Stock Market 2016
- Thread starter chyamor
- Start date
China really needs to realize that these circuit-breaker controls are simply causing more people to dumb stocks.
Check out YANG if you're looking for a quick get in get out play. It's a short ETF on the China FTSE 50 based out of Hong Kong. I bought in at 109 and we're up to 119 as of posting this. Should be another green day as well as the index is down 4% already.
Edit: This is a short term play. Do NOT stay in this stock for too long as it decays over time.
Edit: This is a short term play. Do NOT stay in this stock for too long as it decays over time.
Laurifer said:
Their market cap is only $13 billion(around 413$ a share) which is pretty modest in terms of funny money. Mcdonalds for example has a market cap of $107 billion (around 117/shr).
Don't let the share price fool you, market cap is the ultimate determining factor.
I'm going to try to post weekly updates on Monday or Tuesday. My updates will be based on my research and take on the financial markets. I was considering doing my own "weekly financial market update thread" but since someone started this thread for 2016, I'll post here for now:
My current take on the market is that it is on what I call a sell signal. I know, stunning technical lingo there.
Quite simply, I'm seeing negatives across the board on the indicators.
I've been on this sell signal and hence, my trading accounts have been in cash, since around December 10.
There has been virtually no accumulation in the markets since then save some weak, low volume attempts at bounces.
This market is currently dominated by distribution days ( down days on heavier volume than any preceding up days)
The Dow is off about 1350 points since the sell signal.
You may think the decline has been alot and it’s a good time to buy, but it will probably only be a technical bounce and not a fundamental (valuation) bounce. Technical bounces ( dead cat) always happen, but buyer beware.
A few fun facts:
It's always constructive to analyze several market indexes as opposed to just the DJIA to get a good idea of the internals and true health of the market. So let's:
The value line index which is a good representative of whole stock market is down 20%. This index is already in a bear market as the official definition of a bear market is one which is down 20% or more.
The new NYSE is coming down to correction lows and actually starting to pierce them.
The new NYSE index is coming down to correction lows:
http://www.marketwatch.com/investing/index/nya/charts
I’m hoping for a repeat of 2010 or 2011 where the market attempted to rally a few times then kept testing the lows. In both of these years, the market went through a somewhat scary correction in the latter half of the year. A few times when it tried to go back up, it would fall again, almost testing the lows and eventually, the markets recovered and went higher continuing the multi year bull market. However, in both of those years, if you'll remember, QE operations were in full force by the fed to prop up the market and continue its advance.
In 2015 and now, we do not have QE operations. We have, basically, the opposite : Fed tightening. More on that below.
More tell tale signs of potential financial woe: Big down week on the nasdaq last week. we have to look at this as what I’d call a broken “right side” meaning the chart of the nasdaq was trying to set up constructively, but has , at this point, failed.
The S&P 500 is coming into some support levels and has held up a bit better than some of the other indexes I've mentioned. It’s about to test it’s support levels of the big correction that happened late fall of last year. Always remember though, a support level can be pierced so quickly and brutally you wouldn’t believe it….aka 87 crash.
The good news: have not had a bear market in 60 years without an inverted yield curve. An inverted yield curve being where the , 1 year rate on treasuries is above the 10 year treasury bond rate.
There is no inverted yield curve at the present not yet at least.
However, interest rates are artificially suppressed now due to QE. I think we WOULD have an inverted yield curve without these QE operations ( money pumping into the markets and economy).
SENTIMENT (bulls/bears) is a good way to measure where we may be in a correction or a rally. It's a ratio of how many investment advisors are bulls to how many are bears. Currently, it's a bit bearish, but perhaps not “bearish enough” certainly not where we’ve seen it in stock market bottoms. Historically, when sentiment gets to extreme bearish levels, bear markets or big corrections are often reaching a bottom.
There are a few things that are arguing for a recession possibility. The ECRI weekly leading index is below the zero base line. If it gets near -10 we’d be at recession territory.
Industrial production year over year number: We never see a recession without this number going negative. It just went negative on the last report for the first time in many years. The next report on this number comes out Friday. We’ll see if the negative trend ( increasing ) continues in this important economic gauge.
