Surf Alert: SHORT THE USD NOW !!

US Dollar shorts have been triggered. We are long the EUR/USD pair at 1.3666.

Trend Following: A Fast Way To The Poor House?

The concept of trend following is often one of the first strategies new traders learn when discovering the financial markets. Several well written and convincing mass market books preach strongly about the superiority of the trend following method. On the surface it appears that nothing could be easier than catching a trend. The basic premise of trend following is that stock strength begets strength and stock weakness leads to more weakness. A series of higher highs and higher lows identifies an up trend. A series of lower highs and lower lows is a sure sign of a downtrend. The strategy, as defined in the books by the same name, teaches that once the investor identifies the trend, trades are placed in the direction of the trend. In other words, one would buy a stock that has exhibited an uptrend on the price chart. A stock downtrending would be shorted. While this is definitely a feel good investing method and it appears to work for some large, well diversified hedge funds, trend following can spell disaster for the investor. First, it is a non quantified, unspecific trading system. For example, just how many up moves increase the odds that the next move will be in the same direction? My personal favorite example of why trend following makes little sense when examined is as follows. If you flip a coin and heads comes up 6 times in a row, are you in heads trend? Secondly, when the trend following criteria is tested it fails miserably. We tested the S&P 500 over a 15 year period to determine if an edge actually exists going with the perceived trend. What was discovered is quite the opposite of what the proponents of trend following teach. The SPY and NDX were used as the test vehicles. The market actually lost money within one week after 3 or more consecutive days of higher highs. The opposite was also proven true. 3, 4, and 5 days in a row of lower lows leads to outperformance over 1 day, 2 days and 1 week time frames. In fact, multiple day lows FAR outperformed multiple day highs. Similar results were found when the Nasdaq 100 was tested. In other words, we clearly discovered that there is no edge whatsoever to trend following when trading stocks. Remember its often the ideas that make the least sense at first glance that are proven edge providers when investing.

Managing The Profits: More To Come ??

A nice downwave was caught in the DJIA yesterday and pre-open this morning. However the 10500 area in the YM contract acted as support triggering a bounce. Stops are at 10543 with the 3 minute break rule in full effect. If the support at 10500 breaks , we may get a scenerio similar to the posted chart from 2007--- much wealth was made on that day by shorts. It's a tough call here if the support will hold on the secondary test. The plan for today, if stopped out, is to trade the following channel 10497 to 10563--- untill then STAY SHORT !!

Some fishy business may be going on between Obama and the Greeks regarding regulation of hedge funds. It seems all populist Obama needs is a reason to clamp down across the board. Let's hope this isnt the impetus......

The Bears Are Back In Town: Shorting DJIA

The Bears Are Back In Town.....

It couldn't have happened on a nicer day weatherwise.

I am stepping outside of the standard system trades. Short the YM at 10560. Very very bearish sentiment inside the street. Taking this extremely seriously here.
Closing SIRI long at 92 cents. Will reenter after this potential storm passes.
Good luck!!

7 Critical Stocks For Monday

Looks like the perfect day in Manhattan. Central Park is full of early morning joggers and the birds are chirping happily. There is a peaceful spring feeling in the air from the center of the known universe. Let's go do what happens!

Monday is a sparse day for economic announcements but investors can anticipate several T Bill auctions with a small serving of earnings news. The Non Farm Payroll figure pleasantly surprised the bulls today triggering an across the board buying frenzy. Stocks surged higher on the better than expected employment news and decent consumer credit figures. The VIX or fear index reacted in kind plummeting ever lower on the session. The DJIA surged 122.06, the tech heavy Nasdaq advanced 34.04, and the broad based S&P 500 climbed 15.72.


Here are 7 stocks you need to know for Monday

H&R Block HRB announces its EPS after the close with a forecast number of 15 cents

A 27 cent loss awaits investors in MAKO Surgical MAKO after the close

TiVo TIVO is looking at a 12 cent loss after the days last trade

Apple APPL releases its iPad device in the United States on April 3rd

Google GOOG bought DocVerse an application that allows the sharing of Microsoft MSFT Office programs over the internet

Staffing companies such as Monster Worldwide MWW benefited positively from the employment news

Nailed It !

Euro Killer NFP Release


The 3rd system entry was the charm. We rode a nice upwave in the YM today and are looking to close the position by the 4:00PM close. Holding SIRI long awaiting the expected impetus. The NFP gave some life to the USD this morning and provided a bullish tenor for the day. Have a great weekend!!

