Market Commentary

  • Capitalogix Commentary 05/01/09

    "Sell in May and Go Away" is a popular market aphorism.  Still, the markets continue to hold up well despite less than favorable news.  Usually I consider that a bullish sign.

    This chart shows that the S&P 500 Index has dropped dramatically the past two times it rose above its upper Bollinger Band line (indicating a market high), while the Bollinger Band Width was narrow (indicating low volatility).  Well that is where we are again, and with low volume as well. 

    090501 SP500 BB Squeeze

    I am watching the 20 day moving average (which also serves as the recent up-move's trend line).  A break below that might trigger another big move down).

    This Week's Featured Market Chart.

    Many investors have looked at the early 1930s for some insight into the current economic/stock market environment. While there are significant differences in the global economy and political landscape between the current environment and that what occurred in the early 1930s, there are also many similarities (bank failures, bankruptcies, severe market declines, etc.).

    For
    some perspective on the current stock market rally that began on March
    9th, the chart below illustrates the duration (calendar days) and
    magnitude (percent gain) of all significant Dow rallies that occurred
    during the 1929-1932 bear market (solid blue dots). For example, the
    bear market rally that began in October 1931 lasted 35 calendar days
    and resulted in a gain of 35%. As this chart illustrates, the current
    Dow rally (hollow blue dot with the pale yellow "You are here" label)
    is slightly below average in both duration and magnitude relative to
    the average 1929-1932 bear market rally (hollow red dot, with the pale
    blue label).

    090501 Chart of the Day Bear Rally Comparison

    So, as big as this rally seems … It still might be a bear market rally.

    What's Happening In the Legal Industry Says A Lot About the Market.

    I
    used to be a lawyer, and still have a number of friends who practice
    law. I don't normally use law firm data as a trading indicator; but
    these are not normal times.  I suspect that there are a number of early
    indicators we can glean from watching this industry sector.

    090501 Bankruptcy Law is Hot First,
    this weekend a bankruptcy partner in a large Dallas firm told me that
    he is seeing a big upswing in business. This implies a big increase in
    the number of bankruptcies to be filed in the coming months. I'm
    hearing similar things from friends around the country; that right now,
    the hottest section in many law firms is its bankruptcy practice.

    I
    think that means that the economy hasn't fully digested the damage done
    by the economic slow-down.  Frankly, I'd be surprised if it had.

    The
    other side of that coin is that law firms are downsizing and laying-off
    people because there simply isn't as much transactional work as there
    used to be.  The big example here is that Skadden Arps offered its associates one-third of their pay to take the year off.

    At
    Skadden, I'm sure many of them thought, nice work if you can get it. 
    However, I also suspect that a lot of talent will jump ship to
    corporate jobs.

    This might be the economic season that lawyers
    start to pursue other business interests.  Historically that has often
    been a positive mutation for businesses.  Research shows that a
    disproportionate number of corporate executives have legal degrees. 
    So, I'm looking for more lawyers to join start-ups roll-ups during the
    next downturn.  And I'll take that as an early indicator of recovery.

    When
    legal transactional work starts picking-up again because of mergers and
    acquisitions … I'll take that as an even better indicator that the
    recovery underway.

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

    • Stocks End Higher As Fed Sees Recession Easing. (AP)
    • Only 37% of WSJ Readers Said They Think The Economy Is Improving. (Forums)
    • Semiconductor Sales Fall 30%, Continuing Sharpest Downturn In Years. (WSJ)
    • In Major Shift, Apple Builds Its Own Team to Design Chips. (WSJ)
    • Starbucks Reports Steep Earnings Decline. (NYTimes)
    • Microsoft and Verizon in Talks to Launch iPhone Rival. (WSJ)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 05/01/09

    "Sell in May and Go Away" is a popular market aphorism.  Still, the markets continue to hold up well despite less than favorable news.  Usually I consider that a bullish sign.

    This chart shows that the S&P 500 Index has dropped dramatically the past two times it rose above its upper Bollinger Band line (indicating a market high), while the Bollinger Band Width was narrow (indicating low volatility).  Well that is where we are again, and with low volume as well. 

    090501 SP500 BB Squeeze

    I am watching the 20 day moving average (which also serves as the recent up-move's trend line).  A break below that might trigger another big move down).

    This Week's Featured Market Chart.

    Many investors have looked at the early 1930s for some insight into the current economic/stock market environment. While there are significant differences in the global economy and political landscape between the current environment and that what occurred in the early 1930s, there are also many similarities (bank failures, bankruptcies, severe market declines, etc.).

