Thursday, October 16, 2014

What is Risk?

Understanding markets is tough.  Creating adaptive strategies generating excess returns year after year is even tougher. CoverRisk does it.  But because most managers, most investors, are so bad at understanding risk and how to play it, there has been an industry created in constant vigil to protect the market's upside.  This reaction to every downside event, fretting and worrying the market may have a  pathetic 10% correction shows how fragile long term investors truly are.   The horror of a 50% correction is beyond all comprehension. 

A companies stock performance now more than ever is protected through buy backs and market gaming analysts complicit in creating an illusion of value.  Legions of retirement portfolio participants are sucking onto the side of the great float boat provided by Greenspan to Yellen, Paulson to Geithner.  All holding on to notions of a comfort zone lugging stock portfolios dependent on strategies which require only that you wake up in the morning and pray great acts will appear from the Fed and Treasury.

I talk about risk all the time to a lot of people.  Most don't get it.  Most don't believe it.  Many have watched year after year of astounding gains simply complacent to be emasculated by missing great returns.  

There are two rules in life as you probably well know.  
Rule number one; it is always about the money 
Rule number two; it is always about the money. 

Understanding risk is not just owning an investment knowing it might go down.  It is the probability that an investment will succeed compared to the probability its substitute will not.  Risk is balancing the uncertainty of an outcome with a utility comparing one thing to another.  Finding a measure where they are both equal and then looking at the probability of returns.  

Five Down Three To Go

Last 96.26 16.08 524.51 172.58 179.84 42.74 13.98 27.70
Change -1.28 0.32 -5.52 -4.66 -1.91 -0.48 0.36 -0.49
YTD 16.11 0.51 -35.85 -4.68 -7.73 5.33 -1.45 -2.93
%YTD 20.11% 3.28% -6.40% -2.64% -4.12% 14.25% -9.40% -9.57%

Wednesday, October 15, 2014

Eight Stocks

Twenty thousand invested in each of these stocks at the beginning of this year gets you this.

Shares 250 1250 36 113 106 541 1333 645 4274.13
On20000 4650 1188 -801 163 -401 3416 -2200 -1400 4615


Monday, October 13, 2014

Deep Discount

Interesting technical data appears.  Never has the S&P500, in our collective data running over 20 years, ever had such discount as to what we call riskvalue.  Deep discounts usually can be corrected consolidation or by sharp short covering rallies where pockets of nothing for sale appear.


Markets acting scared.   Big volume, big enough volatility, and late sell off action are classic signs active participants know how to get paid.   Investors online statements starting to show decent losses with lots of October left.  As posted before,  volatility was due to appear without necessarily changing the long term trend.  But now that it has picked up, you have to rely on either deep positive trading performances, such as CoverRisk models have provided, or consider what you can tolerate.

Here is the Q8 on today's close.

Last 99.81 16.40 533.21 178.77 183.52 43.65 13.54 28.47
Change -0.92 -0.08 -11.28 -1.61 -2.41 -0.38 -0.25 -0.66
YTD 19.66 0.83 -27.15 1.51 -4.05 6.24 -1.89 -2.16
%YTD 24.54% 5.33% -4.84% 0.85% -2.16% 16.68% -12.25% -7.05%

Tuesday, October 7, 2014

Down to Zero or Third Quarter Opportunity

Nets being deployed for falling objects as the IMF, deflation, and creepy diseases assault stock prices.  No greater minds than those at the IMF have declared markets too high and of requiring immediate correction.  Many of the IMF members know a disaster when they see one since they have honed their prognostic skills on years of either over reacting or completely missing important events.  This time they will not be fooled.  The rich are not stupid all the time.

Markets have not become volatile yet but rather have been experiencing a kind of dull going down bid action.  And who can blame reluctant Bears since downside follow through has been rare in the last few years as the markets have withstood the push to bite down hard because of the Fed's magic powers.

Down and ugly will make those of us who design alternative investment strategies much happier because it so much easier to beat something that is at zero.  But stay calm.  The old adage from my days in the pits was the trader axiom ; the market moves the most to everyone's disadvantage. 

Bear Traction

The status of the Q8 Roller as of 13:36 CT today.          Bears getting more traction before Fed Minutes tomorrow.

Last 99.21 17.02 567.00 184.53 186.76 45.69 14.17 28.94
Change -0.41 -0.27 -10.35 -2.95 -2.28 -0.40 -0.35 -0.23
YTD 19.06 1.45 6.64 7.27 -0.81 8.28 -1.26 -1.69
%YTD 23.79% 9.31% 1.19% 4.10% -0.43% 22.13% -8.17% -5.53%

Friday, October 3, 2014

Bears Run Over

Though unemployment is at new low for the move, so is job participation.   But the news was enough to create a mild slaughter again as in "to many to count" for the Bears.  They are said to be reconsidering the Death Cross signal as a way to predict the next financial black plague but are taking suggestions at 1 800  j-u-s-t   s-h-o-o-t    m-e. 

The CoverRisk data still shows the up trend in place with few signs of an end.  Deep discounts at the end of yesterday's trade in S&P500 were corrected overnight in part by attraction and the part by the ever present insider leaking we have all come to love.  If they can hack into every major financial institution, they can certainly get all the data they want from the idiots at the Labor Department. 

Weekly performance in the S&P 500 is the only positive negative in Bear talk.   There is always Putin, the Chinese, and Ebola to bet on but the last quarter of every year is a particularly tough journey for shorts.   The best rally killer is down, very fast, and for no reason.  It makes every one panic.

Wednesday, October 1, 2014

Bears Press for Deeper Correction

Bears finally getting some follow through on downside.   Europe, China, and some economic data seen as catalysts.   With jobs number coming up on Friday markets will find some wait and see action Thursday as they are running deeper discounts than usual before critical information.  Bear's task will be to take the market lower after a volatile Friday up/down reaction with a hard break possibly pointing to a 10% correction as opposed the usual 4% in recent years.    

Monday, September 22, 2014

Bears Want to Avoid Failure to Launch Break Again

Bears are ready.  Many bulls are ready, as in on the sidelines.  The death cross is now imprinted on the foreheads of  those who believe the crossing of the Russell and the SP500 long term trend averages is the big voodoo.  Actually, many who believe in the 50 or the 200 day moving averages have a metal plate in their head.

A good hard break would be refreshing and well predicted as of today, but those events do  occasionally coincide.   Anything which will increase volatility is being subscribed to by the active trading market participants while this year's rally has now climbed to a height where the bulls are using caution as a strategy.

 A set back to buy is what the bulls really want while the bears want death dive squared forever.