Long DJIA, Long SIRI--Bullish Friday??

The Non Farm Payroll report surprised positively this morning pushing the YM above the upper neo surf line of 10463. The system has triggered long with entry at 10471. Interestingly, and unfortunately for the longs, the round figure of 10500 stopped the YM advance cold. Remaining long SIRI. Good luck!!

7 Critical Stocks For Friday

The much anticipated Non Farm Payroll report hits the wire Friday with an expected figure of negative 56 thousand. A few earnings announcements will cap off the generally lack luster investment week. Stocks climbed higher in a lazy, low volume trading day Thursday. Financials led the advance while the US Dollar gained against the Euro. Precious metals fell on the USD’s strength while the Volatility Index dropped lower as melancholy settled on stocks. The DJIA advanced 47.38. the tech heavy Nasdaq climbed 11.63 and the broad based S&P 500 gained 4.18

Assisted Living Concepts ALC expects to see an EPS of 34 cents before the bell

18 cents is the forecast EPS for Eagle Rock Energy Partners EROC after the close

New Gold Inc NGD has analysts awaiting an EPS of 6 cents prior to the opening bell

UBS upgraded Coca Cola KO to Buy


Capital One COF was downgraded to neutral at Sun Trust Robinson Humprey

TiVo TIVO won a critical patent suit against Dish Network DISH

Steven Schonfeld: Millionaire Maker

The following is a chat I had with Steven Schonfeld in 2005---- the founder of Schonfeld Securities. His firm was/is the premiment proprietary trading firms of all time. Many multi millionaires were bred by trading for this firm in the 1990's. Guys that started with nothing and by using the firms technology and leverage changed their lives forever. This is an inspiring interview from the man who started it all.

Photo courtesy of Forbes

Today I am privileged to be
joined by Steven Schonfeld. Steven is the founder and CEO of the Schonfeld
Group. His firm trades over 150 million shares and completes over 500,000 transactions
daily. He is a true revolutionary and innovator in the world of day trading.
Dave:
Welcome, Steven, thank you for joining me today.

Steven: Hello Dave.

Dave:
Let's start the very beginning. What first sparked your interest in the market?

Steven:
Well, I was a teenager when I first got interested. We had a stock market
class in high school and I had always been into strategies, like gambling at the
casinos, race tracks, or poker. I felt that the market was a bigger and better
game. After college, I became a stockbroker at around 23 years old.

Dave:
I know you were one of the top brokers, at Pru Bache, for about seven years. You
must have been making a serious salary and bonus. What made you want to go out
on your own?

Steven:
Growing up, I always felt that I was very entrepreneurial. When working at the
brokerage, I got to build up my capital base, but part of my goal in life was I
wanted to be an owner and see the other side and do actual trading in the
market. The electronic method of trading stocks had just recently been
introduced in the ‘80s, and things were becoming more electronic overall.
Computer power to assess and analyze market data was coming into its early
stages. Since I always loved reading percentages and statistics, I saw a
natural fit with trading. In addition to that, after the crash of ‘87 I felt
that proprietary trading could be pretty big for the next few years and I gave
that a shot.


Dave:
You really got started at the ground floor of proprietary trading?

Steven:
Yes.


Dave: What’s the difference between a proprietary
firm, a professional firm and a retail direct access firm?

Steven: A
proprietary trading firm backs its traders 100% with its own capital. Retail
trading firms house customers who are trading their own personal capital. At
Schonfeld Group, we support both types of traders. Professional trading is a
broad term that generally defines any trader, whether proprietary or retail who
earns his or her living as a trader. Schonfeld Group aims to be a place where
both types of professional traders can have a successful, profitable career.


Dave:
Did Level II data exist back then?

Steven:
We did mostly New York stocks, but there was also level II at the time for
over-the-counter stocks.


Dave:
Did Schonfeld grow steadily through the 1990s, or did growth fluctuate at times?



Steven: Very
steadily. From 1988 on for years we grew very steadily. We always tried to make
it not too fast, not too slow, but moderately strong growth.


Dave:
At your peak, how many traders worked for Schonfeld?

Steven:
I think it was about 1100 proprietary traders. We have had about 4000-4500
traders come through the doors in the last 17 years.


Dave:
Is it strictly in the office trading, or are there remote traders as well?

Steven:
We have remote and also office. We are looking to grow our remote trading. It
is setup for the traders to be in office for a while, at least 6-7 months and
then go back to trade out of their home or another office.