    For
    some perspective on the current stock market rally that began on March
    9th, the chart below illustrates the duration (calendar days) and
    magnitude (percent gain) of all significant Dow rallies that occurred
    during the 1929-1932 bear market (solid blue dots). For example, the
    bear market rally that began in October 1931 lasted 35 calendar days
    and resulted in a gain of 35%. As this chart illustrates, the current
    Dow rally (hollow blue dot with the pale yellow "You are here" label)
    is slightly below average in both duration and magnitude relative to
    the average 1929-1932 bear market rally (hollow red dot, with the pale
    blue label).

    090501 Chart of the Day Bear Rally Comparison

    So, as big as this rally seems … It still might be a bear market rally.

    What's Happening In the Legal Industry Says A Lot About the Market.

    I
    used to be a lawyer, and still have a number of friends who practice
    law. I don't normally use law firm data as a trading indicator; but
    these are not normal times.  I suspect that there are a number of early
    indicators we can glean from watching this industry sector.

    090501 Bankruptcy Law is Hot First,
    this weekend a bankruptcy partner in a large Dallas firm told me that
    he is seeing a big upswing in business. This implies a big increase in
    the number of bankruptcies to be filed in the coming months. I'm
    hearing similar things from friends around the country; that right now,
    the hottest section in many law firms is its bankruptcy practice.

    I
    think that means that the economy hasn't fully digested the damage done
    by the economic slow-down.  Frankly, I'd be surprised if it had.

    The
    other side of that coin is that law firms are downsizing and laying-off
    people because there simply isn't as much transactional work as there
    used to be.  The big example here is that Skadden Arps offered its associates one-third of their pay to take the year off.

    At
    Skadden, I'm sure many of them thought, nice work if you can get it. 
    However, I also suspect that a lot of talent will jump ship to
    corporate jobs.

    This might be the economic season that lawyers
    start to pursue other business interests.  Historically that has often
    been a positive mutation for businesses.  Research shows that a
    disproportionate number of corporate executives have legal degrees. 
    So, I'm looking for more lawyers to join start-ups roll-ups during the
    next downturn.  And I'll take that as an early indicator of recovery.

    When
    legal transactional work starts picking-up again because of mergers and
    acquisitions … I'll take that as an even better indicator that the
    recovery underway.

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

    • Stocks End Higher As Fed Sees Recession Easing. (AP)
    • Only 37% of WSJ Readers Said They Think The Economy Is Improving. (Forums)
    • Semiconductor Sales Fall 30%, Continuing Sharpest Downturn In Years. (WSJ)
    • In Major Shift, Apple Builds Its Own Team to Design Chips. (WSJ)
    • Starbucks Reports Steep Earnings Decline. (NYTimes)
    • Microsoft and Verizon in Talks to Launch iPhone Rival. (WSJ)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/24/09

    How much is a Trillion? If you were paid a dollar per second, it would take you 31,709 years to earn a Trillion dollars.

    If you are more graphic,

    How Much is Trillion 600p

    this link will show you how much it is in more detail.

    To put things in perspective, now think about Bailout … or that the IMF released its Global Financial Stability Report this week; and it's projecting total losses from the global financial crisis to reach $4.1 Trillion.

    This Week's Market Charts.

    The Markets held up nicely after a sell-off early last week.  Technology is still leading and the Dow has been lagging a little.  Other things nagging at me about the rally is that momentum is fading and volume hasn't been great.  Here is a chart showing how the Dow is positioned at key support and resistance levels.

    090424 Dow at Key Level

    Trader's Narrative had a chart that caught my eye. It shows that the short term moving average of the CBOE (equity only) Put-Call ratio is still quite low, corresponding to market tops. Adjusting for the upward sloping range of the data we find it at a similar level to October 2007.

    0904 5 Years of CBOE Put-Call Ratio

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

    • Microsoft Disappoints A day after Apple Didn't. (BW)
    • Amazon Net Jumps 24%, Resisting Recession (WSJ)
    • Hope, Greed and Fear: The Psychology Behind the Financial Crisis (Wharton)
    • An interactive map of vanishing employment across the country.(Slate)
    • Second Market: A New Form of Public Offering Is Emerging (A VC)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/24/09

    How much is a Trillion? If you were paid a dollar per second, it would take you 31,709 years to earn a Trillion dollars.

    If you are more graphic,

    How Much is Trillion 600p

    this link will show you how much it is in more detail.

