Link: Top Reasons to Trade During Retirement

What are the top reasons to trade through retirement?  Or to incorporate trading strategies into your upcoming retirement planning?

I wanted to share a link to an article entitled “Top Reasons to Trade During Retirement” from Trade Log in which I was featured which answers these questions.

The image below links to the entire article:

Trading Through Retirement

Beyond “staying sharp and entertained,” visit the full article page to learn other reasons submitted by traders and investors to the article.

I’m thankful for the opportunity to be included in the list!

Corey


Afraid to Trade.com Blog

Top Trade Ideas for the Week of December 30, 2013: Bonus Idea

Written By: DragonFly Capital

Here is your Bonus Idea with links to the full Top Ten:

PNC Financial Services, Ticker: $ PNC
pnc tv

PNC Financial Services, $ PNC, built a Cup and Handle pattern since August and us now triggering the most conservative level. It carries a target of 85.37. The Relative Strength Index (RSI) is bullish and rising with the MACD rising and crossed higher, both supporting more upside. The longer term picture sees it continuing on to 95 on a Measured Move.

Trade Idea 1: Buy the stock here (over 78) with a stop at 76.50.

Trade Idea 2: Buy the January 44.75 Calls (offered at $ 1.60 late Friday) and use the stops and triggers on the stock price as a guide.

Trade Idea 3: Buy the May 77.5 Calls ($ 3.45) as a longer term play.

Trade Idea 4: Buy the May 77.5/85 Call Spread ($ 2.69).

Trade Idea 5: Buy the May 77.5/85 Call Spread and sell the May 70 Put ($ 1.53).

Trade Idea 6: Buy the February 77.50/January 80 Call Diagonal ($ 1.76) and sell the February 72.5 Put (51 cents).

Premium Content
The Best

The Rest Premium

Free Content
The Rest

If you like what you see sign up for more ideas and deeper analysis using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

After reviewing over 1,000 charts, I have found some good setups for the week. This week’s list contains the first five below to get you started early.

The post Top Trade Ideas for the Week of December 30, 2013: Bonus Idea appeared first on Dragonfly Capital.

Dragonfly Capital

Review of Start-Up Nation

I’m wondering if there should be a genre on Amazon of “Jew-pride” books. If so, Start-up Nation: The Story of Israel’s Economic Miracle should be first in the category. The book meets all of the rigorous standards of business bestsellers, which is to say that it is mostly anecdotes.

The book opens rather unfortunately, celebrating the achievements of Better Place. Given that Arab countries surrounding Israel won’t allow Israeli cars on their roads, it is basically impossible to drive farther than a person would within the state of New Jersey. So it was practical to set up a network of battery-swapping stations. Better Place would own the batteries, relieving consumers of the burden of having to pay for them up front and also from having to worry about battery condition deteriorating. The batteries could be charged at times that were most efficient for the Israeli electric grid. You had a group of consumers not necessarily enthusiastic about contributing to the demand for oil that has been funding wars and terrorism against Israel (e.g., the Saudi government paying the families of suicide bombers or the Iraqi government, back in Saddam’s day, doing the same (CBS News)). Better Place managed to secure a partnership with Renault to make the vehicles that would accept the batteries. It looked like a great idea when the book was printed… but by now we know how it worked out (investors left with a $ 700 million hole in their pockets, though unlike similar greentech companies in the U.S., these seem to have been private investors rather than taxpayers).

Lesson 1: Start-ups are risky, even when Israeli!

The authors claim that the success of a handful of companies has changed societal norms:

Most importantly, launching a start-up or going into high tech has become the most respected and “normal” thing for an ambitious young Israeli to do. Like the stereotypical Jewish mother, an Israeli mother might be satisfied with a child who becomes a doctor or a lawyer, but she will be at least as proud of her son or daughter “the entrepreneur.” What in most countries is somewhat exceptional in Israel has become an almost standard career track, despite the fact that everyone knows that, even in Israel, the chances of success for start-ups are low. It’s okay to try and to fail. Success is best, but failure is not a stigma; it’s an important experience for your résumé.

[I asked a married-with-kids friend who is a computer scientist in Israel “If a mom had to choose, would she be happier to see the new graduate going to medical school or into a startup?” and he responded “For sure, go to Medical School!”]

The most confusing thing about the book is that in several places the authors throw rocks at Singapore. The authors claim that having compulsory military service and existential threats to the country as a whole are conducive to economic success, citing Israel, South Korea, and Singapore as examples. But Singapore is supposedly woefully deficient in start-ups compared to Israel:

Although Singapore’s military is modeled after the IDF—the testing ground for many of Israel’s entrepreneurs—the “Asian Tiger” has failed to incubate start-ups. Why? It’s not that Singapore’s growth hasn’t been impressive. Real per capita GDP, at over U.S. $ 35,000, is one of the highest in the world, and real GDP growth has averaged 8 percent annually since the nation’s founding. But its growth story notwithstanding, Singapore’s leaders have failed to keep up in a world that puts a high premium on a trio of attributes historically alien to Singapore’s culture: initiative, risk-taking, and agility…

I’m not sure where they are getting their data on Singapore’s failure to keep up. The CIA Factbook says that Singapore has a GDP per capital (purchase-power adjusted) of $ 61,400. This is almost double Israel’s, at $ 32,800. If that is failure, where can we get some?

