Archive for June, 2011

So Much For That Japanese Recovery: Large Manufacturer Confidence Plummets

Courtesy of Tyler Durden

So much for the Japanese renaissance which somehow is supposed to lead to a surge in Q3 US GDP growth. Following yesterday’s surprisingly strong factory production growth rate of +5.7% (the second highest in history), every economist (and Joe LaVorgna), was already shifting their strawman from declining energy costs (which are now back to early June levels courtesy of the IEA idiocy), to Japan as the last bastion of growth. Alas, the just released Tankan quarterly index of large manufacturer confidence has confirmed that the rumors of Japan’s economic reincarnation have been greatly exaggerated after it dropped by the most since the Lehman collapse, plunging from +6 in March to -9, well below the economist (and Joe LaVorgna) consensus of -7. From Bloomberg: “Forecasts by Panasonic Corp. (6752) and Hitachi Ltd. for weaker earnings have added to signs of depressed demand. Monetary tightening by Asian economies grappling with inflation means that Japanese companies also can’t count on customers within the region for boosting sales. “The global economy is starting to slow, heightening uncertainties about its future direction,” Ryutaro Kono, chief economist at BNP Paribas in Tokyo, said before the report. “The downside risks to China and other emerging economies seem to be on the rise.” In other words, the global economic growth is impacting Japan, and it is not the Japanese slowdown that is impairing some mythical global growth story. Of course, by the time the economist (and Joe LaVorgna) pool figures this out, QE 3 will be well on its way.

There’s more:

Household demand has also been weak, with consumer outlays sliding 1.9 percent in May, a report today showed, a larger drop that predicted by analysts. The unemployment rate unexpectedly fell to 4.5 percent as more people gave up on looking for work and disaster areas were excluded from the survey. Consumer prices excluding fresh food increased 0.6 percent in May, the government said.

Panasonic last week forecast full-year profit will tumble 59 percent in the fiscal year started April after the earthquake disrupted factories and suppliers. Sales of car-related components and mobile phones will probably drop because of supply-chain bottlenecks, Panasonic’s Chief Financial Officer Makoto Uenoyama said.

Hitachi Ltd. last month forecast net income will drop 16 percent this fiscal year after the temblor crippled its factories.

Recent data indicates


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Caught In The Act: HFT Option Algos Observed Frontrunning Today’s PMI Release

Courtesy of Tyler Durden

In another case of purely coincidental serendipity, three days ago Zero Hedge informed readers that the “NYSE Boerse [sic] has just announced its purchase of Kingsbury International Ltd., which surveys managers for the Chicago Business Barometer, also known as the company that hosts the Chicago PMI data, in order to bring PMI data direct to feed subscribers. Net result: expect even more market volatility at each PMI release, now that the market is not two but three-tiered, and consisting of regular HFTs, HFTs with access to the Deutsche Boerse feed, and everyone else.” We concluded: “It is unclear if the ultra-speed, HFT friendly feed would be activated before its next release on June 30. That said, we will certainly coordinate with our friends at Nanex for any trading abnormalities, primarily in the critical ES futures, this Thursday at 9:42am, keeping a close eye on the tape, and indicating precisely when the tiered data release hits.” Well, as promised here is the Nanex data. As expected, it’s a stunner.

The shocker, however, resides not in the stock arena, but in what is now becoming the go to place for bulk frontrunning high frequency trading algorithms to chase what little volatility is left in the equity market: options, which, as previously noted, we now are confident will be the cause for the next big market wipe out.

Per Nanex:

Approximately 1/2 second before the 9:42 release of the Chicago PMI report, the option market exploded setting new records in quote rates, saturation, and delays. We have not yet determined why the equity market did not see a record explosion of quote traffic; rather it experienced the normal saturation/delay that happens all too frequently every trading day.

The electronic S&P 500 futures experienced a withdrawal of liquidity beginning about a minute before the release of the PMI number. At approximately 9:41:59.550, 1275 contracts cleared through 4 levels of the offer side of the order book. This coincided with the explosion in OPRA quote traffic.

