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It’s a confidence game

Paul Price discusses the "Confidence Game" being played in the stock market and how to read the indicators; some of the commonly used indicators are contrary indicators (e.g. individual investors' sentiment). Paul made this video for Real Money Pro about a year and a half ago. 

It's a confidence game

Courtesy of Paul Price 





Nikkei Plunges 1,143 Points (7.32%); Global Equities Hammered; Start of Reflation Bubble Bust?

Courtesy of Mish.

The Nikkei plunged a whopping 1,143 points as the following chart shows.

Global Equities Hammered

It’s not just the Nikkei that’s being hammered. Asia-Pacific is in a rout as well.

click on chart for sharper image

Start of Reflation Bubble Bust?

Is this the start of the great reflation unwind? I don’t know, but we should all hope so.

The bigger the bubble the bigger the crash, and this Fed (central bank in general) sponsored equity and corporate bond bubble is enormous.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com



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China Manufacturing Slips Back Into Contraction

Courtesy of Mish.

The HSBC Flash China Manufacturing PMI™ shows China Manufacturing Slips Back Into Contraction.

Key Points

  • Flash China Manufacturing PMI™ at 49.6 (50.4 in April). Seven-month low.
  • Flash China Manufacturing Output Index at 51.0 (51.1 in April). Three-month low.

click on chart for sharper image

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery. Moreover, the further signs of labour market slackness call for more policy support. Beijing still has fiscal ammunition to do so.

Comment on the Comment

Economic illiterates call for more “policy support” month after month. Such “support” is about to wreck Japan and the fools do not see it.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com



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Most investors underperform their already underperforming funds

Interesting article by Joshua Brown on investors performing worse than the funds they trade in and out of. It's the same principle at play that Paul Price describes in his article: March Madness and Your Trading Decisions

Most investors underperform their already underperforming funds

Courtesy of 

At my shop we spend more of our time thinking about how we can succeed through behavior rather than through trying to find the next hot stock or fund manager.

We're always fascinated by those who choose the other, less rational route and we typically find that they do so because their job depends on it or they're not familiar with what the data says.

Jeff Fisher had a rather devastating post at the Motley Fool this week in which he cites Davis Advisors on the Behavior Gap.

For the uninitiated, there is a gap between what investment markets return versus what individual investors end up coming home with and that gap can easily be explained by the investors' highly predictable behavior. Investors have a remarkably consistent tendency to buy funds at peaks, sell out at lows, trade too often, sell winners, double down on losers and pay exorbitant trading and management costs, most unaware of the repeated damage they do to themselves. I'd call it an anomaly – but it's so permanent and unfixable, through every era, that to refer to it as a exception would be wishful thinking.

You already know that most mutual funds and active managers underperform – but did you know that their investors somehow manage to even underperform the underperformers!?! (my emphasis)

They do. Here's Fisher:

According to an investing study from Davis Advisors, the average stock-holding mutual fund returned 9.9% annualized from 1991 to 2010, but the average fund owner earned only 3.8% on average per year.

behavior gap

Not pretty. And it hurts even more if we put this performance into dollars. By trading in and out of funds, the average fund owner increased a $10,000 investment to just $21,200 over nearly two decades — while the average fund turned that $10,000 into $66,300. Now imagine the continuing effects of compound returns on both of those amounts and the growing difference between them over a lifetime. Feel the pain. Remember it next time you're tempted to make a trade. Davis also finds that the less trading a fund


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Chasing Like a Pro

Chasing Like a Pro

Courtesy of 

Put it this way, this is not the sign of a bottom or a young bull market…

From Barron's:

Major hedge funds are reportedly buying, or have bought, massive amounts of Standard & Poor's 500 index calls in the over-the-counter options market. The calls would increase in value if the index, now at about 1,664, rises to 1,725 by year's end. The funds reportedly missed the stock market's rally and are playing a vicious game of catch-up.

Though it is difficult, if not impossible, to penetrate the veil of secrecy that surrounds the OTC markets, evidence in the listed options market suggests investors are clamoring to buy bullish calls.

