Capitalogix

Weekly Commentary through September 26th, 2008

This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.

So what is it going to take for the markets to finally bounce?  History shows that most intermediate or long-term bottoms are characterized by panic selling, hopelessness, and people simply giving-up.  If that is the standard, then we may be close.

Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:

• This week reversed most gains from the prior week's rally and short-squeeze.
• The markets continue to flirt with lows for the year. 
• Because of the volatility and gaps, trading simply hasn't been normal recently. 
• The economy and the markets dominate news and popular culture. 
• This week, the President of the United States basically said that if a radical bail-out wasn't done, right now, it would damage our economy - and many others across the globe. 

However, as bad as the markets did last week, they held up reasonably well considering how much bad news there has been and how close to the edge things really were (or are). Also, while markets went down, it was on lower volume than last week, and we didn't break last week's low. 

The Calm After the Storm.  It's also probably worth noting that, historically, periods of great volatility are often followed by periods of much less volatility.

With that in mind, I do believe that the government will reach a reasonable compromise to end the "Deal - or No Deal" situation very quickly. It's also likely that this agreement and the liquidity that it brings will give the markets some room to breathe and some fuel for a meaningful rally.

On the other hand, there is a long way to go from here to recovery. Some people see this as the end of the crisis. At best, I see this as the end of the first step on the road to recovery.

You Can't Bounce Until you Hit Bottom.  There are many corollaries in nature. This troubling time created a clearing. Much of the fear, uncertainty, doubt, and baggage from past mistakes are being wiped away. Firms are closing, the landscape is changing, Wall Street and our economy will literally never be the same again. And, yet, this kind of clearing is often the catalyst to new beginnings and fast growth.

Noise Reduction.  When creating automated trading systems, one of the things that becomes increasingly important is to recognize the difference between signal and noise. Right now, there's a lot of noise. The markets, market players, and even governments are spooked. Under those circumstances, it doesn't take much to stir things up.

The bailout and worldwide cooperation can be looked at as noise reduction. Temporarily, there will be a forced and tenuous peace. The hope is that as things calm down, people will make decisions from a stronger position (or at least from a position that's less fearful than where they are now).

Remember, a journey of a thousand miles begins with one step.  Here's to progress.

Weekly Commentary through September 19th, 2008

Wow!  That was some week.  As I went back through what happened, it is hard to believe it all happened in one week.  There was:

• the Nationalization of Fannie Mae, Freddie Mac and AIG;
• the Lehman Brothers bankruptcy;
• Bank of America's purchase of Merrill Lynch; 
• historic government actions and regulations to reduce short-selling;
• massive government intervention on a worldwide scale;
• a Fed meeting;
• Government discloses a plan to buy-up the bad assets;
• billions of dollars of liquidity pushed into the market; and
• an incredibly aggressive short squeeze.

Here is what it looked like on a weekly chart of the Dow.

Wall Street experienced several of the best and worst days in its history.  Fear spiked early in the week, and there were two days that saw markets lose about 5%.  Individually, each of those down-moves was bigger than anything we've seen since 9/11. Then after what many will call a Key Reversal Day, there was a breakaway gap higher of more than 4% on Friday. 

Somehow, foreign markets were even more volatile. For example Russia's RTS Index had a 17% loss in one day, and had trading halted for two days, only to gain 22% when it opened again on Friday.

It all happened last week.

So, where do we find ourselves?  Somehow, pretty much where we were at the beginning of the week.  Except you know something important happened.  It even trickled down to Saturday Night Live.  This week there were several SNL skits related to the market and the market action.  People were spooked.  More importantly, governments were spooked.

We are witnessing unprecedented market action.  I suspect that they will be writing about this period in history books.

Hopefully the actions taken by the government will ultimately have a positive impact. From a trader's perspective, it sure hasn't been easy.

So, how did the interventions affect the markets. One way to see is to look at how various sectors performed this week. This chart, from Bespoke, shows that Financials and Energy were the beneficiaries this week.

Here are a few of the posts I found interesting this week:

• Bush Defends Bail-Out (WSJ)
• "The Week That Changed American Capitalism" (Big Picture)
• Chart Showing Big Gains in Global Markets late last week (Bespoke, FT, NYTimes)
• Does Thursday Qualify as a Key Reversal Day? (MarketWatch, Quantifiable Edges)
• VIX Spikes to 42 on Fear last week (VIX and More)
• A Market Indicator that Shows What Panic Looks Like (Trader's Narrative)
• Swenlin Analyzes recent charts looking for perspective on the Bottom (Decision Point)
• How common is a week with multiple daily losses greater than 4% ? (Bespoke)
• Short-Selling Ban Spreads to Foreign Markets (Big Picture)
• Treasury to Guarantee Money Market Funds (Intl. Herald Tribune)
• Treasury Seeks Authority to Buy $700BB of Toxic Assets (Bloomberg)
• Interactive graphic of $1.86 Trillion of Losses in the Financial Sector this year (NYTimes)
• Goldman Sachs and Morgan Stanley to become Bank Holding Companies (WSJ)

