DAVID TEPPER - The market SWAT

We love David Tepper, his simple and clear way to express and communicate his market approach impress us. He have huge skills to detect, solve and get incredible yields from difficult situations in the market for this we consider it a special operations especialist. You can read about his huge profits with distressed debt of huge bankrupts as Enron, Worldcom or Conseco.

He talks, decide and execute from the experience of a fund manager with an average of 27,4% in the last 15 years and with the honour to be the top earning hedge fund manager the years  2009-2013. Let's see his last 18 years of yearly performances in his own Fun.

Two  points  to highlight over the rest:

- In average, his fund got a 20% excess gain vs S&P500 performance in a 15 years view. That is In credible.

- In the last 18  years, only  3 of them had losses. Furthermore, only one of this years he really did worse  than S&P performance.

Also, is fair to say that this table don't show years 2011-13 and this last year he fund, together with 2009 year, achieve the honour as the top fund earnings of the year.

We highly recommend to see his cnbc collaborations, this may clean our mind of confusions and allow to think in the clear and steigh way that Tepper do.

To finalize, here you can show his portfolio structure:

Have a great week!

The BFM Team

You really need to use any indicator?

My short answer might be no. But here below my longer answer.

As everybody I did start the trading with many indicators too. My hypothesis was that if I use properly my indicators and my whole system, I could be solvent and profitable. After a while - it took me four years - I abandoned all of my indicators. Why? Because simply they didn't deliver the numbers at all. In most cases, the same indicators with the same settings delivered different signals if I used different time frames. The H4 chart argued with the H1 chart or with the daily chart. It basically gave me huge frustration which I know understand well was a Cognitive Dissonance in my mind (about CD a bit lower)

So the signals argued with each other's and I was absolutely confused. I started to analyse the indicators because I could not believe no existing the holy grail, the accomplished indicator. I have a mathematician friend who prepared to me many statistics in principle about the most popular indicators, like MACD, RSI, Bollinger, CCI, MA's...etc. And you know what happened? He demonstrated that any of the indicators are not able to do better performance than if flip the coin or throw the dice. Anyone them couldn't do more than 50% hit rate in long term. If I would say in one sentence what was the lesson, I would say doesn't matter when and in which direction you open your position, sell or buy. What only matters? Only the money management - Cut the loss immediately and confess to yourself you made a wrong decision. On the other hand let the win ride. It's that simple. All in all I am totally against all the indicators, they are only lagging, they don't add any more information about the market. I am sure many of you still believe that once finding the holy grail or find the magic indicator. I don't know too many things about the market, but what I know for 100% sure is that the perfect indicator never existed and never will.

We can’t predict the future. The market is a dynamic random system. So quite often we need to random as well. I have a favourite example. You know what do if two statisticians were to lose each other in a forest, the first thing they would do is get drunk. That way, they would walk more or less randomly, which would give them the best chance of finding each other. Such considerations belong to the statistical theory of “random walk” or “drunkard’s walk,” in which the future depends only on the present and not the past, which means indicators doesn’t hold anything about the future.

The mental side of traders and the Cognitive Dissonance

I had a friend who once told me. „When I decided I am going sit on the whole day and just trading and stay focused and doing nothing else, basically those days were my worst days in terms of profitability. When I left the market and let it work itself and didn't care about the running position I made nice profits."

I started to think about his story because plenty of times I had the same experiment. Why happens this? I guess the reason is when he was at the computer in the whole day he was much more scared and he cut the winning position earlier than needed to be. Why he was so scared? Because it is part of our mental side of traders. We are human beings with many mental weaknesses. The Psychology call this Cognitive Dissonance. When simultaneously holding two or more conflicting cognitions: ideas, beliefs, values or emotional reactions. As traders we feel very often this "disequilibrium": frustration, hunger, dread, guilt, anger. A key assumption the traders want their expectations to meet reality, creating a sense of equilibrium so they want to make profit, but if not happens or simply the markets goes against us we started to be anger, frustrated...etc.

Try to ignore those bad feelings and skip them all as much as possible. I really know it is hard, but try to close out all the mental, emotional actions out of your trading. LESS EMOTION MORE PROFIT. How can we reduce our Cognitive Dissonance? Easily. If you are disciplined and sitting in a losing position take the loss and don't hope anymore. In this case, you will reduce the mental stress of the trading significantly. In bigger picture if you really want to be profitable trader the first step you have to do in this long way that ACCEPTTHE FACT THAT YOU CAN LOSE. YOU CAN NOT ALWAYS WIN. If you understand that you are going to be more patience and much more profitable. If you don't hold for too long time your losing positions you don't need to wasting your energy anymore on losing positions. You are going to have more energy to focus on the winning profitable positions and your frustration will disappear.

