Market Commentary

Capitalogix Commentary 05/14/09
The Swine Flu made headlines again. Apparently, no one cares that the the U.N.'s World Health Organization officially declared the outbreak to be a "pandemic" this week. If you don't know what to look for, this picture illustrates some symptoms.

If the Markets' continued rally is taken as evidence, then it also appears that people don't care about the threats weighing down the economy. The Major U.S. Index Averages are holding above their 200-Day declining moving averages and overhead resistance. Also, Bespoke notes that eighty-four percent of the stocks in the S&P 500 are trading above their 50-day moving averages. With that said, momentum is waning … three months into the rally.

Of course, the length and staying power of the rally says something about how crowds work, and why the majority of traders are often wrong at turning points in the market. The following video makes the same point, a different way. On the surface, it starts with a lone male, dancing at a music festival. It is fascinating to watch what happens when other people feel the urge to get in on the fun. It takes about one-minute for people to start joining in. By two-minutes, there's a crowd. And by three, it's a mob.

Here is the direct link to the video on YouTube. This says something about human nature, doesn't it?

Business Posts Moving the Markets that I Found Interesting This Week:
- Ritholtz's Graphic: 7 Factors that Led to Crisis. (Big Picture)
- Sentiment Overview: Bulls Rushing in at Alarming Rate. (Seeking Alpha)
- Optimistic Unemployment & Housing Forecasts Looking Silly. (Global Economic Analysis)
- Poking Holes in Efficient Markets Theory. (NYTimes)
- If Volume Is Rally’s Fuel, We’re Running On Fumes. (Traders Narrative)
- Ranks Of Active VCs Dwindling By Any Measure. (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- The Top Twelve Funny Indicators That The Economy Is Bad. (Big Picture)
- Why Microsoft Windows 7 XP Mode is a Major Advancement. (eWeek)
- Making Fat Disappear with a Genetic Strategy from Bacteria. (Tech Review)
- When Sleep Leaves You Tired: It's the Quality, Not Quantity. (WSJ)
- When a 'Chosen' Tibetan Lama Says "No Thanks". (Time)
- How Twitter Will Change the Way We Live. (Time)
- More Posts with Lighter Ideas and Fun Links.
June 15, 2009
Capitalogix Commentary 06/07/09
Last week, as the Markets approached their 200-Day declining moving averages and overhead resistance, I said that a sustained break-out to the upside would be significant here.

Well, the Markets gapped higher last Monday, and held their ground. From most logical and technical perspectives the action has seemed relatively healthy considering the circumstances … three months into the rally.

It is somewhat funny that unemployment continues to go up, but people focus on how the increase is slowing. This seems to be happening on several fronts.

Frankly, from a trading perspective, a bullish response to bad news is a bullish sign. And I don't want to look a gift horse in the mouth, either. This Market is quite well-behaved, and has acted as if "Bull-Rules" apply. So, trade what the market gives you. Still, from another standpoint, I'd like to see a pull-back.

Money Shot: A Commentary On Investing.

What is so funny about this video is that the people being interviewed don't know they are a satire of the investment market as a whole. It is worth watching. Hope you enjoy it.

The Daily Show With Jon Stewart M – Th 11p / 10c

Money Shot

thedailyshow.com

Daily Show
Full Episodes Political Humor Economic Crisis

Business Posts Moving the Markets that I Found Interesting This Week:
- Jim Rogers 100% Long For The First Time Since '87. (Street Insider)
- New Bull: Does Rare Coppock Curve Pattern Signal the Next Move? (CNBC)
- Was 2008 an Outlier? Not as Much as You Might Think. (SeekingAlpha)
- Is Microsoft Repeating GM's Mistakes? (Infoworld)
- What Does Tivo's Patent Win Mean For Investors? (WSJ)
- Banks Raising Billions to Repay Government. (DealBook)
- Taleb's ‘Black Swan’ Hedge Fund Bets On Hyperinflation. (FinAlternatives)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Becoming a Savant: How To Unleash Your Brain's Inner Genius. (New Scientist)
- Why Meetings Suck: The Four Quadrants of Communication. (Integral Life)
- Will Google Wave Transform How You Communicate And Collaborate? (ZDNet)
- It Just Got Easier to Port Virtual Apps into the Cloud. (Tech Review)
- Microsoft Readies Incentives For You To Adopt Windows 7. (ZDNet)
- Personalized Medicine Could Be The Next Big Thing. (Forbes)
- How Casinos Find and Target Their Favorite Customers. (Wharton)
- More Posts with Lighter Ideas and Fun Links.
TXT
June 7, 2009
Capitalogix Commentary 05/31/09
A Different Form of Rescue for G.M., Through Bankruptcy.

