks are participating then there’s trouble abrewin’. In this case the rising short-interest is interesting, but it’s not near peak levels, so not a huge help.

Of course divergences can persist, sometimes for a long period, so they aren’t something you can trade in the immediate term. They are good, though, for helping you frame the larger picture and understand when the risks for a reversal are starting to outweight the potential rewards of continuation.