Market Commentary

Let's Get Ready to Rumble.

Football season came just in time. The economy, health-care, and wars were starting to harsh my mellow.

Watching football is like a national meditation technique; it helps
quiet the noise and is a great distraction from the daily grind.

The Markets seem to be doing a good job of avoiding what's going on around them.  Price going up despite seemingly bad news is bullish.  Sometimes it seems hard to remember that.

Where Do We Stand on a Longer-Term Chart of the Markets? 

This chart of the S&P 500 Index goes
back to 2002. The thick horizontal red line marks the naturally occurring support and resistance line
going back to 2003 and 2004. Just above
that is the 50% retracement level of the recent decline. So, while price has rallied nicely for more than five months off the recent lows, overhead resistance may soon come into play. Click the chart to see a bigger version.

The chart above also shows that Volume has
been a little light; but some of that is seasonal. I expect volume to
pick-up soon. The question, of course, is whether prices will trade
higher or lower when that happens.

Average Daily Change Plummets.

Bespoke reminds that one of the most remarkable characteristics of last year's market crash was its daily volatility.  At its peak, the 50-Day Average Absolute Daily Change of the S&P 500 surpassed 4%.  That means that the Market gained or lost 4% to 5% of its total value on a daily basis for two months. 

In contrast, the 50-Day Average Absolute Daily Change of the S&P 500 is now under 1%.  This is the lowest level since July of last year.  Markets fall much faster than they rise, so it's no surprise that this number has gone down significantly as the S&P rallied off of its lows.

Shorter-Term, The Market Looks Strong.

The next chart overlays the NASDAQ's Net New Highs on top of the index
itself. This measure counts the number of NASDAQ Components making new
52-week highs, and subtracts the number of NASDAQ components
making new 52-week lows . So, we get more Net New Highs when the markets
are doing better. As it stands, A lot of NASDAQ Components are making highs for the year. 
Yet, there are slightly less Net New Highs than we saw in mid-July. So,
while this is a little picky, it does constitute a negative
divergence. Consequently, I'm watching for a drop-off in this measure
as a potential early warning indicator of impending market weakness.

It's been easier to make money on the long side for a long time. I sense a lot of the smart money is daytrading long exposure. In other words, they're happy to trade long, but they're not as happy to take that risk home overnight.

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

• Is Commercial Real Estate Lurking as Next Potential Mortgage Crisis? (WSJ)
• The Failure Caucus: These Guys are Rooting for the Economy to Fail. (Slate)
• Evolving a Business Strategy: New Book on Revising Business Plans.  (Forbes)
• Inquiry Stokes Unease on High-Speed Trading. (DealBook)
• Is the World Losing Faith in the U.S. Dollar? (Wharton)
• Budget Crisis Causing States to Close Offices a-Day-at-a-Time. (TDB)
• Doug Kass: The Next Move Down? It's Different This Time. (TheStreet)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Are Video games the Future of Education? (Economist)
• New Form of Rehab: Center Treats Web Addicts. (NYTimes)
• How Teams of Geeks Crack Spy Trade. (WSJ)
• VMware May Be Microsoft’s Top Rival After Google. (NYTimes)
• YouTube Said to Be in Talks To Offer Full-Length Pay Movies. (NYTimes)
• Apple's Next Big Thing: Still the iPhone; But the Carrier is New. (TheStreet)
• iPhones Overload AT&T's Network, Angering Customers. (NYTimes)
• More Posts with Lighter Ideas and Fun Links.

Our credit market debt is approximately 375% of our Gross Domestic Product.  That caught my attention; it shows how much more burden the economy carries now than it did during the Great Depression.  The unemployment situation adds to that burden. 

If that isn't frightening enough, the next chart gives a slightly different perspective.  It helps visualize the cost of the government's massive action and stimulus.  Consequently, we are staring at the largest estimated budget deficit as a percentage of nominal GDP since World War II.  It wouldn't surprise me if the projected $1.84 trillion deficit for fiscal 2009 should soon prove to be a conservative estimate, and it moves above $2 Trillion.   Here is a recently updated chart of Federal Spending.

For more on this, here is a link to some interesting commentary from TCW Group.  The Great Debt Binge: A Tragedy in Three Acts. And this link from Crestmont Research has a different perspective.

Another Way For NASA to Get Back to the Moon.

There is talk that budget woes may hurt NASA's plans to get back to the moon.  Perhaps there is another way …

Current Market Commentary.

Speaking of rocket rides, once again the markets held up well, even after a worse-than-expected jobs data report shows the highest level of unemployment since 1983.  The equity markets have surprised many by consistently fighting off worries that they have climbed higher than economic fundamentals warrant.  However with September being a notoriously bad month, historically, for stocks … Concerns are high that a correction is likely as trading volume increases after the holiday weekend.

How Does This Rally Compare to the Great Depression Bear Rallies?

For some perspective on the current stock market rally and how it compares the 1929-1932 bear market, this chart illustrates the duration (calendar days) and magnitude (percent gain) of significant Dow rallies that occurred during the 1929-1932 bear market (solid blue dots). For example, the bear market rally that began in November 1929 lasted 155 calendar days and resulted in a gain of 48%. As this chart illustrates, the duration of the current Dow rally (in yellow highlight) is longer than any that occurred during the 1929-1932 bear market. As for magnitude, only the November 1929 bear market rally resulted in a better performance than what has occurred during the current rally to date.