[The authors are not alone in their tender concern for the wealthy Singaporeans sweating peacefully next to their koi ponds and bonsai: “As the New York Times’ Thomas Friedman put it, ‘I would much rather have Israel’s problems, which are mostly financial, mostly about governance, and mostly about infrastructure, rather than Singapore’s problem because Singapore’s problem is culture-bound.'”]

The authors note that a planned economy worked well in the 1950s when Israel needed to build out basic infrastructure:

Israel’s economic performance occurred in part because of the government’s meddling, and not just in spite of it. During the early stages of development in any primitive economy, there are easily identifiable opportunities for large-scale investment: roads, water systems, factories, ports, electrical grids, and housing construction. Israel’s massive investment in these projects—such as the National Water Carrier, which piped water from the Sea of Galilee in the north to the parched Negev in the south—stimulated high-velocity growth. Rapid housing development on kibbutzim, for example, generated growth in the construction and utilities industries. But it is important not to generalize: many developing countries engaged in large infrastructure projects waste vast amounts of government funds due to corruption and government inefficiencies.

The authors go on to point out that this centrally planned economy worked only because of an unusual lack of corruption (Israel didn’t have any big companies lobbying for special benefits back in the 1950s and, in any case, the place is so small that ordinary citizens would have howled in protest at sweetheart deals for the connected). Anyway, the command-and-control economy stalled out and resulted in inflation rates above 400 percent in the 1970s:

… private entrepreneurs may not have been essential because the largest and most pressing needs of the economy were obvious. But the system broke down as the economy became more complex. According to Israeli economist Yakir Plessner, once the government saturated the economy with big infrastructure spending, only entrepreneurs could be counted on to drive growth; only they could find “the niches of relative advantage.” The transition from central development to a private entrepreneurial economy should have occurred in the mid-1960s. The twenty-year period from 1946 through 1966, when most of the large-scale infrastructure investments had been made, was coming to an end. In 1966, with no more frothy investment targets, Israel experienced for the first time nearly zero economic growth.  …

A main reason for the hyperinflation was, ironically, one of the measures the government had taken for years to cope with inflation: indexing. Most of the economy—wages, prices, rents—were linked to the Consumer Price Index, a measure of inflation.

The last paragraph is cautionary for the U.S. as the government gradually assumes a larger role in the U.S. economy (see this chart for the growth from about 20 percent of GDP after World War II to nearly 40 percent now). A lot of government expenditures are indexed to the inflation rate, notably pensions, Social Security payments, etc. If inflation takes hold here, it may not be as easy to stop as it was in the past.

Like the U.S., Israel does not seek out educated immigrants. There is no Australian/Canadian/NZ-style point system that favors the educated and/or skilled. Anyone with a connection to Judaism can immigrate. Israel spends lavishly on integrating immigrants into its society, with a wide range of welfare programs targeted specifically at immigrants. How has it worked out?

… This was part of a secret Israeli government effort; the 1984 airlift mission, called Operation Moses, brought more than eight thousand Ethiopian Jews to Israel. Their average age was fourteen. The day after their arrival, they were all given full Israeli citizenship. .. The Ethiopian immigration wave has proven to be an enormous economic burden for Israel. Nearly half of Ethiopian adults age twenty-five to fifty-four are unemployed, and a majority of Ethiopian Israelis are on government welfare.

But then Israel picked up a batch of immigrants from Russia, who showed up with fantastic technical educations:

Between 1990 and 2000, eight hundred thousand citizens of the former Soviet Union immigrated to Israel; the first half million poured in over the course of just a three-year period. All together, it amounted to adding about a fifth of Israel’s population by the end of the 1990s. The U.S. equivalent would be a flood of sixty-two million immigrants and refugees coming to America over the next decade.

It seems that these Russians may in fact be the secret to Israel’s recent economic success:

Walk into an Israeli technology start-up or a big R&D center in Israel today and you’ll likely overhear workers speaking Russian. The drive for excellence that pervades Shevach-Mofet, and that is so prevalent among this wave of immigrants, ripples throughout Israel’s technology sector.

If so, that is hardly replicable for other countries, few of whom would welcome 800,000 Jews as immigrants (the authors note that “Even after World War II ended and the Holocaust became widely known, Western countries were still unwilling to welcome surviving Jews. The Canadian government captured the mood of many governments when one of its officials declared, ‘None is too many!’”).

