day trading idea

use tick/(money weighted tick) to trade intra-day according to price/tick divergence and over-sold/over-bought condition

A good summary of current situation

MrBeach on CR:

I'm beginning to see the method to their madness as well.

History

1. 2008 - banking system collapsed.
2. Immediate and full government guarantees hold the system together while a rescue plan is developed.
3. Rescue options: a) Nationalize (CR hattip: pre-privatize) or b) Support the banks.
4. Oligarchs pressure Obama to choose B.
5. Sham stress tests give green light to banks AS IS.
6. Government officials state they will not allow another Lehman. Banks are now a protected class.
7. Mark to market changes preserves bank balance sheets from further losses.
8. QE + ZIRP reduce cost of capital drastically.
9. Banks go from near death both financially and politically to green shoots.
10. Stimulus gooses spending

Present

1. Banks are making little money on their core loan books.
2. Banks making lots of money on trading.
3. Banks looking to make loans to the best prospects.

The Hope

1. As banks feel confident of their earnings power, they will begin to lend more widely

The Doomer Fear

1. Recovery is not sustainable without government stimulus.
2. As stimulus fades, recovery will slide.
3. Currency risk.
4. Bond market risk.

Rebuttal/comments from:
Wisdom Speaker (homepage, profile) wrote (in reply to...) on Wed, 4/14/2010 - 3:54 pm

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MrBeach wrote:

2008 - banking system collapsed.
Immediate and full government guarantees hold the system together while a rescue plan is developed.
Rescue options: a) Nationalize (CR hattip: pre-privatize) or b) Support the banks.

If you believe Koo's slides (and I find them very reasonable), Exhibit 16 makes it clear that the choice (b) was driven by the lack of private credit demand. We couldn't have been Swedish if we'd tried.

Government officials state they will not allow another Lehman. Banks are now a protected class.

Except that individual banksters should not have been protected. We were supposed to decapitate before we recapitalized them.

Banks are making little money on their core loan books.
Banks making lots of money on trading.

At the expense of the rest of us!

Banks looking to make loans to the best prospects.
[...]
As banks feel confident of their earnings power, they will begin to lend more widely

You have to look on the demand side of the credit markets as well, though. There just isn't as much demand for credit as there used to be. (There's still some, but on the margins not so much. Remember the old saw: "to get a loan, you must first prove you don't need it"? It's now true again. Unfortunately, those that don't need credit, don't want it. Those that need it and want it, are too risky to lend to!)

The Doomer Fear
Recovery is not sustainable without government stimulus.
As stimulus fades, recovery will slide.
Currency risk.
Bond market risk.

Koo's talk makes it clear that the government will borrow to replace the missing private credit demand, to prevent GDP from crunching downward too quickly. I don't think we need additional stimulus packages at this point, the intrinsic federal deficit is probably enough.
Currency risk is minimal (except vis-a-vis China) since most other countries are in the same pickle and those that aren't, are dependent on trade with those who are. No one can afford to revalue much.

Bond market risk is minimal - see Exhibit 24. People are trending away from being credit-seekers to being debt-averse. Since demand for credit has been crushed and supply of credit far outstrips demand now. A key demographic: the Boomers have to save to retire and the only one willing to borrow more is Uncle Sam. But Uncle Sam will be stabilized against trying to borrow too much, because the government cannot afford its debts if interest rates rise much.

Inflation risk is nonexistent except if we run into the Grecian endgame and people shift over to a Misean crack-up-boom mentality...

MrBeach's rebutt back:

MrBeach (profile) wrote (in reply to...) on Wed, 4/14/2010 - 4:38 pm

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Wisdom Speaker wrote:

Except that individual banksters should not have been protected. We were supposed to decapitate before we recapitalized them.

I have accepted it. It is not a rock that I can move.

At the expense of the rest of us!

See above.

There just isn't as much demand for credit as there used to be.

As confidence returns (however questionable the catalyst), people will return to their free spending ways. Instant gratification is a way of life. As we well know, prudence is not rewarded. Auto sales are returning for example. I'm seeing people return to buying homes in the Bay Area as well as the Westside of Los Angeles.

Koo's talk makes it clear that the government will borrow to replace the missing private credit demand, to prevent GDP from crunching downward too quickly.

Agreed and understood.

Currency risk is minimal

Agreed - except if we see a black swan event somewhere in Europe or Asia.

Does this mean we have new normal? Wisdom Seeker-san?

just some thought on topping`

Trader anonymous is deserted by bears, most left/not-speaking anymore (ben22 and karen) , especially after market pass Karen's top 1100, couple monthes ago, and run up to 1200 today.

The bears there were waiting for P3, which is supposed to be a "great walterfall".

Meaningwhile, Leftback is consoling the bears on trader anonymous

A few thoughts for those who are quietly losing their minds...

1) STAY SOLVENT until this crazy shit is over - don't feed the beast.
2) THE HIGHER IT GOES, the juicier the shorting will be in P3.
3) BANKS and TRASH have to crack before this thing drops.
4) STAY CALM, because we will need all our wits about us for P3.
5) DON'T FORGET #1 - no need to be short all the time... just sit it out.
6) THERE WAS A HAND SIGNAL in March 2009 to say QE: BUY STOCKS.
7) I BELIEVE THERE WILL BE ANOTHER. Listen to the news flow.

