Trading Journal

Tomorrow starts the period that corresponds to the so-called “Santa Claus Rally”. This period includes the last five sessions of the year and the first two of the new year. Over the past 28 years, the S & P had a positive performance 25 times with an average gain of 1.74%. However, as the S & P already appreciated 6% in the last four sessions, it is likely that the Santa Claus Rally this year has already been at least partially anticipated. There is a pattern that has repeated in the last 30 years, during the month of December. This pattern consists of a rise in major indexes during the first 8-10 days of the month, a decline in the interim weeks of the month and the occurrence of “Santa Claus Rally” at the end of the year. So far, this standard has been met.

psaTrading posted:
Tomorrow starts the period that corresponds to the so-called “Santa Claus Rally”. This period includes the last five sessions of the year and the first two of the new year. Over the past 28 years, the S & P had a positive performance 25 times with an average gain of 1.74%. However, as the S & P already appreciated 6% in the last four sessions, it is likely that the Santa Claus Rally this year has already been at least partially anticipated. There is a pattern that has repeated in the last 30 years, during the month of December. This pattern consists of a rise in major indexes during the first 8-10 days of the month, a decline in the interim weeks of the month and the occurrence of “Santa Claus Rally” at the end of the year. So far, this standard has been met.

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Take a break, enjoy the winter holidays and spend some quality time with families and friends.

Wish you all a Merry Christmas and a Happy 2015!

Better risk management and opportunity management: It helps to look at the tails of your P/L distribution. Please Size positions appropriately, utilize reasonable stops, ensure that multiple positions are sufficiently uncorrelated, etc. Cutting opportunity short can significantly weigh upon overall returns. Plotting your P/L for each trade and looking at the shape of the distribution will tell you a great deal about your management of risk and opportunity.

Today the stock markets traded with minor variations.

The week will be shorter than usual, due to the closure of markets worldwide on 1 January 2015. Many investors are taking advantage by using vacation time and equity trading volumes are more subdued than usual.

The attention was mainly focused on Greece. The Government once again fails to elect the President of the Republic, which brought some panic among investors, since this failure results in the holding of early elections. The Athens stock exchange fell as more than 12%, but closed with a lower fall to 3.5%.

The main US stock markets closed the session on Monday in a mixed record, with the SP 500 at new highs and the Dow Jones declining slightly.

The beginning of 2015 should be marked by political uncertainty in Greece, the economic and financial situation in Russia and the continuous oil price weakness.

Take a break, enjoy the winter holidays and spend some quality time with families and friends.

Happy trading and a Happy 2015! :-)

American indices closed lower on the last day of the year, breaking the upward trend started in mid-December and that allowed the S&P to appreciate 8% in 6 sessions. Falling US stocks may be explained by a number of factors. The first is that many fund managers, who were able to follow the positive performance of the US stock market during 2014, realized capital gains, thereby creating selling pressure. This trend was particularly visible in the utilities sector, which was the best performer of the year with a rise of 24,28%. The second is that other investors materialized, for tax purposes, capital losses which had in some titles. The third and final reason was the fall of the oil traded in New York, who led their sector to a loss of 0.80% in the session, accumulating a decline of 10% in 2014, which deeply contrasts with the recovery of 11,40% of S&P. The effect of these factors was boosted by the lack of liquidity typical of this season. The economic data did not have any impact on the session. Today, many investors are still on vacation, so the volume should be reduced. Still, the publication of economic data, including the ISM index, which measures manufacturing activity in the country, should be closely monitored.

Equity markets start the year falling.

The new year is already showing many challenges and uncertainties. In the European case, the biggest challenge and risk is represented by the political situation in Greece. This issue is aggregate two fronts. The first is internal and marked by the election campaign. The second is broader and is represented by the response of several European countries to the events of the election campaign in Greece. The weekend brought some developments on both fronts. In the election campaign, the party leader of anti-European left Syriza, Alexis Tsipras said that if he won the next election (25 January) would promote a series of nationalizations and would repudiate a part of Greek debt (about 320 000 M. €). If these promises become facts it is almost certain Greece will leave the Eurozone. Against this speech, the German newspaper Der Spiegel, citing a source close to Chancellor Angela Merkel said that Europe will be prepared for a Greek exit from the euro zone (a possibility which is called by Grexit in the financial world), covertly saying it would be this country the main victim in such a scenario. Given these developments, the European currency fell to below 1.20 against the dollar, the minimum in recent years. With the appreciation of the dollar, oil depreciated.

