Sunday, October 26, 2014

Does the $UVXY decay over the weekend?

Someone on Stocktwits made a comment that you should never hold the $UVXY over the weekend because you loose (sic) 2% due to decay.  I ran the numbers going back to when the UVXY was established to check that statement.

The UVXY is the Proshares Ultra Short term VIX futures ETF, which is a measure of volatility in the SPY futures times two.  This ETF was created in 2011.  Since its inception, it has declined in price by close to 98%, due to its design.   The question is whether this occurs over a weekend. 

The results?  The UVXY moves a lot over the weekend, but there is no clear trend.  Actually, the net change from Friday close to open Monday averages out to almost nothing.  Some weeks it moves up, some down, but overall, it is almost exactly zero (0.12%). 

Most of the move in $UVXY happens intraday, not over night.  Personally, I don’t ever recommend holding this ETF because of the decay mentioned.  But it’s not about the weekend.

This post is not a recommendation to buy or sell any investment.  Disclosure: as of posting date I have no position in $UVXY, but I often buy and sell and may at any time. 

Tuesday, August 5, 2014

It's Not Easy

I am big fan of Stocktwits, I uncover a tremendous amount of great information there, and I get a many good ideas of the traders, investors and generally good people.

That said, let me rant just a bit:

 I bristle when anyone says making money via any particular trade is easy, or simple, or a no-brainer (at least unless maybe it is coming from Carl Icahn.)  Nothing about the market is easy and even if the person gets the trade right, it’s not because it was easy.

If I see someone call a trade easy, I figure they are arrogant, a newbie, or both.  Experienced and savvy traders don’t call anything about the market simple.  

Monday, August 4, 2014

The Bull Market is Intact!

Sorry for the hyperbole in the title.  Neither I, nor anyone else knows if the bull market will continue another day.   This post is a follow up to one I wrote on the weekend.  In that one, I looked at the $VXX performance after it had gone up by 15% over three days. 

For the last three years, every time the $VXX met that criteria, it dropped back on the fourth day.  Nine out of nine.

What does that have to do with the bull market?  In a discussion on Stocktwits, another member @allgoodtrades remarked that we were in a bull market, and the $VXX wouldn’t continue to spike like it did in 2011.

And lo and behold, what happened on August 4th?  The $VXX did drop, a substantial amount, actually. Ten out of ten now.  Leading me to conclude the bull market is intact, the SVXX should keep dropping and all is right with the world. 

OK, that’s a stretch, and I intend to remain cautious. But from this indicator, I see no reason not be optimistic, or upbeat, about the market.
Nothing in this post is meant to be a solicitation to buy or sell any security.  

Saturday, August 2, 2014

It Works until it Doesn’t

I recently owned some $VXX puts and sold them on Friday.  It was a sort of continuing trade over the last few weeks of puts and short positions which I finally closed out.

$VXX is the iPath S&P 500 VIX short term ETN.  The VIX is a measure of volatility in the market.  Simplistically, the VIX generally goes up when the overall market is falling, and vice versa.   

In response to an inquiry, I had a civil discussion with @allgoodtrades (Gavin) on Stocktwits about where the $VXX was going next.  He thought it would fall, and I was concerned about it spiking higher if there was a correction (crash) on Monday, August 4th.  I was staying on the sidelines.

Gavin challenged me to look at the chart and find another time in the last three years where $VXX rose as much as it did in the last three days.  It’s very hard to see that in a chart, so I ran the historical prices in Yahoo! Finance.

Over the three days ending 8/1/14, $VXX went up 15%.  In running the numbers, I found nine times where the $VXX went up 15% or more over the last three years, actually a little less than three years, more on that later.

Although this wasn’t as unusual as Gavin thought, I did something interesting.  In each of the nine times the ETN ramped over a three day period, in closed lower on the fourth day.  Nine out of nine.  It’s hard to beat those odds.

The VIX in 2011

Unless you go back the full three years.  In August 2011, the $VXX had a spike that kept on going.  Check out the closing prices from that period.


So, which do you believe?  Nine out of nine times during a great bull market, or the one time when it looked bad for equities?  Do you think the market we have now is the same as the last three years, or are we in for the rough ride like we had in 2011? 