One good thing about the book is that the authors interview people who have invested in Israel to ask “Why were you crazy enough to put your money at risk in a war zone?” It does seem reasonable for an investor to ask “What happens to my money when the Iranians finish their nuclear weapons and decide to test them out over Israel?” Warren Buffet’s subordinates shared his perspective with the authors:

Buffett spent fifty-two hours touring Iscar, the machine-tool company he’d purchased for $ 4.5 billion, and Israel, the country he had heard so much about. “You think of people walking those steps 2,000 years ago,” he said of his visit to Jerusalem, “and then you look at the Iscar factory on a mountaintop, supplying 61 countries—whether it’s Korea or the United States or Europe or you name it. It’s pretty remarkable. I don’t think you can really find that kind of combination of the past and the future, in such close proximity, virtually any place in the world.”

Buffett’s view, she told us, is that if Iscar’s facilities are bombed, it can go build another plant. The plant does not represent the value of the company. It the talent of the employees and management, the international base of loyal customers, and the brand that constitute Iscar’s value. So missiles, even if they can destroy factories, do not, in Buffett’s eyes, represent catastrophic risk.

Israel is a relatively crummy place to do business, according to the Heritage Foundation (link). The government chews up 45 percent of GDP, for example, compared to 17 percent in Singapore (the failed state, according to the authors of this book, because they are not cranking out as many iPhone apps!). But it used to be even crummier:

… in 2003, [finance minister at the time] Netanyahu cut tax rates, transfer payments, public employee wages, and four thousand government jobs. He also privatized major symbols of the remaining government influence on the economy—such as the national airline, El Al, and the national telecommunications company, Bezeq—and instituted financial-sector reforms. “In the sense that he tackled the stifling role of government in our economy, Bibi was not a reformer but a revolutionary. A reform happens when you change the policy of the government; a revolution happens when you change the mind-set of a country. I think that Bibi was able to change the mind-set,” said Ron Dermer, who served as an adviser to four Israeli ministers of finance, including Netanyahu.18 Netanyahu told us, “I explained to people that the private economy was like a thin man carrying a fat man—the government—on its back. While my reforms sparked massive nationwide strikes by labor unions, my characterization of the economy struck a chord. Anyone who had tried to start a [nontech] business in Israel could relate.”19 Netanyahu’s reforms gained increasing public support as the economy began to pull out of its rut. At the same time, a package of banking-sector reforms pushed through by Netanyahu began to take effect. These reforms launched the phaseout of the government’s bonds that had guaranteed about 6 percent annual return. Up until that point, asset managers for Israeli pensions and life insurance funds simply invested in the Israeli guaranteed bonds. The pension and life insurance funds “could meet their commitments to beneficiaries just by buying the earmarked bonds. So that’s exactly what they did—they didn’t invest in anything else,” Keinan told us. “Because of these bonds, there was no incentive for Israeli institutional investors to invest in any private investment fund.”

And it is sliding back into crumminess due to the fact that a growing number of Israelis prefer to collect Welfare rather than work:

This underutilization brings us to what we believe is the biggest threat to Israel’s continued economic growth: low participation in the economy. A little over half of Israel’s workforce contributes to the economy in a productive way, compared to a 65 percent rate in the United States. The low Israeli workforce participation rate is chiefly attributable to two minority communities: haredim, or ultra-Orthodox Jews, and Israeli Arabs. Among mainstream Israeli Jewish civilians aged twenty-five to sixty-four, to take one metric, 84 percent of men and 75 percent of women are employed. Among Arab women and haredi men, these percentages are almost flipped: 79 percent and 73 percent, respectively, are not employed.

(Of course, the U.S. labor force participation rate is also shrinking currently (see this Washington Post analysis).

The book also tries to explain why Arab countries, similarly situated to Israel but far wealthier due to oil, have not been successful in producing start-up companies, despite some special enterprise zones in places such as Dubai and despite collaborations with a lot of top American universities.

[according to McKinsey & Company], Arab governments have been consumed with the number of teachers and investments in infrastructure—buildings and now computers—in hopes of improving their students’ performance. But the results of the recent Trends in International Mathematics and Science Study ranked Saudi students forty-third out of forty-five (Saudi Arabia was even behind Botswana, which was forty-second).19 While the average student-teacher ratio in the GCC is 12 to 1—one of the world’s lowest, comparing favorably with an average of 17 to 1 in OECD countries—it has had no real positive effect. Unfortunately, international evidence suggests that low student-teacher ratios correlate poorly with strong student performance and are far less important than the quality of the teachers. But the education ministries in most Arab countries do not measure teacher performance. Inputs are easier to measure, through a methodology of standardization.

Celebrating student-teacher ratios without measuring teacher performance? I don’t think we need to go to Saudi Arabia to find a situation like that!

