Archive for the ‘High Mailing Priority’ Category

Are Stocks Coiling For Another Big Move?

 

Are Stocks Coiling For Another Big Move?

Courtesy of Dana Lyons

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The S&P Mid-Cap Index is trading in the tightest 8-day range in over 20 years; is a big move imminent?

Yesterday, we wrote about the Dow Jones Industrial Average’s rare streak of 7 consecutive all-time highs since its long-awaited breakout. However, scanning the broad equity landscape, it appears that consolidation has been more the norm since the market’s last big up day on July 12. This consolidation is demonstrated by the S&P 400 Mid-Cap Index as clearly as any space. Specifically, the 7-day range in the index spans less than 1 percent for just the 8th time ever. And, at precisely 1.00%, the 8-day range is the narrowest in more than 20 years. In fact, all of the historically tighter ranges occurred in the low-volatility early to mid-1990′s period.

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So what are the implications of this tight range? Well, it is generally thought that exceptionally tight ranges lead to out-sized moves once the range is broken. The notion is that the action is akin to a coiled spring that, when released, expends its considerable pent-up energy. And, generally, we have found that to be the case with breakouts from similar ranges. However, it also depends on the type of environment we are in as well.

From 1992-1995, for example, the daily average true range in the S&P 400 averaged about 0.65%, an exceptionally low level. Thus, we should not be surprised to see that most of the historically tight trading ranges took place during that period. We also should not be surprised to see that the tight ranges of that era did not always lead to out-sized moves.

On the other hand the average true range during past 4 years has averaged around 1.30%, or about double that of the early-1990′s period. Therefore, when we see an unusually tight range like we are seeing now, it is not unreasonable to expect a sizable move once the tight range is broken.

Additionally, in an environment like the present, a tight range or consolidation is often representative of a continuation pattern.


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Weekend Reading: The End Of ‘Choppiness’

Courtesy of Lance Roberts of Real Investment Advice.com

While the markets have indeed broken out to new highs, as I addressed earlier this week, it has done so without a significant improvement in the fundamentals. However, the breakout, such as it is, should not be dismissed or ignored. The technical underpinnings have improved enough to warrant an increase in equity related exposure given a proper entry point in the days or weeks ahead. Such an entry point would require a relaxation of the extreme short-term overbought conditions that currently exist. But a violation of critical support would negate the breakout and return the market back to a more bearish posture.

SP500-MarketUpdate-072219

The potential for such a pullback is extremely high. As Tom McClellan noted recently, the “14-day Choppiness Index,” which tracks the path of a short-term trend, suggests Wall Street’s “uptrend is getting tired.” As McClellan notes, the very linear path for the index implies that the trend is likely to come to an end soon, while more volatile, or choppy, action suggests the opposite. A low reading in McClellan’s index signals a fairly straight-line, or linear, move. And presently, his choppiness index is at its lowest level in two decades.

MW-ES000_mccell_20160720113502_NS

“The reading on Monday was the lowest since Feb. 12, 1996 (yes I scrolled all the way back that far to find a lower one). And in case you are interested, that 1996 instance marked a price top which was not exceeded until 3 months afterward. Linear trends either upward or downward are very exhausting, requiring a lot of energy from either the bulls or the bears to keep everyone in formation and marching together. The market tends toward entropy, so excursions like this toward extreme organization cannot last for very long.”

Furthermore, with volatility levels at extremely low levels the probability of a further advance, without a pullback first, is extremely limited. My friend, Salil Mehta made a great comment on this recently noting that at current levels of volatility there is only about a 20% probability of further declines.

“At 11 [in the VIX] you are really close to the floor. chances are higher that you won’t go lower on VIX and will


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Complacency Is Creeping Back Into The Stock Market

Courtesy of Dana Lyons

With stocks’ steady drift through all-time high territory, investors’ relative near-term volatility expectations have plummeted to near record lows.

