Capitalogix

Market Commentary from June 13th, 2008

Wall Street is expecting another volatile week.  In addition to our regular complement of oil price spikes, Dollar worries, inflation fears and economic reports on home building and wholesales prices ... this week, the biggest news might be the quarterly earnings reports from Morgan Stanley (MS), Goldman Sachs (GS), and Lehman Brothers (LEH).

Currently, just 33% of stocks in the S&P 500 are above their 50-day moving averages.  Much of this weakness has come from the Financial sector.  Only 17% of Financials are above their 50-day moving averages.  To see how ugly that sector has been, take a look at the charts of the Financial Sector SPDR (XLF) and the Banking Index ($BKX).  Both are back at, or near, their lows. 

But, next week also has Phi Day.  What?  Your friendly Fibonacci traders may note that June 18 is 6-18 (and everyone knows how important .618 is in trading).  If not, then you haven't spent time at Prechter's site.  Even if you don't believe it, enough traders watch the 61.8% retracement level, it is worth monitoring.  For example, check out the current chart on the Dow.

Of course, not all US Equity Indices have fallen that far.  In contrast, note the relative strength of the S&P MidCap Index.

Here are some of the things that caught my eye this week:

• What's $3BB among friends?  Loss catalyst for shakeup at Lehman.
• Lehman's share price might be a better proxy for fear in the market than the VIX.
• Signs of a Market Bottom from a Humble Student of the Markets.
• Kudlow thinks Fed will raise rates in July.
• An updated "Misery Index" shows consumers are in as much pain as the early 80s or 90s.
• NYTimes notes a negative 12-month change in private sector jobs is a "Perfect Recession Indicator".
• Infectious Greed notes Exchanges now make more money selling their trade data than on the trades.
• Apple announced their new iPhone and EndGadget has details.

A New Chart Pattern

I loved Nassim Nicholas Taleb's book "Fooled by Randomness".  And everyone is talking about his recent book "The Black Swan".

With tongue-in-cheek, the next chart shows a very rare Black Swan formation - note both feet and neck are complete and the rare vampire tooth variation is in place.  This is very bad. Very, very bad.

from Elite Trader.

Virgin America(n)

Fuel costs have certainly affected the average American.  It is possible that these added costs might have an even bigger effect on another American (as in, the airline).  Industry-wide losses for airlines are blamed on fuel cost too. And AA is no exception.

While I was on a American Airlines flight, recently, I overheard two flight attendants talking.  The topic was that they were worried that AA was going to get bought by Virgin.  Of course, US airlines can't be purchased by foreign concerns.  However, they meant Virgin America.  At first, I didn't think much about it.

They noted that some very senior AA alumns had high positions there.  And that rumors were that the first condition of the purported deal was that Virgin didn't want American Eagle (which is now being shopped).

While I certainly have no inside information, or positions in any of these companies, I thought it was worth mentioning.

AMR, American's parent company, recently said they are not in danger of bankruptcy.  However, the airline industry is certainly hurting. 

For some additional context, here is an article that describes the current state of affairs and where Virgin's chief sees more industry failures coming.  Also, here is a recent BusinessWeek interview with AA's ex-head Robert Crandall.

Something to keep an eye on ...

Where Does All the Spam Come From?

Yesterday I got over 400 spam e-mail messages.  Either I spend way too much time in questionable chat-rooms, or the technologies they use for spam, viruses, worms, etc., are getting better and more efficient.

As for me, I use an anti-spam product called Cloudmark.  It is the best I've seen; so the spam wasn't a problem ... just a growing trend.

On a positive note, new technology is often exploited first in fringe areas (malware, porn, etc.).  I expect that many of the things we curse about the power and sophistication of these techniques are soon harnessed to solve many problems and issues that we haven't yet thought possible.

So, on a related note, it reminded me that I just saw a nice piece on where spam comes from.  Here is the graphic.

Source: MIT Technology Review.

Contact Juggling: A Little Something Extra

I see this in so many areas of life ... it doesn't take much effort to make major progress.  A little bit more makes you average.  A little bit more, and you excel.  And with sustained focus and energy ... it looks like magic.

Think how much time and effort went into making this look easy.  Note: the first minute is a little slow, then it picks up.  You can scroll ...

Another Amazing Contact Juggler - Watch more free videos

Market Commentary as of June 6th, 2008

This week the Markets tried to rally several times.  Unfortunately for the Bulls, none of these attempts worked.  And Friday's move down was the worst for the market in a year-and-a-half.

So the headlines are "another week of a weak dollar, rising oil prices and falling markets."  One of the key take-aways, from my perspective, is that the Markets are not responding as resiliently to bad economic data as they had a few weeks ago.

You don't have to look much farther than this chart from FinViz.com.


Also, something I'm hearing more of are questions about whether you can trust the government's economic numbers?  Some people are saying that key measures have been distorted lately.

