Profitable ETF Trading Strategies: Sector Contrarian

There is a new conventional wisdom beginning to emerge from the stock market these days and it says that there’s no way you can make money in a bear market unless you have the good fortune to be an expert market timer and bet against the recovery of the broad market. While it is true that having a sense of market timing can improve your bottom line, that’s not the only way to take advantage of the current turbulence. By paying close attention to a select group of exchange traded funds that represents important business and commodities sectors in the global market, an astute trader can find very reasonable trades with favorable reward to risk ratios which offer a way to trade these markets effectively.

Here is an example in oil, which can be traded using an exchange traded fund with a symbol of USO.

Go to any web-based free stock market charting website, like Yahoo finance and call up a 15 year chart on a barrel of oil using monthly candlestick charts.

You will see that this commodity trades in long powerful swings that can last months at a time. You will also see that at crucial turning points the reversal of the trend can be swift and violent. This means that to trade this exchange traded fund effectively, you must be alert to where we are in the current trend and be alert to the possibility of turning points at critical price levels.

Currently, we are near the bottom of the most violent selloff in the shortest period of time that oil has experienced in the last 15 years. A barrel of oil recently traded for under $30 a barrel while only a few months ago it was trading near all-time records above $130 barrel. A selloff of this magnitude is an indication of a market overreaction, where emotions have gotten in the way of rational judgment. This is entirely normal and should be expected.

In the last few days however, oil has put in the intermediate bottom and is prepared to make a traders reversal to the upside. This move is supported by the news of increasing violence between Israel and Hamas, coupled with a recent decision by OPEC to reduce oil production in order to bolster the price of barrel of oil. Taken together, these facts all point to the possibility of a short term rise in the price of apparel of oil of 10 to 20%, while the recent price reversal offers a definable support level at $28 a barrel. This is a reward to risk ratio of greater than four to one, and an astute trader can begin a buying program whenever he sees the price of oil actually going up during trading hours. This provides an additional level of security for short-term trading.

If you examine the behavior of the price of oil after the market opens you will see that in the last 200 trading days price moves in the direction of the opening gap. So, if you see oil gap up there is the good probability that it will close higher than the open that day. Conversely, if oil gaps down then you can expect the price to be lower by the end of the day. This relationship is not always so readily apparent in oil nor can it be used as a simple rule for any other exchange traded fund. Only by constant attention and analysis can you discover these kinds of tradable trends emerging from today’s volatile stock market. The rewards for this hard work make it worth the time for disciplined, pragmatic trader.

By looking for these kinds of favorable reward to risk ratio trades, a short-term trader is able to take advantage of today’s volatile stock market in a risk measured way that makes a lot more sense than simply dumping money into a passive mutual fund and hoping for success. Naturally, you must do your own due diligence and take personal responsibility for your results. Good trading!

Wired magazine on: networks and the future of warfare

In a thoughtful article about technology and modern warfare, Wired magazine traces the birth of network warfare, its promise and its reality, which from their perspective was a near failure in OIF/OEF in the nation building phase because of technology’s inability to engage thesocial networks that are crucial to stability operations. The article contributes to the growing narrative that the early years of nationbuilding were a failure due to military retreat to centralized basecamps and a strategy of nationbuilding at a distance.

2 crucial snippets to whet your appetite:

In an article for the January 1998 issue of the naval journal Proceedings, “Network-Centric Warfare: Its Origin and Future,” they   [Cebrowski and Garstka] not only named the philosophy but laid out a new direction for how the US would think about war.

Their model was Wal-Mart. Here was a sprawling, bureaucratic monster of an organization — sound familiar? — that still managed to automatically order a new lightbulb every time it sold one. Warehouses were networked, but so were individual cash registers. So were the guys who sold Wal-Mart the bulbs. If that company could wire everyone together and become more efficient, then US forces could, too. “Nations make war the same way they make wealth,” Cebrowski and Garstka wrote. Computer networks and the efficient flow of information would turn America’s chain saw of a war machine into a scalpel.