And, a little bit extra:

• SEC Bans Frowning (Financial Sense)
• How Wall Street Lied to Its Computers (NYTimes)
• How close did we come to Armageddon in the markets (NY Post)
• Here is the text of the Plan Paulson presented to Congress (Kedrosky)

Tune-Up Your iTunes Music Collection, Automatically

For years I took my music collection for granted. I ripped many of my old CDs to disk, and simply allowed the computer to save the information anyway it chose to. Over time, it became clear that there were mistakes, missing information and, in general ... a mess.

After several limited attempts to clean my collection manually, I started looking for a better way. I certainly found something that worked for me. It's called Tune-Up.

Tune-up is a software add-on designed to clean your iTunes music collection. For me, that means fixing and standardizing the artist, album, song titles, and other data that helps me find the right music for my mood. I also appreciate how well it finds and updates cover art for songs and albums.

Tune-Up accomplishes a lot of its magic by connecting to various data services (like Gracenote's MusicID).  While Tune-Up does most of the heavy lifting, I appreciate that it allows me to have the final say. It's very easy to accept its suggestions; yet, I still have the ability to ignore or override it based on how I want my music categorized.

There's also feature that recognizes the song you're playing and displays other relevant information, like related concert dates in your area, links to videos by the artist, and recommendations about other songs or albums you might like.

Bottom line:  This tool saved me a lot of time and works better than the other tools I've tried.

If you don't use iTunes, or just want to check-out another good alternative, you can also look at MediaMonkey. And if you want a clean your music collection by finding duplicate tracks or to clean-out entries where you deleted or moved the actual music file, I recommend looking at Marklesoft's Dupe Eliminator.

Weekly Commentary through September 12th, 2008

Volatility has been much higher than normal.  For example, the S&P 500 index rose or fell by more than 2% on five of the nine trading days so far this month.  There were only six such days during the last 4½-year bull run.

Yet, for all that violent flip-flopping and massive gaps in both directions, the stock market ended last week essentially flat.

We are back near the lows for the year.  Bears had a great opportunity to plunge through important psychological levels. Everything turned red for the ride down; and then the market reversed again. Part of me wonders whether short-sellers didn't press their luck because they "fear" another Sunday bail-out (in some form or fashion).

The big news this week was about the fall of Lehman.  Here is a simple chart showing what happened to their stock this year.

As I write this, it looks like Lehman is filing for bankruptcy and that Merrill Lynch is getting sold to Bank of America.  Futures are down.

However, a big, quick, move down - here - might be the best thing to hope for if you are bull.

Here are a few of the posts I found interesting this week:

• U.S. Gives Banks Urgent Warning to Solve Crisis (NYTimes, WSJ, Clusterstock)
• Bank of America Buys Merrill Lynch (NYTimes, WSJ)
• Locusts: Shorts Moving On to AIG and Others? (Seeking Alpha, Naked Capitalism, NYTimes)
• Federal Reserve announces additional support for the markets (Federal Reserve)
• Is the latest bailout working?  Someone thinks so (Bronte Capital)
• Russian Market Down 50% Because of War and Falling Oil Prices (NYTimes)

And, a little bit extra:

• Sweet Dreams in Hard Times Add to Lottery Sales (NYTimes)
• Niederhoffer's Ten Principles of Cricket and Market Power (Daily Speculations)
• Wisconsin man eats 23,000 Big Macs since 1972 (Chicago Tribune)
• Lehman Replaces Palin as Wikipedia Plaything (Infectious Greed 1 and 2)
• McCain leading Obama in prediction markets and polls (Kudlow, RealClearPolitics)
• Retailers Using Software to Increase Sales and "motivate" employees (WSJ)
• Has the large Hadron Collider destroyed the world yet? (Click)
• Biologists on the verge of creating a new form of "life" (Wired)

Tough Week?

Last week I wrote that trading is often stressful; and learning how to handle the emotional and physiological response patterns is an important step toward long-term success.

This week the markets were at their manic-depressive best, which can be tough for traders.  Investors were like hyperactive first graders playing musical chairs.

Here are some funny videos of how some people handle their tough week.

The first video shows a man beating his computer.  There is something primal about it that makes it memorable.  I saw this many years ago.  Yet I find myself thinking about this one from time-to-time.  So, I put it first.

Here is the direct link.

