Team LBR

Great new ETF site: ETFreplay.com

2010-04-06T11:21:00.000-07:00

URL Address for ETFreplay.com:

ETF Investing

2009-11-05T05:10:00.000-08:00

The Federal Reserve yesterday explicitly stated the indicators it is watching for 'economic conditions' -- In particular, the statement referenced “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as reasons for policy to remain very easy.

Here is Goldman Sachs comments on these indicators:

US Daily: Tracking the Fed's Key "Economic Conditions" (Tilton)

8:18 PM Wed Nov 4 2009

· However, the FOMC made explicit what had previously been implicit—the specific “economic conditions” it had in mind. In particular, the statement referenced “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as reasons for policy to remain very easy.

· What indicators should investors watch to judge whether these conditions remain in force? For resource utilization, the broadest measure is the overall “output gap” between actual and potential GDP – but in practice the unemployment rate may be more important as a measure of utilization. For inflation trends, core inflation – particularly the PCE measure used by the Fed in its forecasts – is most important. And for inflation expectations, Fed officials are probably looking at a range of measures, most importantly market-implied expectations of future inflation (i.e. the five-year, five-year forward TIPS spread) and longer-term household expectations (including the University of Michigan’s median five-to-ten-year measure).

Today’s policy statement from the Federal Open Market Committee (FOMC) retained language suggesting “economic conditions…are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” as we and most other market participants had expected. For most observers, this language was the main focus headed into the meeting – a significant change would have been taken as a hawkish signal that Fed tightening was nearer at hand than many had supposed.

Still, the FOMC did tinker with the statement in a number of ways. First, it recognized that economic activity “has continued to pick up,” and referred to consumer spending as “expanding.” rather than “stabilizing” as in the prior statement. Second, it trimmed the size of the agency debt purchasing program to $175 billion from $200 billion, but downplayed this move as “consistent with the recent path of purchases” and motivated in part by “the limited availability of agency debt.”

Most importantly, however, the FOMC made explicit what had previously been implicit—the specific “economic conditions” it had in mind that warrant exceptionally low rates. The forward-looking statement about interest rates now references “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as reasons for policy to remain very easy.

As we noted in a comment immediately following the statement, the mere fact of this change could be taken as a sign that the committee has opened the door just a touch to future rate hikes. But the change is open to competing interpretations, which may be what eventually led to its adoption. To us the amplification seems straightforward, as most economists would include resource utilization, inflation expectations, and inflation itself on a short list of the economic conditions the committee originally had in mind. For those committee members who see these variables as extremely low, the statement might actually seem like a stronger commitment to keep the funds rate low, but obviously others will see matters quite differently.

In any case, it is useful to consider what specific indicators FOMC members may have in mind as they consider whether “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” remain in force. Current values of these indicators are shown in the table below, with the most important indicators (in our view) in bold text.

1. Low rates of resource utilization. The broadest measure of resource utilization is the output gap – the difference between actual and potential GDP. The Congressional Budget Office, the definitive source for estimates of potential GDP, currently estimates the gap at 6.3% as of the end of the third quarter, the largest since the early 1980s. (The gap shrank marginally in Q3, since the economy grew above trend last quarter.)

However, the output gap is a nebulous, difficult-to-measure concept and many analysts view it with skepticism. An alternative is to review more “‘micro” measures of resource utilization, a few of which are included in the table below. (A more extensive table is provided as Exhibit 5 of “Deflating Inflation Fears,” GS Global Economics Paper No. 190, September 29.) Of these, we view the unemployment rate as most important. It is a widely accepted surrogate for the GDP gap, it carries significant socioeconomic implications, and it is one of four indicators for which Fed officials provide public forecasts on a regular basis (the others are real GDP, core PCE inflation, and headline PCE inflation). At 9.8% as of September, the unemployment rate is nearly three standard deviations above its average level of the past half-century.

2. Subdued inflation trends. The use of the word “trends” in the statement hints at core inflation as a more prominent metric than headline, though a few FOMC members might take issue with that interpretation. Historically, current core inflation has tended to be a better predictor than current headline inflation of future headline inflation (see “The Case for Core,” GS US Economics Analyst 07/28, July 13, 2007). In the short term, this is a distinction without a difference, as headline metrics show deflation over the past year and core inflation is on the soft side of desired levels. However, the distinction is likely to matter much more in 2010: headline inflation will rise well into positive territory in coming months as year-over-year comparisons become “easier”, while (after perhaps a slight increase in the remainder of 2009) we expect core inflation to decline further in 2010. The Fed forecasts price indexes for personal consumption expenditures (PCE) rather than the consumer price index, so we see the core PCE inflation metric as the most important.

3. Stable inflation expectations. A significant increase in inflation expectations could push the Fed to tighten even if actual growth or inflation remained on the weak side. In fact, a big move in inflation expectations in either direction would probably trump other indicators in terms of the influence on Fed policy. A case in point is the sharp decline in market-based inflation expectations in late 2008, which coincided with much more aggressive Fed rhetoric (including the statement that the FOMC would use “all available tools” to restore growth) and actions (the initiation of asset purchases in late November and expansion in March).

In our view, the most important indicators of inflation expectations are longer-term measures of breakeven inflation (the difference between the yields on nominal and inflation-protected Treasury securities; inflation swaps provide a slightly ‘purer’ alternative metric with fewer liquidity issues) and household expectations of inflation. In the case of breakeven inflation, the five-year, five-year forward measure is commonly used. In the case of household expectations, the longstanding University of Michigan measure of median 5-10 year inflation expectations is probably foremost.

After these two measures, the next is probably the long-term inflation expectations captured in the Philadephia Fed’s Survey of Professional Forecasters. We view forecasters’ expectations as slightly less important, as they generally lag a bit and the channels through which they affect actual inflation are less direct. In any case, longer-term market-based expectations are slightly above their average of the past few years while survey-based inflation expectations are slightly below. In short, inflation expectations are low and fairly stable at the moment.

Some Fed officials may also view the value of the US dollar or commodity prices (particularly gold) as containing information about inflation expectations, or about future inflation. It is more difficult to calibrate exactly how “out of whack” these variables are, and we very much doubt that they alone would prompt a change in Fed policy. However, large moves might be a contributing factor to a change in rhetoric if they accompanied modest changes in market- or survey-based measures of inflation expectations.

Key Measures of Resource Utilization, Inflation, and Inflation Expectations


Criteria for "exceptionally low" rates	Current level (%)	*Long-term avg. (%)**	Deviation (std. dev)**


Low resource utilization
Output gap	-6.3	0.0	-2.4
Unemployment rate	9.8	5.9	-2.7
Housing vacancy rate (year-round)	10.9	8.0	-2.3
Industrial capacity utilization	70.5	81.1	-2.7

Subdued inflation trends

2-Year Swap Spreads as Leading Indicator

2009-09-25T05:13:00.000-07:00

Homework Sheet Sample

2009-07-31T09:29:00.000-07:00

Short Video on Delta Divergences and MP

2009-07-25T08:21:00.000-07:00

http://www.screencast.com/t/RNhs2SgjjrA

RGR 3/10 Osc

2009-07-18T07:20:00.000-07:00

[LegacyColorValue = true];
Inputs: Price(Close), Avg1(3), Avg2(10), Avg3(16), StdDsp(1), UpColor( DarkGreen), DnColor( DarkRed), ZeroColor( Red ); IF Currentbar>30 Then Begin IF StdDsp=1 Then Value1=Average(Price,Avg1)-Average(Price,Avg2); IF StdDsp<>1 Then Value1=Average((Price-(Average(Price,3)[3])), 2);
Value11 = value1;
Value2=Average(Value1,Avg3);
Plot1(Value1,"3/10Line"); Plot2(Value2,"16Line"); Plot3(0,"ZeroLine", DarkGray ); plot4(Value11,"3/10Line_2", DarkGray); { Color criteria }
if Value1 >= 0 then SetPlotColor(1,UpColor);if Value1 <= 0 then SetPlotColor(1,DnColor);
End;

When a 'joey', is not JUST a 'joey' - Why HOMEWORK is good!

2009-07-17T11:20:00.000-07:00

1) Daily downtrend is undergoing retracement.
2) After 3-4 pushes, momentum slows and price coils at Fib retracement, which also happens to be monthly High Volume Node and can see pocket on daily chart.
3) 240m and below hit low-adx zone during this 'balancing'.
4) If you want to read into MP shapes, Monthly 'P' profile indicates just short covering.

get ready....

