Market Commentary

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)

Year-to-Date, the Dow is UP for the year. It has been a long time since you've heard that phrase.  There was no point in 2008 when the Dow was up for the year (at the close of a trading day).  According to Bespoke, since 1900, 2008 was only the fourth year where the Dow (1910, 1962, and 1977) never had a single day where it closed up for the year.  So, as of now, we officially suck less than last year.

Last week the major market
averages moved above their 50-day averages for the first time since late August.The Dow is over 9,000.

The January Barometer:     

Does a market rally in January imply anything for the rest of the trading year?  "As goes January, so goes the year." This particular phenomenon is what is referred to as the January Barometer.  

Is it true?  I don't know; but it is fun to examine.

Many reputable services report the January Barometer's recent-history success rate at around 75%; so it is worth watching.

I was going through some research and found this chart from Chart of the Day.  It illustrates that the S&P 500 has performed much better (on average) during the months following a January gain.  The chart is a few years old, but recent years have followed this trend.

John Murphy has a slightly different perspective; he says that what the market does during the first week of the new year often gives a clue about direction for the remainder of the year.

Murphy cites the Stock Trader's Almanac, "S&P gains during January's first five trading days preceded full-year gains 86% of the time". The predictive ability of the month of January is nearly as impressive. "The January Barometer predicts the year's course with a .741 batting average. 12 of the last 14 post-election years followed January's direction" (Almanac).

The market dropped during the first week and month of 2008 and correctly warned of a bad year ahead. We had a good start to that first week of January here in 2009.  Let's hope it keeps up.

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

• A sober look at markets in 2008 here and around the world. (Investment Postcards)
• If this is like 1932, there will be hope as well as pain. (Financial Times and Naked Capitalism)
• Fortune's 21 Dumbest Business Decisions of the Year. (Fortune)
• Manufacturers suffer record declines in activity. (Financial Times)
• Lots of brands went out of business in 2008, will the trend continue? (Lindzon)
• Here's an eclectic list of the Best Financial Blog Posts of the Year. (2008 List and 2007 List)

And, a little bit extra:

• Twitter users grew 6X last year, and 10X more is expected in 2009. (Financial Times)
• The day Microsoft Zune stayed still; caused by a leap-year glitch. (NYTimes)
• Apple OS market share tops 10% as MS drops (TUAW)

Year-to-Date, the Dow is UP for the year. It has been a long time since you've heard that phrase.  There was no point in 2008 when the Dow was up for the year (at the close of a trading day).  According to Bespoke, since 1900, 2008 was only the fourth year where the Dow (1910, 1962, and 1977) never had a single day where it closed up for the year.  So, as of now, we officially suck less than last year.

Last week the major market
averages moved above their 50-day averages for the first time since late August.The Dow is over 9,000.

The January Barometer:     

Does a market rally in January imply anything for the rest of the trading year?  "As goes January, so goes the year." This particular phenomenon is what is referred to as the January Barometer.  

Is it true?  I don't know; but it is fun to examine.

Many reputable services report the January Barometer's recent-history success rate at around 75%; so it is worth watching.

I was going through some research and found this chart from Chart of the Day.  It illustrates that the S&P 500 has performed much better (on average) during the months following a January gain.  The chart is a few years old, but recent years have followed this trend.

John Murphy has a slightly different perspective; he says that what the market does during the first week of the new year often gives a clue about direction for the remainder of the year.

Murphy cites the Stock Trader's Almanac, "S&P gains during January's first five trading days preceded full-year gains 86% of the time". The predictive ability of the month of January is nearly as impressive. "The January Barometer predicts the year's course with a .741 batting average. 12 of the last 14 post-election years followed January's direction" (Almanac).

The market dropped during the first week and month of 2008 and correctly warned of a bad year ahead. We had a good start to that first week of January here in 2009.  Let's hope it keeps up.

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

• A sober look at markets in 2008 here and around the world. (Investment Postcards)
• If this is like 1932, there will be hope as well as pain. (Financial Times and Naked Capitalism)
• Fortune's 21 Dumbest Business Decisions of the Year. (Fortune)
• Manufacturers suffer record declines in activity. (Financial Times)
• Lots of brands went out of business in 2008, will the trend continue? (Lindzon)
• Here's an eclectic list of the Best Financial Blog Posts of the Year. (2008 List and 2007 List)

And, a little bit extra:

• Twitter users grew 6X last year, and 10X more is expected in 2009. (Financial Times)
• The day Microsoft Zune stayed still; caused by a leap-year glitch. (NYTimes)
• Apple OS market share tops 10% as MS drops (TUAW)

This week I will keep the commentary light, just like the trading volume has been.  Also, I put together a list of posts that I found interesting. 

Quantitative Easing:  Now that the Fed has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal – Quantitative Easing. Here is an easily understood video explaining this.

Quantitative easing from Marketplace on Vimeo.

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

• For stores, a very un-merry Christmas. (CNN)
• Amazon had a happy holiday season. (BizJournals.com) and TechCrunch)
• Turn-about is fair play; Russian Professor Predicts End of USA (WSJ)
• Oil jumps above $39 as Israel-Gaza conflict widens. (Marketplace)
• Out With the Old, because Creative Destruction made it obsolete. (Lindzon)

And, a little bit extra:

• Is this the next hot item?  Burger King Cologne Sold-Out. (Reuters)
• Are computer operating systems becoming extinct? (InfoWorld)
• Do you still read books?  Electronic Book Readers are getting more popular. (NYTimes)
• This is Shaquille O'Neal; This is the Real Shaquille O'Neal on Twitter.  (NYTimes and Twitter)
• Will Cow Flatulence Be Taxed to Combat Global Warming? (TheWeek)
• Bronx Mowgli Wentz, a name for a rock star or senator? (Fox)