Capitalogix

Capitalogix Commentary 08/30/09

The market is strong right now.  How do I know?  Aside from the near-audible moan of bears, Price going up is a pretty good primary indicator. 

Kidding aside, other indicators are worth looking at here too.  One of them is the NYSE High-Low line. 

The following chart shows this market breadth indicator.  It is calculated at the end of each day by taking the number of NYSE stocks making New 52-week Highs and subtracting the number of stocks making New 52-week Lows. What is important to notice is the shape of the line - up is strong (or bullish), down is weak (or bearish).  Sometimes a picture is worth a thousand words.

You can view updated versions of this chart anytime on StockCharts.com at this link. For some context, after clicking the link, scroll down to see the weekly version of that chart.  For additional context, this link will show you what it looked like last November.

Our Rally Isn't Just Our Rally.

Below are a series of iPhone screen captures showing the daily performance of World Equity Market Indices from Bloomberg.  The thing to notice is that while the news media in America made a big deal about the market being up because of positive news in the housing market ... a quick glance around the world showed equal or bigger gains. This type high correlation continues to attract my attention.

How Far Have We Come?

Here is a chart showing Fibonacci retracement lines drawn from the high back in late 2007 to the low in November of 2009.  We are barely back to the second major retracement level ... and still a considerable distance from the 50% mark.

There is art and science involved in drawing Fibonacci retracements and extensions.  For example, where do you start and end?  Would it be better to have started from the highs in May or September of 2008 instead?  Click here for more Fibonacci Commentary.

Early Warning Signs?

Here are a few signs that the rally is getting a little worn-out.  There has been more volatility lately, and that can be a bearish early indication.  For the past few months markets have gone up, even on bad news (like the recent bank closings); however, this past week saw the first hints of markets selling-off after good news.  And we are coming into September, which is historically a week month for markets.

The trend is your friend, until it turns. 

A Little Humor.

Thought this cartoon about the Cash-for-Clunkers program ending was worth posting.

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

• U.S. M&A Sinks to 15-Year Low. (Reuters)
• Surge of Filings Signal Busy Fall for IPOs. (Reuters)
• The Investment Mistakes We Make & Why We Make Them. (WSJ)
• Credit Card Issuers Cutting Lending Limits. (Reuters)
• AT&T and Apple Admit To Limiting VoIP Apps. (MediaPost)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• After a 30-Year Run, Rise of the Super-Rich Hits a Wall. (NYTimes)
• NPR Offers New Type of iPhone News App. (Mashable)
• 8-Bit Trip, Nintendo-Inspired Stop-Motion Video. (eGuiders)
• The Evolution of Retweeting. (Technology Review)
• Know What You Don't Know: The Mindset of a Problem-Finder. (Wharton)
• More Posts with Lighter Ideas and Fun Links.

Augmenting Reality

Sometimes new technology seems like science fiction. Other times, science fiction introduces us to new technology.

I remember watching Minority Report and having a sense that I was watching a future closer than it seemed. There's a scene where Tom Cruise is walking through a shopping area and each time he passes a store there is a personalized ad; and in other scenes there is a "Terminator-Like" text that overlays the physically real world. That is called "Augmented Reality". 

Well, your phone may not be as cool as that, yet; however it's getting there pretty quickly.

The next picture doesn't look like much; but it's using the iPhone's built-in camera and GPS unit to recognize highly rated restaurants in real time. The application doing this is Yelp. This feature is currently hidden by default; but you can turn it on by shaking your phone vigorously, until the "Monocle" feature activates.

Soon, I imagine this will be enhanced further with a discount coupons and the ability to place orders before you walk in the door. Nonetheless, it's an example of what's coming.

Where Else Will This Be Useful?

Imagine what this could do to the real-estate industry (as price per square foot, tax rates, etc. overlay the properties as you drive by). Or, imagine traders looking at a chart displaying the most relevant indicators, patterns, setups, and triggers for the company or market they are analyzing.  It gives a whole new meaning to real-time business intelligence.