President Obama will push General Motors into bankruptcy protection on Monday, making a risky economic and political bet that by nationalizing the onetime icon of American capitalism, he can save the company as a much smaller automaker that is competitive.

Still, The Market's Rally Persists.

The Markets continue to hold-up well three months into the rally. From my standpoint, I'd like to see a pull-back. However, the action has seemed relatively healthy considering the circumstances.

The chart below shows a daily view of the S&P 500 since its March lows. I marked the obvious Bull and Bear cases for your review. A sustained break-out to the upside would be significant here.

I don't normally post intra-day charts; however, Friday was interesting. We spent the day bouncing within a tight range … then somebody started buying. I hear people reference the "Boys" or the "Plunge Protection Team", or explain the push as "End-of-Month Window Dressing" or "Short-Covering." Here is an hourly chart showing Wednesday, Thursday, and Friday.

From my perspective, all it means was there was a lack of sellers. Let's see if they come back in June.

What Goes Up, Must Come Down: Or Does It?

The rally did not just happen here in America. This chart, from Bespoke, shows how far the fast growing developing countries have come this year.

When I see charts like this, one part of me thinks, "look how far they've come"; and another part of me thinks, "look how far they are likely to fall."

Business Posts Moving the Markets that I Found Interesting This Week:
- Sell In May? Not This Time … as the Rally Continued. (Seeking Alpha)
- Many Hedge Funds Caught Short by the Rally, Still Have Not Fully Bought-In. (WSJ)
- Will Money Flow Back Into The Markets, Or Will The Sidelines Stay Crowded? (WSJ)
- Economists Disagree Whether A Sustainable Recovery Has Begun. (Market Oracle)
- Hulbert's Contrarian Take On Consumer Confidence. (MarketWatch)
- Tivo Posts Loss As Its Growth Slows. (NYTimes)
- Dell Warns PC Market Hasn't Hit Bottom; Suffers 63% Drop In Quarterly Profit. (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Susan Boyle's Final Performance on the "Britain's Got Talent" Final. (YouTube)
- The Science of Voodoo – How Mind Attacks Body. (New
  Scientist)
- Shark Tank: New Reality Show Where Entrepreneurs Pitch To VCs. (WSJ Blogs)
- Is Cloud-Computing a Myth or a Worthy Goal? (Forbes)
- New Form of Warfare? Mysterious Computer Virus Strikes FBI. (ZDNet)
- Thought Provoking Article about Author-Strategist, Jim Collins. (NYTimes)
- How IBM Plans To Win Jeopardy! With
  Natural-Language Processing. (Tech Review)
- More Posts with Lighter Ideas and Fun Links.
May 31, 2009
Capitalogix Commentary 05/31/09
A Different Form of Rescue for G.M., Through Bankruptcy.

President Obama will push General Motors into bankruptcy protection on Monday, making a risky economic and political bet that by nationalizing the onetime icon of American capitalism, he can save the company as a much smaller automaker that is competitive.

Still, The Market's Rally Persists.

The Markets continue to hold-up well three months into the rally. From my standpoint, I'd like to see a pull-back. However, the action has seemed relatively healthy considering the circumstances.

The chart below shows a daily view of the S&P 500 since its March lows. I marked the obvious Bull and Bear cases for your review. A sustained break-out to the upside would be significant here.

