Market Commentary

  • Capitalogix Commentary 03/21/11 – So, Do You Buy or Do You Sell?

    For the first time in a long time, the S&P 500 Index experienced a small corrective phase.  The Index fell 7% from its high, set on February 28th. 

    Considering the state of global unrest, the pull-back was reasonably small and orderly. So, is the selling over?  David Stendahl, one of the authors of Dynamic Trading Indicators, sent me this chart signaling a potential short term bullish pivot low.

    Below is daily chart of the Index and a short term momentum indicator that focuses on mean reversion (David calls it a "Value Chart").  In general, Value Charts respond to extreme movement away from recent norms and signals when the market is likely to reverse course. 

    There is a short term bullish divergence between price action and the Value Chart indicator. I've marked the last three signals, and you can see that they preceded bullish moves.

    110318 Stendahl Value Chart on the SP500
    The weekly chart, however, shows that the S&P 500 is sitting on support with a number of technical indicators poised to turn to the downside.  So, if you are expecting another test lower, there is your cue for caution.

    I'm curious whether the market will trigger buyers looking for a bargain, or whether another push lower will result in some real selling?

    Is Lumber Sending a Bullish Signal About the Broader Market?

    If you are looking for a potentially bullish early indicator, then Lumber may be sending you a signal.  It is back near its recent highs.  If it can break through to the upside, traders may take that as a good sign of market strength. 

    110320 Lumber
    Why do traders consider lumber an early indicator for the broader market?  Since lumber is a primary raw material in the early stages of new construction, the logic is that lumber purchases signal new construction.

    What Can Copper Tell Us?

    Like Lumber, traders also look to Copper as another early indicator of new construction because it commonly used in things like wires and pipes.  In addition, the Copper/Gold Ratio is an interesting composite measure of economic activity.  The chart below shows weakness and a negative divergence of the Copper/Gold Ratio (in comparison to the S&P 500 Index) since last October.  Most recently, this ratio has been falling steeply again.  We will see if that is an early indicator of broader market weakness?

    110320 Copper-Gold Ratio Turning Down
    A similar flattening of trading range occurred in the Financial Sector as well.

    What Does the Financial Sector Tell Us?

    Financials 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.  However, price just put in a volume reversal. 

    110320 Financials Make a High Volume Bullish Reversal
    In bull markets, this is where the buying comes in.  So, let's see how this sector responds.  A move down from here would hurt the bullish case.

    Lots of Speculation about Japan.

    110320 Barrons-Japan-Cover When disaster stikes a first world country with a first world economy, there is little doubt about re-building.  It will happen.  The question investors are asking is how they can profit from it?

    Someone called me last week and said "I feel terrible for the people and the tragedy, but I also expect to hear that Hank Paulson ends up making billions of dollars on it next year."

    That is the mindset of someone looking to put money back to good use.  There is still a lot of money sitting on the sidelines.  Where will it go to work?

    Do you see a rush to invest it in the U.S. equity markets (as we face the end of QE2)?  Do you see a rush back into Gold and Silver? 

    It could be we are about to see an opportunistic shift.  It is worth watching where money flows.

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

    • Buffett Cleans Up On His Derivatives Bet. (Fortune)
    • Why the Definition of Probability Matters? (von Mises)
    • Reforms Needed to Nurture Capital Markets as Credit Demand Grows. (FT)
    • The High Priest of S&P 500 Statistics. (WSJ)
    • How to Invest in Japan's Re-Building and Resilience. (Barron's)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related articles
    Enhanced by Zemanta

  • Capitalogix Commentary 03/21/11 – So, Do You Buy or Do You Sell?

    For the first time in a long time, the S&P 500 Index experienced a small corrective phase.  The Index fell 7% from its high, set on February 28th. 

    Considering the state of global unrest, the pull-back was reasonably small and orderly. So, is the selling over?  David Stendahl, one of the authors of Dynamic Trading Indicators, sent me this chart signaling a potential short term bullish pivot low.

