Market Commentary

Last week several news items caught my eye as potential "sign-of-the-times" indicators.   With markets still near recovery highs, the amount of fear and loathing is surprising.  Here are some examples.

1. Bernanke's 2nd term confirmation ran into opposition. The magazine cover curse strikes again.
2. Kennedy's Senate seat went to a Republican.This was not the change Dems hoped for.
3. Harley-Davidson posted its first loss in 16 years.  Also,
4. Google was down even though its profit quintupled. Selling good news is bearish in my book.

Let's Look at the Market.

For
a number of weeks, the rally was holding-up even though there were a
number of signs indicating underlying weakness.  That means buyers
bought the dip.

Well, last week price finally broke beneath the trend-line from the
March lows.  It is a bearish sign, unless price can get back above the
trend-line quickly.

 

Perhaps A Little Bit of Fear Will Be a Good Thing for Trading Volume.

The CBOE Volatility Index (VIX), often thought of as the market's fear gauge, capped its biggest three-day run-up since February 2007.  Recently (until last week) it was more of a complacency gauge.  Here is a chart showing the steady decline, and then the surge.

So, short-term, we'll see if that shakes-out some Bulls who are questioning their conviction.

Rembember, however, that market rallies often happen after a fear spike subsides.  So if we don't get selling volume, the next question is whether Bulls will buy the dip?

At this point I am watching the VIX, because while the spike of fear was big … it came when the VIX was at an extended low.  Fear and Greed (or Bears and Bulls) collide, here, as a result of the conflict between the short and longer term views of the market.  Which side wins will likely have big consequences, because a move higher in the VIX will likely coincide with a bigger move down in the markets.

The U.S. Dollar might also provide some clues to market direction.  The Dollar and equity markets often move opposite each other.  Currency speculators increased bets against the Dollar in the latest week, according to Commodity Futures Trading Commission data released on Friday. The value of net short positions in the dollar rose to $3.12 billion in the week ending Jan. 19, from a net short position of $2.7 billion the previous week, according to Reuters calculations. 

The Markets Are Oversold in the Short-Term.

This chart shows the percent of stocks in the S&P 500 Index that are trading above their 10-day moving average (in other words, what percent are in an up-trend on a short-term basis?).  Right now, less than 10% are.

As you can see, we don't get extreme readings like this often … and when we do, the market tends to bounce.  To see an interactive version of this chart with an overlay of the S&P 500 Index (so you can see how often the overbought and oversold readings work) click here.

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

• Obama Takes the Fight to Rein-in Big Finance on Wall St. (WSJ & TDB)
• Goldman Earned $4.95B in Q4 – That's Almost Real Money. (NYTimes)
• Bernanke's Burn Notice: From Man-of-the-Year to Scapegoat. (NYTimes & EWave)
• Op-Ed Piece: Obama's Power-Outage On the Edge of the Abyss. (TDB & Newser)
• Surprise, Everyone at the Barron's Roundtable is a Bull. (Business Insider)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Can Strategic Alliances Help Us Innovate Our Way Out Of Recession? (Forbes)
• The Rise of Machine-Written Journalism. (Wired)
• One Step Closer to the Jetsons: Skype In Your TV. (NYTimes)
• Netflix Expects to be Mailing DVDs for Another 20 Years. (Business Insider)
• Bacteria Offer Insights Into Human Decision Making. (PhysOrg)
• More Posts with Lighter Ideas and Fun Links.

On the surface, the markets still look pretty good.  However, last week something happened that I consider a bearish warning sign.  The Market sold-off on good news.  Although Intel announced strong results, it looks like the market priced-in the good news already.

In addition, the tech-heavy Nasdaq Composite Index has lagged the S&P 500 recently.  Clearly, it is still in an up-trend.  However, price has pulled back to test the trend-line.  If the trend is to continue, this is where buyers should step-in.

There is key support at the 2,200 level.  No alarms, yet … Just a reminder to stay vigilant.

Is the Rally Losing Momentum?

The rally has lasted longer than I expected.  And each time we've been at a tipping point, recently, market corrections haven't succeeded in triggering sellers.

