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Peter F. Way, CFA  

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  • Today's Best-Bet Wealth-Builder ETF Investment [View article]
    hello, neighbor sam

    if you will read the article instead of just making a knee-jerk comment, you may find that our practices for wealth-building diverge significantly from the conventional buy&hold approaches that are destructive of wealth-building where time of achievement is a critical dimension.

    hope you can add to your investing perspective, which it needs.

    Aug 26, 2015. 10:06 AM | 1 Like Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]
    Diego M,

    please don't take this response as personal. Your comment is merely a convenient focus on some of the frantic reactions of speculators shooting from the hip, without any real plans, hoping for the best result from actions taken without any actual exit plans providing for a variety of outcomes.

    Markets of the present era under most conditions are very rational, very liquid, orderly processes. Their usual operations draw in the judgments of many parties acting from well-researched, well-thought out, experienced opportunistic reactions to situations presented by the intersection of related markets.

    At the margins these markets are rarely in perfect integration, providing minor arbitrage opportunity rewards on a continuing basis. The actions resulting cause them to draw closer to the markets' integration rationally called for. But the markets do not function in static surroundings. New influences appear at irregular times with irregular degrees of impact.

    To think of market-makers in the old persona of NYSE floor specialists is now an outdated image. I worked with some of the best of those at a time when their existence was fatally at risk by advances in communications, in information technology, in financial techniques, and in political skulduggery.

    These days the market-making mechanism on any volume trade negotiation includes not only the MM buyers of price-change risk protection of their temporary capital involvement that your comment envisions, but the sellers of that protection. Such sellers, often the prop trade desks of other MMs, are the other side of that trade within the larger volume transaction initiated by the client's original block trade order.

    Protection sellers too have established world-wide information-gathering systems, upon which they pose the price and structure of the hedging deals that they are willing to undertake. And each seller of protection is in competition with others. The winner of the protection sale negotiation usually depends on the arbitrage skills and competitive nerve present in the firm most able to meet the protection buyer's needs. One dimension of those needs usually is time.

    Several derivatives markets may be involved, depending on the size and urgency of the trade at hand. Options, futures, and swaps are all potential participant media, and some are not neat, regulated and disciplined war zones (like Syria?). The hedging world is not a perfect place, and in it there is no substitute for experience.

    But everything has its limits. Yesterday transactions in SVXY were three times the typical daily average, and at the depressed closing price the day's total volume had a value one and a half times that of the entire opening-time capital committed to the ETF. A less-than one-day turnover of the entire fund is a sign of stressful market functioning.

    In such circumstances, nominal bid~offer spreads often are much smaller real compensations for market-makers than the kinds of arbitrage profits that can be locked in by the protection sale. Risk-taking can be an expensive for-hire service in the best of times.

    The block trade initiator-client of the facilitating MM winds up paying for the market liquidity involved, but the ultimate victims are the mutual fund share holders or endowed institutions or hedge-fund investors or other invested capital sources.

    At times like this, rationality sometimes falls victim to opportunity. As observers, our best plan may be to just hold tight and wait for more normal circumstances to take over. And no one can guarantee just how long that may take.

    Pay attention to "convoluted"'s advice to not be a net seller of options. Such a plan can meet fatal interruption if negotiations in hedging allow a deal where the imbalanced sale of options or futures create a net negative delivery obligation. If that is allowed, you have lost control of your plan's execution. That situation created the "execution" of existence of the hundred-year-old English investment banking firm of Barings a few years ago.

    We urge our readers to buy things with a plan to sell them within a time-limited holding period. We suggest a price target to shoot for, and indicate both the likely (but not guaranteed) price drawdown stress exposure of similar prior forecasts, and the odds of such experiences recovering from those stresses. The odds are never 100% despite what small samples of prior experiences may suggest, so losses are inevitable. We have one with a recent article illustration using SVXY in a purchase at 90, confirming our exclusion from membership in the club of deities.

    But we expect to make up for it with a continuation of advices that will work out quite favorably as things regain normality, as they certainly will.

    Best regards,

    Aug 26, 2015. 09:53 AM | 2 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    you have several questions or possible misunderstandings. I'll try to help.

    MM implied price range forecasts are specific to the subject security, in terms of its own particular situation, so applying them to broader circumstances is usually not appropriate. But I understand your interpretation of the DJIA stocks from the R/R maps.

