I want to explain the concept of trend days, v churn days that I’ve been mentioning of late. I’ve noticed these patterns over the past few quarters, but have only in the past 4 weeks or so tried to take advantage of it. So far, with good success. What has really stood out aside from the fact what happens yesterday has nothing to do with today (the market has no memory) is how few reversal days we have anymore. I am not sure the cause of this; I am sure part of it is the dominance of program trading over humans with momentum based strategies but who knows how much. All I know is it has continued repeatedly and while obvious to me (and I assume others) it keeps repeating. So until the pattern ends, there is no reason not to take advantage of it – there are actually some low risk strategies that keep your cash protected overnight but allow you to allocate capital via the levered ETFs (long or short) or even calls or puts (which I’ve started doing); and you can be done by the end of the day and have that money cozy under your mattress.
By a reversal day I just mean a very choppy day where we start the day up by a significant margin and then go down significantly later in the day, or vice versa. Those happen occassionally but seemingly far less than in the past. Instead, we have had a dominance of 2 kind of days: (a) churn days or (b) trend days. Most of the time you know by 10:30 – 11:00 AM what it is going to be.The churn days have also been remarkable of late – we had a few examples last week during the downturn… immediately after a huge swoon the very next day (remember, the market has no memory from day to day) we get an almost silent day. The market will essentially ping pong back and forth in a very small range, from top to bottom of the range but never making a new high or a new low. Shape wise it…
The board of directors of JP Morgan Chase will hold a board meeting in the nation’s capital for the first time on Monday, the New York Times reports. In attendance, also a first, will be the chief of staff of the President of the United States, Rahm Emmanuel.
You can read all about the historic occassion in the Times article right here.We’d pull an excerpt for you, but it’s worth reading in it’s entirety. Instead, we’re inspired to pull this from the concluding chapter of Animal Farm.
A week later, in the afternoon, a number of dogcarts drove up to the farm. A deputation of neighbouring farmers had been invited to make a tour of inspection. They were shown all over the farm, and expressed great admiration for everything they saw, especially the windmill. The animals were weeding the turnip field. They worked diligently hardly raising their faces from the ground, and not knowing whether to be more frightened of the pigs or of the human visitors.
That evening loud laughter and bursts of singing came from the farmhouse. And suddenly, at the sound of the mingled voices, the animals were stricken with curiosity. What could be happening in there, now that for the first time animals and human beings were meeting on terms of equality? With one accord they began to creep as quietly as possible into the farmhouse garden.
At the gate they paused, half frightened to go on but Clover led the way in. They tiptoed up to the house, and such animals as were tall enough peered in at the dining-room window. There, round the long table, sat half a dozen farmers and half a dozen of the more eminent pigs, Napoleon himself occupying the seat of honour at the head of the table. The pigs appeared completely at ease in their chairs. The company had been enjoying a game of cards but had broken off for the moment, evidently in order to drink a toast. A large jug was circulating, and the mugs were being refilled with beer. No one noticed the wondering faces of the animals that gazed in at the window.
Thousands of jobless Pennsylvanians are joining the growing ranks of people around the country who are exhausting unemployment benefits, as some experts worry about another blow to a stumbling economy.
Gov. Ed Rendell said 17,800 Pennsylvanians exhausted their jobless benefits in the week that ended Saturday, the first big wave of Pennsylvanians to do so. He urged legislators to pass a bill to extend the benefits.
Around the country, the number of people exhausting their benefits is piling up. By the end of September, more than 500,000 people will exhaust their benefits checks, with the biggest groups in Pennsylvania, California and Texas, according to estimates by the National Employment Law Project, an advocacy group for low-wage workers based in New York City. That number will nearly triple by the end of the year, the group said.
The number of jobless New Yorkers across the state jumped significantly during the month of June, according to state Department of Labor statistics released Thursday.
The unemployment rate increased from 8.2 percent in May to 8.7 percent in June. That’s the highest level since October of 1992.
In New York City, the rate increased from nine percent in May to 9.5 percent in June — the highest level in more than a decade. That translates into more than 850,000 people out of work in the state.
"Because of our 8.7 percent unemployment rate, we will qualify for an additional seven weeks of unemployment insurance benefits," said New York State Labor Commissioner M. Patricia Smith. "So right now New Yorkers will be eligible for 79 weeks of unemployment insurance benefits."
Unemployment benefit extensions are expected to help an additional 47,000 jobless New Yorkers who would have lost their benefits in August.
