Market Commentary

Capitalogix Commentary 04/05/09
The U.S. Markets moved higher for the fourth week in a row. This is just the fifth positive week for these indices in 2009.

The public notices! I had a guy approach me at the gym to ask if I thought he should start buying again. He said he knew it could go back down, some, but isn't that "dollar-cost-averaging"? And I got an e-mail from a friend asking me to recommend a trading course for his wife to take because she is starting to day-trade. Those things whisper that sentiment is changing. Hope the market does too.

Rally Symmetry.

While we are still in a downtrend on the longer timeframes, the size of the short-term rally is impressive. This chart shows that the S&P 500 Index has rallied 27% off its March lows.

This is surprisingly similar to the size of the bear rally swings we saw in October and November.

Is Rising On Bad News a Good Sign?

The latest report on job losses showed that the American economy shed another 663,000 jobs in March and that unemployment rose to 8.5 percent.

While the Dow Jones Industrial Average initially fell on the news, it quickly shrugged-off the data, and closed back above 8,000 for the first time since early February.

Bad news everywhere, and the Markets continued higher. I thought it was an April Fool's joke. It still may turn out that way? In my book, though, that is a bullish sign.

Another Bullish Sign, Markets Are Above Their 50-Day Moving Averages.

For me, most notable is that our major indices are now above their 50-day moving averages for the first time in a very long time. Even better, tech is leading the way. So until the 50-day is broken back to the downside, this market deserves some respect.

Yes, shorter term, markets are overbought … but they have been overbought for more than a week. I can't believe I'm saying this … remember that overbought can also be a sign of strength.

Recession Length.

While the stock market has rallied nicely since bottoming on March 9th, the economy continues to struggle. For some perspective on the current economic recession, the chart below illustrates the duration of all US recessions since 1900.

The five longest recessions all began prior to 1930. The length of the current recession (now entering its 16th month) is above average, and equal to the longest recessions (1973 & 1981) since the Great Depression.

Since it is unlikely that the Recession is over, the question is how much longer till it ends?

In addition, something I'm paying more attention to is the amount of talk I'm hearing about the inevitable devaluation of the dollar. Let me know what you think about it.

Business Posts Moving the Markets that I Found Interesting This Week:
- How Can Small Investors Get In on the Bailout? (NYTimes)
- A Few Drops Don't Make the Glass Half Full. (Barrons)
- Have We Nationalized Banks in response to the current economic crisis? (Duke)
- Credit bubble looms as investors rush to credit, distressed debt and CTA's. (Reuters)
- G-20 Expands IMF Lending Powers to $1 Trillion to reignite world growth. (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Heart Muscle Renewed Over Lifetime, Study Finds. (NYTimes)
- Tax Day Tea Party: The resistance is brewing. (TaxDayTeaParty)
- Is Google In Talks To Acquire Twitter? (TechCrunch)
- AI Advance: Robot scientists can think for themselves. (Reuters)
- More Posts with Lighter Ideas and Fun Links.
April 6, 2009
Capitalogix Commentary 04/05/09
The U.S. Markets moved higher for the fourth week in a row. This is just the fifth positive week for these indices in 2009.

The public notices! I had a guy approach me at the gym to ask if I thought he should start buying again. He said he knew it could go back down, some, but isn't that "dollar-cost-averaging"? And I got an e-mail from a friend asking me to recommend a trading course for his wife to take because she is starting to day-trade. Those things whisper that sentiment is changing. Hope the market does too.

Rally Symmetry.

While we are still in a downtrend on the longer timeframes, the size of the short-term rally is impressive. This chart shows that the S&P 500 Index has rallied 27% off its March lows.

This is surprisingly similar to the size of the bear rally swings we saw in October and November.

Is Rising On Bad News a Good Sign?

The latest report on job losses showed that the American economy shed another 663,000 jobs in March and that unemployment rose to 8.5 percent.

While the Dow Jones Industrial Average initially fell on the news, it quickly shrugged-off the data, and closed back above 8,000 for the first time since early February.

