Capitalogix

An Oversold Market Doesn’t Always Bounce

Our markets remain oversold on short-term charts.

However, while last week was tough on the Markets, a quick glance shows that selling was relatively contained.

 

Without committed sellers, it won't take much to prop things up again.  However, without the liquidity of organic buying, the Markets remain vulnerable to fear, uncertainty and doubt.

As you know, the news out of the Euro-zone has not been good. There are bank problems, an inability to agree on solutions, yields rising, and sentiment crumbling. As a result, traders worry that we'll miss this year's Santa Claus Rally. Nonetheless, conventional wisdom says not to short a dull market. 

At a time when interest rates are historically low, we are seeing strong out-flows of cash from funds and almost no new money entering to buy stocks. At this point, it seems as though people are more interested in 'not losing' rather than worrying about how much they can make on their money.

This is when careful trading trumps hopeful seasonality.  Consequently,  expect traders to be on the look-out for short-term opportunities and diversification into other markets.

 

Related articles

• Guest Post: A Glimpse Into The Future Of The Stock Market And Dollar (zerohedge.com)
• Investor Sentiment - Looking Ahead (investmentpostcards.com)

Were You Actually Grateful or Thankful This Weekend?

This Thanksgiving weekend, a friend called to say he was reaching out to the people he was thankful for - and just wanted to let me know how he felt.

My mind immediately began thinking about what else the call could have been about? I remembered that I intended to send him a book. I thought about the last time we talked. And then it hit me, he was actually exercising his ability to be thankful.

Wow, what a concept.

Were you actually grateful and thankful this weekend?

It is a choice. It is a habit.  For me, it is something I aspire to exercise more regularly ... What about you?

Looking back over the past few weeks, I recognize that I have been pushing hard - with a focus on finishing the year strong. Maybe it's time to recognize how much progress was made and intentionally focus on making people feel appreciated and capable instead?

Scar tissue, resentment, frustration, and fear are unnecessary and counterproductive. It's time to figure-out what feels good and do more of it.

With that in mind, here is a picture of me with my awesome wife and oldest son at the Cowboys game.  We had a great Thanksgiving.  Hopefully, you did too.

 

 

This public service message has been presented by the part of me that knows better. Hopefully, the part of you that knows better will notice it.

Have a great rest of the year.

Here Are Some Interesting Links for Your Long Weekend Reading

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• Jeff Bezos Owns the Web in More Ways Than You Think. (Wired)
• Tattoo Barbie. Really? The perfect gift for an enemy's daughter. (Forbes)
• Top 50 Most Motivational People on the Web. (Under30CEO)
• CIA Mines Social Media Data. The 'Ninja Librarians' Are Watching. (DNews)
• Science Is Sure - Smart People Are More Prone to Use Drugs. (Atlantic)

Trading Links:

• A Behind the Scenes Look at MF Global's Last Days. (SeattleTimes)
• Here Are the World's 29 'Too Big to Fail' Banks. (TheAtlantic)
• Obama to China: Behave Like a 'Grown Up' Economy. (CNBC)
• Algo Trading Continues to Pick Up Pace Despite Challenges. (OptionsCity)
• 3 Reasons Why CEO Confidence Surged in November & Why It Won’t Last. (CEO)

Around the World in 3 Minutes - Watch the Move, Learn, and Eat Videos

Inspiring and Fun!  Seems appropriate for the start of the Holiday Season.

Beware, these three short videos may encourage you to travel, learn something new, move your body, or create something.

3 guys, 44 days, 11 countries, 18 flights, 38 thousand miles, an exploding volcano, 2 cameras and almost a terabyte of footage… all to turn 3 ambitious linear concepts based on movement, learning and food.

Click to Watch.

 

MOVE from Rick Mereki on Vimeo.

 

 

LEARN from Rick Mereki on Vimeo.

 

 

EAT from Rick Mereki on Vimeo.

 

How Do You See the Coming Week for the Markets?

