Blue Horseshoe Loves This Finance Blog

For anyone who might have come across this blog for the first time, there's definitely a lot of material to cover from the past couple of years.  So I thought I'd provide a list of some of my favorites.  Enjoy! Dynamic Programming - Incorporating Game Theory into Portfolio Optimization:  http://tancockstradingblog.blogspot.com/2015/09/creating-vix-signal-to-manage-asset.html  Projecting Equity Prices Using Exponential Trends and Stochastic Simulations: http://tancockstradingblog.blogspot.com/2015/08/projecting-equity-prices-using.html  The Death of the Dollar Rally any Why It Matters: http://tancockstradingblog.blogspot.com/2016/02/the-death-of-dollar-rally-and-why-it.html Hedging Tail Risk & Why VaR Does Not Manage Risk: http://tancockstradingblog.blogspot.com/2016_03_01_archive.html   Risk Evolution - Options Trading With Multiple Expiration Dates: http://tancockstradingblog.blogspot.com/2016/05/risk-evolution-options-trading-with_22.html   A Vec...

A DOUBLE EDGED SWORD Over the past 28 days following the US Presidential election, the S&P has been on a tear returning more than 6% in a little more than 5 weeks time.  For the sake of context, the index returned just over 1.5% for the one year prior to the election while the 28 day post-election rally is in the 90th percentile of returns over the same time period since the inception of the S&P 500 (the orange line in the histogram represents the most recent 28 day performance). It is important to note that not all rallies are created equal, however.  The majority of 28 day return distributions to the right of our current mark came on the heels of downside volatility when prices are subject to wild fluctuations in both directions.  That has not been the case in the fall of 2016 though as this rally is almost a pure breakout following an unexpected outcome in the election that is expected to favor corporate profitability. Typically, increases in the price of volat...

MAGNITUDE & DIRECTION In mathematics, systems of linear equations are used to construct complex spans that can shift across multiple dimensions.  In their most basic form, each construct is made up of a series of vectors which are basically line segments.  A vector, by definition, has two components - magnitude and direction. On Friday, the S&P closed down for the day - which by itself is not particularly noteworthy, except for the fact that it had also closed down in each of the previous 8 days as well.  This was the first time this has happened since 1980... a somewhat historic move in terms of duration. Since September, I've noted on this blog that the market was signaling an increased likelihood of a correction so the direction of the move comes as no surprise.  What has been surprising, however, is the magnitude of a move breaking below support levels... or should I say, the lack thereof. Going back to August of last year, the market has had two notewort...

Just to add on to some of my previous posts about growing market stress, here's a look at VIXY (long Vol ETF) vs the SPY over the last 5 days... A couple of things worth noting: 1) the VIXY is a levered vol ETF so the scale isn't consistent with the non-levered SPY but the point is clear that perceived risk in the market is rising and 2) the S&P tested support levels today but didn't break down while volume remains light.  This suggests to me that the market is waiting things out and there are two potential catalysts between now and the end of the year... the election (which everyone will be glad to finally have over) and the two final Fed meetings of 2016 (one of which will conclude on Wednesday).

IT'S NOT LOVE I'M RUNNING FROM, IT'S THE HEARTBREAK I KNOW WILL COME I just wanted to make a quick entry today as I see some very interesting patterns forming across asset classes. Since September, my models have been pointing to ever increasing probabilities of an equity market correction but the correction does not appear to be contained to equities.  Here's a look at the relative performance of treasuries to equities and it's clear that they've been getting hit harder than stocks since the end of the summer (treasuries are represented by the blue line)... Corporates have also been taking a bath and now high yield bonds look like they may be turning over too... Other notable safe-haven assets like metals have also been stressed - although gold has moved into a short-term bullish pattern. This is all happening on the backs of a renewed dollar rally as the Fed is seemingly running out of excuses to keep rates at rock bottom levels. Why is this happening?  Many F...

ARMS & THE COVENANT   In 1940, then Harvard undergraduate, John F. Kennedy penned his college thesis on the cause and affect of England's torpor in the face of mounting fascist aggression just beyond its own shores in the 1930s.  The thesis was a reconnoiter of Churchill's While England Slept, which was originally published under the title, Arms & the Covenant.   In his subsequent examination, Why England Slept, the young aristocrat was careful not to lay blame at the feet of those who have come to be associated - justly or otherwise - with history's cursory allocation of abetment.  Perhaps the conspicuous omission was prelude to a fateful temperament that would save humanity or perhaps it was because one of the damned was his omnipresent benefactor and father, Joseph P. Kennedy. Today, domestic equity indices are staring down increasingly ominous signs that threaten their 7-year bull market with reminiscent apathy. Obviously, the modern threat of a needed co...

Oil is breaking down beneath resistance as tight moving averages are beginning a negative expansion.  The 20-day will most-likely cross the 50-day on Monday which will line up the metrics in negative succession (100-day over the 50, 50 over the 20) all with negative trends.  If the dollar catches any kind of bid next week, oil could test long-term support levels.