This is an interesting analysis by Rob Hanna who has studied and quantified the gap activity Phil mentioned in his double week review. He came to a similar conclusion – very odd market behavior. – Ilene
A trader I know pointed out the unusually large gap activity lately. I track the 10-day absolute average gap over the 100-day absolute average gap on the charts page in the members section of the site. Meanwhile I observed the average true range is still below normal. I’ve copied the two charts from the website to illustrate.
The real odd behavior here is with the average gap size. Such gappy behavior is unusual with the market near new highs. It’s also unusual when there isn’t also a substantial increase in the intraday range. I looked at this a number of different ways last night. The 10/100 Absolute Avg Gap is 1.38 (meaning the 10ma is 38% larger than the 100ma of the overnight gap size). I looked at other instances where similar levels were approached and the market was near a new high. It’s been fairly unusual over the last 15 years and results were inconclusive.
I then look at comparing the size of the average gap to the size of the average intraday range (not the true range as shown above). Here again I found we are at very high levels but past history was choppy and inconclusive.
Lastly I looked at times where the 10-day average gap was well above normal and the 10-day average intraday range was well below normal. Again I could find nothing suggesting a significant directional edge.
So is this activity suggestive of anything? Perhaps. While the readings themselves don’t seem to help greatly in predicting direction, they do indicate some unusual behavior. My take is that the market is being influenced more by outside forces than is customary. It’s been noted by many that the dollar has been leading everything by the nose lately. Outside influences like Dubai debt have also had an overnight influence lately. This would seem to explain why such a large percentage of action is occurring overnight.
So what should we do about it as traders? Two things come to mind – 1) Be more cognizant
Three Strikes on Ben Bernanke: AIG, Goldman Sachs & BAC/TARP December 7, 2009
On Saturday, joined by hundreds of friends, family and colleagues on a snowy December day in Yonkers, NY, we celebrated the life of Mark Pittman. Readers of The IRA who wish to express their thanks to Mark and show support for his family may make contributions to the Pittman Children’s College Fund, c/o Dr. William Karesh, 30B Pondview Road, Rye, NY 10580.
Bob Ivry from Bloomberg News gave a remembrance of Mark, including reading the letter that his daughter Maggie Pittman posted on zerohedge to dispel rumors that her dad might have been murdered. Some members of the zerohedge family thought that Mark was killed by the banksters for his diligent pursuit of the disclosure of the Fed’s many bailout loans to Wall Street firms.
Ivry also told a great story of how, when asked by a younger reporter why she should give Pittman her scoops instead of giving them to CNBC’s Charlie Gasparino, Mark replied: “I’m taller than Charlie and can see above the bullshit.” We miss Mark a lot.
Coming together with the friends of Mark Pittman ended a grim week. Many of us in the financial community were wading hip-deep through barnyard debris as we watched Federal Reserve Chairman Bernanke dodge and weave in front of the television cameras during his Senate confirmation hearing. We have to believe that Mark would have been pleased as Senators on both sides of the aisle asked questions that came directly from some of his reporting — and a few of our own suggestions.
To us, the confirmation hearings last week before the Senate Banking Committee only reaffirm in our minds that Benjamin Shalom Bernanke does not deserve a second term as Chairman of the Board of Governors of the Federal Reserve System. Including our comments on Bank of America (BAC) featured by Alan Abelson this week in Barron’s, we have three reasons for this view:
First is the law. The bailout of American International Group…
A Wall Street economist was in our office the other day to update us on his forecast. He said he had been on the road a lot lately talking to a wide range of institutional investors, and that “nine-and-a-half out of ten are bearish.” As anyone who reads our blog can tell, we count ourselves in that group.
Rather than take comfort in the fact that we are not alone in our view, the contrarian in us is restless. If the vast majority of professionals are expecting continued weakness, we have to consider the probability of the opposite outcome. After all, the market will always find a way to inflict maximum pain on the maximum number of investors. So we check our assumptions and challenge our conclusions.
This exercise brought to mind economist Herbert Stein’s maxim, “If something cannot go on forever, it will stop.” Usually we apply this rule to asset bubbles, like tech stocks in 1998-99 or home prices in 2004-07, as a way to justify our belief that periods of great overvaluation tend to be followed by periods of mean-reversion. So when we see the record drops in housing starts, home prices and business inventories, or the huge jumps in productivity and the savings rate, we have to remember that reversion to the mean works both ways.