Many of the analysts I follow are starting to lighten-up their long exposure. For example, Doug Kass called the top a week ago.  Likewise, Art Cashin said he is selling stock and taking some risk off the table.

If you were limited to "going-long" equity indices, then there would be a lot to worry about.  Instead, this situation creates other opportunities.  Let's look at some of them.  StockCharts.com is a good source for a bigger picture. The next chart shows how some of the these intermarket trade opportunities have done over the past month or so (like Gold, Bonds, Yen, US Dollar, Euro, and of course the S&P 500).

I was looking for Gold to break-out; however, I wasn't aware that other defensive plays, like Bonds or the Yen, have been doing so well recently.

By the way, the chart above 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.  You can also add or change the markets this comparison uses.

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

• Arrest Over Software Illuminates Wall Street Secret. (NYTimes)
• Fed Minutes Show It Expects Slow Growth Ahead. (NYTimes)
• Is China's Stockmarket an Indicator of Where Ours Is Going (Economist)
• China Begins to Open-Up to Private Equity. (WSJ)
• India's High-Flying Bank Stocks 130%+ from its March Lows. (WSJ)
• Six Months In: How Successful is the President's Leadership Style? (Wharton)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• EBay Gives Up Control of Skype to Private Investors. (NYTimes)
• Brazilian ID Thieves Using Twitter as BotNet Command Channel. (ZDNet)
• Amazon Web Services Rolls-Out Virtual Private Cloud for the Enterprise. (ZDNet)
• New iPhone App Uses Virtualization to Deliver Computer Desktops. (Forbes)
• How Long Does It Take to Build a Technology Empire? (WSJ)
• More Posts with Lighter Ideas and Fun Links.

Our credit market debt is approximately 375% of our Gross Domestic Product.  That caught my attention; it shows how much more burden the economy carries now than it did during the Great Depression.  The unemployment situation adds to that burden. 

If that isn't frightening enough, the next chart gives a slightly different perspective.  It helps visualize the cost of the government's massive action and stimulus.  Consequently, we are staring at the largest estimated budget deficit as a percentage of nominal GDP since World War II.  It wouldn't surprise me if the projected $1.84 trillion deficit for fiscal 2009 should soon prove to be a conservative estimate, and it moves above $2 Trillion.   Here is a recently updated chart of Federal Spending.

For more on this, here is a link to some interesting commentary from TCW Group.  The Great Debt Binge: A Tragedy in Three Acts. And this link from Crestmont Research has a different perspective.

Another Way For NASA to Get Back to the Moon.

There is talk that budget woes may hurt NASA's plans to get back to the moon.  Perhaps there is another way …

Current Market Commentary.

Speaking of rocket rides, once again the markets held up well, even after a worse-than-expected jobs data report shows the highest level of unemployment since 1983.  The equity markets have surprised many by consistently fighting off worries that they have climbed higher than economic fundamentals warrant.  However with September being a notoriously bad month, historically, for stocks … Concerns are high that a correction is likely as trading volume increases after the holiday weekend.

How Does This Rally Compare to the Great Depression Bear Rallies?

For some perspective on the current stock market rally and how it compares the 1929-1932 bear market, this chart illustrates the duration (calendar days) and magnitude (percent gain) of significant Dow rallies that occurred during the 1929-1932 bear market (solid blue dots). For example, the bear market rally that began in November 1929 lasted 155 calendar days and resulted in a gain of 48%. As this chart illustrates, the duration of the current Dow rally (in yellow highlight) is longer than any that occurred during the 1929-1932 bear market. As for magnitude, only the November 1929 bear market rally resulted in a better performance than what has occurred during the current rally to date.

Many of the analysts I follow are starting to lighten-up their long exposure. For example, Doug Kass called the top a week ago.  Likewise, Art Cashin said he is selling stock and taking some risk off the table.

If you were limited to "going-long" equity indices, then there would be a lot to worry about.  Instead, this situation creates other opportunities.  Let's look at some of them.  StockCharts.com is a good source for a bigger picture. The next chart shows how some of the these intermarket trade opportunities have done over the past month or so (like Gold, Bonds, Yen, US Dollar, Euro, and of course the S&P 500).

I was looking for Gold to break-out; however, I wasn't aware that other defensive plays, like Bonds or the Yen, have been doing so well recently.

By the way, the chart above 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.  You can also add or change the markets this comparison uses.

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

• Arrest Over Software Illuminates Wall Street Secret. (NYTimes)
• Fed Minutes Show It Expects Slow Growth Ahead. (NYTimes)
• Is China's Stockmarket an Indicator of Where Ours Is Going (Economist)
• China Begins to Open-Up to Private Equity. (WSJ)
• India's High-Flying Bank Stocks 130%+ from its March Lows. (WSJ)
• Six Months In: How Successful is the President's Leadership Style? (Wharton)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• EBay Gives Up Control of Skype to Private Investors. (NYTimes)
• Brazilian ID Thieves Using Twitter as BotNet Command Channel. (ZDNet)
• Amazon Web Services Rolls-Out Virtual Private Cloud for the Enterprise. (ZDNet)
• New iPhone App Uses Virtualization to Deliver Computer Desktops. (Forbes)
• How Long Does It Take to Build a Technology Empire? (WSJ)
• More Posts with Lighter Ideas and Fun Links.

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.

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.

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.

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.

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.