I saw this one on on the Huffington Post.  It has a lot going on; way too much to describe.  It is more fun to just watch, anyway.

Here is the direct link.

Finally, this one shows a man in a coffee shop freaking-out after his computer hangs, apparently he has a presentation to give in ten-minutes, so getting arrested seemed like a good idea.

Here is the direct link.  (Hat-Tip to Gelflog)

Another Type of Image Toy - Deep Zoom

The new Deep Zoom technology in Microsoft's Silverlight is pretty cool.  The smooth in-place zooming and panning that Deep Zoom allows is a true advancement and raises the bar on image viewing. High resolution images need to be prepared for use with Deep Zoom to control the zooming experience.

Here is an example.

Also, here are three links worth exploring about Deep Zoom:

• This is a Deep Zoom site of Hard Rock Café Memorabilia (Hard Rock)
• This is a Barack Obama supporter site using Deep Zoom (Obama)
• And finally, here is a demo of a web site designed for Deep Zoom (Vertigo)

If you want a little more background on this, here is a post about why this technology is new and different.

Help Your Body to Calm Down - And Your Mind Will Follow

 

Trading is often stressful. Learning how to handle the emotional and physiological response patterns is an important step toward long-term success.

During market turmoil, sometimes I notice the seeds of fear, uncertainty, and doubt in my body. Rather than succumbing to this, I have developed a number of coping practices and techniques.

• The first is simply to follow our trading rules and trust in the process;
• The second is to rely on automation as much as possible;  and
  
• The third is to recognize that my body's cues are an important signal for me to take action.

One of the best ways of coping with stress, for me, is to exercise regularly.

Have you ever noticed how animals shake or tremble when they are traumatized? These physical activities may be nature's way of helping discharge stress hormones, purge excess energy and release muscle tension.

For humans, exercise is a pretty close analog to this. I know that I feel better after an hour of brisk activity to get my heart rate up, to sweat, and then to calm down. Somehow this tells my body that the agitation was expected; and now the relaxation is a good and appropriate response, too.

Another technique that works for me is to use music enhanced with tones to help me meditate or relax.  An example of this is the Centerpointe Holosync package.  Another set that I enjoy is Hemi-Sync music from the Monroe Institute.

When I get really stressed, though, my wife tells me that it's time for me to use my "light and sound machine." I think my using it helps her as much as me.

As the name implies, it combines visual and audio stimulation.   So, how does it work?  The short answer is that brain activity naturally falls in-sync with lights flashing at a certain frequencies. And you can encourage certain brain wave patterns by controlling the frequency, color and intensity of the pulses.  Supplementing this with a similar technique based on sound compounds the effect. 

Most of these devices include small LED lights mounted in a pair of eye glasses and headphones. The lights and sounds synchronized by a small control unit.  The mind machine that I use, called a Procyon, includes 50 unique, pre-programmed light and sound stimulation sequences within its internal memory, each designed with a specific goal in mind (for example, relaxation, concentration, accelerated learning, creativity, or rejuvenation). Procyon also has the ability to synchronize with audio material on a CD or MP3 - or with AudioStrobe programs.

Behind your closed eyelids you will see a kaleidoscope of color, layers of fractals and a variety of screensaver-like imagery. Once you get used to it, the experience is quite pleasant. 

It's pretty foo-foo; so I'm not going to pretend that this is 100% scientific and logical. Nonetheless, I believe that it is a lot more than a placebo.  Why? Because I have empirical evidence that it works.

Most importantly, I feel better after I do it. In addition, a biofeedback machine (which measures brain waves, pulse, galvanic skin response and other stress indicators) confirms that the light and sound machine works dramatically and quickly.

It works on almost everyone I've watched try it (and I've done this with CEOs, programmers, traders, staff members, and a bunch of others). However, it does not work on people who fight it.  And I am amazed at how many people fight it, initially.  After a few minutes, most simply let go and let the technology un-ruffle their feathers.

 The possibilities are great, and the technology is effective. However, the only way to truly appreciate the light sound experience is to try a mind machine for yourself.

Weekly Commentary through September 5th, 2008

The bailout of Freddie & Fannie should breathe some life into markets that needed a lift. 

That means stock markets around the world are breathing a little easier after a tough last week. For example, Russia and Taiwan each lost over 10%.

Sometimes a picture is worth a thousand words.  This chart shows how the NASDAQ fared last week.

The chart doesn't need fancy indicators or words to tell the market's story: it went down.

Last week I said a move down, here, wouldn't surprise me.  We got more than I expected, because it was unrelenting.  After a big gap-up to start the trading week, it was straight down from there.

Now for the S&P 500 Index. 