Have a good mental progress

The BFM Assets Team

Take a look into our fully regulated Swiss fund and and invest with us.

Six correction day...

in row in S&P500. Which is the longest decline this year. Last time happened at Fiscal Cliff paranoia in December. Last week on Wednesday was euphory in the market, when FED surprised most of the investors that no tapering. The market always does, which is the most unexpected. That six losing day was good to shake the longsiders out. The market always does what is causing the most pain. In the last couple of days the falling market could produce the bigger pain.

Some data from yesterday:

Dow Jones -0.40% lost 61.33 points, at 15,273

SP500 -0.27% closing down 4.65 points at 1,692

Nasdaq -0.19% lost 7.16 points, to 3,761

I am fine with these corrections. I do believe this is normal phase of the market, so far gained nearly the US markets 19% so it was a best time to do some bigger and longer correction before go to new high again. The volatility indicates me some movement has started under the surface and this week will see some big moves.

Technically if the bulls come back and occur the upside move our first key resistance is at 15.475 in Dow.

J. C. Penney:

The mid range department store company is just suffering. The share declined again yesterday- 0.10% and fell to 13 years low and leading the SP500 losses with a 15% drop. The projected sales would improve at a slower-than-anticipated pace and raised questions about the retailer's liquidity. This is the typical template of falling knife. But I am sure many-many investors still holding the shares and hoping and getting more and more frustrated day by day when looking at the price, which is in free falling mood.

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Have a great day!

The BFM Assets Team

GBPUSD DAILY STRATEGY

Direction: short

Target: TP1 – 1,5900

Protection: SL – 1,6050

Our setup: 1,5980

Background: In the big picture all the crosses are in range and in the forex market after the FOMC meeting. Since last wednesday the Cable has been consolidated without any big moves. The Cable did modest movement in the last couple of days. The sentiment seems to us a bit bearish. So the possible outcome could be today and tomorrow that the Sterling will comes down from the recent weak levels and likely comes down to the 1,5900 area.

DO YOU WANT EARN OVER 30% PER YEAR?

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Have a great day!

The BFM Assets Team

How the economy works and how to fix it

That video is simply great!

Ray Dalio - founder of Bridgewater Associates - animated a video „How the Economy Macchine Works". He is one the most Influential People of the World, the owner of the largest fund globally with 120 billion dollar and Dalio is one of the top 100 richest man on the world. So this video is really worth it.

This noteworthy cartoon takes only half hour and it's summarizes three principle rules which he observed in the last 30 years:

- Don't have debt rise faster than income.

- Don't have income rise faster than productivity.

- Do all that you can to raise your productivity.

"Though it's unconventional," he says, "it's helped me to anticipate and sidestep the financial crisis, and it has worked well for me for over 30 years."

Video:

http://www.cnbc.com/id/101055852

Have a great day!

The BFM Assets Team

EURUSD DAILY STRATEGY

Direction: short

Target: TP1 – 1,3350

Protection: SL – 1,3575

Our setup: 1,3520

Background: After the FED's decision - no tapering . the cross settled and stayed broadly higher levels. Since last Wendesday could not really go up to new high so today might be a correction after few days hesitation. We sold this morning the pair with a long TP.

Do you want to earn 30% a year? Take a look on our Swiss Fund

http://www.bfmassets.com/our-swiss-fund

Mozart of financial blogging - Barry Ritholz

I do believe that Barry is one of the smartest contemporary author and investor from New York. His blog page http://www.ritholtz.com/blog/ taught me a lot how being better and more disciplined trader. I love his style and his different approaches to different things in this business. In 2010, Barry was named one of the "15 Most Important Economic Journalists" in the US. All in all he is not only a great author, but he has placed plenty of brilliant statements about his rules. Some of the rules are common with other great traders, some are unique but we should consider all of them. Personally I do.

-          Cut your losers short and let your winners run.

We are human beings with many many bad instincts. We love to hold the losing positions for long time to avoid the pain of a loss. Barry calls this phenomenon loss aversion.

-          Avoid predictions and forecasts.

That is really great point. The most complex system is ever invented by mankind is the macro economy with thousands of uncertainty. In my view nobody knows what holds the future. On the other I hate forecast too because if you proclaim your idea about EURUSD will go down and after a while all datas show you are wrong the cross is going up. You will still fight for your right and insist for your preconception. You have a commitment to your previous message and we don't really like to confess that we are wrong and made a wrong decision. We love to insist to our stupid preconceptions.

