Sunday, July 31, 2011

Pre-Presidential Projection Update

Pre-presidential election years are usually bullish with a very tight standard deviation. Towards the end of every month I like to publish a seasonal projection of how the year is shaping up and here's my latest:



The projection represents the average performance of every 4th year for the last 5 election seasons starting from an anchor-date. In the above chart I show two of the same 4 year cycle projections but anchored the first day of the year (blue) and the most recent trading day (magenta) of the year. The Obama pre-presidential cycle is underperforming the average but we are on a course to end the year between 1380 and 1490, which just hurdles above 1 standard deviation below the Jan 1 projection for an 8% gain for the year (green.)



_

Friday, July 22, 2011

Life Hedge: ED

Buying shares of a dividend-paying public company for which you are a regular customer is a life hedge. Life hedges should be every smallDog's first investment and lifelong friend. Here's my idea for a life hedge if you live in the NYC area: ED. So, if you don't like your electricity bill, do something about it! After you do all of the conservation things - replace your incandescents with compact flourescents, unplug your cell-phone charger and stuff - there's one more thing you can do: invest in your utility company. For me, my electricity provider is Con Edison (ED.)  ED pays a 4.5% dividend and the current dividend period ends on Aug 12 (ex div is Monday, 8/15.) I like ED for a dividend doubler play. The IV is too low at 13% to make a premium strategy work and call owners don't collect the dividend, so I want to own the shares and sell covered calls into 8/12.

Here's how ED looks on my charts:



The seasonal projection takes the price of ED north of 55 by the 12th, which sets us up nicely to sell August 55 calls. If you step outside most anywhere in North America today you will understand immediately the reason for this seasonality: air conditioning. The demand for electricity soars in July/August and every kilowatt is profit for the electricity providers. The InvesTool signals show a fresh 3G event if the price does not decline too sharply by end of day. I am looking to buy shares here in the low $53 area, either today or Monday.



-

Sunday, July 17, 2011

IchiSeaPro

Ichimoku is one of the widely used Japanese trading systems. At its heart is the idea of two moving averages that are plotted with their origins shifted forward in time by different amounts. The price space between the two moving averages is a "cloud" and trades are indicated by price movements wrt the cloud.

In a similar way it is possible to play the Ichimoku game with seasonal projections by anchoring two sdi_seapro5 studies on different dates. Here's a picture of what I'm talking about:



The two projections are both the average of the last 5 one-year seasons but anchored on two different dates. The blue line is anchored 10 bars back and the magenta line is anchored on the most recent close. The separation of the two projections is a measure of divergence. A narrow channel indicates an equity that is marching in-step with its season. A wide channel indicates an equity that is diverging from its season. The separation between the two projections at a date in the future might be taken as a continously refined range prediction of future price (grey circle.) This projection has the SPX hitting the August expiration between 1342 and 1368.

Following the the Ichimoku model further, one might alter the season length of one of the projections to create cross-overs and seasonal clouds. A seasonal trading system might then be created Ichimoku-style. Hmm, I think this will be the subject of a future blog ...


_

Friday, July 15, 2011

Happily Employed

This smalldog investor gots a paying gig. Seems some employer followed the bread crumbs (in the form of my extensive documentation with authorship notes in some legacy software) back to me and made a decent offer to do some soft-d on the old systems. Its VAX/VMS with DCL and a whole mess of convoluted C code that's been stepped on by a Russian army of anon's nowhere to be found now but it pays the bills and keeps me busy. So I am trading time for money instead of equities. Pity. I was just getting to the point of self-sufficiency with the daytrading. At least, I have a fallback if the day-job doesn't work out. In any case, this was to explain a gap in my posting. I have yet a bunch of post ideas rolling around in my head waiting to get out so stay tuned...

Monday, July 4, 2011

Gold Standard, Not.

The gold standard is being bandied about with wistful eyes by none other than James Grant, of Grant's Interest Rate Observer. Being the pessimist that Mr. Grant is, this rather surprised me. Perhaps he needs to freshen up on the history of the gold standard. The wiki page on the gold standard is a good place. In particular, I would draw your attention to the bits about how various governments have dropped the gold standard in order to deal with economic crisis, usually brought on by wars. It seems that the gold standard is great when the economic weather is good. It tends to curb inflation. However, when the going gets rough the gold standard is easily tossed aside. My take on these gold standard proponents is that they are shamelessly, gratuitously plugging their own investments in gold. How's that? If the US were to return the gold standard there would be a huge new demand for the commodity because there is such a huge amount of dollars on the books (i.e. M2, the money on deposits plus monies on loan) that the current world supply of gold could not represent the value at the current prices. Great news if you happen to own any which Mr. Grant did not happen to disclose. Hmmm, I wonder why. Few gold standard proponents ever do.

Friday, July 1, 2011

Pre-Presidential Year Update - The Back Half Begins.

Welcome to the back-half of the year. Here is my seasonal projection chart:



In May the market diverged from the projected average of the 4 year cycle of the last 5 (20 years) seasons. The final week of the quarter is exhibiting a classic bounce - a big energy candle closing above the immediately preceding doji's. This pattern represents a low-risk entry on the bullish side but don't jump in here with market orders. You want to place buy-limit orders in the low 1300 area, just above the top of last weeks high. Let the market come to you,  irrational exuberance is not to be expected here. The stop-out area is around 1250. If you get in then take half off in the 1350-1370 area where resistance was in evidence in spring and move the stop on the running-half to break-even.





_