Honestly, I don’t know, but the risk is pretty great, and for me, worth watching from the sidelines. The point is that if you find something that works every time, it’s still not guaranteed to work the next time.  The situation may be different.  It works until it doesn't.

And by the way, the $VXX wasn't around in 2008, but you imagine what would have happened to $VXX or it's more leveraged cousin $UVXY when the market really crashed

Good luck.  We’ll know shortly.  Nothing in this post is a solicitation to buy or sell securities.    

Friday, August 1, 2014

My Investor’s Toolkit

I am not really a technical trader, although I do think there is some benefit to watching the moving averages.  I just think the rest of TA is overdone. 

I am looking for an edge, either the best ideas or news that will allow me to be more proactive.  So, my toolkit is mostly bloggers and news providers.

Listed in the order that I generally use them.

Twitter – I follow all the big name traders, you know, the Fast Money guys, JC Parets, Jon Boorman.  Mostly professionals in the stock biz.  Also TV people like Becky, Maria, Mandy, Trish, Jane… well, you get the idea. 

Stocktwits – I have people I follow, generally not those that I follow on Twitter.  These are mostly amateurs, or hobbyists.  It’s more of a social thing  You can see who I follow there if you click on my name. – Generally business news and stock quotes.  Works best on my phone, an HTC One, which I don’t recommend. 

Yahoo Finance – More news and quotes.  I also like their charts, which allow you to compare multiple symbols, and are easy for a non-chart guy like me to follow.  I also use the historical price function which allows me to download daily prices to excel and manipulate them.  Did you know it is better to buy Apple on Monday vs. Friday, over time?  I don’t know if that knowledge is worth all that much, though.

There are a few bloggers I follow when I can.  I usually see the entries when they post a link on Twitter, but these I will actually look up: – Josh Brown – Barry Ritholtz – Eddy Elfenbein

I don’t care for Business Insider because it’s a bandwidth hog.  I will sometimes read the articles. 

I don’t watch much business TV any more.  If I can, Fast Money and once n a while that Cramer guy. 

Props to 1nvestor for the inspiration

Tuesday, July 29, 2014

Why I Post my Trades on Stocktwits

Stocktwits is a site founded by Howard Lindzon that allows just about anyone to comment on most publicly traded stocks.  Many people use it to ask questions, share their opinions, or plug their newsletters or websites.   I like to post my trades there, with entrances and exits.

I started with the goal of posting all my trades, but have decided I don’t have the time, or the interest in sharing every detail of my trading.  Still, I do find it helpful to share not only what I am thinking at a given moment, but also the actions I have taken.  I may post what I buy, and I try to give an idea of the price I paid or sold at, and a vague I idea of the size of the trade.  One thing I don’t do is give the number of shares or options.  How much I invest is really only my business.

Why do I share this? OK, first, this is NOT why I post my trades:
  1.  I don’t post to gloat on my winners.  Investing is really difficult, and no one needs to know how smart I am, or that I pretend to be.  If I see someone gloating, it’s a real turn-off.
  2. I don’t post to sell anything, because I am not selling anything.  No newsletters, websites, or books.  Yet.  You can’t buy my ideas on stock trades, because they aren’t for sale.  I don’t know that anyone would pay for them anyway.

So, why do I share them?
  1. Someone may get some benefit, or education.  I have gotten nice notes from people who did say they learned something from what I am doing, usually from a follow up question.  I have gotten some nice (and some not so nice) responses from people who take the other side.  That’s OK, it’s what makes a market.
  2. The biggest reason I post is that it keeps me honest with myself.  If I know that I will be sharing my trades, it is a lot harder to take a risky, unjustified position (a “flyer”).  Like buying options before an earnings report, or shorting a momentum stock.  I may still do these dumb things, but if I plan to expose my thinking to the world, I would like there to actually be some thought to expose. 

Best of luck trading.  Nothing here is a solicitation to buy or sell securities.  

Thursday, June 19, 2014

The Big Mistake I Made in 1999

The 1995 to 1999 period in the stock market was known as the dot com era, when the internet exploded and money poured in many stocks which had no profits, little revenue and depended on "eyeballs" as a metric.