From a chartist's perspective, the S&P 500 Index broke out of its recent triangle pattern by moving lower.  This was an unpleasant surprise for bulls, because triangles are most often considered a continuation pattern. As such, when the pattern ends, prices are normally expected to continue in the direction they were trending before the continuation pattern (consolidation) began.


In this case, the breakdown casts a bearish pall on a picture that been bullish since the October low.

A positive aspect to the price breakdown is that a number of ultra-short-term indicators hit climactic oversold readings the same day. On the chart, above, we can see how these oversold spikes generally coincide with the start of rallies of at least short-term duration.

Carl Swenlin at DecisionPoint explains that climaxes are often a sign of either initiation or exhaustion. An initiation climax signals that price will begin moving in the direction of the climax, while an exhaustion climax occurs at the end of a move. Immediately following a climax, prices can chop around for a day or two before the follow-through begins.

So, was the breakdown actually a shakeout, intended to turn people bearish just ahead of a rally?

Unfortunately, we are still on a longer-term sell signal, which means things could be about to get nasty again.  The following chart shows a weekly view of the S&P 500 Index.  Notice that price could not get back above the up-trend line (marked by the green arrow) or the overhead support-resistance line (marked by the pink highlight).

 

 

Other clues? Historically, this is a seasonally bullish time.  And trader talk is that markets may pop on a significant government intervention we are likely to see. 

All-in-all, it points to another interesting week.

 

Related articles

• Many Triangles Break Down (by Springheel Jack) (slopeofhope.com)
• How to Trade This Headline Driven Stock Market (zerohedge.com)

The World Economic Collapse Explained in Less than Three Minutes

Can a funny video really explain Europe's economic woes?

It can if it asks how and why broke economies lend money to other broke economies that can't possibly pay them back?

It is an entertaining video.

 

 

This would be funnier if it wasn't so true.

What Good Interview Questions Are Actually Trying to Discover

Image via CrunchBase

When you interview someone for a job, what are you trying to find out?

I've seen and used models that assess how someone likely will fit the Culture, and whether they are Organized, Competent, and Motivated?

Seth Godin often has an interesting perspective on business.  Here is what he shared about this topic.

What good interview questions are actually trying to discover.

• How long are you willing to keep pushing on a good project until you give up?
• How hard is it to get you to change your mind when you're wrong?
• How much do you learn from failing?
• How long does it take you to learn something new?
• How hard is it for you to let someone else take the lead?
• How much do you care?

The rest is merely commentary, either that or they're interviewing someone for a job that's not as good as they deserve. For those jobs, the only question they're really focusing on is, "will they fit in around here?"

If you like that, you might like this too.

What Matters Now - eBook from Seth Godin

The book highlights more than seventy big thinkers, each sharing an idea for you to think about. From bestselling author Elizabeth Gilbert to brilliant tech thinker Kevin Kelly, from publisher Tim O'Reilly to radio host Dave Ramsey, there are some important people riffing about important ideas here.

Download it here.

Just because you're a paranoid trader doesn't mean the markets aren't out to get you

The good news is that the Markets have responded well to much uncertainty.  Moreover, without committed sellers, it has been easier for prices to get pushed higher.  The bad news is that the uncertainty comes from real issues. 

I'm reminded of the phrase: "Just because you are paranoid, doesn't mean people aren't out to get you."  Here are two things that to watch.

The Continued Risk of Default in Europe.

So far, none of the European austerity and bailout plans have not managed to stem the European debt crisis.

Some would claim that the severity of the crisis has only increased over time, given that Italy (the world's eighth largest and the euro zone's third largest economy) is now becoming the latest European nation threatening to require a bailout.

The following chart helps illustrate the risk of European debt by plotting out the 10-year government bond spread for all the PIIGS (i.e. Portugal, Italy, Ireland, Greece, and Spain) from 2007 to the present (versus the German Bund).