I don't normally post intra-day charts; however, Friday was interesting. We spent the day bouncing within a tight range … then somebody started buying. I hear people reference the "Boys" or the "Plunge Protection Team", or explain the push as "End-of-Month Window Dressing" or "Short-Covering." Here is an hourly chart showing Wednesday, Thursday, and Friday.

From my perspective, all it means was there was a lack of sellers. Let's see if they come back in June.

What Goes Up, Must Come Down: Or Does It?

The rally did not just happen here in America. This chart, from Bespoke, shows how far the fast growing developing countries have come this year.

When I see charts like this, one part of me thinks, "look how far they've come"; and another part of me thinks, "look how far they are likely to fall."

Business Posts Moving the Markets that I Found Interesting This Week:
- Sell In May? Not This Time … as the Rally Continued. (Seeking Alpha)
- Many Hedge Funds Caught Short by the Rally, Still Have Not Fully Bought-In. (WSJ)
- Will Money Flow Back Into The Markets, Or Will The Sidelines Stay Crowded? (WSJ)
- Economists Disagree Whether A Sustainable Recovery Has Begun. (Market Oracle)
- Hulbert's Contrarian Take On Consumer Confidence. (MarketWatch)
- Tivo Posts Loss As Its Growth Slows. (NYTimes)
- Dell Warns PC Market Hasn't Hit Bottom; Suffers 63% Drop In Quarterly Profit. (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Susan Boyle's Final Performance on the "Britain's Got Talent" Final. (YouTube)
- The Science of Voodoo – How Mind Attacks Body. (New
  Scientist)
- Shark Tank: New Reality Show Where Entrepreneurs Pitch To VCs. (WSJ Blogs)
- Is Cloud-Computing a Myth or a Worthy Goal? (Forbes)
- New Form of Warfare? Mysterious Computer Virus Strikes FBI. (ZDNet)
- Thought Provoking Article about Author-Strategist, Jim Collins. (NYTimes)
- How IBM Plans To Win Jeopardy! With
  Natural-Language Processing. (Tech Review)
- More Posts with Lighter Ideas and Fun Links.
May 31, 2009
Capitalogix Commentary 05/24/09
A good magician misdirects your focus with clever patter, distracting gestures and a pretty assistant. Why does that remind me about the current state of market perception and the economy?

Perhaps in part because of the rosy picture the recent rally paints, while few notice the plunge in S&P 500 earnings. That means the great bargain you think you are buying isn't such a bargain.

Stocks Are Expensive Again.

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 current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Click here for a different perspective on this chart.

Precious Metals Are Performing Well.

At the same time, there is another trend worth watching. Money is moving to gold.

The chart displays the relative performance of several market sectors over the past few weeks. The chart below shows the same data, but compared to Gold as the baseline. It highlights how dramatically the other markets have under-performed recently.

The recent financial crisis has clearly re-ignited investor interest in precious metals. Many believe that gold and silver are good bets during tough times – and a hedge against inflation. So it doesn't surprise me that I'm hearing more investors using Warehouse Depositary Receipts to actually take delivery of the asset rather than just speculating.

What To Expect.

A short-term bounce wouldn't surprise me here. The markets have held-up fairly well after the big rally. So another test higher makes sense. However, based on the weakening internals, the intermediate-term outlook is looking more bearish to me.