However, the rally has lost some of its momentum. There are many signs (like poor volume or increasing negative divergences) that point to underlying weakness.

Is there an Unseen Hand?

Some believe the rally is orchestrated by the government, and supported by various plunge-protection initiatives.  I find that hard to fathom.  It's a free market, and there are simply more buyers than sellers.  It doesn't matter if there are only a few buyers … price will continue to go up as long as buying pressure is stronger than selling pressure.

Nonetheless, recent trading has stayed in a relatively narrow range.  From my standpoint, this is probably a result of a fundamental disagreement between the Bulls and the Bears. Let's look at some of the major areas of contention.

Here are some of the reasons Bulls think the Market is still cheap enough for valuations to be attractive. 

• The green-shoots of growth may be a sign that the economy is getting stronger.
• Corporations are starting to invest, and M&A activity is picking-up.
• Perhaps most important, though, is that government stimulus continues, while the Fed remains accommodative. 

In contrast, Bears are warning that we may be at an important longer-term top.  Here are things they are watching.

• Whether there is growth, other than from government stimulus?
• Whether spending starts to loosen-up and grow?
• Whether the credit crisis gets worse?
• Whether real-estate has another leg down?
• Whether employment numbers start to improve?

Time will tell, and so will the charts.

The New Bailout.

Finally, I thought this was funny.

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

• Bubble Warning – Markets Too Dependent on Government Stimulus. (Economist)
• JP Morgan Analyst Optimistic about 2010. (Business Insider)
• Divergent Views on Signs of Life in the Economy (NYTimes)
• Tech's Winners & Losers for 2010 from John Dvorak (MarketWatch)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Sony Pins Future on a 3-D Coming to Your Living Room. (WSJ)
• A New High-Tech Battle – Which 3-D Glasses Are Best? (NYTimes)
• Data Pack Rats: Why Storage is Becoming a Bigger Issue. (Forbes)
• 24 Job Interview Questions You Don't Want To Be Asked. (Business Insider)
• More Posts with Lighter Ideas and Fun Links.

On the surface, the markets still look pretty good.  However, last week something happened that I consider a bearish warning sign.  The Market sold-off on good news.  Although Intel announced strong results, it looks like the market priced-in the good news already.

In addition, the tech-heavy Nasdaq Composite Index has lagged the S&P 500 recently.  Clearly, it is still in an up-trend.  However, price has pulled back to test the trend-line.  If the trend is to continue, this is where buyers should step-in.

There is key support at the 2,200 level.  No alarms, yet … Just a reminder to stay vigilant.

Is the Rally Losing Momentum?

The rally has lasted longer than I expected.  And each time we've been at a tipping point, recently, market corrections haven't succeeded in triggering sellers.

However, the rally has lost some of its momentum. There are many signs (like poor volume or increasing negative divergences) that point to underlying weakness.

Is there an Unseen Hand?

Some believe the rally is orchestrated by the government, and supported by various plunge-protection initiatives.  I find that hard to fathom.  It's a free market, and there are simply more buyers than sellers.  It doesn't matter if there are only a few buyers … price will continue to go up as long as buying pressure is stronger than selling pressure.

Nonetheless, recent trading has stayed in a relatively narrow range.  From my standpoint, this is probably a result of a fundamental disagreement between the Bulls and the Bears. Let's look at some of the major areas of contention.

Here are some of the reasons Bulls think the Market is still cheap enough for valuations to be attractive. 

• The green-shoots of growth may be a sign that the economy is getting stronger.
• Corporations are starting to invest, and M&A activity is picking-up.
• Perhaps most important, though, is that government stimulus continues, while the Fed remains accommodative. 

In contrast, Bears are warning that we may be at an important longer-term top.  Here are things they are watching.

• Whether there is growth, other than from government stimulus?
• Whether spending starts to loosen-up and grow?
• Whether the credit crisis gets worse?
• Whether real-estate has another leg down?
• Whether employment numbers start to improve?

Time will tell, and so will the charts.

The New Bailout.