 

For example, (at the time this chart was constructed) the Greek 10-year government bond yield (light blue line) is currently a whopping 32.5 percentage points greater than that of the relatively stable German Bund. That is a far cry from where it was back in the summer of 2009 and shows the risk premium imposed based on the perceived likelihood of default.

Perhaps more important, however, is the status of Italy (dark-blue line). Italy has €1.9 trillion ($2.6 trillion) of debt outstanding. This level of debt is greater than that of all the other PIIGS combined. Due to the severity of the situation, the European Central Bank may ultimately be forced to do unpleasant things (like deciding to print a significant amount of euros – something they are very much ideologically opposed to doing).

The Relatively Poor Performance of Banks.

Banks often lead rallies higher.  The logic is that banks make more money when they are lending, doing deals, and helping companies go public.  In 2011, investors have been hesitant to buy into further gains in this sector.  

Looking at the chart, below, notice that the S&P 500 Index (symbol: SPY) has been trending up since April 2010, while the Banking Index (symbol: $BKX) has been trending down since April 2010.

 

 

What Else Is Wrong With That Picture?

According to StockTiming.com, the Financials component on the S&P 500 is the second largest component representing 13.78% of the index. 

 

 

Consequently, this chart implies that the "other components" (as a group) have been strong enough to overcome the huge weakness in the Banking sector.  

Negative divergences like this cannot go on forever. For the S&P to continue trending up in the future, the non-financial sectors will have to stay strong, and stay strong enough for the Financials to start reversing its down trend. 

So, while the markets have held up well through the recent negative sentiment and external risk factors, there are still some big challenges ahead.  Perhaps all that means is that this is a more a trader's market than an investor's market.  On the other hand, diversification seems like a good goal here.

 

Related articles

• ECB as Lender of Last Resort Would End Crisis for Silva (businessweek.com)
• Goldman Sachs On The One PIIG That Really Matters: Italy (businessinsider.com)

Some Links for Your Weekend Reading

The Texas governor is trying to turn his recent stumble into an opportunity. He is asking supporters to pitch in a few dollars for every agency they would abolish.

 

Here are two excuses Perry could use to explain what happened.

 

• "Actually there were three reasons I messed up last night. One was the nerves, two was the headache and three was, and three, uh, uh. Oops."
• "I had a five-hour energy drink six hours before the debate."

For more, here is a link to Rick Perry's 'Letterman' Appearance: GOP Presidential Candidate Reads List Of 'Top 10 Rick Perry Excuses'.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• 100 Must See Interviews With the World's Most Successful Entrepreneurs. (Under30CEO)
• How 'Big Data' is Transforming Business. (McKinseyQuarterly)
• Tech Giants to Feds – “We Need Free Trade for Data”. (GigaOm)
• Why Your "TQ" May Matter More Than Your "IQ". (Harvard Business Review)
• Your Brain Knows a Lot More Than You Realize. Our Rarely Considered Subconscious (Discover)

Trading Links:

• Berkshire Earnings Decline 24% on Derivatives - Bloomberg. (Bloomberg)
• Buffett Broadened Portfolio by Spending $23.9 Billion in Q3. What does he think he knows? (BW)
• Apple Captures 52% of Phone Industry Profits With Just 4.2% of the Market. (Venturebeat)
• Al Gore Blames Algos, But Aren’t Humans at Fault? (HuffingtonPost)
• Jon Corzine on Recovering from Tragedy. Interesting After His MF Global Resignation. (BigThink)

 

Perry Says Oops! His Mental Block at the GOP Debate

They say memory is the second thing to go; Rick Perry probably forgot the first.

This is a clip of the presidential hopeful coming up blank in a debate. Perry struggled to remember the names of three federal agencies he has promised to eliminate. Two out of three isn't bad. Oops!

 

 

Pretty funny.

 

Related articles

• WATCH: Rick Perry Pokes Fun At Himself On 'Letterman' (huffingtonpost.com)