Urban.org provides a nice background on Unemployment Insurance benefits and the problems certain states faced at the end of 2008:
The states finance UI benefits with payroll taxes paid by employers into state trust funds maintained at the U.S. Treasury. State balances earn interest income. The Treasury also makes loans to states whose trust funds have been exhausted. At the end of 2008, trust fund balances were low in several states, and three (Indiana, Michigan, and South Carolina) had already borrowed to maintain benefit payments to eligible workers.
$10.9 billion. That’s the amount of money currently lent by Federal Department of Labor (DOL) to a group of 15 states whose unemployment insurance (UI) trust funds have run dry.
How did we get here? Back to Urban.org (bold mine):
For the aggregate U.S. economy, the highest-ever payout rate was 2.22 percent of payroll experienced during January-December 1982. Before the current recession, reserves across 51 state UI programs totaled $37.6 billion in December 2007 and represented just 0.80 percent of total payroll for the year. The RRM at the end of 2007 was 0.36, that is, the reserve ratio of 0.80 percent divided by the high cost rate of 2.22 percent. Reserves totaled about a third of the recommended actuarial standard and represented roughly four months of benefits at the highest-ever payout rate.
In other words, based on the level of unemployment insurance needed in the 1982 recession, states only had about 4 months worth of unemployment ready to pay out. Thus, the following can’t be a surprise. Back to Economic Populist:
And it’s about to get a whole hell of a lot worse. By the end of the year that number will likely have have grown to 35 states. Total DOL emergency loans to states at that time? Nearly $50 billion dollars. The situation will be far worse for some states than others. The states appearing in red on the map below are those that will need DOL loans to keep unemployment benefits rolling.
With Google (GOOG) announcing earnings that ‘disappointed’ Thursday night and Intel’s (INTC) earnings earlier in the week surprised, let’s take a quick look as of July 17th at these two market moving stocks.
First, with Google (GOOG):
Google, like Apple (AAPL), has been in a very strong uptrend off the early March lows. With only one pullback before the June highs, price rose almost without pausing.
The run-up into the June high was tremendously powerful (that’s why people trade Google – for the action and volatility) which terminated in a doji that gapped up into an exhaustion/reversal bar just above $440.
We had an “abc” move down off those highs into what appears to have formed a “double top” at prior resistance with a slight negative momentum divergence.
Notice how volume spiked Thursday as traders/investors took positions in expectation of blow-away profits (similar perhaps to Intel). Playing the ‘earnings game’ can be very risky, as expectations were not met by Google’s latest announcement. We are now in a ‘pullback/retracement’ mode.
Next, on to Intel (INTC):
As opposed to Google, expectations for Intel (INTC) were lower, and so better than expected numbers caused the stock to surge, driving the S&P minis up nine points after Tuesday’s close (which preceded a trend day on Wednesday… though strangely enough Intel formed a doji on Wednesday and a ‘trend day’ on Thursday).
Volume surged to a new 2009 high as did price and the 3/10 momentum oscillator – all signs of fresh and enduring momentum that should lead to higher prices in the established up-trend (though expect a pullback/retracement instead of a parabolic rally – the new momentum high indicates a short-term overbought reading, as do all oscillators).
So it’s a different picture as painted by two market leaders.
While Tim Geithner is out in the Middle East making the obligatory rounds, professing support for a strong U.S. dollar, investment strategists are wondering aloud whether a weak U.S. dollar is really what the U.S. government wants. David Rosenberg put out the following note over at Gluskin, Sheff.
It is the second anniversary of the credit crunch and after all of the fiscal and monetary policy initiatives, the best we get are green shoots and now that story is getting stale. Go back two years and you will see that the funds rate was 5.25%. Today it is zero. The fiscal deficit was 2.0% of GDP two years ago. Today it is 13%. Mortgage rates were 6.5%. Today they are 4.7%. Homeowner affordability with all the government measures is 70% stronger today than it was then too. The Fed’s balance sheet then was $850 billion. Today it is bloated at $2 trillion. The government has tried just about everything. Or has it? What if we were to tell you that the one policy tool that is unchanged since the summer of 2007 is… the U.S. dollar? It is exactly the same level now, on any trade-weighted measure, as it was back then. The greenback is struggling at the 50-day moving average, and this could well be the next policy shoe to drop.
We have seen huge fiscal and monetary stimulus. We have seen the Fed buy up toxic assets and bloat its balance sheet to unprecedented levels. There have even been mammoth changes in the affordability of homes, largely due to lower mortgage rates (and declining values). In short, everything has been done in the last two years to spur growth in America – that is everything except devaluing the greenback.
With unemployment still rising and Congress’s biannual election season coming up in no time, it would be quite tempting to orchestrate a devaluation in order to get a short-term boost.
