2013 – A Fantastic Stock Market Year? [ChartMill]

First of all our best wishes for 2013! We hope that you and your family may enjoy a fantastic health and have lots of wonderful and warm moments together! On a financial level we hope that 2013 will give us an exceptional rally (doesn’t matter which direction; whenever it moves and foremost: moves long ENOUGH it is OK). We must admit: those last two years were not that easy for longer term trend followers. Lots of trends started, continued for one day, and immediately fell back into their ranges or broke down. Going short generated most of the times the same problems: lack of follow through, markets rallied back and stopped us out frequently. Where the 90s were still in some kind of an “invincible up-mode”, the markets in the new millennium can be described as a volatile, go-nowhere zone (especially in the last two years).

Lots of big and famous fund managers (you know, those that were interviewed in Schwager’s book Market Wizards) didn’t manage to stay out of the red colors. This seems to be very illustrative for the period in which we are for almost two years now. While having excellent track records for decades, last two years were absolutely horrible in terms of performance. Take a look at the latest results (November) from automated trading systems:

But trend following has been declared “morte” several times so we don’t care about that. Trading is all about staying with your system, staying disciplined and prepared. You don’t have to panic if you are a longer term trader. Those periods happen and there is not much we can do about that. It isn’t necessary to change your whole system. What’s best is to adjust position sizing and start scaling in if you see more and more suitable candidates. Don’t be hasty!

 

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Million Dollar Traders Documentary: Hedge fund manager tries to teach ordinary people to become successful traders

Million Dollar Traders is a three part series that aired on the BBC about hedge fund manager Lex Van Dam who tries to teach ordinary people to become successful traders. The series is particularly interesting because none of the traders understand what they are doing, but they all trade as though they did and the results were terrifying, both financially and emotionally. Many great trading lessons here.

 

 

 

What If Stocks Decline? [vixandmore]

Successful investors are the ones that are always making plans for all sorts of contingencies, so it stands to reason that they should even prepare themselves for the possibility of stocks actually declining one of these days…

I was thinking about the coming correction in stocks and how to position my portfolio for that moment when equities once again feel the effects of gravity when I stumbled upon an interesting tool at ETFreplay.com that they call their Down Day Association Stats. In a nutshell, it looks at the performance of a group of user-specified exchange-traded products on those days in which a benchmark falls X%.

In the example below, I have chosen SPY as my benchmark, 2% (per day) as my threshold decline and 36 months as my lookback period. I looked at 25 ETPs that cover a wide range of asset classes and investment approaches.

Some of the results from the Down Day Association Stats are not particularly surprising. For instance, the long bond (TLT) and the dollar (UUP) have a strong negative correlation to stocks and generally perform well when SPY declines sharply. Some of the other bond choices (LQDPCYBWX) have been better at treading water than countertrending, but also show the benefits of diversification. The commodity choices were somewhat disappointing, generally managing to lose at best half as much as SPY, with crude oil almost matching the declines in the SPY to the penny.

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Apple to post fiscal Q4 miss on cannibalized Mac sales, analyst says [appleinsider] $AAPL

By Mikey Campbell

In a note to investors on Tuesday investment firm BMO Capital forecast Apple to post a significant miss for its fourth fiscal quarter of 2012 as Mac sales continue to be cannibalized by the company’s popular iPad tablet line.

Despite raising sales estimates for both the iPhone and iPad, BMO analyst Keith Bachman said the just-ended June quarter and upcoming final fiscal quarter of 2012 will be “challenging” for Apple as the tech giant moves into a new product cycle, reports Barron’s.

Apple could see a $5.5 billion miss from the $38.5 billion consensus for the company’s fourth fiscal quarter ending in September if its third quarter performance is in line with the current $37.5 billion forecast, according to historical patterns and outlooks.

Bachman reiterated an “outperform” rating for AAPL, however, and bumped the stock’s target price to $700 from $695 on higher iPhone sales for the ensuing six quarters. Including the fiscal third quarter that just ended, Bachman upped iPhone unit sale estimates for the next year and half by 1.5 million units and also raised his iPad sales estimate by 3.8 million units.

Apple’s strong iDevice forecast was tempered by a lowered Mac sales estimate that is expected to drop 1.6 million units over the same six quarter period. Bachman dropped his Mac sales estimate from 18.65 million units to 18.22 million for 2012 and sees that decline carrying over into 2013 which slipped to 20.18 million from 21.38 million.

BMO Chart

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Wall Street rises as central banks stand ready [Reuters]

(Reuters) – U.S. stocks jumped on Thursday after news major central banks are preparing coordinated action if the results of Greek elections this weekend generate turmoil in financial markets.

The central banks from major economies will take steps to stabilize markets and prevent a credit squeeze, Group of 20 officials told Reuters.

The news late in the trading day invigorated a market that has been highly volatile this week, whip-sawed by concerns the ballot in Greece on Sunday may set the stage for the country’s exit from the euro zone.

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Traders work on the floor of the New York Stock Exchange June 11, 2012. REUTERS-Brendan McDermid

Learning to Trade from a Legend [rickackerman.com]

Rick asked me to fill in for a day, and I thought I’d give you some trading and life tips I learned from Victor Niederhoffer. Victor is, above all, a speculator. Like the infamous Jesse Lauriston Livermore, an early 20th century stock investor who made and lost several fortunes in Wall Street, Victor over the past 40 years has made spectacular gains in the market and suffered some devastating losses.

I had the good fortune to work for Victor in the mid-1980s, when he was at his trading pinnacle. At his best, Victor was a short-term trader who made money consistently in the commodities markets by charting the interrelationships of commodities.

Years later, after I had left, Victor had some setbacks when he changed his trading methods to accommodate a much larger public fund. But to my mind, Victor was a trading genius whose short-term results consistently disproved the “Random Walk” theory of the market. Year after year, Victor produced amazing results.

Ten Tips

I came to Victor as a trading novice. Here are ten tips from him that helped me learn the trading game:

• Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading?

• Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures.

• All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation

• Only make a trade when the odds are at least 60% in your favor.

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Some European indexes $DAX $CAC40 $AEX (charts)

CAC40

DAX

Amsterdam AEX

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