5) 7/13/08 sneaky lunchtime move. 11:30am 5m chart breaks to downside after clearing some stops above.
6) 15m gets momo after 240m breakdown zone!
7) Is the 5/15 setup good for retest only?? NOT IN THIS CASE
8)...it's good for daily timeframe move with r/r around 100!!

any future value??...sure...watch to see if daily bear flag sets up some follow through ;)

comparison of S&P 500 vs some Fixed-Income ETF's

2009-07-01T20:21:00.000-07:00

I picked the well-known Lehman Aggregate Index as starting point. Then added the two primary ETFs with same duration as the Aggregate Index (4 year durations) so that apples-to-apples comparison.

The Aggregate Index ETF is: AGG

The Pure-Treasury 4-Year ETF is: IEI

The I-G Corporate 4-Year ETF is: CIU

(note all of the above ETF's, including the S&P 500, add back dividends paid to create Total Return charts)

S&P Futures: High to Low Days vs Low to High Days. Frequency Count By Month

2009-07-01T05:41:00.000-07:00

Lately, Not Getting Range Move in Afternoon Like Long-Term

2009-06-29T05:55:00.001-07:00

Range of Value Area as proxy for Trading Conditions

2009-06-29T05:46:00.001-07:00

Some Charts on Volatility

2009-06-28T10:00:00.000-07:00

Note that the Dollar Value of Range is below 2008 levels because while VIX much higher than those months in 2008, the index is much lower so higher % is actually less in dollars.

This next chart shows that VIX has every year since 1990 traded under 19 at some point during the year --- and many years less than 15. This is not a forecast --- just a hope that history changes and we are not headed there anytime soon as that would imply even worse dollar value of range.

How Often does First 2 Hour high or low 'made first' hold for rest of day??

2009-06-28T08:12:00.001-07:00

Goldman Sachs Basic Economic Forecast Update

2009-06-15T05:53:00.000-07:00

2009-06-09T09:17:00.000-07:00

Trade Update: Go Long EUR/$ to Take Advantage of the Dollar Correction June 9, 2009

7:24 AM Tue Jun 9 2009

The Dollar has appreciated recently on the back of higher risk aversion. We think this offers a good entry point to go long EUR/$. We see 5 drivers for dollar weakness in the near to medium term:

1) The recovery in global growth expectations is leading to a broader pick-up in risk appetite and a normalization in money markets as our Financial Stress Index continues to highlight. Lower money market rates and reduced dollar funding pressures reduce safe haven Dollar demand and allow Dollar depreciation.

2) Related to the previous point, we expect commodity prices to continue to rise. With the oil-Dollar correlation re-emerging we think that higher commodity prices will lead to a weaker Dollar. As we have shown in the past, the causality typically tends to run from commodity prices to FX.

3) Throughout this recovery in global growth, the US is likely to underperform in terms of domestic demand as the US consumer is adjusting its level of spending lower (and its savings rate higher). The US output gap is estimated to be among the largest of any major country.

4) Together with weaker domestic demand, the FED will likely be more aggressive with monetary easing than the ECB, thus creating conditions for a weaker USD. The rather hawkish tone of the ECB last Thursday supports this argument.

5) The continued talk about the SDR as a new synthetic reserve currency undermines confidence in the currently dominating reserve currency, the Dollar. Note that the SDR basket only contains about 40% USD (37% for the EUR) compared to the current share of about 60% (30% for the EUR) in EM central bank reserves globally. Finally, talk about BRIC countries invoicing their international trade in each other's currencies further questions the future of the Dollar as reserve currency. While be believe that changes are a long way off, these reserve related factors add to the Dollar negative sentiment.

The timing is now opportune for new EUR/$ longs. Driven by the improvement in the rate of global growth, the market has been very aggressive in terms of pricing tighter monetary policy in the US. However, we disagree with this market movement. We think the level of growth will remain below trend and US rates will be kept low for a considerable period of time. If and when expectations for tighter Fed policy get scaled down, the Dollar will likely come under renewed pressure. In addition, our GS Sentiment Index indicates that the speculative long position that had built up in EUR/$ over the last few weeks has been completely washed out.

Finally, despite the fact that the EUR/$ has appreciated sharply, the EUR TWI has been more stable due to relative EUR weakness relative to peripheral currencies, in particular the Pound. This has allowed overall financial conditions in Europe to ease over the last few months as our Eurozone FCI also indicates, mostly due to equity markets strengthening. EUR/$ strength has therefore been much less of a growth hurdle.

We would go long EUR/$ with a stop on a close below 1.3720 for an initial target of 1.45.

GS FX Research

Daily Range / First Hour Range

2009-06-08T09:48:00.000-07:00

Initial Balance (IB) = First Hour Range

Chart1: ES Day Session

91% of days have a range >= 1.3 IB

82% of days have a range >= 1.5 IB

14% of days have a range >= 3.2 IB
etc.

Median daily range = 2.1 IB

Highest range in sample: 11.5 IB

Chart2: Crude Day Session

92% of days have a range >= 1.3 IB

82% of days have a range >= 1.5 IB

19% of days have a range >= 3.2 IB
etc.

Median daily range = 2.1 IB

Highest range in sample: 9.5 IB

Soybeans: recent Made First and Made Last times

2009-06-04T04:44:00.000-07:00

The letters are the standard Market Profile characters for each 30-minute bar
i.e.
D = 9:30 – 10:00am CT
E = 10:00 – 10:30am CT
etc.

Crude Oil: recent Made First and Made Last times

2009-06-03T04:37:00.000-07:00

The letters are the standard Market Profile characters for each 30-minute bar
i.e.
A = 9:00 - 9:30am ET
B = 9:30 – 10:00am ET
C = 10:00 – 10:30am ET
etc.

Incorporating RF As Aid To Determine Structure

2009-05-25T07:57:00.001-07:00

Interesting Chart

2009-05-17T08:58:00.000-07:00

Largest Detractors From 2008 S&P 500 Earnings Per Share

2009-05-11T15:01:00.000-07:00

ES volume and range vs 1st 30-min bar

2009-05-08T02:29:00.001-07:00

The letters are the standard Market Profile characters for each 30-minute bar
i.e.
B = 9:30 – 10:00am ET
C =10:00 – 10:30am ET
etc.

Inflation

2009-05-07T05:49:00.000-07:00

April 28, 2009: Chart From Goldman Sachs Re Total Home Inventories

2009-04-28T15:34:00.000-07:00

Number of 'B Made First' By Month

2009-04-09T05:49:00.000-07:00

One Mortgage 'Product' Example -- 7 Year Fixed - Floats for Remaining 23 Years

2009-04-09T05:20:00.001-07:00

Don Millers Trading SetUp

2009-04-08T16:47:00.000-07:00

Black Swan Pattern

2009-04-06T11:57:00.000-07:00

2009-04-06T09:15:00.000-07:00

face ripper [fays rip-per] -noun 1. a

market advance with extreme intensity, so much so that it takes skin and hair along with it

from the facial area. Difficult to detect in advance, but upon arrival the feeling is

instantaneously recognized. 2. a common situation typically experienced by those that are

"short in the hole".

Bonds vs Stock Returns

2009-04-06T05:09:00.000-07:00

Newbie's Guide to LBR

2009-03-27T17:56:00.000-07:00

First things first...this is a member-prepared guide, not an official LBR Group post. It is simply one member's perspective on things he would of liked to have known on day one of his membership.

Ok...for starters...your number one priority should be to learn Linda's approach to the markets, not to simply wait for room calls, nor to focus on the chat in the Open Forum. You have multiple resources available to accomplish this (I'm assuming you've already installed the Chat tools from https://www.lbrgroup.com/index.asp?page=FuturesLive):

Linda's Presentations - https://www.lbrgroup.com/index.asp?page=WebinarFiles
Trade Setup Library - https://www.lbrgroup.com/index.asp?page=TradeSetupLibrary
FAQ on Terminology - http://www.lbrgroup.com/index.asp?page=FAQ
Linda's Articles - https://www.lbrgroup.com/index.asp?page=Articles
Class Transcripts - https://www.lbrgroup.com/index.asp?page=ClassTranscripts

The above list is how I would personally prioritize reviewing LBR's material. The prioritization is subjective of course, but the point is that you should get to it as quickly as possible to maximize the utility of your stay with LBR. There is a lot of other material on the LBR site, and you should at least glance at all of it, but this is a good starting point.

A couple of other resources worth mentioning include this blog, where you can search for examples of various setups, ideas, statistics, etc., posted by members. The blog is searchable by topic via the list on the right-hand side of the page. The other key resource for your learning is 'The Lounge', a room that is open to all members, and is usually inhabited after the close, and over the weekends. The Lounge is probably the single best spot to ask LBR-related questions to other team members in a relaxed and informal setting.