    First, the R/R maps are most useful in comparing among groups of stocks, quickly finding which ones are best or least well positioned in comparison with the others. To track the issues over time is best assigned to the Block Trader Forecast (btf) pictures, like those seen for SVXY in Figure 1 of this article.

    And you are right, this big a break in market prices came as a shock to MMs. Please remember, they are reflecting their clients' order flow in terms of everyday client habits. Clearly the past week is not "every-day".

    Having been a part of that buy-side big-money client culture for a number of years, I know that actions by those with extensive reputations have a herd effect among similar organizations. The sell side is constantly providing feedback of this type.

    Plus it is no secret that while many, if not most, influentials on the street have been expecting a correction, but few have the stones to start it, or act like it had started, without clear evidence. Maybe this time it was precipitated by a different culture in a different market, where individual gamblers played a more influential role, and were more easily spooked. Does China come to mind?

    This is not to make excuses for the MMs. Their long-term time horizon is from now to the close today. But their hedging takes place through securities in markets where contract expiration dates are usually calibrated in months and often hedge deals must be built using more than just the near and next months. Intra-market arbitrage propagates those expectations across the market place.

    A look back at Figure 1 shows how quickly and how extensively the expectations for SVXY were adjusted, once a different environment was recognized. Similar price adjustments have been made for lots of securities. In 3 days, the whole outlook changed enormously, yet it continues to be a projection of future actions, with ranges shingled across preceding days' expectations.

    of your possible conclusions the first, of a short-term blip, is the most likely, and the second the least likely. We live and learn, so I do not rule out the third of improving our interpretation of evidence and events.

    A part of what you may be missing I have just discussed at length in a comment response to pastoreker further down in this trove of comments. The notion is that what counts in our analysis is how well the implied price range forecasts match up with subsequent actual price events, on a specific security basis rather than on an "at-large" basis. Average RI data is not as useful as might be imagined.

    Further, investors mistakenly want to associate volatility with risk. If it measures the uncertainty of upside price moves at a large scale, for most investors that looks to the rational observer as being opportunity, rather than risk. You probably know the Chinese character set for risk is a combination that includes opportunity.

    We believe that the most help we can be for most individual investors is to rank the 2500 or so of actively-traded securities every day. We rank in terms of the size of upside their forecasts offer, in contrast with the worst-case price drawdowns actually experienced on the way to realizing those upside promises as quickly as possible, with the largest incidence (odds) or recovery from the drawdowns to attain profits.

    We daily make up a list of the 20 best candidates with details for each as is shown in the data lines of Figures 1 and 2. The averages for the top ten and top 20 are provided in contrast to averages for the whole population and just for the S&P500 tracking ETF, SPY.

    Access to the blockdesk data is also available by subscription, as is explained at the site.

    I hope this and the other explanation will be helpful in better understanding how we work, and why it can be useful to active investors.

    best regards,

    Aug 26, 2015. 01:53 AM | 3 Likes Like |Link to Comment
  • Market Outlook Aug. 24 By Market-Makers [View article]

    thanks for your purchase, and even more importantly, your feedback.

    We work from a different mindset, as well as a different information flow, than do most of the rest of the investment community. Having done so for several years, we sometimes forget that others may not be quick to adapt to the differences we bring. We need more regularly to explain how and why we're odd.

    Conventional investment favors grouping securities by the activities pursued by their issuers. then economic measures common to those activities are averaged, and the companies are evaluated by how well they compare against the averages. because averages for different types of businesses vary greatly, it becomes hard to make appropriate comparisons across industries or even among companies in related sectors.

    Instead, we pass off all that needed and valuable grunt work to others and simply focus on what the best of the observers available think ought to happen to the price of the securities. Our comparative averages or norms are not of economics, but of how well the observers have been able to foresee coming prices, and how often and how productive the achievement of expected prices are, in comparison to alternative investment opportunities at that point in time. Price forecast performance is the ultimate test.

    This all gets pressed into a discipline of time and risk management, where expected price targets are achieved and the capital gets reinvested (fully at all times) in the best currently available new vehicle. Or if that hasn't happened in a pre-defined maximum holding period, we cash out, take either gain or loss, and put the proceeds back to work immediately where the odds of success, compared with the balance of payoffs against loss exposures actually endured, are the best by our standards.