Parallel to the political situation in Greece, investors will follow the news and rumors for the ECB, which will meet on 22nd this month. Until then, Mario Draghi will firstly analyze the economic data to be published while trying to gain more consensus around the implementation of a sovereign debt purchase program.

US markets retreat before the weakness of European markets and some disappointing data. The sharp drop in oil prices led to the closure of several oil wells in Texas, in North Dakota, Wyoming and Colorado, which not only affected this sector as local economies.

In the coming days, the US stock market will be marked by the contrast of two different factors. Firstly, the uncertainty hovering in Europe. On the other hand, the fact that US funds have gathered 36 000 M.USD subscriptions in the last two weeks of 2014.

European stock markets traded without a clear trend and nervousness dominated investor sentiment. Yesterday, European shares suffered heavy losses, explained by the confluence of several factors: the fall of the oil, the depreciation of the Euro and the situation in Greece. Sometimes financial markets tend to underestimate the importance of a factor, but when its ramifications become evident give you an exaggerated importance. Most likely, the previous day fits this definition. Technically, the area of 9500 is an important support for the DAX, to be the most representative index of the European market. If this level is broken permanently (yesterday DAX ended in 9473), the probability of the German index test in the coming weeks, the minimum December (9219), increases significantly. The publication of the PMI index for the services (relating to major European economies and the euro zone as a whole) usually do not have a significant impact on the trend of the stock markets, however, given the negative sentiment prevailing among investors negative readings exacerbate weaknesses.

S&P 500 closed with sharp devaluations, for the fifth consecutive day. The strong rises that Americans indexes reached in the second half of December led to a certain complacency among investors before the threats that had been forming on the horizon. Yesterday, these threats have become evident. The continuous fall of oil price and the heavy losses suffered by European markets led to strong selling pressure on Wall Street. The fact that the American indexes have reached successive maximums during the second half of December also made them vulnerable to the occurrence of corrections.

The fall of oil and the rebirth of the fears in Europe are two factors that correlate with each other. The uncertainty caused by the Greek political situation leads to a devaluation of the Euro against other currencies, especially against the Dollar. The appreciation of the dollar has a negative effect on commodities and more particularly on oil. Affecting the price of this raw material was also the alleged increase in production of some countries like Russia and Iraq. Usually when the price of a good falls its supply decreases; however at this stage this inverse relationship does not hold. Several countries increase production to offset the negative effect on the price decline of revenue. For countries like Russia, Venezuela, Iraq, among others, oil revenues are the main source of public treasury entries.

Some reductions by analysts, also affected investors sentiment, reminding investors that the prices achieved by some stocks can not be fully justified by the fundamentals of their respective companies.

In Europe, equity markets traded with some gains. The publication of the Eurozone inflation, measured by the consumer price index, will be one of the last relevant data that the ECB will consider before the day of the meeting, 22 Jan. For the first time in more than five years, the euro area inflation fell 0,2%. The result was slightly lower than the estimated decrease of 0,1%. The deflation spectrum has been pointed out by Mario Draghi, on multiple occasions, as the main threat to the economy of the Eurozone. The continuing fall in oil prices is affecting the companies related to this sector. Initially, this business sector could reduce investments in order to counteract the harmful effects of the crude oil price fall but investors fear that later these companies are forced to reduce its dividend. Another sector that will attract the attention of investors is the retailer. Sainsbury, the third largest chain of supermarkets English, reported a fall of 1,70% in sales (excluding fuel) in the last quarter of 2014 compared to the same period of 2013. The company warned that the future holds many challenges globally. The European retail sector was one of the worst performers in 2014 penalized for anemia in domestic consumption in Europe by high competition and the low level of inflation.

Stock markets advanced negociating with sharp gains. The good performance of Asian and American markets as well as the rise of oil in the Asian session mitigated the negative feelings that have dominated among European investors.

