All posts by Albert Yang

Life is an experiment with trials and errors along the way. I did my 1st option trade back in Feb, 2005 when i spent all my dough on RBC $40 strike calls. The stock stayed below $40 by option expiration. $130 was all what I could salvage. if there was anything good came out of this miserablly failed trade, then i should say that it served as a catalyst for my equity and options trading career. Ever since then, i have done more than 15,000 options trades with 85% sucess rate. i began my trading career as licensed options trader; later I moved up to do trade management and Risk Management at BMO investorline, E*trade Canada (Scotia i trade), TD Waterhouse, and Questrade. However, nothing excites me more than simply doing options trading. After all, i am a trader by nature with nerve of steel and contrarian mindset. i have been working as a portfolio trader/manager of my own account and of private investors' accounts since 2011.

Gold rally to continue?

It has been a stellar year so far for gold as investors having been bidding up yellow metal’s price aggressively.  Gold recently traded above $1,200 a troy ounce, after hitting its highest level in a year earlier in February. So far in 2016, the metal has rallied some 16%, making it one of the year’s best-performing assets.

Worries about possible US recession and implosion of China’s economy is the main reason why safety seeking investors collectively want gold. At the same time, investors now believe that there’s virtually no chance the Federal Reserve will raise interest rates again in March, and many even doubt that the central bank will do so by year end. Continued low rates would be good for gold, which pays investors nothing and must compete with yield-bearing investments when borrowing costs rise.

Will the rally last?

Bearish view:

  1.  Worries about global recession and China’s economic turmoil are way overdone, any ease of the fear will see money flow out of gold since it has run up steeply.
  2. the US FED is still watching inflation closely. it will act quickly to raise interest rate.  Core consumer prices are up 2.2% over the past 12 months, the biggest increase since the summer of 2012. Jim Glassman, economist at J.P. Morgan Chase, said the CPI data will gain much of  Yellen’s attention when it comes to rate hikes. “Most of us have ruled out the Fed until June. But that’s because the stock market is down 10%,” he said. “The market can shift on you.”

My predication:

Don’t chase gold from above $1250. Gold price may drift lower towards $1150 in near term. it will find its footing around $1100.  Load up the shinning metal once we get there.

Happy trading!


P.S What to watch Feb 22-26


The US markets are back from brink of total technical breakdown. Now what?

The following article originally appears on Barron’s

Fair or Foul: Dow Jumps 300 Points as Oil, Banks Fly, Still Ends Week in the Red

By Ben Levisohn

Stocks surged today as strength in oil and financial stocks helped end their five day losing streak.

The S&P 500 rose 2% to 1,864.78 but still finished the week down 0.8%. The Dow Jones Industrial Average advanced 313.66 points, or 2%, to 15,973.84 but finished the week off 1.4%. The Nasdaq Compositegained 1.7% to 4,337.51 but finished the week with a 0.6% loss.

Bloomberg attributes today’s big gains to the even larger jump in oil–WTI Crude futures, the U.S. benchmark,climbed 12% to $29.44 a barrel. But I’d give the credit to JPMorgan Chase (JPM) CEO Jamie Dimon, who bought 500,000 shares of the banking giant. That likely helped reverse some of the negative sentiment in the financial sector, which gained 4% today after dropping about 18% this year through yesterday. Shares of JPMorgan Chase climbed 8.3% to $57.46 today, while the Financial Select Sector SPDR ETF (XLF) rose 4.1% to $20.49.

Despite this week’s pain, BMO’s Brian Belski sees some signs that the market “may be on the verge of stabilizing,” including the fact that the correlation between oil and stocks is beginning to weaken. He explains:

Plunging oil prices and their perceived implications have been a main investor focus. Much of the discussion has centered on the negative side of the equation as many have viewed this as a sign that global growth is on the verge of collapsing as well. We have disagreed and written quite extensively that while demand pressures are certainly part of it, an oversupplied market has been more responsible. Nevertheless it is clear that the severe drop in oil prices has spooked stock investors as the correlation between stock and oil prices has increased dramatically. In fact, we indicated in earlier reports that oil prices would need to find some support or investors would need to come around to our line of thinking before stocks prices stabilize. Fortunately there appears to be some good news – while oils has continued to slide, the “fear” associated with the slide appears to be lessening as the correlation between oil and stock prices has decreased quite a bit over the past few weeks.