Bad news everywhere, and the Markets continued higher. I thought it was an April Fool's joke. It still may turn out that way? In my book, though, that is a bullish sign.

Another Bullish Sign, Markets Are Above Their 50-Day Moving Averages.

For me, most notable is that our major indices are now above their 50-day moving averages for the first time in a very long time. Even better, tech is leading the way. So until the 50-day is broken back to the downside, this market deserves some respect.

Yes, shorter term, markets are overbought … but they have been overbought for more than a week. I can't believe I'm saying this … remember that overbought can also be a sign of strength.

Recession Length.

While the stock market has rallied nicely since bottoming on March 9th, the economy continues to struggle. For some perspective on the current economic recession, the chart below illustrates the duration of all US recessions since 1900.

The five longest recessions all began prior to 1930. The length of the current recession (now entering its 16th month) is above average, and equal to the longest recessions (1973 & 1981) since the Great Depression.

Since it is unlikely that the Recession is over, the question is how much longer till it ends?

In addition, something I'm paying more attention to is the amount of talk I'm hearing about the inevitable devaluation of the dollar. Let me know what you think about it.

Business Posts Moving the Markets that I Found Interesting This Week:
- How Can Small Investors Get In on the Bailout? (NYTimes)
- A Few Drops Don't Make the Glass Half Full. (Barrons)
- Have We Nationalized Banks in response to the current economic crisis? (Duke)
- Credit bubble looms as investors rush to credit, distressed debt and CTA's. (Reuters)
- G-20 Expands IMF Lending Powers to $1 Trillion to reignite world growth. (WSJ)
- More Posts Moving the Markets.
Lighter Ideas and Fun Links that I Found Interesting This Week
- Heart Muscle Renewed Over Lifetime, Study Finds. (NYTimes)
- Tax Day Tea Party: The resistance is brewing. (TaxDayTeaParty)
- Is Google In Talks To Acquire Twitter? (TechCrunch)
- AI Advance: Robot scientists can think for themselves. (Reuters)
- More Posts with Lighter Ideas and Fun Links.
April 6, 2009
Capitalogix Commentary 03/27/09
All Revved-up and No Place to Go.

We just saw a 24% rally unfold in a little over two weeks. But a rally like that doesn't make too many people happy. For most, this is where fear and greed collide.

Prudence dictates that position size and risk should stay small while in a serious long-term downtrend, especially with a stock like Citibank recently trading under a dollar. Yet a rally that big and steep often makes people feel like they should have been in the market, and wish they would've traded "this, that, or the other" stock or sector that they noticed a week or two ago.

Don't Worry, This Little Bit of Mind Control Won't Hurt A Bit …

This week I saw several news reports using the phrase "The Great Recession". This might be part of an interesting strategy on the part of the International Monetary Fund, which used that phrase a few weeks ago. Naming something gives you control over it (or at least the appearance of control over it). And "Recession" sounds so much less severe than "Depression". If you can just get people to adopt that phrase, it might give them enough hope that you actually avoid a depression? But just as it's hard to call a recession until you're well into it, I think it's pretty hard to tell whether you come out of it than till you're actually out of it. Still, it is a nice try.

Likewise, I have been impressed by how the administration has played the financial crisis lately. There seem to be some sound ideas, talked about in ways that make sense to the public, which get announced at strategic times. Moreover, it seems to be working; and the market looks like it's responding.

However, the key word there might be "looks". I'm certainly not convinced that the worst is over yet.

Where Are We in the Cycle?

A few weeks ago I noted the spread between smart money confidence and retail investor pessimism was at levels that often indicated short or intermediate-term bottoms. In hindsight it worked again, and there was a pretty sizable rally. However, retail traders are becoming confident again, too quickly for my taste. And the spread is no longer significant. So I don't see an edge there at this point.

