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Michael Filighera
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Michael's history with financial markets dates back to 1979 on the Pacific Stock Exchange Options trading floor. Michael has traded in the US, UK (London Traded Options Market), Netherlands (Amsterdam's European Options Exchange), and Germany (DTB). He is also an internationally published... More
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Logical Signals
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Logical Signals
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  • The San Francisco Bubble Indicator

    The broader markets have risen appreciably since reaching their respective lows on October 15th. Basis the futures the DJIA (YM) has climbed 1586 points or 9.2%, the SPX (NYSE:ES) 206.25 points or 10%, and the NDX (NYSE:NQ) 489.75 points or 11.5%. The moves themselves were made within 12 trading days with the DJIA and SPX producing new all time highs while the NDX moved to an additional new 14 year high. Astonishing feats of seemingly unprecedented proportions, well maybe.

    I came across an interesting report first published on www.zerohedge.com, which caught my attention. Mostly because I live in San Francisco and have witnessed first hand the incredible parabolic rise in real estate prices as well as rents. The Case-Shiller report tracks the year over year price increase of San Francisco real estate. The headline "This Has Never Happened Before Without A Massive Bubble Bursting" demands attention the following chart is a wake up call for all of us.

    In June of 2014 the Case-Shiller index had crested at 25% and was headed lower dropping to 19%. The above chart shows the Case-Shiller index dropping more precipitously with the annual price increase in San Francisco putting double-digit percent appreciation territory in the rear-view mirror, and has slide back into the single digits, or 9% year over year. At the current rate with all else equal, San Francisco home prices will move back into negative territory in another 5-6 months and when taken in context would only be the fourth time they have done so in the past twenty years. Check out the chart again - there has never been a time when the all important leading indicator, which is the San Francisco housing market, has posted such a steep slowdown in annual price increases without a bubble of some sort bursting.

    What makes San Francisco's housing market so important? It's location. San Francisco has benefited strongly from the general Fed-driven liquidity bubble, but also from its proximity to both Silicon Valley and China, so it also benefits from two other liquidity bubbles - that of cash rich technology and the Chinese $25 trillion financial debt beast. Since the local housing market began to crumble in China, the local oligarchs have little choice but to put massive amounts of cash abroad and what better city to benefit from that inflow of capital but San Francisco.

    So has the global central bank coordinated credit bubble burst? Taking a look at the equity markets and the San Francisco housing market, almost but not yet. But it appears that the wealthiest home buyers, a reliable leading indicator of easy financial conditions, are quietly sticking for sale signs on their mansions and opting to "downsize".

    I have updated my Elliott Wave count for the Nasdaq 100 and include the updated chart below:

    (click to enlarge)

    The NDX has been in the process of tracing out a Super Cycle B wave off of the 2001 lows, a move that has been 13 years in the making. Thus far Cycle Waves A and B are complete with Cycle wave C underway off of the 2008 lows. Within wave C it appears that waves 1-4 (out of 5) are complete. The most common relationships between waves 1 and 5 within a 5-wave sequence are: wave 5 = wave 1, wave 5 = .618 (wave 1), and wave 5 = 1.618(wave 1).

    Here are the numbers:

    • Wave 1 of C = 1040.56 points
    • .618% of wave 1 = 643 points
    • 618% of wave 1 = 1683.63 points

    We now can put some parameters around the potential finishing points for the current advance in the NASDAQ 100. Wave 5 of C would be equal in length to wave 1 of C at 4740.80. Wave 5 of C would equal .618(wave 1) at 4343.25. Wave 5 of C would equal 1.618 (wave 1) at 5383.85.

    The NDX has already pushed to new highs for the current rally reaching 4179.90 on October 31st. That equates to approximately 40 to 76% of the expected move based on the calculations shown above. The Case-Shiller index suggests a window of approximately 5 to 6 months before the index drops into negative territory. That would suggest March to April 2015 as being the most likely window for an equity market top. Interest rates are currently being projecting a hike from March to June 2015. I suspect the NASDAQ 100 will complete Super Cycle Wave B sometime within the first to second quarter of 2015 as the next bubble bursts.