Dave:
You basically start everyone out in the office for a couple months?

Steven:
For the most part, yes. But if someone has some sort of a track record they can
by all means start out remote.


Dave:
I am personally friends with several of your traders during the late 1990’s.
Some of the stories they tell are simply amazing. Are you able to share any of
these stories?

Steven: From 1999, 2000,and the first quarter of 2000, which was 2 1/4 years of trading. In that
period, the trader compensation, how much I paid my traders was $685 million.
That’s the best way I can illustrate those times.

Dave:
Wow, that is truly mind boggling! Were you guys the first proprietary firm of
the modern era?

Steven:
As far as I know, yes.


Dave:
I know we witnessed a shake-up in trading firms after 2000, but now there seems
to be a new boom starting. Do you think this relates to anything in particular?

Steven: I guess
part of it is from the number of years of trading. Through time, weaker firms
fell apart from the tough trading and there were very few firms left. Now new
players are going back in. Possibly, there is a bull market, or at least one
coming in the next few years, people are preparing for it. The newer crop of
people are trying to get in now that weren’t around back then.

Dave:
Is there a difference between a daytrader today, and a daytrader in the late
90s?

Steven:
Not that different. Maybe some are more computer literate, maybe more
mathematical.


Dave:
How about strategy and tactics. How have they changed?

Steven:
In relation to strategy, it’s a whole new ball game. There use to be tons of
volatility and many volatile stocks. Nowadays, you have to really have to
narrow in on the really volatile stocks of the day, instead of trading the same
stock over and over again.


Dave:
How do your traders locate these volatile “stocks of the day”?

Steven:
We provide all of our traders with a proprietary technology we’ve developed
called SchonSite. It’s a filtering tool that uses Schonfeld Group’s own
proprietary variables to help our retail and proprietary traders research and
identify stocks and trends that will support the strategies they’re using.


Dave: Are traders today holding the trade longer
then they did back in the 1990’s, or is the time frame pretty much the same?

Steven:
When we talk about holding time, we have an enormous amount of studies of all
the trades that have been done in our firm, and it really depends on the stock.
Scalping can be within seconds, and yet some scalpers are holding for 5 to 15
minutes today.


Dave:
I know Schonfeld has put a lot of effort behind training traders, can you tell
me a bit about your training program?

Steven:
The program is very different for a new trader than it is for an experienced
trader. What we have is statistics, studies, report cards, video broadcasting,
and, a quant group who gives out enormous amounts of information about
strategies.


Dave: Do you prefer someone who is new and knows
nothing, or do you prefer someone who is experienced?



Steven:
Really, I would take both



Dave:
Does the banning of bullets change your trading tactics at all?

Steven:
Not materially, or too involved, but there were some scalpers that got affected more
than other traders.


Dave:
Do you have an opinion on the new threshold rule ?

Steve:

There are a lot of variables and its too early to tell how it will effect traders.

Dave:
What is your view of the day trading industry as of today?

Steven:

I still think we are in the doldrums. Volatility is unbelievably low, and in low
volatility its tough to make a lot of money. On the other hand, its also tough
to lose a lot of money. Unfortunately, many traders aren’t making what they use
to make in the past. The most important thing right now is to stay in the game
and work on honing their skills like control, discipline, and strategies.


Dave:

What do you think is responsible for this low volatility?

Steven:

Volatility is low because of a lack of retail volume in the market as a
percentage of overall volume. Also, the influx of competing black boxes in the
market is resulting in fewer big swings.


Dave:

Judging from what I witnessed at the 2005
NYC traders expo, some of the larger, full service firms like Fidelity are
courting the lagging retail market. Seems like someone is predicting retail
coming back in a big way. What’s your opinion?

Steven:

I think the retail market will grow slowly until there is another bull market.
Then we will see it take off in a much bigger way.


Dave:

If retail comes back, leading to an increase in volatility, do you foresee a new
‘golden era” in daytrading?

Steven:

More like a silver era. I think we will see another good chapter for active
trading, though not as golden as before. Retail will come back with the next
bull market. However, the black boxes that trade against retail volume are here
to stay. This is a big change in the environment since the last golden era of
active trading.

Dave:

I can't wait for those days again! We are out of time. Thank you for joining
me today, Steven.

Steven:

Thank you, Dave.

Stopped Out YM Flat Holding SIRI Long

The second false system entry in a row for the YM system. Stopped out with a 20 point loss. The channel is still in full effect. I am expecting a down day today in the market and the system should fire short once again. However, I am not going to anticipatory trade and will wait for the entry signal. Remember the lower Neo Surf Channel line is 10363 in the YM. Continuing to hold SIRI long from 88 cents with a stop now at 90 cents. Best Wishes!!