Desperation is hilarious, until it gets carried away. I'm glad my money isn't being thrown at 1725 calls in a two-and-twenty vehicle right now.

re: the title of this post, yes I am fired up for The National's new record this summer.

Source:

Big Hedge Funds Suddenly Bullish (Barron's)

Fine, here:





PragCap’s Strategy Cycle Chart

The best time for the buy-and-hold strategy is when people are swearing off it. The worst time is when it's back in vogue….

PragCap’s Strategy Cycle Chart

Courtesy of 

I love this so much I had to nick it from my friend Cullen's site. You're not completely immune to this kind of behavior nor am I, keep it real.

The key is to recognize this happening and to be bigger than it, above it:

  • In 2009 buy and hold died.
  • Almost everyone became a trader at the trough of the crisis.
  • Then it was “buy the dips, sell the rips”.
  • Then it was all about high quality dividend names.
  • Then it was a “stock pickers market”.
  • Now buy and hold is all you hear about from anyone.
  • “Stocks for the long run!”
  • Then long only via defensive names will be the only game in town.
  • Then buy and hold will die.
  • Then short strategies dominate.
  • Then tactical approaches win, hedge funds are your only savior, etc, etc.

schmuck cycle

Source:

The Portfolio Manager Strategy Cycle (PragCap)

Cullen: "Although the financial crisis might feel like it was a lifetime ago, the cycle of various strategic approaches to this market is fresh on my mind.  We all know the cycle of emotions.  You tend to feel euphoric at the peak, panicked at the trough and generally confused all the way inbetween.  Don’t worry – portfolio managers are no better.  They just express their emotions in varying degrees of active portfolio management with fancier sounding ways to express the rollercoaster ride they’re on."

via PragCap’s Strategy Cycle Chart | The Reformed Broker.





MARKETS FALL ON FEARS OF ‘THE TAPER’

MARKETS FALL ON FEARS OF 'THE TAPER': Here's What You Need To Know

Courtesy of Sam Ro at Business Insidergrim reaper taper

The Dow Jones industrial Average was up a whopping 155 points this morning. However, markets got spooked by new talks of "the taper," which may be coming sooner than expected.  So, what's the taper?

First the scoreboard:

Dow: 15,307, -80.4 pts, -0.5%
S&P 500: 1,655, -13.8 pts, -0.8%
NASDAQ: 3,463, -38.8 pts, -1.1%

And now the top stories:

  • In recent weeks, there has been chatter about a tapering of the Federal Reserve's quantitative easing program.  Specifically, the Fed has been buying $85 billion worth of bonds each month in its effort to lower interest rates, stimulate lending activity, and boost the economy.  Many have argue that this has also caused bond investors to flee the bond market and head to the stock market.  With the economy showing signs of improvement, people think that it has become increasingly likely that the Fed will slow down its easy monetary policy.
  • At 10:00 AM ET, Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee of Congress.  He tried to make the point that premature tightening (or tapering) would risk slowing or even ending the economic recovery.
  • But during the Q&A, Bernanke said that the Fed could taper bond purchases in the next few meetings if the economic data supported it.  This may seem like an obvious statement.  But it spooked the markets, and it marked the highs of the day.
  • At 2:00 PM ET, the Fed released the minutes from its recent Federal Open Market Committee (FOMC) meeting. Like Bernanke said during his testimony, the Fed reiterated that more progress would be needed before it would slow quantitative easing.  However, some FOMC members expressed a willingness to begin tapering as early as June.
  • "FOMC minutes show a willingness to taper asset purchases this year," tweeted Deutsche Bank's Joe LaVorgna. "We expect the taper will begin in either late Q3 or early Q4."

[Photo credit: flickr/Steve Bowbrick]





The Great Jobs Disaster

The Great Jobs Disaster 

By C.P. Chandrasekhar and Jayati Ghosh

In the desperate search for evidence that the global recession has bottomed out and the recovery has arrived, the story told by the long-term trend in unemployment levels and rates is being missed.