All of the dislocation and contraction that is going on in the economy is painful, and it will last for a while, but it is a prerequisite to the turn in the cycle. While there is clear evidence that progress is being made in correcting the pre-2008 above-the-mean conditions, we are not convinced that the current below-the-mean correction has begun. We are sticking with our view of the world for now-credit performance in residential and commercial mortgages, overleveraged household balance sheets, oversupply in the housing market and structural deficits in municipal and federal finances are still in the process of correcting the bubble’s excess. The turn will come at some point, and we have to be mindful of that fact.
On a related note, how to read today’s jobs numbers? The headline numbers were surprising
I recently read Graham Turner’s book, No Way to Run an Economy: Why the System Failed and How to Put it Right. Quite honestly, it is the best book I’ve read in finance/ economics and politics in years and I highly recommend it to money managers, central bankers, policymakers, and anyone else who wants to understand the financial crisis and its repercussions for our future.
Graham Turner is one of the best economists I ever met. His firm, GFC Economics, is based in London and it provides independent economic research – on US, UK, Japan, and Eurozone – to institutional clients on a subscription basis. If you’re an institutional money manager or government agency, this one service worth spending on. There are others but they’re way more expensive and do not offer the insight that Graham and his team offer.
The most astute commentators on the credit crunch tend not to be part of the mainstream, Anglo-American, free-market consensus. For example, the economist Nouriel Roubini, widely credited with predicting the crisis, was born in Iran to Jewish parents; the hedge-fund manager and philosopher George Soros was living in Budapest when the Nazis invaded Hungary. Meanwhile, the Financial Times journalist Gillian Tett brings an academic background in social anthropology to bear on her observation of bankers, as well as the experience of living and working in Japan during its long battle to extricate itself from a deflationary slump.
Graham Turner is also one of the outsiders. In his view, the Japanese experience offers a frightening glimpse into our future, with deflation, where the prices of assets such as houses and shares are locked into a downward spiral, becoming entrenched. If that happens, conventional policy measures, such as reducing interest rates and pushing through huge increases in government spending, can fail, as indeed they have in Japan.
We are not quite there yet, but how did we end up in the state we are in? Rather than dwell on the complexities of derivative debt instruments, Turner examines the way in which globalisation has worked to the benefit of capital and the detriment of labour, identifying it as one
Hey everyone. Well, the week was definitely interesting one for the market. We had some real home runs and one real dud in this week of The Oxen Report. Let’s take some time to review what we did this week and what we can expect from the market next week.
Winners of the Week:
1. Aeropostale Inc. (ARO) – Our Monday Buy Pick of the Day was a winner for us. On Monday, we recommended Aeropostale as a strong play because we were excited about the retail sector. On Monday, however, it was getting the kind of movement I thought it should get. Therefore, in my Midday Alert on Monday for Oxen Alert members, I recommended holding this one overnight into Tuesday. The hold worked brilliant. With an entry on Monday at 31.50, we were able to exit at 32.13 for a solid 2% gain.
2. Direxion Daily Energy Bear ETF (ERY) - Our Short Sale of the Day for Monday was also a quick winner. We saw that there was a big gain in oil and a weak dollar in Monday morning before the market opened. That meant there should be good movement in this 3x ETF to the downside, but it was not there. It created a great value play on some unpriced movement. We were right. Got in the morning at 11.85 and exited at 11.51 for the quick 3% gain.
3. Ultrashort Proshares Oil and Gas ETF (DUG) - On Wednesday, we continued a play on oil as we saw the inventories coming out worse than expected from the API. The market was also looking down, and it looked like a solid buy in the morning. We got in at 12.40, looking for a 12.65 – 12.78 exit. We did not hit our 2% range, but we still sold off at the end of the day for a gain at 12.55 for 1.25%.
4. Big Lots Inc. (BIG) - The Gamble of the Day on Thursday was in Big Lots Inc. (BIG). THIS WAS OUR BIG WINNER OF THE WEEK. We got into BIG on Thursday afternoon at 23.75. The stock we sold at 9:30 AM on Friday for the overnight gain after the company reported extremely solid earnings. We sold at 27.00. That was a gain of 9.5%. It was a solid play, and I hope you all benefitted from it.…
Gold fell for the first time during last week, off 4% on Friday to $1,162.40 an ounce, the biggest drop since Dec. 1, 2008 after the new U.S. jobs data showed unexpected strength. The Dollar rallied against rival currencies while traders reversed the “Sell Dollar/Buy Gold” strategy. (Fig. 1)
The Dollar’s decline has been a key factor in the record rising gold price this year by boosting the metal’s appeal as an alternative investment along with other commodities and high-yielding currencies.
