Capitalogix

Here Are Some Fun Links for Your Weekend Reading

Election years are interesting.

Many believe that the Presidential Election Cycle affects the stock market. 

Perhaps there is an easier explanation ...

 

 

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

 

Lighter Links:

• Rocks In Their Heads? Deep-Pockets Dreamers Pursue Asteroid Mining. (TheDaily)
• What Is Strategy? Choices made to maximize long-term value? (Strategy-Business)
• Are Superstitions Rational? Interesting. (WhyWeReason)
• A Profitable Exercise Merger – Combining Running with Walking. (HuffPost)
• Take a Moment to Watch This Rendition of “Flight of the Bumble-Bee”. Wow! (YouTube)

 

Trading Links:

• China Tells IPO Bankers to 'Like' Facebook. (CNBC)
• Stratfor's 2nd Quarter GeoPolitical Forecast. Lots of stuff to consider. (Stratfor)
• The Fed in 57 Words. (SmartMoney)
• Employers Likely to Step In If Obamacare Health Law Is Overturned. (Google)
• Does US Airways and American Need Each Other? What Are Merger Benefits? (WSJ)

Should You Sell in May and Go Away?

What you choose to look at ... matters.

Not everything that can be counted counts, and not everything that counts can be counted.

    ~ Albert Einstein

A close look at trading in May shows a pretty clear negative bias. Here is a 10-minute bar chart of what's happened since May 1st on the S&P 500 Index.

 

 

Is that a warning sign or a buying opportunity?

'Sell in May" is a pretty well known trading concept. Here is a brief explanation from Carl Swenlin of DecisionPoint.

 

May 1 marked the beginning of a 6-month period of unfavorable seasonality. Research published by Yale Hirsch in the Trader's Almanac shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31, seasonality is unfavorable, and the market most often finishes lower than it was at the beginning of the period.

The period from November 1 through April 30 is seasonally favorable, and the market most often finishes the period higher.

... While the statistical average results for these two periods are quite compelling, trying to ride the market in real-time in hopes of capturing these results is not always as easy as it sounds.

Below is the one-year chart that that shows the most recent two six-month periods. It begins on May 1, 2011 and ends on April 30, 2012.

The left half of the chart shows the unfavorable May through October period, and the right half shows the favorable November through April period. The green line marks the beginning of the favorable period.  The red line marks the beginning of the unfavorable period.

Here is a Dow Jones Industrial Average chart illustrating that phenomenon.

 

 

Historically, the seasonality expected by 'Sell in May' has provided a trading edge.

However, scale and perspective do matter.  For example, here is a weekly chart of the S&P 500 Index. From this perspective, the markets are arguably in an up-trend - and sitting on top of a pretty strong support.

 

 

While the MACD is testing a move beneath the zero line, price is the primary indicator ... and is in a reasonably defensible buying area.

If the bulls hope to push things higher, this is where you would expect buying to occur. 

We'll see.

Related articles

• A Seasonal Quandary (pragcap.com)
• Sell In May And Go Away...Except In Election Years (ritholtz.com)
• Commodities Can Help With 'Sell In May' (wallstreetpit.com)

Putting Things in Perspective: Visualization Shows Scale of the Universe

As a trader, I'm surprised by how different the market can look on different time-frames. 

Getting a sense of scale is important.  Sometimes the difference is bigger than you think.

Click the picture to launch a fascinating data visualisation created by Michael and Cary Huang.  It is an interactive virtual scale of our universe that allows you to zoom in and out through space comparing the size and scale of everything from the smallest particles to immense nebulae.

 

 

Very Cool.  Puts things in perspective.

Related articles

• The magnified universe doth magnify the Lord... (numbersleuth.org)
• How journalists can create Guardian-style data visualisations (journalism.co.uk)
• Power View from the Data Visualisation Perspective (slideshare.net)

Who's Going to the Trader Expo in Dallas?

Join David Stendahl, portfolio manager at Capitalogix, at the Traders Expo in Dallas Texas June 6 – 8.

 

  

David will be talking about effective way to build diversified futures portfolios. Click here for more information.

I'll be there too.  Let me know if you're going ... looking forward to seeing you at the Expo.

Michael Covel's Trend Commandments

Michael Covel was the keynote speaker at this year's Market Technicians Association Annual Symposium.

Covel has made a name for himself as a chronicler of the Turtle Trading experiment and an outspoken proponent of trend following.  Here is a photo of him and me at the Symposium.

 

  

Truth be told, I often sit through presentations at a trading conference feeling skeptical, and looking for an idea that rings true or at least seems worth investigating further. 

This was much better than that.