Still, Investech Research’s Jim Stack says that the we’re in a bear market–if he’s reading the tea leaves correctly:

While 2016 opened with headline-grabbing weakness as the worst start to any year in history, it was the spike in day-to-day volatility that caught our attention. As we first noted in December 2014, a notable increase in volatility would almost certainly accompany the onset of the next bear market – just as it did in 2007 and in the late 1990s. It might prove misleading or dangerous to extrapolate the first five weeks to a full year; however, there is little doubt that daily volatility (both large UP and DOWN days) is at extremes. This is a tug-of-war between the bulls and the bears… and, so far, the bulls are losing. As you’ll note in this issue, our Negative Leadership Composite is locked in bear market territory and warning flag divergences are not improving. A market with narrowing participation and failing leadership is a market in trouble.

Yet at the same time that technical evidence of a bear market seems overwhelming, most leading economic indicators are resilient in not forecasting any recession on the horizon. So either this is a market-induced decline (or bear market) that might not have too many more months to run, or we should soon start seeing confirming negative signals on the macroeconomic side that Main Street is heading for trouble too.

Stay tuned.

A bottom is in but not “the bottom”

What a difference a week can make! The S&P index tested and held 1820 before rebounding to 1940. BoJ’s surprise announcement of implementing a drastic policy of negative rate spurred animal spirits of market participants. Finally, we closed the book on January, a worst January performance ever. Another wild week of stock trading brought major averages out of correction territory.

Looking ahead,  the market should undergo a multi-week sideways and choppy consolidation. However, i  don’t expect 1820 to be the bottom, too much technical damage has been done to the S&P, and slow down of Chinese economy has just begun to unfold with many negative implications felt around the world.

Happy Trading!


What to look for in the week of Feb 01 to


Jeff Miller posted this lists of scheduled economic reports to come during the week

The “A List” includes the following:

  • Employment report (Feb 05 Friday). Will recent strength continue?
  • ISM index (Feb 01 Monday). Based on last week’s Chicago PMI, some see a move back above 50.
  • Personal income and spending . Key take on households.
  • ADP employment change (Feb 03 Wednesday). Good alternative to the “official.”
  • Auto sales (Feb 02 Tuesday). Will the strength continue?
  • Core PCE prices . The Fed’s favorite inflation measure has been very tame.
  • Initial Claims (Feb 04 Thursday). The best concurrent news on employment trends, with emphasis on job losses.

The “B List” includes the following:

  • ISM services . Not as established as the manufacturing index, but also important.
  • Factory orders (Feb 04 Thursday). December data. Often volatile and recently weak.
  • Construction spending . December data. Also volatile but recent strength.
  • Productivity (Feb 04 Thursday). Q4 data, but important for GDP growth.
  • Crude oil inventories . Attracting a lot more attention these days.

Too many bears running amok?

The following screenprint does not tell the whole story of markets stuck in panic mood. At the height of selling frenzy at noon on Jan 15, I saw DJIA went down 530 points. It ONLY went down 390 points at the close. A reversal is afoot.


All i want to say is we may have seen signs of a downside wash-out on Friday. Consider, for example, this 10-year chart of AAII bears-bulls (black line) and Rydex bear to bull fund flows (green line). Past spikes in either indicator to the current elevated levels have marked bottoms in the past.


As well, the CBOE equity only put/call ratio also spike to levels on Friday indicating panic selling. This is another sign of capitulation.