I don't believe this is the end of the bottom. Instead, I hope this is the beginning of the bottoming process. My sense is that there are many businesses hanging on by a fingernail, or sheer will. Some of them are getting tired, others are running out of money, while still others are finding it hard to sell something in this environment. The point is that I suspect we're due for another round of culling the herd. That's not necessarily a bad thing, either.

What I'll be looking for, this time, is that I think we'll see a number of deals get done as prices get lower again. The companies that are going to survive, the companies that are going to thrive, the companies that are going to become new leaders in this next phase of our economy are going to start moving forward again.

Business Posts Moving the Markets that I Found Interesting This Week:
- Bears Are Wary as Bull Returns – Dow Up 21% in 13 Days. (WSJ)
- Is it safe to go back in the water? Best to figure out what went wrong first. (Andy Kessler)
- US economy falls 6.3% in fourth quarter; fastest rate since 1982. (Financial Times)
- Explanation of the Fed's $1.1 Trillion Public-Private Investment Program. (The Big Picture)
- More Posts Moving the Markets (My List)
Lighter Ideas and Fun Links that I Found Interesting This Week
- Friedman: What Distinguishes the Best Leaders, is that they learn from crashes. (NYTimes)
- Mind Control Goes Mainstream – Gadget offer working digital telekinesis. (Forbes)
- Growing-up Online Shapes Work Expectations of the Facebook Generation. (Gary Hamel)
- Nice Introduction to Twitter Use and Best Practices. (Twitips)
- More Posts with Lighter Ideas and Fun Links (My List)
March 29, 2009
Capitalogix Commentary 03/27/09
All Revved-up and No Place to Go.

We just saw a 24% rally unfold in a little over two weeks. But a rally like that doesn't make too many people happy. For most, this is where fear and greed collide.

Prudence dictates that position size and risk should stay small while in a serious long-term downtrend, especially with a stock like Citibank recently trading under a dollar. Yet a rally that big and steep often makes people feel like they should have been in the market, and wish they would've traded "this, that, or the other" stock or sector that they noticed a week or two ago.

Don't Worry, This Little Bit of Mind Control Won't Hurt A Bit …

This week I saw several news reports using the phrase "The Great Recession". This might be part of an interesting strategy on the part of the International Monetary Fund, which used that phrase a few weeks ago. Naming something gives you control over it (or at least the appearance of control over it). And "Recession" sounds so much less severe than "Depression". If you can just get people to adopt that phrase, it might give them enough hope that you actually avoid a depression? But just as it's hard to call a recession until you're well into it, I think it's pretty hard to tell whether you come out of it than till you're actually out of it. Still, it is a nice try.

Likewise, I have been impressed by how the administration has played the financial crisis lately. There seem to be some sound ideas, talked about in ways that make sense to the public, which get announced at strategic times. Moreover, it seems to be working; and the market looks like it's responding.

However, the key word there might be "looks". I'm certainly not convinced that the worst is over yet.

Where Are We in the Cycle?

A few weeks ago I noted the spread between smart money confidence and retail investor pessimism was at levels that often indicated short or intermediate-term bottoms. In hindsight it worked again, and there was a pretty sizable rally. However, retail traders are becoming confident again, too quickly for my taste. And the spread is no longer significant. So I don't see an edge there at this point.

I don't believe this is the end of the bottom. Instead, I hope this is the beginning of the bottoming process. My sense is that there are many businesses hanging on by a fingernail, or sheer will. Some of them are getting tired, others are running out of money, while still others are finding it hard to sell something in this environment. The point is that I suspect we're due for another round of culling the herd. That's not necessarily a bad thing, either.

What I'll be looking for, this time, is that I think we'll see a number of deals get done as prices get lower again. The companies that are going to survive, the companies that are going to thrive, the companies that are going to become new leaders in this next phase of our economy are going to start moving forward again.

