In This Issue
Update & IPO's
The views and
information expressed in this document reflect the opinions and experience of
the author Robert C. Pelletier. Neither CSI nor the author undertake or
intend to provide tax advice or trading advice in any market or endorse any
outside individual or firm. All recommendations are provided for their
informational value only. Readers should consult competent financial
advisors or outside counsel before making any software purchase or investment
decision. CSI does not stand behind or endorse the products of any
Copyright (c) 1998 Commodity Systems Inc.
(CSI). All rights are reserved.
Wrapping Up 1998
December leaves us with a hodgepodge
of topics that have emerged throughout the year, but have not been addressed in
recent Technical Journals. This month we will discuss Master File Directories,
Y2K compliance for the MetaStock® Format, Day-only trading sessions, Perpetual
Contract Data and Understanding your database.
Topics discussed in this month's
Why "Compatible" Software May Not Be
One of the great things about Unfair
Advantage® is that it is almost universally compatible. It can produce data
files that can be read, in one form or another, by almost every trading program
on the market. This was accomplished by programming the specific requirements
of the data formats into our software and giving the user the option of
selecting these formats for file creation. QuickTrieve® also offers
compatibility with many programs in the same way. One thing Unfair Advantage
and QuickTrieve can't do is correct programming deficiencies in third-party
programs that do not adhere to these formats. Failure to comply with the record
layout may cause the third-party software to access the wrong financial time
series from your CSI database.
In the case of the CSI (QuickTrieve) format, the
accessing software must read the Master File Directory to identify the symbol,
name, CSI number, stock or commodity flag, delivery year and month and other
details about the files held in the directory. The Master File Directory
identifies the 'F' file number (such as F001.DTA) for each data file held in
the directory, allowing the accessing software to address the desired
file. This system makes it absolutely impossible to address the wrong
stock or commodity contract when the Master File Directory is used properly.
Despite clear descriptions in our published
record layout, some software developers have consistently ignored the Master
File Directory when attempting to locate files in a given directory. Some
incorrectly assume that the 'F' file number will remain the same from day to
day and rely on that number, (not the Master File Directory) to find the issue.
The 'F' file number can easily change because of deletions and additions of new
commodity contracts or stocks. Files come and go from a directory because of
the nature of the birth-death process of the commodity contracts, merging of
stocks, etc. Failure to read the Master File Directory can result in improperly
The Master File Directory provides two symbol
fields for the commodity sought. One holds a two-character symbol, which was
sufficient several years ago when fewer commodities were traded, and the other
provides for a three- to six-character symbol. This will accommodate the entire
symbol universe for all commodities and stocks traded today. Some software
developers have pretty much refused to address any symbol length of three
characters or more. When trading software looks at only the first two
characters of a symbol, confusion can result. For example, ED2 (Day-only
Eurodollar) can truncate to ED (combined-session Eurodollar). Can you tell
which is which?
Y2K and the MetaStock Format
CSI's format is Y2K compliant, which
is one reason for its enduring popularity. MetaStock's format will probably be
Y2K compliant, but so far as we know, their format has not yet been publicly
disclosed. We have been advised by Equis that they will not disclose to CSI the
MetaStock format details that would allow us to carry this format forward into
the 21st century. This does not mean that we will not support the new MetaStock
format; it just means that we haven't been advised as to how it is constructed.
It may take some time to determine what should be done to accommodate our users
and/or work out some alternatives.
On the other hand, MetaStock may have some
import features or other procedures that might make it possible for you to
avoid discontinuing use of your MetaStock software or settling for a data
service that may not have all the information you need. If you use the
MetaStock format produced by CSI, but you do not use MetaStock software, then
there is no need to be concerned. We will force the old format to be compliant
so that it will still work with MetaStock-compatible software.