TechTracker is Worth a Look

Staying up-to-date just got a little easier.  CNet launched a new service that scans your PC and checks your installed programs to see if updates are available to you.

I tried TechTracker and found it to be fast, accurate and helpful.  They are coming out with a Mac version soon.  Here is an example screenshot showing what it alerted me to update.

Other Info:

I use a few other services, like this, that are worth a look also.

• Here is a link to Secunia's Security Vulnerability and Patch Scan;
• Here is a link to VersionTracker, a driver update service.

Using Time and Price to Trade the Markets

It is good to get a fresh perspective on the markets.

I spent some time with Carolyn Boroden this week. I've been following her work for the past six or seven years. She has an interesting trading style, using Fibonacci retracements and extensions as well as market symmetry.  Here is some of what she shared.

Carolyn measures various market swings, and projects likely areas of support and resistance based on where these retracement and extension levels overlap most frequently. By taking readings from various swings sizes, she is effectively incorporating multiple time frames and trading styles in her analysis.

She is a frequent speaker at industry events, and she has a website and live trading room where she provides market commentary.

Here is an example of her work on a daily chart of the Gold Market. 

 
Here's what she says about that chart.  Click here to watch a video she made of the analysis.

The low in this chart was made at the confluence of a .618 retracement, 1.618 extensions and two 100% price projections  (Alternate price projections  or APP's on chart)   Now we are at a decision on the way up....to fail or not to fail....If this area of resistance is cleared...the initial upside target for gold is at the 986 area....If we fail at the listed resistance...it's a low risk sale...

Also, click this link to watch a recent video she did explaining where she saw support and resistance off the March lows.

Further Info:

• Here is a link to her website: Fibonacci Queen.
• Here is a link to her book: Fibonacci Trading: How to Master the Time and Price Advantage.
• Here is a link to a video she did about Fibonacci Clusters.
• Click Here To Follow Carolyn on Twitter.

Capitalogix Commentary 08/23/09

Impressive action in the markets this past week.  While the markets climb a wall of worry, the bottom-line is that every time it has looked like a sell-off, recently, the market moves back up and punished the short-sellers.

I'm hearing talk of traders expecting a rally in the dollar.  I take that as "code" that they are expecting a downwards correction for the general market, but have been wrong about the rally ending for long enough to call it something different.

Put me in that camp too.  While I'm impressed by the strength and stamina this rally has shown, I am keeping a vigilant eye on the charts.

Here are three things that caught my eye this week.

1. Stocks Are Expensive Again.

Perhaps because of the rosy picture the recent rally paints, few notice the plunge in S&P 500 earnings. The chart below, from Chart of the Day, illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio).

Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s).

As a result of the recent plunge in earnings and the 5-month stock market rally, the PE ratio has spiked to 144 – a record high, and is currently at a still lofty 129.

Click here for a different perspective on the use of PE Ratios.

2. Declining Volume May Be Signaling Another Leg Up in the Rally.

I subscribe to Marty Chenard's StockTiming site.  He often has an interesting perspective on what's happening.  It is worth a look.  This is straight from his site.

To really understand what the market is doing, one must observe many different sets of data.  It is like a puzzle ... it isn't until you have enough pieces fitted together that you can get an idea of what the picture is going to be.  There are always key pieces that add especially critical information.

The stock market is no different ... there is enough different kinds of available data for a person to drown in confusion.  It is why focusing on smaller amounts of key data is important.

For instance ... the amount of, and the trend of Declining Volume on the New York Stock Exchange can be a critical piece of data.  

Take a look at today's chart which shows the Declining Volume of the NYSE.   You know, that if Declining Volume is increasing, then it would make sense for the stock market to move lower.

So, in other words, they move opposite to each other.   I always like to see charts where the information flows in the same direction, so we invert our Declining Volume charts. 

In this way, we see the stock market's action relative to what the Declining Volume's action should be telling us about what to expect. 

So here is our inverted, NYSE Declining Volume data chart.   Take note of the vertical lines and how the NYSE's daily movements correlate with the Declining Volume's action.   Pretty neat data, isn't it?