The first image shows quote message rates for each of the 12 CQS data lines that carry data for NYSE, AMEX, and ARCA equities and ETFs in 2ms intervals. Notice how quickly activity drops after the peak compared to the OPRA images below it. Normally, options activity follows equity activity very closely.


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Measuring the Performance of the Ivy Portfolio

Courtesy of Doug Short

I’ve been posting a monthly moving average update for the five ETFs in featured in Mebane Faber and Eric Richardson’s Ivy Portfolio since the spring of 2009, when I featured my review of the book.

In addition to the monthly updates, last year I made a couple of generic studies of momentum investing with moving averages.

Learning from the S&P 500 Monthly MAs
Learning from the Nikkei Monthly MAs

Investing strategies are not the primary focus of my website, and I don’t personally track the performance of the Ivy Portfolio other than to highlight the monthly signals. For ETF performance tracking and backtesting, I use ETFReplay.com, an excellent website for analyzing the performance of individual ETFs and ETF portfolios based on customized moving-average strategies. There are many free tools on ETFReplay.com. However performance backtesting of portfolios does require a paid subscription.

 

The image below illustrates my research on the Ivy Portfolio since 2007. If you click the image, you’ll open a HUGE version that also shows the monthly performance over the complete range as compared to SPY (SPDR S&P 500 Index). For cash, I’ve used SHY (Barclays Low Duration Treasury (2-yr).

 

 

Now, the portfolio in this illustration doesn’t *exactly* match the Ivy five. I picked 2007 as my starting point to show the performance from before the market peak in the Fall of that year. Thus I was forced to make one substitution for the Ivy ETFs — EFA (iShares MSCI EAFE Index Fund) in place of VEU (Vanguard FTSE All-World ex-US ETF), which was launched in early 2007 and didn’t produce a 10-month signal until December of that year. But the substitution presumably understates the all-Vanguard IVY portfolio: I make this assumption because the latest VEU monthly close has outperformed EFA since the March 2009 monthly close (84.5% versus 73.0%).

For anyone interested in researching momentum investing with ETFs, the ETFReplay.com website is an outstanding resource, one that I’m pleased to include in my dshort Favorites.

 

 

 

 

 





Daily Market Commentary: Rallies to Resistance

Courtesy of Declan Fallon

For a fourth day in a row markets posted gains. This took lead indices to resistance, although the Dow bucked the trend by smashing through.

I haven’t focused on the Dow as it hasn’t done anything unique, but today the Dow broke declining resistance connecting reaction highs for April. Volume climbed to register an accumulation day, supporting the validity of the break.

($INDU)

via StockCharts.com

The S&P wasn’t able to achieve the same success, finishing the day at declining resistance. Volume was also lighter, although it was able to close above its 50-day MA. It might be a tall ask to see a fifth day of gains, but with the Dow comfortably ahead it’s not outside expectation (although unlikely).

($SPX)

via StockCharts.com

The Nasdaq was interesting. Like the S&P it finished at resistance, but unlike the S&P and the Dow, technicals turned net bullish. So while price action underperformed that of the Dow, technically it’s better positioned for further gains. Volume climbed to register an accumulation day.

($COMPQ)

via StockCharts.com

It’s supported by declining resistance breakouts in supporting breadth indicators, like the Percentage of Nasdaq Stocks above the 50-day MA.

($NAA50R)

via StockCharts.com

Finally, the Russell 2000 is in a similar position to the Nasdaq; finishing at resistance with technicals net bullish.

($RUT)

via StockCharts.com

For tomorrow, despite bullish technicals for the Russell 2000 and Nasdaq, look for modest losses as bulls prepare to drive a break of resistance and follow the lead of the Dow. The S&P is perhaps in the weakest position and the index most likely to show downside. The chief area lacking has been volume, this will have to increase if a break of declining resistance is to stick, irrespective of the index.





Current Treasury Snapshot

Courtesy of Doug Short

Quick take: Today was the last day of QE2, culminating in a four-day rally in stocks that probably had more to do with end-of-quarter accounting than then end of the Fed’s intervention. Yields have popped and Treasuries have plummeted across the spectrum. The ten-year note, which closed last week at its lowest yield since last November, is up 30 basis points in four days.


