Tuesday, October 21, 2014

Hey You! You In or Out?

Market had a tantrum last week and then put a con on the Fed so they would squeeze the stimulus doll into saying ma ma.   It is always a circle jerk in defense of equity prices since they are viewed as the world benchmark for economic stabilization.  Spontaneous bear implosions are all over everyone's shoes as the VIX declines into its proper uselessness along with premature declarations of this is it from noted talking heads.

All one can say about the volatility of last two weeks and the nothing for sale rallies of the last few days is it has primarily been about stupid out / stupid in action.   Huge discount now has turned into huge premiums with value lying somewhere in between.

Bears may believe they need a macro miracle to save them but their real hope lies rather in slow going down bid action until the recent lows are tested. 

Monday, October 20, 2014

Third Quarter Low Now In or This Rally Is A Set Up?

Downside crying was so loud the Bears forgot to cover.  Extreme short squeeze looks familiar as the markets reclaim old battle ground.  Steep premium over value has now has appeared but not as wide as the discounts we saw culminate when posting one week ago today.  Volatility disappeared and will stay gone if market continues to move higher.  IBM collapse being ignored as managers put cash to work and see a chance to be fully invested by year end.  Now these guys do not have a great track record but they could replace share buy backs for awhile. 

If you are an absolute return manager with 50% or better, stop here and wait for last trading day of year or Jan.

IBM Fall Not Surprising

IBM lists among the worst risk opportunities on the CoverRisk Q8.

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%