Early this year, the International Labour Organisation (ILO) had noted that the global unemployment rate was close to 6 per cent, implying that 197 million people were unemployed, even ignoring the 39 million who had dropped out of the workforce, discouraged by persistent failure in job search.

But that aggregate figure concealed a picture that was far worse in the advanced economies where the crisis had originated and spread. There were at least 12 advanced economies where the unemployment rate was 8 per cent or more, and seven in which the rate was 10 per cent or more.

In fact the rate varied widely, peaking at 25 per cent or close to that in Spain and Greece. That is the level unemployment had touched in the US at the bottom of the Great Depression.

What is more, during the years in which the world had ostensibly put the crisis behind it, unemployment has risen in many.

There are three countries (Spain, Greece and Ireland) in which the unemployment rate has risen by 10 percentage points (pp) or more between 2007 and 2012, and another three (Cyprus, Portugal and Estonia) where the increase between those dates was between 5 and 10 pp (Chart 4).

Keep reading: The Great Jobs Disaster » TripleCrisis.

 





IRS’ Lois Lerner Re-Subpoenaed After Accidentally Waiving Her Right To Plead The Fifth

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

"Never attribute to malice that which is adequately explained by stupidity"

      Robert Hanlon

Perhaps, when one gets down to it, there was no actual intent of malice or ill-will on behalf of the IRS to persecute conservative groups (there was of course), and the bottom line is that all of the administration's IRS apparatchicks were just bloody stupid.

Such is the conclusion one derives after watching today's attempt by embattled IRS official Lois Lerner to plead the Fifth before the House Oversight Committee, which blew up spectacularly in her face, after she made an actual statement protesting her innocence, which it appears, was in itself a waiver of the waiver.

As a result, committee Chairman Darrell Issa has ordered Lerner to be hauled back, and to answer the questions she evaded earlier today, after now having effectively waived her Fifth Amendment right in retrospect, or else be charged with contempt!

The farce is becoming so blatant it is almost as if someone is utterly desperate to make a complete mockery of the entire IRS scandal, and in the process shake the administration to the core, which more than anything is being exposed as utterly incompetent to boot. Of course, the real question is what is the public's attention being distracted from.

Politico reports:

The California Republican said Lerner’s Fifth Amendment right to avoid self-incrimination was voided when she gave an opening statement this morning denying any wrongdoing and professing pride in her government service.

“When I asked her questions from the very beginning, I did so so she could assert her rights prior to any statement,” Issa told POLITICO. “She chose not to do so — so she waived.”

She appeared before Issa’s committee this morning under the order of a subpoena and surprised many by reading a strong statement to the panel.

“I have not done anything wrong,” she said. “I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any other committee.”… the committee may ultimately pursue a contempt charge if Lerner continues to refuse to talk.

And just so there is no confusion:

During the incident, Issa did not flat-out say whether or not Lerner had indeed waived her rights


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Rand Paul Has the Right Idea, Congress Should Apologize to Apple; Holy Grail of Tax Avoidance; The “Golden Goose”; Hypocrite McCain

Courtesy of Mish.

Rand Paul created quite a stir in Congress when he Tweeted ‘The Senate should apologize to Apple’.

  • @SenRandPaul: Instead of examining our broken tax system, the US Senate is about to harass Apple-one of the greatest business success stories in history.
  • @SenRandPaul: I am offended by a $4 trillion government bullying, berating and badgering one of America’s greatest success stories.
  • @SenRandPaul: To US Senate: I say, instead of Apple executives, you should have brought in a giant mirror if you want to see who is responsible.
  • @SenRandPaul: Instead of doing the right thing we drag businessmen and women in here to berate them for trying to maximize their profits for shareholders.
  • @SenRandPaul: Apple has done more to enrich people’s lives than politicians will ever do.
  • @SenRandPaul: To the Apple executives here, I apologize for this theater of the absurd.
  • @SenRandPaul: If you want to chase companies like Apple away, continue to vilify them. Congress should be giving Apple an award today.
  • @SenRandPaul: It’s absurd for Congress to vilify businesses like Apple for wanting to minimize their tax code just like every other American rightly does.
  • @SenRandPaul: The Senate hauled before a committee one of America’s greatest success stories—and wanted what? Applause?