Though gold briefly touched a low of $1,136.80 during the Thanksgiving week on fears of a possible debt default in Dubai, the precious metal had otherwise continued its vertical ascend into uncharted territory advancing in 21 of the past 23 sessions.
While gold has some underlying support from central banks and investment funds, there are some indications suggesting gold is moving mostly on momentum, and that a deeper correction may be due.
India Leading the Gold Rush
Gold’s rally in the past couple weeks was largely on speculation that India’s central bank may buy more gold from the IMF adding to the 200 ton purchase it made last month.
This second purchase by India would be the fourth central bank sale this quarter of IMF bullion. The three prior sales were Sri Lanka’s $375 million purchase of 10 metric tons; India’s initial $6.7 billion purchase 200 metric tons, and Mauritius bought 2 tons for $71.7 million.
The three sales so far leave about 190 tons up for grabs from the 403.3 tons the IMF announced Sept. 18 it would divest to shore up its finances.
China, The New King of Gold
Private Chinese gold buying, for both jewelry and investment, will overtake Indian demand this year, predicts metals consultancy Gold Fields Mineral Services (GFMS). China is now the world’s No.1 gold mining nation. The People’s Bank is widely thought to have grown its gold reserves by buying domestic production direct.
In addition, China has cut the import tax on jewelry and allowed select commercial banks to sell gold bars, and gold is now traded freely on the Shanghai Gold Exchange.
Russia & Vietnam Not Far Behind
On Nov. 23, Russia’s central bank announced it had bought 15.6 metric tons of gold in October and…
Zero Hedge is nothing if not about the persistent, even dogged pursuit of unusual (even alarmingly unusual) angles of research. When our totally uncompensated interns catch a scent wafting noxiously from the halls of power, no social secretary of any station will prevent them running down the source of the malodorous smell. So when publicity hungry former bailout prodigy Neel Kashkari goes Kaczynski in some “off the map” corner of Nowhere, Nevada County, California, (but not quite so nowhere that a Washington Post reporter is unable to pen a puff-piece on location, or too far out of range to get Bloomberg alerts on your Blackberry, or so remote that a search for yourself on Gawker is impossible to conduct) Zero Hedge is there.
Unsurprisingly, Kashkari typically still has his Blackberry handy to run the sort of trivial calculations that we all encounter in our day to day lives. Just like the old days! To wit:
We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number.
Yeah, Cashy-K (cachet?), but that might actually have more to do with the fact that you are so mercifully free of the ravages of intelligence. Good thing your wife is able to heft 11-foot pieces of cedar trim, or that cabin in the woods might look more like the CMBS crap that currently weighs down the Fed’s balance sheet, no?
How wonderful that the fate of the modern financial world rested for seven months (and probably still teeters in the aftermath) on the shoulders of a “man” so singularly unsuited for the job that Washington, D.C. broke him into a dozen pieces, about six of which seem to have found their way back into the puzzle- though it is not clear yet if they are even positioned correctly.
How telling is it that the Washington Post seems to think this is a quaint human interest story about the human cost of the crisis? We suppose that we will now have to bail out the Post with some Federal cash? At Zero…
Everyone is pleased with the employment numbers that just came out today. Also, industrial production showed an increase. These numbers would indicate that we are well on our way to recovery, and I hope that is true. Many economists have hailed these reports as a clear sign that we are well on the way to recovery. I heard “Mr. Sunshine,” Brian Wesbury of First Trust Advisors on the radio the other morning say that we are clearly in a “V”-shaped recovery.
This is one of those game-changer reports that should fundamentally alter the perception regarding the economy. We have been steadfast in our belief that the labor market is stabilizing and that payrolls would turn positive around the turn of the year. It is safe to say that many if not most economists have been skeptical that the labor market would perk up, and the jump in the unemployment rate in October seemed to reinforce the negativity around the labor market. Today’s number was a little more and a little faster than we had expected, but it largely jibes with our broad evaluation of the employment picture. However, it should spark a much more significant re-assessment of the economic situation among market participants and the consensus at the Fed. –Stephen Stanley, RBS
But are these indicators correct? Do they signal a turnaround? Since I am accused of always seeing things darkly, I don’t wish to be overly critical, but I don’t think they are sending signals of a true recovery. Let’s examine the reports.