One of the hallmarks of the post-February rally in stocks has been a healthy dose of investor skepticism and anxiety. But for brief periods, e.g., towards the end of April, investors have been slow to embrace the move. Such disbelief is one trait that has helped prolong the intermediate-term rally, now more than 5 months old. In recent weeks, we have mentioned in posts and interviews that perhaps the one thing that will usher in greater enthusiasm on the part of investors is a new high in the major averages. Perversely, that was one potential development, we surmised, that may shift sentiment far enough to the bullish side that it could finally place the intermediate-term rally in jeopardy. That scenario appears to be possibly playing out.

Why do we say that? Well, one piece of evidence suggesting a new-found elevated level of investor complacency comes from the volatility market. One way to judge investor comfort or anxiety is to look at the level of expected stock market volatility via instruments such as the S&P 500 Volatility Index, or VIX. Presently, the VIX is plumbing one of its lowest levels since 2007, so investors are displaying very low expectations for stock market volatility at the moment.

Another way of using volatility to measure the extent of investor nervousness is by comparing near-term volatility expectations versus those farther out. For example, the VIX is actually the 1-month volatility index. Meanwhile, the VXV is the 3-month volatility index. Typically, the VIX will be lower than the VXV as there is less time in the near-term for volatility rises to occur. When investors get especially nervous (usually during a selloff), near-term volatility expectations can actually rise above those farther out, i.e., the VIX/VXV ratio rises above 1.00, or 100%. Conversely, during times of complacency, the VIX can drop to relatively low levels versus the VXV, historically under 0.80, or 80%. That’s where the VIX/VXV ratio currently finds itself – and then some.

As of yesterday, July 19, the ratio stood at 76.0%, one of the most complacent readings since the inception of the VXV in 2007.


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What The “Gambler’s Fallacy” Tells Us About Where The Market Will Go next

Courtesy of Nick Colas of Convergex

Viva Las Vegas – The Gambler's Fallacy

The Dow has closed at a record high for nine days in a row, so it (and U.S. equities generally) MUST be ready for a pullback, right?  Not so fast. Thinking that reversion to the mean happens swiftly and reliably is something called “The Gambler’s Fallacy.” To borrow from an old capital markets aphorism, things can stay weird longer than you can stay solvent betting against them. 

Today we review a recent academic paper that highlights three examples of this mental error, ranging from judges hearing asylum requests to baseball umpires and bank loan officers. All of them make the same basic mistake in real-life situations despite their professional credentials and experience: assuming that the next decision is somehow linked to the previous one.  Umps call marginal strikes after calling a ball, and judges decline refugee status more often after granting the previous person asylum during a day of hearings. The key lesson: every decision you make is unique, and should be unrelated to prior judgements.

* * *

During the summer of 1891, a small time British con man named Charles Wells took a holiday to the south of France.  Like many tourists of the day, he frequented the famous casino in Monte Carlo. Unlike many tourists of his day, however, he managed to “Break the bank” – depleting the table where he was playing of all its reserves – several times.  He reportedly took home as much as $8 million in today’s money, although his reputation as a swindler both before and after the event left some doubt about whether the whole thing was a publicity stunt.

Fast forward a few years to August 18, 1913, and something equally unexpected occurred: the roulette wheel came up with a black number 26 times in a row.  Now, the casino had been in operation for decades by now, so a streaky wheel should not have been terribly remarkable. But instead of taking it stride, the crowds that night bet ever large sums during this run, fully expecting a red number to come up. It finally did, but not before the bank had broken some of the gamblers.

The event gave us term “Monte Carlo fallacy”, which has morphed into the “gambler’s


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Visualizing The Volatile History Of Crude Oil Markets

Courtesy of ZeroHedge. View original post here.

Crude oil is the world's most actively traded commodity (and today's chaos evidenced that perfectly), and oil-related markets are a staple for traders, hedgers, investors around the globe. The below infographic, put together by Aspect, covers the history of crude oil trading, while also highlighting the major events that have shaped the landscape of the oil market as we know it today.

As VisualCapitalist's Jeff Desjardins points out, the infographic serves as the perfect primer for all the questions about oil that you had, yet were afraid to ask. It also illustrates the impact that unexpected geopolitical events can have on the oil price – and how this volatility can be contagious to other global markets.