Business Posts Moving the Markets that I Found Interesting This Week:
- Bears Are Wary as Bull Returns – Dow Up 21% in 13 Days. (WSJ)
- Is it safe to go back in the water? Best to figure out what went wrong first. (Andy Kessler)
- US economy falls 6.3% in fourth quarter; fastest rate since 1982. (Financial Times)
- Explanation of the Fed's $1.1 Trillion Public-Private Investment Program. (The Big Picture)
- More Posts Moving the Markets (My List)
Lighter Ideas and Fun Links that I Found Interesting This Week
- Friedman: What Distinguishes the Best Leaders, is that they learn from crashes. (NYTimes)
- Mind Control Goes Mainstream – Gadget offer working digital telekinesis. (Forbes)
- Growing-up Online Shapes Work Expectations of the Facebook Generation. (Gary Hamel)
- Nice Introduction to Twitter Use and Best Practices. (Twitips)
- More Posts with Lighter Ideas and Fun Links (My List)
March 29, 2009
Visualizing Walmart’s Growth

Chances are this will give you a different perspective on their impressive land-grab and expansion.

There are three simple reasons I'm looking at Walmart. Tough economic times have Americans looking to save money. Proximity is power. And that means most Americans don't have to look far to find a Walmart. So I'll be watching how they do.

Data visualization is an important tool in trading. Sometimes work skills carry-over into personal life. Watching stuff like this interests me. Not sure if that means my hobby is part of my work, or if work is part of my hobby.

Click the image below to watch Walmart's Growth.

Click here to check-out FlowingData. I've found several interesting posts on that site.

Also, here is more info about Walmart from FinViz and StockTwits.

March 28, 2009
Visualizing Walmart’s Growth

Chances are this will give you a different perspective on their impressive land-grab and expansion.

There are three simple reasons I'm looking at Walmart. Tough economic times have Americans looking to save money. Proximity is power. And that means most Americans don't have to look far to find a Walmart. So I'll be watching how they do.

Data visualization is an important tool in trading. Sometimes work skills carry-over into personal life. Watching stuff like this interests me. Not sure if that means my hobby is part of my work, or if work is part of my hobby.

Click the image below to watch Walmart's Growth.

Click here to check-out FlowingData. I've found several interesting posts on that site.

Also, here is more info about Walmart from FinViz and StockTwits.

March 28, 2009
Capitalogix Commentary 03/20/09
As the recession deepens, the Federal Reserve announced a plan to revive the struggling economy. It will pump more than an
extra $1 trillion into the mortgage market and longer-term Treasury
securities. Short-term, equity markets did push higher.

The problem with desperate measures, though … they can end up stoking fear, not confidence. In this case, the plan to buy-up bonds caused the decade's steepest one-day fall in the Dollar against the Euro as investors worried that the Fed's decision to print new money would lead to inflation.

One Man's Trash Is Another Man's Treasure:

In business, I'm constantly facing a build or buy decision. Namely, is it cheaper to develop something that does what I want, or can I simply buy something that does it already?

Well, that equation may soon produce a different result for many companies. A key indicator is flashing. Companies are starting to notice. What is it?

For the 4th quarter of 2008, Argus Research notes the "Q" ratio declined its lowest level since the 4th quarter of 1991. This implies that it is cheaper to buy a company than to build a replacement. To me this is an early indicator that merger and acquisition activity is about to increase. So, expect to see more deals like IBM's proposed acquisition of Sun.

Sector Rotation: Will Financials Take the Lead?

Sector rotation theory posits that Financials are a leading indicator of the economy. Historically they start to perform well six to twelve months before the general market. Perhaps one of the reasons is that they tend to generate big fees from M&A activity. And M&A activity starts to get interesting while certain assets are still cheap. Consequently, I'm watching the Financials and the level of deal activity.

Last week I posted a chart highlighting the performance of the banking sector, noting that it hadn't been able to sustain a rally longer than a week for quite a while. Well, it looks like decision time. Just a few weeks ago, Citi's stock price was under $1. Saturday Night Live made a joke that it was the first major bank to make it onto McDonald's value menu. Well, it has tripled since then. And the rally has taken prices in this sector to interesting levels. The chart below shows that the rally has a series of heavy technical burdens to overcome.

