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.

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.

It is tough to stage a lasting recovery without consumers. 

So Where Is the Money Coming From?

U.S. Federal debt has increased rapidly.

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.

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

• Double Dip Watch: Brown Shoots? (Yelnick)
• Geithner Speaks: No End to U.S. Housing Handouts. (WSJ)
• Lehman Chief Warns of More Big Bank Failures. (CreditWritedowns)
• Speculators: The Early Warning System for Markets. (NYTimes)
• Seabreeze's Kass on U.S. stocks: 'I Have Been Wrong'. (Reuters)
• More Posts
  Moving the Markets.

Lighter Ideas and
Fun Links
that I Found Interesting This Week

• Math Genius Turns Down $1M Prize For Solving Proof Problem. (Newser)
• Why Starbucks' Pricing Challenges Are About to Get Worse?
  (Minyanville)
• The Caffeine Debate Continues. (TonyHorton)
• Has Viral Gone Viral? Chatroulette has 1M daily visitors, in just 3
  months. (NYTimes)
• Game of Death: French TV Shocks with Torture Experiment. (Time)
• More
  Posts with Lighter Ideas and Fun Links.

Related articles by Zemanta

• Sentiment Overview: Week Of April 9th, 2010 (tradersnarrative.com)
• Fed keeps eyes out for speculative bubbles (sfgate.com)
• Putting Consumer Credit in Context (benzinga.com)
• The Great Debt Pay-Down Resumes: Consumer Credit Fell by $11.5 Billion in February (dailyfinance.com)
• Asset Bubbles and the Implications for Central Bank Policy (ritholtz.com)

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.

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.

It is tough to stage a lasting recovery without consumers. 

So Where Is the Money Coming From?

U.S. Federal debt has increased rapidly.

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.

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

• Double Dip Watch: Brown Shoots? (Yelnick)
• Geithner Speaks: No End to U.S. Housing Handouts. (WSJ)
• Lehman Chief Warns of More Big Bank Failures. (CreditWritedowns)
• Speculators: The Early Warning System for Markets. (NYTimes)
• Seabreeze's Kass on U.S. stocks: 'I Have Been Wrong'. (Reuters)
• More Posts
  Moving the Markets.

Lighter Ideas and
Fun Links
that I Found Interesting This Week

• Math Genius Turns Down $1M Prize For Solving Proof Problem. (Newser)
• Why Starbucks' Pricing Challenges Are About to Get Worse?
  (Minyanville)
• The Caffeine Debate Continues. (TonyHorton)
• Has Viral Gone Viral? Chatroulette has 1M daily visitors, in just 3
  months. (NYTimes)
• Game of Death: French TV Shocks with Torture Experiment. (Time)
• More
  Posts with Lighter Ideas and Fun Links.

Related articles by Zemanta

• Sentiment Overview: Week Of April 9th, 2010 (tradersnarrative.com)
• Fed keeps eyes out for speculative bubbles (sfgate.com)
• Putting Consumer Credit in Context (benzinga.com)
• The Great Debt Pay-Down Resumes: Consumer Credit Fell by $11.5 Billion in February (dailyfinance.com)
• Asset Bubbles and the Implications for Central Bank Policy (ritholtz.com)

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.

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.

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.
• With 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.

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:

• Nice Summary of Employment Trends and Statistics (Ritholtz)
• Is the Next Wave of Inflation on the Way? (Fortune)
• U.S. Bankruptcy Filings Rise to Highest Since 2005. (BankTech)
• Europe's Economic Woes: The PIIGS that Won't Fly. (Economist)
• Blog Post Insights on Gambling vs. Trading. (Derek Hernquist)
• More Posts
  Moving the Markets.

Lighter Ideas and
Fun Links
that I Found Interesting This Week

• April Fools 2010: Here's a List of Some of the Better Jokes.
  (TechCrunch)
• Patent Power – Who's Winning the Innovation Game This Year? (Spectrum)
• Harvard Admits Record-Low 6.9% as Applicants Increase. (Bloomberg)
• How The New Healthcare Bill Will Control Your Big Mac Urges?
  (ButThenWhat)
• March Madness Team Comparison Data Visualization Tool.
  (TableauSoftware)
• More
  Posts with Lighter Ideas and Fun Links.

Related articles by Zemanta

• You Don't Need to Understand Electricity to Use It (michaelcovel.com)
• S&P 500 Diverges From China in Bullish Sign: Technical Analysis (businessweek.com)
• Simon Johnson on Greece (calculatedriskblog.com)
• Greece Has A Completely Unrealistic Rescue Plan For Itself (businessinsider.com)

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.

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.

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.
• With 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.

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:

• Nice Summary of Employment Trends and Statistics (Ritholtz)
• Is the Next Wave of Inflation on the Way? (Fortune)
• U.S. Bankruptcy Filings Rise to Highest Since 2005. (BankTech)
• Europe's Economic Woes: The PIIGS that Won't Fly. (Economist)
• Blog Post Insights on Gambling vs. Trading. (Derek Hernquist)
• More Posts
  Moving the Markets.

Lighter Ideas and
Fun Links
that I Found Interesting This Week

• April Fools 2010: Here's a List of Some of the Better Jokes.
  (TechCrunch)
• Patent Power – Who's Winning the Innovation Game This Year? (Spectrum)
• Harvard Admits Record-Low 6.9% as Applicants Increase. (Bloomberg)
• How The New Healthcare Bill Will Control Your Big Mac Urges?
  (ButThenWhat)
• March Madness Team Comparison Data Visualization Tool.
  (TableauSoftware)
• More
  Posts with Lighter Ideas and Fun Links.

Related articles by Zemanta

• You Don't Need to Understand Electricity to Use It (michaelcovel.com)
• S&P 500 Diverges From China in Bullish Sign: Technical Analysis (businessweek.com)
• Simon Johnson on Greece (calculatedriskblog.com)
• Greece Has A Completely Unrealistic Rescue Plan For Itself (businessinsider.com)