Business Posts Moving the Markets that I Found Interesting This Week:
- Will the Fed's Medicine have Inflationary Side-Effects? (WSJ)
- Treasury's Next Phase Of Bank Rescue: Buying Toxic Assets. (Dealbook NYTimes)
- Two Tech IPOs This Week: Is The Dry Spell Over? (NYTimes)
- Financiers In China Are Getting Leery Of Dollars & Are Accumulating Gold. (Forbes)
- Russians Offers to Invest $200 Million in Facebook at $10 Billion valuation. (WSJ)
- Despite Russia's Struggling Economy, Its Market Surges. (NYTimes)
- Is A Low VIX Good? Not In My Experience. Who's Afraid Of the Bear? (Money)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- How Well Can You Live In India On $2 Per Day? (Slate)
- Verne Harnish Insights & Best Practices for Growing Leaders and Companies. (Blog)
- In Praise of Dullness: the CEO Traits That Most Help Them Thrive. (NYTimes)
- When Will Computer Intelligence Surpass Our Own? (NYTimes)
- IBM Unveils Software to Find Trends in Vast Data Sets. (NYTimes)
- Kindle Books Now Account for 35% of Sales When Available. (Business Insider)
- Why Predictions Based On Search Were Wrong About 'Idol' Winner. (MediaPost)
- More Posts with Lighter Ideas and Fun Links.
May 24, 2009
Capitalogix Commentary 05/24/09
A good magician misdirects your focus with clever patter, distracting gestures and a pretty assistant. Why does that remind me about the current state of market perception and the economy?

Perhaps in part because of the rosy picture the recent rally paints, while few notice the plunge in S&P 500 earnings. That means the great bargain you think you are buying isn't such a bargain.

Stocks Are Expensive Again.

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 current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Click here for a different perspective on this chart.

Precious Metals Are Performing Well.

At the same time, there is another trend worth watching. Money is moving to gold.

The chart displays the relative performance of several market sectors over the past few weeks. The chart below shows the same data, but compared to Gold as the baseline. It highlights how dramatically the other markets have under-performed recently.

The recent financial crisis has clearly re-ignited investor interest in precious metals. Many believe that gold and silver are good bets during tough times – and a hedge against inflation. So it doesn't surprise me that I'm hearing more investors using Warehouse Depositary Receipts to actually take delivery of the asset rather than just speculating.

What To Expect.

A short-term bounce wouldn't surprise me here. The markets have held-up fairly well after the big rally. So another test higher makes sense. However, based on the weakening internals, the intermediate-term outlook is looking more bearish to me.

Business Posts Moving the Markets that I Found Interesting This Week:
- Will the Fed's Medicine have Inflationary Side-Effects? (WSJ)
- Treasury's Next Phase Of Bank Rescue: Buying Toxic Assets. (Dealbook NYTimes)
- Two Tech IPOs This Week: Is The Dry Spell Over? (NYTimes)
- Financiers In China Are Getting Leery Of Dollars & Are Accumulating Gold. (Forbes)
- Russians Offers to Invest $200 Million in Facebook at $10 Billion valuation. (WSJ)
- Despite Russia's Struggling Economy, Its Market Surges. (NYTimes)
- Is A Low VIX Good? Not In My Experience. Who's Afraid Of the Bear? (Money)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- How Well Can You Live In India On $2 Per Day? (Slate)
- Verne Harnish Insights & Best Practices for Growing Leaders and Companies. (Blog)
- In Praise of Dullness: the CEO Traits That Most Help Them Thrive. (NYTimes)
- When Will Computer Intelligence Surpass Our Own? (NYTimes)
- IBM Unveils Software to Find Trends in Vast Data Sets. (NYTimes)
- Kindle Books Now Account for 35% of Sales When Available. (Business Insider)
- Why Predictions Based On Search Were Wrong About 'Idol' Winner. (MediaPost)
- More Posts with Lighter Ideas and Fun Links.
May 24, 2009
Capitalogix Commentary 05/17/09
As expected, the Markets have hit some resistance and are losing momentum.

It will be interesting to see whether people view this as an investment opportunity … or the beginning of the next leg down.

The "new rally" offensive sectors are now under-performing. In particular, Consumer Discretionary and Technology sectors are showing weakness. In contrast, the defensive sectors are outperforming … with Healthcare, Utilities, and Consumer Staples showing relative strength. Energy
is also outperforming the broader market.

Even though this change is
relatively new, it does show a change in risk appetite. Investors and
traders are turning more cautious on the market overall.

Here is a chart showing where the NYSE finds itself.

Are Small Investors Paying Attention?

Marty Chenard's StockTiming site often highlights interesting trading ideas and statistics. The chart below is from his site, and shows how large investors and small investors reacted differently to market conditions earlier this week.

