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

  • Capitalogix Commentary for the Week of 04/12/10

    The Dow Jones Industrial Average traded above 11,000 for the first time since 2008. The real question is whether that is a sign of continued strength or that the rally has climbed too far, too fast?

    Smart Money – Dumb
    Money Confidence Index    .

    The chart, below, compares the bets made by small traders (a.k.a. the "Dumb
    Money"), to those of large commercial hedgers (a.k.a. the "Smart
    Money").

    In practice, Confidence Index readings rarely get below
    30% or above 70% (they usually stay between 40% and 60%). When they
    move outside of those bands, it's time to pay attention.

    Even
    more noteworthy is when there is a wide confidence spread with bullish bets by the Dumb Money and bearish bets by the Smart Money. This type of
    sentiment
    spread only happens a few times a year. We
    often get substantial bullish reversals when that happens.

    100411 Smart Money Dumb Money Confidence Index

    Conventional trading wisdom says that Crowds are
    usually wrong at turning-points.  That doesn't mean they are wrong all
    the time (yet I take special notice when the Smart Money clearly disagrees).

    Consumer Credit Woes Adding Fuel to the Doubt Fires.

    Here is a chart from BusinessInsider showing the Fed's latest consumer credit reading. After starting to recover, total outstanding consumer credit had a massive month-over-month decline.

    100411 Monthly Change in Consumer Credit Outstanding

    It is tough to stage a lasting recovery without consumers. 

    So Where Is the Money Coming From?

    U.S. Federal debt has increased rapidly.

    100411 Federal Debt Estimate

    In a related chart, Doug Short created an
    inflation-adjusted view of the debt and an overlay of the tax brackets.  With the 2001 and 2003 tax cuts expiring this year, the question is whether the gross
    federal debt will be a factor in determining the direction of future tax
    rates? Perhaps, like a young household with good jobs buying a home, the
    US can afford the rising level of debt?  What do you think?

    Speaking of Debt-Laden Countries.

    European governments on Sunday offered debt-laden Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end Greece's fiscal crisis and restore confidence in the euro.

    100411 Greece Gets Loan

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

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Capitalogix Commentary for the Week of 04/12/10

    The Dow Jones Industrial Average traded above 11,000 for the first time since 2008. The real question is whether that is a sign of continued strength or that the rally has climbed too far, too fast?

    Smart Money – Dumb
    Money Confidence Index    .

    The chart, below, compares the bets made by small traders (a.k.a. the "Dumb
    Money"), to those of large commercial hedgers (a.k.a. the "Smart
    Money").

    In practice, Confidence Index readings rarely get below
    30% or above 70% (they usually stay between 40% and 60%). When they
    move outside of those bands, it's time to pay attention.

    Even
    more noteworthy is when there is a wide confidence spread with bullish bets by the Dumb Money and bearish bets by the Smart Money. This type of
    sentiment
    spread only happens a few times a year. We
    often get substantial bullish reversals when that happens.

    100411 Smart Money Dumb Money Confidence Index

    Conventional trading wisdom says that Crowds are
    usually wrong at turning-points.  That doesn't mean they are wrong all
    the time (yet I take special notice when the Smart Money clearly disagrees).

    Consumer Credit Woes Adding Fuel to the Doubt Fires.

    Here is a chart from BusinessInsider showing the Fed's latest consumer credit reading. After starting to recover, total outstanding consumer credit had a massive month-over-month decline.

    100411 Monthly Change in Consumer Credit Outstanding

    It is tough to stage a lasting recovery without consumers. 

    So Where Is the Money Coming From?

    U.S. Federal debt has increased rapidly.

    100411 Federal Debt Estimate

    In a related chart, Doug Short created an
    inflation-adjusted view of the debt and an overlay of the tax brackets.  With the 2001 and 2003 tax cuts expiring this year, the question is whether the gross
    federal debt will be a factor in determining the direction of future tax
    rates? Perhaps, like a young household with good jobs buying a home, the
    US can afford the rising level of debt?  What do you think?

    Speaking of Debt-Laden Countries.

    European governments on Sunday offered debt-laden Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end Greece's fiscal crisis and restore confidence in the euro.

    100411 Greece Gets Loan

    Business Posts Moving the
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    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Jobs Delivers the iPad to the Multitudes

    Hopefully you had a nice Easter weekend, or Passover weekend, or Final Four weekend … or if you were lucky, an iPad weekend.