As we said above, the U.S. government has practically exhausted all of its policy options … except for one; the U.S. dollar. It is the only policy tool that has not budged one iota since the crisis erupted two years ago. As we mull this over, we recall all too well this great book that a client referred us
It is hard to believe that last weekend I wrote: "You can hardly find anyone who doesn’t think we’re going back to the March lows. I stand by my statement to Members in yesterday morning’s Alert where I said: "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800. While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks. Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say – Show me the misses."
Here we are, just 7 days later and I found myself writing an article about the ridiculous media cheerleading that went on last week. How did the MSM go from 100% bearish to 100% bullish at the stoke of Monday? Well, according to Cramer, it was Whitney, Whitney, Whitney and the logic seems to be that, since she called the problems in the financials early on, she MUST be right by calling an end to the problems now. Of course what Whitney actually said was the banks should have a good quarter as the government pushes for massive mortgage refinancing (all those 1% fees really add up!) and she also said she sees unemployment shooting up another 35% to 13% or higher but hey – at least she said something positive about the banks and that's all the media needed to hear to tear up the previous week's entire playbook and switch sides so completely, you have to review the tape just to be sure we didn't imagine the whole doomed, "head and shoulders" outlook of the week before.
What did I have to say about all this nonsense last weekend? I was emphatic, and I'm usually not, and I said for those who would listen: "So here we are, back at the bottom of the trading range I predicted back in March and even as far back…
We have avoided Armageddon, at least for now. The cost to the US taxpayer has been a few trillion. Some in the media are loudly announcing the end of the recession. But we are not out of the woods yet. There are a few more bumps in the road. Actually, some of them are quite steep hills. As big as the subprime problem? Maybe.
When asked a few weeks ago what was my biggest short-term concern, I quickly replied, "European banks have the potential to create significant risk for the entire worldwide system." This week we will glance "over the pond" to see what gives me cause for concern. Then we briefly look at a few of the bumps I mentioned, which are likely to stretch out any recovery, and maybe even dip us back into recession.
Europe on the Brink
Globalization is a two-edged sword. On balance, it has brought prosperity to those who have embraced it, with rising lifestyles, better health, longer lives, and more. The more we need each other, the less likely it is that we'll shoot each other. Shooting your customers is not a good business strategy. And while the growth has not been even or smooth, only a Luddite would want to return to the early 1800s or 1900s, or even 1975.
The other edge of that sword? We are connected in so very many ways, far more than most of the world suspected. Who thought that insane lending policies at US mortgage banks would bring the world financial system to its knees, increasing unemployment and leading to a global recession? World trade is down 20% or more. US railroad shipments are down more than 20% year-over-year. Chinese (and Asian) factories have seen their orders drop, as US consumers have gone on strike. The US trade deficit was just $25 billion last month; and while our exports are still dropping, our imports are dropping more. Oil is becoming a…
Ambrose Evans-Pritchard writing in the Telegraph reviews the catastrophe that has befallen Ireland.
Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.
A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.
Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. “The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb”, said the Teachers Union of Ireland.
Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.
“Something has to give,” said Professor Colm McCarthy, the report’s author. “We’re borrowing €400m (£345m) a week at a penalty interest.”
Evans-Pritchard feels that the developed countries in Europe as well as the U.S. are spending themselves into a hole from which extrication will be most difficult. He feels that the solution to the crisis needs to come through monetary rather than fiscal policy now that the time of greatest peril has passed. He even argues that while governments pursue expansive monetary policies they need to aggressively cut spending over a multi-year period.
I find myself somewhat attracted to his logic though I would probably say that it might be just a wee bit too soon to back off on the fiscal side. I guess I don’t share his conviction that recovery can continue solely with the assistance of an expansion of the money supply.
Perhaps more to the point is that we need to take the warning that the Irish experience provides as we formulate out opinions about high dollar initiatives such as
Here is an email from JMI that I would like to share. Jeff writes:
Green Shoots or Kudzu?
The most recent report on home foreclosures was very ugly. The second quarter foreclosure rate was at 889,000. Annualized, that is about 3.5 Million homes foreclosed upon in 2009. The national stats for homeowners in the US in 2007 was about 75 million homes owner occupied. The National Association of Realtors is projecting 5.5 million homes to be sold in 2009.
Additionally, this report highlights that 8.3 million households are now underwater and at risk of "walk aways". 2.2 million more will be underwater if we go down in prices another 5%. Option ARMS are just beginning to be reset and those numbers will peak in August of 2011 and will most likely drive all of these numbers higher with higher mortgage payments. These are all published numbers from non government agencies.