Also...some tips from fellow members that you should keep in mind...

The room is filled with some very experienced traders, trading their own particular styles, some based on LBR principles...some not. Don't get caught up in the Open Forum...it's a great resource for learning from other people, but you must focus on learning Linda's approach (that is why you are here isn't it?), and developing you own style from that.

Don't expect to join the room, sit back, and just take trades based on room calls...and somehow become a trader along the way. Room calls are a learning resource, and can result in some nice pocket change, but you need to do the work yourself to get anywhere. My observation is that it takes about a year to fully absorb the material.

Focus on ONE pattern at a time. A common mistake many traders make when joining LBR, is to immediately try to trade every pattern they see. You are MUCH better off mastering one setup at a time, before moving on to the next one.

I wouldn't recommend blowing your capital while climbing the learning curve. Use enough to keep you mentally engaged, or better yet, just use simulations if that works for you. At least until you have enough knowledge to keep yourself out of trouble.

Remember to read the Opening Play at https://www.lbrgroup.com/index.asp?page=Members every day, before the start of the trading session.

I am sure that there is more to tell, but this is at least a solid departure point. Be sure to ask a lot of questions, as long as you are respectful of other members' time. Focus, study, and put the work into it and you will become a better trader!

One final reminder... it's the concepts that matter more than the setups (market structure, day type, momentum, etc.)!

Welcome Aboard!!

2009-03-26T05:18:00.000-07:00

2009-03-25T07:32:00.000-07:00

2009-03-23T10:33:00.001-07:00

Oh Those 'Dumb Foreign Buyers of US Treasuries' ? Uh, no

2009-03-23T08:34:00.001-07:00

Comments From Goldman Sachs Re Fed Policy

2009-03-19T03:59:00.000-07:00

US Daily: The Ps and Qs of Unconventional Easing (Tilton)

7:58 PM Wed Mar 18 2009

h The Fed offered a kitchen sink of “unconventional easing” measures today including commitments to purchase up to $1.15 trillion of Treasury and agency securities. We view this as a positive step towards easing financial conditions and supporting the eventual stabilization and recovery of the economy.

· Last week, we estimated that it would “cost” the Fed $1 trillion to $1.6 trillion of balance sheet expansion to generate an unconventional easing in financial conditions equivalent to a 100bp cut in the funds rate. Today’s announcement and consequent move in the GS Financial Conditions Index implies a “bang for the buck” of about $1 trillion per 100bp-equivalent easing, although it is too early to judge the full impact of the move.

· As we noted last week, the key caveat of our balance-sheet-to-funds rate analysis was that it focused only on “P”—the price of credit—rather than “Q”—the quantity of credit. That emphasis is appropriate for the measures the Fed offered today. However, the Fed is also trying to increase the flow of lending directly, via the Term Asset-Backed Securities Lending Facility (TALF) program. Officials are so optimistic about this approach that they have hinted via media reports at a second major expansion of the concept (to include legacy assets) before the first subscription period has even been completed.

· To gauge the possible “bang for the buck” of the Fed’s attempt to boost the “Q” of credit via TALF, we estimate the potential impact on auto loan volumes—and ultimately on sales and GDP. As a best-case scenario, we consider the possibility that issuance of auto-related ABS returns to the average rate over the 2006-2008 period. If all of the incremental issuance translated into new lending, and new lending translated one-for-one into domestically manufactured vehicle sales, this would boost GDP by roughly 0.5% at a balance sheet cost of less than $100 billion. This implies that the TALF approach could be an order of magnitude more efficient (from a balance sheet standpoint) than the approach of buying assets to lower credit spreads. However, unlike with asset purchases, the ability to scale the TALF is constrained by banks’ willingness to lend and the ultimate end demand for borrowing.

The Fed offered a kitchen sink of “unconventional easing” measures today: a stronger commitment to a zero funds rate, an expansion of agency debt purchases by $100 billion and of agency mortgage backed-securities purchases by up to $750 billion, and a commitment to buy up to $300 billion of Treasury securities. Although we thought the Federal Open Market Committee would ultimately take these actions, doing them all at once and in large size sends a clear message that the Fed recognizes the downside risks to economic activity and is determined to mitigate them as much as possible. We view this as a positive step towards easing financial conditions and supporting the eventual stabilization and recovery of the economy.

Last week, we estimated that it would “cost” the Fed $1 trillion to $1.6 trillion of balance sheet expansion to generate an unconventional easing in financial conditions equivalent to a 100bp cut in the funds rate (see “Unconventional Easing—Not Much Bang for the Buck So Far,” US Daily, March 10). Today’s action by the FOMC gives us another data point for our analysis. Given the size and broad market implications of the announcement, we can simply look at the total move in the GS Financial Conditions Index (GSFCI) and convert it to a funds-rate equivalent (for more on the GSFCI, see our “Understanding US Economic Statistics” publication, pp. 15-17).

On the day, the GSFCI eased 41 basis points, equivalent to 117 basis points of Fed easing (given the 35% weight of the short-term reference rate in the GSFCI). With a total “cost” of $1.15 trillion in asset purchases, this implies a cost of just under $1 trillion per 100 basis points of conventional Fed easing—at the low end of our previously estimated cost range of $1 trillion-$1.6 trillion, and hence at the high end in terms of “bang for the buck.” (The true cost might be smaller, and hence effectiveness greater, if asset markets partly anticipated the move today, although our sense from media reports and conversations with clients is that most market participants did not expect a major announcement; any “consensus” for balance sheet expansion would have been in the low hundreds of billions at most.) Of course, it’s a bit early to definitively judge the impact of the Fed’s action, as the purchases under this program have not yet begun.

As we noted at the time, the key caveat of our balance-sheet-to-funds rate analysis was that it focused only on “P”—the price of credit—rather than “Q”—the quantity of credit. That emphasis is appropriate for the measures the Fed offered today, since they do not directly generate new lending but simply provide an incremental source of demand for debt securities.

However, the Fed also is trying to ease balance sheet constraints and increase “Q”—the flow of lending—directly, via the Term Asset-Backed Securities Lending Facility (TALF) program. Broadly speaking, this is an effort to restart the securitization process by providing low-cost, non-recourse funding to investors who purchase asset-backed securities (ABS) that meet the Fed’s requirements. Officials are so optimistic about this “private capital, public leverage” approach that they have hinted via media reports at a second major expansion of the concept (to include legacy assets) before the first subscription period has even been completed.

To gauge the possible “bang for the buck” of the Fed’s attempt to boost the “Q” of credit via TALF, we estimate the potential impact on auto loan volumes—and ultimately on sales and GDP. As a best-case scenario, we consider securitization of auto-related ABS returning to the $73bn annual rate it averaged over the 2006-2008 period, from essentially zero in recent months. If this additional issuance translated dollar-for-dollar into new lending—an aggressive assumption, especially since issuers could begin by securitizing loans made in the last 18 months—and all of that represented incremental spending on domestically manufactured vehicles, the boost to GDP would also be $73bn, or 0.5%. (Keeping ABS issuance at that level would continue to support the level of GDP, but would not provide any further growth.) Of course, this incremental easing of credit conditions would not show up directly in the GSFCI, again because it measures financial conditions in price rather than quantity terms.

This example, vastly oversimplified though it is, makes two points clear. First, unconventional easing that actually generates a higher volume of lending—i.e. the “Q” approach to credit easing that the TALF is pursuing—has the potential to have much higher “bang for the buck.” A 0.5% boost to GDP from $73bn of balance sheet expansion (actually a bit less, since the investor has a small equity stake) would imply nearly a 7% boost to GDP from $1 trillion in balance sheet expansion—an order of magnitude higher than our FCI calculations for “P” approaches suggest. Second, however, the extent to which the Fed can employ the “Q” approach is quite constrained: there is only so much end demand, and banks are only willing to lend so much even at a very low cost of funds. Conversations with several market participants suggest that the actual impact of the TALF on auto ABS issuance is likely to be significantly smaller than our “best case” scenario above. Also, auto loans are probably the area where incremental lending translates most clearly to spending, since most vehicles are bought on credit. So while the TALF approach is potentially highly efficient, it remains to be seen how scalable it will be.

Andrew Tilton

Summary of Goldman Sachs Economic Research (Hatzius & McKelvey)

2009-03-16T05:42:00.000-07:00

1. Real GDP is falling rapidly, but we expect it to

stabilize by about mid-2009. The main reason for

the stabilization is the recently enacted fiscal stimulus,

which should help many households continue to boost

saving without cutting real spending much further.

We think this stimulus will add about 3 percentage

points to the annualized change in real GDP (relative

to a baseline of continued contraction) during the

middle two quarters of 2009. We also expect

residential investment to level out after a long slide

that has cut this industrys output by more than half.

