Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Capitalogix Commentary 10/11/10 – Until Sellers Get Bold

    Something's got to give – job growth and spending swing in the balance.

    101008 Economic Mood Swing Cartoon - Jeff Parker

    The job loss situation continues to get worse.  This is still one of the scariest charts I've seen.  And the numbers continue their trend of downward revisions.

     

    101008 Job Losses In Recessions
    Market Commentary.

    The markets continue higher despite concerns about the economy.  Remember, the markets do not reflect what is happening in the economy (nor are they supposed to).  Markets reflect the expectations and speculations about the markets themselves. 

    There is a lot of money sitting on the sidelines, and if we don't get selling pressure — then it doesn't take much to push things higher. 

    The S&P 500 Has Risen Back to Its Down-Trend Line.

    The bigger picture shows that the S&P 500 Index has rallied back up to the trend-line from its 2007 highs.  Bulls will likely feel more confident if price can stay above this level.

    101009 SP500 at Trend-Line

    How high can it go?  This is a likely area for Bears to try to sell.  Not only are we at overhead resistance, but the market is getting overbought.

    How Can You Measure Whether the Market Is Overbought?

    More than 88% of all stocks traded on the NYSE are above their 50-day moving average.  We have seen similar levels three times in 2010, all resulted in large sell-offs. 

    101008 Percent of Stocks Above 50-Day Average

    The push higher will continue until sellers get more bold.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Propelling the Profit Comeback – Big Earnings From Lower Revenue. (WSJ)
    • Wall Street’s Profit Engines Are Slowing Down. (NYTimes)
    • Bernanke Says Fed's Additional Asset Purchases Improve Economy. (Bloomberg)
    • Where Every Major Country Is in the Global Debt Cycle. (BusinessInsider)
    • Just Manic Enough – Seeking Perfect Entrepreneurs. (NYTimes)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

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  • Capitalogix Commentary 10/11/10 – Until Sellers Get Bold

    Something's got to give – job growth and spending swing in the balance.

    101008 Economic Mood Swing Cartoon - Jeff Parker

    The job loss situation continues to get worse.  This is still one of the scariest charts I've seen.  And the numbers continue their trend of downward revisions.

     

    101008 Job Losses In Recessions
    Market Commentary.

    The markets continue higher despite concerns about the economy.  Remember, the markets do not reflect what is happening in the economy (nor are they supposed to).  Markets reflect the expectations and speculations about the markets themselves. 

    There is a lot of money sitting on the sidelines, and if we don't get selling pressure — then it doesn't take much to push things higher. 

    The S&P 500 Has Risen Back to Its Down-Trend Line.

    The bigger picture shows that the S&P 500 Index has rallied back up to the trend-line from its 2007 highs.  Bulls will likely feel more confident if price can stay above this level.

    101009 SP500 at Trend-Line

    How high can it go?  This is a likely area for Bears to try to sell.  Not only are we at overhead resistance, but the market is getting overbought.

    How Can You Measure Whether the Market Is Overbought?

    More than 88% of all stocks traded on the NYSE are above their 50-day moving average.  We have seen similar levels three times in 2010, all resulted in large sell-offs. 

    101008 Percent of Stocks Above 50-Day Average

    The push higher will continue until sellers get more bold.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Propelling the Profit Comeback – Big Earnings From Lower Revenue. (WSJ)
    • Wall Street’s Profit Engines Are Slowing Down. (NYTimes)
    • Bernanke Says Fed's Additional Asset Purchases Improve Economy. (Bloomberg)
    • Where Every Major Country Is in the Global Debt Cycle. (BusinessInsider)
    • Just Manic Enough – Seeking Perfect Entrepreneurs. (NYTimes)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

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  • Capitalogix Commentary 10/04/10 – When Up Isn’t Really Up

    What does it mean when the President's chief enforcer bails?

    101003 Rahm Bails - Cartoon By Ramirez

    Rahm Emanuel, President Obama's chief of staff, quit to run for Chicago mayor.  Peter Rouse, a senior aide, takes Emanuel's position. Rouse, was Obama's chief of staff when he was a U.S. senator from Illinois.  Saturday Night Live wasted no time putting its spin on the situation.


