Entry for 10/21/08 - BP trading game

Day one concluded of the BP trading games.

Login Name: Chart Pride
Current Rank: 20/157

I believe it was yesterday night that I entered two short positions on ICE Brent and ICE gasoil -1 lot each. At the time I entered my trade prices on ICE Brent were around 71 - 73. Currently the bid is at 68.92 and the offer is at 69.72.

My rational behind the trade is as follows:

Considering I do not know in depth the driving fundamentals of the energy markets I used what I knew. I know the basics that oil is at most times supply driven, ( though recently the media loves to attribute the fall from 140+ to current levels on "slowed consumer demand"), has geopolitical risks, and susceptible to Marco conditions.

Primarily for last nights trade my model included macro considerations, geopolitical in the sense of what I read from the media, and lastly basic technical analysis.

1. macro considerations

Overall fundamentals of the world economies in general or obviously not sound at all. Every industry is craving for capital and business earnings are expected not to outperform previous quarters (though Im not to sure on the equity side totally). But in general, macro fundamentals due to effects of financial systems, in general will tend to slow business down. Production will be less and transportation costs will would also decline. Now much in part production can be slowing down as a fucntion of "slowed down" consumption. Which I will admit to some extent is affecting overall consumption. Though I will have to say from the US perspective, the Middle middle, and the upper middle class are still relatively well off. If consumption however is driven from the lower end consumers then peaked off demand could quite reasonably be a reason for oil prices dropping off (though however i don't see people eating of of garbage's and walking around in rags yet). The point being that on the fundamental side macro conditions if correlated to oil prices to some extent, would indicate that oil prices should be in a down trend. And that is the point to the macro analysis. Overall trend Should be down, and that any whipsaws to the upside are just temporary as overall conditions have not fully stabilized.

2.
This brings me to my second point. Whipsaws... As I was reading the news last night, a whipsaw should have been ready to happened before I entered my trade. The media kept hounding how OPEC was going to "cut production," to maintain prices around 70. Now anyone sensible seeing that oil is highly supply related would have used this rational to enter on the long side. However, I felt that to be too simplistic in nature for that assumption. Though I am not too sure when OPEC makes their official announcements I felt it was something that they still needed to discuss as there are many market risks still were present ( though recent expected earnings from oil equities make pacify these market risk worries causing a cut in production to occur sooner). I felt that considering this is a bear market, you will get strong reactions to media reports, the type of heard mentality. Thinking this I felt it was a good idea to consider the contrarian perspective (a little nice view i learned to apply from the old Fund I worked with). I felt that all this news and media quite could possible already priced in the markets. And that instead that this would produce opposite affects of the normal news of production cuts (as the news wasn't that "new"). The point being is, though geopolitical risks said for me to go long, a contrarian perspective said otherwise. Adding more solid reasoning for me to go short.

3. My last consideration, considering this is short term trading I tend to give more weight to charts in the short term. Though the BP platform does not provide me with as many lovely charts as my FX platform. However, i scrounged google and found some basic futures charts on brent and gasoil. Though the functions were basic in nature, it was more than to suffice for the time being (in fact simple often works quite well for me). I confirmed the downward trend with a simple BB on a standard deviation of 2 and average of 20. The general charts (oct, nov, dec 08) showed continued movement along the lower BB. I also used the RSI and MACD indicators, though I do not think the RSI would really fit into this system as I am not sure how responsive it is in the oil markets. Though, I gave weight to the MACD as indication of movments of momentum and volume. Overall, there seemd to be indications of continued downward movement as volume was still relatively high. It is unfortunate, but I am not exactly sure what contract I entered as it does not say in the BP trading screen, and I am still very new to this all. Hopefully I will get some support from BP later.