    100405 Jobs Delivers the iPad to the multitudes

    As a staunch early-adopter, it surprises me to report that I do not (yet) have an iPad.  Miracles do happen.

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  • Jobs Delivers the iPad to the Multitudes

    Hopefully you had a nice Easter weekend, or Passover weekend, or Final Four weekend … or if you were lucky, an iPad weekend.

    100405 Jobs Delivers the iPad to the multitudes

    As a staunch early-adopter, it surprises me to report that I do not (yet) have an iPad.  Miracles do happen.

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  • Capitalogix Commentary for the Week of 04/5/10

    The rally continues, and the S&P 500 has gotten back to new highs for the past year.  Pretty
    impressive on many fronts.  How does it compare to other markets
    though?  This chart shows how several other world markets have done in the past twelve months.

    100405 World Market Similarities

    This quick glance around the globe shows remarkably similar performance across the markets. Note how closely the price patterns and peaks and valleys are to each other.

    100405 global-markets related It brings up two questions:

    1. Are these countries each really doing the same things right and
      wrong?
    2. Are world-wide expectations and responses really this similar?

    To get a closer look for yourself, here is a link to the charts.

    Perhaps more importantly, it brings up a
    third question:
    What's really causing the markets to behave so
    similarly?

    Recognizing What Is Happening, Is the First Step to Profiting From It.

    To profit in trading, it's more important to recognize what's happening,
    rather than to understand what's happening.

    The strength of the rallies don't make sense to me based on logic.  However, trends don't depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking
    bronco.

    But I Still Want to Know Why … Don't You?

    Occam's Razor suggests that the simplest explanation is most likely to be correct. So, when markets move in a virtual lockstep (despite many unsettling global variables), let's look for simple explanations.

    Here are a few ideas (ranging from silly to plausible).

    •  After watching the movie 2012, world leaders decided the one who dies
      with the most toys wins.
    • Human nature is consistent across cultures.
    • The recession is over, and we have begun a new global bull market.
    • Something unusual is happening, and we just don't know what it is.
    • Who Controls the MarketsWith consumers mostly out of the market, institutions figured-out how to buy and sell from each other, making relatively easy profits with minimal risk.
    • Governments agreed to temporarily suspend speculating in each other's
      markets, other than in the normal course of business.
    • Governments and central banks agreed to cooperate. Don't fight the Fed, especially when it's a cartel of Feds.

    From a Traders Perspective …

    There are still many things to watch, from a trader's perspective, despite the strong correlation among markets. For example: divergence patterns can provide early indications of moves in either direction; relative strength comparisons can show which markets are more likely to over or under-perform; and volume spikes can indicate something unusual happening. Nonetheless, the simple observation is that markets are trending higher, so the safest assumption is that the trend continues until evidence proves otherwise.

    My grandfather used to say: "you can fool some people, some of the time; but you can't fool all of the people, all of the time." He was not an exceptionally well-educated man, but he was a professional wrestler … so he knew something about stagecraft.  My guess is that one of the actors breaks character soon.  That tends to happen in most cartels.

    Focus on the Global Economy as Debt Worries Rise.

    Greece continues to stay in the news because a sustainable debt solution has not been agreed to and implemented. There are reports that smart-money is starting to bet against Greece.

    100405 Greece Still Needs a Handout

    America is not the next Greece, says Simon Johnson, MIT professor and former director of research for the IMF.

    Have a good week.

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

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Capitalogix Commentary for the Week of 04/5/10

    The rally continues, and the S&P 500 has gotten back to new highs for the past year.  Pretty
    impressive on many fronts.  How does it compare to other markets
    though?  This chart shows how several other world markets have done in the past twelve months.

    100405 World Market Similarities

    This quick glance around the globe shows remarkably similar performance across the markets. Note how closely the price patterns and peaks and valleys are to each other.

    100405 global-markets related It brings up two questions:

    1. Are these countries each really doing the same things right and
      wrong?
    2. Are world-wide expectations and responses really this similar?

    To get a closer look for yourself, here is a link to the charts.

    Perhaps more importantly, it brings up a
    third question:
    What's really causing the markets to behave so
    similarly?

    Recognizing What Is Happening, Is the First Step to Profiting From It.