2. However, the timing of the bottom in real GDP is

highly uncertain, and recovery, when it does begin,

will be anemic. Persistently high levels of claims for

unemployment insurance (both initial filings and

ongoing payments) underscore the strength of the

negative multiplier dynamic, which could short-circuit

any upturn in consumer spending; the other downside

risk is that we may underestimate the degree to which

consumers will cut back spending to achieve saving

objectives. As for recovery, the private-sector forces

that have usually driven strong cyclical rebounds

vigorous housing recovery, consumer spending on

durable goods, rapid rehiring, and the inventory

cycleall face significant challenges in the current

environment. Without them, the economy will have

difficulty sustaining growth, especially since we think

the fiscal stimulus now in place will fade out during

2010.

3. As a result, the unemployment rate should reach

10% by year-end 2010. We expect the same type of

jobless recovery pattern as occurred in the past two

business cycles, when companies held off hiring fulltime

workers until increases in demand were well

established. This behavior undercuts recovery, greatly

lengthening the lag between troughs in real GDP and

peaks in unemployment.

4. Deflation is a much bigger threat than inflation,

at least for the next few years. Although sharply

expansionary fiscal and monetary policies have caused

many market participants to worry about inflation,

these concerns miss the point that the policies have

been undertaken to combat a large and growing gap

between actual and potential output. Under any

reasonable economic scenario, the output gap will

peak at an extremely large level8% to 10% of GDP

or moreand thus require years of above-trend

growth to eliminate. Given this prospect, we expect

year-to-year inflation in the core index of consumer

pricesnow about 1½%to cross through zero by

late 2010 if not before.

5. Monetary tightening is highly unlikely before the

end of 2010. Given our inflation outlook, we think

most members of the Federal Open Market Committee

will look for three conditions before raising the federal

funds rate from its current 0-25 basis point range: (a)

job market stability, defined as confidence that the

unemployment rate has peaked or will do so shortly,

(b) housing market stability, defined as a reduction in

unoccupied units large enough to reduce the pace of

decline in home prices, and (c) financial market

stability, defined as you know it when you see it.

6. The yield curve remains steep. Although we do

not think inflation worries will prove justified, they

will undoubtedly persist in financial markets and even

be reinforced whenever commodity prices jump in

response to global recovery or expectations of it. This

plus an extraordinarily heavy volume of Treasury

issuance is apt to keep the yield curve steep even as

Fed officials keep short-term rates extremely low.

My wave count

2009-03-12T10:59:00.001-07:00

Goldman Sachs Note

2009-03-12T05:15:00.001-07:00

Market Profile View of Z-Day

2009-03-11T14:14:00.001-07:00

Feel free to comment with any corrections. Newbie perspective here.

Cleon

Cleon - this is my take on yesterday's action:
(similar to yours, but from a slightly different perspective)

SRS

Tick To Minutes Histogram EL Code

2009-03-11T05:27:00.000-07:00

if (BarType = 0) then begin { tick bars }

end;

if date = date[1] then begin

value1 = (TimeToMinutes(time)-TimeToMinutes(time[1]));

if value1<=15 then plot1(value1,"tick time");

if value1>15 then plot2(15,"15");

plot3(5,"5");

end;

{to not distort the chart, any reading higher than 15 mins gets set to 15-minutes -- so really slow markets will be slightly overstated 'down' to 15 minutes}

Bear Market Year, Still Plenty of Low to High Days

2009-03-10T05:28:00.000-07:00

2009-03-07T10:24:00.000-08:00

I made a cheat sheet for the some of the 'standard' MP setups that are out there.

Cleon

Thinking About VIX in relationship to return (close to close daily return) and high to low range

2009-03-05T16:15:00.000-08:00

Meaning of this chart:

As a general rule, once the market does its 'range' -- the odds are that price will recover by the close to something significantly less than which VIX implies. But beware, this is a frequency distribution -- meaning that while you have odds of recovering back towards the previous days close, when it does not -- you could have a large move relative to what VIX implies (fat tail risk). Notice the more symmetrical shape (though still skewed) of the relationship of Range and VIX Implied Vol vs the fat-tailed 'close to close return' relationship with VIX Implied Return.

Goldman Sachs Now Expects Q1 GDP of -7%

2009-03-02T23:08:00.000-08:00

US Daily: Sharper Near-Term Correction Leads to 10% Unemployment by Year-end 2010 (McKelvey)
5:58 PM Mon Mar 2 2009

We have marked down our forecast for US economic activity in the first half of 2009; we now expect real GDP to fall at annual rates of 7% this quarter and 3% next quarter (versus declines of 4½% and 1% previously).
· The good news is that the bulk of this change is in business investment, which typically lags other sectors of the economy. Meanwhile, the steepest decline in consumer spending appears to be behind us. However, since this is already built into our forecast for remaining quarters, no further adjustments to our GDP outlook appear warranted at this time.
· As a result of the additional near-term weakness, we have boosted our expected path of the unemployment rate, to 9½% by year-end 2009 and 10% by year-end 2010; both figures are ½ point above the previous forecast. We have also marked down our estimates for the year-to-year change in consumer prices, to 1% by year-end 2009 (from 1.2% previously) and zero by year-end 2010 (from 0.5% previously).

As we noted in last Friday’s US Economics Analyst, the risks to our expectations for near-term US economic activity swung sharply to the downside last week as a result of four developments: (1) a larger-than-expected downward revision to last quarter’s setback, featuring markdowns to several components of domestic demand including a big one (0.8 percentage points) to the annualized decline in real consumer spending; (2) fresh signs of weakness in industrial activity, notably in orders for and shipments of nondefense capital goods; (3) further evidence of a sharp correction in housing activity; and (4) ongoing deterioration in the labor market, implying that the negative multiplier remains in full force. However, with several key reports due for release this morning, we held off making revisions until today.

Although these reports rendered a split verdict, downward revisions are still warranted to our expectations for US economic activity in the first and second quarters. Specifically, we now think real GDP will fall at a 7% annual rate this quarter and at a 3% annual rate next quarter. These figures compare to -4½% and -1% in our previous forecast. Quarterly details of this and other adjustments, also described in this note, are shown in the exhibit at the end of this comment.

As large as these changes are, they could have been worse if not for the mixed nature of this morning’s data. The saving grace was the 0.4% increase in real consumer spending reported for January. Although this could disappear on revision, it is the second gain in three months. The uptick in November, while only about half as large as first reported, remains reasonably sizable at 0.3% (3.6% at an annual rate). More significantly from a forward-looking perspective, consumers will begin to see some benefits from the recently enacted fiscal package, which should help ease the tight budget constraints imposed by the labor market deterioration. In addition, the tightening in credit standards during the second half of 2008, which probably played a significant role in the contraction in consumer spending, has since eased.

Thus, we take the better-than-expected data on consumer spending as a promising sign that the worst declines are over in this sector—we now think real spending will be roughly flat this quarter and start edging up next quarter, a bit earlier than before. In this regard, it is noteworthy that the saving rate rose to 5.0% in January from an upward-revised 3.9% level in December. Although this jump reflected two nonrecurring special adjustments to disposable income in January, both of them (a large cost-of-living increase in social security benefits and an even larger reduction in estimated personal income tax liabilities) represent genuine, if one-off, increases in after-tax income. Moreover, in coming months they will be replaced by additional boosts from the fiscal package, as already noted. For households who are determined to raise their saving rates quickly, these boosts will help them reach their goals with less parsimony than would otherwise have been required.

On the negative side of the data ledger, the latest report on construction outlays was much worse than expected, both in terms of the change reported for January (-3.3% versus our lower-than-average -2.0% call) and because of large revisions to November and December (2.3 and 1.0 percentage points, respectively). Although these data largely get ignored by market participants because they usually come out alongside the ISM report, they are quite important for pegging the trend in the construction components of real GDP. Given the depth and widespread nature of these declines across (residential, business, and government) subsectors of the construction industry, they overrode the positive implications of the better-than-expected consumer spending figures. (The ISM report, while also better than expected, implied an ongoing significant decline in US manufacturing and in any event does not figure directly into the GDP “bean count.”)

On balance, the pattern of recent data surprises and their impact on our economic outlook is encouraging in the sense that our forecast adjustments are concentrated in sectors that tend to lag economic activity. Thus, we have marked down estimates for real business fixed investment and real inventory investment, taking on board the unexpected weakness in capital goods orders and shipments as well as today’s construction data. Meanwhile, we have brought forward by one quarter the expected stabilization and subsequent slow improvement in real consumer spending (into the current and next quarters, respectively). The exception is housing, which appears to be even a larger drag in the current quarter than we had anticipated. However, given the low levels to which starts have fallen, we continue to think that homebuilding will stabilize later this year.