     

    Likewise, Obama's finance guru and Treasury Secretary, Larry Summers, recently resigned.  Do you think either of these moves will materially affect the market?

    Market Commentary

    The Dow Jones Industrial Average is experiencing a "golden cross".  That means the 50-day moving average crosses above the 200-day moving average at the same time that both moving averages are rising.  This will be the first "golden cross" that the Dow has seen since December 1st, 2005.

     

    101002 Dow Decision Level
    So, how bullish is that pattern? While the "golden cross" is thought of as a positive technical indicator, the historical numbers tell a different story.

    Also dampening bullish spirits, the market indices put in a classic bearish outside reversal day last week.  That means price starts high, but closes near the low of the day.  This pattern is often seen near market tops.  It occurred right at the resistance level from the May highs, with the market relatively overbought.  While MACD shows waning momentum, don't let a pop higher here surprise you.

    Have You Looked at the U.S. Dollar Recently?

    The third quarter was a boon for stocks, but it was a bust for the US dollar.  Since peaking on June 7th, the US Dollar Index has pretty much gone straight down for a decline of 11.62%.  Here is a chart.

     

    101002 US Dollar Over Last Six Months

    Meanwhile, the price of Gold is soaring.  And gold is arguably the least biased form of money.  Consequently, many consider it to be the ultimate store of wealth (and hence, a good measure of relative value).

    So, When Is Up Not Really Up?

    Why isn't the world beating a path to our markets, driving-up prices and volume?  Perhaps because they don't see our market the same way we do. This next chart caught my eye because it shows our big rally (since early 2009) is less than a 10% rally (when it is measured in Gold instead of Dollars).

     

    101002 Dow Priced in Gold
    The Dow/Gold Ratio chart shows the ratio of the price of the Dow to the price of gold. Another way to look at it is the number of ounces of gold it takes to buy one share of the Dow. For example, with the Dow at 10,000 and gold at $1,000, it would require 10 ounces of gold to buy one share of the Dow; so the ratio would be 10. The chart shows that at the recent market lows it took 7.5 ounces, and now it takes 8.21 ounces of gold to buy the Dow.

    This chart highlights one reason that a weak dollar matters.  While the Dow is much higher in dollar terms, it is still declining when priced in Gold.  This indicates that the strength we have seen is more a function of a weaker dollar rather than a real increase from real demand.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Did One Bad Trade Cause the Flash Crash? (Economist & SEC)
    • Lots of Tech Mergers Is A Positive Sign – Who Is Next? (Forbes)
    • Facebook's IPO Likely In Late 2012. (Reuters)
    • Is China's Growth Sustainable, Or Are Strains Showing? (TheWeek)
    • 10 Habits of Mind for Investors. (Big Picture)

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Did the West Attack Iran's Nukes… With a Computer Worm? (TheWeek)
    • VMware's Chief on the 4 Types of Leaders Companies Need. (NYTimes)
    • WSJ's 2010 Technology Innovation Awards. (WSJ)
    • Does Grunting During Tennis Create An Edge? (Kedrosky)
    • Digital Fitness Trainers That Know How to Motivate. (NYTimes)
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  • Capitalogix Commentary 10/04/10 – When Up Isn’t Really Up

    What does it mean when the President's chief enforcer bails?

    101003 Rahm Bails - Cartoon By Ramirez

    Rahm Emanuel, President Obama's chief of staff, quit to run for Chicago mayor.  Peter Rouse, a senior aide, takes Emanuel's position. Rouse, was Obama's chief of staff when he was a U.S. senator from Illinois.  Saturday Night Live wasted no time putting its spin on the situation.


     

    Likewise, Obama's finance guru and Treasury Secretary, Larry Summers, recently resigned.  Do you think either of these moves will materially affect the market?