-          Understand crowd behaviour.

Humans often herd. People like what others like, especially when we are uncertain about the market or about ourselves. Barry says that is the real wise if you are buying when others are fearful and selling when others are greedy.

-          Think like a contrarian

Be most of the cases non conventional because the mass really seldom has right. If you want to make money in the market think unlikely and use always different approaches.

-          Admit when you are wrong

Namely means leave the position when you start losing money on that. It's that simple. Believe me, most of the traders don't understand that. Barry recommends, once you say publicly "X is going up" it gives your brain a shot of stupid juice when it comes to concluding that you might be wrong.

-          Understand the cycles of the financial world.

Nothing good or bad goes on forever. You have to accept the markets have correction periods in the strongest, stormy trends too. So don't be scary about the pullbacks use them as another opportunities to build better position structure.

-          Reduce investing friction.

Paying high fees, costs and commissions is one of the simplest investing errors to correct. Youcan find EURUSD spread for 2point and for 0,8points, obviously choose the cheaper one. If you fix this that is the first step for being profitable. 

-          There is no free launch.

There is no substitute for hard work and rational decision making. We have to work hard, sometimes on weekends too. Think about when you out there and partying around someone at the same time is working hard and getting smarter and just winning. You can't climb on the ladder of success with your hands in the pocket.

USDCAD DAILY STRATEGY

Direction: long

Target: TP1 – 1,0310

Protection: SL – 1,0230

Our setup: 1,0277

Background:  In the whole month the pair has been very bearish. Yesterday the cross made substantial strength. We see this CAD weakness could continue against the greenback  and can confirm today the continuation of the long and steep bullish trend extending back to 1,0310.

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Surprise

Surprise...

that FED stuck to its bond buying program. After two days meeting they chose to keep further the QE, 85 billion a month and said would wait more evidence of progress. All the US indexes hit intra day records on that no tapering news. In a press conference, Fed Chairman Ben Bernanke said the bank might still scale back its purchases before the end of the year, but it will depend on whether growth and the pace of hiring show greater strength. The Fed's decision surprised the traders and broke the consensus on expectation "tiny taper" in a range of $10 billion to $20 billion. The Fed will meet again on Oct. 29-30. We do believe untillthat time the market keeps going in this pace up, because the sentiment is so bullish fundamentally.

Some market datas:

Dow 15,677, +147, 0.95%

Nasdaq 3,784, +38, 1.02%

S&P 500 1,726, +21, 1.25%

Nikkei 225 14,720, +214, 1.47%

Hang Seng 23,512, +395, 1.71%

Technically, as weforecasted at the beginning of this week the market gained a lot and hit our target level on Dow - 15.650.

What comes now? Might be some quiet day, a bit ranging period. But we are still bullish and the next challenge for Dow is the 16.000, which is a key resistance level. But frankly we don't have indication now because we are at new historical high and there is only the sky over our heads. The daily chart clearly shows the big breakout:

HAVE A GOOD DAY!

USDJPY DAILY STRATEGY

Direction: long

Target: TP1 – 99,70

Protection: SL – 98,55

Our setup: 99,08

Background:  The dollar fell toward a two-week low against the yen before the FED announces today whether it will slow its $85 billion of monthly asset purchases that have capped borrowing costs.

Technically we see upside movement possibilty today against the falling trend since 11th September. That could be a contratrend position. But we hope for th ebest target level 99,70.

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Forecast by TIME Magazine

The bulls on the front page of TIME normally doesn't mean good for the market. That breaths for the mass the optimism. Which is an exit signal for me on the bull market when everybody gets started optimistic. I like when everybody starts to fear. The good on the picture that shows the bull is a bit drunken after a party so it is not overwhelmingly positive and optimist interpretation, I find some sarcasm and scepticism in that. That is good. The Media is always legging behind and represent the mass attitude, when they start being bullish I turn into bearish and vice versa. I am happy when I see paranoia.

Here is the statistic from the 20th century what happened after a bullish cover picture by Laszlo Birinyi. It seems this week Birinyi is very active in Media.

 On technical side the European and US markets gained a lot yesterday. The next target for Dow is at 16.650, the previous top and then we will see. But I only see bulls around us.

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Have a good trading day!

Anybody is still sceptical about the Bull Market?

