Market Commentary

  • Market Commentary from July 4th, 2008

    As we moved into the July 4th long weekend, the bears remained in control.  This chart comes from Breakpoint Trades.  It is a long-term chart of the S&P500 Index with a 20-Month moving average. 

    080705 SP500 20M MA

    Yes, we are deeply oversold and sentiment is sufficiently fearful that a rally is likely soon. On the other hand, we haven’t really seen capitulation, and earlier market bottoms this year had some help from the Fed. 

    It is certainly possible that we get a bottom without getting the “easy trade.”  Lots of traders are looking for the big volume reversal and the VIX spike.  But how often does the market give people clear signals?

    Here is a follow-up to last week’s chart showing how correlated and poorly most global markets have performed recently.  This table is from an article called “Nowhere to Hide” by Prieur du Plessis.

    080703 World Stock Markets Performance

    Finally, here are a few of the posts I found interesting this week:

    • That Was Ugly: The Worst First Half of a Year Since 1970 (Bespoke)
    • Hot Wheels and Matchbox Cars Don’t Need Gas: Mattel’s value beats GM  (Bloomberg)
    • Bearish Battalions: economic growth & profits down, interest rates & inflation up (Economist)
    • What Really Killed Bear Stearns? (NYTimes and Vanity Fair)
    • Traders Dump Lehman (Minyanville)
    • A contrarian considers whether it’s possible that we’ve seen the low for this year (Street.com)
    • Financial Down 53% from Their Highs – the easier path might now be up (VIX and More)
    • Former NYSE Head, Grasso, Keeps the Money in Dispute Over $187MM Pay (InvestmentNews)
    • Trading volume down at CME – interest rate product volume off 17% (Financial News)
    • Doug Kass Says America is in Debt and Decline, and it is Time for a Change (Street.com)
    • Jobs Decline Again, for 6th Consecutive Month (Global Economic Trend Analysis)

    And, a little bit extra:

    • A New Middle Name: Obama Supporters Take His Name as Their Own (NYTimes)
    • Woman Offers Chance to Marry Her … If You Buy Her House (MSNBC)
    • Not Dead, Can’t Quit: No Limit Thinking with Ex-Navy Seal Trading Coach (TradingMarkets.com)
    • Who Runs the World – wrestling for a seat at the “Grown-ups Table” (Economist)
    • Adobe Makes Flash Content Searchable (BusinessWeek)
    • New Flexible Electronic Paper May Change the Way You Read (NYTimes)

  • Is It Bush, Or the Recession?

    American-flag
    Today is July 4th.  And as my son and I were driving into our neighborhood, we noticed how few flags we saw waving.

    A few years ago, at least two-thirds of the houses had flags.  Today I would get estimate that number being 15% to 20% of the houses.

    In our neighborhood, there is a $75 per year service that provides flags for patriotic holidays (like Independence Day, Memorial Day, etc.).

    So, did the economy make the $75 outlay feel too extravagant?  Or did the collective level of patriotism drop significantly? 

    My guess … a little of both; but it probably has more to do with the economy.  What do you think?

  • Is It Bush, Or the Recession?

    American-flag
    Today is July 4th.  And as my son and I were driving into our neighborhood, we noticed how few flags we saw waving.

    A few years ago, at least two-thirds of the houses had flags.  Today I would get estimate that number being 15% to 20% of the houses.

    In our neighborhood, there is a $75 per year service that provides flags for patriotic holidays (like Independence Day, Memorial Day, etc.).

    So, did the economy make the $75 outlay feel too extravagant?  Or did the collective level of patriotism drop significantly? 

    My guess … a little of both; but it probably has more to do with the economy.  What do you think?

  • Market Commentary from June 27th, 2008

    The Dow lost almost 500 points in the last two days.  Longer term, the stock market has been down sharply since May 2; in fact, it has been down five of
    the last six weeks. Several commentators note that the Dow experienced its worst June since 1930.
    Moreover, with this decline, it has also given back all of the gains it made since September, 2006.

    080627 Dow Low Divergence 600p

    Also worth noting is that the Dow just made new lows for the year, entering “Bear Territory” by sinking more than 20% from its October peak.  However the MACD’s downward momentum did not make new lows, even while the index price plummeted. 

    Perhaps more important, though, is that the Index broke below its 28-Year Up-Trend line.