    To put things in perspective, now think about Bailout … or that the IMF released its Global Financial Stability Report this week; and it's projecting total losses from the global financial crisis to reach $4.1 Trillion.

    This Week's Market Charts.

    The Markets held up nicely after a sell-off early last week.  Technology is still leading and the Dow has been lagging a little.  Other things nagging at me about the rally is that momentum is fading and volume hasn't been great.  Here is a chart showing how the Dow is positioned at key support and resistance levels.

    090424 Dow at Key Level

    Trader's Narrative had a chart that caught my eye. It shows that the short term moving average of the CBOE (equity only) Put-Call ratio is still quite low, corresponding to market tops. Adjusting for the upward sloping range of the data we find it at a similar level to October 2007.

    0904 5 Years of CBOE Put-Call Ratio

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

    • Microsoft Disappoints A day after Apple Didn't. (BW)
    • Amazon Net Jumps 24%, Resisting Recession (WSJ)
    • Hope, Greed and Fear: The Psychology Behind the Financial Crisis (Wharton)
    • An interactive map of vanishing employment across the country.(Slate)
    • Second Market: A New Form of Public Offering Is Emerging (A VC)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/17/09

    090417 Bear in the Wings Stocks continued their advance this week.  The U.S. Markets moved higher for the sixth week in a row. Yet, it was just the seventh positive week for those indices in 2009. 

    It is worth noting that the bulk of earnings begin to hit this week. We'll see if people continue to buy into bad news. I'm watching for a change in sentiment.

    Long-Term Market Reminder: We have been in a bear market.  So, until proven otherwise, basic trend-following theory implies that the higher probability trades will be on the short side.  That means selling rallies until the bear market ends.

    I sense a renewed interest in the market recently by retail investors. For example, just this week I had conversations with several people telling me that they regret not buying Apple and Goldman Sachs while they were down.  I tend to hear this type of conversation at tops.  Here is Goldman's chart.

    090417 GS Topping

    It is also worth noting that there are reports that Goldman's Q1 Profit was non-recurring and a result of AIG unwinds. Add that to the fact that there we have seen poor bank earnings so far. Yet, it seems that the market sees a much higher likelihood of future financial solvency than it did just two months ago.  Still, this is a sector I'm watching for signs of weakness.  The next chart will explain why.

    Here is an interesting chart related to banks from Crossing Wall Street. It could be titled "The Earthquake That's Shaking Our Markets".  It shows recent volatility of Banking Index.

    090417 Daily Change in Banking Index Since 2004

    Finally, I thought this was funny. Our peaceful pacifist president has become Obama The Pirate Killer.  Yeah, I know, the SEALs did it … But I like the chart anyway.

    090417 Obama The Pirate Killer

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/17/09

    090417 Bear in the Wings Stocks continued their advance this week.  The U.S. Markets moved higher for the sixth week in a row. Yet, it was just the seventh positive week for those indices in 2009. 

    It is worth noting that the bulk of earnings begin to hit this week. We'll see if people continue to buy into bad news. I'm watching for a change in sentiment.

    Long-Term Market Reminder: We have been in a bear market.  So, until proven otherwise, basic trend-following theory implies that the higher probability trades will be on the short side.  That means selling rallies until the bear market ends.

    I sense a renewed interest in the market recently by retail investors. For example, just this week I had conversations with several people telling me that they regret not buying Apple and Goldman Sachs while they were down.  I tend to hear this type of conversation at tops.  Here is Goldman's chart.

    090417 GS Topping

    It is also worth noting that there are reports that Goldman's Q1 Profit was non-recurring and a result of AIG unwinds. Add that to the fact that there we have seen poor bank earnings so far. Yet, it seems that the market sees a much higher likelihood of future financial solvency than it did just two months ago.  Still, this is a sector I'm watching for signs of weakness.  The next chart will explain why.

    Here is an interesting chart related to banks from Crossing Wall Street. It could be titled "The Earthquake That's Shaking Our Markets".  It shows recent volatility of Banking Index.

    090417 Daily Change in Banking Index Since 2004

    Finally, I thought this was funny. Our peaceful pacifist president has become Obama The Pirate Killer.  Yeah, I know, the SEALs did it … But I like the chart anyway.

    090417 Obama The Pirate Killer

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

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/12/09

    The stock market often recovers six months before the economy does; but I
    don't really believe we are six months away from our economy being
    fixed.  So, I still classify this as a bear market rally.

    It is a big one though. The markets have come quite far off their recent bottom. The U.S.
    Markets moved higher for the fifth week in a row. Yet, it was just the
    sixth positive week for those indices in 2009.