We haven’t had a bear market in quite some time (2008). The good news is alot of this correction may have already taken place. Or this could be a ‘rotational correction’ meaning big money is just moving from certain sectors to others.
These are the Conditions for a Major Bear Market. Usually at least two or more of these are present before we enter a recession and "bear Market"
* Extreme deflation
* Rising inflation
* Inverted yield curve - fed tightening
* Overvaluation
All we have now is the fed tightening. The other criteria are (thankfully ) not being met. I'll repeat the possibility of this being an ‘artificial yield curve’ due to the massive QE we've seen since the meltdown in 2008/09.
Summary
No stock set ups: stocks are not creating constructive 'patterns' which is what technical traders use to buy stock breakouts.
Cash is king! : I think trying to catch a falling knife could get you cut if you're a stock trader. Long term investing in mutual
funds is most likely fine if you've got decades before retirement.
Fed tightening: See above
My current take on the market is that it is on what I call a sell signal. I know, stunning technical lingo there.
Quite simply, I'm seeing negatives across the board on the indicators.
I've been on this sell signal and hence, my trading accounts have been in cash, since around December 10.
There has been virtually no accumulation in the markets since then save some weak, low volume attempts at bounces.
This market is currently dominated by distribution days ( down days on heavier volume than any preceding up days)
The Dow is off about 1350 points since the sell signal.
You may think the decline has been alot and it’s a good time to buy, but it will probably only be a technical bounce and not a fundamental (valuation) bounce. Technical bounces ( dead cat) always happen, but buyer beware.
A few fun facts:
It's always constructive to analyze several market indexes as opposed to just the DJIA to get a good idea of the internals and true health of the market. So let's:
The value line index which is a good representative of whole stock market is down 20%. This index is already in a bear market as the official definition of a bear market is one which is down 20% or more.
The new NYSE is coming down to correction lows and actually starting to pierce them.
The new NYSE index is coming down to correction lows:
http://www.marketwatch.com/investing/index/nya/charts
I’m hoping for a repeat of 2010 or 2011 where the market attempted to rally a few times then kept testing the lows. In both of these years, the market went through a somewhat scary correction in the latter half of the year. A few times when it tried to go back up, it would fall again, almost testing the lows and eventually, the markets recovered and went higher continuing the multi year bull market. However, in both of those years, if you'll remember, QE operations were in full force by the fed to prop up the market and continue its advance.
In 2015 and now, we do not have QE operations. We have, basically, the opposite : Fed tightening. More on that below.
More tell tale signs of potential financial woe: Big down week on the nasdaq last week. we have to look at this as what I’d call a broken “right side” meaning the chart of the nasdaq was trying to set up constructively, but has , at this point, failed.
The S&P 500 is coming into some support levels and has held up a bit better than some of the other indexes I've mentioned. It’s about to test it’s support levels of the big correction that happened late fall of last year. Always remember though, a support level can be pierced so quickly and brutally you wouldn’t believe it….aka 87 crash.
The good news: have not had a bear market in 60 years without an inverted yield curve. An inverted yield curve being where the , 1 year rate on treasuries is above the 10 year treasury bond rate.
There is no inverted yield curve at the present not yet at least.
However, interest rates are artificially suppressed now due to QE. I think we WOULD have an inverted yield curve without these QE operations ( money pumping into the markets and economy).
SENTIMENT (bulls/bears) is a good way to measure where we may be in a correction or a rally. It's a ratio of how many investment advisors are bulls to how many are bears. Currently, it's a bit bearish, but perhaps not “bearish enough” certainly not where we’ve seen it in stock market bottoms. Historically, when sentiment gets to extreme bearish levels, bear markets or big corrections are often reaching a bottom.
There are a few things that are arguing for a recession possibility. The ECRI weekly leading index is below the zero base line. If it gets near -10 we’d be at recession territory.
Industrial production year over year number: We never see a recession without this number going negative. It just went negative on the last report for the first time in many years. The next report on this number comes out Friday. We’ll see if the negative trend ( increasing ) continues in this important economic gauge.
We haven’t had a bear market in quite some time (2008). The good news is alot of this correction may have already taken place. Or this could be a ‘rotational correction’ meaning big money is just moving from certain sectors to others.