    Market Commentary

    The Dow Jones Industrial Average is experiencing a "golden cross".  That means the 50-day moving average crosses above the 200-day moving average at the same time that both moving averages are rising.  This will be the first "golden cross" that the Dow has seen since December 1st, 2005.

     

    101002 Dow Decision Level
    So, how bullish is that pattern? While the "golden cross" is thought of as a positive technical indicator, the historical numbers tell a different story.

    Also dampening bullish spirits, the market indices put in a classic bearish outside reversal day last week.  That means price starts high, but closes near the low of the day.  This pattern is often seen near market tops.  It occurred right at the resistance level from the May highs, with the market relatively overbought.  While MACD shows waning momentum, don't let a pop higher here surprise you.

    Have You Looked at the U.S. Dollar Recently?

    The third quarter was a boon for stocks, but it was a bust for the US dollar.  Since peaking on June 7th, the US Dollar Index has pretty much gone straight down for a decline of 11.62%.  Here is a chart.

     

    101002 US Dollar Over Last Six Months

    Meanwhile, the price of Gold is soaring.  And gold is arguably the least biased form of money.  Consequently, many consider it to be the ultimate store of wealth (and hence, a good measure of relative value).

    So, When Is Up Not Really Up?

    Why isn't the world beating a path to our markets, driving-up prices and volume?  Perhaps because they don't see our market the same way we do. This next chart caught my eye because it shows our big rally (since early 2009) is less than a 10% rally (when it is measured in Gold instead of Dollars).

     

    101002 Dow Priced in Gold
    The Dow/Gold Ratio chart shows the ratio of the price of the Dow to the price of gold. Another way to look at it is the number of ounces of gold it takes to buy one share of the Dow. For example, with the Dow at 10,000 and gold at $1,000, it would require 10 ounces of gold to buy one share of the Dow; so the ratio would be 10. The chart shows that at the recent market lows it took 7.5 ounces, and now it takes 8.21 ounces of gold to buy the Dow.

    This chart highlights one reason that a weak dollar matters.  While the Dow is much higher in dollar terms, it is still declining when priced in Gold.  This indicates that the strength we have seen is more a function of a weaker dollar rather than a real increase from real demand.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Did One Bad Trade Cause the Flash Crash? (Economist & SEC)
    • Lots of Tech Mergers Is A Positive Sign – Who Is Next? (Forbes)
    • Facebook's IPO Likely In Late 2012. (Reuters)
    • Is China's Growth Sustainable, Or Are Strains Showing? (TheWeek)
    • 10 Habits of Mind for Investors. (Big Picture)

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Did the West Attack Iran's Nukes… With a Computer Worm? (TheWeek)
    • VMware's Chief on the 4 Types of Leaders Companies Need. (NYTimes)
    • WSJ's 2010 Technology Innovation Awards. (WSJ)
    • Does Grunting During Tennis Create An Edge? (Kedrosky)
    • Digital Fitness Trainers That Know How to Motivate. (NYTimes)
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  • Zimbardo’s RSA Animate Video About the Secret Powers of Time

    100926 Time-Warp Do you focus on the past, present or future?

    Professor Philip Zimbardo explains how our individual perspectives of time affect our work, health and well-being.  Zimbardo is talking about psychological time (subjective time), not the objective time dictated by the clocks on our phones.  As you might guess, "time" influences how we perceive ourselves, how we view relationships, and how we act in the world. 

    This short video offers some eye-opening insights.

    Below is the illustrated version of "The Secret Powers of Time". The original video of Zimbardo speaking at a podium follows. While it has the same message, the visuals are very different. This side-by-side comparison shows the value of visual synthesis note-taking. 


     

    Here is the full version of that talk with Zimbardo as the focus.


     

    Quite a different experience.

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  • Capitalogix Commentary 09/27/10 – Still Following the Script

    The market followed it's well-orchestrated script last week. After finally pushing above the key resistance level, there was a pause, as we waited for buyers to jump in and rally things higher. However, the market saw little real buying, and prices drifted back down to re-test the 1020 support level. When the sellers didn't jump at the opportunity, it was time for another gap higher.  And that is exactly what we got.

