Capitalogix

The Dow Has Given Back All Its 2014 Gains - Do You Care?

All trades result from a disagreement.  Someone wants to buy, while someone else wants to sell.

The Dow Jones Industrial Average has given back all 2014 gains.

 

 

So, is that a major trend-line break to sell?  Or, is it a buying opportunity?

 

 

It is a matter of perspective.  What matters is what happens next.

Which Markets Did Best In the First Half of the Year?

There is always something working.  It still surprises me how often it changes.

For example, take a look at Coffee's rise.

The chart below shows the top-and-bottom performing markets so far this year.  The data is color coded based on sector. The first column shows year-to-date performance, followed by six columns of the most recent yearly market performances.

Click the image to jump to the full chart.

 

  

Click this link to view weekly, monthly, quarterly, and yearly views of this data.

So, how does that compare to other markets around the world? Here is an interactive chart to answer that question.

Here Are Some Links For Your Weekend Reading

Why are vacations so stressful?

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Negative Side of Positive Thinking. (Explore)
• The Dalai Lama’s Ski Trip: What you can learn in the slush with His Holiness. (Slate)
• The Not-So-Distant Future When We Can All Upgrade Our Brains. (TheAtlantic)
• Scientists Just Discovered How To Regrow Teeth Using Laser Beams. (DigitalTrends)
• The Odd (And Effective) Routines of Famous Minds like Beethoven, Maya Angelou, and Francis Bacon. (FHWW)

 

Trading Links:

• U.S. Household Net Worth Hits Record High On Stocks, Property. (ChicagoTribune)
• Super Zips. Map highlights the highest ranking zip codes based on income & education. (WP)
• China's Ghost Cities In 2014 - The Problem Is Getting Bigger. (BusinessInsider)
• Here Comes a Decade of Crummy Stock Market Returns. (Society Generale)
• Why Investors Love Hedge Funds. (Bloomberg)

More S&P 500 Stocks Above Their 50-Day Averages than NASDAQ Stocks

As shown below, 75% of the stocks in the S&P 500 are currently trading above their 50-day moving averages. 

 

via Bespoke.

This indicator has been trending slightly downward for about a month now, but it hasn't fallen below the 75% mark for quite some time.  Generally, whenever this breadth reading gets above the 80% level, the market is due for a breather.

In contrast, less than 50% of NASDAQ stocks are above their 200-day moving averages.

According to Martin Pring, that means that relatively few stocks are participating in the rally, and an even lower number are registering new highs. Moreover, there are currently slightly more stocks at new 52-week lows than highs, even though the NASDAQ is very close to its bull market high

Here Are Some Links to Start Your Week

Do you prefer dreams of the future or a history of the past?

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Disruptive Technologies: Advances transforming life, business, & the economy. (McKinsey)
• Why the Only Thing Better Than Big Data Is Bigger Data. (Quartz)
• Vitamin Supplements Come Up Short Once Again. (Forbes)
• If You Want to Be More Productive, Get More Sleep. (Michael Hyatt)
• The Ultimate Cheat Sheet for Mastery. (James Altucher)

 

Trading Links:

• How Greylock Partners Finds the Next Facebook. (Newsweek)
• Is Silicon Valley the Future of Finance? (NYMag)
• Aiming Financial Weapons From Treasury War Room. (NYTimes)
• Salary Required To Buy A Home In 12 US Cities. (BusinessInsider)
• BlackRock's Chief Strategist: Get Ready For Ho-hum Stocks & Higher Rates. (Forbes)

Here Are Some Links For Your Weekend Reading

Airlines are trying to make it easier to choose your seat for summer travel.  But, here is one I wouldn't choose.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Here Are The Top 10 Skills For The Future. (Forbes)
• The Surprising Reason We Procrastinate. (Salon)
• Where Do Our Thoughts Physically Exist? (EpochTimes)
• The Science of 'Transcendence' isn't Just Fiction—It's Surprisingly Real. (DailyDot)
• Meet the New Google Self-Driving Car: No Steering Wheel, No Pedals, No Problems? (GigaOM)

 

Trading Links:

• Will Russia Colonize The Moon? (PopularScience)
• Disruptive Innovations List 2014. (Citi Research)
• What Are The $10+ Billion Big Industries Of The Future? (Forbes)
• Share Of Teens Working Tumbles 42% Since 2000 In Labor Market Crisis. (Investors)
• The Average Stock Is More Expensive Now Than It Was At The Peak Of The Dot-Com Bubble In 2000. (BusinessInsider)

Across the world, the number of people who say the economic situation in their country is “bad” is climbing

Across the world, the number of people who say the economic situation in their country is “bad” is climbing — despite the much-vaunted recovery we all keep hearing about from politicians.

  

 
via Grant Williams.

The stock market is not the economy, and vice versa ... but when you are interested in one, it doesn't hurt to pay attention to the other.

Here Are Some Links For Your Weekend Reading

The Game of Thrones is getting more popular.  Who do you think will win?

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Sun Tzu's 33 Best Pieces Of Leadership Advice. (Forbes)
• Lessons From The Samurai: The Secret To Always Being At Your Best. (Bakadesuyo)
• Obama Is Finally Acting Like Lincoln. (The Week)
• John Oliver: Stop Calling It Net Neutrality; It's 'Preventing Cable Company F**kery'. (TechDirt)
• Scientists Discovered A Way To Reverse The Process Of Aging. First Succesful Organ Regeneration in a Living Animal. (Discover)

 

Trading Links:

• Record Numbers Renounce U.S. Citizenship---And Many Aren't Counted. (Forbes)
• 5 Dirty Secrets About the U.S. Economy. (Harvard Business Review)
• AngelList’s Newest Experiment: a $25 Million Fund to Invest in Angel Investors. (WSJ)
• The End of Behavioral Finance? (PragCap)
• Introduction of the Commodity Markets. (Voices)

Smart Money Expects a Short-Term Top, Will the Rally Continue?

Traders are often confronted by mixed signals. 

Personally, when I have to choose between something straightforward or something complex - simple is better.

For example, when large "Smart Money" traders show their directional bias, it often pays to follow in their tracks.

Another technique would be to bet against the smaller retail "Dumb Money" traders (because, historically, they are often wrong at major turning points.

However, if I have to decide between following "Smart Money" or doing the opposite of what "Dumb Money" does ... then in the absence of other information, following Smart Money wins because it is more straightforward and simpler.

Here is an example.

Smart Money - Dumb Money Confidence Index.

The chart, below, compares the bets made by small traders (a.k.a. the "Dumb Money"), to those of large commercial hedgers (a.k.a. the "Smart Money").

In practice, Confidence Index readings rarely get below 30% or above 70% (they usually stay between 40% and 60%). When they move outside of those bands, it's time to pay attention.

Even more noteworthy is when there is a wide confidence spread between the bets made by the Dumb Money and Smart Money traders. This type of sentiment spread only happens a few times a year. We often get substantial reversals when it happens.

Consequently, you might want to note this chart from SentimentTrader. It shows that the confidence spread is at extreme levels.

 

Conventional trading wisdom says that Crowds are usually wrong at turning-points.  That doesn't mean they are wrong all the time (yet, as discussed, it makes sense to notice when the Smart Money clearly disagrees). So, after such a strong rally, this is the kind of data that causes me to pay closer attention.

Could this be  a trend-break?  Will Smart Money start actively making Bearish bets?

Price is the primary indicator, and until it breaks down, expect that dips will be met with buying.

Does the Market's Complacency and Low Volatility Scare You?

The S&P 500 has been hitting highs in a rally that's had only modest sell-offs.

Here is a chart from BusinessInsider illustating Societe Generale's Andrew Lapthorne's research.

 

 

Lapthorne notes: "The number of 1% down days for the S&P 500 in any given year has averaged 27 since 1969; the S&P 500 has seen just 16 1% down days over the last 12 months. It has now been [almost 500] days since a market correction of 10% or more, the fourth longest period on record, and, as we show below, the annualized peak to trough loss has only been 5% compared to typical annual draw-down of 15%."

As you can see, recently, volatility has been dramatically below normal.