I would like to comment on my current position on the ladder. The first and second trader have 136 trades and 205 trades with $31,780 and $28,085 mark to market respectively. Considering the number of trades, these guys must have lots of time on their hands as this only started yesterday. Secondly, there strategy I would think is really ineffective as the number of trades is so high for one day. Though, I am not familiar with the total amount of taxes for short term gains, Im sure a considerable amount of their money will be going to taxes. Where these top to traders are students, I would like to high light two BP traders. Ranked 15 and 16 are to BP employees playing the game. They have 10 trades total each with $8,240 and $8,185 respectively. In the top traders these are the two traders with the least amount of trade and highest amount of money, excluding myself. I am the 20th person with only 20 trades. Though I would like to point out that Cambridge Hedge has 2 trades as well and is ranked 22. I believe these trades to be more profitable, or if not at least shows better discipline. Sticking to a sound reasoning and following through. Though of course part of this discipline will need to also follow through when any position turns sour.

At any rate, I hope I will learn more about the fundamentals of the oils as my technical abilities are quite stunted with the current platform. It is too bad that the platform also does not have any limits or stops which would help me trade with more. Anyway, I will have to follow up again to see if I need to readjust any positions.

9/25/08

After finally arriving in London...

It would seem Im jumping back in after missing the greatest events of summer... I wouldn't dare say history, but that is just of my opinion.

Only a few words, as I am in the middle of orientation still and still not fully organzied, Im half on Vietnam time and Half on America time trying to sleep on UK time.

For the US...

A fed's fund rate cut from a liquidity standpoint makes sense. There is no capital in the markets at all. I spoke with my mom recently, Wachovia literally cut all unsecured loan lending. I don't know what took them so long, but they finally did it and Im sure many other banks will follow suit or have already. though i was surprised to here that some banks are still lending at prime minus... Im sure that won't last long either...

It seems that sentiment will be reigning king for sometime even if fundamentals of the economy picks up... Im sure the economy will certainly pick up before any recovery or bottoming of the financial markets. Which would exemplify that economy does not equal financial markets... though these days this is bloody hard to distinguish with all these governemnt interventions and the Federal Reserve stepping in to " " save " " the financial markets.

Which brings me to my next point, from a historical perspective as the job of the Fed reserve, explicitly a rate cut does not make sense since it is not their job to baby the financial markets, though it would appear that this job has changed with out any written change to the Fed charter.

Which brings me to my last point ( only for the day, as i must leave to orientation soon), from a monetary policy stand point cutting the rate would not make sense as there are only about 4 more possible rate cuts assuming bernake will be cutting at 25 bp intervals. Leaving no more weapons to stave of crisis...

Of course another cut might as well be considered good since the genius's in washington won't be coming up with any better solutions...

- "so about short-selling"
politician: " well aww gee... i guess its bad n all..."

entry for july 23, 2009

July 22, 2008:
This past week is a perfect example of a contrarian perspective at work. However, my timing again was way too premature. Along, not having enough time to follow up on the markets, I missed one of the biggest shorting opportunities for oil recently and a nice rally in the S&P500.

July 23, 2008:

Today’s morning is a great opportunity to show how sentiment can move markets, but not in a traditional sense. Early trading in the futures market showed significant bearish sentiment with the markets pricing in the bad news for today’s early trading with fair value at -8% or so. However, this became a large divergence as markets opened today 1.35% higher on the S&P500. Interesting the oil and equity markets inverse correlation is still holding. The continued drop in oil despite bearish sentiment in the futures market could have been a good indicator for a bounce to the upside in the equities market. (However, I have yet to calculate how strong this correlation has been for the past few months). The many divergences in between different markets maybe indicating stronger moves to the upside in the equity markets on the longer term charts.

From a Vietnam perspective, I will take a position on steel prices. In general, due to high inflation seen across the world demand central banks will be forced either to hold rates or to increase rates depend on the regions economic situation. I am in the belief of that steel prices are still correlated to the strong growth of emerging markets. As markets need to take a breather from all the speculation and high amounts of FDI inflows to these emerging markets, the price of steel now should be decreasing in the short term, the short term of slowed growth experienced possible through the end of the first quarter 2009 or even second quarter 2009. The growth prospects in general for Asian markets for 2008 seem much bleaker compared to its past years of growth, however looking forward the prospects for growth in Asian markets are still very good considering majority of Asia is still undeveloped and is lacking infrastructure. If the Asian markets can reign in inflation to reasonable levels, continued development will push the price of steel higher as demand picks up again. However, risks to this model are the continued inflation from food and energy prices. Which may make inflation continually prevalent.

