Capitalogix

Staying Informed and Up-To-Date

 Last week I went to visit my son, Ben, at a Duke University parents weekend. This April, I will return for my 25th reunion. A lot has changed since I was in college.

One of the biggest changes I noticed was how much information the Internet puts at each person's fingertips, regardless of where they are on campus. Doing research no longer means a trip to the library. And books, magazines or newspapers are a distant second-place to online research and news items.

Staying informed is a big part of my business as well. I used to receive several newspapers daily; and my morning routine started by scanning them cover-to-cover and clipping items that might be of interest to me are someone I knew. I rarely read a newspaper anymore, except when I'm on airplanes.

Now, my daily routine uses news-feed readers and web sites to access a wide variety online content. This is a great way to sort, sift, filter, and act on relevant information.

So, this week, I want to share some of the news sites that I find useful.

News Aggregators:

These are sites that combine news from many sources and create an updated mash up of information it gives me a quick view into what's happening each day.

The Basics: There are no surprises here; still Google News and Yahoo! News are so good that I have to list them anyway.

Next Generation: Some of the newer aggregation sites are quite clever.  Here are a few that I really enjoy:

• NewsCred: Easily personalized to pick sources and rank by credibility.
• Topix: Comprehensive and well categorized. Has a nice look and feel. Uses RSS well.
• Newser: Nice summaries and related links. Uses pictures well, too.
• Daylife: an example of an intelligent content service platform (read: little human editing).
• Newsvine: well done; with social-sourced news flagging.
• Regator: Specialty is organizing and finding blog posts.
• Slate: A little different than the others; more editorial content.

Slate has a number of interesting features.  Today's Papers summarizes current newspaper coverage.  Another summarizes current magazine stories.  And a third, called Today's Business Press, does just what you'd expect. 

All three are quick to read and well done.

Also worth checking: Digg, Technorati, and Techmeme.

Market Commentary from October 24th, 2008

It has been another strong week for fear, greed and volatility.  Earnings season is here, and we are seeing large moves in both directions.

There continues to be unprecedented global cooperation in the wake of the financial crisis.  The world seems to understand that it has to "snooze" the alarms until after the US election. The French have asked for a series of global summits to deal with the global financial crisis, with the first to begin after the U.S. election — and the last and most important to be held after inauguration day.

Stratfor claims that this shows two things. The first is how flexible many international crises are. They can wait for changes in political leadership. The second is how important the United States remains. If the United States had lost its leadership role, French President Nicolas Sarkozy would not have gone to Washington to get the Americans to agree to a summit. The rest of the world could proceed by itself. Most likely, that isn’t going to happen. The Europeans and Asians meeting by themselves would not be in a position to make any decisions. For that, the Americans need to be there. And since the Americans won’t have a new leader until February, the world financial crisis will just have to wait until then. My point?  It would be prudent to expect fear, greed and volatility to continue.

Looking at this daily chart of markets for the past few weeks, I'm struck by this seeming randomness. It almost looks like there's no pattern.

It is as if Jackson Pollock threw paint on our trading monitor and we mistook it for a chart. This utter lack of pattern might be an incredibly clear statement by the market. It says: "Danger, there is no edge here."

The strange thing about markets, though, is that what doesn't make sense from one perspective - may make a lot of sense from another.  For example, here is a daily chart of the same S&P 500 Index, only showing a much longer window of time.

Hopefully that long-term support line (just below 800) holds.

Election Tools

With the election coming in less than two weeks, I wanted to share some of the election websites that I check for updated information about how the race is going.

The first website (called Five-Thirty-Eight.com) is graphically compelling, contains lots of updated information, and is done by someone whose primary job is communicating statistical information. The name comes from the number of electoral votes.

The second website (called Real Clear Politics) has a lot more news, and I like the summary showing how much of a lead each candidate has in contested states. Here's an example of that chart.

And, here is a link to the top-10 election tools on the web.

Weekly Commentary through October 17th, 2008

The markets gained some ground this week, at least from a point perspective. It's so tempting to want to believe that the worst is over because of some of the rallies we've seen since late last week.

It is possible that last week marked a major bottom. However the market is certainly not trading normally. So I'm not convinced.  The volatility we're seeing is unprecedented.

Just this past week we had days with 10% - 15% swings inside the day. In fact, over the past 10 days the Dow had intraday swings of almost 85% of its total point value. We also saw the largest single day loss in the S&P ever (9%) as well as one of the biggest gaining days ever. My point is simple, fear and greed are still operating in extreme levels.