The chart shows the volume of Advancing and/or Declining shares for the New York Stock
Exchange, the NASDAQ, the American Stock Exchange, and the Over The
Counter Bulletin Board. (OTC stocks are generally unlisted stocks
which trade on the Over the Counter Bulletin Board (OTCBB) or on the
pink sheets.)

It is easy to see that larger investors were taking profits … while smaller investors were still buying.

That would be significant if it continues.

Business Posts Moving the Markets that I Found Interesting This Week:
- Why Economists Failed To Predict The Financial Crisis. (Wharton)
- Insider Selling: Disney Finance Chief's $1.9 Million Sale. (Barrons)
- Green Shoots Or False Hope About Economic Recovery? (FT)
- Stock-Market Sages Say Worst Is To Come. (TheStreet.com)
- How The Govt Made Economic Problems To Justify Its Solutions. (Forbes)
- Banks Pass Stress Test – Regulators Fail Ethics Test. (Hussman)
- Why Did Cash-Rich Microsoft Sell Its First Bonds? (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Is Google Insurmountable? (WSJ Blogs)
- The Rebirth Of News: Papers Are Folding as News Flourishes On The Internet. (Economist)
- Asking A Machine To Spot Threats Human Eyes Miss. (Technology Review)
- A New Type Of War Game At West Point; Training For Cyber Foes. (NYT)
- The CIO's Dilemma: How Long Can You Do More With Less? (Forbes)
- Creative Minds – The Links Between Mental Illness And Creativity (Independent Uk)
- Vitamins Found To Curb Exercise Benefits: Are Antioxidants the Problem? (NYT)
- More Posts with Lighter Ideas and Fun Links.
May 17, 2009
Capitalogix Commentary 05/17/09
As expected, the Markets have hit some resistance and are losing momentum.

It will be interesting to see whether people view this as an investment opportunity … or the beginning of the next leg down.

The "new rally" offensive sectors are now under-performing. In particular, Consumer Discretionary and Technology sectors are showing weakness. In contrast, the defensive sectors are outperforming … with Healthcare, Utilities, and Consumer Staples showing relative strength. Energy
is also outperforming the broader market.

Even though this change is
relatively new, it does show a change in risk appetite. Investors and
traders are turning more cautious on the market overall.

Here is a chart showing where the NYSE finds itself.

Are Small Investors Paying Attention?

Marty Chenard's StockTiming site often highlights interesting trading ideas and statistics. The chart below is from his site, and shows how large investors and small investors reacted differently to market conditions earlier this week.

The chart shows the volume of Advancing and/or Declining shares for the New York Stock
Exchange, the NASDAQ, the American Stock Exchange, and the Over The
Counter Bulletin Board. (OTC stocks are generally unlisted stocks
which trade on the Over the Counter Bulletin Board (OTCBB) or on the
pink sheets.)

It is easy to see that larger investors were taking profits … while smaller investors were still buying.

That would be significant if it continues.

Business Posts Moving the Markets that I Found Interesting This Week:
- Why Economists Failed To Predict The Financial Crisis. (Wharton)
- Insider Selling: Disney Finance Chief's $1.9 Million Sale. (Barrons)
- Green Shoots Or False Hope About Economic Recovery? (FT)
- Stock-Market Sages Say Worst Is To Come. (TheStreet.com)
- How The Govt Made Economic Problems To Justify Its Solutions. (Forbes)
- Banks Pass Stress Test – Regulators Fail Ethics Test. (Hussman)
- Why Did Cash-Rich Microsoft Sell Its First Bonds? (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Is Google Insurmountable? (WSJ Blogs)
- The Rebirth Of News: Papers Are Folding as News Flourishes On The Internet. (Economist)
- Asking A Machine To Spot Threats Human Eyes Miss. (Technology Review)
- A New Type Of War Game At West Point; Training For Cyber Foes. (NYT)
- The CIO's Dilemma: How Long Can You Do More With Less? (Forbes)
- Creative Minds – The Links Between Mental Illness And Creativity (Independent Uk)
- Vitamins Found To Curb Exercise Benefits: Are Antioxidants the Problem? (NYT)
- More Posts with Lighter Ideas and Fun Links.
May 17, 2009
Capitalogix Commentary 05/10/09
The market has been tenaciously bullish recently. Apparently it's working, because I hear an increasing amount of people optimistic about the markets.

