The Mindset For Successful Trading In Today’s Market
by Chart School - February 22nd, 2012 11:03 am
Courtesy of David Grandey.
…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggS&P 500 Update: Where’s the Volume?
by Chart School - February 22nd, 2012 10:35 am
Courtesy of Doug Short.
The S&P 500 closed yesterday at a new year-to-date high, up 8.24% in the first 44 days of trading versus 5.59% over the same timeframe in 2011, which was also an excellent start to the year (one that finished flat).
But what about volume? I’ve posted comparisons with 2011 after the first 12 and first 24 days of trading. Here is an updated comparison after the first 34 days.
According to the data I downloaded from my Stockcharts.com subscription, the cumulative volume so far this year is 102.6 Billion versus 122.6 Billion in the first 34 days of 2011. That is a -16.3% decline.
Despite the continued superior performance of the 2012 year-to-date rally, but the trading volume doesn’t offer strong confirmation.
Media Headlines Will Lead You To Ruin
by Chart School - February 21st, 2012 7:35 pm
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
It’s quite amazing actually. Two weeks ago Barron’s ran the cover page of “Dow 15,000″. Over the weekend Alan Abelson ran a column titled “Everyone In The Pool”. Today, CNBC leads with “Dow 13,000 May Finally Lure Investors Back Into Stocks”. Unfortunately, for most investors, the CNBC headline is probably right. Investors, on the whole, have a tendency to do exactly the opposite of what they should do when it comes to investing: “Buy High and Sell Low.” The reality is that the emotions of greed and fear do more to cause investors to lose money in the market than being robbed at the point of a gun.
Take a look at the chart of the data from ICI that tracks flows of money into and out of mutual funds. When markets are correcting, investors panic and sell out of stocks — with the majority of the selling occurring near the lows of the market. When the markets rally, investors continue to sell as they disbelieve the rally initially and are just happy to be getting some of their money back. However, as the rally continues to advance from oversold conditions – investors are “lured” back into the water as memories of past pain fades and the “greed factor” overtakes logic. Unfortunately, this buying always tends to occur at, or near, market peaks.
However, with the market now pushing higher, and “Dow 13,000″ being flashed across CNBC with a point-by-point count of the potential crossing, investors are once again giving into their “greed” emotion. The reality is that the market is already pushing extremes, and the opportunity to buy into the market has already passed. This emotion-based “lemming” response to very advanced rallies is the same “siren’s song” that has lured many a ship’s Captain to their watery graves. Listening to media will lead you to ruin.
…
Weekly Gasoline Update: Up 36 Cents in Nine Weeks
by Chart School - February 21st, 2012 5:35 pm
Courtesy of Doug Short.
Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data with an overlay of West Texas Crude (WTIC). Gasoline prices at the pump, both regular and premium, increased 7 cents over the past week, continuing their steady increase since mid-December. Both are up 36 cents from the interim low in the December 19th EIA report. WTIC closed today at 106.25. It is 6.7% off its 2011 interim high, which dates from early May 2011.
As I write this, GasBuddy.com shows three states, Hawaii, Alaska and California, with the average price of gasoline above $4.
The next chart is an overlay of WTIC, Brent Crude and unleaded gasoline (GASO). During much of last year there was a disconnect between WTIC and Brent Crude, but over the last quarter that spread has shrunk considerably.
The price volatility in crude oil and gasoline have been clearly reflected in recent years in both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). For additional perspective on how energy prices are factored into the CPI, see What Inflation Means to You: Inside the Consumer Price Index.
The chart below offers a comparison of the broader aggregate category of energy inflation since 2000, based on categories within Consumer Price Index (commentary here).
S&P 500 Snapshot: A Fractional Gain
by Chart School - February 21st, 2012 5:35 pm
Courtesy of Doug Short.