Stress Metaphor and the Markets:

A lecturer, when explaining stress management to an audience, raised a glass of water and asked 'How heavy is this glass of water?' Answers called out ranged from 8 to 20 ounces. The lecturer replied, 'The absolute weight doesn't matter. It depends on how long you try to hold it.

'If I hold it for a minute, that's not a problem.
'If I hold it for an hour, I'll have an ache in my right arm.
'If I hold it for a day, you'll have to call an ambulance.

'In each case, it's the same weight; but the longer I hold it, the heavier it becomes.'

He continued, 'And that's the way it is with stress management. If we carry our burdens all the time, sooner or later, as the burden becomes increasingly heavy, we won't be able to carry on.'

'As with the glass of water, you have to put it down for a while and rest before holding it again. When we're refreshed, we can carry on with the burden.

How does this apply to the stress and the volatility hanging over the heads of market participants? The potential recovery is in a fragile state simply because people are stressed and tired; and I don't think it won't take much to trigger another bout of fear and greed.

Coping, and the Scary Times Success Manual

With the markets making new lows and volatility shaking investors out and in both directions, I thought this would be a good time to talk about coping with loss.

There are predictable stages in coping with loss. In general you can expect to go through anger, denial, bargaining, despair, and finally acceptance. The stages of grief are normal and to be expected.  Here is a link to a more detailed article about the stages of loss process.

Thought Patterns:

The past few weeks have been brutal. Many people I talked to recently are suffering from "I should have ...", or "if I would have ...", or "if I could have ..." thoughts. What do I mean?  For example,  I might think that things would be better:

• if I would have flattened exposure before the bail-out vote, or
• if I could have held that short a little longer.
  
  

The problem is that thoughts like those cannot affect the past.  They only create more stress and distraction.  They are a lens focused on loss, difficulties, past events, things that are missing, and what you don't want. Think of them as an unhealthy reflex that wastes energy, confidence and time.

Instead the goal is to move forward and feel better.  What follows is a good head-start.

From time to time, economic and political events make people anxious and fearful about their futures. This is one of those times.  In response to requests from their clients for insight on how to thrive when events seem to be beyond their control, Strategic Coach offers ten strategies for transforming negativity and unpredictability into opportunities for growth, progress, and achievement.

They call it the "Scary Times Success Manual", and what follows are some excerpts.  The link to the complete version is below.

Forget about your difficulties, focus on your progress.
Because of some changes, things may not be as easy as they once were. New difficulties can either defeat you or reveal new strengths. Your body's muscles always get stronger from working against resistance. The same is true for the "muscles" in your mind, your spirit, and your character. Treat this whole period of challenge as a time when you can make your greatest progress as a human being.

Forget about events, focus on your responses.
When things are going well, many people think they are actually in control of events. That's why they feel so defeated and depressed when things turn bad. They think they've lost some fundamental ability. The most consistently successful people in the world know they can't control events - but continually work toward greater control over their creative responses to events. Any period when things are uncertain is an excellent time to focus all of your attention and energies on being creatively responsive to all of the unpredictable events that lie ahead.

Forget about what's missing, focus on what's available.
When things change for the worse, many desirable resources are inevitably missing - including information, knowledge, tools, systems, personnel, and capabilities. These deficiencies can paralyze many people, who believe they can't make decisions and take action. A strategic response is to take advantage of every resource that is immediately available in order to achieve as many small results and make as much daily progress as possible. Work with every resource and opportunity at hand, and your confidence will continually grow.

Forget about your complaints, focus on your gratitude.
When times get tough, everyone has to make a fundamental decision: to complain or to be grateful. In an environment where negative sentiment is rampant, the consequences of this decision are much greater. Complaining only attracts negative thoughts and people. Gratitude, on the other hand, creates the opportunity for the best thinking, actions, and results to emerge. Focus on everything that you are grateful for, communicate this, and open yourself each day to the best possible consequences.

Click here to listen to Dan Sullivan present all ten "Scary Times" strategies.
Click here to download MP3 files or Click here to download a PDF version.

If We Have "Economic Allies", Who are our "Economic Enemies"?

Have you noticed how correlated and coordinated actions have been worldwide throughout this crisis? The concept of economic allies presupposes that we also have economic enemies. It's easy to construct a theory that countries like Russia and China are using financial markets to exert leverage in a nascent form of economic warfare.

It is also easy to construct a theory that says that we are the enemy ourselves. That human nature's fear and greed instincts and reflexes almost inevitably spiral into a cavalcade of horrors.

The butterfly effect theorizes that a butterfly flapping its wings in Beijing on one day can create or affect a rainstorm over Chicago a few days later.