    Remember the key is being able to reduce and separate the "noise" from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the "chaos" and by trusting the mechanics of your strategy, be able to take advantage of them.

    Opportunity continues to knock on our doors. While it doesn't come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

    The Logical Signals Trade Room is up and running. We have an outstanding group of members that have already begun contributing across the board from trading indicators, patterns and products, to computer software and hardware.

    Thus we are ready to move on to phase two of membership/subscriptions. Now that a core group has been established we have a few additional spots for other traders that may have an interest. Phase two, though will be somewhat more involved in that prospective members will get a chance to talk in more detail on their trading goals, experiences and expectations with me and possibly other members before deciding to join. At this early stage it is important to continue to steer the room in a direction that favors all of the members. Should you have an interest please contact me at Michael@logicalsignals.com I should have the updated "Invitation to My Trade Room" under the Trade Room tab back in place soon. Presently we have 10 additional spots open before closing this room until next year.

    Steer the course and don't compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don't be swallowed up by the chaos and false emotions swirling around. Remember it's just a number.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 07 7:14 PM | Link | Comment!
  • Reality Check -Who's Right Who's Wrong?

    Ok, I agree it has got to be tough to be overpaid, way overpaid, to produce daily babble as to why the markets are going through this gyration or that gyration. As if a need for a specific story to explain what is driving the elusive investor to make their move in either direction on a hourly or even daily basis is actually necessary.

    One day it is geopolitical worries and the next its a FED announcement, economic figure, earnings reports from the titans, or what color JP Morgan's algorithm is flashing. It tends to become gibberish from a group of so-called experts that obviously are making way more money misleading the masses of asses than actually contributing something worthwhile. How these media outlets stay on the air and become a staple for every trading desk around the world is due to a far great marketing campaign and the ability to charge big money to advertises than actual financial market awareness or knowledge that is useable or reliable. My heart does go out to the producers of the various shows that must fill airtime every day - and hopefully attempt to make it appear pertinent and catchy. This litany of financial market "happy talk" is impressive.

    Let's face it the economy is creating jobs at over 200,000 per month for the first six months of 2014. When added into the grand total of jobs added since mid-2009, which for all intents and purposes marks the starting point for the economic recovery, it amounts to over nine million jobs added. Now add to that the low interest rate environment that just doesn't seem to want to quit - actually it can't just yet - but in any case low rate3s supports high asset valuations in stocks and housing. Inflation on the other hand continues to be the US's greatest and best exported product - which when it continues to be flow from the mouths of reporters and news anchors on the various financial media stations it is taken as gospel. All is right with the world. HA!

    Ok - so here is a headline that you won't hear or see in the financial media - the equity markets and economic fundamentals are on a collision course and from what it seems as the moment it will be a head on collision. Either the equity markets or the economic fundamentals seems to have been out partying a bit too late and way to hard and have gotten onto the northbound freeway via an exit ramp. Either the economy needs to improve (for real) very rapidly and actually unexpectedly and turn its fundamental weakness in reverse - or - the over inflated stock values are speeding right into a head on crash that will knock prices for a seriously precipitous fall.

    I wonder how many algorithms actually are programmed to get the employment figures right. I know we continue to hear from DC politicians, who obviously want to keep their platinum insurance and diamond parachute policies in place for themselves - but enough with the happy talk on just how many jobs are being created. Seriously, there in lines the problem - the actual nature of job creation. In June it was reported that 288,000 jobs were created. The reality behind the number is that full-time jobs declined by 523,000, while part-time jobs increased by about 800,000. But, hey no one ever asked for specifics - that would be too difficult to present. A flask back to Jack Nicholson's epic performance in A Few Good Men continually reminds me when Tom Cruise asks Nicholson for the "Truth" - to which he responded "The truth - You Can't Handle the Truth." Somehow I believe there are many in DC that actually believe the common citizen can't handle the truth so why tell them - let them be blindsided.