* Note: The data presented is as of the close this past Wednesday.  Do notice, that although negative, the Declining Volume has been improving by decreasing during the past few days. 

3. Wolfram Alpha Has Some Helpful Data for Traders.

Here is a screen capture from Wolfram Alpha's new stock comparison feature.  This compares many things about the two companies; in this case IBM and Accenture.  Obviously, you can compare other companies.  This was just to give you an idea of what it can do for you.

I have been using Wolfram Alpha more recently.  They keep adding new things; check it out. 

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

• Is Liquidity the New Volatility as a Timing Tool? (BigTrends)
• Professor Buffett's Tongue-in-Cheek Butterfly Effect Lesson. (Street)
• Are We in a Bull Market Yet? Why Technicians Say "No." (Barrons)
• U.S. to End Clunker Rebates This Week. (Reuters)
• In New Phase of Crisis, Securities Sink Banks. (WSJ)
• Starbucks Lowers Price Of Some Drinks To Stimulate Demand. (Reuters)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• How Technology Is Changing the Face of Innovation. (WSJ)
• IBM Uses DNA to Make Next-Gen Microchips. (Reuters)
• iPhone App Allows USAA Bank Check Deposits. (eWeek)
• Why Exercise Won't Make You Thin? (Time)
• The Art of Sprinting: In Business and Life. (Genius Catalyst)
• A New Look Inside Babies' Minds Reveals Much. (Time)
• More Posts with Lighter Ideas and Fun Links.

Is Knowing Why and How Enough?

Over the years, I've used a number of different assessment tests on myself and our team. It's a great way to help people better understand a each other and the different forms of communication and problem solving styles we use.

Here are several of the tests that have proven themselves time and again:

1. Kolbe: measures a person's instinctive method of operation, and identifies the ways they will be most productive.
2. Myers-Briggs: identifies personality styles and temperaments.
3. StrengthsFinder: helps people uncover their talents, so they can do more of those things each day.

Recently Janine de Nysschen from whytelligence introduced me to a new tool.  She helps people perform better by getting them to understand the "Why" and "How" patterns driving them. Janine believes every person has a core sense of purpose that drives their beliefs and behavior, and a logic pattern that is hard-wired into how they think and decide.

The whytelligence process helps people discover their distinct purpose, and shows them how embracing and leveraging that can help them thrive and succeed with less effort or resistance.

What Can You Learn from whytelligence?

Janine's starting point was clarifying "Why" I do things. She identified that I like to help people see what's real (though often hidden), and then show them how that truth about themselves or what they are doing can help them. During her next step in the process, here is how she described my "How" pattern:

• First, you confront positions. You listen, you observe, but then you question and you challenge.
• Second, you re-frame the thinking. Most of the time, you do this using stories or metaphors; but sometimes you use practical experiences too.
• Third, you reveal the new paradigm. You get people to re-state their positions in light of what you have helped them understand.
• Fourth, you help people put it into practice. You find opportunities or tell them about options for them to use their new paradigms, knowledge, and experience.
• Finally, you measure response.  You will try the applied intelligence, the new technique, or better way - but they have to produce a certain level of value and give you the sense of peace, fulfillment, success, etc. ... or it's back to the drawing board.

If you know me, then you probably recognize that pattern.  After she pointed it out to me, I recognize that I use it often in my business and personal dealings.  It is how I argue, and how I help people. As a coaching point, Janine points out that my first step often is to confront; and that by becoming aware of it, I can soften its delivery for greater impact.

This How pattern also defines my work.  In many respects, my job is to decode the logic moving the markets, and to translate that into easy to follow trading systems. This makes sense and is a great fit given my Why and How patterns.

However, Janine then asked if I ever get so focused on finding the right tool or technique to get to a better solution, that I sometimes I forget to look for an endpoint? If you know me, then you probably recognize that pattern too. 

Awareness Is the First Step of the Next Step.