Likewise in a world where there is so much global communication, and where automatic trading programs can respond to each other from anywhere on the globe, it's no wonder that market moves are getting bigger, faster, and more volatile.

Perhaps governments are cooperating and collaborating because of a collective recognition that a new form of protection is needed to dampen the increasing speed, size and leverage behind market moves?

Weekly Commentary through September 26th, 2008

This was a tough week for the markets. Strangely, it might soon prove to have been a good week for the markets as well.

So what is it going to take for the markets to finally bounce?  History shows that most intermediate or long-term bottoms are characterized by panic selling, hopelessness, and people simply giving-up.  If that is the standard, then we may be close.

Here is some of the evidence of the fear, uncertainty, doubt that often accompanies bottoms:

• This week reversed most gains from the prior week's rally and short-squeeze.
• The markets continue to flirt with lows for the year. 
• Because of the volatility and gaps, trading simply hasn't been normal recently. 
• The economy and the markets dominate news and popular culture. 
• This week, the President of the United States basically said that if a radical bail-out wasn't done, right now, it would damage our economy - and many others across the globe. 

However, as bad as the markets did last week, they held up reasonably well considering how much bad news there has been and how close to the edge things really were (or are). Also, while markets went down, it was on lower volume than last week, and we didn't break last week's low. 

The Calm After the Storm.  It's also probably worth noting that, historically, periods of great volatility are often followed by periods of much less volatility.

With that in mind, I do believe that the government will reach a reasonable compromise to end the "Deal - or No Deal" situation very quickly. It's also likely that this agreement and the liquidity that it brings will give the markets some room to breathe and some fuel for a meaningful rally.

On the other hand, there is a long way to go from here to recovery. Some people see this as the end of the crisis. At best, I see this as the end of the first step on the road to recovery.

You Can't Bounce Until you Hit Bottom.  There are many corollaries in nature. This troubling time created a clearing. Much of the fear, uncertainty, doubt, and baggage from past mistakes are being wiped away. Firms are closing, the landscape is changing, Wall Street and our economy will literally never be the same again. And, yet, this kind of clearing is often the catalyst to new beginnings and fast growth.

Noise Reduction.  When creating automated trading systems, one of the things that becomes increasingly important is to recognize the difference between signal and noise. Right now, there's a lot of noise. The markets, market players, and even governments are spooked. Under those circumstances, it doesn't take much to stir things up.

The bailout and worldwide cooperation can be looked at as noise reduction. Temporarily, there will be a forced and tenuous peace. The hope is that as things calm down, people will make decisions from a stronger position (or at least from a position that's less fearful than where they are now).

Remember, a journey of a thousand miles begins with one step.  Here's to progress.

Weekly Commentary through September 12th, 2008

Volatility has been much higher than normal.  For example, the S&P 500 index rose or fell by more than 2% on five of the nine trading days so far this month.  There were only six such days during the last 4½-year bull run.

Yet, for all that violent flip-flopping and massive gaps in both directions, the stock market ended last week essentially flat.

We are back near the lows for the year.  Bears had a great opportunity to plunge through important psychological levels. Everything turned red for the ride down; and then the market reversed again. Part of me wonders whether short-sellers didn't press their luck because they "fear" another Sunday bail-out (in some form or fashion).

The big news this week was about the fall of Lehman.  Here is a simple chart showing what happened to their stock this year.

As I write this, it looks like Lehman is filing for bankruptcy and that Merrill Lynch is getting sold to Bank of America.  Futures are down.

However, a big, quick, move down - here - might be the best thing to hope for if you are bull.

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

• U.S. Gives Banks Urgent Warning to Solve Crisis (NYTimes, WSJ, Clusterstock)
• Bank of America Buys Merrill Lynch (NYTimes, WSJ)
• Locusts: Shorts Moving On to AIG and Others? (Seeking Alpha, Naked Capitalism, NYTimes)
• Federal Reserve announces additional support for the markets (Federal Reserve)
• Is the latest bailout working?  Someone thinks so (Bronte Capital)
• Russian Market Down 50% Because of War and Falling Oil Prices (NYTimes)

And, a little bit extra:

• Sweet Dreams in Hard Times Add to Lottery Sales (NYTimes)
• Niederhoffer's Ten Principles of Cricket and Market Power (Daily Speculations)
• Wisconsin man eats 23,000 Big Macs since 1972 (Chicago Tribune)
• Lehman Replaces Palin as Wikipedia Plaything (Infectious Greed 1 and 2)
• McCain leading Obama in prediction markets and polls (Kudlow, RealClearPolitics)
• Retailers Using Software to Increase Sales and "motivate" employees (WSJ)
• Has the large Hadron Collider destroyed the world yet? (Click)
• Biologists on the verge of creating a new form of "life" (Wired)

Tough Week?