The company that makes MetaStock is owned by
Reuters®, which also vends end-of-day data and considers CSI to be a
competitor. MetaStock supports other competitive-to-Reuters data vendors that
are not owned by Reuters, but for reasons known only to them they are not
considered to be a competitive threat. Nevertheless, many MetaStock users enjoy
the benefits of using CSI data with their analysis software. Unfortunately, CSI
users who depend upon MetaStock software may be caught off guard when January,
2000 arrives. If you would like to advise the makers of MetaStock of your
views, you might consider writing to Bryan Strain (email@example.com) at
Equis. Perhaps he can offer some help or advice. In the meantime, we are
doing an informal survey of MetaStock users. If you use MetaStock software for
analysis, please send us an email describing your data usage to
Techsupport@csidata.com. Please include the words "MetaStock Survey" in the
The Sun Always Shines Somewhere
Since it's always daylight somewhere
(and some traders just don't sleep), the demand for 24 hour markets keeps
growing. We have promised to address the oft-confusing issue of after-hours
trading, and which hours are included in the various contracts. The following
table should answer some of your questions.
DAY ONLY TRADING
||Heating Oil #2-NYMEX
||Russell 2000 Index-CME
||S & P 400 Midcap Index-CME
||S & P 500 Index-CME
||10 Year T-Note-CBT
||Major Market Index-CME
||Black Tiger Shrimp-MGE
24 HOUR TRADING
CME-GLOBEX NYMEX-ACCESS CBT-PROJECT A
||10 Year Treasury Note-CBT
||5 Year Treasury Note-CBT
||S & P 500 Index-CME
Perpetual Contract Data and Market
Perpetual Contract data is a
proprietary CSI service that synthesizes the prices of many contracts into a
single data series. The whole idea of Perpetual Contract data is to monitor
price movement where most traders are in the market. Those who advocate using
back-adjusted market synthesis may be too close to market action, where it is
typically more volatile. Other computed series such as Gann and Nth nearest
futures with larger values of N may have an excessively distant view of the
The Perpetual Contract data series that does an
especially good job is the one which weights prices by volume and open interest
(code 51). The 49 Perpetual is also a good choice because it rolls at about the
right time and is sufficiently distant that all markets can be treated the
same. Perpetual Contract data fashions a computed slice in time at the
right distance from a market to monitor activity where traders actually trade.
If you base decisions on the full history of a contract using other means, you
may be missing the action where volume and open interest intensity is the
greatest. Granted, the Perpetual can't be traded per se, but it can be an
excellent barometer to tell you what to do in the near contract where your
position is applied.
What Customer Mark Brown is Saying About Perpetual
"I use the Perpetual Contracts
[data] myself and am surely a minority. When a future contract nears expiration
it becomes more volatile. That volatility causes many systems to initiate
trades that would have otherwise not been engaged. If the real market is to be
traded, surely then it would exist somewhere in between the current contract
and next one out. Given that, I would suggest you think about this: Many people
build models using back adjusted contracts and many other methods. All of my
current EOD models work best on that type of data. However when you understand
why they work better then you may want to reexamine the way you build models.
It sounds like you have a model that follows price action. I propose that a
good model instead trades a markets historical 70 to 90 percentile personality.
The very moves that others concentrate so hard on are the very moves I dismiss
as an anomaly. mb".
Understanding Your Database
Among the variables we deal with at
CSI are the naming conventions each exchange has either developed or adopted as
a way of identifying contract delivery months. On the London Metal Exchange,
for example, contracts are identified based on the explicit number of months or
days forward from the current date they will become deliverable. Such markets
are called "forward markets." At U.S. exchanges and many other world exchanges,
futures contracts are defined simply with a particular calendar month of a
given year, such as March, 1999. This convention gets somewhat confusing when
an exchange identifies a delivery month that is different from the actual
delivery month. March contracts, for example, have been known to expire during
the month of February.
Identifying the Last Trading Day
At CSI, we have gone to a great deal
of effort to define the contracts and commodities that are traded worldwide,
and as a convenience, we often show a targeted last trading day for each
commodity. The last trading day information can be especially valuable when
dealing with a contract that expires before its "delivery" month. In actuality,
the last trading day of any given commodity is based upon an exchange rule that
would force the date to be exact, such as the third Tuesday of the month or the
first Thursday prior to the month end, etc. We have translated that convention
into a more or less arbitrary date, which is stored in Unfair Advantage's
CDBFACTS.ADM file and is visible through the pull-down fact sheet from the tool
Keeping in mind that the date is not necessarily
exact, you can find the actual month of delivery by checking the "Last Trade
Date." If the value shown is less than or equal to 31, then the specified
"delivery month" is the actual expiration month. If, however, the last trade
date is specified as a quantity greater than 31 (up to 62) then the last trade
date will occur in the month before the specified delivery month. The date will
be the specified value less 31. This exception covers the case where the
exchange stops trading on the month before the specified delivery month. If the
CSI specified last trade date is 62, for example, then the last trading date
would be the 31st of the month prior to the exchange identified delivery month.