Covel claims that market profit is about the right mentoring and practice, not genetic gifts, inborn talents, or Asperger's memory brilliance.  You simply need a winning philosophy and strategy, backed by proven positive results that you can execute.

Unlike some industry experts who hint at elusive secrets, Covel's unabashedly open about what he believes works and the things that he's learned from winning traders. He also sprinkles in wisdom from the ages, like this quote from the ancient Greek trend follower, Epictetus.

Do not strive for things occurring to occur as you wish, but wish the things occurring as they occur, and you will flow well.

The audience at an MTA event is filled with an impressive group of people ... you'll meet portfolio managers, strategists, analysts, quants, and traders who rely on technical analysis. Talk of oscillators, histograms and regression testing fills the air. So, it was refreshing to hear Covel challenge the room. Covel loves to poke technicians who talk about quant trading; he claims that systematic trend following is the only quant strategy that actually works.

He said that what he does is real technical analysis because despite what anyone else thinks, he's skeptical that any of the complex strategies being discussed consistently beats the technique he's talking about. The proof, he says, is in the evidence. In this case, it's the detailed trading records of dozens of systematic trend traders who have produced consistent results that dramatically outperform the markets, year-in-and-year-out for decades.

Simple Is Often Better.

If you asked someone who builds trading systems to describe a trading system, they'd probably focus on inputs and technique (e.g., what indicators does it use; is it a momentum strategy; does it seek to profit from artbitrage, reversion to the mean; does it use a simple crossover technique?). In contrast, Covel starts with a proverb:

If you must play, decide upon three things at the start: the rules of the game, the stakes, and quitting time.

Going a little deeper, Covel says a system should confidently deal with these questions.

1. What market do you buy or sell at any time?
2. How much of a market do you buy or sell at any time?
3. When do you buy or sell a market?
4. When do you get out of a losing position?
5. When do you get out of a winning position?

However, he cautions that trend following starts with knowing when to do nothing. If the market is screaming like a spoiled brat ... Step to the side. That’s your first play. Cash is a legitimate position.

Learning More.

Covel is an engaging speaker and writer. In addition to the keynote, I had an opportunity to sit down with him and have a real conversation. I'm happy to say that he has a terrific grasp on trading, traders, and an interesting perspective on what works.

Covel has a new book called Trend Commandments: Trading for Exceptional Returns. He claims it is for those who know deep down that there is a real way to make money in the markets, but just do not know how yet. 

As a result of our conversation, I bought a copy. Since I had already read several of his other books, including Trend Following and The Complete Turtle Trader, I didn't expect much new information.  However, just as he promised, this book has a different tone and is chock-full of insights and tradable ideas.

If your're curious, here's my post on his earlier books.

Covel offers an interesting collection of Podcasts. Click here to check them out.

And, here is the slide he ends with.

• Do not run with the pack.
• Collaborate with meaningful people.
• Be guided by beauty. It is a beautiful thing to solve problems and do things right. 
• Do not give up.
• Hope for some good luck.

Sounds good.

Related articles

• Howard Getson Unvarnished on Michael Covel Presentation at Market Technicians Association Event in NYC (michaelcovel.com)
• The Man In the Mirror Is Not Where Most Investors Look (michaelcovel.com)
• Props to IBM for the Trojan Horse Trend Following Lesson (michaelcovel.com)

Sector Rotation Shows Defensive Posture - Even Though Earnings Are Strong

One of the ways to measure the mood of the stock market is to see what sector rotations are taking place beneath the surface.

This chart shows that sector rotations over the past month reflect a market mood that is turning more defensive.

 

John Murphy explains:

 

The four sector lines are plotted "relative" to the S&P 500 which is the flat black line. In other words, the four sector lines are relative strength ratios that measure their performance "relative" to the S&P 500.

The blue line shows the Technology SPDR (XLK) leading the market higher since the beginning of the year. Technology leadership is a good thing for the market. The XLK:SPX ratio has started to drop during April, however, which shows short-term loss of that leadership. In fact, technology was this week's weakest sector.

The other three lines show the relative performance of the three defensive sectors which are consumer staples (pink line), healthcare (green line), and utilities (red line).

Those three sectors underperformed the S&P 500 since December as the market rallied. Notice, however, that those three relative strength ratios have turned up over the last month. In fact, utilities, healthcare, and staples were this week's three strongest sectors.

That's normally a sign that investors are turning more defensive and are protecting themselves from a possible market correction.

 

Meanwhile, Q1 Earnings Season got off to a good start as companies continue to surprise with strong revenue and earnings.

 

via Bespoke.