In terms of inflation, for the US, it seems the Fed Reserve has put themselves in a very difficult position. As the continued weakness is coming from the financial sector along with its contribution to the deteriorating jobs market, along with other industries who are also now contributing to a weaker jobs market, due to economic slowed growth, the Feds have rashly and pre-matured lowered interest rates to 2%. As many other analyst argued, when rates were at 4-5% were still considerably low compared historically. Now with high inflation, and prospects of weaker growth or continuing problems from the financial markets, the Fed has to look to other means to provide liquidity and price stability as its main weapon, the Fed Fund rates, has almost run out of ammunition.

Perhaps this information may be of use for those hedging interest rates or for those trading interest rate futures. It is unlikely the US will lower interest rates any lower, unless they plan on going all the way to zero, like Japan for some time. With US interest rates this low, this is just an economic boom waiting to happen, what is preventing this scenario is the unstable conditions from housing, the financial markets, and other weak macro conditions. If conditions can stabilize in the year 2009, the year 2010 maybe looking better for strong economic growth and possibilities for increase in interest rates if inflation is not yet under control.

Entry for July 9, 2008

Reviewing my performance as to what I missed, I think I need to look closer at the open high low close and volume relation for my analysis to be clearer. It seems that I there would a holes in my previous analysis for discounting some obvious information that would could have possibly made for a better more accurate analysis. Though it is not yet Friday, it is hard to believe that the close the s&p500 on tomorrow Friday will move 2.15% in the upward direction, thus making my last week's analysis wrong even if Friday is another up day. However, if volume does decrease to around low 4 Billion or 3 Billion range another big move maybe in place for the following week. If my previous analysis of support developing is correct the move should be the upside. However, considering the wide swings and whipsaws in prices it might be hard to call this week a week of trading sideways, as also the range i stated of 1350-1380 was broken below as the close of July 9th was at 1244. If anything prices are still forming a downward trend channel. Uncertainty from the fundamental side along with bearish sentiment for surely would seem to indicate further downward movement, however I think Friday's volume will be key to see where the start of next week will be (though i have not yet analyzed volume vs price open close and highs for weekend periods leading into the next week).
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I would like to happily say that oil did indeed revisit levels in the 140's at the highs of 142, though currently prices retraced back to 141.84 as some investors were taking back some gains. For oil, I will remain bullish into next week, and though I will have to re-analyze oil during the next week as fundamentals may change.
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Entry for July 9, 2008

On Monday, Bearish Sentiment indeed carry on through from the previous week. The extra holiday might have lead into Mondays trading as the S&P500 lows hit around 1240 and closed at 1252, which is a -.7% change from the close at last Thursday before July 4th. However, yesterday (the 8th of july) the markets were up 1.7% at 1273. Based of the close the S&P500 indeed are trading within the 1250 and 1280 range I previously mentioned. Though as I also previously said I expect the S&P500 to end on the high side by the end of the week of at least 1280 or more. I would consider the S&P500 trading in the stated range to be "trading sideways." Though these swings in my opinion are quite volatile (large and fast moves).

^--- written during the day in Vietnam or night in America

Continuing at night in Vietnam, during next trading day in America...

(ll:50 pm Vietnam time). Currently the equity markets are sending mix signals again. the DOW is down -.07% while the S&P500 was up a few minutes ago but now is down -.15%. If the S&P500 can end on a higher close than yesterdays close and the DOW closes lower, this could indicate further movement down for Thursday trading if there is a long enough lower shadow with a shorter upper shadow at the close of Wednesday today. Fundamentals certainly warrant further downward movement, however if the s&p500 does end up higher this may be indicative of bigger moves to the upside to come, or indicative of improving conditions.

There is much weak data coming economically and from financial sectors and a divergence of these fundamentals from the markets and economic may show a decoupling of the bear mode the markets have been with poor economic data equaling poor performance in the equity markets (wheres in bull markets you can see more divergence of economic data and moves in markets). However, this analysis may be a bit premature of naive as this is very short term and some more consistencies of this trend may need to be established before unfolding.