    The starting point for all this activity takes the form of an implied forecast price range that produces upside price gain prospects and downside price drawdown exposures. Those measures are defined by where the current price is in the forecast price range. Hence the term Range Index.

    By the way, these are not our forecasts, but those of experienced, highly-motivated professionals, revealed by their self-protective actions. We pursue a behavioral analysis of competent performers doing their best possible, in the hope of borrowing their skills for our benefit. Not the usual behavioral analysis of average klutzes making mistakes so we might take advantage of them.

    But there is no standard of "best" for a Range index, since what counts is how well the particular security can be foreseen by its observers. Value stocks may produce great sell target payoffs by having a frequency of market prices low in the forecast range (low RIs) while momentum stocks can perform well with RIs above the 50 mid-point, by regularly reaching sell targets at prices even higher. Volatile stocks that rarely encounter the low end of their forecast price ranges and usually reach upper sell targets are not regarded as risky, even though their payoffs can be way larger than average. They may just only be able to perform that feat once or twice a year instead of others that grind out +10%-ers, compounding gains 6 or 8 times a year.

    Our ranking preferences for the lists favor Win Odds (what percentage of prior forecasts, at today's RI, produced a profit under the discipline), how big those results, net of losses, were in comparison to the forecast's sell target (the credibility ratio) and what kind of interim price drawdowns had to be endured (and recovered from) to achieve the odds and payoffs. We stack the deck by culling out those with small upside forecasts and unimpressive past performance histories in prior similar forecasts.

    An attribute often misunderstood is that by limiting capital commitments to tiny amounts (<1%), invoked across entry dates as capital becomes available from reaching targets or holding period limits, we diversify in ways that are independent of what the activity of the underlying security may be, or the competitive environment in which they operate.

    Our investment timing rule is simple: ALL THE CAPITAL, ALL THE TIME. If capital doesn't perform in a reasonable time, commit it to a new and different opportunity candidate that competes by presenting a compelling performance history. Investments are bought to be sold, not, as "Adam Smith" said in The Money Game, to be cuddled.

    Our daily intelligence lists of 20 changeable top-ranked stocks and ETFs, score-kept YTD in 2015, has an average annual price gain record of +30% from over 2000 completed positions, while in the same period (before the past week) SPY struggled to have an annual rate of price gain of +3%. Not a promise here, just a matter of past record, for the sake of perspective.

    We value your participation in our program, and hope that this explanation will be helpful in understanding why we do what we do.

    Please do not hesitate to comment or question further when anything comes up that needs additional clarification.

    Our very best regards,

    Aug 25, 2015. 11:42 PM | Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    "how do you recognize in advance if this is a beginning of something bigger...?"

    We look at how professional hedging directly in the VIX tells their expectations in the index, not by guessing what the futures strips may imply.

    Take a look at Figures 2 and 3 more closely. Those are not past price ranges of the day of the close-price dot in the vertical line of the day, but the implied price range likely in coming days/weeks. You will not find that data anywhere else in public investment information. It is the same kind of forecast information that we have for SVXY and over 2500 other equity securities and market indexes.

    Nobody knows for sure how the investing public world-wide, individuals and professionals, will react to evolving information of all types. It's far more complex than the weather, because it involves human judgments, not interactions of things physical.

    But we can, and do, watch how the intensively-well informed pros react with their money, to protect in highly-leveraged ways, larger amounts of their money. An early-warning system of sorts.

    They're not going to be right all the time, but they adapt quickly to minimize their mistakes. We hope to recognize that they are doing so as it has happened. The data available to us is improving, and we hope to be able to do an even better job as our understanding of it evolves.

    Meanwhile, there is pretty good reassurance so far that the game has not changed. No evidence to date of major players calling "look out for another 2008".

    That's all I will say about it now, more later if necessary, and thanks for the question.

    best regards,

    Aug 25, 2015. 04:40 PM | 3 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    one should trade where the whole package of satisfactions best serve their objectives.

    Since an important part of our forecasts from the MMs come from the options market, and XIV has no options, we watch SVXY and draw its outlooks regarding the VIX as our principal guide.

    As you noted, a interactive price line chart over the past 5 days, comparing XIV and SVXY almost perfectly overlays one line upon the other. So nothing is lost in the choice between using one or the other, pricewise.

    thanks for the observation, question, and comment.