The S&P 500 opened higher, presumably in celebration of the Eurozone’s agreement on a second Greek bailout, although European markets weren’t exactly celebrating and closed their sessions lower. Likewise the enthusiasm faded for US markets, despite the sound of popping champagne corks when the Dow rose above 13,000. The Dow rally faded, as did the gains in the S&P 500. A rally near the close kept our favored index in the green, and at the close it posted a fractional daily gain of 0.07%. Still, that’s a year-to-date high of 8.24%. The index is only 0.10% below its interim high at the end of April 2011.
From an intermediate perspective, the S&P 500 is 101.4% above the March 2009 closing low and 13.0% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
These charts are not intended as a forecast but rather as a way to study the current market in relation to historic market cycles.
Will Greece Survive the Ides of March?
by Chart School - February 21st, 2012 3:35 pm
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high.
Deal “Really” Finalized?
Open Europe says Many questions around the second Greek bailout remain unanswered.
| We finally have an agreement on the second Greek bailout … in principle. It only took eight months. If you’re of the belief that a disorderly Greek default would have triggered Armageddon, the deal that was agreed (as ever “agreed” is used loosely) by Euro finance ministers in the early hours of this morning is broadly good news. |
Below we outline a few key issues (not exhaustive by any means, there are many more) and give our take on how they could play out.
Greater losses for private sector bondholders: Reports suggest the Greek government was sent back to the negotiating table with bondholders at least four times during last night’s meeting. Nominal write downs for bond holders now top 53.5% (or around 74% net present value). The leaked Greek debt sustainability analysis (DSA) assumes a participation rate of 95%.
Open Europe take: 95%, really? We weren’t convinced the previous threshold of 90% with a lower write down would be reached and that was while potential ECB participation was still on the table. Although this target may have been agreed with the lead negotiators for the private sector, it is far from a cohesive group, diminishing the value of the agreement. It will be interesting to see how bondholders respond to the plan but we think that hold outs could well be more than 5%.
Greek “prior actions”: The deal includes a list of requirements which Greece must meet in the next week to get final approval for the bailout. These include: passing a supplementary budget with ?3.3bn in cuts this year, cuts to minimum wage, increase labour market flexibility and reforms opening up numerous professions to greater competition.
Open Europe take: The now infamous ?325m in cuts still needs to…
No Other Choices?
by Chart School - February 21st, 2012 1:35 pm
Courtesy of Doug Short.
In a recently released NY Times/CBS poll, the pollsters told us of what most already are feeling in their gut: the choices for the Oval Office in this coming November are less than compelling. Perhaps, some new faces are what the American electorate needs to reinvigorate the contest.
We think of political battles as waged between two parties. Indeed, for most of our nation’s history, two parties have dominated the stage. Today, they are the Democratic and Republican parties; 160 years ago, they were the Democrats and the Whigs. Our perception is the names may change, but the number – at two – remains a constant.
This is true and false. Yes, it is true that in many elections, the two main parties split the vote amongst themselves. But looking back upon our history, there have been many past elections – one within the last twenty years – in which a third-party candidate has garnered a respectable share of the popular vote. This pattern goes in cycles. During times of peace and prosperity, two choices often suffice. In periods of demographic change, cultural turmoil, political tensions, or economic difficulty, we become more receptive to another vantage point or a different message. During such periods, the politics of the fringe moves into the mainstream.
The Progressive Movement in the early quarter of the 20th Century offers an example of how regional or sectarian influences infiltrated both the Democratic and Republican parties and colored their respective Presidential platforms. Robert La Follette is a name some may vaguely recall from high school history. He was a governor of, and then later a Senator from, Wisconsin. During his political career he championed a number of causes, unpopular in his day; most later became accepted policy for both major parties. As governor he championed workmen’s compensation, the minimum wage, railroad rate regulation, women’s suffrage, and a progressive income tax among other reforms. While not heretical proposals, all encountered stiff political opposition. As a Senator, he persevered in these causes and adopted others as well. Theodore Roosevelt in later years may have decried La Follette as “a skunk” (for his opposition to U.S. entry into World War One), but as President his administration was receptive to a number of Populist and Progressive themes. Williams Jennings Byran, the Democratic standard…
Vehicle Miles Driven And the Ongoing Economic Contraction
by Chart School - February 21st, 2012 11:35 am
Courtesy of Doug Short.
