Market Commentary

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.

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.

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

• Can ‘Cash for Clunkers’ Help Jump-start the Auto Industry? (Wharton)
• More Stimulus: Senate Adds $2 Billion to ‘Clunkers’ Plan. (WSJ)
• Job Losses Slow to 247,000; Unemployment Rate Dips. (WPost)
• Will Apple’s iTouch Tablet Will Become Its Flagship Product? (Seeking Alpha)
• What the Hotness of Your Waitress Says About the Economy? (NY Mag)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Google Developing An Operating System for the Cloud (TechReview)
• Did Cyber-Warfare Tactics Take Down Twitter & FB This Week? (TechChuck)
• NFL Formulating Game Day Twitter Policy (WPost)
• Protect Yourself Against Social Media Identity Hijacking. (MediaPost)
• Innovation Is A Hot Topic For Big Businesses Too. (NYTimes)
• More Posts with Lighter Ideas and Fun Links.

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.

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

• Can ‘Cash for Clunkers’ Help Jump-start the Auto Industry? (Wharton)
• More Stimulus: Senate Adds $2 Billion to ‘Clunkers’ Plan. (WSJ)
• Job Losses Slow to 247,000; Unemployment Rate Dips. (WPost)
• Will Apple’s iTouch Tablet Will Become Its Flagship Product? (Seeking Alpha)
• What the Hotness of Your Waitress Says About the Economy? (NY Mag)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Google Developing An Operating System for the Cloud (TechReview)
• Did Cyber-Warfare Tactics Take Down Twitter & FB This Week? (TechChuck)
• NFL Formulating Game Day Twitter Policy (WPost)
• Protect Yourself Against Social Media Identity Hijacking. (MediaPost)
• Innovation Is A Hot Topic For Big Businesses Too. (NYTimes)
• More Posts with Lighter Ideas and Fun Links.

Goldman Sachs announced massive profits of almost $3.5 Billion this Quarter.  On one hand that is great.  On the other, does it make you wonder where and how they made that money? 

On a related note, Bespoke notes that, in the first half of the year, Goldman set-aside over $11 Billion to compensate its employees.  Nice work if you can get it.

The Stimulus Plan.

The economy, and the mood about the economy, seem to be doing a little better. I give credit for the effort.  Though, I am watching spending and employment numbers to tell me more of the story.

Some Market Charts.

For the past few weeks, many people have been watching the potential head and shoulders pattern. Its failure to trigger caused many people to cover their short positions. This was probably the primary catalyst for the “Oops” trade that took the market back near its recent highs.

Those recent highs are interesting to me for several reasons. First, they’ve held since early June. Second, and potentially more importantly, they may be part of a much bigger pattern forming on the major U.S. equity indices. 

Here is a picture of the S&P 500 Index. Notice the potential inverse head and shoulders bottom pattern (marked in orange).  If it triggers (shown by the green neckline of resistance), and if it hits the measured target (shown by the purple arrows), then it is certainly worth watching.  Of course, that is a lot of “ifs”.

Some Things to Watch.

So, the upside is clear, take out the June highs and see if we get some buying volume. However, I can’t get excited, yet.  There are a number of things holding back my enthusiasm. Right off the top-of-my-head: jobs, spending, lack of volume, and the failure to trade above recent highs.

However, another thing I’m watching is that recent moves up in the market were met with an increase in the VIX (instead of the expected inverse relationship).  Here is a picture from Marty Chenard’s chart service called StockTiming.com.

Recently, it bothered me that the VIX failed to show a spike of fear when the market was going down. And now, the VIX is bothering me because it’s going up when the market goes up. So, either this is not a good time to follow the VIX for trading guidance, or the VIX is indicating that something unusual is happening in the markets.  Either way, it makes me cautious.  What about you?

While I expected a short-term rally, I still believe that the markets are due for an intermediate-term move downwards. However, neither logic, intuition, nor economics are primary indicators. Price is the primary indicator; and it has been moving upwards.