Finally, I thought this was funny.

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

• Bubble Warning – Markets Too Dependent on Government Stimulus. (Economist)
• JP Morgan Analyst Optimistic about 2010. (Business Insider)
• Divergent Views on Signs of Life in the Economy (NYTimes)
• Tech's Winners & Losers for 2010 from John Dvorak (MarketWatch)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Sony Pins Future on a 3-D Coming to Your Living Room. (WSJ)
• A New High-Tech Battle – Which 3-D Glasses Are Best? (NYTimes)
• Data Pack Rats: Why Storage is Becoming a Bigger Issue. (Forbes)
• 24 Job Interview Questions You Don't Want To Be Asked. (Business Insider)
• More Posts with Lighter Ideas and Fun Links.

Now that the New Year is here, everyone has to get back to work.

What About the Markets?

The rally continues.  While volume hasn't been that impressive, price continues higher.

After taking a break, the Financial Sector has picked-up some relative strength and is leading the market higher.

Unemployment Still Factors Into the Equation.

The jobs number came in worse than expected, with continued cuts and unemployment still above 10%.  Yet, the market reacted better than I expected to that news.

Joking aside, here is an interactive graphic to dive a little deeper into these numbers.  Click on the picture to change the settings yourself.

Efficient Market Hypothesis: The Meltdown’s Biggest Casualty

Here is a video from BigThink about whether the market is as efficient as some economic theory paints it to be.  Alan Greenspan said he was shocked "that market players turned out not to be able to take care of their own interests."  Perhaps the takeaway of the recent crisis is that individual players (pursuing individual interests), collectively, will not always create an outcome which is good for the collective (or even for those individual players). Consequently, Chrystia Freeland, U.S. Managing Editor of the Financial Times, argues that the Markets needs someone or something to protect the collective interests and outcome.

Now for something a little lighter …

Here is a Preview of Next Year's Review.

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

• Ten 'BreakOut!' Business Ideas Of 2009. (Forbes)
• Four Reasons to Remain Wary About an Economic Recovery. (WSJ)
• Will U.S. Home-Sales Data Temper Belief in the Government's Powers? (WSJ)
• John Mauldin's 2010 Forecast – The Year of Uncertainty. (InvestorsInsight)
• Decade Over – Here are 10 Huge Questions that Remain. (Forbes)
• Comprehensive List of 2010 Investment Predictions & Outlooks. (PragCap)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Read This Later – How to Combat the Natural Tendency to Procrastinate. (Economist)
• Taming the Digital Distractions That Make Your PC a Time-Waster. (NYTimes)
• Amazon Sold More Kindle Books Than Physical Books On Xmas. (Business Insider)
• Innovation: Where Next for Social Networking? (NewScientist)
• Google Unveils News-by-Topic Service called "Living Stories". (NYTimes)
• More Posts with Lighter Ideas and Fun Links.

Now that the New Year is here, everyone has to get back to work.

What About the Markets?

The rally continues.  While volume hasn't been that impressive, price continues higher.

After taking a break, the Financial Sector has picked-up some relative strength and is leading the market higher.

Unemployment Still Factors Into the Equation.

The jobs number came in worse than expected, with continued cuts and unemployment still above 10%.  Yet, the market reacted better than I expected to that news.

Joking aside, here is an interactive graphic to dive a little deeper into these numbers.  Click on the picture to change the settings yourself.

Efficient Market Hypothesis: The Meltdown’s Biggest Casualty

Here is a video from BigThink about whether the market is as efficient as some economic theory paints it to be.  Alan Greenspan said he was shocked "that market players turned out not to be able to take care of their own interests."  Perhaps the takeaway of the recent crisis is that individual players (pursuing individual interests), collectively, will not always create an outcome which is good for the collective (or even for those individual players). Consequently, Chrystia Freeland, U.S. Managing Editor of the Financial Times, argues that the Markets needs someone or something to protect the collective interests and outcome.

Now for something a little lighter …

Here is a Preview of Next Year's Review.