Here is a summary
US Households: 75 Million
2009 Projected Foreclosures: 3.5 Million (1 of every 21 households)
2009 Projected Home Sales 5.5 Million
Inventory of Foreclosures 2 1/2 years (assuming 25% of home sales are foreclosures)
Number of Homes Underwater 8.8. million (1 of every 8.5 households)
Number of Households underwater if prices decline another 5%: 11 Million (1 of every 6.8 households)
The American dream of owning a home has quickly turned into a nightmare of monumental proportions going well beyond almost anyone’s wildest and darkest thoughts.
As unemployment rises above 10% and more Americans are faced with their homes being underwater, the bottom in this market is years away and will be a drag on our economy like never seen before. Home ownership will never rebound to the 75 million again as millions look for cheaper rent and an opportunity to repair their balance sheets.
I really believe these are greenshoots; the Kudzu variety.
Via this morning’s Jefferies Global Equity Strategy note:
Although US economic surprises have cooled somewhat, 62% of S&P companies reported Q1 earnings above estimates while 55% reported sales above mean. This is the best ‘earnings beat rate’ since mid-2010. While 1Q16 (-7.6% to date) results will be the first time the index has seen four consecutive quarters of y-y declines since 4Q08 to 3Q09, forward guidance has improved significantly. The dollar is set to become a tailwind for the US from 2Q16.
A bigger-than-expected build in U.S. crude inventories to fresh record highs pushed oil markets down after an early rally on Wednesday over concerns about production cuts in Canada's oil sands region due to a wildfire.
By Jacob Wolinsky. Originally published at ValueWalk.
Pension Funds – Taking the Long View: The Dangers of Short-Termism
Scott Minerd, Managing Partner, Chairman of Investments and Global Chief Investment Officer, Guggenheim Partners
Christopher Ailman, Chief Investment Officer, California State Teachers? Retirement System; Co-Chair, Global Capital Markets Advisory Council, Milken Institute
Scott Evans, Deputy Comptroller, Asset Management, and Chief Investment Officer, New York City Retirement Systems
Vicki Fuller, Chief Investment Officer, New York State Common Retirement Fund
Hiromichi Mizuno, Executive Managing Director and Chief Investment Officer, Government Pension Investment Fund, Japan
Intensifying global competition, flagging corporate earnings and emboldened activist investors ...
Global markets had another down day. The Nikkei took a holiday, the Shanghai Composite slipped a fraction 0.05%, the SENSEX fell 0.51%, and the Hang Seng fell 0.73%. The Euro STOXX 50 dropped a more disappointing 1.19%. Our benchmark S&P 500 opened lower and sold off it waves to its -0.86% mid-afternoon low. A bit of afternoon buying trimmed the closing loss to -0.59%.
The yield on the 10-year note closed at 1.79%, down two basis points from the previous.
Here is a snapshot of past five sessions in the S&P 500.
Here is a daily chart of the index. Volume in today's decline was unremarkable.
A Perspective on Drawdowns
Here's a snapshot of selloffs since the 2009 trough.
Many like to watch the price action of Junk Bonds, because they can send important messages about the strength or lack of in the stock market. Below looks at Junk Bond ETF JNK
CLICK ON CHART TO ENLARGE
As you can see, JNK looks to have created a double top in 2013 and 2014 and weakness in the sector soon followed. Once weakness really started to take place in this sector (2015), stocks didn’t have much luck moving higher.
JNK created a bullish reversal pattern (bullish wick pattern) the week of 2/5 and started turning high...
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Remember this? It was Monday. PRGO is down from around $130 to under $100 since I started following it LAST WEEK. That's down almost 25% in a week, and almost 50% in the last year. So I wrote,
"Perrigo CEO Joseph Papa leaves Perrigo (PRGO) to lead Valeant (VRX) while PRGO issues a warning about missing earnings expectations. Not surprisingly, PRGO stock plummeted today.
Robert Ingram, Chairman of the [Valeant] Board, stated, "The Board has conducted a thorough search process and believes that Joe is the ideal leader for Valeant at this time. He has a strong shareholder orientation,...
Although we try to stay focused on finding and managing promising trade ideas, the comments in the comment section sometimes take a political turn (for access, try PSW — click here!). So today, Jean Luc writes,
The GOP debate last night was just unreal – are these people running to be president of the US or to lead a college fraternity! Comparing tool size? The only guy that looks semi-sane is Kasich. The other guys are just like 3 jackals right now.
And something else – if Trump is the candidate, that little Romney speech yesterday is probably already being made into a commercial. And all these little snippets from the debate will also make some nice ads! If you are a conservative, you have to be scared now.
Phil writes back,
I was expecting them to start throwing poop at each other &n...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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