I'm glad that our trading is based on mechanical models, because recently mechanical models have worked quite well.

Personally, though, I'm feeling a lot more cautious. The markets seem pathologically bullish; and I am looking for a pull-back.

What concerns me is that we haven't seen the back and forth … two steps forward, then one step back, rhythm that I've come to trust. Instead I sense something artificial and likely to break down. For example, since this rally began in early March, there have only been four days with negative reversals greater than 1%.

Can The Economies Of This Many Countries All Get Fixed At The Same Time?

Moreover, a quick glance around the globe shows remarkably similar bullish performance in many markets.

To get a closer look for yourself, here is a link to the charts.

Other Signs That We're Approaching Over-Extended.

I'm starting to see the Smart Money lighten up their bets at the same time I'm seeing retail investors starting to get back into the game; and the VIX is at a low not seen since last September. It feels like we are getting close to the type of confidence spread that often immediately precedes a major turning point. It is the point where the market is making higher highs, while smart traders are becoming more risk-averse. This negative divergence often perceives market pullbacks.

Again, in my opinion, a pullback from this level is expected and perhaps even healthy. What I'm looking for is to see a healthy correction and then, hopefully, organic buying from the Smart Money.

Elliott Wave Pattern.

I was talking to a friend of mine who successfully trades using Elliott Wave as a framework for understanding the market. And I thought this might be an interesting time to re-visit this technique.

The premise is that the market doesn't affect sentiment. Rather, it is the other way around; collective sentiment affects the market. And that while markets change, human nature doesn't … consequently, predictable patterns play out over and over again.

While I now look at Elliott Wave more as a way of understanding what the market has done (rather than a great predictor of what it will do next), I do believe it is helpful in getting a sense of the next likely swing.

Here is a chart that shows the basic sequence and an example of the sentiment causing the move.

The next chart shows that a similar sequence often happens in both directions.

All this reminded me that I have a piece of software called the Advanced GET, which uses a pretty clever algorithm for identifying some of the simpler Gann and Elliott Wave trading patterns. So I dusted-it-off, fired-it-up, and started playing around.

Looking at a weekly chart of the NASDAQ, it's very easy to envision
a five wave sequence as follows.

Note that the wave five target
is beneath the recent lows. And that the wave four pullback takes us back to the top of the channel … and seems to have textbook Elliott Wave size,
slope, and timing.

Again, I don't trade
the Elliott Wave. Yet it fascinates me, and is something
that I do pay attention to as a framework. Add to all this that the daily chart of the NASDAQ shows
that price is stalled at its 200 day moving average, and I'm certainly going to be wary of a pull-back here.

Business Posts Moving the Markets that I Found Interesting This Week:
- Is The Recession Over? (Forbes)
- Wall St Continues to Rally; S&P positive for '09. (Reuters)
- Bernanke's Outlook A Bit Brighter, But Forecasts Slow Recovery. (WP)
- The End Of The IPO Drought Is Coming. (A VC)
- Venture Capital's Dilemma: the prescription for curing IPO ills. (Forbes)
- Economic View – Depression Scares Are Hardly New. (NYT)
- Feds Bailing Out States. (TDB)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- The Science Of Concentration: Multi-Tasking Is A Myth. (NYT)
- Amazon's Secret Weapon: Recommendations Based On Your Interests. (Forbes)
- Coldplay Plagiarism Claims Filed By Three Artists (PopEater)
- Funny Video – Real Life Twitter (E-Guiders)
- Microsoft's Ozzie On Web Strategy & the Next Big Thing In Tech. (Forbes)
- Shorter URLs Provide Real Value and Make Tracking Easier (NYTimes)
- Publishers Nurture Rivals To Kindle (WSJ)
- More Posts with Lighter Ideas and Fun Links.
May 10, 2009
Capitalogix Commentary 05/10/09
The market has been tenaciously bullish recently. Apparently it's working, because I hear an increasing amount of people optimistic about the markets.