Thinking the above is keeping LB sane.

short term indicator

1. Aggragate Z-score
http://cssanalytics.wordpress.com/2010/03/19/aggz-another-composite-trendmean-reversion-indicator/


2. DV(2)
http://marketsci.wordpress.com/2009/07/15/varadi%E2%80%99s-rsi2-alternative-the-dv2/

books to read

http://www.ritholtz.com/blog/2010/02/apprenticed-investor-reading-is-fundamental-2/

ridiculous logic?

The more supply, the more buyers?

Back in July of 2005, someone on a web forum about housing prices pointed out that "the more the supply, the higher the prices, because high supply brings out more buyers since there is more selection". What is your opinion of this logic?

Barry Ritholtz's ten suggentions

http://www.ritholtz.com/blog/2010/04/10-thoughts-on-psychology-valuations-adapative-investing/#comments

1. Whether a premise is fundamentally true or false is irrelevant as to whether it is actionable. If enough fools believe something is so, it will impact the markets.

HL: 1. Never fight idiots. Learn to love them

2. Valuation/fundamentals can not be used to trade short-term. Market can remain irrational (overvalued/undervalued) for much longer than I can remain solvent. This reflects my own overconfidence bias

2. Always be conscious of the cognizant biases and selective perceptions you bring to investing. Recognize the same bias in the crowd, the media, and Wall Street. Avoid the herding effect.

HL: How I leave my own bias out of the door when I analyze and invest?

3. After a a 55% market sell off, most of the terrible structural news that existed before the collapse is reflected in prices. (Let it go).

HL: Do not agree. Maybe I do not understand why he says this? Is he a long-biased since he is a money manager, being paid by long/in the market?

4. You must acknowledge when the data gets stronger or weaker, regardless of your current market posture. Be skeptical, but not rigid.

HL: When facts/data changes, I change my mind

5. Variant perception is a rarity; Identifying the moment when the crowd figures out they are wrong is rarer still.

HL: Hard to call top when idiots figure out they are wrong?

6. Market Pros simply cannot afford to sit out a 75% rally; Individuals that miss that sort of move should reconsider their investment strategies immediately.

HL: Money manager's career risk of not being long. So, they have long bias

7. Every thing cycles: Recessions turn into recoveries; bull markets give rise to bear markets. Every rally that there ever was or there ever will be eventually ends. Adapt to this truism or lose all of your money.

HL: We know market cycles, but it does not help timing

8. One of the hardest things to do in investing is to reverse your thinking. It is even more difficult to do after a certain approach has been successful for long time. The longer the period of successful thinking, the more importnat the reversal will be.

HL: Reverse according to what?

9. Cheap markets can get cheaper; Expensive markets can get dearer.

HL: Buying cheap according to value-investing is still a better strategy, collecting dividend, even it get cheaper and cheaper than short a overvalued market in which expensive markets gets dearer to wipe short out for its leverage.

Wally (from BP): Contradictory things (refereing to 6 &9) . The difficulty is that the first thing – a big rally – can only be identified after the fact. If you put your money into what was instead a ‘cheap market’ that got cheaper, you’d be toast and you wouldn’t be around later talking about the big rally. The hardest thing in investing is to look back and identify what you really “knew” as opposed to what you lucked into.

10. The markets frequently diverge from the macro economic environment. This can be both long lasting and maddening; Your job is to be aware of how wide the gap between the two is.

HL: See 1.

Investment fallacy

1. Single source/rumor

2. Correlation/causation

3. Backwards looking---linear extending to future

4. "This time is different"

5. Partial evidence (availability overweight)
5.1 Is three a small number? Is 1mil a large number? It depends on what it refers to.

6. Incentive bias
6.1 Am I predicting what I expect or I want? Are they predicting what they expect/bias to/want to happen?

7. Qualitative vs quantitative


Antidose:
1. Who said, as verified independently, what happened when and where for what reason?

2. How does it look historically? Proportionally? Money weighted wise?

3. Which part/terminology eludes me?

Bob Farrell's ten rules for investing

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people's head. It is easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one directioni will lead to an opposite excess in the other direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but lead to an overshoot in the opposite direction

3. There are no new eras--excess are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. As the fever builds, a chorus of "this time it's different" will be heard, even if those exact words are never used. And of course, it ---Human Nature --- never is different

4. Exponential rapidly rising or falling markets usually go further than you think, but the do not correct by going sideways
Regardless of how hot a sector is, don't expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably lead to a significant correction---eventually

5. The public buys the most at the top and least at the bottom
That's why contrarian-minded investors can make good money if they follow the sentiment indictors and have good timing

6. Fear and greed are strong than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold.

7. Markets are strongest when they are brad and weakest when they are narrow to a handful of blue-chip names
Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hart to stop, Farrel observes. Watch for when momentum channel into a small number of stocks ("Nifty 50" stocks)

8. Bear market have three stages---sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all experts and forecasts agree---something else is going to happen
As Stoval, the S&P investment strategist, puts it: "if everybody is optimitics, who is left to buy? If everybody's pessimistic, who's left to sell?"
Going against the herd as Farrel repeatedly suggests can be very profitable, espcially for patient buyers who raise case from frothy markets and reinvest it when sentiment is darkest

10 Bul market are more fun than bear markets

Every so often, exogenous events will cause a major collapse in prices. If you wait for these opportunities, then load up on great companies at cheap price, you will outperform every one.

Stock price direction is a function of several factors: valuation, future expectations, sentiment, and liquidity

Good trader's trait: unemotional, hard-working, and disciplined

Never make a bet you cannot afford to lose

You have to be very decisive, extremely disciplined, relatively smart, and above all, totally independent.

Per ghostfaceinvestor, Lipper is the best source for retail (stock) investors flow