Capitalogix

Market Commentary from June 13th, 2008

Wall Street is expecting another volatile week.  In addition to our regular complement of oil price spikes, Dollar worries, inflation fears and economic reports on home building and wholesales prices ... this week, the biggest news might be the quarterly earnings reports from Morgan Stanley (MS), Goldman Sachs (GS), and Lehman Brothers (LEH).

Currently, just 33% of stocks in the S&P 500 are above their 50-day moving averages.  Much of this weakness has come from the Financial sector.  Only 17% of Financials are above their 50-day moving averages.  To see how ugly that sector has been, take a look at the charts of the Financial Sector SPDR (XLF) and the Banking Index ($BKX).  Both are back at, or near, their lows. 

But, next week also has Phi Day.  What?  Your friendly Fibonacci traders may note that June 18 is 6-18 (and everyone knows how important .618 is in trading).  If not, then you haven't spent time at Prechter's site.  Even if you don't believe it, enough traders watch the 61.8% retracement level, it is worth monitoring.  For example, check out the current chart on the Dow.

Of course, not all US Equity Indices have fallen that far.  In contrast, note the relative strength of the S&P MidCap Index.

Here are some of the things that caught my eye this week:

• What's $3BB among friends?  Loss catalyst for shakeup at Lehman.
• Lehman's share price might be a better proxy for fear in the market than the VIX.
• Signs of a Market Bottom from a Humble Student of the Markets.
• Kudlow thinks Fed will raise rates in July.
• An updated "Misery Index" shows consumers are in as much pain as the early 80s or 90s.
• NYTimes notes a negative 12-month change in private sector jobs is a "Perfect Recession Indicator".
• Infectious Greed notes Exchanges now make more money selling their trade data than on the trades.
• Apple announced their new iPhone and EndGadget has details.

Virgin America(n)

Fuel costs have certainly affected the average American.  It is possible that these added costs might have an even bigger effect on another American (as in, the airline).  Industry-wide losses for airlines are blamed on fuel cost too. And AA is no exception.

While I was on a American Airlines flight, recently, I overheard two flight attendants talking.  The topic was that they were worried that AA was going to get bought by Virgin.  Of course, US airlines can't be purchased by foreign concerns.  However, they meant Virgin America.  At first, I didn't think much about it.

They noted that some very senior AA alumns had high positions there.  And that rumors were that the first condition of the purported deal was that Virgin didn't want American Eagle (which is now being shopped).

While I certainly have no inside information, or positions in any of these companies, I thought it was worth mentioning.

AMR, American's parent company, recently said they are not in danger of bankruptcy.  However, the airline industry is certainly hurting. 

For some additional context, here is an article that describes the current state of affairs and where Virgin's chief sees more industry failures coming.  Also, here is a recent BusinessWeek interview with AA's ex-head Robert Crandall.

Something to keep an eye on ...

Where Does All the Spam Come From?

Yesterday I got over 400 spam e-mail messages.  Either I spend way too much time in questionable chat-rooms, or the technologies they use for spam, viruses, worms, etc., are getting better and more efficient.

As for me, I use an anti-spam product called Cloudmark.  It is the best I've seen; so the spam wasn't a problem ... just a growing trend.

On a positive note, new technology is often exploited first in fringe areas (malware, porn, etc.).  I expect that many of the things we curse about the power and sophistication of these techniques are soon harnessed to solve many problems and issues that we haven't yet thought possible.

So, on a related note, it reminded me that I just saw a nice piece on where spam comes from.  Here is the graphic.

Source: MIT Technology Review.

Market Commentary as of June 6th, 2008

This week the Markets tried to rally several times.  Unfortunately for the Bulls, none of these attempts worked.  And Friday's move down was the worst for the market in a year-and-a-half.

So the headlines are "another week of a weak dollar, rising oil prices and falling markets."  One of the key take-aways, from my perspective, is that the Markets are not responding as resiliently to bad economic data as they had a few weeks ago.

You don't have to look much farther than this chart from FinViz.com.


Also, something I'm hearing more of are questions about whether you can trust the government's economic numbers?  Some people are saying that key measures have been distorted lately.

Some things that caught my eye this week:

• The weekly newsletter from StockCharts.com had some interesting insights.
• The International Monetary Fund published research on Herding Behavior in Markets.
• Self-Motivation & Other Hyper-Intentional Mistakes from the Financial Philosopher.
• Why the sky-rocketing VIX may not be so bearish, from VIX and More.

