Market Commentary

Humor usually has its base in truth.

Perhaps that is why this cartoon caught my eye; it pokes at a sore spot.

It has been weeks since many people figured things changed.  Not much seems better, yet, does it?

Emotions are not logical.  So even though I might consciously understand that we are going through a long process, I want instant gratification.  It is human nature.  And that explains a lot about the market in-and-of-itself.

I once heard that a Recession is when your neighbor loses his job, and a Depression is when you lose yours. With unemployment spiking, a lot more people are feeling "depressed".

Market Commentary: The good news is that the lows held, and it looks like there's decent support at these levels. It is worth noting that we saw a strong rally anticipating the Senate's Stimulus Plan.

Déjà vu, though; didn't we see this pattern before?  Last October the markets rallied off the lows in anticipation of the bailout deal, only to move down again once it passed. It will be interesting to see what happens to the market when the Stimulus Plan actually passes. Will confidence spur a further rally, or will speculators have to switch back to bear-mode?

The January Barometer Predicts a Down Year:  I talked about this a few weeks ago; research published by Yale Hirsch in the "Stock Trader's Almanac" suggests that market performance during the month of January often predicts market performance for the entire year. This January Barometer has worked especially well in odd years (the first year of a new Congress), with only two misses in 69 years. While the January barometer has a good record of prediction, StockCharts.com still puts it in the "for what it's worth" column because, while it is interesting to note, it might simply be coincidental.

It is hard to imagine 2009 being a positive year.  As I talk to business owners, I sense a weariness and fear. The economy is catching up with them, directly or indirectly. An interesting side effect is that some of the more successful entrepreneurs I talk with are starting to get excited about the new opportunities in front of them.  In contrast, several expressed feeling a little guilty and sad about their success in the face of what's happening around them. This is what happens during periods like this. Old models fall away and new leadership emerges.

Here Are A Few Of The Posts I Found Interesting This Week:

• Was All The Doom And Gloom At Davos A Contrary Indicator Of Better Times Ahead? (Slate)
• Obama's Wall Street Initiative: Getting beyond slapping the hand that feeds you. (Daily Beast)
• Doesn't Everything Use Flash Memory? SanDisk reports $1.8BB loss amid demand slump. (CNet)
• More tech troubles, Motorola Q4 loss of $3.6BB with sales falling 26%. (CNet)
• Are Morgan Stanley and Goldman Sachs showing new leadership? Price says "Yes". (Bespoke)
• Is Stronger Medicine Needed To Fix The Banking Crisis? (Barrons)
• Facebook growing 7X faster than LinkedIn, but that's not the whole story. (Silicon Alley Insider)
• Necessity is the Mother of Invention. A new class of start-up ventures (BusinessWeek).

And, A Little Bit Extra:

• Jennifer Hudson lip-synced the National Anthem at the Super Bowl. (ABC)
• Interactive Data Visualization of Twitter Chatter During the Super Bowl. (NYTimes)
• Crowd Behavior Explained; the herding instinct is chemical. (New Scientist)
• Mating Season Is Over for the Alpha Males of Banking. Wallet-size matters. (Bloomberg)
• Professor Uses Math to Decode What Makes The Beatles Music Special. (WSJ)
• Teleportation Is Now Real – Just Don't Try It at Home Yet. (Time)
• Verne Harnish Rockefeller Habits one-page strategic planning tool. (Classic & New Version)

In Davos, they are holding the World Economic Forum.  The tone is a little different this year.

Putin warned about the first truly global economic crisis,
which he says is continuing to develop at an unprecedented pace.

Soros said “Central banks have lost control,” and basically predicted a new economic world order and the end of the Dollar as the world's default currency.

So far at the Forum, the U.S. has played the role of the wounded giant.

Meanwhile, at home, the WSJ says there have been more than 70,000 layoffs this week alone,
something President Obama called "a continuing disaster for America's working
families." He urged passage of his $900 Billion stimulus bill and issued Executive Orders to increase the clout of unions.

Reports show the U.S. economy shrank about 5% last fall — the worst contraction since 1982. Because businesses failed to cut production fast enough after the financial crisis hit in October, they're now stuck holding vast inventories of unsold goods. In order to correct, they've begun aggressively closing factories and shedding workers.  The Washington Post says the economy is sinking under the weight of this excess inventory, and that the data suggests the worst is yet to come.