Asian markets started this week massively higher, they opened with gap and US futures rose as well. Maybe it happened due to Larry Summers withdrew his name from consideration for Chairman of FED. Many investors considered him to be a candidate who likely cuts back the FED moves to stimulate the economy. I don't know it is real behind or not, what I only know it is genuine bull market. The party is not yet over that is my approach.

Some fact for this morning:

Asia: Hang Seng Index +1.31% , ASX 200 +0.63%, Nikkei +0.12%, Kospi +0.75%

US futures also show strong starts: SP500 futures up 18.3 points to 1,700.30, Dow +168 points to 15,479.

My bet is that the bulls have arrived back after the summer consolidations. All markets across the board on historical highs or pretty close to that levels. I do really think the current bull market — many argues that— it is not over yet. SP500 will be over 2.000? Nobody knows, but we are only 18% from that level.

Normally the markets has four phases in the bullish sentiment:

1.       reluctance

2.       consolidation

3.       acceptance

4.       exuberance

In the history the biggest moves are in phase of Reluctance and Exuberance. So, we are still far from that euphoria. In Bullish Sentiment index of professional investors has fallen to 50% from 67% in this August, while the Individual Investors' poll last week showed a narrow 35%-31% split between bulls and bears. I think this lack of euphoria might help us extending this bull market sentiment.

I love Laszlo Birinyi, President of Birinyi Associates’s quote:

“We still haven’t gotten to the [year] 2000“ level of euphoria, he said. “I think once you get to the point where you have a page-one story, that’s where you get a good surge.” Or maybe when it makes the cover of Time magazine. “That’s what I call capitulation…., which I see at market tops” as well as bottoms, he said. And because we haven’t seen it yet, does that mean the bull market could go on. 

Technically: No comment. It is so bullish just look at  the SP500 chart:

Have a good trading week!

EURUSD DAILY STRATEGY

Direction: short

Target: TP1 – 1,3230

Protection: SL – 1,3320

Our setup: 1,3270

Background: On EURUSD we are precisely in the middle of a range. Between 1,3320 and 1,3230. Normally and usually the traders don't really prefer and like to avoid the side way moves. Today in our scenario the EURUSD might be testing the downside of the range. Could it come tumble to 1,3230. It is not a perfect position and today is Friday so the market can be pretty volatile, but we have a stop level so we have to take a hit.

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Indexes Momentum Rules

U.S. stocks increases further again yesterday as we predicted. The Dow made its 7th gaining day in row and made a third day of triple-digit gains. It seems the momentum is overwhelmingly bullish and nobody cares anymore about Syria and Apple huge drop. All the leading indexes are on historical high or very close to that level, included the Europeans too like FTSE, DAX, SUI, IBEX, CAC40. The Nikkei is a bit lagging behind, dueto the JPY strengthening pace, but we bet on that shortly it will go to new historical high either.. I was

Across the board all US indexes erasing losses and extending gains into a seventh day in row, the SP500 +0.31%, at 1,689. Only the Nasdaq is solidly lower, it was in red territory yesterday, -0.11% lost to 3,725. The only reason was the plunge of Apple stock. The Dow +0.89% rose to 15,326. As we said our previous article it used to be lagging and in the last 3 dayscatched up a bit its other peers, +0,89% to 15,327.

Despite the Apple -5,4% huge fall the sentiment is perfectly bullish, what the market does is only repricing the Apple to its real value. This is the end of super story of Apple is not sexy any more for the investors. If something comes back from 700USD to 400USD that suggest me not buying anymore. It must be some fundamental reasons behind. If the stock is not able to gaining in this kind of optimism it means something wrong.

In the bigger picture of technical side, we are still bullish across the board mostly on Dow, which is still slower than the others. We havebuilt up nice pyramid positions in the last couple of weeks so recently and in the following weeks we are going to basket the profit. In terms of Dow our first target is at the key level of 15.440 that is only 100 points from the current level. If it is taken and we are pretty sure it should be up to the next support level and historical top, 15650.

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Macros really effect on markets or not?

For many many years I have been in favour of André Kostolany’s quote that „The relation between stock exchange and economy is like a man walking his dog. The man walks slowly, the dog runs back and forth.” But I have to revise my thinking, because I have found some remarkable statistics about why it is not true always. Sometimes it is, but plenty of times not at all.

First that chart below looks confusing. Just look at that, there’s no correlation at all as my previous hypothesis said. It appears that slightly negative the correlation between the fundamentals and market movements.