These are the Conditions for a Major Bear Market. Usually at least two or more of these are present before we enter a recession and "bear Market"
* Extreme deflation
* Rising inflation
* Inverted yield curve - fed tightening
* Overvaluation
All we have now is the fed tightening. The other criteria are (thankfully ) not being met. I'll repeat the possibility of this being an ‘artificial yield curve’ due to the massive QE we've seen since the meltdown in 2008/09.
Summary
No stock set ups: stocks are not creating constructive 'patterns' which is what technical traders use to buy stock breakouts.
Cash is king! : I think trying to catch a falling knife could get you cut if you're a stock trader. Long term investing in mutual
funds is most likely fine if you've got decades before retirement.
Fed tightening: See above
Soros says we´re in the begining of a crash:
http://www.bloomberg.com/news/artic...t-the-beginning-of-a-crisis-george-soros-says
The Economist confirmed:
http://www.economist.com/blogs/butt...new/n/n/n/20160111n/owned/n/n/nwl/n/n/n/email
Here there is or not fundamentals for the crisis. The rumour is being spread.
In 2016 we´ll see a crash. Have no doubts. How to profit from this?
http://www.bloomberg.com/news/artic...t-the-beginning-of-a-crisis-george-soros-says
The Economist confirmed:
http://www.economist.com/blogs/butt...new/n/n/n/20160111n/owned/n/n/nwl/n/n/n/email
Here there is or not fundamentals for the crisis. The rumour is being spread.
In 2016 we´ll see a crash. Have no doubts. How to profit from this?
Pepini said:
In a deflationary crisis, the best thing you can do is be in all-cash and get to the exits before everybody else.
Telegraph - RBS cries 'sell everything' as deflationary crisis nears
Short the market, look into other vehicles. Potentially look into futures of one commodity and get exceptionally well-versed in it. There's always money to be made.
Invisible
Robin
@robreke - I appreciate the effort you're putting into your research and posting it here as I'm sure others are. My approach to the market is totally different to what I think most are doing here and I want to use your post to start a conversation that hopefully we can all get a lot out of. One of the things I realised early on is that you never stop learning in this game.
I'm not trying to come across as saying my approach is better, if what you do works for you that's awesome. I think the research side of the market scares a lot of people away and mostly people don't realise there is another option.
Hopefully we get a lot of people participating in the conversation. Feel free to challenge anything I say! I'm going to assume everyone understands the language I'm using, if someone doesn't understand a term I use please ask and I will try to explain it as simply as possible.
So to get the conversation started I've got a couple of questions.
So you believe the market is heading lower from here, based on your research, what's the probability of this happening?
If you've had a sell signal since December why aren't you short?
I'm not trying to come across as saying my approach is better, if what you do works for you that's awesome. I think the research side of the market scares a lot of people away and mostly people don't realise there is another option.
Hopefully we get a lot of people participating in the conversation. Feel free to challenge anything I say! I'm going to assume everyone understands the language I'm using, if someone doesn't understand a term I use please ask and I will try to explain it as simply as possible.
So to get the conversation started I've got a couple of questions.
So you believe the market is heading lower from here, based on your research, what's the probability of this happening?
If you've had a sell signal since December why aren't you short?
Possible way to profit.
If your platform doesn't allow it.. Call and ask for the option to short.
Sell 75 percent of your stock.
Start shorting those stocks.
Or look into inverse markets. Just like mentioned with China... There are stocks that Bank of the drop.
If your platform doesn't allow it.. Call and ask for the option to short.
Sell 75 percent of your stock.
Start shorting those stocks.
Or look into inverse markets. Just like mentioned with China... There are stocks that Bank of the drop.
Omad said:
Shorting is much risker than being long. A stock can only go down to zero, but a stock can go up forever if you're wrong and short.
Anyone who thinks they have to be invested all of the time, (I have to either be long or short based on what I think the market is doing...ie, I always have to be in the action and participating) if foolish or inexperienced at best.
If one wants to make money when the market is going down, I don't think it's best to just simply say "I feel the market is going down or my research says this so I'm going to randomly start shorting stocks" It's a recipe to eventually get crushed.