This chart shows the monthly displaced moving average channel for the S&P 500 index. It typically acts as support or resistance to the markets longer trend.  Notice how the attempted rally in August moved the index closer to the channel; but the market wiped-out that effort in just a few days of trading. 

What about the Dow Jones industrial average?  Which economic anxieties were the catalysts as the Dow plummeted 344.65 points on Thursday ?  Was it that initial unemployment claims were near a 5-year high, the weak retail sales report, or fear of a global slow-down?

There is probably a little more work to be done on the downside, setting-up a decent bounce.  Again, historical patterns show a year-end rally typically starts in late September or early October. And the 4-year Presidential cycle pattern also favors a year-end rally.

Here are a few of the posts I found interesting this week:

• U.S. Near Deal To Save Freddie and Fannie (WSJ, Washington Post)
• Another Bank Fails: 11th this year, as Regulators shut Silver State (WSJ, FDIC)
• Swing-Trading the Sell-Off (TradingMarkets via Forbes)
• Who's afraid of Sovereign Wealth Funds? (Minyanville)
• James Surowiecki on "That Uncertain Feeling" affecting the herd of investors (New Yorker)
• Unemployment hits 6.1% and a closer look doesn't make it prettier (Dash of Insight, Portfolio)
• Bank of Canada Offers a Downbeat Outlook while holding rates steady (NYTimes)
• Did governments work together to save the Dollar? (Clusterstock)
• BMW sales up 2% last month, year-over-year (Bloomberg)
• Doug Kass says this is what market bottoms look like (Street.com)
• Trader Mike says we're not oversold yet (Trader Mike)
• McCain speech seen by record number of viewers (Bloomberg)
• Apple's iPhone making gains in business users (WSJ)
• Yahoo Below $19: Microsoft's $31 Offer is Looking Pretty Good Right Now (Silicon Alley Investor)

And, a little bit extra:

• Technology That Out-thinks Us: A Partner or a Master? (NYTimes)
• Numerati: How math models improve productivity and management (BusinessWeek)
• Lines and Bubbles and Bars, Oh My! New Ways to Sift and Visualize Data  (NYTimes)
• Microsoft has been granted a patent on 'Page Up' and 'Page Down' keystrokes (ZDNet)
• Invisibility Cloak becoming a reality; the challenge is seeing out of it (New Scientist, More)
• Facebook's hottest games (Forbes)
• Hulu Getting NBC Shows Before TV Does (Silicon Alley Investor)
• ESPN and Electronic Arts Innovating Play-By-Play Commentary (NYTimes)
• Google developed its own web browser called Chrome (CNet, WSJ)
• Andy Kessler's take on what Google is really doing with Chrome (Andy Kessler)
• Is the first Jerry Seinfeld ad for Microsoft funny?  You decide (NextWeb)
• Download Limits: Is "all-you-can-eat" Internet a thing of the past? (ABC)

Weekly Commentary Charts through August 29, 2008

Another week of big swings in thinly-traded markets.  There is a trading range in the S&P 500 where the bears defend the top (1295) and the bulls defend the bottom (1260). So far, no one is winning. Let's see which way things break; though a short-term move down here wouldn't surprise me.

Historical patterns show a year-end rally typically starts in late September or early October. The 4-year Presidential cycle pattern also favors a year-end rally.

Here are a few of the posts I found interesting this week:

• Lehman in urgent talks to secure a capital injection before earnings call (UK Telegraph)
• Worker Confidence sinks to levels of last recession (WSJ)
• Nightmare on Wall Street: Why the Credit Crisis has lasted so long? (Economist)
• Candidates on the Credit Crisis (Dash of Insight)
• Does history favor Democrats' economic plan? (NYTimes)
• Victor Niederhoffer on why the Markets continue to surprise him (Daily Speculations)
• A positive sign for markets: 64% of stocks above their 50-day averages (Bespoke)
• Is the "Bearish Crescendo" a contrarian sign of a market Bottom? (Shaeffers)
• Ten factors that contribute to Market Mood Swings (Seeking Alpha)
• To make a stock "pop" - Innovate (NYTimes)

And, a little bit extra:

• Great Photos from Beijing Olympics (Boston Globe, LA Times, Time, FT,The Star, S.I.)
• The Business of College Football is probably Bigger than you think (Forbes)
• Does it Matter that Internet Traffic is beginning to bypass the US? (NYTimes)
• Interesting comparison of housing market price declines in various cities (Bespoke)
• Obama's acceptance speech for Democratic Presidential Nomination (Politico, Many Eyes)
• Air-Ball: Game Ball Delivered by Parachute; Skydivers land in Wrong Stadium (Inquirer)
• Microsoft releases beta of a major new version of Internet Explorer (WSJ, Microsoft)