I'm glad that our trading is based on mechanical models, because recently mechanical models have worked quite well.

Personally, though, I'm feeling a lot more cautious. The markets seem pathologically bullish; and I am looking for a pull-back.

What concerns me is that we haven't seen the back and forth … two steps forward, then one step back, rhythm that I've come to trust. Instead I sense something artificial and likely to break down. For example, since this rally began in early March, there have only been four days with negative reversals greater than 1%.

Can The Economies Of This Many Countries All Get Fixed At The Same Time?

Moreover, a quick glance around the globe shows remarkably similar bullish performance in many markets.

To get a closer look for yourself, here is a link to the charts.

Other Signs That We're Approaching Over-Extended.

I'm starting to see the Smart Money lighten up their bets at the same time I'm seeing retail investors starting to get back into the game; and the VIX is at a low not seen since last September. It feels like we are getting close to the type of confidence spread that often immediately precedes a major turning point. It is the point where the market is making higher highs, while smart traders are becoming more risk-averse. This negative divergence often perceives market pullbacks.

Again, in my opinion, a pullback from this level is expected and perhaps even healthy. What I'm looking for is to see a healthy correction and then, hopefully, organic buying from the Smart Money.

Elliott Wave Pattern.

I was talking to a friend of mine who successfully trades using Elliott Wave as a framework for understanding the market. And I thought this might be an interesting time to re-visit this technique.

The premise is that the market doesn't affect sentiment. Rather, it is the other way around; collective sentiment affects the market. And that while markets change, human nature doesn't … consequently, predictable patterns play out over and over again.

While I now look at Elliott Wave more as a way of understanding what the market has done (rather than a great predictor of what it will do next), I do believe it is helpful in getting a sense of the next likely swing.

Here is a chart that shows the basic sequence and an example of the sentiment causing the move.

The next chart shows that a similar sequence often happens in both directions.

All this reminded me that I have a piece of software called the Advanced GET, which uses a pretty clever algorithm for identifying some of the simpler Gann and Elliott Wave trading patterns. So I dusted-it-off, fired-it-up, and started playing around.

Looking at a weekly chart of the NASDAQ, it's very easy to envision
a five wave sequence as follows.

Note that the wave five target
is beneath the recent lows. And that the wave four pullback takes us back to the top of the channel … and seems to have textbook Elliott Wave size,
slope, and timing.

Again, I don't trade
the Elliott Wave. Yet it fascinates me, and is something
that I do pay attention to as a framework. Add to all this that the daily chart of the NASDAQ shows
that price is stalled at its 200 day moving average, and I'm certainly going to be wary of a pull-back here.

Business Posts Moving the Markets that I Found Interesting This Week:
- Is The Recession Over? (Forbes)
- Wall St Continues to Rally; S&P positive for '09. (Reuters)
- Bernanke's Outlook A Bit Brighter, But Forecasts Slow Recovery. (WP)
- The End Of The IPO Drought Is Coming. (A VC)
- Venture Capital's Dilemma: the prescription for curing IPO ills. (Forbes)
- Economic View – Depression Scares Are Hardly New. (NYT)
- Feds Bailing Out States. (TDB)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- The Science Of Concentration: Multi-Tasking Is A Myth. (NYT)
- Amazon's Secret Weapon: Recommendations Based On Your Interests. (Forbes)
- Coldplay Plagiarism Claims Filed By Three Artists (PopEater)
- Funny Video – Real Life Twitter (E-Guiders)
- Microsoft's Ozzie On Web Strategy & the Next Big Thing In Tech. (Forbes)
- Shorter URLs Provide Real Value and Make Tracking Easier (NYTimes)
- Publishers Nurture Rivals To Kindle (WSJ)
- More Posts with Lighter Ideas and Fun Links.
May 10, 2009