    The S&P 500 is currently trading more than 8.5% above its 50-day moving average, which is its most overbought reading since May 2001.

    This rally has been a welcome respite from a seemingly unrelenting downtrend. Historically, I can't find too much precedent for the continuation of a move like this on a global basis. So a correction could soon be expected, or even welcomed.

    Normally a market turning-point is tested within a number of weeks. How the market behaves at that time is important. A light-volume decline to or towards the old lows … and then a heavy-volume start to a new rally would be ideal.

    View From the Trenches.

    I was talking to a friend of mine who is a partner in the bankruptcy section of a law firm. His market outlook is bearish because he's never seen his section's work pipeline this full before. There are a lot of bankruptcies in process, and a lot of companies talking to him to investigate whether it's the right option for them to pursue in the future. From his perspective, we're not done yet.  I'm not putting too much meaning into this.  Just passing on the data point.

    The Pyramid of Misery.

    The chart below shows a funny and current version of Maslow's Hierarchy of Needs.

    090410 Pyramid of Misery

    That graphic came from Portfolio Magazine, which has had a number of good articles recently.

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

    • Is YouTube Doomed? Half a Billion Dollar loss is a tough pill to swallow. (BusinessInsider)
    • Salary Cuts Instead of Lay-Offs: Ugly, But It Could Be Worse. (WSJ)
    • Loss Aversion: Traders take riskier decisions to avoid losing money. (Economist)
    • Teaching Survival Skills to a Technology Start-Up. (NYTimes)
    • New Economy Means New Entrepreneurs. (Street.com)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • Capitalogix Commentary 04/12/09

    The stock market often recovers six months before the economy does; but I
    don't really believe we are six months away from our economy being
    fixed.  So, I still classify this as a bear market rally.

    It is a big one though. The markets have come quite far off their recent bottom. The U.S.
    Markets moved higher for the fifth week in a row. Yet, it was just the
    sixth positive week for those indices in 2009.

    The S&P 500 is currently trading more than 8.5% above its 50-day moving average, which is its most overbought reading since May 2001.

    This rally has been a welcome respite from a seemingly unrelenting downtrend. Historically, I can't find too much precedent for the continuation of a move like this on a global basis. So a correction could soon be expected, or even welcomed.

    Normally a market turning-point is tested within a number of weeks. How the market behaves at that time is important. A light-volume decline to or towards the old lows … and then a heavy-volume start to a new rally would be ideal.

    View From the Trenches.

    I was talking to a friend of mine who is a partner in the bankruptcy section of a law firm. His market outlook is bearish because he's never seen his section's work pipeline this full before. There are a lot of bankruptcies in process, and a lot of companies talking to him to investigate whether it's the right option for them to pursue in the future. From his perspective, we're not done yet.  I'm not putting too much meaning into this.  Just passing on the data point.

    The Pyramid of Misery.

    The chart below shows a funny and current version of Maslow's Hierarchy of Needs.

    090410 Pyramid of Misery

    That graphic came from Portfolio Magazine, which has had a number of good articles recently.

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

    • Is YouTube Doomed? Half a Billion Dollar loss is a tough pill to swallow. (BusinessInsider)
    • Salary Cuts Instead of Lay-Offs: Ugly, But It Could Be Worse. (WSJ)
    • Loss Aversion: Traders take riskier decisions to avoid losing money. (Economist)
    • Teaching Survival Skills to a Technology Start-Up. (NYTimes)
    • New Economy Means New Entrepreneurs. (Street.com)
    • More Posts Moving the Markets.

    Lighter Ideas and Fun Links that I Found Interesting This Week

  • You Focus On What You Measure

    090410 One Day at a Time AttackedI have the privilege of knowing many fine entrepreneurs. Some of them are doing surprisingly well. Others are licking their wounds and struggling with the loss of confidence in their business, their business model, or even themselves.

     On some level, recent events could represent the biggest failure that some of these people ever have in their lives.

    There are several ways to take that. Here's one to think about.

    What would you do if you knew your worst failure was behind you and everything from this point forward was a move upwards or at least provides an opportunity to make progress?

    I Sense A Lot of Pain.

    If you look at
    things based on cycles or seasons, then this probably has been winter.  Still, periods like this can teach you a lot about yourself.

    I got a phone call this week from a friend who asked where I've been hiding. I was surprised because I hadn't thought about it like that.  Yet, it didn't take much reflection to see that many people I know, including me, have been hiding in one way or another.