The authors interview Shimon Peres, President of Israel at the time (sort of a ceremonial job in a parliamentary democracy). He shows that politicians everywhere are attracted to the lure of central planning:

[Peres] previewed what his message would be for Israel’s entrepreneurs and policymakers in the coming years: “Leave the old industries. There are going to be five new industries. Tremendous—new forms of energy, water, biotechnology, teaching devices—there’s a shortage of teachers—and homeland security to defend against terrorism.”

The authors celebrate the military and three years of compulsory military service as a boon to Israel. They point out that when Israelis go to college they get more out of it because they are older. This is something that hasn’t been lost on American colleges. Harvard, for example, often requires applicants to spend a “gap year” doing something other than attending a full-time school before starting college at age 19. It is hard to imagine, however, that the supposed benefits of military service are worth taking three years out of everyone’s life. And is this replicable for other countries? Suppose that French drafted everyone from age 18-21 and made them practice all kinds of elaborate military techniques. Given that there is no credible threat from Germany anymore, would people take it seriously?

The authors end on an optimistic note, quoting the Economist magazine regarding the Collapse of 2008: “Israel was one of the ‘last countries to enter recession and among the earliest to exit.’ Indeed, Israel had only one quarter of negative growth, and has since been leading all other OECD countries in GDP growth.” And what about the shift of economic activity to Asia?

In the next few years, we may see China leapfrog American leadership in whole industries, such as the development and manufacture of electric cars and the batteries to power them. India is also becoming a science and technology powerhouse. China and India also have the advantage of access to their own rapidly growing markets that are being jealously eyed by the developed world. None of this is bad for Israel; in fact it represents a major opportunity. Just as Israeli start-ups and development centers have played a critical role for tech giants such as Google, Microsoft, IBM, Intel, and Cisco, Israeli companies could be ideal partners for Chinese and Indian companies—including start-ups—looking to innovate and globalize.

Suppose that there were a much simpler explanation for all of this? How about the following:

  • Israel is not home to a lot of huge successful international companies. There is nothing comparable to Samsung in Israel (Samsung is 10X the size of Teva, Israel’s biggest company)
  • The Arab Boycott of Israel prevents the development of successful regional companies.
  • Israel got lucky when a lot of Russian Jews wanted to migrate and were not able to get into the U.S. or Western Europe (see my Israel article from 2003).
  • These Russians and their well-educated children couldn’t find good jobs in a big company, so they started a lot of new companies in hopes of selling their labor (by selling the companies) to U.S. and Western Europe without moving physically to those countries.

If this is the correct explanation then there is pretty much nothing that can be learned from the success of some Israeli start-ups. You have smart well-educated people who are blocked for political and practical reasons from moving somewhere else. There are practical and political impediments to Israeli companies growing huge, which creates a relatively more favorable environment for small companies.

[The book contains some factual errors that call the whole project into question. The authors talk about the Ayalon Institute, a secret underground bullet factory. The equipment came from Poland. The “factory” was smaller than the average American SUV driver’s McMansion “great room”.  Apparently there are no fact-checkers at Reed Elsevier because they didn’t do a Google search to check the authors’ assertions: “One factory was literally hidden underground, beneath a kibbutz laundry; the machines were kept running to mask the banging noise from below. This factory, built with war-surplus tools smuggled from the United States, was producing hundreds of machine guns daily by 1948. “]

Philip Greenspun’s Weblog

Top Trade Ideas for the Week of December 30, 2013: The Rest

Written By: DragonFly Capital

Here are the Rest of the Top 10:

ASML Holdings, Ticker: $ ASML
asml

ASML Holdings, $ ASML, moved back to resistance at the ‘W’ Friday before pulling back. The Relative Strength Index (RSI) is rising and bullish and the MACD is rising and crossed up. Look for a break higher to try it long.

DexCom, Ticker: $ DXCM
dxcm

DexCom, $ DXCM, is attempting to move higher out of a bull flag after consolidating the last move for a month. The RSI is bullish and rising and the MACD is turning up, both supporting the upside.

Hess, Ticker: $ HES
hes

Hess, $ HES, has been moving higher off of a the 100 day Simple Moving Average (SMA) and through consolidation at the 50 day SMA. It is nearing the Measured Move at 84 but with a rising and bullish RSI and a MACD that is rising.

Textron, Ticker: $ TXT
txt

Textron, $ TXT, spiked higher a week ago Friday, oddly 3 trading days before announcing an acquisition. Since then it is consolidating in a symmetrical triangle and has worked off the overbought RSI. Look for a break of the triangle to enter.

United Health Group, Ticker: $ UNH
unh

United Health Group, $ UNH, is pressing against quadruple top resistance at 75. This is also the neckline of an Inverse Head and Shoulders pattern. The RSI is bullish and the MACD is rising, supporting a break higher.

