The SPX continued to decline lower again for the third consecutive week. It closed below it’s weekly 20 moving average on very strong volume. This is the sharpest pullback in the SPX since June 2009. In the June to July pullback phase the SPX lost 87 points from peak to trough. Curently this January decline has given back 77 points from it’s recent 1150 top. The weekly support levels for the SPX are 1050.00 and 1000.00 should the decline continue. Since the March low the SPX has not had a single 10 percent correction. In order for a ten percent correction to occur the SPX would need to trade down to the 1035.00 level.
The U.S. Oil Fund (USO) pulled back again this week as the U.S. Dollar traded higher. Oil continues to remain is a sideways base or channel. Currently the low range can be bought and the high range can be sold. This range looks as if it can be bought at the low end and sold at the high end until the USO breaks out or breaks down of this channel. For the near term expect the 10 point range to be in play.
The SPDR Gold Shares(GLD) sold off with most other commodities this past week as the U.S. Dollar increased. The weekly 105.00 support level held this past week for the GLD. Shoud the 105.00 level fail to hold the next major support level for the GLD will be 100.00 level. Please remember to monitor the U.S. Dollar as gold and the dollar generally trade inverse to each other. Gold is veiwed by many as a global currency and an option against the U.S. Dollar should it decline.
The U.S. Dollar index (DXY) climbed higher again this past week. In last weeks brief report we pointed out the 80.00 resistance level that is now in play and expected off of the current chart pattern. This resistance level should still be watched and possibly a little higher on the DXY. The weekly 200 moving average is currently at 80.58 and is likely the next target for the DXY. Often when price gets very close…
The number of pension schemes looking to invest money with hedge funds doubled during 2009, according to a leading investment consultancies.
Hewitt Associates has seen inquiries from clients increase sharply as pension fund trustees scrabble to find high-performing investment strategies to help recoup losses
suffered in 2008.
“A lot of institutional investors have got over the emotional block that hedge funds are risky products that they should be scared of. Clients are much more comfortable with the asset class,” Guy Saintfiet, a senior hedge fund researcher at Hewitt told the Financial Times.
Other consultants – which play a crucial role as intermediaries in guiding pension funds’ investments – also report a change in attitudes towards hedge funds. According to Damien Loveday, a senior investment consultant at Towers Watson, pension fund trustees had become more sophisticated. Most UK schemes were now looking to allocate up to 15 per cent of their portfolio to hedge funds, Mr Loveday said.
Pension fund managers are also looking to make allocations directly to hedge fund managers. In the past, institutional investors have preferred exposure via a fund of funds, which pools money and makes diversified investments.
Several of the largest pension funds have already indicated that they are looking to make significant direct allocations to hedge fund managers. The £28bn University Superannuation Scheme – the UK’s second largest pension plan – said on Tuesday it expected to invest with as many as 30 managers during the next two years. Its investments will add up to £1.4bn.
In the US, Calpers, the world’s largest pension scheme, said in its end-of-year statement that it had conducted due diligence on 66 hedge funds. Like many of its peers, it has yet to make any investment.
According to BarclayHedge, the industry data provider, inflows into hedge funds have only just returned to pre-crisis levels.
“The inflow of $54bn [£34bn] in the latest four months reversed only a small portion of the redemptions of $402bn from September 2008 through July 2009,” said Sol Waksman, BarclayHedge chief
Asia greets February with a lot of red ink. Futures in the US are green… just because. If you are within camera distance of the 9th floor of 33 Liberty, we would love to know how many lit up offices/Bloomberg terminals are visible and churning away.
Yeah, so health care didn’t work. Now, Obama has gotten serious about finance reform. Only problem is, the health care battle has taken a political toll and the stolen bonuses and lack of lending have been in full effect for another year.
One wonders "What’s the point now?" Opportunity squandered, expect another America-crushing catastrophe sometime later this decade….it will start in the financial markets.
Now that’s some serious pocket change you can believe in. If correct, Blankfein’s 2009 bonus will be over 30% greater than his $68 million take home in 2007, the previous all time record year for Wall Street. Check to you, Mr. President: surely this will merit some more populist rhetoric and even more decisive complete lack of action on your behalf. From the Times of London:
Goldman Sachs, the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts.
Bankers in Davos for the World Economic Forum (WEF) told The Times yesterday they understood that Lloyd Blankfein and other top Goldman bankers outside Britain were set to receive some of the bank’s biggest-ever payouts. “This is Lloyd thumbing his nose at Obama,” said a banker at one of Goldman’s rivals.