    Below is daily chart of the Index and a short term momentum indicator that focuses on mean reversion (David calls it a "Value Chart").  In general, Value Charts respond to extreme movement away from recent norms and signals when the market is likely to reverse course. 

    There is a short term bullish divergence between price action and the Value Chart indicator. I've marked the last three signals, and you can see that they preceded bullish moves.

    110318 Stendahl Value Chart on the SP500
    The weekly chart, however, shows that the S&P 500 is sitting on support with a number of technical indicators poised to turn to the downside.  So, if you are expecting another test lower, there is your cue for caution.

    I'm curious whether the market will trigger buyers looking for a bargain, or whether another push lower will result in some real selling?

    Is Lumber Sending a Bullish Signal About the Broader Market?

    If you are looking for a potentially bullish early indicator, then Lumber may be sending you a signal.  It is back near its recent highs.  If it can break through to the upside, traders may take that as a good sign of market strength. 

    110320 Lumber
    Why do traders consider lumber an early indicator for the broader market?  Since lumber is a primary raw material in the early stages of new construction, the logic is that lumber purchases signal new construction.

    What Can Copper Tell Us?

    Like Lumber, traders also look to Copper as another early indicator of new construction because it commonly used in things like wires and pipes.  In addition, the Copper/Gold Ratio is an interesting composite measure of economic activity.  The chart below shows weakness and a negative divergence of the Copper/Gold Ratio (in comparison to the S&P 500 Index) since last October.  Most recently, this ratio has been falling steeply again.  We will see if that is an early indicator of broader market weakness?

    110320 Copper-Gold Ratio Turning Down
    A similar flattening of trading range occurred in the Financial Sector as well.

    What Does the Financial Sector Tell Us?

    Financials 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.  However, price just put in a volume reversal. 

    110320 Financials Make a High Volume Bullish Reversal
    In bull markets, this is where the buying comes in.  So, let's see how this sector responds.  A move down from here would hurt the bullish case.

    Lots of Speculation about Japan.

    110320 Barrons-Japan-Cover When disaster stikes a first world country with a first world economy, there is little doubt about re-building.  It will happen.  The question investors are asking is how they can profit from it?

    Someone called me last week and said "I feel terrible for the people and the tragedy, but I also expect to hear that Hank Paulson ends up making billions of dollars on it next year."

    That is the mindset of someone looking to put money back to good use.  There is still a lot of money sitting on the sidelines.  Where will it go to work?

    Do you see a rush to invest it in the U.S. equity markets (as we face the end of QE2)?  Do you see a rush back into Gold and Silver? 

    It could be we are about to see an opportunistic shift.  It is worth watching where money flows.

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

    • Buffett Cleans Up On His Derivatives Bet. (Fortune)
    • Why the Definition of Probability Matters? (von Mises)
    • Reforms Needed to Nurture Capital Markets as Credit Demand Grows. (FT)
    • The High Priest of S&P 500 Statistics. (WSJ)
    • How to Invest in Japan's Re-Building and Resilience. (Barron's)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related articles
    Enhanced by Zemanta

  • Capitalogix Commentary 03/14/11 – Are Traders as Scared as They Should Be?

    Last week had massive earthquakes, a nuclear reactor melt-down, and Mid-East turmoil spiking gas prices higher.  So, investors should be scared … right?

     

    110313 Japan's Tsunami - Sutovec Cartoon

     

    Japan is one of the world's largest economies; so, imagine what you'd think if an event like that occurred here.  Think of the lost productivity, business closings, insurance liability, global supply-chain issues, etc.  Still, reports are that the effects won't be as bad as they could have been.

    As a trader, I'm watching the response to the news (rather than simply responding to news itself).

    So far, there hasn't been much fear.

    Perhaps Investors Aren't as Scared as They Should Be?

    The VIX is regarded as the "Fear Index" by many.  Consequently, you might expect it to be screaming "Fear" after the decent-size market drop in the context of recent world events.

    Instead of a "Day of Rage", we have seen raging tranquility and a market acting like it is relatively undaunted by concerns.