Up Next: Bonus Idea

The Best

If you like what you see sign up for more ideas and deeper analysis on these using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, as the year closes, sees the markets ready for a rest after a strong showing all year. Look for Gold to consolidate or continue in the trend lower while Crude Oil continues to the upside. The US Dollar Index looks to continue in the consolidation with an upward bias while US Treasuries may be ready for the big one to the downside. The Shanghai Composite and Emerging Markets remain biased to the downside with consolidation a possibility for the Chinese market. Volatility looks to remain very low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ, despite the VIX being biased higher. The individual charts of the equity indexes show the SPY looking strongest with the IWM and QQQ starting what could be pullbacks and over extended. Use this information as you prepare for the coming week and trad’em well.

Want to learn more about Dragonfly Capital Views?

Dragonfly Capital Views Performance Through December 2013 Expiry and sign up here for the free 7 day trial before you pay.

The post Top Trade Ideas for the Week of December 30, 2013: The Rest appeared first on Dragonfly Capital.

Dragonfly Capital

Idea for an employment agency: The 100th Week

The federal government is winding down its five-year-old program of sending checks to people who held jobs relatively recently but currently are not working (nytimes; also see my January 2011 posting on the 99-weeks-of-Xbox system).

So here’s an idea for a business… An employment agency for the long-term unemployed. Offer intensive training in areas where there is currently a shortage of workers as well as relocation assistance to parts of the country where jobs are abundant (check this map). Get funding from state and federal government grants (e.g., from http://www.doleta.gov/ ) and maybe from employers if the new workers is successful during his or her first 90 days on the job. Call the company “The 100th Week”.

[Separately and curiously, the New York Times article on the subject highlights the difficulties of an “information technology expert and web designer” in finding a job. If he is truly an expert and truly cannot find a job (perhaps due to his age of 68) that indicates a terrible lack of efficiency in the employment market, since employers say that they are finding it impossible to recruit IT experts (the example guy is also in the Washington, D.C. area, which has arguably the best job market in the U.S. (this study says it is second best for college grads)).]

Philip Greenspun’s Weblog

The Thanksgiving Trader – Vegas Prologue

I’ll let the Vegas pics tell the full story on this Thanksgiving day, as there are simply too many things to list for which to be faithful.

Thank you God for love, family, friends, skill with which to hone a craft, the opportunity to help others, and a world of tomorrows that allows us to be better than today.

May all of you have a blessed and peaceful Thanksgiving.

Don Miller’s S&P Trading Tank

Trading Expo Interviews

For your viewing pleasure and thanks once again to Tim Bourquin of the MoneyShow team who always does a fine job.

Interview #1: “Trust But Verify”

Interview #2: “Get Inside the Mind of a Trader”

Interview #3: “Being Flexible is Key to Successful Trading”

I’ll provide more info shortly on adding WorldVision to our growing list of charitable causes.

And how about that monster MATD today!!!  As I’ve long said, MATD’s remain THE highest probability trading days. 25 for 25 and one month’s income in a single session.

As it should be.

Don Miller’s S&P Trading Tank

Put Diamond Foods Back on Your Radar

Written By: DragonFly Capital

Diamond Foods, $ DMND, had a very bad spell in 2011 when they apparently could not cont how many nuts they were selling. The stock lost 75% of its value in less than 3 months and eventually bottomed over 85% lower.

dmnd

But since then it has based between 15 and 26 for 2 years. If we focus on the most recent activity by zooming in on the chart below, it has been in an uptrend since the beginning of 2013. The entire 2 years makes for a pretty good saucer pattern, and is nearing a key level at 26.60. Above that level a gap opens up to 35.80. It may take some time to get there and to trigger but a gap fill is a 35% return for this thrown to the curb stock, and that would be just the start of a recovery.

dmnd 2

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Dragonfly Capital Views Performance Through November 2013 Expiry and sign up here for the free 7 day trial before you pay.

The post Put Diamond Foods Back on Your Radar appeared first on Dragonfly Capital.

Dragonfly Capital

Why doesn’t economic inequality bother us within a field?

Income inequality has been in the news lately, notably with Barack Obama’s pitch to raise the minimum wage. The statistics are kind of ugly. Some people get paid a fortune while most of us do not.

People can differ when comparing wages across fields. In October I was at Korean BBQ restaurant in Manhattan sitting across from Venus Williams. One of my companions said later “I don’t see why she gets paid so much to hit a tennis ball. My friend is a cancer researcher doing much more worthwhile work and he doesn’t get paid a lot.” My response was that people dropped dead every day from cancer and therefore his friend wasn’t doing an obviously great job. Venus Williams, by contrast, inspired tens of millions of people all over the planet as to what were the limits of human capabilities.

What about within a field, though? I have taken over all of the shopping and cooking in our apartment since our baby was born (1.5 weeks ago). In addition to making the inconvenience of pregnancy and the pain of childbirth seem insignificant, the results of my kitchen experiments I am sure are convincing the rest of the household that the chef of a Michelin-starred restaurant should be earning at least 100X what I might earn in the same field.

