The Tasgall Group

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…)

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…

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…)

There are quite a few ways to look at inflation and the general inflation expectation of various markets. Most people think of CPI or Core CPI as “inflation”, or they look at interest rates or the price of gold. Perhaps more important than the official statistics is what inflation expectations are…

There’s an easy way to see what the market expectations currently are for inflation — look at the relative performance of inflation adjusted bonds versus normal bonds. The easiest way to look at this is with a chart of TLT:TIP. (more…)

I just noticed this… Sara Lee Completes Hanesbrands Spinoff.? The new Hanes stock is trading under the symbol HBI and is currently priced at a market cap around $2 billion.? The Sara Lee mother ship weighs in at a market cap of $11 billion (after the spinoff), so they basically just sold 18% of their company in one fell swoop.

Sara Lee has been going through some very painful restructuring, but the price makes it attractive to some value buyers right now.? It had a dividend yield over 4% earlier this year before they lowered their dividend — it’s currently yielding 2.5%, well above the market average.

I feel like most people don’t give weekly charts their proper respect. Take a look at the daily and the weekly charts for the NDX. While many people will look for various moving averages or other technical indicators to show trend and direction of price, sometimes it just pays to simply zoom out to the weekly chart.

In the case of the NDX’s daily and weekly charts, it seems like the weekly chart smoothes out a lot of the daily noise, but it still captures the entire range for the week in its high and low marks. It also shows nicely that the trading ranges each week are fairly wide, and only in a few specific weeks did we really have strong movement significantly beyond the previous week’s trading range. (more…)

Despite the fact that my last discussion was received with a deafening silence, I’m going to make another go at it. If you feel the writing juices, post via a trackback your answer to the following query, what is your favorite underappreciated analysis technique? What makes it good, and why don’t others realize it? (more…)

On the topic of Black Swans, I can think of one experience that would qualify. At the very least, it was an event that I never thought was even possible.

Picture a scene… it’s early 2002 and Jason is learning about options and has been trading options for about three months now. He’s made many of the rookie mistakes, but learned a lot along the way. One morning while at work, he logs into his brokerage account to dump an option that wasn’t performing (he’s an option buyer and was long 1 out of the money call). The day before the option was trading at a bid/ask spread of $0.50/$0.60, yet this morning when he logs in, he sees the price on his screen is at $3.50/$3.60.

Ma-neh-wah?!?! (more…)

You’ve at least heard of the book Fooled by Randomness by Nassim Nicholas Taleb if not read it. The main point of the book is that many people trade in the markets based only on the experiences that are probably, ignoring the possibility of the existence of a black swan.

The definition from Investopedia of a black swan is “An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict.” Most people would consider the crash of ’87 to be a “black swan event”. (more…)