However, making it past this price area would go a long way towards convincing me that an intermediate term rally was starting.

One other potential negative, indicating a reversal back to the down-side (at least in the short-term), is that the Equity Put-to-Call ratio just hit its ten month low … and that is often a reliable sell-signal.

Business Posts Moving the Markets that I Found Interesting This Week:
- Fed to Buy $1 Trillion in Securities to Aid Economy. (NYTimes)
- Geithner's New Plan to Revive U.S. Banks. (Bloomberg)
- The Fed's Downside to Desperate Measures. (WSJ)
- Looking to Learn From Prior Bear Markets. (Economist)
- More Posts Moving the Markets. (My List)
Lighter Ideas and Fun Links that I Found Interesting This Week
- Bush Book Deal Worth $7 Million. (TDB)
- Which of 14 Types of Twitter Personality are You? (Media Caffeine)
- Why money messes with your mind – New Scientist. (NewScientist)
- Old age begins at 27 – scientists claim after new research. (DailyMail UK)
- More Posts with Lighter Ideas and Fun Links. (My List)
March 22, 2009
Capitalogix Commentary 03/20/09
As the recession deepens, the Federal Reserve announced a plan to revive the struggling economy. It will pump more than an
extra $1 trillion into the mortgage market and longer-term Treasury
securities. Short-term, equity markets did push higher.

The problem with desperate measures, though … they can end up stoking fear, not confidence. In this case, the plan to buy-up bonds caused the decade's steepest one-day fall in the Dollar against the Euro as investors worried that the Fed's decision to print new money would lead to inflation.

One Man's Trash Is Another Man's Treasure:

In business, I'm constantly facing a build or buy decision. Namely, is it cheaper to develop something that does what I want, or can I simply buy something that does it already?

Well, that equation may soon produce a different result for many companies. A key indicator is flashing. Companies are starting to notice. What is it?

For the 4th quarter of 2008, Argus Research notes the "Q" ratio declined its lowest level since the 4th quarter of 1991. This implies that it is cheaper to buy a company than to build a replacement. To me this is an early indicator that merger and acquisition activity is about to increase. So, expect to see more deals like IBM's proposed acquisition of Sun.

Sector Rotation: Will Financials Take the Lead?

Sector rotation theory posits that Financials are a leading indicator of the economy. Historically they start to perform well six to twelve months before the general market. Perhaps one of the reasons is that they tend to generate big fees from M&A activity. And M&A activity starts to get interesting while certain assets are still cheap. Consequently, I'm watching the Financials and the level of deal activity.

Last week I posted a chart highlighting the performance of the banking sector, noting that it hadn't been able to sustain a rally longer than a week for quite a while. Well, it looks like decision time. Just a few weeks ago, Citi's stock price was under $1. Saturday Night Live made a joke that it was the first major bank to make it onto McDonald's value menu. Well, it has tripled since then. And the rally has taken prices in this sector to interesting levels. The chart below shows that the rally has a series of heavy technical burdens to overcome.

However, making it past this price area would go a long way towards convincing me that an intermediate term rally was starting.

One other potential negative, indicating a reversal back to the down-side (at least in the short-term), is that the Equity Put-to-Call ratio just hit its ten month low … and that is often a reliable sell-signal.

Business Posts Moving the Markets that I Found Interesting This Week:
- Fed to Buy $1 Trillion in Securities to Aid Economy. (NYTimes)
- Geithner's New Plan to Revive U.S. Banks. (Bloomberg)
- The Fed's Downside to Desperate Measures. (WSJ)
- Looking to Learn From Prior Bear Markets. (Economist)
- More Posts Moving the Markets. (My List)
Lighter Ideas and Fun Links that I Found Interesting This Week
- Bush Book Deal Worth $7 Million. (TDB)
- Which of 14 Types of Twitter Personality are You? (Media Caffeine)
- Why money messes with your mind – New Scientist. (NewScientist)
- Old age begins at 27 – scientists claim after new research. (DailyMail UK)
- More Posts with Lighter Ideas and Fun Links. (My List)
March 22, 2009
Capitalogix Commentary 3/13/09
It's a puzzle. Is this yet another bear-market bounce, or the start of something more meaningful? It was just the second gain in 10 weeks; but the 12% rise from 12-year lows was enough to start the debate.