Consider also writing. In theory this is something that nearly 100 percent of Americans learn how to do. Yet some people cannot put together a single grammatical sentence while others can write a complete bestselling novel. It doesn’t seem unreasonable that the minimum wage is too high for a writer whose work is disorganized and needs thousands of dollars worth of copy-editing and at the same time that Stephen King might earn $ 20 million per year (source: Forbes).

In fact, considered in this light we would expect tremendous income inequality in any field except those where productivity is fixed (assembly line) or irrelevant (government).

So why are we continually surprised and, in some cases offended, that people earn different amounts? Is it because of people who get ahead seemingly unjustly, e.g., Bob Nardelli collecting hundreds of millions from Home Depot shareholders while earning a place in the “Worst American CEOs of All Time”? Aside from my friend, who is more passionate about cancer researcher compensation, most Americans seem to think that it is fair for sports stars to earn a lot. Is that because, absent doping, it is obvious that the sports star reached the top through fair competition?

[Separately, it might be worth looking at what politicians are proposing. As a remedy for income inequality, Obama suggests in his December 4, 2013 speech “strong application of anti-discrimination laws” and cites the figures that “women still make 77 cents on the dollar compared to men.” Given that government and government contracting is now nearly 50 percent of the economy, how can this be the result of sex discrimination unless the government itself is discriminating? Does it make sense for the CEO of the largest employer in the United States to say “Employers nationwide have to stop discriminating”? Why hasn’t the government snapped up all of these highly qualified underpaid women (this would roughly double their compensation (see this study))?

Obama’s next solution is “immigration reform” but immigration is a huge contributor to income inequality since a person who is new to the U.S. and may not speak English is going to earn less than a native-born citizen.

Obama then decries “disparities in education” but generally politicians like Obama fight against school vouchers that would allow poorer Americans to send their children to the private schools that are favored by wealthier Americans. Obama says that “obesity” among the poor contributes to income inequality but the New York Times reports that the USDA encourages industrial food companies to cram more cheese into everything. Why wouldn’t Obama use his executive authority to shut this down instead of decrying obesity? Obama attacks “absent fathers” without mentioning that a lot of state governments encourage this by making divorce and child support lawsuits highly lucrative for mothers (see “Child Support Guidelines: The Good, the Bad, and the Ugly” by Brinig and Allen for how some states encourage divorce). Obama complains about “isolation from community groups” without mentioning that higher tax rates and a bigger government will necessarily crowd out community groups. When the government is providing housing, food, health care, etc. to the poor there is less of a role for a community group to play. (This may be why Bill Gates and Warren Buffett, for example, concentrate their charitable efforts outside the U.S.)

Obama argues that a higher minimum wage will not eliminate jobs or raise costs to consumers. It will be truly a free lunch. But maybe there is a third possible consequence: it will eliminate poorly skilled Americans from the work force in favor of additional immigrants. As I noted an August 2010 posting, the cost of a poorly skilled person in a factory or office is now much higher than it was. Add that to a high minimum wage and an employer will simply fire poorly skilled Americans and learn more heavily on the H-1B program. So there can be the same number of jobs and roughly the same costs to consumers, as President Obama says, but more Americans on Welfare and more immigrants working.

Obama says “I challenged CEOs from some of America’s best companies to give these [long-term unemployed] Americans a fair shot.” Yet, as noted above, Obama himself is the CEO of America’s largest employer. Why doesn’t he hire these folks? The government spends huge quantities of taxpayer dollars recruiting young people fresh out of college. Why not shut that down and hire folks who just graduated from 99 weeks of Xbox? The government provides excellent jobs in air traffic control (more than $ 200,000 per year in total comp) and trains people for those jobs. Currently the government discriminates against anyone over age 30 by flatly refusing to hire them (FAA policy). Obama could adjust this regulation to allow 35-year-olds who’ve been unemployed for at least two years to apply.]

Philip Greenspun’s Weblog

A relaxing lunch with an emergency physician

I had lunch today with a friend who is an emergency physician. She congratulated me on the recent arrival of our son and said “Oh, don’t let anyone touch him for the first couple of months.”

Why not?

“If he gets a fever he needs to go to the ED and will get

  • stuck with a needle for blood and blood cultures
  • catheter urine specimen or needle into bladder (via suprapubic route)
  • lumbar puncture (what the lay public thinks of as a spinal tap) to rule out meningitis (newborns don’t have a well-developed blood-brain barrier yet)
  • IV antibiotics
  • +/- chest xray
  • hospitalization until results back (culture results take a couple days or so)”