As a young (well, younger) investor at the time, my main interest early on was building a retirement nest egg and making a fair return on my available cash, which wasn't all that much.  I had been trained to think of investing in good companies that paid a safe dividend.

It was a good strategy, and early on, I did pretty well, swelling my meager retirement account into a nice bundle and making a few bucks for play money.


Then one day, my boss at the time, introduced me to a bit more risk.  He gave some advice on a company named Scansoft.  I didn't know what they did then, and don't now.  But in few days, I made $1,000, a 20% return.  You would think I was hooked, but ah, I wasn't.  My training told me this wasn't right.  So, I backed off, and returned to safe investing.

All the while watching everyone making huge gains on stocks that no one thought had any value.  Names like Vertical Net and PSI Net are ingrained in my memory. Huge valuations with no sustainable business model.


Then there was one called Echelon that was particularly annoying.  Someone I knew knew someone was had researched the company, and they had a real product.  The stock started at 3 and came to my attention at 6.  I bought it at $13, it went to 30, and I bailed, convinced that it didn't belong there and would come crashing down.

Of course, it finally hit 100 before it crashed.  I don't know if it's still around and I don't care.

My Big Mistake

My mistake, as it turns out was NOT getting caught up in the fever and ridiculous valuations.  If I had, I would have made a lot of money, and could have gotten conservative nearer the top, or after it had been reached.

I see this a lot now.  Some people have been fighting this bull market all the way up.  I try not to, despite my conservative nature.  Bring it on.  I hope to have enough time to bail on the downslope rather than the way up.

Please, please, do your own due diligence, and don't take anything I say as an offer to buy or sell securities.  Look at my track record.

Sunday, May 25, 2014

My Best Advice for Stock Market Traders

I consider myself an investor, not really a trader, but like a lot of people, I do think I pick a winning trade from time to time.  Unfortunately, since my funds are limited, like everyone, it leads me to sell stocks in order to buy new ones. 

This leads to my worst performance.  I always think that my current holding is not going to as good as my next one.  I sell what I have to chase something else.  Generally, this is usually a bad move.  The stock used to own does just as well or better than the new one I bought. 

Add to that fact that in the process I paid commissions to go in and out of the two positions.  That’s just dumb. 

Comparison to Baseball

I’m a baseball fan, and if there’s one thing I don’t like to see in baseball, it’s overmanaging, particularly when a manager changes relievers repeatedly, multiple times in an inning.  As if the next pitcher is guaranteed to get next guy out.  Like the next pitcher is going to be better than the one that is already in there. 

Sometimes he does the job, sometimes he doesn’t.  In baseball, there’s no way to know how the other guy would have done.  In stocks, we do know.  They continue to trade even if we don’t own them. 

So, a little advice:  STOP TRADING SO MUCH.  Review not only your past trades, but what happens to stocks after you sell them.  You will likely find that you would have been just as well off, or better even with commissions, as if you just held the first stock.

If you feel you have to trade just to do something, then you have another problem.  You aren’t trying to make money; you are trying to fill some other need.  If so, just expect to continue to underperform.  Nothing is going to help that. 

Where's the Stock Market Crash?

If you follow the stock market pundits, you know that many of them have been calling, or at least warning of a crash for some time now. So, you have to wonder, where is it?

I mean, it's been years now. Some of my favorites have been calling for a 50 percent fall for so long the market would have to fall 50 just to get back to the level where they first made the call.

Now, anything is possible, and I dont know the future, but neither does anyone else. Generally, the market doesnt make big moves. Only rarely is there more than a 5 percent move in a month's time.  You have a better chance of losing 5 percent by moving your money in and out than having the market take a tumble.

So, my advice is, every time you feel like making a trade, do something else. I won't suggest to you what, but anything. Get a candy bar. Watch a movie. Et cetera. If you still feel like making a move later, make a smaller one than you planned.

And if think Pundits have the answers, read Macke and Brown's book, Clash of the Financial Pundits.

Tuesday, May 13, 2014

Why is the Stock Market so High?

The stock market, as measured by the Dow Jones and SP 500, closed at another record high today.  That causes many people to ask:  Why is the market at all time highs?  Is it overvalued? Will it crash soon?