The US military could use battlefield sensors to swiftly identify targets and bomb them. Tens of thousands of warfighters would act as a single, self-aware, coordinated organism. Better communications would let troops act swiftly and with accurate intelligence, skirting creaky hierarchies.

…

And yet, here we are. The American military is still mired in Iraq. It’s still stuck in Afghanistan, battling a resurgent Taliban. Rumsfeld has been forced out of the Pentagon. Dan Halutz, the Israeli Defense Forces chief of general staff and net-centric advocate who led the largely unsuccessful war in Lebanon in 2006, has been fired, too. In the past six years, the world’s most technologically sophisticated militaries have gone up against three seemingly primitive foes — and haven’t won once.

How could this be? The network-centric approach had worked pretty much as advertised. Even the theory’s many critics admit net-centric combat helped make an already imposing American military even more effective at locating and killing its foes. The regimes of Saddam Hussein and Mullah Omar were broken almost instantly. But network-centric warfare, with its emphasis on fewer, faster-moving troops, turned out to be just about the last thing the US military needed when it came time to rebuild Iraq and Afghanistan. A small, wired force leaves generals with too few nodes on the military network to secure the peace. There aren’t enough troops to go out and find informants, build barricades, rebuild a sewage treatment plant, and patrol a marketplace.

Madoff: a matter of scale

a nice meta-insight from Lew Rockwell, that puts Madoff in perspective as representative of the direction we were heading as a nation. His opinion:  the difference between Madoff and the government: a matter of scale

Madoff’s scheme played into the belief that wealth was not something to work for, but something to scheme for. It could be generated by playing your cards right, hooking into the right networks, and finding the right “investments.” The people with whom he dealt had, it turns out, some internal sense that there was something a little bit shady about the whole operation. But they dispensed with this sense when the fat checks arrived, and concluded that whatever was making this perpetual motion machine operate, it did work.

But listen: the government right now is using the same tactic to convince you that it is saving you from the recession. The whole scheme partakes of the same sense of denying reality that characterized Madoff’s scheme. And I’m not just talking about Social Security, which is almost an exact replica of the Ponzi version, except that at least Charles Ponzi didn’t force people to give him money. I’m speaking of something broader. The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: that something out of nothing is possible.

So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest are still riding high, even though their scheme is far larger and more egregious.

Most of us like to believe that we wouldn’t have been tricked by Madoff. But are you being tricked by the elites who claim that they can conjure up a trillion dollars to stabilize our economy by clicking a few buttons on a computer screen? Most people are. Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many more people are today being outwitted by the government and its central bank. And it will all end in disgrace and disaster, only on a far, far grander scale.

The path to mastery, with emotional intelligence

 The studies in the Cambridge Handbook of Expertise and Expert Performance  describe  the path to mastery as:

(1) Deliberative Practice 

(2) Time spent at Deliberative Practice 

(3) Assistance from a mentor. 

Deliberative practice can be broken down to:

(1) Identifying a long-term outcome 

(2) Breaking down the skills that lead to that outcome into its component parts. 

(3) Engaging in practice sessions that: 

     (a) Have their own predefined goals 

     (b) Have benchmarks to measure progress and 

     (c) Have immediate feedback. 

 

 Discover (November 2008 )  has an excellent interview with Antonio D’Amasio,  a neurologist who asserts that robust decision-making involves our emotions as much as our reasoning capacity. His thesis can be found in the quote from the interview: “It’s not that I am saying the emotions decide things for you. ..It’s that the emotions help you concentrate on the right decision. You (your cortex) still have to do some of the work, but the emotions give you a head start.”

D’Amasio says our reasoning depends on a supply of ’somatic markers’ to make a decision. ‘Somatic markers’ are past emotional experiences that serve as a guide. He believes that his studies of brain-damaged patients demonstrated that:  ”where emotional experiences are not present, then there are no somatic markers i.e. no foundations for the decision-making process. This process includes what shame, stress etc feels like.”