The Depart of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through December. Travel on all roads and streets changed by 1.3% (3.2 billion vehicle miles) for December 2011 as compared with December 2010. However, the 12-month moving average shrank by 1.2%, the sixth consecutive month of moving-average decline (PDF report).
Here is a chart that illustrates this data series from its inception in 1970. I’m plotting the “Moving 12-Month Total on ALL Roads,” as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1986. My start date is 1971 because I’m incorporating all the available data from the DOT spreadsheets.
The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The current dip has lasted for 48 months and counting — a new record.
The Population-Adjusted Reality
Total Miles Driven, however, is one of those metrics that must be adjusted for population growth to provide the most revealing analysis, especially if we’re trying to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics’ Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.
Clearly, when we adjust for population growth, the Miles-Driven metric takes on a much darker look. The nominal 39-month dip that began in May 1979 grows to 61 months, slightly more than five years. The trough was a 6% decline from the previous peak.
The population-adjusted all-time high dates from June 2005. That’s 78 months — 6 1/2 years. And since the previous-month’s data is the…
Chicago Fed: Economic Growth Improved Again in January
by Chart School - February 21st, 2012 11:35 am
Courtesy of Doug Short.
According to the Chicago Fed National Activity Index, in January economic activity decreased from December, but remained positive for the second consecutive month — the first time that has happened in twelve months. Here are excerpts from the report:
The index’s three-month moving average, CFNAI-MA3, increased from +0.06 in December to +0.14 in January, reaching its highest level since March 2011. January’s CFNAI-MA3 suggests that growth in national economic activity was slightly above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
Employment-related indicators made a contribution of +0.35 to the index in January, up from +0.28 in December. Civilian employment rose by 0.6 percent in January, following a smaller increase of 0.1 percent in the previous month. Likewise, the unemployment rate decreased to 8.3 percent in January from 8.5 percent in December. [Download PDF News Release]
The Chicago Fed’s National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed’s website. The index is constructed so that the historical index average is zero. Postive monthly values indicate above-average growth, negative values indicate below-average growth.
The first chart below is based on the complete CFNAI historical series dating from March 1967. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of coincident economic activity. I’ve also highlighted official recessions.
For a clearer look at the recent behavior of the index, here is a closeup view since 2007.
The next chart highlights the -0.7 level. The Chicago Fed explains:
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood
…
Two Measures of Inflation: New Update
by Chart School - February 20th, 2012 10:36 am
Courtesy of Doug Short.
Note from dshort: I've now updated the charts below to include today's Consumer Price Index data from the Bureau of Labor Statistics. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison.
The BLS's Consumer Price Index for January, released today, shows core inflation above the Federal Reserve's 2% target at 2.28%. Core PCE, at the end of last month, is fractionally below the target at 1.85%. The Fed, of course, is on record as using Core PCE as its inflation gauge:
| The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances. [Source] |
The October 2010 core CPI of 0.61% was the lowest ever recorded, and two months later the core PCE of 0.93% was an all-time low. However, we have seen a significant divergence between the headline and core numbers for both indicators, especially the CPI, at least until a few months ago, when energy prices began moderating. The latest headline CPI and PCE are both off their respective interim highs set in September.
This close-up comparison gives us a clue as to why the Federal Reserve prefers Core PCE over Core CPI as an indicator of its success in managing inflation: Core PCE is lower than Core CPI. Given the Fed's twin mandates of price stability and maximizing employment, it's not surprising that the less volatile Core PCE is their metric of choice.
The Bureau of Labor Statistic's Consumer Price Index and The Bureau of Economic Analysis's monthly Personal Income and Outlays report are the main indicators for price trends in the U.S. The chart below is an overlay of core…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(