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kenny1703 (< 20)

May 2012



Bright Side?

May 30, 2012 – Comments (2)

There’s always a bright side to things, just ask the markets.

All three headline composites of the latest Case Shiller home price index were lower for the first quarter 2012. In fact, home prices in many cities are at the lowest levels since the housing crisis began.

This “good news” combined with the other “good news,” Greece being such a gigantic financial disaster that it’s getting kicked out of the Euro, propelled the market higher.

If we are going to follow the stock investor’s lead, and be the glass-half-full kind of folks, we’ll need some help with this story.

CNBC and the New York Times reported that Trustee Irving Picard, the man responsible for recovering the stolen funds for Mr. Madoff’s investors, is billing at the rate of $850 an hour. That means that Picard and his law firm, Baker & Hostetler, have racked up a whopping $554 million in legal and other fees.

In the last several years, Picard has brought more than 1,000 cases trying to recoup more than $100 billion on behalf of victims, despite acknowledging that only about $17.3 billion had actually been invested by customers. (The entire Ponzi scheme has been estimated to be worth $65 billion, but much of that is the result of made-up profits recorded by Madoff.)

And how much have Madoff’s victims actually received from all of Picard’s cases and motions? Only $330 million. And how much does Picard estimate the total tab may run up to by 2014? A mere $1 billion.

I’m not sure that you could find a bright side in this mess even if you were standing on the sun.

Trade well and follow the trend, not the so-called “experts.”

Larry Levin
President & Founder - TradingAdvantage  [more]



Good News and Bad News

May 27, 2012 – Comments (0)

One of the biggest moments for the markets can come when there is a key news release or fresh fundamental data. Buyers and sellers seem to wrestle with the potential outcome, and in the case of larger announcements, volatility goes through the roof. The problem that I see some traders struggle with is knowing what news to look for, and how to trade it.

Finding news that you can actually use.

The thing that often comes up when you talk about announcements is that a lot of traders don’t understand the market reactions. A report will come out and it will appear as though it is good news, but the market will go down. The thing is that some people still try to trade on the news itself, when in reality they should be looking at what the market thinks the news will be. More than likely, those days when there was a “good” piece of data but the market went down, forecasts were calling for a better number.

The other explanation is that the report just might not have been as important to the market as it was to the observer trying to trade it. Reports and news events are lobbed into a general basket of analysis called fundamentals. Fundamental analysis focuses on the things that have the potential to impact the supply or the demand in a particular market, thus affecting the prices.

Reports that come out with some regularity, like initial unemployment claims, are unlikely to rock the S&P unless they are really, really shocking. Federal Reserve meetings, which are a rarer occurrence, tend to hold a bit more zest for traders. Monthly employment readings are also big. Producer Price Index (PPI) and Consumer Price Index (CPI) readings are key figures for inflation, which in times of economic troubles might get more attention than a decade or so ago.

Perhaps one of the best ways to weigh what kind of news is valuable to traders is to keep your eye on the stories daily.

Traders shouldn’t keep their head in the sand.

If you know what is happening in the market that week, that day, and that hour, it is better all around. You can line up the market’s movements with fundamental events. Of course, there will be big news that comes out of nowhere that can still catch you and the market off guard. However, there are plenty of economic report calendars, Federal Reserve meeting notices, and other lists that show you key data points. Most news outlets will also report results of a general survey of economists showing what the basic expectations might be. Knowing what the expectations are ahead of the report is just as important as the report itself. Good news can quickly become bad news if it falls short of what people were looking for.

A great example of this in recent news is the build-up ahead of the debt ceiling deal. In any other situation, finding a compromise or agreement would be considered a good thing and good news. The opposite was true in this case as investors and traders weighed the potential impact of continuing debt and a tarnish on the credit rating for the US. The highlighted area in the following chart shows the reaction leading up to and following the news:
Past Performance is not necessarily indicative of future results. Chart courtesy of Gecko Software.