Game Theory (or not) On the "Price is Right"

Here is a short clip from the TV show the "Price is Right".  The YouTube post bills it as the dumbest contestant ever.  In any case, it was funny.

Here is the direct link for that video.

I felt sorry for the contestant, even though I was laughing.

Schadenfreude can be a funny thing; it always makes me think of a song from the show "Avenue Q".  Bet it makes you smile.

Here is the direct link for that video.

Americans Starting to Feel Gas Pains

Stratfor reports that car-loving Americans drove 11 billion fewer miles in March than they did a year earlier. The 4.3 percent decline is the first year-on-year decline since the 1979 oil shock, and the sharpest decline ever. From: A Record-Setting Change in Driving Habits.  Zogby says behavior is changing because of demand elasticity (big words for drive less if it costs more).

Oil prices have hit new highs and other commodity prices remain high. Obviously this is having an economic impact; but we should start seeing political and geopolitical impact. The first signs will be internal unrest and serious economic dislocations. The second will be interstate competition for resources.

From a trader's perspective, it is important to determine whether oil is topping in price. One aspect of that is the amount of oil at sea in tankers. Stratfor reports that tanker rates surged recently, but not consumption. Oil holders, at highs, put their cargo on ships to try to time their sale on the spot market. When a lot of people do that there is a hidden overhang of supply. Something to think about.

From a consumer's perspective, I'm amazed how often I hear people talk about the price of gas.  Here is an interesting way to compare prices.


GasBuddy has other features as well.  For example, here is a link to the lowest price found in Dallas.

What Do Bancruptcies Tell Us?

Bankruptcy lawyers in Texas have been busy recently.  Past cycles have shown a surge of Chapter 11 Bankruptcy Reorganizations as early indicator of the end of tough economic times. 

Makes sense though; Reorganization happens when someone wants to preserve an asset, but credit is tight.

So, it is just a data point, but if it was a football game, my guess is that we'd be in the third quarter.  What do you think?

Weekly Market Commentary from 5/16/08

Is The Bear Still Lurking?

Great market action for bulls recently.  If this has been a head-fake, it certainly was a convincing one.

The major US Equity Indices are all moving up to their 2008 highs - into their 200-day moving averages.

There has been a prolonged rally off the March lows, so you are going to hear lots of bearish predictors. It makes sense from the standpoint of price, time and logic.

Right?

For example:

1. We are now "overbought" and the rally is approaching the 61.8% Fibonacci Retracement level;
2. A re-test of the 50-Day moving average is a likely next move;
3. That the Put/Call ratio is too bullish, and so is dumb-money confidence levels;
4. The VIX is simply too low, and readings at these levels often precede big drops;
5. Consumer confidence levels are at dangerously low levels (add inflation, housing, and gas ...); and
6. We are still in that range-bound congestion area, and the longer we stay here the more we spend upside momentum.

But, you have to trade what the market brings you.  And the market has digested bad news well recently. More importantly, we know that markets don't have to trade logically.  So keep your eyes open and respond intelligently.

Here are some of the things I read this week.

• Hulbert sees several bullish indicators; here are two: Fosback's Recession Buy Indicator and
  Best Market-Timers Now Bullish.
• Good look at how breadth is supporting the recent rally in How to Gauge Market Strength.
• Bernanke is looking into what causes market manias in his Bubble Laboratory.
• Barrons had a nice piece on Doug Kass called Confessions of a Short Seller.
• Have you seen the video of Bill O'Reilly throwing a temper tantrum.

Coupon to Buy Gas

If it wasn't so close to the truth, this would be funny.

At least Someone Wants US Dollars

At least someone wants US Dollars.

In a cautionary tale about what happens when inflation gets out of control, there were riots in Somalia recently over rising costs, counterfeit money and local traders refusing to accept local notes (demanding US dollars instead). 

While the scale is different, human responses to fear and greed are universal.

Whack! What Happened to Real Estate?

Fear hits a little closer to home.  Recently, the US housing market has taken a pretty big hit.  Apparently, California has been hit harder than most other parts of the country.  Here is an LA Times article making that abundantly clear.

It made me check the value of my house.  Here is a site that makes that easy; it is called  Zillow.  Certainly worth the click.

All this led me to an interesting photo essay about crashes, stagflation and bear markets from US News World Report. 

This photo shows a bankrupt investor attempting to sell his luxury roadster for $100 cash on the streets of New York, October 30, 1929.

Hopefully, by listening to the whispers of history, we won't have to repeat it.