    100925 SP500 Has a New Support Level

    What Does Wall Street Sentiment Show?

    The weekly Wall Street Sentiment Survey is unique because the poll is taken after the close on Friday, and those polled are asked only to predict where the market will close as of the end of the following week — up, down, or neutral (no opinion). In other words, everyone is on the same page, and only short-term projections are solicited.

    Carl Swenlin notes that bearish readings of greater than 65% often precede price tops by a week or two. Reliability seems to be enhanced if a high percentage of bears occurs during an advance.

    100925 Wall Street Weekly Sentiment Survey
    The most recent reading of 75% bears has occurred during a modest advance, so it is probably a good idea to curb bullish enthusiasm.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Volcker is Pessimistic, Says 'Financial System Is Broken'. (Dealbook)
    • The Housing Crisis: A New Wave Of Distressed Home Sales. (WP)
    • Do B-of-A Layoffs Signal Weakness in Investment Banking and M&A? (Fox)
    • Blockbuster Files for Bankruptcy. (Dealbook)
    • Dell Looks For $60 Billion in Revenue This Year. (Reuters)

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Bill Gates Tops Forbes 400 Ranking of Richest Americans With $54 Billion. (Bloomberg)
    • Is that Bill Gates Mug-Shot Hiding in Outlook 2010? I'll Bet He Didn't Know. (arstechnica)
    • Women Apologize More Frequently Than Men: Here's Why. (ScientificAmerican)
    • Michael Douglas Cashes-In Again on No. 1 'Wall Street'. (USAToday)
    • Myths That Everyone Believes. Well, not "Everybody" … (MyDoubts)
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  • Capitalogix Commentary 09/27/10 – Still Following the Script

    The market followed it's well-orchestrated script last week. After finally pushing above the key resistance level, there was a pause, as we waited for buyers to jump in and rally things higher. However, the market saw little real buying, and prices drifted back down to re-test the 1020 support level. When the sellers didn't jump at the opportunity, it was time for another gap higher.  And that is exactly what we got.

    100925 SP500 Has a New Support Level

    What Does Wall Street Sentiment Show?

    The weekly Wall Street Sentiment Survey is unique because the poll is taken after the close on Friday, and those polled are asked only to predict where the market will close as of the end of the following week — up, down, or neutral (no opinion). In other words, everyone is on the same page, and only short-term projections are solicited.

    Carl Swenlin notes that bearish readings of greater than 65% often precede price tops by a week or two. Reliability seems to be enhanced if a high percentage of bears occurs during an advance.

    100925 Wall Street Weekly Sentiment Survey
    The most recent reading of 75% bears has occurred during a modest advance, so it is probably a good idea to curb bullish enthusiasm.

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Volcker is Pessimistic, Says 'Financial System Is Broken'. (Dealbook)
    • The Housing Crisis: A New Wave Of Distressed Home Sales. (WP)
    • Do B-of-A Layoffs Signal Weakness in Investment Banking and M&A? (Fox)
    • Blockbuster Files for Bankruptcy. (Dealbook)
    • Dell Looks For $60 Billion in Revenue This Year. (Reuters)

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Bill Gates Tops Forbes 400 Ranking of Richest Americans With $54 Billion. (Bloomberg)
    • Is that Bill Gates Mug-Shot Hiding in Outlook 2010? I'll Bet He Didn't Know. (arstechnica)
    • Women Apologize More Frequently Than Men: Here's Why. (ScientificAmerican)
    • Michael Douglas Cashes-In Again on No. 1 'Wall Street'. (USAToday)
    • Myths That Everyone Believes. Well, not "Everybody" … (MyDoubts)
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  • Putting the Great Recession’s Duration Into Context.

    This cartoon made me smile. 

    100925 Not Over the Recession Cartoon - Gorrell

     

    Are you over the recession?

     Earlier this week, the National Bureau of Economic Research (the official arbiter of recession dates) declared that the recession that began in December 2007, ended in June 2009.