    Back to the June employment numbers where the reported increase in net jobs was cleverly masked by a huge loss of full-time jobs which just happened to be offset by a glut of new part-time jobs that offer fewer hours, lower pay, and yep you guessed it few benefits. Granted it is likely better than nothing or no job at all, but they (part time jobs) are not the kind of jobs that will support discretionary consumer spending which believe it or not the growth of the economy depends on.

    Ok, so let's walk this down the line a bit - when the labor force participation is low and likely will continue to drop as full-time employment drops into a sinkhole the productivity of those working will also decline. A major drag on growth, which is because capital expenditures have slowed - businesses are keeping up with demand by hiring part-time workers instead of investing in the plants and equipment needed to make full-time workers more productive.

    Continue to walk down this slippery slope to see that declining full-time jobs, declining productivity and slowing capital investment creates stagnant real wages. When the full-time worker can make more they don't spend more without borrowing and even though the FED has been liberal with holding rates at historic lows - that has not flowed freely to the full-time worker. So now we get to add that companies won't invest in equipment if consumers can't spend the money to buy them. Do you really believe a recovering economy would continue to offer 0% for 5 years or more to increase car sales because they can't keep their inventory full as the cars are flying off the lots?

    The news from overseas doesn't get any better. China is slowing quickly and may be on the brink of a credit collapse. Eurozone growth is near zero and even the German powerhouse economy, the driving force behind European growth is slowing as the situation in the Ukraine, Russian and China remains at crisis levels.

    Structural reform is a primary job of the US elected Congress and Executive branch - not the Federal Reserve Bank. But hey since the White House and the Congress barely speak to each other and have determined to bring the entire game to a political standstill - investors are led to believe that it will be Wall Street and the Federal Reserve to the rescue and therein lays the problem. A turnaround in growth can basically only come from structural reform - not from continuous money printing.

    The markets continue to light up on Monday as the algorithmic traders jumped with both feet. Volumes tended to be on the lite side and outside of a ridiculous rally in PCLN up over 2% to finish at 1310 on the backdrop of piss poor guidance - It was amazing to watch the shorts get crushed there. But should you have missed that there was always TSLA jumping just over 4.5% reaching $260 as traders continue to flock back into the options to play volatility. To round things out NFLX, was up $5.70, CMG rose $10.85 to finish at $680.65, BIDU, the Chinese magic internet savior continues to climb adding over $5 at one point before settling back to finish up $2.89 at $218. Biotech saw their fare share of pump today but most of that came in the small to mid cap stocks as the Russell 2000 managed to climb over 1.5%.

    It is all very typical "B" wave actions folks. I hate to say it but don't be fooled or lulled into believing this will just continue for good. It wont'. I believe much of the chatter comes from algorithmic traders - where programs run their prime directives and when those are met - bingo a trade occurs. Huge positions are pushed back and forth giving a strange pall of security or security as stock prices get pumped higher and higher. Remember though, it is rare these traders are just buying or selling the stock - that isn't they way the algorithms work. Computers are very good and very fast at selling and buying within seconds of each other. Trades complete - money in the bank - move on. The process does produce incredible fodder for the financial media, but honestly if you went and asked the traders why they were buying or selling - they wouldn't be able to tell you - it's a computer.

    So, while we wait for the inevitable to actually catch up and crush the markets it has in my mind become increasingly more important to advocate and adhere to day trading. The broader index futures continue to provide ample trading opportunities as to commodity futures, treasury futures, and precious metals futures. Not ever trade works and not every day promises to be a flood of activity but I continue to find several markets that are trading and producing buy and sell signals that are tradable.

    Steer the course and don't compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don't be swallowed up by the chaos and false emotions swirling around. Remember it's just a number.

    Three-keys

    Trading the number remains key to being able to reduce and separate the "noise" from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the "chaos" and by trusting the mechanics of your strategy, be able to take advantage of them.

    Opportunity continues to knock on our doors. While it doesn't come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 12 3:59 PM | Link | Comment!
  • Market Awareness - Completing Your Checklist - Friday's Chart $NFLX

    As I discussed in Wednesday's post a key to successful trading is developing a sense of market awareness. An awareness that enables you to make adjustments to strategies, (tweaking) to fit what the market(s) are giving or not giving. Also, as I pointed out on Wednesday, I have a preset check list that I review each day before the market(s) open.