As to the first question, there is some debate as to whether the market is high.  Yes, it is, in dollar terms, higher than it ever has been.  But, if you take into account inflation, it isn’t as high in “inflation-adjusted” terms as it was a few times in the past. 

More importantly, there isn’t really a perfect measure of what “high” means.  It is only in terms of price, or a percentage of what companies earn (the P/E ratio).  Or you can look at the P/E over the last 10 years (CAPE ratio.)  You can find justification for just about any position you want.  

The Stock Market is High

If you accept that it is high based on the price, there are possible explanations.  I prefer the simple supply and demand explanation.  In basic economics, when there is more supply for a good, the price drops, and vice versa.  When demand for a product goes up, the price goes up. 

Right now, there is a bit of reduction in supply because companies are going private, fewer companies are going public, and public companies are buying back shares at an increased rate. 

I tend to think the big difference relates to increased demand for stocks because of low interest rates.  If an investor has money to put to work, his options are limited.  He can only get 2.6% on a ten year bond.  Other options, like real estate or gold, are less liquid.  That is, harder to get money out in a short time. 

Therefore, more money is pouring into stocks, many of which pay a dividend, and have recently gone up. 

So, why is the stock market high?  Because like Richard Gere in An Officer and a Gentleman, “(it’s) got no place else to go. “

As always, nothing here is meant to be a recommendation to buy or sell securities. 

Saturday, May 10, 2014

Compound Interest, Die Hard and Hans Gruber

Die Hard is a spectacularly entertaining movie and can be used as a lesson in compound interest.

Spoilers follow.

The villain, Hans Gruber, played marvelously by Alan Rickman, attempts to steal $600 million dollars and plans his escape so that he can retire to an island and earn 20%.

Now, even in those days, earning 20% wasn't easy, and it seems less likely now.  But, taking him at his word, he was very smart financially.  His plans are something everybody can sensibly aspire to.

The movie was made in 1988.  If he had been able to accomplish the two things:

1. Steal $600 million
2. Earn 20%

and hadn't had to touch the money,

he would, through the magic of compound interest, now have a fortune worth


That's $57 billion and change, which would make him 5th on Forbes' list of world's richest people

Not bad. .

Monday, April 28, 2014

A Fable on Stock Market Valuation

Why valuation is a lousy measure.

King Midas gave up the gold thing, and bought all the outstanding float of $KMID.  Midas owned 1,000,000 shares of the stock, and on the day he bought the last share, he paid $100.  Therefore, the closing price of the stock gave him a market cap of $100 million.  That’s one hundred million dollars.

Now Little Johnny tended the King’s gardens and prevailed upon him to sell him a share of $KMID.  Believing it was undervalued he offered the King $110 for that share.  The King was an evil man, so happily took the money at the bid.  He was amazed to find out his value in the company had risen to $10,999,890.  And he had 110 bucks cash to show for it. 

When Johnny’s mother found out that he had blown the family grocery money, he forced him to return to Midas to sell the stock back.  The evil Midas agreed, but at the price of $105.  With no alternative, Johnny took the price, poorer but wiser. 

King Midas had all his stock back, $5 in his pocket, and a new market valuation of $10,500,000.  The stock caught the attention of the Wall Street pundits and trend followers. But, of course nothing about the company or the stock really changed.  

Farfetched?   I suppose.  It would take a lot of dumb, evil people make something like this happen in the real stock market.

Oh, yeah.   Think about that the next time you invest in a stock simply because the price changes.  

Sunday, April 6, 2014

Why the $QQQ and $IWM fell more than the $SPY and $DIA

I saw this stat for the following indexes just now, as of April 4. Thanks ro @stockcats for posting it.

: % off the all-time intraday highs as of Friday's close -5.0% -5.4% -1.3% -1.7%
It looks like $IWM and $QQQ are down seriously.  Well, they are, from the recent highs.  

However, look at how far they are up from the 52 week low based on Friday's close. 

$IWM 28.4%
$QQQ 29.1%
$SPY 21.4%
$DIA 13.8%

So, it seems pretty reasonable for the small caps and Nazz to have the biggest decline, since they had the run-up to get there.  

