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Essan
Interesting! Are you trading individual equities, indices or what?
I didn't mean to imply that our system turned unprofitable. If you look at
the period from May 1st to present, it's up 181% as of EOD today. If
anything, the increased volatility has helped us tremendously.
Without this Bond linkage though, it's up 311%, or almost double.
I think that worries me more than anything. With the increased volatility
in our current trading range as well as this apparent decoupling from Bonds,
leads me to believe that we're going to have a breakout. Now with all of
the current problems worldwide, as well as that 'dead analyst bounce' when
the US jumped in to support the Yen, I've got to believe that there is a
good possibility of a breakout to the down side. Again, we're short term
traders, so it doesn't bother me which way the market goes, it's just that I
worry about the bottom falling out of everything.
Volatility is my friend. Dull, long term trending markets are my enemy. My
only worry is that we'll go into a bear market, the market will bottom and
then we'll have 15 years of no activity because there is nothing going on.
I better start looking for a job if that happens :). Or at least make sure
my better half's happy and making money in her job.
Regards
Guy
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]
On Behalf Of Essan Soobratty
Sent: Friday, June 19, 1998 11:02 AM
To: metastock@xxxxxxxxxxxxx
Cc: grtann@xxxxxxxxxxx
Subject: Re: Times are a changing? Bonds&Equities
Guy,
My systems/methodolgies have been experiencing similar phenomena for the
past
few months. Not only my interest rate basket vs S&P but also across other
instruments too.
I trade a broad range of markets around the world and at any one time will
have
positions in up to maybe 15 markets. My systems use the inter-relations
between
instruments not only for signal confirmation/divergence but also for
risk-measurement. These changes that I have observed have not (yet?)
reached a
level where they have turned a profitable methodology into a losing
proposition
but my measures of profitability have decreased somewhat with increased PnL
volatility.
Like you, I am still exploring what these fundamental changes are that are
transpiring and how best to capture these within a methodology without
re-optimizing parameters.
I am also noticing a marked shift in profit contribution from my various
systems: My trend-following systems have improved in performance at the
detriment of my counter-trend systems. Up until recently my portfolio risk
was
approximately 70% trend-following and 30% counter-trend. I have now upped
my
trend-following risk to 85%. This has increased some measures of
profitabilty
and also dampened some the previously mentioned increase in PnL volatility.
Regards,
Essan.
Guy Tann wrote:
> Has anybody else noticed a decoupling of the T Bonds and equities? Our
> trading system has used the Bonds to confirm our S&Ps trades for the last
> twelve years with great success. In the last month or two, I've noticed
> that Bonds seemed to have decoupled from the equities market and that we
are
> better off trading our basic S&P system without Bonds confirming.
>
> Is this a temporary decoupling of Bonds and equities caused by the Asian
> economic crisis or is it more permanent in nature?
>
> Is this the beginning of the end of the bull move???
>
> Pro:
>
> Asian crisis. Possible collapse of Far East financial infrastructure.
> Asset deflation. Commodity price decline. Earnings impact on US firms
> caused by the aforementioned Asian problems as well as loss of export
> markets (dollar inflation). Too much money (401k, etc.) chasing too
little
> quality. Equity prices discounting not only future earnings but the
> hereafter.
>
> Con:
>
> Lack of final blow off to the upside. Falling interest rates (Asians
> chasing US Bonds). Fairly stable economy and competitive US edge due to
our
> already having gone through our own financial upheaval (S&L crisis, etc.)
> and industry restructuring (reengineering) during the last decade.
>
> I'm sure there are tons of Pros and Cons that I'm too lazy to think of and
> that's why I started this thread. I'm also sure that some of you have
> spotted other indicators in your trading that I would never see, just due
to
> the fact that I only trade S&P futures and never look at Bonds, equities,
> options, LEAPS, foreign markets, etc..
>
> This recent Bond/Equity relationship change has made a major impact on our
> trading results. In the last 6 weeks, our trades without Bonds are 77%
> more profitable than using the Bonds. In the past, coupling Bonds with
our
> S&P trades has made the difference between a profitable year or a losing
> year. What worries me is that maybe this isn't a new trend, but simply an
> aberration. Simply a point discontinuity or as one of my kids would say,
a
> flea on an elephant's butt. Currently, we're still trading using the
Bonds
> to confirm. I'm watching our S&Ps with and without the Bonds, and I'm now
> getting ready to switch over to ignoring the Bonds. However, I'm really
> nervous reacting to a 6 or 10 week 'trend' versus our twelve years of
> experience.
>
> Any ideas or thoughts would be appreciated.
>
> Regards
>
> Guy
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