His work contradicts the idea we make our best decisions as emotionless robots. Hethinks not only is emotionless decision-making not possible, it would not even be desirable. Somatics have an essential role to play in the decision-making process.  Emotions warn us long before reason when danger lurks. Sometimes however, they may react to ‘danger’ not present in reality but rather in our imagination. To employ our emotions emotions, the keys are when feeling strong emotion:

(1) to become aware of them. 

(2) to question whether their source is valid i.e. is it a real and present danger or an imaginary one; and 

(3) to act in accordance with (2). 

It may be that the best way to manage our emotions productively is with thorough preparation which includes visualization. Since our mind cannot tell the difference between what is real and imagined, a mental rehearsal will blunt a possible traumatic event so that we can deal with it effectively should it occur.

Finally in the interview,  D’Amasio suggests that because somatics take time to form,  the speed of 21st century life blunts our conscience. And, when that happens, – when our reason is cast adrift from our emotions – we are left free to justify any act.

Straddling the fence: the challenge and rewards of the practitioner-scholar

here is a snippet from the author’s preface to the CIA’s Psychology of Intelligence Analysis. It is an excellent free resource from our CIA. 

He captures for me the essence of the challenge of being the practitioner scholar: being the transmission gearbox between the world of rigorous, focused, research-oriented scholarship and the broad, immediate world of the practitioner: who is looking for tools to help with the current problem or opportunity. Hopefully a tool that have some grounding in the world of theoretical soundness as well as utility.

The practitioner-scholar has to co-exist in both worlds: staying connected to the cutting edge of reported research to remain current, and yet living in the practical world of projects, issues, problems, opportunities and results; in other words grounded in what the immediate needs on the cutting edge of practice are.  This requires  skills in:  research, searching, filtering, integrating, summarizing essentials without oversimplifying, communicating, and most of all accepting the limits of our ability to progreess in both directions simultaneously.

here’s the snippet:

This volume pulls together and republishes, with some editing, updating, and additions, articles written during 1978-86 for internal use within the CIA Directorate of Intelligence. Four of the articles also appeared in the Intelligence Community journal Studies in Intelligence during that time frame. The information is relatively timeless and still relevant to the never-ending quest for better analysis.

The articles are based on reviewing cognitive psychology literature concerning how people process information to make judgments on incomplete and ambiguous information. I selected the experiments and findings that seem most relevant to intelligence analysis and most in need of communication to intelligence analysts. I then translated the technical reports into language that intelligence analysts can understand and interpreted the relevance of these findings to the problems intelligence analysts face.

The result is a compromise that may not be wholly satisfactory to either research psychologists or intelligence analysts. Cognitive psychologists and decision analysts may complain of oversimplification, while the non-psychologist reader may have to absorb some new terminology. Unfortunately, mental processes are so complex that discussion of them does require some specialized vocabulary. Intelligence analysts who have read and thought seriously about the nature of their craft should have no difficulty with this book. Those who are plowing virgin ground may require serious effort.

“Paying” for bailouts as if they were taxcuts

I am surprised not to see a suggestion from either side of the aisle, that suggests “bailouts” should be paid for in the same way tax cuts: by identifying dollar-for-dollar tradeoffs.

By government standards, the Big  3 bailout is a rather modest sum when you stack it up against the Department of Defense budget.  Republicans arguing on principle that $17B should not be spent on supporting domestic industry are silent on the financial disaster of the department of defense budget which is an order of magnitude larger.

At least a dollar spent on the Big 3 automakers has a remote chance of returning on the investment. And yet we’ll routinely shovel money at defense contractors who, knowing how the re-election and “jobs in the district” game is played, are adept at keeping their gravy train running on time. I mean, seriously, we are talking about spending 10′s of thousands of dollars per copy on autonomous robots that will see around a corner of a building in a hostile land, where our national interest is defined by some as free-market access to oil combined with the potential for a little more stability in the Middle East. If we were energy independent, how morally compelling would the interventionist argument be?  Probably less convincing than the non-intervention we have undertaken in Africa in the face of measurable human atrocities on a genocidal scale. Oh, but there’s no oil in Africa.