    Dow 28 Year Uptrend 630p

    Also, Bespoke had an interesting chart comparing returns of various international indices.  Here it is:

    0806 Global Return Comparison from Bespoke

    Finally, here are a few of the posts I found interesting this week:

    And a little bit extra …

    • Trading Desks Turn to Video Game Technology to Speed Analytics. (Wall Street & Technology)
    • Your Money and Your Brain (Phil’s Favorites)
    • The Petabyte Age: Because More Isn’t Just More — More Is Different. (Wired)
    • The New Name Game: Internet Naming Rules About to Change. (CNN)
    • Will Brain Downloads will make lessons pointless? (Telegraph)
    • The Philosophy of George Carlin (Financial Philosopher)

  • Market Commentary from June 27th, 2008

    The Dow lost almost 500 points in the last two days.  Longer term, the stock market has been down sharply since May 2; in fact, it has been down five of
    the last six weeks. Several commentators note that the Dow experienced its worst June since 1930.
    Moreover, with this decline, it has also given back all of the gains it made since September, 2006.

    080627 Dow Low Divergence 600p

    Also worth noting is that the Dow just made new lows for the year, entering “Bear Territory” by sinking more than 20% from its October peak.  However the MACD’s downward momentum did not make new lows, even while the index price plummeted. 

    Perhaps more important, though, is that the Index broke below its 28-Year Up-Trend line.

    Dow 28 Year Uptrend 630p

    Also, Bespoke had an interesting chart comparing returns of various international indices.  Here it is:

    0806 Global Return Comparison from Bespoke

    Finally, here are a few of the posts I found interesting this week:

    And a little bit extra …

    • Trading Desks Turn to Video Game Technology to Speed Analytics. (Wall Street & Technology)
    • Your Money and Your Brain (Phil’s Favorites)
    • The Petabyte Age: Because More Isn’t Just More — More Is Different. (Wired)
    • The New Name Game: Internet Naming Rules About to Change. (CNN)
    • Will Brain Downloads will make lessons pointless? (Telegraph)
    • The Philosophy of George Carlin (Financial Philosopher)

  • Conspicuous Consumption

    Billion-Dollar Home 275p
    According to the 2007 Wealth Report, there are more millionaires than ever. (WSJ).  The report also examines the growing concentration of wealth by the super-wealthy.  So, apparently, the rich are getting richer.

    As the market worries about recessions, inflation, the strength of the Dollar, and the price of oil … I noticed a strange focus on conspicuous consumption. Here are some of the articles that prompted this post:

    • Lexus LF-A supercar priced from $200,000 to $265,000 (AutoBlog)
    • Eton’s “World’s Most Expensive Shirt” costs $44,740 (Trendhunter)
    • Don’t Get Wet; Davek’s $149 Umbrella will protect you from the rain (Davek)
    • Wall Street joint serves up a $175 Burger (CBS News)
    • For $150,000 You Can Have a collection of 50 Visionaire Magazine issues. (WSJ)
    • Flushing Money Away on the Million-Dollar Bathroom (Barron’s)
    • The first Billion-Dollar Home (Forbes)
  • Dubai’s new “Shape-Shifting” skyscraper — $3,000 per square foot (CNN & Reuters)

  • Conspicuous Consumption

    Billion-Dollar Home 275p
    According to the 2007 Wealth Report, there are more millionaires than ever. (WSJ).  The report also examines the growing concentration of wealth by the super-wealthy.  So, apparently, the rich are getting richer.

    As the market worries about recessions, inflation, the strength of the Dollar, and the price of oil … I noticed a strange focus on conspicuous consumption. Here are some of the articles that prompted this post:

    • Lexus LF-A supercar priced from $200,000 to $265,000 (AutoBlog)
    • Eton’s “World’s Most Expensive Shirt” costs $44,740 (Trendhunter)
    • Don’t Get Wet; Davek’s $149 Umbrella will protect you from the rain (Davek)
    • Wall Street joint serves up a $175 Burger (CBS News)
    • For $150,000 You Can Have a collection of 50 Visionaire Magazine issues. (WSJ)
    • Flushing Money Away on the Million-Dollar Bathroom (Barron’s)
    • The first Billion-Dollar Home (Forbes)
  • Dubai’s new “Shape-Shifting” skyscraper — $3,000 per square foot (CNN & Reuters)

  • Market Commentary from June 20th, 2008

    The March lows are in sight, at least for the Dow (and the Financial Sector is already beneath that level).