Sometimes, many times, the best option is just to be in cash. Don't always feel like you have to be 100% or even 20% invested. Just be in cash. Relax. The market will bottom out and the next uptrend will continue. 90% or more of guys who constantly try to be in the market no matter what (I gotta be short of long) will run their accounts into oblivion.
Also, traders need a "rest" . Trading and investing can wear on a guy and sometimes sitting in cash a few weeks or months, allows your psychology to rest and refocus. You can use that time to wait for the market to turn and look for new set ups.
The market may go up from here. I don't do probabilities as you ask. I watch what my indicators are telling me. When enough of them go to "green" I know the market is more conducive to going up. When more of them to go "red" as is now, the market is conducive to going down. I'm not concerned with catching the exact bottom to get back long or catching the top to take my profits (or go short) I'm concerned with what the market is telling me right now based on certain indicators. In my experience this has been the health of the market.
Yes, we could get an oversold bounce from here and odds are we will. That oversold bounce could result in a recovery and a new long term , multi year uptrend and the bull market resumes. I don't know. I won't invest until my signals go green. If that's 500 points up from here or 1500 points up from here ( which it probably won't be as it's usually earlier than that ) then so be it. I'm not concerned with getting the bottom as I said. I'm concerned with two things in this order:
1. Not losing money. i.e.. preserving my capital.
2. Making money. ie. owning stocks that are going up during a "buy" period in the market.
Everything else, to me, is just speculation and conversation.
It sounds like you're new to this. If you develop a system that works for you great. But guessing or feeling the market's gone down enough or whatever, doesn't work from me. Anytime I stray from my system I lose money. Anytime I stick to it and don't stray. I make money. My models say be in cash now so I will.
Invisible
Robin
^^^ +First up just a basic outline of my thinking, I consider the market as an opportunity for wealth creation and I’m all about maximising that opportunity so as a trader I want to use all the tools available and take advantage of every opportunity the market offers. If I’m just buying stock I’m missing out on opportunity and not using all available tools.
My trading – I’m a fairly active trader, 10 trades a week would be a quiet week, around 50 open positions at the moment, I mostly trade options, short Theta. Time frame 20-60 days. Leading up to this latest pullback I was using around 30% of available funds and my overall portfolio was short Delta. This doesn’t mean that all my positions were short positions, I had a combination of long and short but my portfolio Beta weighted to SPY was overall short. After this pullback I’m now neutral to slightly long Delta due to closing out profitable short trades on the way down and the Delta’s on my long position increasing from in the money options. So I’m always adjusting Delta’s. I always prefer to be short Delta so now I want to see the market rally so I can put some on. I’m now using about 39% of available funds, I rarely get to 50%. I’ll always try to increase capitol use when Volatility increases.
That's just a basic outline so you know where I’m coming from.
Risk is controlled through position size, being short doesn’t have to be any more risky than being long if you’re controlling position size correctly.
A lot of traders would disagree with this, myself included.
I agree, randomly shorting stocks doesn't sound like a good idea. Shorting stocks that are at price extremes on the other hand is a basic principle of trading.
I’m interested to know where the 90% number comes from?
I’m sure some traders do need a rest, all good if it helps them in the long run. Personally I can’t get enough, trading is addicting and I look forward to the market opening every day! Trading is a skill, and like any skill, the more you do it the better you get.
Even if you don’t do probabilities it doesn’t mean they don’t apply. No matter how much fundamental or technical analysis is used directional bets are 50/50 or allowing for positive drift 53/47. Of course you can still make money with those probabilities.
This is why I consider options an essential tool for traders, they allow you to create probabilities better than 50/50, you pay for that by limiting your upside but I’ll take the higher probabilities any day. They also let me be non directional if I want to.
Because of the probabilities I don’t bother with fundamental or technical analysis, I know I don’t know what the market is going to do, no one does. I know what I want the market to do and if it doesn’t do it it means I’m going to have to work a little harder but thats trading.
I’m a contrarian, the basic fundamentals of investing are buy low and sell high so I look for price extremes, when something is high I sell it, when something is low I buy it. Implied volatility is overstated most of the time and that’s the edge.