Armed with a little knowledge, I feel much more relaxed now…

Philip Greenspun’s Weblog

STTG Market Recap December 18, 2013

Surprise, surprise.  Ben Bernanke had one last trick up his sleeve as he exits state right and that was to do the opposite of what happened in September.  Back at that Federal Reserve meeting all the smoke signals had indicated the Fed would reduce its quantitative easing program to a small degree – but they did not.  Today, the majority expected no action and instead we got the small reduction.  After a knee jerk reaction downward the market made a stupendous move the following 2 hours, posting a rare bullish engulfing pattern on the S&P 500; not just of the previous day but of the previous few weeks. The S&P 500 gained 1.66 and the NASDAQ 1.15%; all of that plus more in the final 2 hours as the indexes were negative pre Fed.  That said today’s action by the Fed was perceived by many to be dovish because while they reduced QE by $ 10B per month they put in more dovish language in terms of interest rates:

The central bank said it would reduce its monthly asset purchases by $ 10 billion to $ 75 billion, while it also indicated that its key interest rate would stay at rock bottom even longer than previously promised. It said it “likely will be appropriate” to keep overnight rates near zero “well past the time” that the U.S. jobless rate falls below 6.5 percent.  Regardless of the Fed’s decision, “the overriding theme is that rates are going to stay low for several more years,” said Dan Greenhaus, chief global strategist at BTIG LLC,.

Both indexes staged an engulfing pattern where the previous day’s low was breached along with the previous day’s highs, but it was even more extreme than that as the NASDAQ engulfed a week and S&P 500 two weeks….all in 2 hours.

spx nasdaq

Breadth had been lacking the past month but as you can see today’s session was the best in that regard since mid October.

nyad

Finally the NYSE McClellan Oscillator is back in the green; hopefully for bulls it stays that way for a while.

nymo

As for volatility we saw the exact opposite situation; after hitting a 2 month high we have a bearish engulfing candle today.

vix

Financials were a key tell they reversed hard mid afternoon to the upside – keeping this as a leadership group would be a positive.   This was another massive bullish engulfing session which engulfed 2 prior weeks.

xlf

Housing was also another strong sector as shares of Lennar Corp jumped after the No. 3 U.S. homebuilder reported a 32 percent jump in fourth-quarter profit. Data on Wednesday showed that U.S. housing starts surged to the highest in nearly six years in November, a sign of strength in the housing market.

len

 

Original post: STTG Market Recap December 18, 2013


Stock Trading To Go

Why do people who chose not to study science and math opine on the virtues of studying science and math?

The New York Times editorial board contains people who studied history, economics, law, history (again), journalism, journalism (again), history (again, this time for the “science” expert),  journalism, English literature, French literature, English literature (again), comparative literature, law, psychology, international relations, German, modern history, and law. Yesterday, the group signed an editorial entitled “Missing from Science Class; Too Few Girls and Minorities Study Tech Subjects.” The group of history and literature majors confidently wrote about the benefits of a tech education, how to motivate women and people with particular skin colors, and the sagacity of President Obama’s proposal on preschools (my previous post on the subject; note that Obama has previous extolled the virtues of STEM education for people other than himself (example)).

Why would folks who apparently preferred other subjects suggest that women and particular minority groups be encouraged to study tech subjects that they themselves did not like and ended up not needing?

Separately, here is a much more substantive approach to the challenge of getting more women interested in computer science: “Feminism and Programming Languages” by Arielle Schlesinger. Excerpts:

  • “In the scope of my research, a feminist programming language is to be built around a non-normative paradigm that represents alternative ways of abstracting. The intent is to encourage and allow new ways of thinking about problems such that we can code using a feminist ideology.”
  • “The idea came about while discussing normative and feminist subject object theory. I realized that object oriented programmed reifies normative subject object theory. This led me to wonder what a feminist programming language would look like, one that might allow you to create entanglements (Karen Barad Posthumanist Performativity).”
  • “I realized that to program in a feminist way, one would ideally want to use a feminist programming language.”

[Among existing technologies, my personal choice for a feminist programming language would be SQL. The woman expresses her demands for data with five lines of code; a team of 100 men writes 2 million lines of C that must consider all possible ways of satisfying the the query and ultimately supply the answer.]

Philip Greenspun’s Weblog

Did Stop Losses Help or Hurt the Simple Keltner Channel Breakout Strategy?

In the previous research post on “Buying or Fading a Keltner Channel Breakout,” I described a simple breakout (or ‘fade’) strategy and revealed the performance metrics on the strategy.

In this post, I wanted to dig a little deeper to see if we could reduce some of the larger losing trades and try to enhance the performance of the strategy by adding a stop-loss exit varialbe which was absent in the previous simple test.

Did adding a stop-loss into the system help or hurt overall performance?  If so, was the effect small or large (worth it or not?).

You might be very surprised, and yes the effect was large.

Be sure to refresh the data by viewing the earlier post before comparing metrics in the current update.

In the prior update, we saw that net profitability resembled a bell curve with respect to time in a trade (number of days holding a position that triggered).

We entered long (bought) when price broke and closed above an upper Keltner Channel (20 period lookback with 2 ATR to define bands) in the SPY from 2004 to 2013.

The system returned that the net profitability was best – and relatively stable – from day 14 to 18.

Net profitability was best holding a position for 14 days.