7 Must Know Stocks For Thursday

Jobless Claims and Factory Orders will liven things up on Thursday for investors. Several major names reporting earnings will add to the volatile nature of the session. Stocks got off to a strong start this morning. The Fed’s Beige Book cast a quick pale on the day indicating less growth than expected in most Federal regions. Speculation ran rampant of the Fed being forced to keep interest rates low due to the muted growth picture. Shares closed mixed on the session with the DJIA falling 9.22 , the Nasdaq easing lower by .11 and the S&P 500 gaining just .48.

Here are 7 stocks you need to know for Thursday

Teekay Tankers TNK float their EPS before the open with an expected figure of 17 cents

Edgy retailer, Urban Outfitters URBN, has analysts expecting an EPS of 40 cents prior to the trading day

Hot and juicy burger chain, Wendys International WEN, reports before the bell with a forecast EPS of 3 cents

21 cents is the expected EPS for Del Monte Foods Company DLM prior to trading

Muffler kings, Midas Inc MDS, reports before the opening bell with a forecast EPS of 8 cents

Joy Global JOYG reported earnings beating most estimates today

Orders are up big for furniture retailer, Ethan Allen Interiors ETH, who reported a 25% increase

Follow Us On Stocktwits !!

10363 YM: Touched Not Broken Staying FLAT

Wow, another super close call with the YM Neo Surf Death Channel. Uncannily, the lower line at 10363 acted nicely as support. Some of you trade the bounces off the channel lines. This method of channel trading would have yielded a nice reward thus far today. We are FLAT YM presently. LONG SIRI

Holding SIRI Long: $1.00 Breaks Today?

Our SIRI entry yesterday at 88 cents is performing nicely. I am expecting Sirius Radio to break the survival critical $1.00 market today or very soon. Time will tell, stay tuned!

7 Critical Stocks For Today

The ADP Employment Report will hit the wire first thing Wednesday morning potentially setting the tone for the day. A multitude of important earnings announcements including several from big box retail discount chains will add to the midweek flavor. Positive international news emanating from Greece combined with strong US merger activity led to a modest up close. The DJIA was the laggard due to selling in Microsoft, International Business Machines and Hewlett Packard. The DJIA added 1.81, the tech heavy Nasdaq climbed 7.22 and the broad based S&P 500 eased higher by 2.59.


Here are 7 stocks you need to know for Wednesday

An expected loss of 64 cents/share is awaiting investors in Take-Two Interactive Software, Inc TTWO after the close

Long time pet supply retailer, PETsMart Inc PETM reports after the final trade with a forecast EPS of 56 cents

Athletic shoe retail purveyor, Foot Locker inc FL, has analysts looking for 25 cents after the closing bell

8 cents/share is the consensus for rib eatery, Famous Dave’s DAVE upon the close

Insurance company, Progressive Corp PGR, reports during the trading day forecasting an EPS of 37 cents

Costco COST is looking at 71 cents/share prior to the trading day

96 cents/share is the expected figure for big box retail discount club BJ’s Wholesale Club BJ prior to trading

Neo Surf YM Death Channel

Tne Neo Surf Death Channel has emerged on the YM 10463 to 10363. Long above, short below and FLAT in the channel.

Flat YM

Long SIRI

Out & Flat YM

Stopped out of the YM longs with loss. Can't win them all!

Will recalculate neo surf channel this evening and jump back into the fray.

SIRI-- Long Now !! Unique Opportunity

We rarely make stock picks on this blog. However, this is a unique exception. Entered SiriusXM Radio long at 88 cents. There are a multitude of reasons, both fundamental and technical. I am expecting this trade to be a longer term hold. Very confident at this time. Stay tuned!

Long And Strong Dow-- March 2nd

The Neo Surf system triggered Long in the YM at 10407 with an entry at 10411. Almost perfect! The stops are at 10393. Remember, when we trade the system, the goal is to catch the BIG WAVES with no time frame on the trade. Looking for at least 100 points in the YM with this entry. I am confident fundamentally in the bullish nature of the trade. Strong European and Asian data should continue to add to the optimism. LONG AND STRONG !!

Trading The DJIA

The current NEO SURF channel in the DJIA YM futures is 10407 to 10323. Long above, short below entering only after a 3 minute break of the channel line.