    So, let's look at a VIX Futures contract chart to see what the VIX is saying …

    110313 Fear Index Still Showing Calm

    With the growing sense that the market is overdue for a correction, some investors may be losing confidence that the market's rally will continue.  Nonetheless, there hasn't been much selling pressure.  In fact, the markets have shown remarkable resiliency and ability to attract buyers.

    Here is a daily chart of the S&P 500 Index.

    110314 SP500 at Decision

    Viewed another way, this is where Bulls will likely try to defend the up-trend.  Will the market attract buyers … or will risk start to weigh more than its potential reward?

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

    • QE3: Will The End Of QE2 Ruin The Party For U.S. Stocks?  (Forbes)
    • What's the Point of the Financial Crisis Report?  (Atlantic)
    • High-Frequency Traders Transacting Blocks of Shares Away From Exchanges. (Bloomberg)
    • It's the Inequality, Stupid: Eight Charts Worth a Glance.  (MotherJones)
    • Did 'Financial Terrorism' by Outside Forces Cause The Economic Crash?  (TheWeek)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related articles
    Enhanced by Zemanta

  • Capitalogix Commentary 03/14/11 – Are Traders as Scared as They Should Be?

    Last week had massive earthquakes, a nuclear reactor melt-down, and Mid-East turmoil spiking gas prices higher.  So, investors should be scared … right?

     

    110313 Japan's Tsunami - Sutovec Cartoon

     

    Japan is one of the world's largest economies; so, imagine what you'd think if an event like that occurred here.  Think of the lost productivity, business closings, insurance liability, global supply-chain issues, etc.  Still, reports are that the effects won't be as bad as they could have been.

    As a trader, I'm watching the response to the news (rather than simply responding to news itself).

    So far, there hasn't been much fear.

    Perhaps Investors Aren't as Scared as They Should Be?

    The VIX is regarded as the "Fear Index" by many.  Consequently, you might expect it to be screaming "Fear" after the decent-size market drop in the context of recent world events.

    Instead of a "Day of Rage", we have seen raging tranquility and a market acting like it is relatively undaunted by concerns.

    So, let's look at a VIX Futures contract chart to see what the VIX is saying …

    110313 Fear Index Still Showing Calm

    With the growing sense that the market is overdue for a correction, some investors may be losing confidence that the market's rally will continue.  Nonetheless, there hasn't been much selling pressure.  In fact, the markets have shown remarkable resiliency and ability to attract buyers.

    Here is a daily chart of the S&P 500 Index.

    110314 SP500 at Decision

    Viewed another way, this is where Bulls will likely try to defend the up-trend.  Will the market attract buyers … or will risk start to weigh more than its potential reward?

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

    • QE3: Will The End Of QE2 Ruin The Party For U.S. Stocks?  (Forbes)
    • What's the Point of the Financial Crisis Report?  (Atlantic)
    • High-Frequency Traders Transacting Blocks of Shares Away From Exchanges. (Bloomberg)
    • It's the Inequality, Stupid: Eight Charts Worth a Glance.  (MotherJones)
    • Did 'Financial Terrorism' by Outside Forces Cause The Economic Crash?  (TheWeek)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related articles
    Enhanced by Zemanta

  • Are We Losing the Propaganda War? Sometimes Less Is More.

    The Propaganda War.

     
    Hillary Clinton was recently on C-Span warning that "we are in an information war; and we are losing that war."
    110306 Hillary Clinton Warns That We Are Losing the Propaganda War
     
    Jokes aside, statecraft dictates that we spread U.S. propaganda.  Reality is that other governments do it; and to compete effectively … we need to do it better.
     
    One area we've arguably done 'it' well is in promoting our economic agenda.
    However, I'd ask what the intent has been and who the propaganda is designed to influence?

    Sometimes Less Is More – Especially With Government Actions.

    Does it matter to you if the markets go higher because of organic growth or because of intervention?  On a personal basis it might … but as a trader, the Market is always right.  Whether it goes up or down, the trader's job is to find a way to get a decent risk-adjusted return.