    For some perspective on the recession just past (a.k.a. the "Great Recession"), Chart of the Day illustrates the duration of all US recessions since 1900. There are a couple points of interest. Of the 22 recessions that occurred over the past 110 years, the most recent recession is tied for fifth in terms of duration. It is also worth noting that the recession just passed was above average in duration and the longest since the Great Depression.

     

    100924 Length of Recessions

     Well, now that the Great Recession is over, the rest should be easy … right?

    What About the Economy – How Did It Do in the Third Quarter?

    Clearly, unemployment and housing are two issues that need to improve to kickstart the economy.  Moreover, economic growth in the second quarter slowed to an anemic 1.6% from 5.0% in the December quarter, and 3.7% in the first quarter. 

    Because of this, the Fed has now signaled next round of Quantitative Easing, which likely will send the U.S. Dollar and bond yields to new lows, while sending stock and commodity prices materially higher.

    Do You Care if the Market Moves Because of Intervention?

    From my perspective, it doesn't matter that intervention is taking the place of the invisible hand and free-market pricing. From a traders perspectives, price is price. And, as I've discussed before, it also makes sense from a practical standpoint. If intervention is the policy, then it is best for it to happen during periods of slow market activity (because it's easier and cheaper to accomplish with less resistance).

    Nonetheless, it's also interesting to note how little organic buying and selling is happening in the equity markets. If you remove the moves made by (or on behalf of) governments, the trading required by ETF's or indexes, and the volume that simply comes from program trading or high-frequency trading … there's really not a lot of interest in the equity market right now.

    In contrast, however, asset classes like gold and bonds are seeing a lot of interest.

    But, if you are looking for something positive, remember that the "powers that be" officially declared the recession over.

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  • Putting the Great Recession’s Duration Into Context.

    This cartoon made me smile. 

    100925 Not Over the Recession Cartoon - Gorrell

     

    Are you over the recession?

     Earlier this week, the National Bureau of Economic Research (the official arbiter of recession dates) declared that the recession that began in December 2007, ended in June 2009.

    For some perspective on the recession just past (a.k.a. the "Great Recession"), Chart of the Day illustrates the duration of all US recessions since 1900. There are a couple points of interest. Of the 22 recessions that occurred over the past 110 years, the most recent recession is tied for fifth in terms of duration. It is also worth noting that the recession just passed was above average in duration and the longest since the Great Depression.

     

    100924 Length of Recessions

     Well, now that the Great Recession is over, the rest should be easy … right?

    What About the Economy – How Did It Do in the Third Quarter?

    Clearly, unemployment and housing are two issues that need to improve to kickstart the economy.  Moreover, economic growth in the second quarter slowed to an anemic 1.6% from 5.0% in the December quarter, and 3.7% in the first quarter. 

    Because of this, the Fed has now signaled next round of Quantitative Easing, which likely will send the U.S. Dollar and bond yields to new lows, while sending stock and commodity prices materially higher.

    Do You Care if the Market Moves Because of Intervention?

    From my perspective, it doesn't matter that intervention is taking the place of the invisible hand and free-market pricing. From a traders perspectives, price is price. And, as I've discussed before, it also makes sense from a practical standpoint. If intervention is the policy, then it is best for it to happen during periods of slow market activity (because it's easier and cheaper to accomplish with less resistance).

    Nonetheless, it's also interesting to note how little organic buying and selling is happening in the equity markets. If you remove the moves made by (or on behalf of) governments, the trading required by ETF's or indexes, and the volume that simply comes from program trading or high-frequency trading … there's really not a lot of interest in the equity market right now.

    In contrast, however, asset classes like gold and bonds are seeing a lot of interest.

    But, if you are looking for something positive, remember that the "powers that be" officially declared the recession over.

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  • Capitalogix Commentary 09/20/10 – Why a Gap-Up is Likely

    When you have a hammer … every problem looks like a nail.

    100917 Every Problem Looks Like a Nail - Beeler

    Why Do the Big Gains Come on Monday Mornings?