    Aug 25, 2015. 02:12 PM | 3 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]
    Karl G,

    I remember seeing a grisly cartoon drawn in the late 1920's of a man observing a body plunging past his high-rise office window with the comment: "I wonder what he knows that I don't?"

    Not funny. Early in my professional career I lost a fellow analyst co-worker who couldn't take the strain. Markets can be irrational, people need not to be.

    We need to remember it's only money. If lost it usually can be replaced, while the parallel time investment never can be. Our work is aimed at making both time and capital productive. But we recognize that it will be a part-time success. The hope, and aim is for more and bigger winners than losers.

    Still, if it always worked that way, where would the excitement and challenge be? Odds keep the serious game interesting.

    To answer your question, I have no idea. Just regard it as a difference of opinion gap that may well close just as unexpectedly as it is presented.

    good question, perhaps a poor answer. thanks anyway for posing it.


    Aug 25, 2015. 01:41 PM | 9 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    you are very welcome; thanks for the comment and your support.

    best regards,

    Aug 25, 2015. 01:25 PM | 3 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    you may not really need one. the operative situation with SVXY and the volatility of the VIX in times like these often provides a pretty good thrill ride. The hedgers are protecting themselves at real-money costs, from being short, at prices as much as 30+% up from here.

    We have 3+ years of history examples to tell us what is realistic to expect in the next couple of months. That is more than any alternative can provide.

    thanks for the question, and your interest in the article.


    Aug 25, 2015. 01:20 PM | 3 Likes Like |Link to Comment
  • The Time To Buy SVXY Is Now, And Maybe Again Later [View article]

    yes, but those sub-50 prices were available only less than an hour at the opening.

    I remember a movie where the repeated comment was: "You guys really missed it, you should'a been here yesterday".

    If history comes anywhere close to the past, today may work out pretty well over the next couple of months.

    thanks for your comment.


    Aug 25, 2015. 01:12 PM | 2 Likes Like |Link to Comment
  • Market Outlook Aug. 24 By Market-Makers [View article]
    Attention, W-street shoppers! (and sheepdippers)

    On many isles throughout this equity store chain, items are on sale, lots of 'em at ridiculous prices. Your neighbors are benefiting from these bargains. Don't go home without some. They may get marked back up to their usual tags the next time you visit. Then you'll wish you hadn't missed this opportunity!

    The time to buy things is when they're on sale!

    Have a great money-saving day!
    Aug 25, 2015. 10:43 AM | 3 Likes Like |Link to Comment
  • Are Stocks Cheaper Today Than Yesterday? Or More Expensive Than Tomorrow? [View article]

    yes indeed, because the VIX measures what has happened to prices, not really what may happen next. check what MWinMD, below, has to say about the developments. Besides his XIV, the ETF SVXY is a parallel way to play the notion of market recovery, and now may not be a bad time to start nibbling if you sense we have seen the worst of the drop.

    thanks for your comment.

    Aug 23, 2015. 08:09 PM | Likes Like |Link to Comment
  • But Why? VXX And XIV Are Already Just Perfect [View article]
    Rock, Stephen,

    SVXY and XIV have IDENTICAL price change paths over the past 2 years (do a comparison chart on Yahoo). I will be watching for the favorable times to be long SVXY and provide timely (editors willing) article(s). XIV has no options, so that is not an alternative analysis, but active investors can implement their commitments in either.


    Aug 22, 2015. 01:01 PM | 1 Like Like |Link to Comment
  • Are Stocks Expensive, Likely To Fall Further - Or Cheap, Likely To Rebound? [View article]

    no need to say more; your market appraisal may well fit what faces passive investors.

    but since active investors, the kind we are oriented for, don't buy the market but buy individual stocks and ETFs opportunistically, they are far less bothered by the dismal outlook. Some look at the left side of the market profile as the bargain rack place to start their shopping. it appears to be well stocked now, and probably does not contain many of the contributors to the averages you cite.

    thanks for your observations. keep on helping our buyers find sellers. that's what makes a market.


    Aug 21, 2015. 01:23 PM | 3 Likes Like |Link to Comment
  • Are Stocks Expensive, Likely To Fall Further - Or Cheap, Likely To Rebound? [View article]

    the market profile is a daily updated feature of the modest subscription cost website, the site also provides details of the current price range forecasts of each specific issue.

    thanks for asking,

    Aug 21, 2015. 07:51 AM | 1 Like Like |Link to Comment