The rally continues, and the S&P 500 has gotten back above 1000. Pretty impressive on many fronts. How does it compare to other markets though? This chart shows how several other world markets have done so far in 2009.
The strength of the rallies don’t make sense to me based on logic. But trends don’t depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking bronco.
Why Citigroup’s Volume Is Significant.
Last week saw some interesting trading in Citigroup, as it recorded an “utterly insane” amount of volume – 2.7 BILLION – in a single day. That huge volume value caused problems throughout the financial information world. Financial systems are designed to handle certain ranges of values. If a number is outside that range, it “overflows” the data field for that value. Citigroup’s volume overflowed, which should tell you something about how likely that level of trading is to occur.
I watch volume patterns. Capitulation bottoms typically happen on huge volume spikes. I don’t know if the reverse holds true as well. But the markets are extended so I’m watching things a little more closely.
What About Gold?
If the Markets start a deeper pull-back, then Gold looks poised for a break-out to the upside. Here is a chart showing a potential Reverse Head-and-Shoulders bottoming pattern. There recent shoulder is a triangle pattern, which indicates we should expect expanded volatility soon.
The rally continues, and the S&P 500 has gotten back above 1000. Pretty impressive on many fronts. How does it compare to other markets though? This chart shows how several other world markets have done so far in 2009.
The strength of the rallies don’t make sense to me based on logic. But trends don’t depend on logic. So, I dusted-off my copy of Trend Following and will simply ride the bucking bronco.
Why Citigroup’s Volume Is Significant.
Last week saw some interesting trading in Citigroup, as it recorded an “utterly insane” amount of volume – 2.7 BILLION – in a single day. That huge volume value caused problems throughout the financial information world. Financial systems are designed to handle certain ranges of values. If a number is outside that range, it “overflows” the data field for that value. Citigroup’s volume overflowed, which should tell you something about how likely that level of trading is to occur.
I watch volume patterns. Capitulation bottoms typically happen on huge volume spikes. I don’t know if the reverse holds true as well. But the markets are extended so I’m watching things a little more closely.
What About Gold?
If the Markets start a deeper pull-back, then Gold looks poised for a break-out to the upside. Here is a chart showing a potential Reverse Head-and-Shoulders bottoming pattern. There recent shoulder is a triangle pattern, which indicates we should expect expanded volatility soon.
Does it make sense to try and fix a broken PC? I used to think so; now I’m not so sure.
I’m often early adopter of technology. That’s kind of code for “I’ve had to reformat my computer many times over many years”. And when it came to hardware, let’s just say that the local CompUSA people smiled when I walked in the door. I love technology; and it seems that I never met a faster video card, bigger hard drive, or clever invention that I didn’t want to buy.
Your Rules of Thumb May Be Out-Dated. Mine Were.
Over the years, I developed a strategy for acquiring new computers.
I typically bought the absolute top-of-the-line, as soon as the second
version of it came out. Oh, I bought many when the first version came
out; but that’s how I developed a strategy to buy one-step back from
the newest and best.
A lot has changed in the PC industry. For example, our local CompUSA and Circuit City stores are now closed, and today I got a pretty good idea why that happened.
My laptop finally gave out; and all of my software utilities, Internet searches and efforts had failed to bring it back to life. My wife made me promise to go get a new machine before I drove myself (or her) crazy.
What Kind of Deals are Available Today?
So this morning I walked into my local Best Buy determined to find a worthy replacement. I was quite surprised to find that I walked out the door with a brand-new laptop, much more powerful than the one that had broken, for less than $500.
I also found a desktop machine with Intel’s newest chip, 9-gigs of memory and a terabyte hard disk for about $1,000.
That means hardware is becoming disposable. There comes a point where it’s literally not worth trying to fix something, or re-load an operating system and your programs to make something work reasonably well, when you can upgrade to a newer more stable platform for so little money.
What Does This Mean For You?
The point is technology is now cheap enough that you should look at your business and think about the point of diminishing returns. Which machines are calling-out to you that they are past their prime, and it’s time to replace them with something new?
The PC manufacturers are trying to get rid of their Vista machines … because the new Windows 7 operating system officially comes out this fall. I recommend you take this opportunity to investigate what is out there … and bring some of it home.