    110306-the-man-behind-the-c In the "Wizard of Oz", as Dorothy and her friends are being amazed by the 'Great and Powerful Oz' …they  are told: "Pay no attention to that man behind the curtain." 

    It is great to buy in to the story, but for how long … and at what cost.  Sometimes, I find myself shaking my head as I think about the 'man behind the curtain' in this market.  Is he "great and powerful" or just a man pulling levers and pushing buttons while hoping the great majority are fooled.

    A Lever To Watch – The Interest Rate The Government Pays.

    Dylan Grice, of Société Générale, published some research that got a lot of attention.  One chart, in particular, caught my eye.  It shows two hundred years of US government bond yields.

    200-YEARS-US-GOVT-BONDS
    Commenting on it, the Financial Times and Zero Hedge both noted that as the interest rate that the government pays increases, it will be harder for the government to service and will represent a much larger percent of government revenues.

    Till then, well, the market is still going up.

    Market Commentary.

    The rally continues.  In situations like this, the trend is your friend.  Nonetheless, I tend to watch for early warning signs.  So, here, I am watching the obvious trend-line (marked by the green arrow) on the S&P 500 Index.

     

    110306 SP500 Bearish Indicator
    If we break below the green up-trend line, bearish traders will likely take that as a sign.

    In addition, there are some internal breadth issues and divergences that are worth noting.  However, the market measure that caught my eye recently is the increase in the average true range that we are seeing on a daily basis.  Volatility often spikes at market tops.

    Hope that helps; have a nice week.

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

    • Are Amazon.com’s Days Of Tax Free Selling Numbered? (Forbes)
    • BMW Opens Car Plant Where All Employees are Aged Over 50. (DailyMail)
    • Pimco's Bill Gross Slashes Government Debt Holdings. (InvestmentNews)
    • Capitalism Without Losers – Three Things I Think I Think. (Pragmatic)
    • Are You Better Than A Dart-Throwing Chimpanzee? Research Says Perhaps Not.  (BigThink)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • American Idol's Top 13 Ranked, With Song Samples (EW)
    • Amazon Takes Aim At Netflix: Now Streams 5,000 Movies & TV Shows. (Insider)
    • The Tiger Mom Debate: Why "C" Students Become Billionaire Donors. (WSJ)
    • How Writing By Hand Makes Kids Smarter. (TheWeek)
    • Where The Streets Have Your Name. Silly But Satisfying. (DataPointed)
    • More Posts with Lighter Ideas and Fun Links.
    Related articles


  • Are We Losing the Propaganda War? Sometimes Less Is More.

    The Propaganda War.

     
    Hillary Clinton was recently on C-Span warning that "we are in an information war; and we are losing that war."
    110306 Hillary Clinton Warns That We Are Losing the Propaganda War
     
    Jokes aside, statecraft dictates that we spread U.S. propaganda.  Reality is that other governments do it; and to compete effectively … we need to do it better.
     
    One area we've arguably done 'it' well is in promoting our economic agenda.
    However, I'd ask what the intent has been and who the propaganda is designed to influence?

    Sometimes Less Is More – Especially With Government Actions.

    Does it matter to you if the markets go higher because of organic growth or because of intervention?  On a personal basis it might … but as a trader, the Market is always right.  Whether it goes up or down, the trader's job is to find a way to get a decent risk-adjusted return.

    110306-the-man-behind-the-c In the "Wizard of Oz", as Dorothy and her friends are being amazed by the 'Great and Powerful Oz' …they  are told: "Pay no attention to that man behind the curtain." 

    It is great to buy in to the story, but for how long … and at what cost.  Sometimes, I find myself shaking my head as I think about the 'man behind the curtain' in this market.  Is he "great and powerful" or just a man pulling levers and pushing buttons while hoping the great majority are fooled.

    A Lever To Watch – The Interest Rate The Government Pays.

    Dylan Grice, of Société Générale, published some research that got a lot of attention.  One chart, in particular, caught my eye.  It shows two hundred years of US government bond yields.