The behavior of Treasuries has been an area of special interest in light of the Fed’s second round of quantitative easing, which was formally announced on November 3rd. The first chart shows the percent change for a basket of eight Treasuries since November 4th.

 

 

The next chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed’s website for the FFR.

 

 

Here’s a closer look at the past year with the 30-year fixed mortgage added to the mix (excluding points).

 

 

Here’s a comparison of the yield curve at three points in time: 1) the Fed’s QE2 announcement, 2) the February interim high for the 7, 10, 20 and 30-year yields 3) and the latest curve.

 

 

The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.

 

 

The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note (TNX) and the S&P 500.

 

 

For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.

 

 

 

 





Where Is Tim Geithner Headed Next?

Courtesy of Tyler Durden

Goldman Sachs
 
36% (15 votes)
JP Morgan
 
10% (4 votes)
Any bank that will have him
 
7% (3 votes)
Tax Consultancy
 
2% (1 vote)
McDonalds
 
5% (2 votes)
Any company that will have him
 
0% (0 votes)
Ive League Professor
 
12% (5 votes)
Any non-profit that will have him
 
2% (1 vote)
Extended Unemployment Claims
 
10% (4 votes)
Solitary Confinement
 
2% (1 vote)
Other
 
14% (6 votes)
Total votes: 42




Moving Averages: Month-End Update

Courtesy of Doug Short

Valid until the market close on July 29, 2011

The S&P 500 closed the month of June 1.83% below the previous monthly close. However, all three S&P 500 monthly moving averages we’ve been tracking are signaling an equities position. See the specifics here.

The Ivy Portfolio

The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. I’ve also included a table of 12-month SMAs for the same ETFs for this popular alternative strategy.

Backtesting Moving Averages

Monthly Close Signals Over the past few years I’ve used Excel to track the performance of various moving-average timing strategies. But now I use the backtesting tools available on the ETFReplay.com website. Anyone who is interested in market timing with ETFs should have a look at this website. Here are the two tools I most frequently use:

Background on Moving Averages

Buying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets. In essence, when the monthly close of the index is above the moving average value, you hold the index. When the index closes below, you move to cash. The disadvantage is that it never gets you out at the precise top or back in at the very bottom. Also, it can produce the occasional whipsaw (short-term buy or sell signal), such as we’ve experienced this summer.

Nevertheless, a chart of the S&P 500 monthly closes since 1995 shows that a 10- or 12-month simple moving average (SMA) strategy would have insured participation in most of the upside price movement while dramatically reducing losses.

The 10-month exponential moving average (EMA) is a slight variant on the simple moving average. This version mathematically increases the weighting of newer data in the 10-month sequence. Since 1995 it has produced fewer whipsaws than the equivalent simple moving average, although it was a month slower to signal a sell after these two market tops.

A look…
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Fed Halts Sales Of Toxic AIG Sludge Upon Realization Any Balance Sheet Unwind Crashes The Market

Courtesy of Tyler Durden

Three weeks ago, when discussing the failed (yes, failed) Maiden Lane 2 auction by the New York Fed, we said: ‘Something quite disturbing happened during today’s latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale." Subsequently we noted the sudden radiosilence from the Fed on this issue on Twitter. To be sure, every MBS trader and the kitchen sink promptly complained that the Fed was saturating the market with toxic AIG garbage, which prompted us to declare that: "unless someone opens up a release valve, we are about to see a massive regurgitation and even more massive repricing of credit risk, first in IG, then in HY and ABX/CMBX, and lastly, and most massively, in equities, which continue to exist in their own world and which are now totally disconnected with HY, which they used to track so very closely." We just got the release valve: from Bloomberg: "The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. "Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public," Jack Gutt, a New York Fed spokesman said in an e-mail." Uh, what prevailing market conditions: a Nasdaq which has ripped over 100 points in one week (granted on no volume and on unprecedented market manipulation but so what). Regardless, this is a huge slap in the face for the Fed, which has just proven that even in a surging market it can not unwind an amount from its book that is less than 1% of its total asset holdings without actually crashing the market.