Goldman Sachs is becoming the focus of an increasingly acrimonious political and financial showdown over the payment of multimillion-pound bonuses.Last week the US President described bonuses paid out by some banks as “the height of irresponsibility” and “shameful”.
“The American people understand that we have a big hole to dig ourselves out of, but they do not like the idea that people are digging a bigger hole, even as they are being asked to fill it up,” he said last week.
If indeed the bonus number is correct, this is a slap not only in the face of the president, of Volcker, not to mention the other clowns in the economic advisory circle, but all of America’s taxpayers.
A bumper payout for Mr Blankfein would come after discussions by Goldman’s rivals in Europe to limit executive pay in order to appease politicians and the public failed last week. Joseph Ackermann, the chairman of Deutsche Bank, floated the idea of a remuneration cap at a private meeting of top bankers in Davos on Thursday, but failed to gain sufficient support. Last night it appeared that Deutsche had abandoned the plan and decided to pay some of its own top executives bonuses of millions of pounds.
The possibility of a bonus cap was discussed at a recent meeting between Alistair Darling, the Chancellor,
The last thing that the fixed income market needs now, with ever greater uncertainty out of European bond land, is weakness where it hurts the most: the US balance sheet. Yet last Thursday’s H.4.1 report indicated something which could be more troubling than even Greece’s credit crisis morphing into a liquidity one, namely, that foreign central banks’ UST holdings at the Fed declined for the first time in over two years.
What could be precipiating this? Quite a few factors have emerged recently:
1) A seemingly endless supply of Treasuries (especially the 2,5, and 7 Y) for which the indirect bid continues to be over 50%. This alone is confusing in light of the custody decline.
2) Concerns over developed country sovereign risk: last week S&P downgraded it Japan outlook and issued a scathing report on UK sovereign and financial risk.
3) Kansas Fed’s Hoenig dissent on tightening monetary policy. This is the proverbial first shot across the Fed’s bow. Hoenig’s “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”
4) Economic conditions have taken a decidely bearish tone. JPM’s EASI index of economic surprises (lower means greater amount of negative surprises) just took a dramatic turn lower.
5) Flattening and outright inversion in a variety of financial corp spreads in the 5s10s bracket.
6) AAA CMBS spreads widened by 30 bps. If sovereign risk is in question, why should insolvent REITs be any better?
Regardless of which specific set of news may have precipitated the January Treasury effect, this is truly a scary observation, which however does not jive with the indirect take down continuing to be as strong as ever: if indeed the custody data is correct, then all the indirect bid data has to be taken with not just a dash of salt, but as Rosenberg says, an entire salt shaker.
Pharmboy, member of our team at PSW, has been writing a book on Technical Analysis. Here is the first chapter for your enjoyment/educational experience. - Ilene
Understanding Market Cycles: The Art of Market Timing
Courtesy of Pharmboy
Experts and the main stream media say that market timing is impossible. That much is true, but when TA is used, timing market movement is very profitable on a consistent basis. As a technical trader, the purpose is to find the best trades and to time the entry and exit points. After all, any trader can find the best trade in the world, but if it is not timed well, it may turn into a loss. Every stock or asset class goes through a classic market cycle. Figure 1 is a diagram of the four stages of the market cycle:
When looking at the charts of any stock or index, notice that it moves in cycles. By observing cycles, what to expect next is easier to comprehend. Figure 2 shows two stocks that have completed each of the four stages.
For a long-term investor or trader, understanding market cycles can greatly benefit their portfolio.
Stages of a Market Cycle
Accumulation Phase – This is the bottom (or near the bottom) of a particular stock, sector, or general market. At this stage, prices do not move upward but rather stay within a neutral trading range. At this level, the smart money begins to buy up large blocks of shares to accumulate a large position for their portfolio. They are patient enough to wait years, if needed, because it is difficult to determine how long a stock or sector will be in this stage. Regular individual retail investors do not even consider buying at this level because, in most cases, they have recently sold into the lows. At PSW, this is the stage where stocks are nominated to the Watchlist and the biggest discounts
Military should be the first in line for budget slashing, but the opposite is taking place. While “defense” spending does boost GDP, and preserve (politically important) jobs, it’s still a huge drag on the real economy.
America’s military is bloated, and much like the FIRE sector, it needs shrinking. Both are incredibly inefficient ways to grow/stimulate an economy. In their current state, both are a drain on American resources. And with their armies of lobbyists, this isn’t likely to change soon.
America faces a funding crisis like we have never seen. The U.S. remains the world’s lone superpower. That would still be the case if we cut military spending 30%. Reducing the budget and shifting those jobs to more productive areas, like energy and manufacturing, would have immensely positive effects on the economy.