Focus on the bigger picture, not just the headlines.

One of the best favors a trader can do for themselves is stay appraised of the bigger picture. There are plenty of places where you can get calendars online, and check for the stories that might impact the market. The longer you watch these fundamentals, the more likely you are to be able to distinguish which ones might bring higher volatility and potential trading opportunities. Avoid developing tunnel vision and focusing only on the things you think could be important. Watch for forecasts and estimates on reports – these are just as important as the actual news release and can be key in trying to gauge possible market direction. Good news and bad news are relative to expectations.

Best Trades to you,

Larry Levin
Founder & President - Trading Advantage  [more]



Crossing the Rubicon

May 24, 2012 – Comments (0)

Sorry Fraud street bankers, your friends at the Treasury may be limiting your access to the golden goose.

According to a report released by Reuters (, China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury. This is the Treasury’s first ever direct relationship with a foreign government.

Only certain Wall Street banks can serve as primary dealers of U.S. Treasuries, which will then bid on the government’s behalf at Treasury auctions. The other central banks that are large purchasers of U.S. Treasuries, including the Bank of Japan, continue to use these designated banks as the go between.

It’s the classic example of how Wall Street plays a rigged game where they are the only player so they always win.

On one hand, by bidding directly, China stops the Fraud Street banksters from exploiting their inter-twisted relationship with the Fed. The collusive Wall Street banks can drive up the auction price with their enormous purchasing power in a given Treasury auction.

Unfortunately, giving China direct bidder status may be giving a not-so friendly foreign superpower way too much leverage, as it currently holds $1.17 trillion in U.S. Treasuries.

Food for thought.

Trade well and follow the trend, not the so-called “experts.”

Larry Levin
President & Founder - TradingAdvantage  [more]



Home Builders

May 17, 2012 – Comments (0)

Greece may soon be back dealing in drachmas adrift alone in the Adriatic, JP Morgan and the other banks continue to be loosely regulated trading liabilities, and job growth continues to be anemic at best.

But fear not, the media trumpeted the headline this morning that homebuilder confidence in the U.S. rose more than estimates according to the National Association of Home Builders Index. While this NAHB release couldn’t bring the market higher on the day, the market had been in positive territory earlier in the day.

But really, who cares?

Like most of the economic that we are subjected to, not only are the numbers interpreted incorrectly, the data is mostly meaningless.

The NAHB home builder’s survey uses "a diffusion index on a scale of 0 to 100, based on a survey of builders. The index has 3 components--current sales, model home sales traffic, and builder expectations for 6 months hence rated on the basis of good, fair, or lousy. The most important of these is traffic, which reflects future sales. A reading below 50 means that more builders rate conditions as poor or very poor, rather than good or very good.

The HMI rose from 13 in June to 15 in July. That's the "good" news, but there was a catch. As bad as that was, the gain was based mostly on a big jump in the expectations component which surged from 15 to 22.

Now I ask you; how would a home builder have any clue what conditions would be like 6 months from now? Right. They don't. True, the present conditions index rose from 13 to 15, but that is not material in the overall scheme of things. The key number is still traffic, because without traffic you can't have sales, and weak traffic foreshadows weak sales.

Weak numbers on top of more weak data. The more things change, the more they stay the same.

Trade well and follow the trend, not the so-called “experts.”

Larry Levin

President & Founder - TradingAdvantage  [more]



Still too Big to Fail

May 10, 2012 – Comments (0)

While the sobering news from Europe has finally started to weigh on US stocks, I thought I’d add gasoline to the fire and remind everyone of the twisted morass that’s our own domestic financial situation.
The top 5 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 account for 95.9% of all derivative exposure.
The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively.
And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all-time-high.
Good thing Backstop Ben and Congress are always ready with their catcher’s mitt.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
Larry Levin
President & Founder - TradingAdvantage  [more]



Crossing the Rubicon

May 04, 2012 – Comments (1)

When Ben Bernanke was appointed as Chairman of the Federal Reserve seven years ago, the national debt was $7,932,709,661,723.50. For those of you not interested in counting digits, that number is nearly a cool $8 trillion, but still a tough sum to wrap your brain around.