Unfortunately, our GDP revisions have negative implications for both unemployment and inflation. Specifically, we have boosted the profile for the unemployment rate to 9½% as of the end of 2009 and 10% as of the end of 2010. Both figures are ½ percentage point higher than before. (For the technically minded readers, our cumulative revision to GDP is about 1 percentage point as of the second quarter, which by Okun’s Law should be associated with an unemployment that is about ½ point higher). On the inflation front, we now expect the core CPI to rise only 1% over the four quarters of 2009 and to be flat, on balance, over the four quarters of 2010; these figures are ¼ and ½ percentage point lower than we previously thought.

With one critical caveat, the silver lining in these clouds is that unemployment and inflation are generally also lagging components of economic activity. (Unemployment leads at business cycle peaks but lags at cycle troughs.) The caveat is that the forecast revision underscores the likelihood that the US economy will endure a bout of at least mild deflation in consumer prices, if not in 2010 then in the period immediately beyond that. This is fundamentally different than the “technical” deflation we expect this year in the headline indexes, which is driven by a sharp and (so far) unsustained drop in energy prices. In principle, deflation can be self-reinforcing if price expectations are backward-looking. In this situation, consumers put off discretionary spending in anticipation of increases in real purchasing power and higher real interest rates—inevitable in markets where nominal rates are already zero—deter borrowing. However, if expectations are sufficiently forward-looking, then economic policies that are highly expansionary should head off such behavior, especially if the economy is showing signs of recovery.

Ed McKelvey

Exhibit 1: Key Numbers in the US Economic Outlook

10-Year Notes: recent HoD and LoD times (7am - 3pm CT)

2009-03-02T01:44:00.000-08:00

Chart 1: Frequency distribution of High of Day (HoD) and Low of Day (LoD) in each 30-min bar

Chart 2: Frequency distribution of HoD and LoD in each 30-min bar on High Made First days

Chart 3: Frequency distribution of HoD and LoD in each 30-min bar on Low Made First days

The letters are the standard Market Profile characters for each 30-minute bar
i.e.
y = 7:00 - 7:30am CT
z = 7:30 – 8:00am CT
A = 8:00 – 8:30am CT
B = 8:30 – 9:00am CT
etc.

2009-02-26T16:54:00.000-08:00

2009-02-22T06:52:00.001-08:00

2009-02-22T06:51:00.000-08:00

Slingshot Example

2009-02-12T13:40:00.000-08:00

From Igster...note the channel/creeper mode where the slingshot tends to play in.

Sample VIX implied range indicator

2009-02-11T13:00:00.000-08:00

EL Code:

inputs: VIX(47);

value1=squareroot(252);

value2=(VIX/100)/value1;

value3=closed(1)*(value2*1.0);

value4=highd(0)-lowd(0);

value10=closed(1)*(value2*1.0);

value11=closed(1)*(value2*0.7);

value12=closed(1)*(value2*1.3);

{note, below uses west coast times (ie, 634 am is 934am EST}

if time > 634 then

Plot1(value4,"+Range");

if time > 634 then

Plot2(value10,"1.0");

if time > 634 then

Plot3(value11,"0.7");

if time > 634 then

Plot4(value12,"1.3");

ES Range vs. Vix Implied Range

2009-02-10T09:43:00.000-08:00

Using VIX to Estimate (Ballpark) Next Days S&P range

2009-02-08T08:02:00.001-08:00

fyi, actual range has exceeded VIX derived range expectation since 1/1/08 ~60% of time.

Single Prints

2009-02-08T04:02:00.000-08:00

Single Prints - Recent Examples in ES (PDF file)

Recent Stats of When Highs and Lows Made (Since Market Low thru end of Jan)

2009-02-01T09:11:00.000-08:00

Big Volume Node To Deal With

2009-01-27T06:16:00.000-08:00

possible rhythm

2009-01-26T06:29:00.000-08:00

Taken From Goldman Sachs Research Note

2009-01-26T05:07:00.000-08:00

A Significant “Daily Reversion” Pattern is Now Apparent in US Equity Returns

Peter Berezin

January 26, 2009

When the Short-term Trend is Not Your Friend
It is often argued that equity markets are ‘trendy’. Indeed, over the past century, daily returns on the S&P have had a slight positive correlation. That is, the market has tended to do better if the previous day’s return was positive. However, this correlation in daily returns has shown a notable pro-cyclical bias. It is has tended to be positive during bull markets and negative during bear markets.

This has been particularly apparent over the past year. Since the start of 2008, the S&P has declined by 43%. Yet, if one only held the market on days following a down day, one would have earned a cumulative return of 36% (ignoring transaction costs and interest earned on days when one is out of the market). In contrast, if one only held the market on days following an up day, the cumulative return would have been -58%.

In terms of daily (close to close) returns, the average return since the start of 2008 following down days has been 0.28% while the average return following up days has been -0.62%, a daily difference of 91 bps.

Since October, this pattern has become even more pronounced. The average daily return following down days has been 0.24% compared to -1.06% following up days, a difference of 129 bps.

Interestingly, despite the stabilization in equity markets over the past two months, the anomaly has only increased. Since December 1^st, the average return following down days has been 1.15% compared to -1.24% following up days.

Other US indices such as the NASDAQ Composite have shown a similar pattern. Outside the US, however, the pattern is less discernable. It is fairly pronounced for the FTSE but does not appear to show up for either the DAX or the Nikkei.

Nevertheless, even though the pattern is less noticeable in non-US indices, it still seems to significantly affect non-US stocks traded in the US. For example, the difference in daily returns depending on whether the previous day’s return was positive or negative is even greater for the MSCI EM ETF than for the S&P. Indeed, the MSCI Japan ETF shows a large differential in returns – 91 bps – even though the Nikkei itself shows no such pattern.

What’s Going On?
How can one explain this? Part of the explanation seems to be quite straightforward. As mentioned above, the correlation in daily returns has tended to be negative in bear markets and positive in bull markets. As such, what we saw in 2008 was a return to what we saw in 2002-03. Intuitively, it appears that investors overreact to large swings in stock prices during bear markets, with the result that good days are followed by bad, and vice versa. In this respect, tracking the evolution of this correlation in daily returns is important from a market timing perspective, because it has historically helped to confirm a bottom in equity markets.

However, the magnitude of the negative correlation in daily returns that we are seeing now seems to be much greater than in past bear markets (indeed, it is even greater than during the Great Depression). This suggests other technical factors are at work. What they are is not clear, but they most likely have to do with the changing microstructure of US equity markets. This may have to do with shifts in leverage, positioning, or the behavior of index tracking ETFs – especially of the leveraged variety.

First Page of ADX chapter from Wilders 1978 book

2009-01-24T06:53:00.001-08:00

Highest 5-Min ADX Final 90 Minutes -- Last 7 Years (1751 Days)

2009-01-23T19:08:00.000-08:00

ES - Time of daily highs and lows (updated)

2009-01-16T01:24:00.000-08:00

These stats confirm what Linda teaches about Taylor: reversals typically occur in the morning and most days trade from low-to-high or from high-to-low.

As such, they are useful if your trading style is focused on capturing the main theme of the day (they are of less importance if you are a TTF scalper).

The statistics can give you the confidence to stay with a trade, or to get in to a trade midway through the day and play for an afternoon new HoD / LoD.

However, the stats are not the holy grail. They must be put into context, which for me means considering:

Where are we in this auction (i.e. how many days have we traded high-to-low or low-to-high)
The strength of the current auction
Price action vs the Previous Day High (PDH) / PDL and the Open
Price action vs significant support / resistance areas
etc etc.

Chart 1: Frequency distribution of High of Day (HoD) and Low of Day (LoD) in each 30-min bar.

Chart 2: Frequency distribution of HoD and LoD in each 30-min bar on High Made First days.

Chart 3: Frequency distribution of HoD and LoD in each 30-min bar on Low Made First days.

Chart 4: Number of 30-min bars between HoD and LoD

The letters are the standard Market Profile characters for each 30-minute bar
i.e.
B = 8:30 - 9:00am CT – the first 30-min bar for ES
C = 9:00 – 9:30am CT
D = 9:30 – 10:00am CT
etc.