Courtesy of: Visual Capitalist




My Investing Mentors

 

My Investing Mentors

Courtesy of 

Everybody who ever invested a dime in the market had a mentor. And if they didn’t have one when they started, it probably didn’t take long before they went searching for help. Jesse Livermore said “there is nothing new on Wall Street,” and because there is nothing new, lessons learned 10, 20, and even 100 years ago are as true today as they were the day they were written. And because of this, you don’t require any physical one-on-one time with somebody for them to be your mentor. Everything they would tell you to your face can be found in their writing.

I want to share the people who have had the biggest influence on me. This list could easily be four times as long, but to avoid this post becoming a book, I had to draw a line somewhere.

This list begins with the godfather Jack Bogle, founder of The Vanguard Group. Bogle taught me the power of indexing, to keep costs down, and to think long-term. Here are two brilliant quotes from The Little Book of Common Sense Investing:

Don’t look for the needle in the haystack. Just buy the haystack!

The stock market is a giant distraction to the business of investing.

And this is Bogle on investor behavior, from Common Sense On Mutual Funds:

When stock prices are high, investors want to jump on the bandwagon; when stocks are on the bargain counter, it is difficult to give them away.

“Adam Smith’s” The Money Game is one of my favorite investment books ever written. It was originally published in 1967, and aside from technological changes, you would think it was written today. Smith taught me how much the market, and even more so the investor, are influenced by psychology. Here he is, from his 1967 classic:

A stock is for all practical purposes, a piece of paper that sits in a bank vault. Most likely you will never see it. It may or may not have an Intrinsic Value; what it is worth on any given


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Chart o’ the Day: 5 Rebuttals for the Bears

 

Chart o’ the Day: 5 Rebuttals for the Bears

Courtesy of 

Jon Krinsky dropped a beauty for institutional clients of MKM Partners this weekend, refuting the five most common arguments from the bears for why last week’s new record highs represent a market top. Jon is a technician, so if the picture changes, so will his views, but for now he believes traders should be in dip-buying mode rather than playing for a deep pullback.

Below, five common bear arguments and Jon’s refutations:

#1: The Market Is Overbought
While the market is overbought on a very short-term basis, longer-term momentum is far from overbought, and monthly MACD is close to giving a bullish crossover.

#2: The Market Is Expensive
While we don’t use valuation as part of our analysis, we realize that some may consider the market ‘expensive’ here. There have been many times throughout the last 60 years, however, when the market was ‘expensive’ and still had plenty of runway.

#3: Emerging Markets Are Rolling Over
The MSCI Emerging Market Index is up 9.28% YTD, above all of its moving averages, and has the highest percentage of components above their 200 DMA since early 2014.

#4: The Transports Haven’t Confirmed
They also didn’t confirm in early 1995, until they did. The TRAN Index is up ~25% off its lows, has broken a two-year downtrend, and the cumulative advance-decline line is nearly at an all-time high.

#5: Sentiment Is Frothy
Short-term sentiment is frothy, but longer-term, is far from it, in our view.

Here’s how he tackles #4, the transports non-confirmation: It doesn’t matter. Or, it doesn’t matter yet.

There have been other instances where the Dow Transports negatively diverged from a DJIA bull market and then converged much later. Take 1995, for example, after which the S&P 500 (and Dow Jones Industrials and QQQ’s) literally exploded higher for the next four years…

Screen Shot 2016-07-19 at 3.36.27 PM

Source:

Five Bearish Arguments… And Our Rebuttal To Them
MKM Partners – July 17th 2016





Separating Decisions

Separating Decisions

Courtesy of 

The amount of time between the scary events taking place in our country and all over the world seems to be narrowing at a rapid pace. The human tragedies that the world is experiencing are unthinkable and beyond sad to watch. But looking at the market’s response to crisis, we learn that no financial decisions, specifically relating to your portfolio, should be made on the basis of geopolitical uncertainty.

I was surprised to see the futures open flat last night, and trade higher this morning. But I shouldn’t have been, because a quick look at history reaffirms that events outside the market just do not get the response from stocks that you might imagine.

Here are a few examples.