    200-YEARS-US-GOVT-BONDS
    Commenting on it, the Financial Times and Zero Hedge both noted that as the interest rate that the government pays increases, it will be harder for the government to service and will represent a much larger percent of government revenues.

    Till then, well, the market is still going up.

    Market Commentary.

    The rally continues.  In situations like this, the trend is your friend.  Nonetheless, I tend to watch for early warning signs.  So, here, I am watching the obvious trend-line (marked by the green arrow) on the S&P 500 Index.

     

    110306 SP500 Bearish Indicator
    If we break below the green up-trend line, bearish traders will likely take that as a sign.

    In addition, there are some internal breadth issues and divergences that are worth noting.  However, the market measure that caught my eye recently is the increase in the average true range that we are seeing on a daily basis.  Volatility often spikes at market tops.

    Hope that helps; have a nice week.

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

    • Are Amazon.com’s Days Of Tax Free Selling Numbered? (Forbes)
    • BMW Opens Car Plant Where All Employees are Aged Over 50. (DailyMail)
    • Pimco's Bill Gross Slashes Government Debt Holdings. (InvestmentNews)
    • Capitalism Without Losers – Three Things I Think I Think. (Pragmatic)
    • Are You Better Than A Dart-Throwing Chimpanzee? Research Says Perhaps Not.  (BigThink)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

    • American Idol's Top 13 Ranked, With Song Samples (EW)
    • Amazon Takes Aim At Netflix: Now Streams 5,000 Movies & TV Shows. (Insider)
    • The Tiger Mom Debate: Why "C" Students Become Billionaire Donors. (WSJ)
    • How Writing By Hand Makes Kids Smarter. (TheWeek)
    • Where The Streets Have Your Name. Silly But Satisfying. (DataPointed)
    • More Posts with Lighter Ideas and Fun Links.
    Related articles


  • Warren Buffett’s Annual Letter: The Oracle of Omaha Shares Some Wisdom

    Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out.  

    110227-Warren_Buffett In it, he speaks of opportunity.  For example, he informs: “Our elephant gun has been reloaded, and my trigger finger is itchy”.

    Buffett's annual letter is always an interesting read … even if you don’t agree with everything he says.  There is a reason he is called “the Oracle of Omaha.”  Even the introduction had a few of the ideas that jumped off the page.

    “Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” … No matter how serene today may be, tomorrow is always uncertain.

    Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

    We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

    He later reminds: "At Berkshire, our time horizon is forever".  That perspective makes it a lot easier for the game not to end until you've won.

    Further, the Pragmatic Capitalist highlights this lesson:

    Nothing stopped so many innovators and entrepreneurs more than the fear of failure.  If you allow yourself to be constantly scared into thinking that the world is doomed you will never take that risk which might result in great reward.  And perhaps worse, if you never fail you will never learn to get up, brush yourself off, move on and succeed in the future.  This does not mean you should wander through this world with great complacency and blind optimism, but if you deny yourself the ability to maximize your full potential, you will always come up short.

    Here is a link to what others are saying about this year's letter.

    Related articles
    Enhanced by Zemanta

  • Warren Buffett’s Annual Letter: The Oracle of Omaha Shares Some Wisdom

    Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out.  

    110227-Warren_Buffett In it, he speaks of opportunity.  For example, he informs: “Our elephant gun has been reloaded, and my trigger finger is itchy”.

    Buffett's annual letter is always an interesting read … even if you don’t agree with everything he says.  There is a reason he is called “the Oracle of Omaha.”  Even the introduction had a few of the ideas that jumped off the page.

    “Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” … No matter how serene today may be, tomorrow is always uncertain.

    Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

    We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

    He later reminds: "At Berkshire, our time horizon is forever".  That perspective makes it a lot easier for the game not to end until you've won.

    Further, the Pragmatic Capitalist highlights this lesson:

    Nothing stopped so many innovators and entrepreneurs more than the fear of failure.  If you allow yourself to be constantly scared into thinking that the world is doomed you will never take that risk which might result in great reward.  And perhaps worse, if you never fail you will never learn to get up, brush yourself off, move on and succeed in the future.  This does not mean you should wander through this world with great complacency and blind optimism, but if you deny yourself the ability to maximize your full potential, you will always come up short.