So currently I am waiting for the results of Thursday and Friday to assess my performance from last weeks analysis...

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However, on other note, I unfortunately had neglected to follow up on oil, making it hard to gauge my performance as I missed out on a very large decline in crude oil prices. While my call of oil being in the 140's range was correct, which now may be meaningless since I did not follow up and missed a nice shorting opportunity. However, I feel that oil will be revisiting the 140 range again over the next two weeks, though this call is not coming from any analysis of the oil markets or economic analysis...
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Recently I have been able to access some currency charts which I missed so dearly, since I have had such a poor internet connection here...I did have some analysis for last week but, now the the environment has changed and I need to revisit the charts again. Unfortunately (when busy)and fortunately (when bored) such is the nature of the forex marekets constantly changing making hard it hard follow when busy at work. I think I will go to bed now and hopefully sometime at the end of this week or next week I will be able to start covering or shifting to currencies...

Entry for July 3, 2008

Ok, another lessoned learned: as I quote myself from my last blog, "Fundamentally the financial sector and many soft spots in the economy are still looming. this tied with strong spike in volume with todays drop in the equity markets makes worried that a bottom may not be found in the 1270's range. Fundamentals, technicals, and current sentiment do warrant further movements downward along with agreement from the max time frame chart on the s&p500 (which is still in a down trend)..." And it is so that within the past this past week that the S&P traded at 1280 and 1284 at the close of Jun 30 and July 1st respectively with lows going as far of 1260, as the candle sticks will indicate though the bulls did indeed defend support of the 1270's range for two days that there was more bearish momentum as indicated by the shadow of 1260 on July first, which would have been a good indicator of further downward movements. So overall I would have been wrong as this have not stabilized at all but are quite volatile within a range of 1250 and 1280 for the past few days. The lesson learned is that one should stick to what is shown, as there were weak fundamentals with agreement on technicals for further movements downwards. The psychological effects of supposed support of 1270 was of a short lived nature, as more clear support of 1260 maybe forming now. The correct move would have been to short on 1300 levels, of the time from my last blog, and then to have covered in the 1250 range however covering at current levels of 1260 still would be profitable (assuming no taxes or trading fees).

And so now...

I will have to take a contrarian stance for the upcoming week. I say the S&P500 may reach or break out of levels of 1280, however for the month it will probably trade in a similar range as support needs to be performed. Its possible by the end of the week or into the beginning of the next week the s&p500 will have a small rally. Though, in the beginning of next week the s&p500 will trade sideways or will experience further downward movement as bearish sentiment may carry into the beginning of next week.

I'm putting more weight on the contrarian approach for the upcoming two weeks since there what I believe to be too much of a build up of bearish sentiment. Between extreme downward movements from oil, jobs reports, and more worries stemming from the financial sector, would seem to indicate further movement with again agreement with technicals, however I think it is at a point where the cards are so low that a bounce of good is going have to come out of the culmination of bad.

Overall, all this bearishness is making me see more hope for the faster recovery in the economy. If the economy keeps getting beaten down, its just preparing to stand right back up, the faster and harder the beating the sooner it will probably react in opposite direction. (one can only push things so far before it pushes back).

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Entry for June 27, 2008

How exciting the markets are...

Once again I have underestimated crowd sentiment and its ability to exaggerate movements. My thinking that people would rush in to defend the S&P500 1300 level support was wrong as in probably most people are looking to real support at 1270, however due to short covering I believe the a trend reversal to happen before touching actual support. From June 24 - 25 the S&P500 took a breather before todays fall going from 1314 to 1321 after the Fed's announcement. Unfortunately I was not able to follow the markets that day, but goes to show how reports or news sentiment can temporarily disrupt an established trends. It looks though as if I correctly said that on June 11th more bad news and pent up bearish sentiment may lead the s&p500 to 1270's range. Though I must admit I must improve my discipline as I would have covered a short earlier due to temporary whipsaws, and I would have missed out on the further drop.