  1. The Dow Jones Industrial Average had its best year ever in the first full year after World War I broke out. In 1915, it gained 81.7%. This gain has never come close to being duplicated, and will likely stand as an all-time record.
  2. U.S. stocks gained 15% in the two weeks following Hitler’s invasion of Poland.
  3. J.F.K was assassinated on Friday, November 22, 1963. On Monday the stock market was closed and when it reopened on Tuesday it gained 3.98%. This was the strongest move in a year and a half and is stronger than 99% of all days on record until that point. Also, in the six previous years, a move this strong had only happened one other time. The Dow finished 1963 finished up 17%.
  4. In 1968, the day after M.L.K was assassinated, stocks fell 0.59%. Then they rose over the next seven days. 61 days later, R.F.K was assassinated and stocks fell half a percent that day, then rose each of the next four days. The Dow gained 4% that year.
  5. Stocks were down less than 1% the day after Nixon resigned. Granted it was in the teeth of a bear market that would fall another 26% over the next four months, but the immediate reaction to the first and only presidential resignation seems rather tame.

It’s impossible to predict these events ahead of time, even the most plugged…
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The Age of No Returns

 

The Age of No Returns

Courtesy of John Mauldin, Thoughts from the Frontline

“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.”

– Robert Frost

“Money won’t create success. The freedom to make it will.”

– Nelson Mandela

I am going to interrupt my regular letter for a few pages, as the events in Turkey in the last 24 hours compel me to offer a few thoughts. Fortunately for you, patient reader, rather than getting my own less-than-expert analysis, you will have that of George and Meredith Friedman, members of the Mauldin Economics team who have been doing geopolitical analysis for 40 years and who have serious connections in Turkey. We will open this week’s letter by looking at George’s brief take of the actual meaning of what is going on in Turkey, as events continue to play out there.

George has an experienced team of analysts who write for his firm Geopolitical Futures. They are seemingly on 24-hour call, and they have highly placed connections all around the world, so George’s team can gain deep insights into whatever is happening in a country on an almost immediate basis. I am privileged in that I can pick up the phone and get to him whenever I need a deeper dive into what is going on in the world. After George’s brief analysis we’ll get into a few economic thoughts as well. So let’s start with George.

The Implications of the Coup in Turkey

Mid-afternoon on Friday in the US (late evening in Turkey), we started to receive reports that tanks were deploying in Istanbul and two bridges over the Bosporus had been closed by Turkish Army troops. A bit later, we got reports that armor had been deployed in Ankara, Turkey’s capital, and that there was fighting going on between Turkish Army special forces and national police around the parliament. Turkish F-16s were seen in large numbers in the skies. A military coup was underway.

Military coups were fairly common in the world thirty or forty years ago. Turkey itself last had a coup in 1980. Having a full-dress coup,…
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The Cartoon History Of Elizabeth Holmes & Her Pet Unicorn

Courtesy of ZeroHedge. View original post here.

From Bay Area School Drop-out to Billion Dollar Baby to Biggest Loser… the rise and fall of Elizabeth Holmes and her hobby-horse Theranos is as much media-hyped fantasy as it is smoke and mirrors. In order to help explain the rollercoaster car-crash, KQED put together this comic book. Enjoy…

Source: KQED





 
 
 

Phil's Favorites

Merkel's Trojan Horse of Terrorism

Courtesy of Mish.

The debate in Germany over chancellor Angela Merkel’s open arms welcome of refugees is increasingly vocal and cantankerous on both the Left and Right.

Support for her policies will vanish as soon as there is a major incident such as we have seen in Paris, Nice, or Brussels.

Unfortunately, such an incident is increasingly likely.

The Financial Times reports Merkel Critics Turn on Refugee Policy as Germans Confront Terror.

Select Quotes

  1. “We are definitely capable of accommodating these people and making sure they have enough to eat and drink,” says Florian Hahn, an MP from the CSU, the Bavaria-based sister party to Ms Merkel’s CD...


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Zero Hedge

Two Birds, One M4: As NYPD Gears Up for Summer Of Chaos, Mayor de Blasio Secures Re-Election

Courtesy of ZeroHedge. View original post here.

