Capitalogix

Bearish Trend in Gold, and other Metals, Continues Lower

Trend-Following 101 says figure out if a market is trending higher or lower ... then evaluate how strong the trend is.

Metals, as a whole, are giving a pretty strong bearish signal.

We use the Trend Level indicator to quantify the true power behind the trends demonstrated by individual markets.

In general, Trend Level (TL) Level scores fall into three zones:

• Bullish trending markets have scores greater than +5;
• Bearish trending markets have scores less than -5; and
• Neutral markets hover between +5 and -5.

Based on those standards, all six Metal markets are trending lower.

Here is the Trend Level Chart for Metals.

 

Obviously, Gold is leading the bearish pack downwards.  Traders may note that Gold has support at 1472.90 (with more support at 1382.92).  Its most recent close was 1501.40.

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Why Are We Hearing So Much About Bitcoin Recently?

The Internet currency, Bitcoin, has seen an uptick recently as more people look to the virtual currency as a way to get rich or avoid the problems of fiat currency.

Bitcoin was created in 2009 by "Satoshi Nakamoto" — almost certainly a false name — in order to be anonymous currency, easy to use, self-regulating, and free from any central authority.

 

 

 

People are starting to realize they can now put their money in the cloud and access it anywhere, from any computer.  As a result, the value of bitcoins is rsing.

Two months ago, one bitcoin hovered in the $10 to $15 range, and a $30 peak was considered ludicrously high.  What about now?

 

The surging valuation suggests that people are starting to see ways to use it to create and protect value.

Bitpay, a company that facilitates bitcoin transactions, logged over $5 million worth of transactions in March alone, as people traded bitcoins for tangible items, mostly high-end electronics and precious metals.

Expect to hear a lot more about this in the media.

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Study Shows High Frequency Trading Linked to Cancer

There are consequences at playing near the speed of light.

Perhaps it also causes grey hair and thinning wallets.

 

Happy April Fool's Day!

Fund Managers Are Alarmingly Bullish

Is 'Smart Money' Becoming 'Dumb Money'?

The Merrill Lynch Fund Managers Survey shows growing confidence and risk-taking. A quick glance revealed a number of interesting charts and insights.  For example, the chart below shows what has happened, historically, when liquidity conditions hit the levels they are at now.

 

 

Retail investors love the good days, but traders suspect that the end is near when it gets like this.  Click here to see more from the Survey.

Keep in mind, Price is the primary indicator.  You've got to trade the conditions as they are ... not assuming that they are better or worse than they really are.

How Far Is Too Far, When It Comes to a Market Rally?

Have you been waiting around to "buy the dip" on this latest stock market rally? If so, you have been waiting a long time.  And I'm not just talking about the recent 10-day winning streak.

The Dow surpassed its all-time high and the S&P 500 is not that far from the tops of 1553 on March 24, 2000 and 1576 on October 9, 2007.

How Strong is the Trend?

The chart below compares each of the equity markets. If a market is shown to be at 100%, then it's currently at a new three year equity high. If not, then the percentage number indicates how close it is to reaching a new equity high.

 

Also visit the Drawdowns Metric page to view historic equity high watermark charts.

 

Similar to 2000 and 2007, the economic, valuation and political background does not seem to support the budding euphoria.

But, as Citigroup's CEO said in 2007: “... as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”  Remember how well that turned-out?

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Putting the Rally In Perspective

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Markets Around The World Are Rallying Again...

Stats on the Rally

Can You Trust the S&P 500's Long Winning Streak to Continue?

The Standard & Poor's 500 Index closed above 1,500 for the first time in more than five years on Friday. 

The benchmark Index extended its rally to eight days. This winning streak is the longest in eight years and left the S&P 500 just 4% beneath its all-time closing high of 1,565.15 (set on October 9, 2007).

 

 

Meanwhile, some technicians will note the less than enthusiastic volume and the negative divergence (where recent price highs happened with lower momentum). These are often taken as early topping indicators (or signs of weakness).

 

Canary in a Coal Mine?

 

Apple's stock has now dropped 37% since its September high of $702.10.

As a result, Exxon reclaimed its status as the world's most valuable company.

Do you attribute this to Apple's weakness ... or an early warning that 'smart-money' is taking risk off the table?

 

Remember: Price is the Primary Indicator.

 

What do you think is the most bullish indicator of our markets?

It's not a trick question; the answer is "price".  Despite the uncertainty about the economy, the markets have held-up nicely throughout this rally. And that, in-and-of-itself, is bullish.

It doesn't matter what technical analysis indicator you use (increasing negative divergences and selling on down days ... or less positive momentum and market breadth), the markets have given us a clear message recently. Price is the primary indicator, and it has stayed above support.