Does it make sense to try and fix a broken PC? I used to think so; now I’m not so sure.
I’m often early adopter of technology. That’s kind of code for “I’ve had to reformat my computer many times over many years”. And when it came to hardware, let’s just say that the local CompUSA people smiled when I walked in the door. I love technology; and it seems that I never met a faster video card, bigger hard drive, or clever invention that I didn’t want to buy.
Your Rules of Thumb May Be Out-Dated. Mine Were.
Over the years, I developed a strategy for acquiring new computers.
I typically bought the absolute top-of-the-line, as soon as the second
version of it came out. Oh, I bought many when the first version came
out; but that’s how I developed a strategy to buy one-step back from
the newest and best.
A lot has changed in the PC industry. For example, our local CompUSA and Circuit City stores are now closed, and today I got a pretty good idea why that happened.
My laptop finally gave out; and all of my software utilities, Internet searches and efforts had failed to bring it back to life. My wife made me promise to go get a new machine before I drove myself (or her) crazy.
What Kind of Deals are Available Today?
So this morning I walked into my local Best Buy determined to find a worthy replacement. I was quite surprised to find that I walked out the door with a brand-new laptop, much more powerful than the one that had broken, for less than $500.
I also found a desktop machine with Intel’s newest chip, 9-gigs of memory and a terabyte hard disk for about $1,000.
That means hardware is becoming disposable. There comes a point where it’s literally not worth trying to fix something, or re-load an operating system and your programs to make something work reasonably well, when you can upgrade to a newer more stable platform for so little money.
What Does This Mean For You?
The point is technology is now cheap enough that you should look at your business and think about the point of diminishing returns. Which machines are calling-out to you that they are past their prime, and it’s time to replace them with something new?
The PC manufacturers are trying to get rid of their Vista machines … because the new Windows 7 operating system officially comes out this fall. I recommend you take this opportunity to investigate what is out there … and bring some of it home.
This week's news brought President Obama declaring: "We have stopped the free-fall. The market's up and the financial system is no longer on the verge of collapse. … So there's no doubt that things have gotten better." Obama also defended the bailout of the banks as a necessary measure to hold-off greater financial trouble; explaining that he inherited "the worst economy of our lifetimes." That's all well and good; yet, it reminds me of a different President who declared "mission accomplished" … just a tad too quickly. Time will tell. I just hope we keep making progress.
The Markets Have Done Well Recently.
During the last three weeks, the S&P 500 climbed more than 10% higher on better than expected earnings. So far over 70% of companies have beat earnings estimates. The Dow Jones Industrial Average Index is strong too. Here is a chart showing recent performance.
What is Driving the Rally?
Sentiment is driving the markets higher. But, does it worry you the earnings picture isn’t actually improving? How about that the defensive posturing by corporations evidenced by massive cost-cutting is not true organic income statement improvement? It’s certainly not sustainable, and it’s only questionably good news. Still, the market has continued to respond bullishly to “better than expected”. This is similar to celebrating that the economy and consumer spending are shrinking … but less than expected.
Markets can continue to rally in the face of logical questions about its true strength. For proof, you can look at the following chart of Shanghai's market, which many skeptics believe is a bubble waiting to pop.
So, are we really in a new bull market? Or is this prolonged rally a massive trap, sucking-people-in, only to collapse back down? In my opinion, it doesn't matter. Despite what we call it, whatever will be, will be. What matters is how you trade it.
This week's news brought President Obama declaring: "We have stopped the free-fall. The market's up and the financial system is no longer on the verge of collapse. … So there's no doubt that things have gotten better." Obama also defended the bailout of the banks as a necessary measure to hold-off greater financial trouble; explaining that he inherited "the worst economy of our lifetimes." That's all well and good; yet, it reminds me of a different President who declared "mission accomplished" … just a tad too quickly. Time will tell. I just hope we keep making progress.
The Markets Have Done Well Recently.
During the last three weeks, the S&P 500 climbed more than 10% higher on better than expected earnings. So far over 70% of companies have beat earnings estimates. The Dow Jones Industrial Average Index is strong too. Here is a chart showing recent performance.