Detroit has to sell a dozen cars to generate enough profit to be taxed in order to buy that throw away robot which can never, ever generate an additional dollar of revenue downstream. It can only be maintained with more dollars until it is obsolete, or destroyed, in which case it will be replaced at a higher cost with a more capable model.

Hardly a dollar of the DoD budget addresses the security of  our own border. we spend more money on the security of the borders of other nations than our own, while we remain singularly incapable of preparing for, managing and rebuilding internal national disasters, having created another new department to mismanage that task in the last 5 years.

Farmers and automakers; remember the crucial difference…

I am trying to appreciate the difference between paying farmers not to grow crops and to prop up their prices with government subsidies and the outrage expressed by conservatives at paying automakers not to make autos (as canada joins the team in shoveling money at the Big 3) 

This time its different though, because the same government that has brought you HUD,  pay for play, Homeland Defense, public education, $600 hammers, $50B  unaccounted for from the TARP, deficits as far as the eye can see, Medicare fraud, Fannie and Freddie, the Tennessee Valley Authority, the SEC oversight of the financial markets, post-Katrina accountability of public funds,  a DoD that is unauditable, and the ultimate Ponzi scheme of all: Social Security are going to be overwatching the Big 3

Market Health Check, Dec 22, 2008

Upgrade from Intensive Care to Critical

market has been hammering out a bottom here. The slope of the 50d MA and the 30d Rline have turned positive. Volatility has dramatically reduced. The large candle days in the last 30 have been up not down; the 20 and 50dMAs are coming together. The next “easy” upside target for SPY is 100, an 8-10% move from here; there are few serious resistance levels on the upside here, meaning that there would be no compelling reason to sell now on the way up. This market  has made all sorts of preparations for an irrational move to the upside.

You can be philosophically opposed to the auto bailout and its long term implications, but the mkt has seemed to shrug off the Madoff and auto bailoff news, like a punch drunk fighter can ignore more headshots. Where else is money going to go after all? Do you think emerging markets are “safer” without a US consumer to buy their product? Only commodities, after massive selloffs are as attractive on a value basis, and yet they cant really go up on fundamentals without a US economy to energuze the business cycle. I expect we will go into deeper debt with Obama’s jobs program, but it will get the economy sluggishly going again. If we turn into japan: 30 years of no growth, but regain our savings rate and retain employment and the learn to revalue honest work, is that so bad of a prescription?

 

 

 

In this thoughtful posting, Dr Jack Kem examines the strategic and conceptual changes in the publication of the new FM 7-0 Training the Force.

here is a highlight: 

Conceptually, the band of excellence was intended to provide a training focus so that there wouldn’t be wide variance in unit proficiency – train on the essential tasks (METL) and keep a high sustained mean of excellence in training so that the unit is always ready.  The intent was also to eliminate “surges” in effort to eliminate the “peaks and valleys” of proficiency – with the additional intent of keeping the “band” tight by minimizing that variance.

The 2008 edition of FM 7-0 does not mention the concept of the “band of excellence.”  ARFORGEN has changed all of that – we have now institutionalized the concept of the surge for our units, getting them ready “just in time” for deployment.  We have institutionalized the “peaks and valleys” with the ARFORGEN three-phased readiness cycle: reset, train/ready, and available.  Because we have the reality of the “patch chart” with too many missions and not enough units, we have a never-ending array of mission sets, focusing at various times on the UJTL, CMETL, and DMETL sets.

It’s no surprise that the Army is stressed – our reality is that we have units that train up quickly, deploy, tear down, and then build back up based on the deployment cycles.  The new edition of FM 7-0 provides some guidance on how to manage this situation, but the reality is that we have created a “just in time” Army that does a great job in spite of the stresses of the deployments.

my thoughts:

Dr Jack identified the 2 drivers in the conceptual shift:

1) resource constraint given current level of “desire to engage”

2) unpredictable mission sets

regarding driver 1, we can ask: is the appetite to engage internationally reasonably appropriate and we are underresourced for that level of reasonable level of activity, or are we reasonably resourced but our appetite is too large? It’s another way of asking: What does our current level of overseas activity, at this cost, buying us? and what do we think the curve of return on activity looks like?  A skeptic of the current cost/benefit formulation might say we are already spending more than the next 24 countries combined, remain vulnerable and have strategically compromised the conventional  force which increases the probability of confrontation.