In other words, the How pattern can become such a powerful habit, that sometimes it runs by itself.  That's interesting information to know. Consequently, recognizing that it is running is important ... as are the questions: 'Does it need improvement?' and 'Would breaking-out of it serve you better'?

And in keeping with my pattern, it made me think a little bit deeper. In a sense, knowing about your pattern shows you how and why you get what you tend to get. However, if you want to get different results, then you need to change, or perhaps transcend, your habitual patterns in a way that lets you get better results.

Knowing your Why and How patterns can be a great first step towards making those changes happen.

For More Info:

• Here is a link to another article about whytelligence called "Discover the How to Your Why".

An Experience Worth Paying For ...

What does $1.2 billion buy nowadays? Apparently, an amazing stadium that will change the way you experience events.

As I was leaving the first preseason football game played in the new Dallas Cowboys stadium, one of the guys I went with said "that was the best football game I've ever seen." He was wrong; it was, however, probably the best experience he's had at a football game.

I've been to hundreds of professional sporting events. Yet, Jerry and Stephen Jones, HKS Architects, and the rest of the team that built that stadium found a way to surprise and excite me, while exceeding my expectations on almost every level.

Years ago, I read a book called "The Experience Economy: Work Is Theater & Every Business a Stage", which explains that as the world cascades towards sameness, a business can achieve a sustainable competitive advantage by differentiating the experience it provides to its customers. The Cowboys have done that with this stadium.

There's a certain amount of theater, pageantry, and spectacle that you expect from a professional sporting event. Even the word "event" implies that, doesn't it?

Well the Cowboys got it right; and it was larger than life.  Watching people as they walked in the stadium, it was amazing to see how many of them said "Wow!" And during the game, I can't tell you how many times I heard somebody say "this is incredible" ... and they weren't talking about the game.

Do You Watch the HD Screen ... Or the Field?

A few weeks ago I wrote about the stadium.  This time I'm writing about what it is like to attend an event there.  One thing worth noting, the GINORMOUS HD video screen is so clear and so large that it changes how you see the game (I certainly never paid attention to cheerleaders before this, and the video is so clear you can literally read the tattoos on a player's arms during a play).  Frankly it was slightly unnerving because I couldn't figure out how best to watch the game. I found myself drawn to the massive video screen rather than the field. I literally had to train myself to watch the play on the field, and then to allow myself to look up to see the replay (often from multiple angles).

You know how some movies whisper "wait for the DVD" while other movies were clearly built for the Big-Screen. This stadium changes how you consume a live event product (like an NFL game), and makes it worthwhile to be there.

It is hard to control what happens on any given Sunday, but with this, the Jones have created a sustainable brand promise and set a new standard.

You've got to experience it for yourself. 

My guess is that it will change stadiums around the world. Bravo.

For More On This:

• Here is an Article Giving a Different Perspective on the Stadium.
• Here is the NYTimes Take on the Video Board.
• Here is a DMN Article Getting Reviews From Fans.

Habits: Too Much of a Good Thing?

Do You Have a Habit of Creating Habits?

I do; I'm a creature of habit more often than I like to admit.

For example, I tend to order the same thing at restaurant each time I go there. So, when I want good pizza, I go to Parma's; and when I want a great burger, I go to Mooyah.

By the way, that is a picture of my son eating a 4-Stack, one-pound burger (and me remembering when I could do that too).

Habits happen at work too.  As a trader, I draw charts a certain way, prefer certain patterns, and respond predictably to certain emotional triggers.

What habits do you have?   Perhaps more important to ask is: What percent of your habits have become so habitual that you no longer notice that they are habits?

Relying On a Routine is a Blessing and a Curse.

I'm typically a happy person. I feel like I roll with the punches well. Part of that is "true"; and a bigger part is due to creating a routine that supports my natural rhythms.

An Exception Highlights the Rule: This week my brother had a baby, and I made a quick trip to LA with the family to celebrate. Even though it was a happy occasion, it is pretty clear that when I travel, and my routine is interrupted, I am much easier to upset.

