Swing Trade + 27.8% – Woohoo!

What a month!

With all of the current chatter on (unlikely) financial regulation, (likely) Greek bailout, and potential economic recovery in 2010, FAS is a great ticker to exploit. It’s basically a basket of bank stocks on steroids.

Anyways, in the first week of February, FAS failed to break above the 20 day, Exp. Moving Avg (red line). My interest peaked when it hit the lower Bollinger band (lower green line). The previous day saw an ugly, ugly down move (long red bar). The sell off was overdone, and brought it into Oversold territory (Stochastics indicator – bottom set of black/red lines). With a relatively low risk, I started buying.

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Memo To Lloyd, the Morts Need Your Attention

$GS Trader (Michael Lewis) sends an email to the C.E.O., sharing 3 big ideas. HILARIOUS. LOL!

Copy + Paste from Bloomberg:

To: Lloyd Blankfein
Re: Winning the Public Relations War

Six months ago, with what I mistakenly took to be your tacit approval, I attempted to address ordinary Americans, almost as equals. (read it here)

They envied and resented our firm; I sought merely to correct their misunderstandings about Goldman Sachs and send them on their way, so that they might more briskly resume their quest for gainful employment.

In hindsight, I misjudged their ability to see the reality of their situation, and of ours. At the time I accepted your strong suggestion that I never again try to speak directly to mortals — or, as you referred to them, “The Morts.”

Now our predicament is suddenly more dire. Ordinary Americans wish to control not just our pay but our core values: We at Goldman have long stood for the right of every prop group to trade against its firm’s customers. If we abdicate that right, who are we, deep down?

In just the past few days many of us on the Goldman trading floor have wrestled with that question. We believe that rather than re-think our core values we should re-think our relations with the American public.

Hence this memo. Your recent non-verbal signals — your habit of passing directly behind my trading desk en route to the elevators, your selection of the urinal adjacent to my own — convince me that you continue to value my thoughts.
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The Four Stages of the typical Secular Bear Market and its Aftermath

Missed Opportunity.

Red arrow was the end of a swing trade.
Missed opportunity was in between dashed lines.

Even without reading the news, Friday’s price action was predicted 2 days earlier.

Fluroescent Green Line has me interested again.

On forecasting 2010 Stock Market (DJIA)

 Copy + Paste:

Historically, the first few trading days of January have been among the strongest for stock performance, because this is when individuals and pension plans add big chunks of new money to retirement accounts. Whether people follow their normal pattern and pump money into stocks in January can be a sign of the market’s prospects for the coming weeks, and even for the entire year.

If stocks rise in January, they often finish the year strongly. If stocks are weak during this normally propitious time, stocks tend to do poorly…

…In years when the Dow has risen in the first month of the year, the median rise for the rest of the year is 10.4%. In years when the Dow has fallen, the median rise for the next 11 months is just 0.28%.

Because of the inflows of new cash, January has seen stock advances 62% of the time since 1900, well above the average of 57% for all months.

In fact, November, December and January typically are the market’s strongest three-month stretch, as investors position themselves for the new year. Early December often is soft, possibly because tax-conscious investors are selling losing stocks to generate tax losses that they can balance against taxable gains in other stocks. If things are on a normal footing, that weakness should be over by late December, and stocks should be rising ahead of a strong January…

Link:
As Goes January, So Goes the Year?, E.S. Browning, Wall Street Journal, 1/4/2010. (Read Full Article)

Adapting to High Frequency Trading

Pretty good article for intraday stock traders.

Excerpts Copy + Paste:

Below are seven effects… that HFT has had on U.S. equity markets. Each is then followed with a suggestion or two about how we can adapt.

1. YOU WILL GET STOPPED OUT OF MORE POSITIONS

Average daily volume has skyrocketed 164 percent since 2005, according to NYSE data. Up to 73 percent of this volume is handled by algorithmic trading programs. One unpleasant side effect is that stocks touch more price points and may cause you to be stopped out of excellent positions.

Adapt: Use better stops…

[on a stock that breaks support]…Algo programs buy almost every new low because they bet that short-term shorts will get trapped and have to cover higher.

Adapt: Learn how to read the tape. … Continue Reading

The Stock Market (Dow Jones Industrial Average) in 2009

Copy + Paste Excerpts:

The U.S. stock market is poised to end 2009 with a comeback of historic proportions, with the Dow Jones Industrial Average up 61% from its March nadir and 20% for the year.

But the history of such rebounds suggests the biggest gains may already be over, making it hard to expect a blockbuster 2010….

… Early in the rally, the gains were fueled by the realization that the financial system and the economy would escape total meltdown. But then signs of an improving economy and company earnings that consistently bettered expectations took hold, helping drive market gains.

The biggest worry for many investors is whether the rise in stocks reflects an overly optimistic view of what lies ahead for the economy.

For the stock rally to endure, investors say, the U.S. economy must avoid slipping back into recession — a “double-dip” scenario — and start adding jobs. Companies also will need to deliver earnings fueled by better sales, rather than by the aggressive cost-cutting that many undertook in 2009….

You can read the whole thing through the link below.

Last year around this time, I had a conversation with a Private Equity Director over dinner about the stock market. He was convinced that we would end this year lower. I was a bit more optimistic and convinced my argument was better than his. It looks like I win. =P

Link: 2009: Banner Year for Stocks, Joanne Slater, Wall Street Journal, 12/31/09.

Harvard Poker Pro Says Texas Hold ‘Em Can Teach Traders to Fold

Copy + Paste from Bloomberg (my highlights in blue):

Nov. 20 (Bloomberg) — Brandon Adams, who teaches behavioral finance at Harvard University’s Department of Economics, says some of the best candidates for Wall Street trading jobs are the professional card players at FullTiltPoker.com and similar Web sites.

“They’ve essentially been the survivors in the system, a very difficult system where 95 percent of people lose money,” the 30-year-old Adams, who plays at the site, said in a telephone interview. “Anyone smart enough and disciplined enough to survive that system is probably going to do very well in the trading world.”

An increasing number of hedge funds and brokerages are scrutinizing professional poker to find talent and analytical tools, according to financial recruiters including Options Group, a New York-based executive-search company. Susquehanna International Group LLP, the Bala Cynwyd, Pennsylvania-based options and equity trading company, uses poker to teach strategic thinking. … Continue Reading

3 $FAS Swing Trades

Haven’t done an equity trading post in a while. So, here is one instrument I’ve been playing with.

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Instructional: High Frequency Trading

High-frequency trading is creating a ruckus on Wall Street. Marketplace Senior Editor Paddy Hirsch explains what high-frequency trading is and why some people are up in arms about it.

High-frequency trading from Marketplace on Vimeo.