Yeah, no kidding... I was refreshing this page, my work email, and personal email just to get the signal. I wasn't sure what was going on :D (on TDY in KS)
What was going on was that a nice lady came to my door at 3:45p and decided to talk my ear off. :) After awhile I was like... OK, bye bye, move along now, I have to run. Sorry for the close call.
One thing to do now that there are 2 systems in place is to test how they've performed together. Rules would be 100% short TNA if both systems are short. 50% short if 1 system is short and the other is in cash, 100% cash if both systems are in cash or 1 is long and the other short (like the current scenario), etc... Hopefully results are as good as I think they're going to be.
Also, I think there were some email transmission issues. I think I know what happened and hopefully it won't happen again.
Here's a nice chart of short interest vs SPY... moves too slow to compete w/the system signals here, but, for perspective, it shows how panicked everyone is... and, historically, any time we've had this much short interest in the past, the downside potential was limited (for those looking to stay in the mkts for weeks/months) vs the upside potential. http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/06/NYSE%20Short%20Interest.jpg
Interesting chart, JKH. However, the period shown was a pretty strong bull run; I wonder how the chart works in bear markets. The tail end of 2008 that we see on the chart seems to tell a different story than the rest of it.
Yeah, I wish they had more, too... Still, Oct08 through Mar09 was clearly a bear. If it were me making the plot, I would have included far more. I've seen similar plots before, and they show the same, so i know it's a pretty good rule. The times with short interest over 14M shares in Dec08 and Mar09 were in bear market, and, still, when you look at the SP500 action there, that was the time to accumulate large long positions. Subsequent downside (on a relative basis) is limited. Just remember, when shorting becomes so in-vogue, then they won't let the mkts drop (much) because it would cost the big firms too much if the masses are short. This is all about taking money from the masses and moving it to the wealthy/smart firms/people. I don't think I've ever seen a market top where the masses were heavily short, and I've been at this a very long time. What I find laughingly ironic is how the masses got utterly screwed from Mar09 until Aug09, heavily short, while the mkts started a new multi-year up-run. That crushed a lotta newbies and perma-bear fear-mongers.
By the way, seeing the masses heavily short at bottoms happens very often. So, it's a good ("long-term", for this blog) trading signal. Again, just don't over-leverage your account, and be patient.
On a related note, statistically, there is a 92% probability that the Sp500 will be higher than where we closed yesterday, in one month. I doubt many here besides me have the patience to play that one.
My decision was aided by some quant studies generated by R. Hanna at Quantifiable Edges, all of which were bullish after yesterday's decline. He posted one of the studies on his blog this AM. http://quantifiableedges.blogspot.com/
Reason for XIV over TNA was the continued favorable VIX futures structure and the fact I figured I may need to hold the trade a bit longer than desired to see a decent return, thus I opted for less leverage and less chance of decay.
J, I don't follow your reasoning here for picking a VIX play instead of going with the pure market (long) play, for several reasons: 1.) The mkts can go up while the VIX stagnates, or even goes up. 2.) The time-decay on TNA over the period of weeks is pretty puny. It only matters much over the period of months, typically.
Two suggestions: 1.) If you want less time decay, then pick less leveraged products. 2.) If you want time decay in your favor, then short TZA instead of longing TNA.
whew..talk about close. The order executed at the last minute. I too am now sitting in cash. Thanks J.
ReplyDeleteYeah, no kidding... I was refreshing this page, my work email, and personal email just to get the signal. I wasn't sure what was going on :D (on TDY in KS)
DeleteWhat was going on was that a nice lady came to my door at 3:45p and decided to talk my ear off. :) After awhile I was like... OK, bye bye, move along now, I have to run. Sorry for the close call.
DeleteOne thing to do now that there are 2 systems in place is to test how they've performed together. Rules would be 100% short TNA if both systems are short. 50% short if 1 system is short and the other is in cash, 100% cash if both systems are in cash or 1 is long and the other short (like the current scenario), etc... Hopefully results are as good as I think they're going to be.
ReplyDeleteAlso, I think there were some email transmission issues. I think I know what happened and hopefully it won't happen again.
Here's a nice chart of short interest vs SPY... moves too slow to compete w/the system signals here, but, for perspective, it shows how panicked everyone is... and, historically, any time we've had this much short interest in the past, the downside potential was limited (for those looking to stay in the mkts for weeks/months) vs the upside potential.
ReplyDeletehttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/06/NYSE%20Short%20Interest.jpg
Interesting chart, JKH. However, the period shown was a pretty strong bull run; I wonder how the chart works in bear markets. The tail end of 2008 that we see on the chart seems to tell a different story than the rest of it.
ReplyDeleteYeah, I wish they had more, too... Still, Oct08 through Mar09 was clearly a bear. If it were me making the plot, I would have included far more. I've seen similar plots before, and they show the same, so i know it's a pretty good rule. The times with short interest over 14M shares in Dec08 and Mar09 were in bear market, and, still, when you look at the SP500 action there, that was the time to accumulate large long positions. Subsequent downside (on a relative basis) is limited. Just remember, when shorting becomes so in-vogue, then they won't let the mkts drop (much) because it would cost the big firms too much if the masses are short. This is all about taking money from the masses and moving it to the wealthy/smart firms/people. I don't think I've ever seen a market top where the masses were heavily short, and I've been at this a very long time.
ReplyDeleteWhat I find laughingly ironic is how the masses got utterly screwed from Mar09 until Aug09, heavily short, while the mkts started a new multi-year up-run. That crushed a lotta newbies and perma-bear fear-mongers.
By the way, seeing the masses heavily short at bottoms happens very often. So, it's a good ("long-term", for this blog) trading signal. Again, just don't over-leverage your account, and be patient.
ReplyDeleteOn a related note, statistically, there is a 92% probability that the Sp500 will be higher than where we closed yesterday, in one month. I doubt many here besides me have the patience to play that one.
Thanks, JKH, for the interesting analysis.
ReplyDeleteYes, thanks to you both. Also, A...thanks for the backtesting article you linked to yesterday. Very interesting.
ReplyDeleteGoing with JTSystem now... Taking a break from TNA. Went long XIV on the morning gap fill.
ReplyDeleteAny particular reason for the a.m. trade? What about using XIV vice TNA? Just one of those feelings this morning?
Deletebtw, please keep us informed when you dump the XIV.
My decision was aided by some quant studies generated by R. Hanna at Quantifiable Edges, all of which were bullish after yesterday's decline. He posted one of the studies on his blog this AM. http://quantifiableedges.blogspot.com/
DeleteReason for XIV over TNA was the continued favorable VIX futures structure and the fact I figured I may need to hold the trade a bit longer than desired to see a decent return, thus I opted for less leverage and less chance of decay.
Will do...
J, I don't follow your reasoning here for picking a VIX play instead of going with the pure market (long) play, for several reasons:
Delete1.) The mkts can go up while the VIX stagnates, or even goes up.
2.) The time-decay on TNA over the period of weeks is pretty puny. It only matters much over the period of months, typically.
Two suggestions:
1.) If you want less time decay, then pick less leveraged products.
2.) If you want time decay in your favor, then short TZA instead of longing TNA.
No nice neighbors today please...
ReplyDelete