This story is playing-itself-out in different forms across the globe.  For example, I got an e-mail from a trader showing ships stacked-up in the Port of Singapore.  This picture was taken a few weeks ago. Apparently these are empty ships, waiting for cargo.  Since the docks are full of other empty ships, the result is a near complete slow down.

Question: Does that illustrate the state of the commercial world in the Far East?  Or, perhaps, could it simply be the result of Chinese New Year celebrations? I guess time will tell.

Charts That Caught My Eye This Week:

The January decline was steep, but U.S. Markets held above their late November lows. Most surged
over their 50-Day Moving Averages, only to sink back downwards.

With Equity Indices suffering and Bond prices falling as well, is there anything performing well?  Recently, Investors have turned to gold as a safe haven. It looks like gold just broke above and successfully re-tested its trendline.  On a closing basis, Friday was the highest gold close in six months.

Here are a few of the posts I found interesting this week:

• Why Obama unloaded on Wall St execs, as JFK once unloaded on steel barons. (NYTimes)
• UK article spotlighting 25 people at the heart of the economic crisis (Guardian)
• Apple awarded key patent on things that makes the iPhone, the iPhone. (AppleInsider)
• Elliott Wave Theory's explanation of "irrational herding" during uncertain times. (Prechter)
• Americans display venturesomeness, even in grim economic stretches. (NYTimes)
• Steve Jobs a music visionary, or just visionary? Judge for yourself. Interesting article. (CNet)

And, a little bit extra:

• An attempt to make the ThinkPad sexy. I'll admit, they caught my eye. (Lenovo)
• Watch the Ads From the Super Bowl Online (Hulu)
• Add "Obama-cized Poster Effects" to your photos. Interactive and flexible. (Obamicon.Me)
• Malwarebytes fixed a Trojan for me that apps I paid for couldn't remove. Nice. (Download)
• Big Brother's Watching: Swiss Police Spy Marijuana Field With Google Earth (ABC News)
• Printing the NYT Costs Twice as Much as Sending Every Subscriber a Free Kindle (Silicon Insider)

Are we in a Recession or Depression?  From my standpoint, I don't think it matters much.  Naming the disease doesn't fix it if you still don't know the cure.  Regardless of what you call it, we're still faced with the symptoms: the credit collapse, carnage in the financial sector, higher prices but less money to spend, and rising unemployment. 

The kicker is this has been happening worldwide.  Yet, most commentary I read treats this like the cause and effect happen here.  If you look around, though, there haven't been many safe havens. And I suspect that we have less to do with the start or end of this mess than we give ourselves credit or blame for.

It Is Not What Happens, But What You Do.  You see it repeated through history … Times like these are the catalyst to great wealth for some, and the poor-house for others.  If someone were looking back on this time from 10 or 15 years in the future, this is probably early in the new cycle.  This is a good time to figure-out what you believe will work going forward. 

The party isn't over.  It is just a new dance, with a different rhythm and a faster pace.  So, maybe it is time to be nimble and to learn some new steps?

A Look at the Markets:  A few weeks ago, 80% of stocks in the S&P 500 were trading above their 50-day moving averages.  With the declines we've seen since then, that percentage has moved down to 40%.  Financials have led those declines

This chart shows 2009 performance, by sector.  So far most sectors are doing well.  The exception has been Financials, which look a bit oversold.

Nonetheless, with the S&P 500 approaching its November lows, it's comforting to see 40% of stocks still trading above their 50-day moving averages.  At the prior lows, the number got down nearly to zero.  The fact that the overall declines have been limited to a smaller area of the market is a positive for those hoping that the lows will hold.

Here are a few of the posts I found interesting this week:

• Is so much bad news good news for you? A Bullish forecast. (Dash of Insight)
• Bank of America gets another $20 Billion from the Fed (Federal Reserve)
• Yahoo has a new CEO, how did Wall Street react? (TechCrunch)
• Sony looks set to lose $1.1 Billion in Fiscal 2008 for first loss in 14 years. (Gizmodo)
• Circuit City Pulls the Plug.  They are liquidating and closing over 500 stores. (Huffington Post)
• Disney seeing some positive signs? (Jim Hill)
• Great Visualization showing GM's woes, the least of which is lack of cash. (WallStats)
• Twitter's New Status as an Investment Tool. (MSN Money Central)

And, a little bit extra:

• Size Does
  Matter: Finger length may reveal your financial acumen. (New
  Scientist & Telegraph)
• Your inner voice never lies. But does it know what it is talking about? (Psychology Today)
• Schools get futuristic face scanners to identify students and strangers. (Telegraph)
• In retrospect, this was a huge marketing boner. Funny. (YouTube)
• MS’s new Songsmith product adds music to any vocal track. "Epic Fail". (Blog & Gizmodo)
• The taxman cometh? IRS urged to tax virtual worlds, economies. (Ars Technica)
• Surprise, surprise … research shows Facebook still mostly for the young. (MIT Tech Review)

Are we in a Recession or Depression?  From my standpoint, I don't think it matters much.  Naming the disease doesn't fix it if you still don't know the cure.  Regardless of what you call it, we're still faced with the symptoms: the credit collapse, carnage in the financial sector, higher prices but less money to spend, and rising unemployment. 

The kicker is this has been happening worldwide.  Yet, most commentary I read treats this like the cause and effect happen here.  If you look around, though, there haven't been many safe havens. And I suspect that we have less to do with the start or end of this mess than we give ourselves credit or blame for.

It Is Not What Happens, But What You Do.  You see it repeated through history … Times like these are the catalyst to great wealth for some, and the poor-house for others.  If someone were looking back on this time from 10 or 15 years in the future, this is probably early in the new cycle.  This is a good time to figure-out what you believe will work going forward. 

The party isn't over.  It is just a new dance, with a different rhythm and a faster pace.  So, maybe it is time to be nimble and to learn some new steps?

A Look at the Markets:  A few weeks ago, 80% of stocks in the S&P 500 were trading above their 50-day moving averages.  With the declines we've seen since then, that percentage has moved down to 40%.  Financials have led those declines

This chart shows 2009 performance, by sector.  So far most sectors are doing well.  The exception has been Financials, which look a bit oversold.

Nonetheless, with the S&P 500 approaching its November lows, it's comforting to see 40% of stocks still trading above their 50-day moving averages.  At the prior lows, the number got down nearly to zero.  The fact that the overall declines have been limited to a smaller area of the market is a positive for those hoping that the lows will hold.

Here are a few of the posts I found interesting this week:

• Is so much bad news good news for you? A Bullish forecast. (Dash of Insight)
• Bank of America gets another $20 Billion from the Fed (Federal Reserve)
• Yahoo has a new CEO, how did Wall Street react? (TechCrunch)
• Sony looks set to lose $1.1 Billion in Fiscal 2008 for first loss in 14 years. (Gizmodo)
• Circuit City Pulls the Plug.  They are liquidating and closing over 500 stores. (Huffington Post)
• Disney seeing some positive signs? (Jim Hill)
• Great Visualization showing GM's woes, the least of which is lack of cash. (WallStats)
• Twitter's New Status as an Investment Tool. (MSN Money Central)

And, a little bit extra:

• Size Does
  Matter: Finger length may reveal your financial acumen. (New
  Scientist & Telegraph)
• Your inner voice never lies. But does it know what it is talking about? (Psychology Today)
• Schools get futuristic face scanners to identify students and strangers. (Telegraph)
• In retrospect, this was a huge marketing boner. Funny. (YouTube)
• MS’s new Songsmith product adds music to any vocal track. "Epic Fail". (Blog & Gizmodo)
• The taxman cometh? IRS urged to tax virtual worlds, economies. (Ars Technica)
• Surprise, surprise … research shows Facebook still mostly for the young. (MIT Tech Review)

This was the first full week of trading in 2009.  While the markets pulled-back a bit, most defended their technically-important 50-day moving averages.

Two Steps Forward, One Step Back:  This week started with 80% of the S&P 500 stocks sitting above their 50-day moving averages.  That is stat-geek-speak for "there has been a significant rally off the November bottom." Moreover, people are feeling good about the market's progress. Investors Intelligence
readings show people are more
bullish now than they were during the rally off the July low.

Regardless of my analysis or opinions, we rely on mechanical trading models to determine our market posture. Still, I follow the markets closely, and the market's consistently negative bias surprised me this past week.  That might be good though.  We worked-off a lot of the overbought condition and put things in place for a more natural Obama Inauguration Rally.

How Bad Was 2008?  The chart on the right is from The Economist, and shows the distribution of US Stock Market Returns Since 1825.  One of the things it shows is that 2008 was the second-worst year of performance.

So as awful as 2008's performance was, historically, remember that it ended with a 20% rally off the bottom to end the year. 