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

• Ten 'BreakOut!' Business Ideas Of 2009. (Forbes)
• Four Reasons to Remain Wary About an Economic Recovery. (WSJ)
• Will U.S. Home-Sales Data Temper Belief in the Government's Powers? (WSJ)
• John Mauldin's 2010 Forecast – The Year of Uncertainty. (InvestorsInsight)
• Decade Over – Here are 10 Huge Questions that Remain. (Forbes)
• Comprehensive List of 2010 Investment Predictions & Outlooks. (PragCap)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Read This Later – How to Combat the Natural Tendency to Procrastinate. (Economist)
• Taming the Digital Distractions That Make Your PC a Time-Waster. (NYTimes)
• Amazon Sold More Kindle Books Than Physical Books On Xmas. (Business Insider)
• Innovation: Where Next for Social Networking? (NewScientist)
• Google Unveils News-by-Topic Service called "Living Stories". (NYTimes)
• More Posts with Lighter Ideas and Fun Links.

Since I'm spending the holidays in Asia, I thought I'd share a few lighter things this week.

First up is the Elf-Yourself site from JibJab.  And my wife says I can't dance.

Click here to make one yourself.

Second, here is something I look forward to each year.  Uncle Jay sings the year in review.

Market Commentary.

At the end of each year, the big financial media outlets typically conduct roundtables to get outlooks from key players in the financial markets.  Over the past few years, the individuals that run the best financial blogs and websites have become key players in their own rights, and their opinions are highly regarded by millions of loyal readers.  This year, Bespoke asked twelve popular financial blogs/websites to respond to the same 25 questions regarding their 2010 outlooks as well as their take on 2009. 

 

The responses were thought-provoking, and hopefully they will help you form your opinions on what is to come for financial markets in the year ahead. 

Best Wishes for a happy holiday season and for a prosperous New Year.

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

• Is the Recession Really A Depression? (ZeroHedge)
• One in Four Children on Food Stamps, One in Eight Overall. (GlobalEconomicAnalysis)
• 77% of Small Businesses Plan No Raises in 2010. (Financial-Planning)
• U.S. Foreclosures to Reach Record 3.9 Million in 2009 (Bloomberg)
• What's the Real Purpose & Risks Of Quantitative Easing? (WSJ)
• Physics Envy: Finance's Search for the Laws Of Human Behavior? (FT)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• The 10 Questions You Should Never Stop Asking. (Forbes)
• Founder of Salesforce.com Explains How to Start a Business. (Economist)
• Which IT Projects are Right for the Cloud? (Computerworld)
• Why Vegetarians Might Want To Think Twice Before Eating Tomatoes. (DigitalJournal)
• Will Science Allow Us to End Aging by 2029? (H-Plus)
• Russia's Highest Court Rules Against Religious Freedom. (DigitalJournal)
• More Posts with Lighter Ideas and Fun Links.

Since I'm spending the holidays in Asia, I thought I'd share a few lighter things this week.

First up is the Elf-Yourself site from JibJab.  And my wife says I can't dance.

Click here to make one yourself.

Second, here is something I look forward to each year.  Uncle Jay sings the year in review.

Market Commentary.

At the end of each year, the big financial media outlets typically conduct roundtables to get outlooks from key players in the financial markets.  Over the past few years, the individuals that run the best financial blogs and websites have become key players in their own rights, and their opinions are highly regarded by millions of loyal readers.  This year, Bespoke asked twelve popular financial blogs/websites to respond to the same 25 questions regarding their 2010 outlooks as well as their take on 2009. 

 

The responses were thought-provoking, and hopefully they will help you form your opinions on what is to come for financial markets in the year ahead. 

Best Wishes for a happy holiday season and for a prosperous New Year.