What is Driving the Rally?
Sentiment is driving the markets higher. But, does it worry you the earnings picture isn’t actually improving? How about that the defensive posturing by corporations evidenced by massive cost-cutting is not true organic income statement improvement? It’s certainly not sustainable, and it’s only questionably good news. Still, the market has continued to respond bullishly to “better than expected”. This is similar to celebrating that the economy and consumer spending are shrinking … but less than expected.
Markets can continue to rally in the face of logical questions about its true strength. For proof, you can look at the following chart of Shanghai's market, which many skeptics believe is a bubble waiting to pop.
So, are we really in a new bull market? Or is this prolonged rally a massive trap, sucking-people-in, only to collapse back down? In my opinion, it doesn't matter. Despite what we call it, whatever will be, will be. What matters is how you trade it.
This video from The Economist is a great metaphor for where we are in the market.
The Economist is one of those magazines that piles-up in my office. I don't want to throw it out; but I also don't read it as often as I want to, or should. I tell myself it is because I want to read it thoroughly. Then, when I finally read them, I think that I should read them when they come in (rather than putting them in the pile).
Nonetheless, The Economist always seems to provoke thought, and they throw-in something funny more often than you might expect. I like that they often talk about the "bigger" ideas … and as a trader, I too often get sucked-in by the Siren's Call of urgency and "news".
So, this week I thought I'd write about two of the bigger ideas that the markets are provoking me to think about recently.
The first is how much stock to put into China's recent economic growth? The second, perhaps related, is really a question about how much canwe trust the recent rally, in light of what happened just beforehand. With regard to the second question, I'm talking about the U.S. Markets too.
First, Let's Look at China.
The Chinese market and economy seem to have rebounded quickly. However, there are some signs that all might not be well behind the Great Wall. For example, here is a chart that shows a dramatic decrease in electric power usage. It leads to this question. Although Chinese government officials claim GDP is well, are they lying or making things out of thin air (meaning, without electricity).
Getting back to our markets, I continue to be surprised by the length and strength of the rally. Apparently, Artificial
Intelligence is a good substitute for lack of the real thing. So at least
my trading systems have been comfortably "long"… even though I'm feeling bearish.
Could The Recent Rally Simply Be a World-Wide Reflex?
At its simplest, most people try to create a diverse portfolio by trying to buy different types of assets. For example, banks, utilities, tech, staples, and cyclicals. Other classes of assets include things like real estate, precious metals, currencies, and energy. Common sense says that some things go up, while other things go down; that is called "Sector Rotation". However, during times of economic and financial market distress, a surprising number of things move in the same direction, resulting in few safe havens.
This asset class correlation was prevalent during the past year. There were days when virtually everything, around the globe, seemed to fall. I saw unusual correlation in our trading systems, too. When the markets really broke down, the diversity we normally see in our trading signals disappeared. It is tough to be long and wrong when trading models say it is more likely that the next move is back up, but the markets keep falling. Discipline says follow the model; but common sense says the model was designed for normal (or at least "mostly normal") market conditions … and that was not the type of market we were in at the time.
Not surprisingly, research shows that high correlations were a result of the steep fall in market prices and investor sentiment. An interesting article about this is "Do Correlations Matter When the World is On Fire". In addition, Felix Salmon poses a disturbing question: since we're still seeing such a high correlation, even as so many things are going up … is it possible that this is a natural artifact of the recent financial crisis, and perhaps another sign that the market is still in a time of economic and market distress. Likewise, Bloomberg points out that investors are moving in-lockstep like never before, driving up stocks, commodities and emerging markets.
The point is this high correlation actually creates a risk of replaying last year. In other words, the herd mentality threatens to leave investors with little refuge once again.
This video from The Economist is a great metaphor for where we are in the market.
The Economist is one of those magazines that piles-up in my office. I don't want to throw it out; but I also don't read it as often as I want to, or should. I tell myself it is because I want to read it thoroughly. Then, when I finally read them, I think that I should read them when they come in (rather than putting them in the pile).
Nonetheless, The Economist always seems to provoke thought, and they throw-in something funny more often than you might expect. I like that they often talk about the "bigger" ideas … and as a trader, I too often get sucked-in by the Siren's Call of urgency and "news".
