The ACD Method

DT3 said:
The sell off today felt very orderly. No real panic until the last minute really. Probably have another couple days of this.
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Some tech names got lit up today. Overall market was pretty orderly but some of the high beta shit really got smacked good.
 
there is a great paper from Bridgewater Dalio's firm about hedge funds and beta
you have to go to their site to get it. Would post it but don't want to risk being sued
by a firm that's got over 100 billion. Anything from them is worth checking out though.

title is "Hedge fund returns dominated by beta"
 
rt5909 said:
prime example of what Fisher was talking about is taking place today. Where is the real action in energies? crude spreads. z/z +58, front month is flat. really, v crude only seems to be moving to compensate for heating oil via the cracks.

Mav, I guess I would be considered "new", and I've never traded equities or related index, have only been doing this since 2006, and first 4 years had physicals involved, so I don't remember trading in a straight up rising rate enviro. Care to elaborate on the change, specific to ACD? I would imagine its just similar to how the grains were prior to 2008...pretty slow, grinding movement...
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A higher interest rate changes all the discount factors in every asset. That's one issue. Two, higher interest rates means the Fed is "pulling" liquidity from the market vs providing it. Liquidity lowers the discount rate in time making risk assets "appear" cheap. Pulling it has the opposite effect. With less liquidity the cost of transacting goes up which means less trading, more gaps, less follow through, and more whip in price action. This can be very frustrating for traders. Remember, when the Fed is "lowering" rates they are providing liquidity to the money markets. By money markets I mean Fed funds, the discount window and the overnight repo markets. The "money" markets are the grease that make trading happen. They also provide the leverage. Banks and prop houses "borrow" in the short term money markets to make spec trades further out in time. In other words, they are driving price action. When you reduce this, you have less money creating trends in time. Also, the marginal speculator becomes more discriminant about price and trade selection. To trade, his economic cost increase and he has less liquidity to work with. The game completely changes.
 
kinggyppo said:
there is a great paper from Bridgewater Dalio's firm about hedge funds and beta
you have to go to their site to get it. Would post it but don't want to risk being sued
by a firm that's got over 100 billion. Anything from them is worth checking out though.

title is "Hedge fund returns dominated by beta"
More...

Good stuff King. He actually goes over discount factors in his paper. Mav and Ray think along the same lines. :)
 
chart.ashx


Monthly chart of SPY. Couple of comments here. We are flat on the year here. Remember what I've always said here, there are two ways the market can correct: in price or in time. The "time" correction has basically been all of 2015. We've been rallying smoothly for 6 years with hardly a pullback. This entire year could in fact represent a time correction or consolidation before the next leg up.

If we correct in price, one thing sticks out from looking at that chart.....we have a loooooong way to fall. So if you believe we are in a time correction, we might bounce off this QTR level and keep trading sideways in a big range. But if you believe we will correct in price, based on the length of this move from the lows and the time, this pullback could go much much lower. It's your call home gamers....
 
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