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

• Is the Recession Really A Depression? (ZeroHedge)
• One in Four Children on Food Stamps, One in Eight Overall. (GlobalEconomicAnalysis)
• 77% of Small Businesses Plan No Raises in 2010. (Financial-Planning)
• U.S. Foreclosures to Reach Record 3.9 Million in 2009 (Bloomberg)
• What's the Real Purpose & Risks Of Quantitative Easing? (WSJ)
• Physics Envy: Finance's Search for the Laws Of Human Behavior? (FT)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• The 10 Questions You Should Never Stop Asking. (Forbes)
• Founder of Salesforce.com Explains How to Start a Business. (Economist)
• Which IT Projects are Right for the Cloud? (Computerworld)
• Why Vegetarians Might Want To Think Twice Before Eating Tomatoes. (DigitalJournal)
• Will Science Allow Us to End Aging by 2029? (H-Plus)
• Russia's Highest Court Rules Against Religious Freedom. (DigitalJournal)
• More Posts with Lighter Ideas and Fun Links.

John Mauldin and George Friedman
were in Dallas this week.  Several hundred people came out to hear
their thoughts on the world and the economy. 

For what it's worth, Freidman's Stratfor service and Mauldin's Thoughts from the Frontline and are both terrific reads.

I take it as a bullish
sign that so many people made time, in the middle of the day, for an
event like this. 

While the mood in the room was that the
easy money has already been made in the equity markets, people were
looking for places to put money to work. 

Sentiment Soaring …

Up-and-Down … the ride continues.  Still, sentiment is quite bullish.  How bullish?  AAII's weekly survey showed the fewest bears since April 30th. That was just about the time the Russell 2000 rolled-over to start an 8% correction.

Market Commentary.

Here is a daily chart of the Dow Jones Industrial Average.  It shows the market at a decision-point.  The month-long consolidation has taken the market to a place just above major support and resistance level … And back to the upwards sloping trendline.  

Traders expect a big move after periods of compressed range (like the one we are in now).  Bollinger Bands are often used to represent volatility. You can construct by plotting bands two standard deviations on either side of the 20-period moving average (note the pink bands in the chart above).  One of the indicators I keep an eye on, is the band-width of these Bollinger Bands (it is plotted in the bottom pane of the chart shown above). When it gets narrow for an extended period, that "squeeze" puts me on alert for expanding volatility. 

What do you do?  You watch price.  This is the classic buy point in an up-trend.  On the other hand, there's everything else.

Insight: Price is the Primary Indicator.

What do you think is the most bullish indicator of our markets?  It's not a trick question; the answer is "price".

The
markets have held-up nicely, throughout this rally, despite lots of bad
news about the economy. And that, in-and-of-itself, is bullish.

It
doesn't matter what technical analysis indicator you use (increasing
negative divergences and selling on down days … or less positive
momentum and market breadth), the markets have given us a clear message
recently. Price is the primary indicator, and it has stayed above
support. 

While there will likely be a bearish divergence when
the trend finally ends, it is clear that a strong uptrend trumps most
bearish divergences.

The Implications of America's Rapidly Expanding Debt.

Here is a video from Consuelo Mack's WealthTrack, about the lessons of history. Best selling author and historian Niall Ferguson talks about the seismic global economic and market shifts of recent years mean for our future, particularly the longer term implications of America's exploding debt.

Here is the transcript.

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

• Volcker: No Growth Besides What the Fed's Pouring Into the Economy. (BusinessInsider)
• M&A Activity: Google Buying Start-ups Again. (BusinessInsider)
• A Start-Up Jokingly Touted a $100 Billion Valuation. Now VCs are Calling. (Forbes)
• Wal-Mart's Web War Against Amazon Risks Little. (WSJ)
• What's Glittering Isn't Always Gold – Other Metals Doing Well.(WSJ)
• Thoughts on the Market's Recent Gap Activity. (Quantifiable Edges)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• A Glimpse at the Future from Microsoft's Lead Tech Visionary. (CNet)
• Forbes Gave Ken Auletta’s ‘Googled’ a Great Book Review. (Forbes)
• Milken Institute's Journal of Economic Policy Worth a Look. (Milken)
• Craziest Google Street View Shots. (HuffingtonPost)
• Jewish Delis Are Dwindling, Traditions and All. (NYTimes)
• MIT's Next Bionic Breakthrough … Stepping Beyond Human. (Forbes)
• More Posts with Lighter Ideas and Fun Links.