    Here is a link to what others are saying about this year's letter.

    Related articles
    Enhanced by Zemanta

  • Capitalogix Commentary 02/28/11 – Margin Debt and Confidence Are Both Rising Sharply

    NYSE Margin Debt Gives a Clue As To How Bullish Traders Have Become.

    This week's Trader's Narrative Sentiment Overview notes that margin debt is rising sharply as traders and investors increasingly take a more aggressive posture.

    110227 nyse-margin-debt-feb-2011

    Every month, the New York Stock Exchange (NYSE) releases numbers showing how much money was borrowed on margin to buy stocks on the NYSE. As you can imagine, the amount of stock bought on margin is extremely large, but the total number fluctuates quite a bit based on how confident traders are. When stock traders are confident, they borrow more on margin. When stock traders are less confident, they borrow less on margin.  Clearly traders are becoming more confident.

    Historically, How Does the Market Handle Doubling Within Two Years?

    Confidence is good, right?
     
    Mark Faber, the author of the Gloom, Boom and Doom Report, explained to CNBC that the US stock market has now doubled from its low. Moreover, he points out that there have been only three occasions in the last hundred years when the stock market in the US doubled within two years.

    One such occasion was in 1934, coming off a "very deeply oversold condition" in 1932 and the other one was in 1937. After 1937 and 1934, the 12 months return were both negative, Faber said. 

    Here is a chart showing 102 week rolling returns for the S&P 500 Composite Index.

     

    110227 102 Week Rolling Returns
    These levels of gains have preceded significant pullbacks.  Here is a table showing the detail.

    110227 Table-of-SP-102-week-rolling-returns
    This is simply a historical look at similar rally intensities.  Nonetheless, Faber warns: "I would be a little bit careful here to just buy the US because investor sentiment is very positive. The volume has been relatively sluggish and the market is extremely overbought by any statistical model".

    Price is still the primary indicator.  Let's see if traders buy the pull-back?

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related Articles
    Enhanced by Zemanta

  • Capitalogix Commentary 02/28/11 – Margin Debt and Confidence Are Both Rising Sharply

    NYSE Margin Debt Gives a Clue As To How Bullish Traders Have Become.

    This week's Trader's Narrative Sentiment Overview notes that margin debt is rising sharply as traders and investors increasingly take a more aggressive posture.

    110227 nyse-margin-debt-feb-2011

    Every month, the New York Stock Exchange (NYSE) releases numbers showing how much money was borrowed on margin to buy stocks on the NYSE. As you can imagine, the amount of stock bought on margin is extremely large, but the total number fluctuates quite a bit based on how confident traders are. When stock traders are confident, they borrow more on margin. When stock traders are less confident, they borrow less on margin.  Clearly traders are becoming more confident.

    Historically, How Does the Market Handle Doubling Within Two Years?

    Confidence is good, right?
     
    Mark Faber, the author of the Gloom, Boom and Doom Report, explained to CNBC that the US stock market has now doubled from its low. Moreover, he points out that there have been only three occasions in the last hundred years when the stock market in the US doubled within two years.

    One such occasion was in 1934, coming off a "very deeply oversold condition" in 1932 and the other one was in 1937. After 1937 and 1934, the 12 months return were both negative, Faber said. 

    Here is a chart showing 102 week rolling returns for the S&P 500 Composite Index.

     

    110227 102 Week Rolling Returns
    These levels of gains have preceded significant pullbacks.  Here is a table showing the detail.

    110227 Table-of-SP-102-week-rolling-returns
    This is simply a historical look at similar rally intensities.  Nonetheless, Faber warns: "I would be a little bit careful here to just buy the US because investor sentiment is very positive. The volume has been relatively sluggish and the market is extremely overbought by any statistical model".

    Price is still the primary indicator.  Let's see if traders buy the pull-back?

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

    Related Articles
    Enhanced by Zemanta