What path the US markets will take in the next few weeks?
If the S&P goes down to 1820, and hold, we will see a weak rebound to 1950.
Intermediate term (looking out 1-3 months), it may still go lower towards long-term strong support at 1620. For this 20% drop of S&P to materialize, we need to see 3 things to happen:
            1. the crude price  dropping to $20 USD;
            2. Quick 10-15% depreciation of Chinese RMB
            3.  the US Fed sticks to hiking short term interest rate higher by                    25 basis-point increment 3 more times this year.
What are the odds that 1.2.3 will happen? Your bet is as good as mine.
keep trading.

S&P is at critial juncture; 1967 has to hold or bottom falls off

Update: S&P closed today (Jan 07) at 1943, well below 1967; thus opening the trap door. The index is heading lower to at least 1900. China has suspended ill-fated stock market circuit breakers; China A shares will open for trading in a few hours without this restriction. Will this open the flood date of selling, we shall see… 


What a jaw-dropping way to welcome 2016! In only 3 trading sessions, S&P has lost 7%, wiping out all gain made in so called “Santa Claus rally” . Torpedoes keep charging at beleaguered U.S stock markets; the latest being weaker than expected Chinese services sector PMI (as shown below) and quick drop in Chinese Yuan against the US greenback.  How much more damage can the S&P aircraft carrier take before it tanks?

S& P is sitting at 1990, previously a resistance level and now support of Oct/Nov rally. It is a technically speaking no man’s land. Chances are high that it may go down to test 1967, a 61.8% Fibonacci retracement of S&P move from 1900 to 2100. 1967 must hold, otherwise, S&P may go down to 1900 or even 2015 summer low of 1820.

Market sentiment has definitely changed from buying dip to selling rip. Key to riding out the volatility is to deleverage and to trade small positions either way.

Keep trading!

spx 1990

Albert Yang

FYI    China Services PMI  2012-2016 

Services PMI in China dropped to 50.2 in December of 2015 from 51.2 in November and below market consensus. It is the lowest reading since July 2014 and also the second lowest in survey history, largely due to softer client demand and greater competition. Services PMI in China averaged 52.36 Index Points from 2012 until 2015, reaching an all time high of 54.70 Index Points in May of 2012 and a record low of 50 Index Points in July of 2014. Services PMI in China is reported by Markit Economics.


Looking back; gazing into 2016 and beyond 

As 2015 drew to a close, this would be a good time to review how our portfolio did during the year. 2015 was a year of frustrations and whipsaws: traders around the world feel the bad breath of the twins. Our tactical portfolio got hit with a 3.19% year to date loss in terms of the US dollar. However, it scored a 5.13% gain in terms of CAD when we take into the account of gain from CAD/USD exchange rate.

Looking back:

Glorious first half of 2015

We had a smooth sailing from Feburary to mid August with 16% gain by then (in the USD term) despite of the fact that the overall US markets went nowhere during that period.  We were able to sustain whipsaw from Feb through May because prudent risk management, ie. limited sizing of our portfolio.

Whipsawed in massive sell-off and subsequent ups and downs since late August

However, those gains weren’t enough to offset the damage caused by the combination of the summer market whipsaws and being “too long ” during the August sell-off. We had to close 1/3 of option long positions at height of market panic because of sudden withdrawal of margin power given by our trading execution broker (as part of their risk management maneuver). If those positions were kept, we would have a substantial gain by now.

Lesson learned:

Be very careful with margin power; try to control margin at maximum 2:1 instead of usual practice of 3:1 . During sideways markets like the summer of 2015, it is best to minimize positions either long or short to margin 1:1 (no leverage at all).  Always keep extra dry powder of buying power, which can be deployed at market selling climax for substaintial gain when selling pressure subsides.

Gazing into 2016

I don’t have crystal ball to look into. The US markets may well be still in a giant topping process as I have pointed out before in this piece.  However, upside surprises may not be far away from around the corner. We are going into 2016 with consumer confidence strong. Christmas spending up a ripping 7% plus YOY. Wage gains are strengthening. Gasoline and natural gas heating bills are down dramatically giving consumers more cash to spend elsewhere. Congress just pass a budget that will boost the economy by almost 1%. So the economy will be perfect for a strong stock market.