After yesterday’s end of the month $70 billion Treasury debt auction settlement, total US debt is now a record $15.692 trillion dollars, nearly double what it was when Benny became the leader of the Inkjets back in 2005.

To make the seemingly unquantifiable somehow quantifiable - total US GDP is $15.6242 trillion, which is 101.5% of GDP. That’s right; the national debt is now GREATER than the Gross Domestic Product. US politicians, including the White House, Treasury, and the Federal Reserve have just crossed the Rubicon: the point of no return.

Unless the US economy heats up like a furnace, which would drive GDP higher than total debt, we have crossed the Rubicon indeed. Speaking of the Rubicon we are reminded of Caesar and how the Roman Empire once ruled the world. England, France and Spain were also global empires that were brought to end by DEBT. To be sure, there was more
to it than debt but it cannot be denied that profligacy was a major factor in all their declines.

If you aren’t depressed enough, read on at Zero Hedge where the eponymous Tyler Durden writes about the implications of this unfathomable debt figure.

Trade well and follow the trend, not the so-called “experts.”

Larry Levin
President & Founder - TradingAdvantage   [more]



Trading Tip #16: Buyers or Sellers

May 01, 2012 – Comments (2)

A question I often receive is, "How can there be more buyers or sellers at one price? Isn't there a buyer for every seller and a seller for every buyer?"
The answer is yes, but people are forgetting one important thing. There is a bid and an ask (or offer), and only one of them can be traded at a time.

A bid is an expression of willingness to buy at a price; an ask (or offer) is an expression to sell.

If the ES is trading at 1200.50, the bid is either 1200.25 or 1200.50. The answer depends on which way the market has just traded. Let's make it easy and simply say the ES is between 1200.25 & 1200.50, making the bid 1200.25. In order for the market to move from 1200.25 to 1200.50, someone must pay up to get filled.

You may not be in a hurry and attempt to wait to buy 1200.25, but that will usually only happen when the bid/ask drops to 1200.00 & 1200.25 and you are actually filled on the ask.

If you are trying to buy and really want to get filled, you must pay up at the offer or risk missing the trade. Conversely, if you really want to get filled on a sale, you must hit the bid, or reach down to get filled.

Sure, there is someone on the other side of the trade, but without you choosing to reach up and pay the offer the market stands still. Therefore when trades are executed at the offer it is said to be done by the buyers even though there are sellers at that price taking the other side.

Every buy will be filled on the offer and every sell will be filled on the bid, period.

Let's say we once more have a number of 1200.50 and we see that over time (sometimes just a few seconds) the fills were 100 x 1300. We can say that there were 1200 more buyers than sellers at 1200.50 because of how traders reacted to the bid/ask spread when it was at 1200.25 x 1200.50 and higher at 1200.50 x 1200.75 (called the spread.)
When the market was at the lower spread, 1300 buyers reached UP to pay the 1200.50 offer.

When the market was at the higher spread, 100 sellers reach DOWN to sell the 1200.50 bid.
When the spread traded around this price range there truly were more buyers than sellers at 1200.50.

Understanding bid and ask can open up other realms of technical analysis.

There are some traders who will look at the bid and ask order flows to try to get clues to potential movement in the market based on what buyers and sellers are doing. This is often referred to as reading order book flow or depth-of-market.

If you look at the number of orders for each bid and ask around the current market price you can see the probable number of transactions available at those levels. Reading this information is the key to certain kinds of volume based trading systems and other trading methods that follow the book order flow.

Best Trades to You,

Larry Levin
Founder & President - Trading Advantage  [more]

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