September 2006

If you’re going to buy something with all your hedge fund profits, why not buy a congressperson?

Top hedge fund managers are pouring money into U.S. political campaigns ahead of November’s congressional elections as the government considers what to do about the lightly policed hedge fund industry.


You can see the last 20 years of the Nikkei on

I also found this chart in Financial Reckoning Day, where the authors try to draw parallels between the Japanese situation 15 years ago with the one in the US now (or was in 2003 when the book was written). (more…)

It was the best of times and the worst of times as commodities fell of the charts (almost literally).? Why is this troubling because I certainly don’t dread filling my tank us nearly as much lately?? Because such a rapid decrease in commodities prices could spell rapid deflation.? I know that is hard to swallow with so much concern recently on the inflation front.? But when assets decrease in value, the money supply shrinks, which is deflationary. (more…)

Well, today certainly looks to have been an interesting day in the commodities markets. In terms of the markets I watch, here are the big moves today:

  • Natural Gas down an amazing 10%, under $4.90
  • Silver down 2.2% and trading under $11
  • Gold down 1.7%, the October contract is trading at $580
  • Crude Oil down 1.1%, at $63 and change
  • Gold Stocks (HUI) are off by 4.5%

What’s going on? Has the economy melted down in the last 24 hours? Did a recession just hit us around noon today? Obviously no… but the market consensus on these appears to be shifting, and with it the support for the energy futures. Gold and silver is a different story, but one that requires a separate post…

While these commodities are all impressively down today, the one thing that was down today that had me the most shocked was… (more…)

I have to wonder whether the markets will continue to power ahead in the months ahead, or if instead that the steam is actually from a steamroller and we’re trying to pick up nickels (small profits) as it is barreling down.

[Note: the phrase “picking up nickels in front of a steamroller” is typically used to describe fixed income arbitrage, but I think it creates a nice metaphor in my current discussion.]

Let’s start with a little check in on history… (more…)

Today’s move in stocks is pretty bullish in terms of density theory.? A quick whip from one side of the bell curve to the other or a fast rejection of the last major value level, all followd by a breakout seems to be something you see ahead of major moves to new levels.? This certainly lends support to the more bullish signals given in models like those at CXO Advisory.? There isn’t any major stopping point to the north other than the year’s high so a retest is looking mighty likely.? Stay tuned…

I was watching TV today and, boy,?is my thumb tired.? Seriously, folks, I’m here all week.? And so is James Dicks according to this infomercial I just came across.? Who is James Dicks?? In a word: the devil (if you say anything about how that’s 2 words, I’ll be forced to get really, really mean).? And by devil I mean a con artist who gives currency trading a bad name. (more…)

No, not the natty light, but rather natural gas is under $5.50 this morning in trading… that hasn’t happend in over a year and a half.

The trend is a trend until it ends (and the trend is down), but I like the value in buying natural gas this cheaply. According to the conventional wisdom, natural gas tends to bottom in September before the winter heating season starts… it might be worth keeping an eye on the price of natural gas to watch for a breakout to the upside…

The subject of stop-losses is such an intensely difficult topic to discuss.? I’ve had many latenight debates in trading forums and chatrooms and I’ve been through every camp in my experience as a trader.? The best answer I’ve ever been able to come up with is that answer famous and frustrating for its truth: it depends. (more…)

We have talked in the past about having larger stop-loss threshholds than the actual expected reward, and the backlash on forums when this type of trade is even mentioned. The logic of the backlashers is that you have to have reward larger than your potential loss to win in the game of trading.

I wanted to explore the concept a little bit further and just think through the implications of what it means to put on a trade where your potential reward is smaller than your potential risk.

Let’s start with an example… If a stop is 2x the size of reward (e.g., a stop loss would be triggered at a loss of 10% but we’ve set a price target of 5%) then we have to get at least 70% of our trades correct to make money. (66.7% plus slippage and commissions, I’m guessing ~70% if not higher.) To me, this seems like a fairly high hurdle to start with, though it is certainly possible. (more…)

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