(n.b. The letters were the original half-hour time codes at the CBOT)

SRS

links to videos of the joey setup

2009-01-10T08:13:00.000-08:00

http://www.screencast.com/t/P7Pdms4kq0
http://www.screencast.com/t/BeSN0Mxkg
http://www.screencast.com/t/jb9Hcprah1k
http://www.screencast.com/t/5UZB0bO36vW

video test

2008-12-21T15:34:00.000-08:00

5-Year Yield

2008-12-18T06:24:00.000-08:00

5-Year Yield on a third push down after breakout. An A-B-C corrective reaction up from this would be textbook.

SRS

Taylor days – post game analysis

2008-12-06T08:44:00.000-08:00

Doing some end of week analysis I was struck by the similarities between the Sell Short Day on Thursday (Dec 4th) and the Buy Day on Nov 21st.

Rather than being classic Taylor days (failed test followed by a swing in the other direction) the coils that formed on these days made them more difficult to read at the time, at least for me.

(Though the market had clearly failed to get any momentum beyond the previous day's range, in both cases the Opening Price was holding and Value was being built in the direction of prior two days.)

The attached charts show the similarities between these two days and the subtle clues that showed the auction had indeed changed direction (before the breakouts).

Chart1: Sell Short Day (December 4th)

Chart2: Buy Day (November 21st)

n.b.
LMF = Low Made First
HMF = High Made First
OP = Opening Price
VA = Value Area
PDL = Previous Day Low
PDH = Previous Day High

SRS

2008-11-26T05:06:00.000-08:00

Rick Bookstaber Blog Re-Print (note the date):

THURSDAY, AUGUST 23, 2007

Can high liquidity + low volatility = high risk?

Lower volatility can mean higher risk. Here is how I think we get to this paradoxical result.

With the growth of hedge funds over the past few years, more and more capital has been scavenging for alpha opportunities. When anything moves a little out of line, there is plenty of money ready to pounce on it. That is, there is more liquidity. And this is great for the liquidity demanders – for example a pension fund that has to invest a recent inflow – because they don’t have to move prices very far to elicit the other side of the trade. And that means lower price volatility.

The lower volatility in turn leads to higher leverage. One reason is that many funds base their leverage on value at risk, and they calculate value at risk using historical volatility. So when there is lower volatility they can lever more and still stay within their VaR limits. A second reason is that as more capital flows into the market and as leverage increases, there is more money chasing opportunities. Alpha from the opportunities is thus dampened, so a hedge fund now has to leverage up more in order to try to generate its target returns. And so the cycle goes – more leverage leads to more liquidity and lower volatility and narrower opportunities, which then leads to still higher leverage. This cycle is not much different than the classical credit cycle – which it is a part of this time around – where financial institutions make credit successively easier and easier because of competitive pressure and an environment that has, up to that point, been clear sailing.

This then gets to the higher risk. Because the real risk in the markets is not the day-to-day volatility, it is the risk of a crisis. And as I argue in A Demon of Our Own Design, high leverage is one root cause of crisis.

Bernanke has said the hedge funds “provide a good deal of liquidity in the markets and help the markets work more efficiently.” And that should be good, right? Well, it depends on how they are getting that liquidity. If it is through leverage, there may be a cloud inside that silver lining.

This relationship between liquidity, volatility versus risk is hard to observe, because there is nothing in the day-to-day markets to suggest anything is wrong. In fact, with volatility low, everything looks just great. We don’t know that leverage has increased, because nobody has those numbers. We don’t know how much liquidity will be forthcoming if there is a market stress, nor do we know how many of those who are the liquidity providers in the normal, quiet market times will move to the sidelines, or turn into liquidity demanders themselves. On the surface, the water may be smooth as glass, but we cannot fathom what is happening in the depths.

link:

http://rick.bookstaber.com/2007/08/can-high-liquidity-low-volatility-high.html

get shorty

2008-11-23T15:20:00.001-08:00

hey guys!

happy holidays to you all. I have not traded in the several weeks/ months due to the arrival of my new son Kingston Carter and a few major surguries to try to fix my nose once and for all. He is our first child and we have been waiting for an adoption for 3 years! Also may be time to hang up the gloves....:->.

Noticed an interesting tendency based on the 2 period r.o.c. in the sp500 market. There are several disclaimers.....

1. this is not a system (no stops etc)

2. earlier data 1980's does not test out as good (but i believe 80's to early 90's data had different microstructure issues)...

Anyway... here is the idea...

1. sell a 2 roc change up in the sp when below a 20 day simple moving average and try the williams type 1st profit close for a few days.

dangerous i know in any market, but an interesting tendency worth studying.

results on tradestation with code at end (not sure how great my data set is here.. im in the process of moving into a new house and grabbed this from an aqcuantance)

Period	Net Profit	# Trades
YTD	$16,275.00	9
12 month	$16,275.00	10
07	$18,325.00	8
06	$12,300.00	4
05	$8,025.00	7
04	($9,925.00)	7
03	($250.00)	2
02	$8,650.00	10
01	$4,250.00	8
00	$22,025.00	11
99	$3,200.00	2
98	$2,400.00	8
97	$6,612.50	5
96	($4,200.00)	5

Performance Summary: All Trades

Total Net Profit $87,687.50

Open position P/L $0.00

Gross Profit $195,587.50

Gross Loss ($107,900.00)

Total # of trades 86

Percent profitable 77.91%

Number winning trades 67

Number losing trades 19

Largest winning trade $11,000.00

Largest losing trade ($19,050.00)

Average winning trade $2,919.22

Average losing trade ($5,678.95)

Ratio avg win/avg loss .51

Avg trade (win & loss) $1,019.62

Max consec. Winners 18

Max consec. losers 2

Profit Factor 1.81

Max # contracts held 1

Account size required $24,525.00

the code is below for 2000i:
if marketposition =0 and c <> (c[2]+average(truerange,20)) then sell close;if marketposition =-1 and c < entryprice then exitshort at close;if barssinceentry=4 then exitshort close; Interesting that the short idea even worked during the great bull of 95-00 and you would expect to work during the great bear of ought-eight. maybe some plungers can add to this idea. Happy holidays and c ya in the new year! mindful

Stocks

2008-11-20T11:07:00.000-08:00

TIPS Spread

2008-11-13T05:47:00.001-08:00

2008-11-04T15:41:00.000-08:00

Realized Volatility Since 1928

2008-10-26T16:27:00.000-07:00

ES Initial Balance Stats

2008-10-22T01:38:00.000-07:00

The Initial Balance (IB) is the price range established in the first hour of trading. Peter Steidlmayer (creator of Market Profile) believed that the first hour was when the locals would attempt to find a price area where two-sided trade could take place.

Chart 1: IB proportion of the day's range frequency distribution

IB mean proportion of the day's range: 51%

IB median proportion of the day's range: 48%

IB median proportion when IB range is NR7: 37%

IB median proportion when IB range <= 60% of 10-day Avg: 35%

IB median proportion when IB range <= 80% of 10-day Avg: 40%

IB median proportion when IB range >= 150% of 10-day Avg: 64%

IB median proportion when IB range >= 200% of 10-day Avg: 80%

Chart 2: IB proportion of day's range vs. IB % of Avg

Chart 3: IB proportion of day's range vs. IB range

Range extension beyond both sides of the IB: 37%

Extension beyond both sides of IB when open outside VA: 28% ^#

Extension beyond both sides of IB when open inside VA: 39% ^#

VA = prior day Value Area

Data from ES day session from Nov 1st 2007 unless otherwise specified

#: This data is for ES day session from April 10 2008 - I will update these stats if they change markedly as the sample size increases.

SRS

Balance region

2008-10-19T06:29:00.000-07:00

Chart 1: 10-Year Notes – 5 days of overlapping value

Chart2: 10-Year Notes – Composite Market Profile of the same 5 days

Watch for a breakout from balance. If price is accepted beyond the balance region the market will probably continue to auction in that direction for at least a few days. However, a false breakout (failed auction in MP parlance) can create short terms excess and lead to a strong move back through the balance area and out the other side.

Chart3: ES – 10 day Composite MP: The market is in the process of carving out a balance area between the October 6th gap and the October 10th low.

SRS

2008-10-17T13:17:00.001-07:00

THE OPTION STRATEGIST
WEEKLY UPDATER 10/17/08
by McMillan Analysis Corp.

Stock Market

After another extremely volatile week, the technical picture has improved slightly, but not universally. The massive oversold condition continues to exist and has now been in place for at least two weeks -- longer, by some measures. There is no better place to start than with the chart of $SPX. Figure 1 continues to show $SPX in a severe downtrend, with the 20-day moving average (currently near 1080) also still declining. That is bearish until a pattern of higher highs and higher lows forms on the chart.