    Here is a partial list of my pre-market checklist:

    • What is apparent before the opening? Any relevant announcements or economic data, news stories, or carry over momentum from Asian and European trading.
    • What are my expectations with regards to market direction, intensity of the move(s)?
    • What strategies will I employ, which risk management profile will I use?
    • What indicators will I look towards for signals?
    • How will I 'tweak' my strategies to fit a change in market mood?

    There is also an often unspoken pre-market checklist that needs to be acknowledged and given a place at the table. We are a part of the market and in our very own small but collective way contribute to market moods. Therefore taking note of our physical and emotional status is also important.

    Having a clear picture of one's own relationship with money is critical and failure to include it as a part of your daily checklist may keep you on a perpetual search for success.

    From my bio I wrote:

    In the midst of the many economic storms currently swirling around the globe, making decisions is often swayed by crowd behavior or panic as prices race in both directions. Opportunities present themselves during chaotic, panic driven times. Opportunities often missed due to all the "noise". As a Market Maker on the San Francisco, Amsterdam, and London options trading floors I studied the psychology both employed and self-employed by the most successful traders. Most if not all-successful traders have the ability to stand within the chaos and pull out opportunities without succumbing to the panic itself.

    This ability was an early "master" lesson I learned and employed to great success. However, I have also felt the nasty crash and burn when I self sabotaged myself into failing. I miscalculated the nuisances of having to move off a trading floor "open out-cry" system to a computer screen that represented the trading pit and a keyboard to execute orders instead of my voice and pieces of paper.

    I don't know anybody that trades to lose money, but I'll be damned if that isn't what happens to more and more well intentioned souls. The emotional blocks that surround the 'blame game' are at times better protected than Fort Knox, and I say this from personal experience.

    As discussed in Wednesday's post there is a difference between knowing and caring. The knowing part of the equation is covered with the partial checklist above. The caring or emotional checklist carries as much weight as market awareness and has as detailed a checklist. Most of the time, the why not's of our emotions are usually embedded so deep in our brains that it can take several attempts to 'crack the code' so to speak. Gratefully, I can say it is possible to do. It took some time to realize that after I left the noise of the trading floor, the noise I was experiencing was primarily being created by me. This of course removed my focus from what was happening in the markets to whose fault it was that I was loosing again. It took several steps and persistence to get to the core but it is so often overlooked as unnecessary and that is the mistake. It takes strength to make friends with your unseen but strongly felt emotions. Make room for them at the table and listen responsibly and with accountability. I know, easier said than done, but it is essential. Paying for a trading coach to fine tune and implement a workable emotional checklist proved to be a wise investment for me.

    The concept of trading the number continues to function in its pure form, but the time portion has grown in importance by a factor of well let's say billions. Time as a number is critical to strategy implementation. Data travels at the speed of light across fiber optic cables, which is a far cry from 5, 10 or15 years ago. Until the next set or rules and regulations are passed by a group of well meaning politico's trying to satisfy a growing army of disgruntled investors who haven't figured out yet that the blame game is more about them than the accused, we need to continue to be the 'gnat on the elephants ass.' Seriously, think about this, when haven't the markets been 'rigged' in favor of the overtly greedy players. Since they rarely have an original thought on trading the only way they can fulfill their ambition is to 'rig' the game in their favor.

    Thursday's pre-holiday trade presented its fair share of opportunities as traders quickly adjusted positions to get a jump-start on the long weekend. Options expiration was pushed forward a day due to the holiday and this added some volatility. Check out today's chart on NFLX over 4 trading days for trades and discussion.

    (click to enlarge)

    The current atmosphere remains prime for day trading. I expect there will be numerous opportunities from a growing list for both traders who approach the market from a bullish perspective as well as traders who approach the market from a bearish perspective.

    Remember the key is being able to reduce and separate the "noise" from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the "chaos" and by trusting the mechanics of your strategy, be able to take advantage of them.

    Opportunity continues to knock on our doors. While it doesn't come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 18 9:07 PM | Link | Comment!
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