Factory orders are a bellwether of future economic activity. Durable goods orders, those goods meant to last more than three years, actually declined 0.6%. Non-durable order went up 1.6%. But,
Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, decreased 3.4 percent, a bigger decline than the government estimated last week. Shipments of those goods, used to calculate gross domestic product, fell 0.3 percent, also a bigger drop that initially reported.
The media for the most part are reporting that factory orders went up 0.6% during October.
Why is this important?
Generally an increase in durable goods orders indicates what is called an increase in “higher” order…
The trading range that has developed over the past several weeks is emblematic of the cross currents confronting this market. New highs seem to be made daily and then boom, the rug is pulled out from the market, and prices plunge for a couple of hours. Buyers appear and back to the highs we go and selling begins again. If you are looking for some support area where you might think it is “safe” to find a low risk entry, then this isn’t the market for you. Sell offs are clearly unpredictable although they are occurring at the upper reaches of the trading zone that I had expected when I stated this over two months ago:
“If you intend to play on the long side, it will be important to maintain your discipline (for risk reasons) and buy at the lows of that trading range and sell at the highs to extract any profits from this market.”
The usual cross currents remain: 1) an equity market divorced from the fundamentals; 2) diverging and weakening market internals; 3) highly bullish investor sentiment; and 4) strong trends in gold, 10 year Treasury yields, and crude oil. These are real headwinds and no doubt have contributed to this grinding price range we have seen.
But now we have a new wrinkle. On Friday, the Dollar and the equity market rose together. Friday’s unemployment surprise appears to be the catalyst. The prior 6 months saw the “bad news is good news” trade as weakness in the economy meant increasing liquidity, continued Dollar devaluation, and higher stock prices. It was all good as long as there was bad news. This led some analysts to suggest prior to the employment report that the bulls better think about what they wish for. Good news may not be treated so kindly by Mr. Market. But good news was received well (at least for a few hours until new highs were made briefly).
Now one data point doesn’t make a trend, but it does set the tone. The vibe I am getting is that “America is back”. This is the way it is suppose to be. We have a strong economy and a strong Dollar. Wow, that was quick and painless. We have a stock market that has moved far ahead of itself on a fundamental basis and
Whether the problem is with low interest rates themselves or the fact that rates still aren’t low enough to ignite a new credit boom is not clear. What is clear is that the world’s money center banks are facing a brutal downsizing. From today’s Wall Street Journal:
Hot on the heels of Deutsche Bank's admission that all is not well, Credit Suisse's announcement last night of a major capital raise was greeted by buying pressure from investors. However, reality punched them in the face this morning as CS releasaed its investor day details and, as Bloomberg reports, is looking to raise up to CHF8 billion (almost 50% larger than Goldman Sachs investor survey suggested). Clearly, CS' has a much more massive capital shortfall than expected.
U.S. stock-index futures were little changed, after disappointing results from Alcoa Inc. offset optimism from a winning streak that’s put the Standard & Poor’s 500 Index on track for its best week of the year.
1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:
The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
I think this is the beginning of the end for the company.
My price target for the stock a year from now is $3, so I shorted more yes...
Bulls can be happy with today's progress. What weakness emerged today was reversed by the close, a change on yesterday's action where sellers dumped in the last few minutes of trading. Volume climbed to register an accumulation day.
The S&P finished at the 50-day MA, but beyond that there is plenty of room beyond that to run to the next level of resistance at 2,045. Technicals are net bullish.
The Nasdaq pushed off its 20-day MA and has another 50 points of maneuver before it gets to its 50-day MA. Technicals are not yet net bullish, but they are close.
Uncertainty about the health of the global economy led investors to flee U.S. equities during Q3, primarily driven by worries about China's growth prospects and the Federal Reserve’s decision to not raise rates. Sure, there are plenty of real and perceived headwinds, but on balance it seems that a recession here at home is not in the cards. And when you consider sentiment and the technical picture, it appears that a continuation of Friday’s bounce is in store. The question remains as to whether the seasonally strong Q4 will be able to propel the bulls through levels of resistance that have built up.
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
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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