Author: shyam

Post-hoc Technical Analysis

Michael Harris over at Price Action Lab:

Saying that “if these levels hold prices will rise and if they do not, prices will fall”, is a statement that confuses event order. Price moves first and then we decide whether some level or indicator was violated. If a level does not hold, it is because price already moved below it or above it. It is not the other way around.
 
In technical analysis, use of any derivative of price, including support and resistance levels, indicators or patterns, is often useless, unless there is a measure of the probability of some event. Otherwise, just describing these levels is either only stating the facts or it is naive analysis due to ignorance.

Source: Technical Analysts Who Have Their Cake and Eat it Too

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Financialization of People

Mike Konczal has a thought provoking article in TheNewInquiry that connects the dots on futures trading and comes a full circle:

Futures allow people to buy and sell a specific quantity of a product now for cash, with the product delivered at some point in the future.
 
For example, contracts for the future delivery of cattle have existed since at least the 1850s, when farmers met in Chicago agreed to buy and sell corn. But how do you know that you aren’t going to get screwed on delivery? If you agree to buy new cattle years from now, what’s to say that you won’t get the weakest, malnourished cattle available?
 
The CME’s rulebook for a Live Cattle Future specifies what qualifies as a “deliverable” cattle. First off, “No individual animal weighing less than 1,050 pounds or more than 1,500 pounds” shall be deliverable as a cattle. “Unmerchantable” cattle, such as those that are “crippled, sick, obviously damaged or bruised,” are not acceptable.
 
Cattle that don’t fit the relatively wide characteristics aren’t tossed aside. They are “discounted” — sold at a loss for a smaller percentage of the contract. This discount is meant to penalize the grower while reducing immediate waste of unsellable merchandise.

 
And now comes the scary part:

Can “human capital” be traded?

The most likely route for human-capital futures is standardizing through funding for individual education. One can imagine contracts that would mark using your degree for certain kinds of low-paying social work as “undeliverable” on the promise of your human capital, with your debt burden being adjusted accordingly.

 
Read the whole thing: Buying the Future

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Charting Theme Performance

Quality to Price

A StockViz Investment Theme is a portfolio of stocks that follows a particular strategy. It is a specific way of going about the process of investing. It identifies specific variables that define an equity portfolio like risk, style, sector, balance-sheet items, etc… and by mapping specific Themes to your account, you ensure that you stay pure to your strategy allocation.

We now have sufficient performance data for us to chart Theme performance across different holding periods. For example, the chart above shows what Rs.100 invested in the Quality to Price Theme would be worth if the investment was made (from right-to-left) 5 days ago, 10 days ago, 20 days ago, etc…

You can explore more themes and their performance in detail here.
 

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Weekly Recap: Randomness and Time

world equity markets 2014-03-28.2014-04-04

The Nifty ended the week more-or-less flat.

Major
DAX(DEU) +1.13%
CAC(FRA) +1.66%
UKX(GBR) +1.21%
NKY(JPN) +2.50%
SPX(USA) +0.53%
MINTs
JCI(IDN) +1.88%
INMEX(MEX) +1.20%
NGSEINDX(NGA) +0.99%
XU030(TUR) +4.94%
BRICS
IBOV(BRA) +2.55%
SHCOMP(CHN) +0.84%
NIFTY(IND) -0.02%
INDEXCF(RUS) +2.85%
TOP40(ZAF) +0.86%
Commodities(CME)
Gold Futures $1303.20 +0.73%
Silver Futures $19.93 +0.78%
Platinum Futures $1449.40 +3.18%
Copper Futures $3.04 -0.52%
Nymex Steel Futures $653.00 +2.19%
Brent Crude Oil Last Day Financial Futures $106.72 -1.25%
E-mini Natural Gas Futures $4.44 -1.03%

Nifty Heatmap

CNX NIFTY heatmap 2014-03-28.2014-04-04

Index Performance

index performance 2014-03-28.2014-04-04

Top winners and losers

SAIL +10.20%
UPL +10.62%
RANBAXY +26.30%
BHEL -8.30%
CONCOR -6.22%
GAIL -4.98%
Who will Bhel the cat as it Sails away?

ETFs

JUNIORBEES +3.93%
PSUBNKBEES +0.94%
NIFTYBEES +0.24%
GOLDBEES -0.82%
BANKBEES -1.01%
INFRABEES -2.59%
Midcaps rocked, infrastructure back in the red…

Investment Theme Performance

Momentum 200 +3.95%
Magic Formula Investing +3.00%
Long Term Equity* +2.58%
Financial Strength Value +2.44%
Balance-sheet Strength +2.08%
Velocity* +2.03%
Quality to Price +1.92%
IT 3rd Benchers +1.91%
Consistent10* +1.82%
Market Fliers +1.47%
Market Elephants +0.22%
Enterprise Yield -0.33%
Growth with Moat -1.19%
Efficient Growth -1.32%
Is momentum back?

Sector Performance

sector performance 2014-03-28.2014-04-04

Yield Curve

Year-end cash crunch?

yield Curve 2014-03-28.2014-04-04

Thought for the weekend

The professional investor’s average or below-average years will dilute the benefit of his “winning” years as mean reversion knocks his lifetime track record back down to earth. Peter Lynch must have known this when he retired in 1990 at the top of his game – he left the magic intact before reality and probability could strip him of it.
 
Randomness and Time team up to take almost all of us down, one way or the other.

Source: The Best and Worst Thing About Investing

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Reel Life vs. Real Life

Jim Jubak, beginning in 1997 and continuing for twelve years, wrote one of the first and ultimately the best-read stock picking column on the Internet, “Jubak’s Journal,” for Microsoft’s MSN Money. His initial boss, a hotshot software guy, said: “If you’re so good as a stock picker why don’t you do what no one else does and issue clear buys and sells and then track the results.” That resulted in what we believe was the first online, daily-priced stock portfolio on the Internet, Jubak’s Picks.Jim Jubak

In 2010, Jubak apparently decided that investment management looked awfully easy and so launched his own fund.

Which stunk. Over the three years of its existence, it’s trailed 99% of its peers. And so the Board of Trustees of the Trust has approved a Plan of Liquidation which authorizes the termination, liquidation and dissolution of the Jubak Global Equity Fund (JUBAX).

Ben Carlson over @awealthofcs notes:

There is a constant barrage of people they throw at you in the financial media, each one a seeming expert in their field. The majority of these people spend their time making endless predictions about stocks, the economy, interest rates, company earnings, etc.

Because these are all intelligent-sounding people, it’s very easy to get sucked into believing every single forecast they put out there. Some will be right some of the time. Most are wrong most of the time.

What’s surprising is not that Jubak setup his own mutual fund, but the fact that it still has $16 million in assets. Go figure…

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