Since I was not following the markets on the day of the Fed Announcement, I would have missed a chance to hedge on the whipsaw or trade a temporary counter trend.

I think its pretty obvious now that the Fed may be on a series of holds until they can get enough stronger data to use to warrant any increase in Fed Funds rates. Because of this the equity markets may stabilize in the short term (the third quarter), in the sense that the economy may possibly improving. As to what range and what time frame is appropriate will be hard to assess. Fundamentally the financial sector and many soft spots in the economy are still looming. this tied with strong spike in volume with todays drop in the equity markets makes worried that a bottom may not be found in the 1270's range. Fundamentals, technicals, and current sentiment does warrant further movements down along with the max chart on the s&p500 (which is still in a down trend). However, in the short term looking at the 2 year chart i find it hard that people would not defend such a clear line of support of around 1270. Its quite possible that through the third quarter that the s&p500 will stabilize and though its fate may be more unclear in the 4th quarter .

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There is one thing i would like to note that i noticed on the day of the Fed, though it might mean absolutely nothing or maybe an interesting indicator.

The day the Fed rates, which I believe was on the 25th of June, the s&p500 rallied though the DOW remained negative. Due to the nature of the DOW, (it being price weighted and only 30 companies), I always feel the DOW is a better gage for sentiment or has move that are over-exaggerated than the actual fundamentals warrant. I was thinking that day, that the divergence in the two indexes could either mean a further drop or a reversal to the upside. It would seem that this in a bearish environment a divergence with the s&p500 to the upside with the DOW to the downside could indicate further movements to the downside. I should also note that volume for that day was not totally abnormal as it was still lower than the day of the 22nd when the s&p500 dropped from 1340 to 1320. Also, by examining the actually candle stick pattern for the day of the 25th would confirm bearish sentiment as there was a strong up shadow but eventually the index closed closer to its open (though the bulls won that day the bears seemed to be getting a foothold).

So maybe this may mean something or not, I obviously need to review many more charts and confirm this, though currently I'm lacking resources to do so, the main one being mostly time, though i think it would be a nice idea to entertain the next time i see it again.
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Moving right a long let us talk about crude oil...

I can just imagine my dear friends who are currently trading oil. All's I can hope is that they are using their stops wisely, or more tightly should I say, as the past weeks have been a roller coaster.

It would seem that oil markets touched the new 140 range and retreated, I see this as quite natural before any new range is established. In part, a lot of it has to do with speculators taking back some gains, preparing for the second wind. I think tightened regulation of crude oil in the from US House of Reps will have only temporary or minimal effects on the price of oil. It is true speculators do push levels higher, but if prices stay in the range it is probably due to fundamental reasons. I still maintain that oil will reach into the 140's range and stay.

Though its possible that due to high inflation experienced by all nations, there will be forced slowed economic growth and demand from emerging nations may diminish temporarily. Though I am no expert in oil, its possible that inflation effects if its a real problem probably won't start to surface in late 4th quarter or into the next year. I know, currently by working in Vietnam, that Vietnam and its neighboring countries are experiencing exponential increases in inflation. I know the government has already taken measures to curb inflation which will naturally have to result in slowed growth, though interestingly the rate of FDI inflows are not seeming to diminish...

In inflation continues for EU, United States, Japan and Emerging Countries, Oil will definitely have to peak out temporarily.

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About what I wrote about the dollar last time:

If oil does indeed continue to trend up and stay in a new range, above 140+, there should be strong inflationary pressures. Compounding this inflation could possibly no slow down in the commodities rallying as many staple commodities will still be demanded from emerging nations despite economic slow down. Due to fear of slow growth in the US along with Housing problems a series of holds from the Fed will be in place until the conditions stabilize. Once conditions stabilize the Feds will be able to focus on fighting inflation. This could happen in the late fourth quarter into the first quarter 09. I do not believe the Feds to be aggressive during election time. Though I believe the dollar to strengthen in the 4th quarter, earlier strength may be seen from political affects. After the elections, it is possible consumer sentiment maybe temporarily renewed and along with possible increase in fed funds rates if inflation is still a problem. With this should come a rally in the dollar...