Traders learn strong uptrends tend to trump bearish divergences.  But it bears watching.

 

 

Some Links for Your Weekend Reading

So proud of our 'solution' to the debt ceiling issue ...

 

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

 

Lighter Links:

• What a Big-Data Business Model Looks Like. (Harvard Business Review)
• Everything You’ll Ever Need To Know About Gamification. (TechCrunch)
• Google Gives $5M To Build Drones That Hunt Poachers - Forbes. (Forbes)
• The 10 Greatest National Anthem Performances in Super Bowl history. (The Week)
• Compare Cities Instantly With VERSUS IO. Actually, this tool compares many things (Mashable)

 

Trading Links:

• Online Banking Attacks Were Work of Iran, U.S. Officials Say. (NYTimes)
• PIMCO's El-Erian. Game Theory Predicts More Can-Kicking in Washington (AdvisorOne)
• Kleiner Partners' View of the Future of Tech. (Wall Street Journal)
• Own the Robots, Bro, Trust Me. (ReformedBroker)
• Is Quantitative Easing Still Necessary? Direct Benefit versus Gain from the Signal Sent. (Forbes)

Preparing for a Rally? Big Inflow Into Equity Funds

What a dazzling week for mutual funds and ETFs.

$22.2 billion flowed into equity funds this week, marking the second-largest weekly inflow in history.

 

 

Inflows into emerging market equity funds this week were the largest – at $7.4 billion – of all time.  Other big winners were long-only mutual funds, which recorded $8.9 billion in inflows this week – the largest since March 2000.

Does this make you feel more bullish than buying based on Fed-funded liquidity?

 

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Steven Colbert's Take on High Frequency Trading

Stephen Colbert interviewed Christopher Steiner, author of "Automate This: How Algorithms Came To Rule Our World".

As you'd expect in a Colbert segment, there is lot's of 'truthiness' mixed in with the humor.

For example:

 

Some say all this computer trading is dangerous, but I say it's actually safer. Because if the stock market ever crashes again, instead of brokers jumping out of windows in a panic they'll simply turn on their computer and see the soothing message, 'error 404, economy not found.'  What's the worst that could happen? 

 

To hear the worst that could happen, watch this video.

 

The Colbert Report
Get More: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive

 

Here is a link to Steiner's Twitter feed.

 

Best CyberMonday Deal on Apple - Perhaps Apple Itself?

There we were at the Cowboys game. It was a beautiful day.  I was feeling terrific because I was with my two sons. The crowd was cheering ... and I had a great thought: 'Let's get a picture of this'.

 

Perfect ... a random series of events had led to a satisfying crescendo ... and I captured the moment.

 

 

It wasn't so random.  Despite a difference of four years and two stadiums - the result was similar (if not predictable).

History doesn't necessarily repeat itself. But it often rhymes.

 

It Is True In Trading As Well.

 

The Hype Curve is an interesting map of human emotion.  Below is an idealized version.

 

 

Here is a chart of Apple going back to 2004. Note the similarities. 

 

For a deeper analysis, see this post by Market Oracle.  Here is an excerpt explaining the framework.

Classic economic theory dissects the economic cycle into four distinct stages: expansion, trough, decline and recovery. A stock is no different, and proceeds through the following cycle:

• Stage 1 - After a period of decline a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers. Price action is neutral as sellers exit their positions and buyers begin to accumulate the stock.
• Stage 2 - Upon gaining control of price movement, buyers overwhelm sellers and a stock enters a period of higher highs and higher lows. A bull market begins and the path of least resistance is higher. Traders should aggressively trade the long side, taking advantage of any pullback or dips in the stock's price.
• Stage 3 - After a prolonged increase in share price the buyers now become exhausted and the sellers again move in. This period of consolidation and distribution produces neutral price action and precedes a decline in the stock's price.
• Stage 4 - When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers. A pattern of lower highs and lower lows emerges as a stock enters into a bear market. A well-positioned trader would be aggressively trading the short side and taking advantage of the often quick declines in the stock's price. More times than not all of stage 2 gains are given back in a short period of time.

While these stages are historically defined over long time periods they actually exists in all time frames, allowing traders to take advantage of a cycle regardless of their trading time frame. Fortunately this phenomenon, known as a "fractal", exists within all security markets. A fractal is simply a rough geometric shape that can be subdivided into smaller parts that have the same properties; a smaller version of the whole.

This is important to understand because through technical analysis as we are often analyzing multiple time frames. In the short term, the four stage model may repeat itself many times. The combination of these short term cycles form a medium term cycle, and the combination of multiple medium term cycles form a long term cycle.

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