Two areas of interest to me are: energy stocks which have been beatened down and left for dead; elevated fear among market participants.

keep trading, be humble and nimble!

Albert Yang


Barron’s Quiz: Your Wall Street Skills

The following article is from Barron’s.

What does 2016 hold for investors in 2016? Rates up? Stocks down? Take our 15th annual forecasting challenge.

December 26, 2015
Here are the rules: Only one answer per question, though several questions may have more than one correct answer.

1. What will the Dow Industrials return in 2016, including dividends?

A. Negative

B. Zero to 10%

C. 10.1% to 20%

D. 20.1% or higher

2. Which equity market will fare best in 2016 (in local currencies)?

A. U.S. (S&P 500)

B. Emerging Markets (MSCI index)

C. Europe (Stoxx 50)

D. Japan (Topix)

3. Name the top S&P 500 sector.

A. Health Care

B. Energy

C. Technology

D. Financials

E. Consumer Staples

4. What will be the year’s biggest financial surprise?

A. Oil (WTI) finishes the year below $40 a barrel

B. S&P 500 gains 15% or more (including dividends)

C. Treasury yields fall, 10-year ends year below 2%

D. Gold loses more luster, finishes year below $1,000

E. Commodity prices surge. Reuters/CRB index gains 20% or more

F. None of the above

5. Which “FANG” stock will fare worst in 2016?

A. Facebook (FB)


C. Netflix

D. Alphabet (GOOGL)

6. Where will Apple shares (AAPL) end 2016? They traded last week at $108.

A. Under $100

B. $100 to $115

C. $116 to $130

D. Above $130

7. Where will oil prices (WTI) finish 2016? Oil traded last week around $38 a barrel.

A. Under $30 a barrel

B. $30 to $45 a barrel

C. $45 to $55 a barrel

D. Above $55 a barrel

8. Which CEO will be gone by the end of 2016?

A. Valeant’s (VRX) Michael Pearson

B. IBM’s (IBM) Virginia Rometty

C. Mondelez’s (MDLZ) Irene Rosenfeld

D. Yahoo’s (YHOO) Marissa Mayer

E. Berkshire Hathaway’s (BRK.A) Warren Buffett

F. All will still be on the job.

9. Which losing stock from 2015 will fare best in 2016?

A. American Express (AXP)

B. Macy’s (M)

C. Valeant Pharmaceuticals

D. Kinder Morgan (KMI)

10. Which out-of-favor industry group will do best in 2016?

A. Railroads (represented by CSX, NSC, UNP)

B. Independent energy producers (APA, APC, EOG)

C. Retailers (WMT, M, TIF)

D. Media (CBS, VIAB, TWX)

11. Name 2016’s best-performing member of the Dow Industrials (including dividends). Worth 2 points.

12. Name the Dow Industrials’ worst-performing stock for 2016 (including dividends). Worth 2 points.

13. Who will be the Republican presidential nominee?

A. Donald Trump

B. Ted Cruz

C. Marco Rubio

D. Someone else

14. What will happen in the 2016 election?

A. Democrats win presidency. Split control of Congress

B. Democrats win presidency. GOP controls Congress

C. Republicans win presidency. GOP controls Congress

D. Republicans win presidency. Split control of Congress

15. Which country will win the most medals at the 2016 summer Olympics?

A. U.S.

B. China

C. Russia

D. Another country

16. Where will the 30-year T-bond end 2016? It now yields about 3%.

A. Under 2.5%

B. 2.5% to 3%

C. 3.01% to 4%

D. Above 4%

17. Tiebreaker: At what level will the Dow Industrials end 2016? The index traded at 17,500 last week.

I have made my predications; now it is your turn!

Albert Yang

A bleak market outlook foretold by Dow Jones Transportation Average

First order of business for this new week: a quick review of last week’s market movement (Dec 14-18).

Last week, the Dow Jones Industrial AverageDJIA, -2.10%  falling 0.8%, the S&P 500 Index SPX, -1.78%  down 0.4%, the Nasdaq Composite Index COMP, -1.59%  shedding 0.2% for the week, after oil prices settled to their lowest levels in nearly seven years.