One thing that has been clear about this market is that it makes large moves -- moves which typically have taken days or weeks in the past -- in a matter of hours or days. From that perspective, it is possible that the pattern of higher highs and higher lows has begun to form. Last Friday's decline reached $SPX 840; the large rally early this week carried to 1040 (intraday, with a closing high at 1003); today's decline fell to 865 and then a late rally ensued. Thus a "higher low" was put in place. If this rally continues, and closes above 1003 and/or trades above 1040, then technically a short-term series will have formed the requisite higher high, higher low pattern.

The equity-only put-call ratios are potentially nearing buy signals. The standard ratio has, in fact, generated a buy signal. The weighted ratio is another matter. Our computer analysis says that this, too, is a new buy signal, but one can plainly see that it looked that way a couple of days ago, too -- and wasn't. Still, the weighted ratio is very close to a buy signal, if not already on one.

Market breadth is a different matter. Nothing reflected the deeply oversold nature of this market any better than the devastation recorded in breadth. Breadth needs to continue to improve in order to generate buy signals from this indicator.

The volatility indices ($VIX and $VXO) registered all-time highs this week as well. $VXO topped out at 103 last Friday (when traders were buying index options in advance of the potentially volatile events of the upcoming weekend). $VIX, however, made its high just today -- at 81. These are both all-time highs. As our readers know, a spike peak in volatility indices is a short-term buy signal. Today's action alone constitutes a spike peak, as both indices finished 14 points below today's highs! However, a true intermediate-term buy signal doesn't occur until the trend of volatility changes. That trend is still upward (see Figure 4). $VIX would have to close below 55 to threaten the current steep uptrend.

In summary, the oversold conditions continue to exist. But oversold does not mean "buy." However, there are some true buy signals setting up as well: equity-only put-call ratios, spike peak in $VIX, potential higher high, higher low in $SPX. As a result, we feel that some bullish strategies can be attempted with the realization that any probe below $SPX lows at 840 would negate all bullish setups

McMillan

2008-10-17T13:14:00.000-07:00

THE OPTION STRATEGIST
WEEKLY UPDATER 10/17/08
by McMillan Analysis Corp.

Stock Market

Charts:

http://www.optionstrategist.com/products/advisories/hotline/charts.asp

October 14 - 15 Head & Shoulders example on ES

2008-10-15T19:48:00.000-07:00

Yesterday, on the close I made a comment that the indexes had the potential to set up H&S patterns to watch for going in to today. Some members had difficulty seeing the pattern. Here is it on the ES, other indexes had similar patterns.

Best to your trading

Alavi

MacDonalds Weekly H&S

2008-10-09T13:32:00.000-07:00

Had a nice clean break off that neckline. Measure Move is at 52 area

September Price-Volume Profile

2008-09-30T14:04:00.000-07:00

Playing with my new software. Notice high volume points, value area, and single prints for September...

2008-09-30T12:38:00.001-07:00

Extreme VIX Statistics

2008-09-30T06:52:00.000-07:00

Thanks!

2008-09-30T06:45:00.000-07:00

Thank you SRS for the detailed info. Really helps me as I'm new to Market Profile. Much appreciated!

Value Area Rule - Market Condition

2008-09-28T10:30:00.000-07:00

Hi Cleon,

Here are some general examples of the influence of market condition on the VA rule:

When the market is an a trading range – coming into balance – you often get 1 day up 1 day down sort of action. During such a noisy environment, in general the odds of the prior day VA getting filled would be higher than average. See Chart 1

When this happens the market is effectively carving out a higher timeframe value area, which will often be reflected by a 60 / 120min low ADX. See Chart 2 (same 4 days in Bund as Chart 1)

(This biref Steidlmayer article is worth reading.)

In a trending market, an open out of value in the direction of the trend (i.e. above the VA in an up trend) that then tests back into the VA, is generally less likely to fill. Gaps against the trend – for instance an open down below the prior VA after a high-to-low day in an up trend – are more likely to fill than average (this scenario would be analogous to a pinball buy). See chart 3

Dalton: “The direction of the current longer-term auction has an obvious influence on the momentum, or strength behind the value area penetrartion. When price auctions up into value during a buying trend, for example, the chances of continuation are much better than if the market were in a downward trend."

There are also some conceptual issues to be considered when assessing the value area of a particular day:

1. Value is created by rotations. Although a Value Area can always be calculated, those days which auction continuously in one direction are indicative of a market that is searching for a fair price. In other words those days that exhibit little price rotation (i.e. trend days) do not produce a true Value Area.

2. Dalton: “Narrow value is a sign of poor trade facilitation and lower volume. Because volume slows price, narrow value areas are more easily traversed than wider, high volume areas. Therefore, the Value Area Rule carries a higher probability when price enters a narrow value area.”

These are just some general points. Others may disagree with them and I do not in any way wish to present myself as some sort of expert. But, I believe these examples go some way towards explaining why, when assessed without taking into account market conditions or market logic, the VA rule is closer to a 50% tendency.

Tendencies such as the VA Rule, violation stats or the HoD/LoD times, can form the strategy, but effective tactics are still needed to enter (LBR set-ups) and manage (trail stops) each trade.

SRS

2008-09-28T08:30:00.001-07:00

Great comments guys! Thanks SRS for elaborating on the Rule as well. I pulled the quote from Market Delta, but I would assume Dalton would be the definitive source as per your comments. (Mind over Markets (p279) does not state the half-hour periods must be consecutive <= good to know!!)

Yeah Tiny, the stop would be an issue if you were trying to take this trade. When you noticed the 2nd penetration, you would have to decide whether or not to 'go with' or wait for pull back entry. My thought was simply that when we did get that afternoon pullback, if you had this data in mind, it could influence your decision on whether to be long or short around the 1200 pivot, but you would have to have some confirmation on your bias regardless I suppose. I did not take advantage of this, but it just perked my interest in looking at higher timeframe patterns which is something I am personally working on these days.

Glad to see we got some discussion going here!

As an aside, to your point SRS, I would assume that one simple condition that could affect the outcome would be the range of the initial VA. For example, the day after an NR7, you could have a very narrow initial VA, with a small gap outside of that , then two taps back inside before a trend day emerged...(more of a question than anything as I'm fairly new at this)? Whereas, I would also assume, that a wide initial VA, with a gap, then then has price retrace back into the VA for two period, could have a higher likelihood of crossing the VA range??

Would be interesting to see if Dalton broke down this Rule by looking at the ratio of the gap to the VA range or something like that.

cleon

P.S. I just realized that there was probably a trade around the likelihood of a return to the VAL after the market was not able to trade back below 1193?? There was a mini double bottom on the 5m and a 1600t div at that point (noon'ish). What do you guys think - too much hindsight, or it had potential at the time statistically?

More on the MP 80% rule

2008-09-27T09:34:00.000-07:00

The big problem I see with this, and Cleon pointed it out in his post, is the stop loss. This is like the Larry William's OOPS setup, the Burning Dog, the 5SMA trade, or the BB Z day trades, where the stop has to be "end of day" or "none" and a target is used as the exit. This makes it MUCH more difficult to take without further analysis of the market, in my very humble opinion.

tinymjs

MP Value Area Rule (80% Rule)

2008-09-27T06:57:00.000-07:00

As cleon pointed out in the prior post the Value Area Rule is typically stated as:

If the market opens outside the prior day's Value Area and trades within that VA for two (consecutive *) half-hour periods, then the market has a good chance (frequently quoted at 80%) of filling that entire VA.

* Mind over Markets (p279) does not state the half-hour periods must be consecutive, just that the market show acceptance by printing inside the VA during two half-hour periods.

Day Session ES from 10th April 2008

Trading Days: 119

Open outside prior day Value Area: 76 (34 Above, 42 Below)

Two half-hour periods (double TPO) within prior day Value Area: 41

Completely filled prior day Value Area: 16 (39%)

Two consecutive half-hour periods within prior day Value Area: 40

Completely filled prior day Value Area: 16 (40%)

Completely filled prior day Value Area in single prints: 3

Obviously this is far from an extensive sample size and therefore the reliability of these stats is open to question.

However, the stats are consistent with Dalton's view in Mind Over Markets (p280):

“If a trader enters a Value-Area Rule trade without evaluating other market conditions, the probability that price will trade all the way through the value area is little better than a flip of a coin.

"The power of the Value -Area Rule lies in your interpretation of surrounding market conditions. Through an understanding of the confluence of balance, value area width and market direction, you can identify the situations during which the Value-Area Rule offers a high degree of reliability.”

I will update theses stats in the future, if they change markedly.

(It should be noted that the Value Area on any given day can vary across quote vendors i.e. CQG, eSignal, CISCO, Aspen, WindoTrader / Photon etc.)