    To profit in trading, it's more important to recognize what's happening,
    rather than to understand what's happening.

    The strength of the rallies don't make sense to me based on logic.  However, trends don't depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking
    bronco.

    But I Still Want to Know Why … Don't You?

    Occam's Razor suggests that the simplest explanation is most likely to be correct. So, when markets move in a virtual lockstep (despite many unsettling global variables), let's look for simple explanations.

    Here are a few ideas (ranging from silly to plausible).

    •  After watching the movie 2012, world leaders decided the one who dies
      with the most toys wins.
    • Human nature is consistent across cultures.
    • The recession is over, and we have begun a new global bull market.
    • Something unusual is happening, and we just don't know what it is.
    • Who Controls the MarketsWith consumers mostly out of the market, institutions figured-out how to buy and sell from each other, making relatively easy profits with minimal risk.
    • Governments agreed to temporarily suspend speculating in each other's
      markets, other than in the normal course of business.
    • Governments and central banks agreed to cooperate. Don't fight the Fed, especially when it's a cartel of Feds.

    From a Traders Perspective …

    There are still many things to watch, from a trader's perspective, despite the strong correlation among markets. For example: divergence patterns can provide early indications of moves in either direction; relative strength comparisons can show which markets are more likely to over or under-perform; and volume spikes can indicate something unusual happening. Nonetheless, the simple observation is that markets are trending higher, so the safest assumption is that the trend continues until evidence proves otherwise.

    My grandfather used to say: "you can fool some people, some of the time; but you can't fool all of the people, all of the time." He was not an exceptionally well-educated man, but he was a professional wrestler … so he knew something about stagecraft.  My guess is that one of the actors breaks character soon.  That tends to happen in most cartels.

    Focus on the Global Economy as Debt Worries Rise.

    Greece continues to stay in the news because a sustainable debt solution has not been agreed to and implemented. There are reports that smart-money is starting to bet against Greece.

    100405 Greece Still Needs a Handout

    America is not the next Greece, says Simon Johnson, MIT professor and former director of research for the IMF.

    Have a good week.

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

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Obama Scores Big During the Final Four Telecast

    President Obama played a game of H-O-R-S-E with former NBA star Clark Kellogg during the Final Four telecast yesterday. My expectations were low, and I expected it to be corny.

    Unlike the North Korean Supreme Leader's penchant for hitting fictional hole-in-one shots on the golf course, Obama started slow and was willing to show some weakness.  Nonetheless, throughout the video, he seemed confident and athletic.  Moreover, the bantering and interplay seemed to provide some insights into the President's psyche.

    All-in-all, I thought it was a good move by him … and that it did a nice job of polishing-up his image and reminding people why he is so popular.

    Here's the video from CBS sports.


    Watch CBS News Videos Online

    As you may know, Obama is a lefty.  When asked if he can you go to his right, Obama replies: "I can go to my right, but I prefer my left." 

    One more note, Obama's personal aide is Reggie Love, a former Duke basketball player. 

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  • Capitalogix Commentary for the Week of 03/29/10

    Markets climb a wall of worry … but I don't recall a bull run, like we've seen recently, with so much fear and loathing as a back-drop.

    100329 Political Cartoon Medical Advice for Obama About the Deficit

    The U.S. equity markets have held-up remarkably well, and much better than I expected.

    Yet, the Euro continues to struggle.  It is worth noting that  some traders believe that the Euro can be used to predict the S&P
    500    .  So, here is a daily chart showing that price is at the mid-line of the downwards sloping trend channel.

    100325 Euro Weakness

    Here is a different way of looking at the Euro's woes.

    image from www.visualeconomics.com

    Here is someone else betting against the Euro.

    Jim Rogers Guarantees Another Recession.

    George Soros' ex-partner at the Quantum Fund isn't afraid to share his thoughts.  In a recent CNBC interview, Jim says he doesn't pay attention to the Fed, and that he expects Western Currencies to be weak. However, many will focus on these comments: “Yes, we’re going to have another recession, I guarantee you … By 2012 say, it’s time for another recession, … and the next time it’s going to be worse, because we’ve shot all of our bullets”. Here is the video.

    For a different look at how the economy's recovery is doing, here is a look at consumer spending.

    Is
    Consumer Spending a Reliable Leading Indicator of GDP?