Saturday, April 5, 2014

Calling the Top of the Bull Market

I tried a few weeks ago to call the top of the bull market.  Silly me.

No one can call the market top.  If they do it's just luck.  Really, what happens is that someone repeatedly calls for a top and when they it finally happens, they claim victory.  Silly them.

The latest attempt to find an indicator that we are at the top relates to the fact that the NASDAQ and small caps ($IWM) have fallen a great deal in the last few days.  They are supposed to be leaders, and when fall, the market will follow them.

But they haven't been leaders in this market.  Tech hasn't performed nearly as well as the broad market, and although small caps have exceeded the S&P, they haven't done that much better, and were partially driven by the ridiculous jump in biotech stocks.  Which have hit a wall and dropped like a rock in the last few days.
So it the bull market over?  Nah, not in my opinion.  It may take a few days or weeks off, but as long as interest rates remain low (and they still are ridiculously low in historical terms) there is no reason to think that money will flee the stock market for a better opportunity.

Long and strong.

Nothing here is a recommendation to buy or sell stocks.

Sunday, March 16, 2014

Is the Stock Market Tired?

The anonymous blogger who goes by the name Jesse Livermore, @Jesse_Livermore on Twitter, made a comment today that the market was tired.

With all due respect to "Jesse", whom I really like:

That's nonsense.

Tired a physical state that can befall people and other living things.  Stocks don't get tired.  Markets result from the actions of people buying and selling stocks in this context. I assume Jesse knows this and is just using shorthand for the situation that he sees, that the market has reached a top and that there are more people selling than buying at current prices.

But buyers aren't "tired" of buying.  No one ever gets tired of making money.  This is what traders and investors do.  They buy stocks.  They sell them when they don't think they are going up, but they don't get tired.  If they get tired and go home, they neither buy or sell stocks, and the price doesn't change.

My point is, don't think of markets in terms of human actions or situations.  Markets don't get tired, or sleepy, cranky or annoyed, happy or gleeful.  Stocks move up based on whether someone is willing to pay a higher price, and fall when they don't.

OK, now I'm tired.

Nothing in this blog is recommendation to buy or sell anything.  

Tuesday, March 4, 2014

The End of the Bull Market

This is it.  The end of the bull market.  March 4, 2014.  The SP 500 hit a high of $1876 and change today, on a big increase sparked by Russia backing off of the Ukraine.  Of course, it wasn't really a back off.  They simply did what they had already planned on doing.

Why here, why now?  I don't have a lot of fancy charts, although if I tried I could come up with something to validate my position.  But why bother?  I could just as easily find another chart that would say the opposite.

The market has been frothy for a while.  The momentum names are flying.  I saw Netflix ($NFLX) hit $450 today.  Chipotle is over $570.  Tesla who I have a small short position in, is 4 times an analyst's estimate.  I have been bullish because I didn't see an alternative place to invest.  But now I see commodities are racing.  I am long Corn and Coffee through options, but there are plenty others.

I am not predicting a crash.  With interest rates this low, I doubt the market falls a lot.  But I don't see it going up for a long while, a position I now share with Henry Blodgett.

I am still long in my long term accounts, although I may rethink that position.

I am not making any recommendations on any specific investment.  Enjoy the ride.

Monday, February 24, 2014

Understandable Analyst Buy and Sell Calls

I saw a tweet today from @Stephanie_Link that Standpoint had downgraded Amazon $AMZN from Sell to Strong Sell.  Now, really what does that mean? All you can do is sell a stock, you can’t strongly sell it.  It’s meaningless. 

It reminds of the scene in A Few Good Men where the Demi Moore character “strenuously” objects to a statement from a witness, and gets ridiculed for it.  As if strenuously objecting is more important than any other kind of objection. 

So, I came up with my own sell ratings that are easy to understand, and actionable.

Buy 1 – Buy this stock, when it looks like it’s a good price, maybe on a pullback.
Buy 2 – Buy it now.
Buy 3 – Buy it on margin, now
Buy 4 – Mortgage your house to buy it

Sell 1 – Sell the stock on an up day
Sell 2 – Sell all that you have, now
Sell 3 – Sell all that you have, and short more, up to your limit
Sell 4 – Mortgage your house to short the stock, and buy out of the money puts

See, understandable, actionable recommendations.  Now, you won’t see me actually make any of these calls, because I am not an analyst.  And no one in their right mind should take action on Sell or Buy 4. 