    Sentiment is getting more bearish.  And, the S&P 500 is set to have its fourth consecutive quarter of negative earnings growth.   Based on history, though, the market has typically outperformed its averages after earnings have been weak for this long.

    For your reading pleasure, here are some of the items that caught my eye this week:

    • Fed sending signals that rates aren’t going higher yet. (WSJ, FT, WP)
    • AAII Bear Sentiment above 50%, for 11th time in past year. (Bespoke)
    • Royal Bank of Scotland issues crash warning for stock and credit markets. (Telegraph)
    • Ex-Bear Stearns Fund Managers Arrested. (Bloomberg)
    • Short-Selling is tough, and good for the Markets. (The Economist)
    • Is the S&P 500 Index a good benchmark to compare performance against? (Infectious Greed)
    • “The Frozen Gaze” Op-Ed Column on Tiger Wood’s Focus and Mental Toughness. (NYTimes)
    • Obama 1st major party candidate to reject public financing and its spending limits. (NYTimes)
    • IBM Roadrunner is the new world’s fastest computer. (InformationWeek)
    • Philadelphia to Fake-Out Drivers With 3D Speed Bump Images. (Gizmodo)
    • Bad guys really do get the most girls. (New Scientist)

  • Market Commentary from June 20th, 2008

    The March lows are in sight, at least for the Dow (and the Financial Sector is already beneath that level).

    Sentiment is getting more bearish.  And, the S&P 500 is set to have its fourth consecutive quarter of negative earnings growth.   Based on history, though, the market has typically outperformed its averages after earnings have been weak for this long.

    For your reading pleasure, here are some of the items that caught my eye this week:

    • Fed sending signals that rates aren’t going higher yet. (WSJ, FT, WP)
    • AAII Bear Sentiment above 50%, for 11th time in past year. (Bespoke)
    • Royal Bank of Scotland issues crash warning for stock and credit markets. (Telegraph)
    • Ex-Bear Stearns Fund Managers Arrested. (Bloomberg)
    • Short-Selling is tough, and good for the Markets. (The Economist)
    • Is the S&P 500 Index a good benchmark to compare performance against? (Infectious Greed)
    • “The Frozen Gaze” Op-Ed Column on Tiger Wood’s Focus and Mental Toughness. (NYTimes)
    • Obama 1st major party candidate to reject public financing and its spending limits. (NYTimes)
    • IBM Roadrunner is the new world’s fastest computer. (InformationWeek)
    • Philadelphia to Fake-Out Drivers With 3D Speed Bump Images. (Gizmodo)
    • Bad guys really do get the most girls. (New Scientist)

  • How Clear is Your Market Vision, Through the Lens of Emotions?

    Do lower prices frighten people?  Or, do fearful people cause lower prices?

    On some level, it is clear that the ebbs and flows of a Market Chart represent the collective fear and greed of its participants.  As more people get fearful, you have more sellers.  As more people get greedy, prices catch a bid. 

    But what about you and me?  Are we immune from the primal portion of our brains?  As I was thinking about this, I saw the following quote:

    "The thoughts they had were the parents of the actions they did; their feelings were parents of their thoughts."

         -Thomas Carlyle (1795-1881)

    It is true, isn't it?  Thoughts flow from feelings.  Or (at least) feelings affect thoughts.  At some level, I've known this about many discrete areas of my life (motivation, relationships, etc.).  Yet I've resist accepting this as a global truth. 

    Nonetheless, it makes sense that understanding (or at least recognizing) what you feeling is an important step in better thinking and better actions. 

    Likewise, if you are a discretionary trader, it might be interesting to note how your emotions affect your trading. For example, it is pretty clear that your emotional state can create an anchor point and context that affects
    judgment and even the interpretation of market signals (for example,
    whether or not to take a trade).

    On any given day, I might get angry, happy, frustrated, excited or even
    greedy.  We all experience a range of emotions regularly, don't we?  Yet from a trader's perspective, it might feel like nothing noteworthy is happening to them throughout the day.  Why?  Because traders are so used to the range of emotions they experience, experiencing them again simply feels "normal", and  they learn to ignore them.

    As a systematic and algorithmic trader, emotions still affect my day.  That is why we follow the "rules" while the market is open.  Discussions about changing rules or adding new rules happen after-hours (when the fear and greed simmer down and heads clear).

    Clearly, many things can affect how and when a discretionary trader
    trades. Identifying and recognizing when something affects you is the
    first step towards mastering it.