If the last trade date is not specified for a market of interest to you, please
contact CSI and ask for identification in our printed or on-line fact sheets.
We will make every effort to accommodate your request.
Questioning Fed Funds
Sometimes even the most meticulously
kept database can appear erratic due to the nature of the data. For example,
our Fed Funds series is as close to being perfect as any series we offer, but a
quick look at the data (CSI commodity numbers 74, 172 (code 54) and 398) may
make a user question the accuracy. CSI's data series, which are supplied by the
U.S. government, reveal huge distortions that often coincide with the end of
each calendar quarter. These fluctuations merely reflect the US Federal
Reserve's (Greenspan and the Federal Reserve Open Market Committee) efforts
over the years to use the Fed Funds rate to control the money supply and keep
inflation forces under control.
Interest rate adjustment action could be a
warning sign that might help you in your overall decision making. Be assured,
it is not likely to be a bad CSI data point. We researched all such suspicious
jumps and drops in the rates over the decades and made any necessary
corrections. For more information on just how the Federal Reserve works, please
see past CSI Technical Journals from Aug. & Sept. '96.
Unfair Advantage offers the unprecedented
ability to perform in-depth studies on all North American markets or on all
markets around the world. Now the task is yours to understand the data
you have at your fingertips. Along with the information we have been
publishing in recent Journals and in our fact sheets and manuals, our new web
site (http://www.csidata.com/) offers links to exchanges around the world. We
urge you to use any and all of these sources to answer questions you may have.
We want to help you get the most from your database, so that you can make the
best choices for your investment dollars.
Correction to EMU Action Table
Our November newsletter included an
EMU action table advising commercial customers and users of
QuickTrieve how they might adjust their affected data series to accommodate the
upcoming conversions. We regret that the table included an error regarding the
adjustment of volume and open interest figures.
Reader Kirk Ewald noticed that our advice did
not produce pre-conversion day volume and open interest accurately. Upon
closer examination we recognized our error: The old volume and open
interest readings should actually be replaced by the ratio of the new Euro
contract size times the conversion factor of the old currency (as the
numerator) and the old currency contract size (as the denominator).
In the case of CSI#132, the German Long Bund,
for example, the new Euro contract size is 100,000 Euros and the new Euro would
be worth approximately 1.968 D. Marks if we used the conversion rates effective
on September 30, 1998. The pre-conversion day contract size is 250,000 D.
Marks. Therefore the ratio would be (100,000 Euros * 1.968 D. Marks per
Euro)/250,000 D. Marks. The numerator becomes 196,800 D. Marks because
the Euros cancel out. The denominator is already in D. Marks, so the
ratio becomes the factor which should be multiplied by the historical volume
and open interest readings. In this example, the multiplier would be
.7872. The end result should be rounded up by one half a contract to
account for the convention of holding volume and open interest readings as an
If you apply the same logic to the Indices such
the DAX Index in Germany, you would have the new index multiplier of 25 Euros
times the index for the new Euro contract to be equated with 100 D. Marks times
the index for pre-conversion days. Converting all units to D. Marks
again, you would have a new ratio of 25 Euros times 1.968 D. Marks per Euro for
the numerator and 100 D. Marks as the denominator. The Euros cancel out
in the numerator again, producing a ratio of (25*1.968D.Marks)/100 D. Marks, or
a multiplier of .492 (after canceling out the D. Marks) to be multiplied times
historical volume and open interest readings in pre-conversion day history.
This would be the case in spite of the left-over units on conversion day
because fractional units between old and new index multipliers that don't
exactly agree with the conversion rate are settled in cash or as a one-time
security issue on conversion day.
Unfair Advantage will automatically
compute these changes using the above formula.