Now, let’s add two types of simple stop-loss strategies to see if we can enhance the net profitability, or specifically reduce the drawdowns.

While I tested 14, 15, 16, and 17 days, I wanted to show (for brevity) the performance metrics for holding an open position 14 days (because this returned the highest net profit).

The first strategy was to use a “Fixed Dollar Trailing” stop-loss, meaning exit the position if price moves down $ 2.00 from a peak.

If a trigger occurred and price moved $ 2.00 lower immediately, the position would terminate $ 2.00 lower.

If price moved up $ 2.00 and THEN traded down $ 2.00 (in SPY terms), then the position would terminate with a scratch (no gain/no loss).

And to make the test more robust – meaning I wanted to see the difference in a range of stop-loss variables, not just the arbitrary $ 2.00 stop loss – I ran the strategy 10 times with a Dollar Trailing Stop Loss of $ 1.00 all the way to $ 10.00.

While the data may reveal something absolutely counter-intuitive, let’s examine the results objectively:

SPY Keltner Breakout or Fade Trailing Dollar Stop Loss

The reason we run multiple tests is to find a pattern in the data.  In other words, we don’t just run a single parameter (example – 10 days in a trade) and expect that outcome to reveal a complete picture.

The “1 – 10″ Stops and Targets parameter (far left) means that we ran the same test as in our prior post but this time, each of the ten tests added a fixed dollar trailing stop ($ 1.00 stop, $ 2.00 stop, and so on).

What’s the very clear pattern?

The smaller the stop, the WORSE the system (net profit) performed; the larger the stop, the BETTER the system performed.

In fact, the data reveal a linear relationship where the worst metrics are with $ 1.00 then $ 2.00 and the best metrics flat-line from $ 7.00 on to $ 10.00 (where there is no change).

The fixed/flat-line in the data from $ 8.00 to $ 10.00 means that a stop-loss that large was never triggered in the system.

The data speak clearly – this system works best WITHOUT a stop-loss strategy.  The tighter the stop, the worse the system performed.

Yes, this goes against conventional wisdom and the psychological comfort of using a stop-loss to prevent a small loss (losing trade) from morphing into a large loss, but remember that the strategy has a built-in stop-loss.

Any and all positions are sold at a fixed number of days after the position is entered – in this case, 14 days regardless of profit and loss.

A caveat – does this mean you should never use stop-losses?  No, absolutely not, but within the context of this one simple strategy, stop-losses appeared to degrade performance to the point where the best results emerged from using no (or at least not a fixed dollar trailing) stop loss at all.

Why might this be?

To answer this question – and clear confusion – let’s compare two graphs from trade outcomes.

The first chart shows six triggered trades using the “buy a break and close above the upper Keltner Channel” strategy in the SPY during 2013.

In the context of a powerfully rising (impulsive) market, all six trades were profitable (holding 14 bars/days):

SPY NO STOP LOSS chart

The chart above helps us step inside the data beyond Excel charts and text graphs. It helps us visualize what’s happening.

The second graph shows a ‘comfortable’ and acceptable $ 2.00 fixed dollar trailing stop as mentioned above.

Keltner $  2.00 stop loss chart image Dollar Trailing

While the first “no stop-loss” chart reveals six profitable trades, the second graph closes a position that falls $ 2.00 from a recent high (fixed dollar trailing stop) as an attempt to limit losses, particularly on failed trades (false breakouts).

While the “no-stop” parameter revealed six profitable trades in 2013, adding a $ 2.00 trailing stop actually turned a 100% win rate (six trades) into a 50% win rate (3 wins).

As if that weren’t enough, look closely at two of the three winning trades (Trade #2 and Trade #5).  Both of these trades returned LESS profit than their no-stop counterpart in the chart above.

The only trade that returned the same outcome was Trade #6 (which was almost stopped out with the trailing stop as well).

Yes, these are a selection of 6 of the 50 trades triggered in a 10 year period, but they do reflect performance of a full year of data.

In all trades but one, profit declined (and in three of the six instances, a 14-day no-stop profit morphed into a financial loss).

If we examine all trades, we’ll certainly see instances where a large loss was ’stopped’ by the fixed dollar trailing stop strategy – that’s precisely the goal of a stop-loss.

However, when researching a trading strategy, we look at the aggregate of all trading outcomes, not just one trade or one year of trades.

By comparing the two trade performance graphs of 2013, we can see how – using this strategy (particularly in a rising market) – adding a stop-loss strategy degraded performance overall.

Once again, the strategy itself has a built-in stop-loss parameter (number of days in a trade).

Keep in mind that back-testing is helpful and even necessary, but it does not imply that performance will continue into the future indefinitely (or exactly as it has during the back-tested period).

And before we risk money with any strategy, learn as much about the performance as possible, leaving your mind open to read the data objectively.

We’ll continue studying this topic and feel free to share your thoughts or insights from similar research.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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