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

• Wall Street 2015: Has It Changed Forever? (Forbes)
• Goldman Had Huge Profits – Why are Executives Selling? (Dealbook)
• Intel Gives Upbeat Outlook as Sales Revive. (WSJ)
• Dell Shares Dive as PC Market Still Looks Rough. (Technology Review)
• McGraw-Hill’s Seeking a Buyer for BusinessWeek. (WSJ)
• Ways Apple Is Extending Its Lead Via 3rd-Party iPhone Apps. (WSJ)
• Help Is On the Way for Credit-Starved Small Businesses. (Forbes)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• If The Jetsons Had Email, What Would it Look Like? (MediaPost)
• Building a Biologically Accurate Artificial Brain. (WSJ)
• Why Some People Sneeze When the Sun Comes Out? (New Scientist)
• Even the Homeless Use Facebook to Stay Wired. (WSJ)
• Can Companies Profit By Giving Away Digital Products & Services? (NYTimes)
• Microsoft Office 2010 Preview in Pictures (eWeek)
• Get Your Wisdom: Well Done Summaries of Big Ideas. (Philosopher’s Notes)
• More Posts with Lighter Ideas and Fun Links.

Goldman Sachs announced massive profits of almost $3.5 Billion this Quarter.  On one hand that is great.  On the other, does it make you wonder where and how they made that money? 

On a related note, Bespoke notes that, in the first half of the year, Goldman set-aside over $11 Billion to compensate its employees.  Nice work if you can get it.

The Stimulus Plan.

The economy, and the mood about the economy, seem to be doing a little better. I give credit for the effort.  Though, I am watching spending and employment numbers to tell me more of the story.

Some Market Charts.

For the past few weeks, many people have been watching the potential head and shoulders pattern. Its failure to trigger caused many people to cover their short positions. This was probably the primary catalyst for the “Oops” trade that took the market back near its recent highs.

Those recent highs are interesting to me for several reasons. First, they’ve held since early June. Second, and potentially more importantly, they may be part of a much bigger pattern forming on the major U.S. equity indices. 

Here is a picture of the S&P 500 Index. Notice the potential inverse head and shoulders bottom pattern (marked in orange).  If it triggers (shown by the green neckline of resistance), and if it hits the measured target (shown by the purple arrows), then it is certainly worth watching.  Of course, that is a lot of “ifs”.

Some Things to Watch.

So, the upside is clear, take out the June highs and see if we get some buying volume. However, I can’t get excited, yet.  There are a number of things holding back my enthusiasm. Right off the top-of-my-head: jobs, spending, lack of volume, and the failure to trade above recent highs.

However, another thing I’m watching is that recent moves up in the market were met with an increase in the VIX (instead of the expected inverse relationship).  Here is a picture from Marty Chenard’s chart service called StockTiming.com.

Recently, it bothered me that the VIX failed to show a spike of fear when the market was going down. And now, the VIX is bothering me because it’s going up when the market goes up. So, either this is not a good time to follow the VIX for trading guidance, or the VIX is indicating that something unusual is happening in the markets.  Either way, it makes me cautious.  What about you?

While I expected a short-term rally, I still believe that the markets are due for an intermediate-term move downwards. However, neither logic, intuition, nor economics are primary indicators. Price is the primary indicator; and it has been moving upwards.

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

• Wall Street 2015: Has It Changed Forever? (Forbes)
• Goldman Had Huge Profits – Why are Executives Selling? (Dealbook)
• Intel Gives Upbeat Outlook as Sales Revive. (WSJ)
• Dell Shares Dive as PC Market Still Looks Rough. (Technology Review)
• McGraw-Hill’s Seeking a Buyer for BusinessWeek. (WSJ)
• Ways Apple Is Extending Its Lead Via 3rd-Party iPhone Apps. (WSJ)
• Help Is On the Way for Credit-Starved Small Businesses. (Forbes)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• If The Jetsons Had Email, What Would it Look Like? (MediaPost)
• Building a Biologically Accurate Artificial Brain. (WSJ)
• Why Some People Sneeze When the Sun Comes Out? (New Scientist)
• Even the Homeless Use Facebook to Stay Wired. (WSJ)
• Can Companies Profit By Giving Away Digital Products & Services? (NYTimes)
• Microsoft Office 2010 Preview in Pictures (eWeek)
• Get Your Wisdom: Well Done Summaries of Big Ideas. (Philosopher’s Notes)
• More Posts with Lighter Ideas and Fun Links.