    The Consumer Metrics Institute produces a U.S.
    consumption index based on actual transaction data for a range of major
    discretionary purchases such as cars, houses, durable goods, and
    vacations. As such, this index was designed to react quickly to
    significant consumer spending changes
    in a number of
    different segments of economy.

    As shown below, their 'Growth Index' has led changes in U.S. GDP reasonably
    well    . Currently, it disagrees strongly with the upbeat story
    portrayed by
    other leading indicator
    indices.

    100322 Does Consumer Spending Predict GDP

    I hope you have a good week.

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

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Capitalogix Commentary for the Week of 03/29/10

    Markets climb a wall of worry … but I don't recall a bull run, like we've seen recently, with so much fear and loathing as a back-drop.

    100329 Political Cartoon Medical Advice for Obama About the Deficit

    The U.S. equity markets have held-up remarkably well, and much better than I expected.

    Yet, the Euro continues to struggle.  It is worth noting that  some traders believe that the Euro can be used to predict the S&P
    500    .  So, here is a daily chart showing that price is at the mid-line of the downwards sloping trend channel.

    100325 Euro Weakness

    Here is a different way of looking at the Euro's woes.

    image from www.visualeconomics.com

    Here is someone else betting against the Euro.

    Jim Rogers Guarantees Another Recession.

    George Soros' ex-partner at the Quantum Fund isn't afraid to share his thoughts.  In a recent CNBC interview, Jim says he doesn't pay attention to the Fed, and that he expects Western Currencies to be weak. However, many will focus on these comments: “Yes, we’re going to have another recession, I guarantee you … By 2012 say, it’s time for another recession, … and the next time it’s going to be worse, because we’ve shot all of our bullets”. Here is the video.

    For a different look at how the economy's recovery is doing, here is a look at consumer spending.

    Is
    Consumer Spending a Reliable Leading Indicator of GDP?

    The Consumer Metrics Institute produces a U.S.
    consumption index based on actual transaction data for a range of major
    discretionary purchases such as cars, houses, durable goods, and
    vacations. As such, this index was designed to react quickly to
    significant consumer spending changes
    in a number of
    different segments of economy.

    As shown below, their 'Growth Index' has led changes in U.S. GDP reasonably
    well    . Currently, it disagrees strongly with the upbeat story
    portrayed by
    other leading indicator
    indices.

    100322 Does Consumer Spending Predict GDP

    I hope you have a good week.

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

    Lighter Ideas and
    Fun Links
    that I Found Interesting This Week

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  • Will “Things” Use the Internet Better than People Do?

    The terms "Internet
    of Things    " and "System of Systems" are concepts that help to explain a great deal about what
    is happening, now, where the digital world meets the physical and
    intellectual.

    In the video below, from IBM, you get a glimpse of it …

    Imagine if your alarm clock talked to your calendar and knows you
    need to catch the
    ferry in 1-1/2 hours to get to work, so it wakes you up. But, a half hour before it wakes you, it turned on the heater in your bathroom; and other sensors started your morning coffee and de-iced
    the windshield in your car.

    Here are some excerpts from the film:

    “Over the past century, but accelerating over the past
    couple of decades, we have seen the emergence of a kind of global data
    field. The planet itself – natural systems, human systems, and physical
    objects – have always generated an enormous amount of data, but we
    didn’t used to be able to hear it, to see it, or to capture it. Now we can
    because all of this stuff is now instrumented. And it’s all
    interconnected, so now we can actually have access to it. So, in
    effect, the planet has grown a central nervous system.

    Look at that complex set of relationships among all of these complex
    systems    . If we can actually begin to see the patterns in the data, then
    we have a much better chance of getting our arms around this. That’s
    where societies become more efficient, that’s where more innovation is
    sparked.

    When we talk about a smarter planet, you can say that it has two
    dimensions. One is to be more efficient, less destructive, and to
    connect different aspects of life which do affect each other in more
    conscious, deliberate and intelligent ways. But the other is also
    to generate fundamentally new insights, new activity, and new forms of
    social relations. So you could look at the planet as an information,
    creation and transmission system    , and the universe was hearing its
    information but we weren’t. But increasingly now we can, early days,
    baby steps days, but we can actually begin to hear the planet talking to
    us.”

    This framework applies to many other things (for example, trading and markets).  Expect to hear more about this type of insight and automation.

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