On the other hand, I'm also much more likely to experience something new when I'm taken out of my routine.

Too Much of a Good Thing. How Can Relying On Your Best Qualities Hurt you?

How many opportunities to create something better do you miss because you like doing what you are doing?  A related question is how many opportunities do you miss because you don't recognize the rut you are in?

There are several types of progress; for example, Process Improvement and Discontiguous Innovation. In Process Improvement, creating habits and routines is the stated purpose ... choosing the right ones is the art.  With Discontiguous Innovation, it is about leaving the old behind and simply finding a way to get a better result. In my experience the hardest part often simply is remembering that there might be a better way.

Routine is fine as long as it is a conscious choice. Otherwise, it can limit your options unnecessarily.

Capitalogix Commentary 08/16/09

The unemployment numbers came in slightly better than expected, and the market reacted very favorably. Then quietly, adjustments were made for other months, which were very unfavorable. Moreover, examining recent numbers a little closer suggests that some portion of the slowing growth of unemployment is probably due to the way the number is constructed. Some people are being dropped from the ranks of the unemployed, even though they haven't found jobs, because their unemployment is now long enough that they no longer qualify for benefits.

Market Commentary.

There has been a lot of bad news in the press lately.  Nonetheless, the markets have held up well. There have been several sharp drops, which made me expect much worse; only to be met with another rally. As much as my gut wants to warn about "head fakes" and "finding the last buyer", this is the type of market action we see during bull market trends.

Comparison of World Index Performances.

The next chart shows how some of the big, thickly-traded, world equity indices (like the DAX, CAC, and FTSE) have performed year-to-date.  I like using a chart like this to get a sense of the bigger picture.  Last week's chart showed that the Emerging Markets have done much better so far this year.  Both charts show highly correlated trading.

The chart is interactive; so by clicking the picture, you can drag the yellow-highlighted date range slider to see how the change plays-out over time.  Try going back 232 days (which is the past year of trading days).  You can also add or change the markets this comparison uses.

Disaster Readiness.

"If this were an actual emergency" ... would you have learned anything from the events of the last year?  As a trader, I've been burning the midnight oil and studying the bear market data to figure-out which of our systems held-up best during those periods.  In addition, I'm looking for early indicators that would signal a phase shift out of the bullish trend.

Governments are probably going through a similar exercise, even though the Fed says the recession is ending and that it would take a step back toward normal policy as things return to normal.  Frankly they'd hope so, because the alternative is pretty scary.  How many things are left in their bag of tricks?

Exchange Certified Bullion.

Coincidentally, I'm hearing a lot more about investors and hedgers taking delivery of precious metals, like gold, silver, platinum, and palladium. Why? Apparently, unlike ETFs (like GLD), buying Warehouse Depository Receipts conveys title to specific, numbered, metal bars, which means they are not reportable as financial assets, yet you can still pledge them as collateral or sell call options against them.

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

• Fed Holds Steady and Moves to End Debt Buying. (NYTimes)
• What Happens If the Fed Takes the Economy Off Life Support? (Forbes)
• Lowry Research’s Intermediate Trend Buy Signal. (TradersNarrative)
• Prechter Expects Dollar to Rally for Next 3-Years. (OutlookProfit)
• Judge orders Microsoft to stop selling Word. (CNet)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• FriendFeed Updates Status: Married to Facebook. (NYTimes)
• Hold Innovation Tournaments to Find the Most Promising New Opportunities. (Wharton)
• Sony Adopts Open Book Strategy Against Amazon. (MediaPost)
• Mobile Phones Get Augmented Cyborg Vision. (BBC)
• DriveSharp Claims It Can "Train the Brain to Think and React Faster On The Road". (WSJ)
• More Posts with Lighter Ideas and Fun Links.

What If You Outsourced Your Job Overseas?

News satire from The Onion. It is funny, well done, and like most good humor ... it has an insightful kernel of truth.  This one provides a different perspective on employment and outsourcing.

More American Workers Outsourcing Own Jobs Overseas