On Dec 18, we also saw the damage done by triple witch — when contracts for stock index futures, stock index options and stock options all expire at the same time — and market subsequently sold off.  I expect volatility to settle down this week as traders get a nice distraction of holidays from all trading and no fun.

Now, Dec 21,  we are looking at a holiday shortened week with only three and half trading days to go before Christmas (not a white one as  I has been praying for), trading this morning is muted with market opened higher but slowly fading away to hug flat line. it is all quiet and fine, right? No, under calm facade, mutual funds and hedge funds portfolio managers are selling their winners and losers to meet redemption requests from retail investors. While it’s never a good idea to fight the Central Banks when they have a mind to boost the markets – it’s also never a good idea to ignore ALL the warning signs that are telling us the Emperor may have a lot less clothes than it seems.

Today, we take a look at the Dow Jones Transportation Average DJT, the oldest stock market index for clues as to where markets are heading to.

Tthe Dow Jones Transportation Average DJT was created in 1884, even before the Dow Jones Industrial Average DJIA. Last week it went down by 2.25% . Even as the Dow Industrials were holding their own over the past couple weeks, the Dow Transports were breaking down in a big way. According to, “In intra-day trading Monday (Dec 14), the Transports fell below the index’s August low. And even after Tuesday’s big bounce for the broader market, the Dow Transports are only 1.1% higher than their August closing low.”

The Transports’ weakness has bearish implications for at least two reasons. The first is that the transportation sector is a leading indicator of economic downturns. This was documented several years ago by a study conducted by the Bureau of Transportation Statistics in the U.S. Department of Transportation, titled “The Freight Transportation Services Index as a Leading Economic Indicator.” The study’s authors concluded that the index over the past three decades “led slowdowns in the economy by an average of four to five months.”

Unfortunately, the Freight Transportation Services Index hit its all-time high in November 2014, more than a year ago. If the index continues to be a reliable leading indicator,  the economy and stock market may be living on borrowed time. Just this week, Raymond James downgraded FedEx FDX, -3.09% one of this sector’s bellwethers, citing weaker-than-expected volumes.

The other reason the Transports’ weakness is ominous: It is one of the two stock market averages that are the focus of the Dow Theory, the oldest stock market timing system in widespread use today.


Chicago Fed National Activity Index (CFNAI)

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge overall economic activity and related inflationary pressure. The CFNAI is released at 8:30 a.m. ET on scheduled days, normally toward the end of each calendar month.

Just this morning (Dec 21) the November Chicago Fed report hit -0.30 and the prior report was revised even lower to -0.17 and that is likely to lead to yet another downgrade of our GDP expectations for Q4 – which is getting close to recessionary.

Raising more cash and be cautious! Happy trading!

Albert Yang (多雲)

Dollar holds a key

US Dollar holds a key

Looking beyond 2015, what is the single most important factor to consider when it comes to equity investing.? the answer may be simpler than you think: it is the greenback!!

Let me put it this way, two points:

  1. a stronger dollar acts as a drag on the U.S. economy, and hurts corporate earnings and commodity prices.
  2. A key determinant of the pace at which the Fed continues to raise rates is likely to center around the U.S. dollar.  Continued dollar strength would likely slow the pace of the Fed’s rate increases.Any sustained countertrend moves in the dollar, commodity prices or inflation could trigger a faster pace of rate increases.

Then what is the trajectory of the USD? Let’s look at the following chart (courtesy of Barron’s online)


  • short term:

1.  the chart pattern looks more like a “W,” which leans bullish.

2.  it could be a simple pullback at resistance following the breakout from a triangle pattern. Either case leans bullish.

  • Longer term: in the currency markets, trends tend to last for several years. The current rally broke free from a multi-year sideways pattern just last year, so the potential for several more years of gains is solid, even if those gains happen at a more modest pace.