Some things that caught my eye this week:

• The weekly newsletter from StockCharts.com had some interesting insights.
• The International Monetary Fund published research on Herding Behavior in Markets.
• Self-Motivation & Other Hyper-Intentional Mistakes from the Financial Philosopher.
• Why the sky-rocketing VIX may not be so bearish, from VIX and More.

TraderDNA

If you treat trading like a business, you quickly realize that performance measurement is a key to better performance and risk management.  Over time I've developed a lot ways to measure what is working, and what isn't.  But I'm always looking for new insights.  And I was specifically looking for tools that helped traders spot their tendencies. 

Well, TraderDNA caught my eye.  I haven't used it yet; however TraderDNA Analyzer looks interesting.  It is an all-in-one application for tracking results, journaling, and analyzing your trading performance and system-efficacy. You can customize and construct your own statistics, tables, graphs and visual representations of your trading, and then save your views for later use and report generation.  Some of their suggested uses are to:

• Identify key differences in your winning trades and losing trades.
• Track your results and improvement through the week, month, and year.
• Understand exactly what causes your winning days, and your losing days.
• Analyze intra-day changes in your trading performance.
• Compare your trading across different markets.
• Measure your performance in adding to winning and losing positions.
• See your equity curve over any time frame and by account and market traded.
• Measure and understand the risk you take in various circumstances.
• See how efficiently you trade different contract sizes.
• Compare/contrast the performance of numerous traders or trading systems.
• Discover trends and patterns in your trading performance.

Some of their reports and ideas about what to measure were interesting.  I'll be curious to learn more and hear from users.

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Capturing To Do Items and Ideas to Get Things Done

An Old Take on New Ideas:

How many times have you tried to remember something that you knew you were forgetting? As I get older, it seems to happen more often. I'm not sure if it's because of age, or because I think more and do less. Nonetheless, I love having a process to capture, store, and retrieve, relevant information.

For years I've been "a gadget guy." I'm the guy that waits in line to buy the first hot new phone. I always have the best PDA, the newest laptop. And I constantly try different software to capture ideas, produce mind maps, or otherwise give me a creative and competitive advantage.

Surprisingly, the newest addition to my arsenal of productivity tools is a small pad of paper. Yes, I now carry a small pad of paper in my pocket, and I pull it out to capture ideas, phrases, and to-do items throughout the day. It's quick, easy, and I don't have to worry about it recognizing my handwriting. I recognize my handwriting.

Throughout the day, I simply write the ideas, phrases, key words - and of course the to do items that I should do, want to do, or want someone else to do.   

At the end of the day (or when my page is full) I call Copytalk and dictate the whole list into the telephone. A few minutes later, I get an e-mail with all of the items in electronic format. I then copy these and simply paste them into a web application called Toodledo, which is a categorized to-do list accessible online.

Toodle-do is a great place to help me get things done. It allows me to list each task, categorize it in ways I want, as well as create priorities, due dates, and different tags that you could use for locations or roles. I very quickly ended up with close to 1,000 to-dos sorted in many categories. So when I get an idea on something to write about, or come up with new development projects or things to talk about with friends, I have one place to go.  Best part for me is that when I'm looking for something, this list is easy to search, easy to find, and easy to keep up-to-date.

All-in-all, it's a pretty good system, and I love how it feels to empty my brain every day.

Game Theory (or not) On the "Price is Right"

Here is a short clip from the TV show the "Price is Right".  The YouTube post bills it as the dumbest contestant ever.  In any case, it was funny.

Here is the direct link for that video.

I felt sorry for the contestant, even though I was laughing.

Schadenfreude can be a funny thing; it always makes me think of a song from the show "Avenue Q".  Bet it makes you smile.

Here is the direct link for that video.

Do You Trust the Government's Economic Numbers?

Can you trust the government's economic numbers?  Some people are saying that key measures have been distorted.  At question, among others, the:

• Consumer Price Index: which tracks inflation at the retail level
• Gross Domestic Product: which tracks overall economic growth, and
• Unemployment Figures: which tracks jobs and indirectly measures corporate health.

We've been given low inflation numbers.  This makes GDP look more robust because it implies that there was increased output, rather than increased prices.  However, with the rising cost of energy and commodities, a bigger portion of each paycheck is going to necessities.  It is not just gasoline either; a quick trip to the grocery store shows what has happened to the price of wheat, rice, and eggs.  At the same time, credit is tightening and the value of their homes are going down.  So, consumers aren't just paying more, they have less to spend.

The unemployment numbers are artfully adjusted, though perhaps misleading.  For example, the government's number showed gains (rather than losses) in the number of jobs in financial services and construction sectors last month.  Let me remind you how many banks, brokerage houses and funds are closing, or at least laying people off or re-structuring.  And construction hasn't been booming lately, has it?  To see how they did it (hint, birth/death adjustment), read Alan Abelson's piece in Barrons.  Also check-out The Week and Bill Gary in Commodity Information Systems' Price Perceptions. For an interesting take on the recent Congressional Hearings (and Jim Roger's response) it is worth reading RIghtSide Commentary.