    Bespoke posted an interesting piece that points out that much of the market gains this year occurred on Monday morning gaps.  Since the start of the year, there have been 11 times that the S&P 500 index gapped higher by at least 0.5% to start the week.  Looking at the equity market's performance for the rest of the day and the rest of the week shows a mixed picture.

    How can you explain the government's continued interventions?  If the government believes that intervening in the market is in the public's best interest, then the best way to push the market higher is to do it during light futures trading periods (like weekends or after-hours).  Why?  Because it takes less capital (and thus costs less to do it) after-hours than it would have during periods of thicker trading. 

    Remember, this is a free market; so if the market "disagrees" with the push higher, then sellers can freely take their profits or positions. The bigger issue, here, is that even though the markets have been pushed higher, we still haven't gotten to the point that triggers selling volume.
    Monday seems like a good time to expect the next gap up.  It would likely get prices above the clearly drawn line in the sand. 

    What Do the Charts Show?

    The S&P 500 is testing the top of its four month trading range, sitting just under resistance.  Will the third time be the charm, or will there be a sell-off from this triple-top ?

    100917 SP500 Line in the Sand

    The past two times we saw failed rally attempts on declining volume before the market cratered.  A sustained move above the 1140 level will likely give the index plenty of room to rally. We'll see.

    Sentiment Has Flipped to Bullish.

    The American Association of Individual Investors (AAII) sentiment survey is interesting to watch. Retail investors are notoriously wrong at market turning points.  Consequently, many look at extreme readings of the AAII Sentiment Survey as a contrary indicator.  So, where is it now?

    Bullish sentiment (meaning expectations that stock prices will rise over the next six months) rose 7.0 percentage points to 50.9%. This is the highest level of optimism since August 13, 2009. The historical average is 39%.

    Bearish sentiment (meaning expectations that stock prices will fall over the next six months) fell 7.4 percentage points to 24.3%. This is the lowest level of pessimism since December 31, 2009.

    Not only is the data at extreme levels, it also represents an abrupt sentiment reversal. Just four weeks ago in the late August reading of the AAII Bull Ratio (the percentage of bulls divided by the percentage of bulls and bear) fell below 30%. That level of pessimism is often seen at the turning point of significant market bottoms.

    In contrast, now we are seeing the opposite side of the sentiment spectrum.  The current reading of 51% bulls and only 24% bears, results in a bull ratio of 68% – the highest for the whole year.  That level of optimism is often seen at the turning point of significant market tops.

    100919 AAII bull ratio chart Sep 2010
    As you can see on the chart, in recent years, we’ve seen this level reached only a handful of times: in late December 2009, May 2008, and October 2007. A quick glance at the chart of the S&P 500 will tell you that all of those instances were much better times for selling rather than buying.

    Another market getting a lot of attention lately is Gold. 

    Soros: Gold "Not Safe".

    Billionaire financier George Soros said last week that while gold prices might continue to rise after hitting record highs, he renewed a warning that gold is the "ultimate bubble".  With economic and fiscal weakness crimping the developed world, Soros said all investments are at risk because "this is a period of great uncertainty so nothing is very safe." For more of his observations, watch this video.


     

    Business Posts Moving the Markets that I Found Interesting This Week:

    • Which Sector Do Experts Believe Will Lead the Next Bull Market? (Barrons)
    • Senate Clears $30B Small-Business Measure. (Newser)
    • The 10 Biggest Myths About Gold. (SmartMoney)
    • Pimco Makes an $8.1B Bet Against Deflation. (InvestmentNews)
    • Why Men Do Worse Than Women As Investors? (Forbes)

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • Bull Market in Men's Cosmetics: Just Don’t Call it “Makeup”. (NYTimes)
    • Poll: 1-in-5 Incorrectly Think Obama is a Muslim. (Newser)
    • 1st Marijuana TV Ad Airs on a Fox Affiliate in CA: Smell the Taxes? (SFGate)
    • Japanese Men Flocking to Resorts With Video-Game Virtual Girlfriends. (TheWeek)
    • The 20 Richest People of All Time.  The list might surprise you.  (BusinessInsider)
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