Stock markets retract today after the opening of the US market. After the strong valuations achieved in the last two sessions (for example the DAX appreciated by 4.90% since the minimum of Tuesday) it is expected that some investors realize capital gains. On the horizon still hover various uncertainties, which justifies the prudent stance of investors. In addition to the political and economic situation in Greece, the weakness of the Russian economy is still a latent threat. In an interview with the Financial Times, the renowned investor George Soros considered that Russia is a much higher risk to Europe than Greece. In addition, the price of oil, despite the stability of recent days, still has a high volatility which increases uncertainty in the equity markets.

Additionally, there are multiple signs of weakness in several economies. Today, it was reported that German industrial production on November decreased 0.10% compared to forecasts of an increase 0.30%. This difference is due to the sharp drop in energy production. In China, the publication of inflation confirmed the slowdown experienced by that economy. Although these data reinforce the fears of investors about the state of the world economy also increase the expectation that central banks will continue with its accommodative monetary policies. The last few years have shown that the equity markets are much more sensitive to the decisions of central banks than the state of the world’s economies.

Data from the American economy have played a secondary role in the current environment of Wall Street, but today this pattern should have been broken with the publication of the employment report. Employment grew more than expected in December and the unemployment rate fell to 5.6 percent, ending the best year for the labor market since 1999 and strengthening the US evidence as a highlight in the global economy.

The addition of 252,000 jobs followed a 353,000 rise the prior month that was more than previously estimated, a Labor Department report showed today in Washington. The jobless rate dropped to the lowest level since June 2008. The report wasn’t all good news as earnings unexpectedly declined from a month earlier.

European stock markets traded without a clear trend and nervousness dominated investor sentiment. With the approach of the meeting of the ECB (22) begin to emerge news and rumors about what will be the decision of the ECB. A few weeks ago, investors began to anticipate the announcement of a sovereign debt purchase program. However, the Greek political crisis has made the situation more complex. The performance of the Greek elections three days after the meeting of the Central Bank hinders the ECB position. It will not be easy for the Central Bank to announce it will acquire debt of European countries (including Greece) when the Greek party that leads polls threatened not to repay the debt of their country. In this context, the ECB met last Thursday to study several alternatives to tackle the deflation spectrum.

This beginning of the year has been marked by strong volatility, which should increase with the approach of the ECB meeting and the parliamentary elections in Greece.

In addition to the Wall Street retreat, the European session was also conditioned by the projections of the World Bank. This institution reduced its growth forecast for the world economy in 2015 from 3.40% to 3%. The weakness of the European and Japanese economies, as well as some emerging countries (China, Russia and Brazil) are cited as the main reason of this cut. The European Union Court of Justice gave today a positive opinion on the ECB’s plan and Mario Draghi won a legal endorsement for the bond-buying plan he designed to save the euro.

The abandonment of the connection to the Euro by the Bank of Switzerland certainly was the event of the day. Volatility continue to be a hallmark on the European sessions. The oil sector can recover some of the recent losses but remain a major source of volatility. Sustainable rising oil will only be possible when materialize one of two conditions: a minor imbalance between supply and demand or a decline of the dollar against major currencies.

The European Indexes consolidate after yesterday’s strong recovery . The Central Bank of Switzerland (SNB) used to prevent the CHF to appreciate in order to protect the competitiveness of Swiss exports . To achieve this objective, the SNB sold CHF and bought Euros in the foreign exchange market. However, this strategy has become expensive and did not catch the influx of foreign capital to the country, which constituted a buying pressure on the CHF. If the ECB implement a quantitative easing program, the selling pressure on the euro would be increased, forcing the Swiss central bank for increased efforts to prevent the appreciation of their currency, with little chance of success. In deciding to abandon this objective there has been a strong appreciation of the CHF, which immediately penalized Swiss equities as investors anticipate the negative impact on the competitiveness and profitability of Swiss companies. After the initial negative reaction, the European markets achieved sharp gains, motivated by the prospect of an increase of EU exports to Switzerland. Switzerland is the second largest destination for European exports after the US and ahead of China. The present moment is particularly delicate and turbulent, since next week we will have the meeting of the ECB (Thursday) and the Greek elections (Sunday). Today will be published the final reading of inflation in the Euro Zone in December. Economists estimate that the price level has decreased 0,20%, reinforcing deflation spectrum and increasing the pressure on the ECB.