An additional issue here is technological rate of change: the probability that tomorrow someone discoves a revolutionary application of a new technology that invalidates the performance assumptions of our current force is increasing every day. In this kind of scenario, there is an incentive to delay fielding new capabilities until the last reasonable moment to ensure you have the time to find the current best set of tools to accomplish the job, assemble the right sized team, train to the newly developed standard and deploy.  This kind of “1 off” force equipping and packaging looks like what we are doing now; not by design by by necessity.  I ask myself: is there a country out there that can manufacture significant quantities of main battle tanks that we cannot already reason with?And since building that kind of capability and producing, training, rehearsing that force cannot be hidden, isnt that the least likely scenario?

regarding driver 2: has the world changed so much that we can no longer reasonably define a stable set of missions and tasks against which to train to a standard?  if so, we can ask, is this variability in mission sets likely to continue or are we in a new open-ended period of constantly evolving missions sets?  If you believe the latter,then you start looking at reducing the specialization of force structure and converting high cost specialty forces, like HBCTs, into cheaper and more flexible forces.

my sense is this: we are already at or beyond the upper limit of sustainable resourcing levels, especially given the hidden inflation introduced into the economy with over 2T of moeny being printed.  Real buying power will decline even if the budget number goes up. There will be less and less interest in overseas engagement and the idea of spending money on creating a capabilities based force structure aginst a hypothetical enemy, when we are breaking the bank in trying to keep core indutrial competencies afloat. Adventurism is a luxury, and the evidence shows little return on investment.

I conclude we are going to be living with ARFORGEN a long time as currently constructed, and that we need to be examining how to make incremental improvements in efficiency in the production and reconstitution of the force have, while the nation sorts out the international level of engagement we need.

 

 

Obama’s genius in selecting Clinton as Secretary of State

Obama’s true brilliance is revealed in his choice of HRC for SecState. 

Clintoons MUST report their secretive list of contributors to the shadowy library, the modern technique for laundering money to public servants. It’s revealed today that $500M has been shoveled at Bubba Inc from foreign interests, and the Clintons will never be able to stop defending their integrity, and their true committment to the welfare of the American people now that the slush fund has been made public.  Hannity and other noise generators will trumpet these facts for the rest of their careers.

Meanwhile, any dealing Clinton makes as SecState will be filtered through this baggage and she will have a never ending task of demonstrating how her foreign activities dont have any connection to the slush fund and their personal interests. In any event, voters dont care about foreign policy as long as their children dont get conscripted for war, and properly so. Since it’s impossible to ever declare a victory of diplomacy, Clinton will have no achievements to speak of that can differentiate her from Obama’s policy since he will get to take any creditshe gains by declaring it a triumph for his administration.

I really think this is Clinton saying she accepts that she won’t be President, and has settled for the ability to maintain the lines of finance and communication to the slush fund for Bubba Inc. After some years as Sec State, she will probably ask to be Supreme Court judge where her legacy can be consumated. What a distatsteful thought.

Meanwhile Obama has demonstrated he understands the power of the concept of funding  in the public consciousness by opting for the democratic, principled, and more importantly, untraceable method of miliions of anonymous credit card donors spontaneously supporting him. This is cash that doesnt even have to be filtered thru the laundry, because of the way they turned off credit card address validation right as the surge of donations occurred.  Brilliant. He has secured an unassailable war chest for all future projects after his Presidency. I am sure he is studying how to maintain the same level of anonymity for future contributions to his foundation and library when his tour as President is over.  All he has to do is get through his term without any mud sticking to him and he will be Saint for Life. He will make Clinton look amatuerish when it comes to international influence after his term.

Brilliant.  Mao would be proud.