If you compare me to the guys who have been doing this for 30 years than I’m new, I’ve been doing it for just over 10 years so I’ve got a little experience.
My point is people think investing is about picking direction, having to understand why the market is doing what it’s doing etc. That stuff is fine if it interests you and keeps you engaged but it’s not what’s going to make you money. Speak to 10 different “experts” and you’ll get 10 different opinions. GS are calling for $20 oil, or is it $15. When oil was trading at $100 they were calling it over $200.
There’s no doubt there is a huge learning curve and it takes time to understand but once you do it’s a skill for life.
My trading – I’m a fairly active trader, 10 trades a week would be a quiet week, around 50 open positions at the moment, I mostly trade options, short Theta. Time frame 20-60 days. Leading up to this latest pullback I was using around 30% of available funds and my overall portfolio was short Delta. This doesn’t mean that all my positions were short positions, I had a combination of long and short but my portfolio Beta weighted to SPY was overall short. After this pullback I’m now neutral to slightly long Delta due to closing out profitable short trades on the way down and the Delta’s on my long position increasing from in the money options. So I’m always adjusting Delta’s. I always prefer to be short Delta so now I want to see the market rally so I can put some on. I’m now using about 39% of available funds, I rarely get to 50%. I’ll always try to increase capitol use when Volatility increases.
That's just a basic outline so you know where I’m coming from.
robreke said:
Risk is controlled through position size, being short doesn’t have to be any more risky than being long if you’re controlling position size correctly.
A lot of traders would disagree with this, myself included.
I agree, randomly shorting stocks doesn't sound like a good idea. Shorting stocks that are at price extremes on the other hand is a basic principle of trading.
I’m interested to know where the 90% number comes from?
I’m sure some traders do need a rest, all good if it helps them in the long run. Personally I can’t get enough, trading is addicting and I look forward to the market opening every day! Trading is a skill, and like any skill, the more you do it the better you get.
Even if you don’t do probabilities it doesn’t mean they don’t apply. No matter how much fundamental or technical analysis is used directional bets are 50/50 or allowing for positive drift 53/47. Of course you can still make money with those probabilities.
This is why I consider options an essential tool for traders, they allow you to create probabilities better than 50/50, you pay for that by limiting your upside but I’ll take the higher probabilities any day. They also let me be non directional if I want to.
Because of the probabilities I don’t bother with fundamental or technical analysis, I know I don’t know what the market is going to do, no one does. I know what I want the market to do and if it doesn’t do it it means I’m going to have to work a little harder but thats trading.
I’m a contrarian, the basic fundamentals of investing are buy low and sell high so I look for price extremes, when something is high I sell it, when something is low I buy it. Implied volatility is overstated most of the time and that’s the edge.
If you compare me to the guys who have been doing this for 30 years than I’m new, I’ve been doing it for just over 10 years so I’ve got a little experience.
My point is people think investing is about picking direction, having to understand why the market is doing what it’s doing etc. That stuff is fine if it interests you and keeps you engaged but it’s not what’s going to make you money. Speak to 10 different “experts” and you’ll get 10 different opinions. GS are calling for $20 oil, or is it $15. When oil was trading at $100 they were calling it over $200.
There’s no doubt there is a huge learning curve and it takes time to understand but once you do it’s a skill for life.
Omad said:
Robreke's advice is really geared more towards newbies who have been in the game for under 2 years. Someone with 10+ years playing the markets will of course know all of this.
Omad said:
10 years so you're not a newbie which I assumed.
I'm glad you've got a system that works for you.
Do you consistently grow your account each year? I assume you're making money with your strategy?
FWIW, my system and those I follow are based off of the system of the most successful or one of the most successful, traders ever. Jesse Livermore from Reminiscences of A Stock Operator Fame.
Yes, I know all about position size being part of risk management as I'm a big advocate of it.
As far as being "addicted" to trading and the markets every day, if that fits your temperament, that's great. As for me, I'm happy as a lark to be sitting in cash since mid December when this correction started and while everyone else invested in stocks is down.
I understand what you do from the explanation but it's way too complex for my temperament. I've found something that works for me and that's the key if one is to be a good trader.
Best of luck.