This chart proves me again and again the markets are inefficients and driven by the mass not by the micro or macro facts and data. We are all as speculators not rational human beings at all. We are totally irrationals. We ignore the facts in most cases. We are making decisions emotionally. But as Warren Buffet says „…Returns decrease as emotion increases…”

And what is the lesson for the future from this fact? As a speculator we should always hold economic news at a bit distance when considering our investments. That is why I never care about the news itself. I don’t like to interpretate right after issued the news because in this case it would be only a red-black casino. But what I am really interested that how the market reacts upon that news. All in all I don’t care about mine of any others interpretation, I only care about the market’s interpretation.

Forget all the news fellows!!!

Nasdaq new historical high, Dow best day in 8 weeks ... what is that optimism?

U.S. indexes climbed again on Monday. The SP500 has made its longest win streak since July and Nasdaq hit a new historical high. The Dow rose with +0,9% to 15.063, which is the best performance in the last eight weeks. The SP500 rose by +1,0% climbed to 1.671. The Nasdaq Composite gained by +1,26% rose to 3.706.

The strange thing is the volume is still solid, volumes are pretty low. In a broader picture SP500 is in a real apathy, no volume at all. The same volume was at 1998. Since the Lehman's insolvency the volume has been tumbled a lot constantly. That is a good marker that the big size of investors are still off-side. So there is a power on the buying side. Most of the investors still waiting for jump in or not. Their concern about the FED tapering helps a lot for the bullish sentiment. This month started much better after the losing August - SP500 lost 3,1% in that month. By now, many Wall Street pros are back at their desks after the summer break, but my bet is the low volume and high volatility is likely to continue.

In terms of technical side, the Dow is still lagging behind the Nasdaq so we are expecting big upward movements in the following couple of days. Our short term target is at 15.440, we might see this level untill this Friday. That means 350points profit from the current levels.

What do you think?

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EURUSD DAILY STRATEGY

Direction: long

Target: TP1 – 1,3240

Protection: SL – 1,3140

Our setup: 1,3170

Background: The cross was strengthening a lot in last week. Finally made a double top on Friday so the general trend seems further short but today might be a correction day, so we bought this morning the pair and waiting for some upside movement.

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Lord Keynes as a speculator

"The market can stay irrational longer than you can stay solvent.”
We know him as a revolutionary economist, but many of you don’t know that John Maynard Keynes was a great speculator. Below I share with you couple of things I have learned about investing from Lord Keynes.

He made all of his money from speculation. When he published his remarkable book, The Economic Consequences of Peace, he sent a letter to his publisher asking for an advanced cheque for £1,500 and with this money he was able to continue the trading. Why? Because as many of us he lost all his money first in the market. He had learned the valuable and painful lesson, markets can act perversely in the short-term. His quote later famously commented - "The market can stay irrational longer than you can stay solvent.”This is an uncommonly brilliant statement about the investment and speculation. Because he was a great longterm analyst, but thanks to the short random moves of the market he was burned out few times. Dennis Gartman, the great investor says corollary that „The market can stay far irrational than you and I can stay solvent”. Which is true and all of us have to agree with that. That is the harsh reality of the market.
Keynes’s statement that themarkets are irrational means the markets are not efficient. You could be the smartest analyst with myriads of great theories and maybe you are going to be right, but before that the market move in your favour, you had stopped out. This is the part of this business. Keynes was totally right. It is a really great case of point. All of us remember the irrationality periods of the market, like dot.com bubble, tulip bubble, Gold bubble…etc. I shorted the Nasdaq in 2000 and 2009 too. I needed to learn the lesson over and over again, the markets are irrationals and could go farer than any of us dreamed of that.
The next thing what I learned from him is. „… if the market change I have to change too…”. Each year in the 30s he made presentations at his university in UK about the markets and mostly he talked about only one stock. Explained fundamentally, technically why it needed to buy. He told everybody to buy that stock. Next year at the same auditorium he came back and recommended the same stock to sell it. One guy stood up and asked him "How can you do that Mr. Keynes? Last year you recommended to buy and this year you recommend not just sell it, but sell it short?” And Keynes made a brilliant statement when he said „Sir, the facts have changed. When the facts change I change and what do you do Sir?”
Most of us don’t understand that if the facts change we normally don’t change. The price is changing not going up anymore. THE PRICE, this is the five letter word, this is the most important fact of them all. All informations are in theprice. We only need to look at the price and read as an open book.
Those are my lessons from Maynard Keynes, it is very subjective, but I do believe since I am following those rules I am better and more disciplined trader.
Have a good trade for the next week