SRS

VIX Futures 'Term Structure'

2008-09-25T10:43:00.000-07:00

fchris

2008-09-24T17:23:00.000-07:00

you can watch the interview here:

http://www.cnbc.com/id/15840232?video=866439825&play=1

Washington Post article here:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092401377.html

fchris

New email received

2008-09-23T08:52:00.000-07:00

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I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

2008-09-22T13:40:00.000-07:00

fchris

Cash S&P Prior Value Area

2008-09-18T02:27:00.000-07:00

Chart 1: Market Profile of the Cash S&P from January through October 2004. After rallying for most of 2003, the market entered a period of rotation and came into balance around 1125.

Chart 2: Weekly Cash S&P. The red box highlights the 2004 10-month balance. Will this prior Value Area provide some support?

SRS

9/4 End of Day Volume at Price

2008-09-04T15:15:00.001-07:00

ES - Wolfe Wave

2008-09-03T08:13:00.001-07:00

Wolfe Wave example on 1600-tick ES.

Pattern objective is the lower trendline.

Follow up:

Not all WW work out as nicely as this!

SRS

Inflation Sep 2008

2008-09-03T05:38:00.000-07:00

2008-08-28T20:34:00.000-07:00

well

Is my PC running ok, or do I need a new one??

2008-08-20T17:33:00.000-07:00

Summery:
How to look at the performance of your PC.
What type of a trader are you.
Operating systems.
Type of CPU’s, RAM.
Custom PC builds.

First off lets start be looking at your current PC and see what see how hard its working to determine and weather you need a new one or not. Start by “right” clicking on any part of the “Start” bar, you should get a pull down menu and two thirds of the way down you will see “Task Manager” select it will start the program.

You should see the following, two line charts and two bar charts. The line charts are a graph of history and the bar is instantaneous. One is monitoring CPU usage and the other is monitoring memory usage. NOTE: if you running a dual core or a multi-threaded CPU you CPU graph will be divided into two windows. To combined the two, go to tool bar
View-> CPU History->One Graph, all CPU’s this will allow you to see everything on
one graph. You can also control the update speed View-> Update Speed-> (low, Med, or High).

Also at the bottom we have some numbers in four boxes. The one that’s most important to us is the “Physical Memory” look at the top two. “Total” and “Available” this is a seven digit number (remember we are talking about megabytes). NOTE: if you have 4gigs Windows will only show 3.x gigs. Why is that? That’s a complex subject I don’t want To get into it here. So see what you have available. Keep in mind you want some overhead. How much? That is all user dependent. But if you have every possible application that you would use open all at once and you have less then 100-200Megs left, you are likely running out.

Now lets look at the CPU graph. If the markets are closed you will most likely see the CPU at 4-10% at best. With this window open start up any application and see what happens… what you will want to do is run this program during trading hours and see how much CPU power / memory its using.. keep in mind when markets are very active the usage will be higher. So have a look right at 9:30-10 and then at lunch and then that 2-3pm. That way You get a feel of what is happening in different market conditions.

The first 2+ hours and the last 2+ hours is when you’ll see the highest usage. And also
most of the day on trend days. Since the graph is not very steady you will need to eyeball the average amount of usage on the CPU. if you are at 60-80% of usage on the active hours of the day, you are most likely starting to run out of horse power. And most likely when the data gets very bursty it gets to 90-100%.

Now you have determined that you are in need of a new PC what kind should you buy? How much should you spend? Well that all depends on what type of trader you are.
Are you trading of daily/weekly chats? Do you make 5-7 trades/week? Do you have one monitor and look at 2-3 charts at any given time? Then you will mostly do fine with the standard $500 PC from DELL or HP.

If you are a more active trader with 2 monitors/desktops and each desktop has 2-3 workspaces and 3-6 charts then you will need some thing with more power. you can go to the Dell XPS class of PC’s is a good one will start at $900 but after you add extra RAM (if you need it) and maybe a couple of other options like a dual DVI video card and windows XP you will be at 1000-1200 for sure. NOTE this is for a dual core PC.

Now if you are a trader that’s got a chart application like TS with 4+ monitors 4 desktops with 2-5 tabs in each 4-6 charts in each tap and one streaming all kinds of quotes, and also running a second application like Photon to execute your orders then
You need a “Gaming PC” with lots of power. Here is where the problem comes in..
Dell and HP do not want to deal with people like that. And if there do they send you to there “business class” department and now they want $4000-$6000 to build one.

So what do we do?? Well the there are a number of places out there that will build
A good high performance PC for less then Dell or HP would charge.

So how do we build one? Let me first address the operating system then we can go onto the hardware selection. Ok. XP Pro or Vista. This is a tricky topic but I will give you my take on it and you will have to ask others and come up with your own decision.
Vista is the next and up coming operating system from Microsoft. But just like all there other systems it will take time to get all its issues work out. Most of the problems are user related. The fact is its new and we don’t know how to use it. It tends to be a bit over secure and we have problems getting what we what out of it. Some people tried it and loved it other hated it. So here are my thoughts. Vista needs lots of resources to run. And at the end of the day you have to ask yourself what does vista do for me that XP doesn’t?
So why upgrade my hardware and add Vista to slow it down? And have to deal with a new operating system that I may not be able to operate properly? XP will be around for some time to come. So I’m fine with XP Pro. Now onto the hardware section.

I will try to keep this as simple as possible so you can get an idea of what to buy.

The two main types of CPU that Intel offer at this time is a core 2 (Duo) which most people are calling dual core and a Quad Core. So what is a core 2? It is a CPU that has
2 ALU’s (Arithmetic logic units) this is the thing that does the all the math work.
By having 2 ALU’s running together sharing the same Cache (on chip RAM) it can run programs faster then a signal ALU. And Quad is nothing more then 2 dual cores that are in the same package. One important option to get is a CPU with lots of Cache. The more
The better the performance will be for every day user this is not a big deal but for us it is.
If you are in the “customize” CPU section at Dell or anyone else you will see this.

Onto the RAM, for RAM size everyone seem to have 4gigs in there PC and since its cheap you can just go with 4 and not have to worry about having to upgrade it at a later point. Most ram speeds I see at Dell are 667Mhz and some times 800Mhz, if you see the 800 and you don’t mind the price get it. If you are looking at Ram that seem a bit expensive or it has “ECC” in the name, you are looking at a server grade PC that’s not what you want or need.

Video cards. If you are running only 2 monitors (24” or less) get a dual DVI card. One with 256MB of ram is plenty, we are not playing games so we don’t need heavy graphics processing. And there for the 512MB maybe over kill.

So for most users you can go to Dell pick a dual core build what you need right over the web. You can also build this at a custom builder it may or may not be cheaper. I have not tried. This will/should run two trading applications with out any problems. It’s always going to be application dependent. I hear that Photon needs lots of CPU power and so does TS the two of them together may be a problem. I don’t know for sure.

So now if you feel you need more then that, than its time to go to someone that will build exactly what you need. There they will build you a quad core with all the ram you want and as many video cards as you would like so you can run 4 to 6, 30” monitors if you’d like. I have found the following places that will do this for you. http://www.magicmicro.com/ and http://www.buyxg.com/ . I haven’t bought anything from them yet.

I know this is not an easy subject for most. So if you still have questions or need help selecting the right PC let me know and I will help.

MP for 8/19 - balance day anybody?

2008-08-19T13:41:00.001-07:00

MP for ES from today for those who don't get mp charts

notice that every single period touches the POC

today also = NR7

maybe trendy wednesday / breakout mode leads to a nice move away from this area tomorrow

Key US Index vs Key Int'l Index

2008-08-13T10:20:00.000-07:00

ES High / Low violation stats

2008-08-11T01:54:00.000-07:00

Data in ES day session from Nov 1st 2007. As the sample size increases, I will update the stats if they change markedly.

Key:

HH = Higher High (ie high violation)

LL = Lower Low (ie low violation)

HMF = High Made First

LMF = Low Made First

VA = Value Area

TFF = Trade Facilitation Factor (A simple method of quantifying the shape of the profile)

RF = Rotation Factor (A simple way to measure the trend of the day - see Mind over Markets p112 - p115)

Neutral Day = Day which trades beyond both ends of the first hour's range

SRS

60m 'Buy' Anti - image

2008-08-09T05:47:00.000-07:00

Sorry gang...here is the chart for the comments below.

60m 'Buy' Anti

2008-08-09T05:39:00.000-07:00

Here is an example of a picture perfect 'Buy' Anti IMHO. It includes all the components mentioned in the Street Smarts book and the LBR trade setup library. It is rare to seem them form this beautifully - especially on a HTF. Now imagine this being a 3m, 5m, 800t, 1600t etc. chart...what fun you could have!