Last week I wrote that trading is often stressful; and learning how to handle the emotional and physiological response patterns is an important step toward long-term success.

This week the markets were at their manic-depressive best, which can be tough for traders.  Investors were like hyperactive first graders playing musical chairs.

Here are some funny videos of how some people handle their tough week.

The first video shows a man beating his computer.  There is something primal about it that makes it memorable.  I saw this many years ago.  Yet I find myself thinking about this one from time-to-time.  So, I put it first.

Here is the direct link.

I saw this one on on the Huffington Post.  It has a lot going on; way too much to describe.  It is more fun to just watch, anyway.

Here is the direct link.

Finally, this one shows a man in a coffee shop freaking-out after his computer hangs, apparently he has a presentation to give in ten-minutes, so getting arrested seemed like a good idea.

Here is the direct link.  (Hat-Tip to Gelflog)

Weekly Commentary through September 5th, 2008

The bailout of Freddie & Fannie should breathe some life into markets that needed a lift. 

That means stock markets around the world are breathing a little easier after a tough last week. For example, Russia and Taiwan each lost over 10%.

Sometimes a picture is worth a thousand words.  This chart shows how the NASDAQ fared last week.

The chart doesn't need fancy indicators or words to tell the market's story: it went down.

Last week I said a move down, here, wouldn't surprise me.  We got more than I expected, because it was unrelenting.  After a big gap-up to start the trading week, it was straight down from there.

Now for the S&P 500 Index. 

This chart shows the monthly displaced moving average channel for the S&P 500 index. It typically acts as support or resistance to the markets longer trend.  Notice how the attempted rally in August moved the index closer to the channel; but the market wiped-out that effort in just a few days of trading. 

What about the Dow Jones industrial average?  Which economic anxieties were the catalysts as the Dow plummeted 344.65 points on Thursday ?  Was it that initial unemployment claims were near a 5-year high, the weak retail sales report, or fear of a global slow-down?

There is probably a little more work to be done on the downside, setting-up a decent bounce.  Again, historical patterns show a year-end rally typically starts in late September or early October. And the 4-year Presidential cycle pattern also favors a year-end rally.

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

• U.S. Near Deal To Save Freddie and Fannie (WSJ, Washington Post)
• Another Bank Fails: 11th this year, as Regulators shut Silver State (WSJ, FDIC)
• Swing-Trading the Sell-Off (TradingMarkets via Forbes)
• Who's afraid of Sovereign Wealth Funds? (Minyanville)
• James Surowiecki on "That Uncertain Feeling" affecting the herd of investors (New Yorker)
• Unemployment hits 6.1% and a closer look doesn't make it prettier (Dash of Insight, Portfolio)
• Bank of Canada Offers a Downbeat Outlook while holding rates steady (NYTimes)
• Did governments work together to save the Dollar? (Clusterstock)
• BMW sales up 2% last month, year-over-year (Bloomberg)
• Doug Kass says this is what market bottoms look like (Street.com)
• Trader Mike says we're not oversold yet (Trader Mike)
• McCain speech seen by record number of viewers (Bloomberg)
• Apple's iPhone making gains in business users (WSJ)
• Yahoo Below $19: Microsoft's $31 Offer is Looking Pretty Good Right Now (Silicon Alley Investor)

And, a little bit extra:

• Technology That Out-thinks Us: A Partner or a Master? (NYTimes)
• Numerati: How math models improve productivity and management (BusinessWeek)
• Lines and Bubbles and Bars, Oh My! New Ways to Sift and Visualize Data  (NYTimes)
• Microsoft has been granted a patent on 'Page Up' and 'Page Down' keystrokes (ZDNet)
• Invisibility Cloak becoming a reality; the challenge is seeing out of it (New Scientist, More)
• Facebook's hottest games (Forbes)
• Hulu Getting NBC Shows Before TV Does (Silicon Alley Investor)
• ESPN and Electronic Arts Innovating Play-By-Play Commentary (NYTimes)
• Google developed its own web browser called Chrome (CNet, WSJ)
• Andy Kessler's take on what Google is really doing with Chrome (Andy Kessler)
• Is the first Jerry Seinfeld ad for Microsoft funny?  You decide (NextWeb)
• Download Limits: Is "all-you-can-eat" Internet a thing of the past? (ABC)