    For example, one of my closest friends hasn't been returning phone calls. That is one of his early warning signs that tells me he is having a tough time. And several unquestionably smart, resourceful, and successful businessmen have broken down into tears recently while talking to me about the circumstances in which they find themselves.  I get it; there is a lot of pain out there right now.

    It affects me too.  A business group that I've participated in for almost 10 years is going on its annual retreat this week. It's designed to be fun and a vehicle to reconnect with ourselves and each other. It's a time for reflection, sharing and hopefully for new insight. Yet, there's a part of me that doesn't want to go.

    If I'm honest with myself, it is probably because I don't want to re-examine what happened during the past year.  In other words, I don't want to reflect on what went wrong, again, because I've done that enough already.

    But going to the retreat doesn't have to be about that at all. In fact, instead of it being an unpleasant exercise focusing on what I don't want … it easily can be when I focus on what I do want, and how I'm going to get there in a way that's best for everyone involved. The only difference in those two retreats is what I make it mean – and of course what happens because of that.

    You Focus on What You Measure.

    So, it occurs to me that I might be measuring the wrong things in several areas. Just because I used to keep score one way, doesn't mean that it's a helpful measure for me now.

    Measurement is supposed to give you a sense of your momentum towards your target. Done right, it helps you feel more confident and in-control. Sure it tells you what to do less of … more importantly, though, it highlights what we can and should do more of.

    Cleansing Or Clogging?

    I remember being in a Tony Robbins seminar about health and hearing a simple rule that made sense to me about eating. He said: before you put something in your mouth think about whether it's cleansing or clogging. That made sense to me, and it was helpful. The same could hold true for deciding which things to focus on in business or life. Will focusing on this create momentum and energy, or not? 

    On some level pain is inevitable.  Yet, for the most part, suffering is optional.

    Choose what makes you strong and more likely to take actions that make progress.

  • You Focus On What You Measure

    090410 One Day at a Time AttackedI have the privilege of knowing many fine entrepreneurs. Some of them are doing surprisingly well. Others are licking their wounds and struggling with the loss of confidence in their business, their business model, or even themselves.

     On some level, recent events could represent the biggest failure that some of these people ever have in their lives.

    There are several ways to take that. Here's one to think about.

    What would you do if you knew your worst failure was behind you and everything from this point forward was a move upwards or at least provides an opportunity to make progress?

    I Sense A Lot of Pain.

    If you look at
    things based on cycles or seasons, then this probably has been winter.  Still, periods like this can teach you a lot about yourself.

    I got a phone call this week from a friend who asked where I've been hiding. I was surprised because I hadn't thought about it like that.  Yet, it didn't take much reflection to see that many people I know, including me, have been hiding in one way or another.

    For example, one of my closest friends hasn't been returning phone calls. That is one of his early warning signs that tells me he is having a tough time. And several unquestionably smart, resourceful, and successful businessmen have broken down into tears recently while talking to me about the circumstances in which they find themselves.  I get it; there is a lot of pain out there right now.

    It affects me too.  A business group that I've participated in for almost 10 years is going on its annual retreat this week. It's designed to be fun and a vehicle to reconnect with ourselves and each other. It's a time for reflection, sharing and hopefully for new insight. Yet, there's a part of me that doesn't want to go.

    If I'm honest with myself, it is probably because I don't want to re-examine what happened during the past year.  In other words, I don't want to reflect on what went wrong, again, because I've done that enough already.

    But going to the retreat doesn't have to be about that at all. In fact, instead of it being an unpleasant exercise focusing on what I don't want … it easily can be when I focus on what I do want, and how I'm going to get there in a way that's best for everyone involved. The only difference in those two retreats is what I make it mean – and of course what happens because of that.

    You Focus on What You Measure.

    So, it occurs to me that I might be measuring the wrong things in several areas. Just because I used to keep score one way, doesn't mean that it's a helpful measure for me now.

    Measurement is supposed to give you a sense of your momentum towards your target. Done right, it helps you feel more confident and in-control. Sure it tells you what to do less of … more importantly, though, it highlights what we can and should do more of.

    Cleansing Or Clogging?

    I remember being in a Tony Robbins seminar about health and hearing a simple rule that made sense to me about eating. He said: before you put something in your mouth think about whether it's cleansing or clogging. That made sense to me, and it was helpful. The same could hold true for deciding which things to focus on in business or life. Will focusing on this create momentum and energy, or not? 

    On some level pain is inevitable.  Yet, for the most part, suffering is optional.

    Choose what makes you strong and more likely to take actions that make progress.