 

Related articles

• What Stock Sectors Are Telling Me (upsidetrader.com)
• The Lead-Lag Report: Correction Already Over? (minyanville.com)

Some Links for Your Weekend Reading

Ignore the man behind the curtain ...

 

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

 

Lighter Links:

• The Verdict on Business Huddles. (BossBlog)
• 20 of the Best Entrepreneur’s Thoughts in 140 Characters or Less. (Addicted2Success)
• Crappy Idea?  Company Will Print Your Twitter Feed On Toilet Paper. (Geekologie)
• Disney’s Lion King Becomes Broadway’s All-Time Top Earner. (TheDaily)
• How Ignorance Fuels Science and the Evolution of Knowledge. We judge the value of science by the ignorance it defines. (BrainPickings)

 

Trading Links:

• The Most Important Economic Questions for Investors. (Dash)
• The Pendulum Has Swung: Tech Start-Ups are Hot ... (42floors)
• HFT Slows Down in U.S. Ahead of Exchange Action. (FT)
• Global Signals Bode Poorly for Stocks. (Barrons)
• George Soros: Euro Crisis Is Now ‘More Lethal’. Famed hedge fund manager warns of more pain to come. (AdvisorOne)

Is the S&P 500 Index at Its Likely Bounce Point?

What an Interesting week we just had.  Facebook is buying Instagram for $1 billion; AOL struck a $1 billion deal to provide hundreds of patents to Microsoft; Sony is cutting 10,000 jobs after its worst fiscal year ever; and “The Lion King” has passed “The Phantom of the Opera” as the highest-grossing Broadway musical ever.

On the other hand, the Markets suffered the toughest week they've had this year.

Here is a chart of the S&P 500 Index.  With price flirting with the 50-day moving average and testing the support of the Index's recent up-trend ... perhaps this is a likely bounce point.

 

 
Also, notice the relative strength indicator at the bottom of the chart.  As noted by the green arrows, an RSI reversal higher from the highlit zone has been a good indicator that the broader market will likely move higher as well.

On the other hand, a failure to move higher here could feed the "Sell in May and Go Away" crowd.  What do you think?

Related articles

• Day of Billion Dollar Buyouts: Facebook Acquires Instagram, Microsoft Buys AOL Patents (techcitement.com)
• 'Lion King' Surpasses 'Phantom' As All-Time Box Office Champ (newyork.cbslocal.com)
• Is the S&P 500 Index About to Flash a Major Buy Signal? (capitalogix.typepad.com)

Some Fun Links for Your Weekend Reading

Let's start with a cartoon about Reverse Psychology.

 

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

Lighter Links:

• Inside Stanford's Famous Course on Creativity. (Fortune)
• How Data Visualization Turns Scientists Into Storytellers. (Mindjet)
• Wyoming Town with 1 Resident Sold for $900,000. (News)
• Watch Google's Autonomous Car Drive a Blind Man to Taco Bell. (AutoBlog)
• DUI Suspect Sings 'Bohemian Rhapsody' in the cop car. Not a great way to prove your innocence. Classic. (Newser)

 

Trading Links:

• Here is Why Facebook Bought Instagram for Nearly a Billion Dollars. (GigaOM)
• Small Business Owners Optimistic. Things are looking up ... (SmallBizTrends)
• U.S. Stock Correlations Are Down. Waaaay Down. (WSJ MarketBeat)
• Economists Have a Lot to Learn From the Weather. (Bloomberg)
• Trouble in Shipping Turns Ocean Into Scrapheap. The world's biggest vessels are now worth little more than their scrap value. (Telegraph)

The National Debt and Federal Budget Deficit Deconstructed - Tony Robbins

Markets posted the biggest weekly drop of 2012, as investors weighed steady domestic-labor and jobs market data amid a backdrop of on-going concerns about Europe's economy.

 

Short term, traders may be asking whether the stock market can sustain its gains, or are investors facing a pullback?  But, longer-term, there are bigger issues deserving focus and attention.

 

Here is a video from a source many may find unlikely to intelligently deconstruct the National Debt and Federal Budget.

Nonetheless, watch as Tony Robbins discusses the $15 trillion U.S. national debt and what can we do about the enormous growing federal budget deficit?

 

It is worth a few few minutes ... he is very good at simplifying things and telling stories.

  

 

via Tony Robbins.

 

Related articles

• Bernanke: Budget Deficits Are Unsustainable (pragcap.com)
• National Debt Skyrockets Under Obama, Far Faster Than Under Bush (openmarket.org)
• More Ways to Visualize Big Numbers, Like a Trillion (capitalogix.typepad.com)