So, this week I thought I'd write about two of the bigger ideas that the markets are provoking me to think about recently.
The first is how much stock to put into China's recent economic growth? The second, perhaps related, is really a question about how much canwe trust the recent rally, in light of what happened just beforehand. With regard to the second question, I'm talking about the U.S. Markets too.
First, Let's Look at China.
The Chinese market and economy seem to have rebounded quickly. However, there are some signs that all might not be well behind the Great Wall. For example, here is a chart that shows a dramatic decrease in electric power usage. It leads to this question. Although Chinese government officials claim GDP is well, are they lying or making things out of thin air (meaning, without electricity).
Getting back to our markets, I continue to be surprised by the length and strength of the rally. Apparently, Artificial
Intelligence is a good substitute for lack of the real thing. So at least
my trading systems have been comfortably "long"… even though I'm feeling bearish.
Could The Recent Rally Simply Be a World-Wide Reflex?
At its simplest, most people try to create a diverse portfolio by trying to buy different types of assets. For example, banks, utilities, tech, staples, and cyclicals. Other classes of assets include things like real estate, precious metals, currencies, and energy. Common sense says that some things go up, while other things go down; that is called "Sector Rotation". However, during times of economic and financial market distress, a surprising number of things move in the same direction, resulting in few safe havens.
This asset class correlation was prevalent during the past year. There were days when virtually everything, around the globe, seemed to fall. I saw unusual correlation in our trading systems, too. When the markets really broke down, the diversity we normally see in our trading signals disappeared. It is tough to be long and wrong when trading models say it is more likely that the next move is back up, but the markets keep falling. Discipline says follow the model; but common sense says the model was designed for normal (or at least "mostly normal") market conditions … and that was not the type of market we were in at the time.
Not surprisingly, research shows that high correlations were a result of the steep fall in market prices and investor sentiment. An interesting article about this is "Do Correlations Matter When the World is On Fire". In addition, Felix Salmon poses a disturbing question: since we're still seeing such a high correlation, even as so many things are going up … is it possible that this is a natural artifact of the recent financial crisis, and perhaps another sign that the market is still in a time of economic and market distress. Likewise, Bloomberg points out that investors are moving in-lockstep like never before, driving up stocks, commodities and emerging markets.
The point is this high correlation actually creates a risk of replaying last year. In other words, the herd mentality threatens to leave investors with little refuge once again.
Amazon acquired Zappos this week. What follows is a terrific video where Jeff Bezos says he shares “Everything I Know” about business, and offers a peek inside the entrepreneurial spirit and culture of Amazon.
The four main points are:
Obsess Over Customers. While they pay attention to the competitive marketplace, they don’t let competitors determine what they do. Instead, it is the customer that drives their strategy.
Invent. A critical part of what Amazon does is to invent solutions for, and on behalf of, their customers.
Think Long-Term. Amazon strategists take a long-term perspective. They are willing to take actions that quickly offer benefits to customers, even if those actions don’t offer a pay-off for the company or its investors for five to seven years.
It’s Always Day One. There is always a bigger future and more opportunities to invent for customers. It’s never over, or too late.
Yes, it is a simple list. Still, it is worth watching.
It gave me a sense that Amazon not only preaches these principles, but practices them as well.
Amazon acquired Zappos this week. What follows is a terrific video where Jeff Bezos says he shares “Everything I Know” about business, and offers a peek inside the entrepreneurial spirit and culture of Amazon.
The four main points are:
Obsess Over Customers. While they pay attention to the competitive marketplace, they don’t let competitors determine what they do. Instead, it is the customer that drives their strategy.
Invent. A critical part of what Amazon does is to invent solutions for, and on behalf of, their customers.
Think Long-Term. Amazon strategists take a long-term perspective. They are willing to take actions that quickly offer benefits to customers, even if those actions don’t offer a pay-off for the company or its investors for five to seven years.
It’s Always Day One. There is always a bigger future and more opportunities to invent for customers. It’s never over, or too late.
Yes, it is a simple list. Still, it is worth watching.
It gave me a sense that Amazon not only preaches these principles, but practices them as well.