We certainly can not wait for BTIG’s spin on this news tomorrow.

In the meantime, we remind readers of what we predicted, accurately, on June 9:

If dealers and funds are unable to handle a mere $31 billion MBS portfolio disposition, and its weekly sale (think of its


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ITC Rules Against Kodak in Lawsuit With Apple

Courtesy of Benzinga

The ruling can be found at this link.

In relevant part, the ruling reads, “Notice is hereby given that the U.S. International Trade Commission has determined to affirm in part, reverse in part, and remand in part, the final initial determination issued by the presiding administrative law judge on January 24, 2011, finding no violation of section 337 in the above-captioned investigation.”





Waccamaw to Appeal NASDAQ Decision

Courtesy of Benzinga





 
 
 

Zero Hedge

The Real Brexit "Catastrophe": World's 400 Richest People Lose $127 Billion

Courtesy of ZeroHedge. View original post here.

For all the scaremongering and threats of an imminent financial apocalypse should Brexit win, including dire forecasts from the likes of George Soros, the Bank of England, David Cam...



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Chart School

Best Stock Market Indicator Update

Courtesy of Doug Short's Advisor Perspectives.

We continue to receive requests for updates to the "Best Stock Market Indicator", which used to be a regular guest post from John Carlucci. Here is an update of the "Carlucci" indicator along with a summary of John's explanation on how he uses it.

As John described it: "The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money."

Latest Indicator Position

According to this system, the market ...



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Phil's Favorites

Brexit: What Happened Take II

Courtesy of Mish.

Several readers are still wondering why the odds-makers and pollsters got it wrong so badly.

Let’s recap.

  1. If the odds-makers made money, they got it correct. If they lost money, they got it wrong. That is all there is to it. Odd-makers do not predict results. People betting money do. I have not seen any analysis that suggest the odds-makers lost money. It’s possible they did, but if so it was most likely due to a late voting surge.
  2. The pollsters did blow it badly. I surmise pollsters looked at historical trends to judge a vote that happens once a century or so. Since the pollsters got it so wrong last time, they over compensated this time. ORB was particularly bad.
  3. Surprise surprise. It turns out the online polls were far more accurate. In telephone polls, the poll...


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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Why Brexit Is So Bad for the Global Economy (The Atlantic)

Great Britain’s decision to extricate itself from the EU has consequences that are at once far-reaching and unknown. By Friday morning, no market was immune. Great Britain’s currency, the pound, had fallen to its lowest levels since 1985, and the FTSE (an index of the London stock exchange) and DAX (a German stock index) plummeted. In the U.S., markets opened in the red, gold (a co...



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ValueWalk

Brexit: China Could Be The Biggest Winner Of All

By Jacob Wolinsky. Originally published at ValueWalk.

There has been a LOT of discussion about the Brexit vote and what the implications are (although none of us can predict the future), but one interesting point many seemed to miss is the impact on the world’s largest economy after the USA and EU – China. How does a Brexit impact the world’s largest country by population? No one knows for sure but it will likely have a big impact on China.  Quartz is saying its bad while Bloomberg News says its good.

Quartz opines:

UK chancellor George Osborne, meanwhile, promised a “golden decade...



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Kimble Charting Solutions

2007 pattern being repeated right now? Another "Push Away???"

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

The NYSE index kissed the underside of dual resistance at (1) back in 2008. Once resistance held, a big push away from it took place and sellers stepped forward.

NYSE creating a similar pattern again at (2)???

This would NOT be a good place for the Risk On trade if the broad market starts “pushing away” from dual resistance at (2).

Full Disclosure- ...



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Mapping The Market

Thoughts on Brexit

I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.

For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....



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Digital Currencies

Bitcoin Tumbles 10%

Courtesy of ZeroHedge. View original post here.

One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...



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OpTrader

Swing trading portfolio - week of June 20th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more!

PhilStockWorld.com features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...



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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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