And I don’t own any Amazon, and nothing here is a recommendation to buy or sell stock. 

Monday, January 20, 2014

What's the Best Day to Buy Apple Stock?

From what I read, Apple - $AAPL not SAPPL - is most followed individual stock by retail investors.  True or not, you can't go an hour without someone mentioning it on CNBC.  There's a lot of interest.  The stock has a high price, currently $540.67, but might be considered relatively cheap at 13.6 and enough cash to buy anything except maybe a house in San Francisco.

I had noticed in prior years that for some reason, there was a pattern in movements in Apple stock.

I looked at the last year, and gosh damn it, the pattern is still there.  Look at these numbers.  Start with close Friday price to close Monday, and so forth.

Day           Change
Monday 128.65
Tuesday 59.22
Wednesday -19.9
Thursday -69.34
Friday -58.64

Net change for the year -38.  No matter, if you bought on Friday close and sold at Tuesday close, you would be up 187 points.  Incredibly bizarre that it's so obvious.  It's not everyday, of course.  Every Monday isn't up.  But when it is, it more than blows away the bad days.  Just imagine if you had the courage to short starting later in the week.

Feel free to perform your own backtest.  Pick any period.

The big question is, of course, why?  Other stocks have patterns, but few this consistent.  I can make a few guesses, but I'll leave that up to you.

The posts here are informational and not a recommendation.  Who knows if the pattern will continue? Time will tell. I currently have no position in $AAPL.

Monday, January 13, 2014

Which Day of the Week has the Most Volatility?

For swing traders, every day is a day to make money.  One of the most annoying things for a trader is when a market just sits there.  It got me to thinking if there a pattern to the market moving.  What day of the week is the stock market most volatile, with the best opportunity to make money?  Not to mention when is risk the highest of losing money.

There are a lot of volatility measures, the most popular being the VIX, but I looked at it a little differently.  I looked at the difference for the high and low of the $SPY to see what the range was, and totaled it for the year 2013.  A nice small sample.

Monday 59.63
Tuesday 68.12
Wednesday 80.01
Thursday 70.33
Friday 65.49

As you can see above, the day with the biggest swing is Wednesday.   Interestingly, it really is hump day, with the action getting larger until Wednesday and then falling off.  The numbers about don't normalize for the fact that there are more Monday holidays, but if you take those into account, Monday is still the least volatile. 

The data hold up pretty well over prior years of 2012 and 2011 as well.  Monday is the least volatile in every year, even correcting for fewer trading days because of holidays.  Swing traders may want to consider four day weeks every week.  Or at least realize that most of the opportunity to make money is mid-week.    

Thursday, January 9, 2014

The best day to buy stocks

Remember the stock market from last year?  It seemed like every Monday was down, and stocks would come roaring back on Tuesday.  It got to be a joke, with Tuesday up repeatedly.  Tuesday wasn't down at all for the first half of the year.  Then we had a down Tuesday and no one said anything more about it.

Funny, after the first week of 2014, the only really good day was Tuesday, and everyone seemed to forget about last year.  But, should they have forgotten?  What really happened last year.

It turns out that Tuesday was a great day to invest in 2013.  But it wasn't the best day.  If you bought at the end of the previous day, your total returns for the year by day for the $SPY would have been:

Monday -3.69
Tuesday 14.42
Wednesday -1.12
Thursday 10.63
Friday 21.28

Yeah.  Under that scenario, Friday was the best day.  It wasn't up every day, but when it was, you made the most money. 

And what if you forgot to buy at the close?  What happened if you bought the open? And held to the next morning?

Monday 2.33
Tuesday 4.59
Wednesday 4.36
Thursday 10.44
Friday 17.24
Yep, once again, Friday was the best day to buy stocks.  It wasn't as consistent, but the bigger positive moves were made on Friday.  You would have made the most on a two day work week.  Of course, last year was so good, it didn't matter how much you invested.  Just not over the weekend.  

I can't say that 2014 will be as consistent.  But, tomorrow is Friday.  Are you buying?