2015 has been a very difficult year for mutual funds and hedge funds with over 77% of them underperforming the benchmarks which they track.  Why is this dismal performance? The answer:  they were whipsawed by market cross currents; many market indicators gave off false buy and sell signals in this trendless, and yet volatile year. Hopefully, with the US dollar index as the single most important factor to consider, we may finally have a reliable beacon of light to look for when navigating into uncharted waters of 2016.

Keep trading and keep learning!

Albert Yang

S&P 500 Earnings Yield, Fed Model, FOMC Meeting, Year-End Rally

 “Fed Model” fans are familiar with the S&P 500 earnings yield since it is the Fed Model calculation that subtracts the 10-year Treasury yield from the earnings yield of the S&P 500 (calculated by using Thomson’s forward 4-quarter earnings estimate and dividing it by the closing value of the S&P 500) to get a broadly-based market valuation measure that was once cited by Alan Greenspan in the late 1990s as indicative of what he thought was an overvalued stock market. (The speech where Greenspan first referenced the Fed Model was July 1997, per Wikipedia here.)

If we look at the yield on the 10-year Treasury in July 1997 – roughly a 5%-5.25% yield – and the year-end S&P 500 earnings (actual 1997) were $43.50 and in July 1997, the S&P 500 was trading at – let’s call it 925 – the S&P 500 earnings yield was roughly 4.7%, so the Fed Model, with a value of -0.50, was indicating (probably appropriately) in mid-2007 that the S&P 500 was overvalued.

So what’s the point? While ZIRP distorts the Fed Model (think Nikkei and Japanese interest rates), the S&P 500, forward progress by the S&P 500 in my opinion is likely far more dependent on S&P 500 earnings growth than interest rate levels over the next few years (in my opinion).

Looking back at 2013, readers saw a sharp increase in the 10-year Treasury yield to up to 3% by year-end 2013, and the S&P 500 rose 32% on the year.

For me personally, a “normal” yield curve would have a 2% fed funds rate (about flat with long-run core inflation rate) and a 4% 10-year Treasury yield, and even that implies that the short end of the yield curve would be just breakeven with inflation.

The S&P 500 earnings yield as of Friday, December 11th was 6.13%. The yield was above 6% for most of August and September 2015 during the 10% correction.

The last time the S&P 500 earnings yield was 6.12% was November 13th or one month ago, and the S&P 500 rallied from 2,022 to 2,100 to close out November 2015.

The Fed Model is a broad valuation sword, not a timing tool, but it couldn’t help be noted when the S&P 500 earnings yield of 6.13%, versus November’s yield, when the S&P 500 saw a nice rally.

Also, per Bespoke, bullish sentiment per AAII declined to 28.5% this week, the lowest level of optimism since the September 2015 lows.

Look for the year-end rally, possibly to start after Wednesday’s FOMC announcement.

I do expect the FOMC to increase the federal funds rate 25 bps.

S&P 500 By the Numbers

  • The forward 4-quarter estimate as of December 11th was $123.34, down from last week’s $123.49.
  • The P/E ratio on the forward estimate as of Friday was 16(x).
  • The PEG ratio is still negative, but core S&P 500 earnings growth (ex-Energy) assumed at 5%-7% means S&P 500 still has a PEG over 2(x).
  • The S&P 500 earnings yield is 6.13% versus last week’s 5.90%.
  • The y/y growth rate of the forward estimate was -0.71%, the 4th consecutive week of improvement for the forward estimate. Still negative, and I’d like to see it positive.

This coming week, Oracle (NYSE:ORCL) and FedEx (NYSE:FDX) report Wednesday night after the bell, just after the FOMC decision, so the stock’s reaction and the trading of both names on Thursday could be heavily dependent on what both companies say about 2016 after the bell Wednesday. For both FedEx and Oracle, this is their 2nd fiscal quarters of 2016 (ends May 31 for both) and both guided softer with the August 2015 quarter’s results.

Basically, all of the S&P 500 has reported their September 2015 quarters, so with these November quarter ends, we get more input and perspective on a real-time basis.

No question, FDX is a real-time economic barometer, but ORCL is likely the safer of the two stocks right now.