Sunday, December 07, 2014

New Views for the Market Week

*  Here's an indicator I've devoted a good amount of time to this weekend.  The idea is to track a basket of stocks, where each of the names is actively traded by large institutions.  I look at the behavior of the stocks multiple times per minute throughout the trading day and identify occasions in which most or all of the components trade higher or lower at precisely the same moment.  These occasions represent the impact of program buying and selling in the market.  The chart above compiles the data on a one-minute basis and examines the ongoing proportion of buy programs to sell programs.  I believe this provides a unique window on institutional sentiment and participation.  You can see how sell programs dominated as we went into the October lows, followed by a significant preponderance of buy programs.  Most recently, we've seen a tailing off of buy programs and some expansion of selling.  This is consistent with the recent weakness I noted from my other measures.

*  Thanks to a savvy trader at SMB for a heads up on this article concerning the value of repetition and resilience.  By the way, that savvy trader recently put out a video on trading secondary offerings.  I love learning new stuff!

*  Kudos to Abnormal Returns for linking to the Morgan Housel post on rules for investors to live by--especially the observation that short-term thinking is a major source of investing problems.  Investors cannot expect stratospheric Sharpe ratios, which means that drawdowns will be proportional to sought returns.  Strategies to cut off losses by restricting holding periods also cut off positive returns, a factor that has contributed to recent modest fund performance.

Excellent post from Worch Capital on the value of patience, given signs of market fatigue.

*  I see there's a Stock Twits meetup in NYC this Tuesday evening!  I'm going to do my best to be there.  Hope to see readers there. 

*  Here's a really interesting paper on returns from overnight versus day markets.  An important implication is that day traders miss out on a good portion of momentum-based returns.

Have a great start to the week!