The question is – do our political leaders have the courage to cut spending before things get out of control? Based on what we’ve seen so far – the answer is clearly no.
From the highs three weeks ago to the lows of this past week, the S&P500 has slid about 7%. This is not as great as the mid-June to mid- July, 2009 swoon, which saw the S&P500 lose about 10%. So maybe investors are right in not being too concerned about the pace of the current downdraft, and when looking at the sentiment indicators this week, that is exactly what we see: complacency amongst the “dumb money” and indifference by the “smart money”. Despite any short term gains over the next week, this still is not a high reward, low risk investing environment.
The “Dumb Money” indicator, which is shown in figure 1, looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investor Intelligence; 2) Market Vane; 3) American Association of Individual Investors; and 4) the put call ratio. The “Dumb Money” indicator shows that investors remain extremely bullish.
Figure 1. “Dumb Money” Indicator/ weekly
The “Smart Money” indicator is shown in figure 2. The “smart money” indicator is a composite of the following data: 1) public to specialist short ratio; 2) specialist short to total short ratio; 3) SP100 option traders. The Smart Money indicator is neutral to bearish.
Figure 2. “Smart Money” Indicator/ weekly
Figure 3 is a weekly chart of the S&P500 with the InsiderScore ”entire market” value in the lower panel. Due to the start of earnings season, insider trading volumes remain light.
Figure 3. InsiderScore Entire Market/ weekly
Figure 4 is a weekly chart of the S&P500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall.
Currently, the indicator is red and the value exceeds 58%. In other words, greater than 58% of the assets are in bullish funds (leveraged and non leveraged) relative to all of the equity funds. There is
On a related note, I’m almost done with Too Big to Fail — Andrew Sorkin’s insanely investigative bailout book. The stuff on AIG is fascinating. Apparently when the 100% payout was finalized, some pissed-off AIG guys saw some Goldman guys high-fiving each other, ecstatic about the deal.
China’s central bank Governor Zhou Xiaochuan said the world’s second-largest economy has scope compared with other nations to ease its monetary policies though won’t necessarily take advantage of it. (Read more)
Six of the eight indexes on our world watch list traded lower this week, with Germany's DAX down 5.57%. The best performing of the six losers was the S&P 500, down only 0.99%. The big positive outlier was China's Shanghai Composite, up a jaw-dropping 6.27% for the week and now up 32.54% in 2015. Hong Kong's Hang Seng was a less conspicuous outlier with a 1.40% weekly gain.
Here is an overlay of the eight for a sense of their comparative performance so far in 2015.
Here is a table of the 2015 data performance, sorted from high to low, along with the interim highs for the eight indexes. All eight indexes are in the green, with the top five gains ranging 12.62% to 32.54%. Not bad for for the first three-and-a-half months of the year. At the bottom of the list, the S&P 500 is up 1.08%.
When it comes to investing in the stock market, do you feel leadership can be important. If so, you might want to pay attention to price action from a key global stock index. China has been in the news for hot stock market performance that past couple of months. When it comes to the past couple of years, Germany has been stronger than China and the S&P 500. In the past two years the DAX index has gained 18% more than the S&P 500, which is a 60% greater return.
The chart below looks at conditions in the DAX at this time and what message is coming from this index.
As we get into the heart of earnings season and anticipate the GDP report for Q1, the investor spotlight has been taken off the Federal Reserve and timing of its first interest rate hike, at least temporarily. Even though Q1 economic growth will undoubtedly look weak, the future remains bright for the U.S economy – even though many multinationals will struggle with top-line growth due to the strong dollar – and any near-term selloff resulting from weak economic or earnings news should be bought yet again in expectation of better results for the balance of the year. High sector correlations remain a concern, reflectin...
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As noted earlier, with equities now a barren wasteland of volume (and liquidity), the last remaining HFT master (of whale order frontrunning)has been forced to go to those asset classes where organic flow is still abundant such as FX, courtesy of central banks engaged in global currency wars. However, HFTs rea...
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...
In my last post (Part 1 of this article), I looked at alternative ETFs that could be used as hedges against the corrections that we have seen during that long 2 year bull run. Looking at the results, it seems that for short (less than a month) corrections, a VIX ETF like VXX could actually be a viable candidate to hedge or speculate on the way down. Another alternative ETF was TMF, a long Treasuries ETF which banks on the fact that when markets go down, money tends to pack into treasuries viewed as safe instruments. In some cases, TMF even outperformed the usual hedging instruments like leveraged ETFs. There could of course be other factors at play since some of 2014 corrections were related to geopolitical events which are certain...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
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 email@example.com 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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