The real question is whether you think the rally will last?  Is it a Bear-Market
Rally sucker play, or a real opportunity to put some capital back to
work?

I predict big changes are coming (not hard to do with the economy where it is and a new President about to take office).  So, here are some data to help point the way.

Here are a Few of the Posts I Found Interesting This Week:

• Cover your eyes, then check-out these 2008 Year-End Returns for World Markets.(Bespoke)
• US Unemployment Back to 1945 Levels; 2.6MM Jobs Lost in 2008. (Citywire)
• Oxymoron? A relatively sane Elliott Wave market
  prediction for 2009. (Yelnick)
• Bear Rally or Bull Market?  Are too many people too bullish too quickly? (Hulbert)
• The Fed is Flooding the Markets with Cash. (Clusterstock)
• WSJ's "The End of Wall Street" video series (Click to Watch)
• The End of the Financial World As We Know It? (NYTimes Part 1 & Part 2)
• Ironic that Satyam (which means Truth) didn't outsource Fraud, they did it themselves. (FT)

And, a little bit extra:

• Putting tongues firmly in cheeks, Porn Industry seeks $5BB Federal Bailout. (CNN)
• Obama Fighting for his Blackberry.  This may be a fight he loses. (TechDirt)
• Why do Investment Swindles continue to work? (WSJ)
• Can Risk Be Adequately Quantified? (Naked Capitalism)
• This year China's
  Internet users will surpass the entire population of the U.S. (Kedrosky)
• The Bull and Bear Cases for Hedge Funds. (Bull: Seeking Alpha and Bear: Yahoo Finance)
• Balanced Commentary on the Middle East's Hundred Year War (Economist)
• Funny list of "Stuff White People Like" – and I do like most of it. (Blog)

This was the first full week of trading in 2009.  While the markets pulled-back a bit, most defended their technically-important 50-day moving averages.

Two Steps Forward, One Step Back:  This week started with 80% of the S&P 500 stocks sitting above their 50-day moving averages.  That is stat-geek-speak for "there has been a significant rally off the November bottom." Moreover, people are feeling good about the market's progress. Investors Intelligence
readings show people are more
bullish now than they were during the rally off the July low.

Regardless of my analysis or opinions, we rely on mechanical trading models to determine our market posture. Still, I follow the markets closely, and the market's consistently negative bias surprised me this past week.  That might be good though.  We worked-off a lot of the overbought condition and put things in place for a more natural Obama Inauguration Rally.

How Bad Was 2008?  The chart on the right is from The Economist, and shows the distribution of US Stock Market Returns Since 1825.  One of the things it shows is that 2008 was the second-worst year of performance.

So as awful as 2008's performance was, historically, remember that it ended with a 20% rally off the bottom to end the year. 

The real question is whether you think the rally will last?  Is it a Bear-Market
Rally sucker play, or a real opportunity to put some capital back to
work?

I predict big changes are coming (not hard to do with the economy where it is and a new President about to take office).  So, here are some data to help point the way.

Here are a Few of the Posts I Found Interesting This Week:

• Cover your eyes, then check-out these 2008 Year-End Returns for World Markets.(Bespoke)
• US Unemployment Back to 1945 Levels; 2.6MM Jobs Lost in 2008. (Citywire)
• Oxymoron? A relatively sane Elliott Wave market
  prediction for 2009. (Yelnick)
• Bear Rally or Bull Market?  Are too many people too bullish too quickly? (Hulbert)
• The Fed is Flooding the Markets with Cash. (Clusterstock)
• WSJ's "The End of Wall Street" video series (Click to Watch)
• The End of the Financial World As We Know It? (NYTimes Part 1 & Part 2)
• Ironic that Satyam (which means Truth) didn't outsource Fraud, they did it themselves. (FT)

And, a little bit extra:

• Putting tongues firmly in cheeks, Porn Industry seeks $5BB Federal Bailout. (CNN)
• Obama Fighting for his Blackberry.  This may be a fight he loses. (TechDirt)
• Why do Investment Swindles continue to work? (WSJ)
• Can Risk Be Adequately Quantified? (Naked Capitalism)
• This year China's
  Internet users will surpass the entire population of the U.S. (Kedrosky)
• The Bull and Bear Cases for Hedge Funds. (Bull: Seeking Alpha and Bear: Yahoo Finance)
• Balanced Commentary on the Middle East's Hundred Year War (Economist)
• Funny list of "Stuff White People Like" – and I do like most of it. (Blog)