It's no secret to New Yorkers that Mayor de Blasio has a "strained" relationship with the NYPD and its Commissioner, William Bratton.  Mayor de Blasio and Commissioner Bratton have publicly butted heads over a whole host of issues from Black Lives Matter, to the size of the police force, to the effectiveness of the City Council.  Early last year the NYPD famously turned their backs on Mayor de Blasio as he delivered the eulogy for a fallen police officer.

Therefore, it shouldn't be that shocking that Commissioner Bratton surprised Mayor de Blasio yesterday with an article in the ...



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ValueWalk

Dan Loeb Q2 Letter: Game Of Thrones Investing

By Jacob Wolinsky. Originally published at ValueWalk.

Dan  Loeb Q2 2016 Letter: Game Of Thrones Investing full letter below

Also see

Third Point 1Q16 Letter – We Crowded Into Short Trades . Dan Loeb Q4 2015 letter: Worries Over China

Review and Outlook

Watching Jon Snow’s epic “Battle of the Bastards” scene in the penultimate episode of this season’s Game of Thrones gives investors a sense of how it has felt to manage money during some periods over the past year. Surging enemies forming a seemingly impossible perimeter, a crush of fellow soldiers on the field, arrows coming in overhead, and the need to avoi...



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Chart School

S&P 500 Snapshot: A Flat Finish Before Fed Wednesday

Courtesy of Doug Short's Advisor Perspectives.

US equity indexes traded in a narrow range today and finished mixed ahead of Fed Wednesday. Our benchmark S&P 500 exhibited a bit of volatility in the first 90 minutes, hitting its intraday high and low about an hour apart. The index then struggled with yesterday's closing price during the lunch hour and again at the close. It managed to eke out a 0.03% gain as we move toward tomorrow's FOMC minutes and rate decision, expect by most analysts to remain unchanged.

The yield on the 10-year closed at 1.57%, down one basis point from the previous session.

Here is a snapshot of past five sessions in the S&P 500.

Here is a daily chart of the index. We've highlighted the unusually narrow pattern over the past nine sessions, b...



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Kimble Charting Solutions

Junk Bonds at important inflection point, should impact stocks!

Courtesy of Chris Kimble.

Junk bonds have been quality at sending Risk On and Risk Off message to the broad stock market. Below looks at Junk Bond ETF JNK over the past decade.

JNK finds itself at an important price point below and what it does in the upcoming couple of weeks could become a big influence on the Risk On/Risk Off trade.

CLICK ON CHART TO ENLARGE

...

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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Fed seen holding rates steady as inflation watch continues (Reuters)

The U.S. Federal Reserve is expected to keep interest rates unchanged this week, deferring any possible increase until September or December, as policymakers hold out for more evidence of a pickup in inflation.

U.S. stock futures waver ahead of Fed, key earnings (Market Watch)

U.S. stock futures struggled for direction on Tuesday, with investors opting for the sidelines ahead of the closely watched Federal Reserve meeting and a deluge of ear...



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OpTrader

Swing trading portfolio - week of July 25th, 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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Digital Currencies

Demystifying the blockchain: a basic user guide

 

Demystifying the blockchain: a basic user guide

By Philippa Ryan, University of Technology Sydney

Companies around the world are exploring blockchain, the technology underpinning digital currency bitcoin. In this Blockchain unleashed series, we investigate the many possible use cases for the blockchain, from the novel to the transformative.

Most people agree we do not need to know how a television works to enjoy using one. This is true of many existing and emerging technologies. Most of us happily drive cars, use mobile phones and send emails without knowing how they work. With this in mind, here is a tech-free user guide to the blockchain - the technology infrastructure behind bitcoin...



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Mapping The Market

No wonder Saudis are selling as much as they can!

Courtesy of Jean-Luc

We are getting much more energy efficient – no wonder Saudis are selling as much as they can! Who wants to be the one with trillions of dollars of oil in the ground unwanted:

http://arstechnica.com/science/2016/07/the-amount-of-energy-needed-to-run-the-worlds-economy-is-decreasing-on-average/#p3

...

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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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Promotions

PSW is more than just stock talk!

 

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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About Phil:

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