The usually bearish, and quite well-respected, Doug Kass suggested that we might be seeing a "generational low" here. Personally, I'm skeptical. But when Doug Kass and Warren Buffet agree, I'm going to try and see what they see.

Also note that tech is leading, and the financials are doing reasonably well, right now, too. For a sustained rally, that is as it should be. Nonetheless, the proof will be in the follow-through.

With that in mind, here is a chart of the Banking Index from Bill Luby's VIX and More. It shows that we've had one-week rallies several times since August. A bigger move might be an important sign?

Also note that the major US Equity Indices are rallying into the overhead resistance created by the November lows. And that is where we start the week.

There's a joke amongst traders: The Trading Gods allow you to buy the low-tick then sell the high-tick … once. After that, you're free to do the opposite as often as you want.

Note that there is a kernel of truth in most good humor … and if you haven't seen Jim Cramer on the Daily Show, it's worth watching.

Here are a Few of the Business Posts Moving the Markets that I Found Interesting This Week:
- Global Stimulus Coordinated Effort Shot Down. (The Daily Beast)
- China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries. (NYTimes)
- Outsmarting Wall Street? How Quants Tried to Model The Physics of Money. (NYTimes)
- AIG Paying $165 Million in Bonuses After Federal Bailout. (NYTimes)
And, Here are a Few More Lighter Ideas and Fun Links:
- What does one TRILLION dollars look like? (PageTutor)
- The Unsaid Reason VCs May Not Back You: Resource Efficiency (Mark Peter Davis)
- Time Management in the Age of Social Media. (BusinessWeek)
- Twitter Has A Big Month, Grows To Over 8 Million U.S. Users (SocialTimes)
March 16, 2009
Capitalogix Commentary 3/13/09
It's a puzzle. Is this yet another bear-market bounce, or the start of something more meaningful? It was just the second gain in 10 weeks; but the 12% rise from 12-year lows was enough to start the debate.

The usually bearish, and quite well-respected, Doug Kass suggested that we might be seeing a "generational low" here. Personally, I'm skeptical. But when Doug Kass and Warren Buffet agree, I'm going to try and see what they see.

Also note that tech is leading, and the financials are doing reasonably well, right now, too. For a sustained rally, that is as it should be. Nonetheless, the proof will be in the follow-through.

With that in mind, here is a chart of the Banking Index from Bill Luby's VIX and More. It shows that we've had one-week rallies several times since August. A bigger move might be an important sign?

Also note that the major US Equity Indices are rallying into the overhead resistance created by the November lows. And that is where we start the week.

There's a joke amongst traders: The Trading Gods allow you to buy the low-tick then sell the high-tick … once. After that, you're free to do the opposite as often as you want.

Note that there is a kernel of truth in most good humor … and if you haven't seen Jim Cramer on the Daily Show, it's worth watching.

Here are a Few of the Business Posts Moving the Markets that I Found Interesting This Week:
- Global Stimulus Coordinated Effort Shot Down. (The Daily Beast)
- China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries. (NYTimes)
- Outsmarting Wall Street? How Quants Tried to Model The Physics of Money. (NYTimes)
- AIG Paying $165 Million in Bonuses After Federal Bailout. (NYTimes)
And, Here are a Few More Lighter Ideas and Fun Links:
- What does one TRILLION dollars look like? (PageTutor)
- The Unsaid Reason VCs May Not Back You: Resource Efficiency (Mark Peter Davis)
- Time Management in the Age of Social Media. (BusinessWeek)
- Twitter Has A Big Month, Grows To Over 8 Million U.S. Users (SocialTimes)
March 16, 2009