Why did Paul Tweet Those Things? 

Because the Senator Carl Levin (D-Mich.) ripped Apple’s ‘Holy Grail’ Of Tax Avoidance ahead of congressional testimony.

It’s absurd that Apple CEO Tim Cook Should be in Congress in the first place.

Did Apple break any laws? Of course not. Is Apple responsible to absurd tax code or is Congress? The answer of course is Congress. So yes, Rand Paul is correct for forcing Cook to testify.

What About GE?

Tax law is so absurd that GE paid no corporate income tax in 2010. GE also paid no corporate income taxes in 2009.

For doing precisely the same thing, Cook had to appear before a senate subcommittee.

GE’s response “GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions.

Mish says please note that the CEO of GE, Jeffrey Immelt, advises president Obama on business.  

Holy Grail of Tax Avoidance



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Phil's Favorites

It's a confidence game

Paul Price discusses the "Confidence Game" being played in the stock market and how to read the indicators; some of the commonly used indicators are contrary indicators (e.g. individual investors' sentiment). Paul made this video for Real Money Pro about a year and a half ago.  It's a confidence game

Courtesy of Paul Price 

...

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Zero Hedge

European Stocks Dive Most In 10 Months

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

There was quite a bit of dispersion among European equity indices today (with Italy worst and Spain actually holding up - albeit down 1.4%) but the European equivalent of the S&P 500 (the BE500) dropped 2% - its biggest single-day plunge in 10 months. Credit markets - just as in the US - have been warning of a disconnect for two weeks and today's equity dive has more than halved that divergence. European sovereigns are wider by 10-15bps. Europe's VIX is over 2 vols higher at 18.4% (its highest in a month). European financial stocks dropped by their most in 3 months and European high-yield credit worsened by its most in 3 months. A late-day ramp made things alook a little better than ...



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Chart School

The More, the Merrier

Courtesy of Doug Short.

Five years after the 2008 financial market collapse, governments and central banks across the globe have still re-ignited a sustained global economic expansion. What growth there has been, has been localized, sporadic and anemic. Europe remains mired in recession. The expansion in the U.S. is episodic, with alternating quarters of growth and contraction. While China, seemingly rebounding, lacks the aggregate demand to pull other economies along in its wake.

How to put the global economy on an even keel remains a puzzle to be solved. But, a more profound worldwide economic stagnation looms on the horizon. How we tackle today's problems will determine in part our ability to navigate the secular dearth of growth we are soon to face.

According to United Nations' projections, several nations in the developed world will begin to experience a contraction...



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Sabrient

Sector Detector: Fed tries to refill bulls’ fuel tank as cyclicals lead

Courtesy of Sabrient Systems and Gradient Analytics

The market went through some gyrations on Wednesday in reaction to Fed Chairman Bernanke’s testimony before the Joint Economic Committee. He first defended continued quant easing by warning, “A premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery.” Stocks dutifully rallied and all major indexes hit new intraday highs.

But alas, consensus is apparently not a given over the longer term. The minutes hinted that a tapering off could start sooner, “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.” So …...



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Insider Scoop

Long Setup in Herbalife Still Attractive; Stock Breaks Out as New Auditor Hired

Courtesy of Benzinga.

Few stocks have attracted more news over the last six months than nutritional supplement maker Herbalife (NYSE: HLF).

Even casual market observers are aware of the circumstances surrounding the the initial bout of extreme volatility in the name back in December 2012. The shares went into free-fall at the end of the year after hedge fund manager Bill Ackman revealed in typical sanctimonious fashion that his firm Pershing Square Capital Management was short around $1 billion worth of the stock.

Amid much pomp and circumstance, Ackman laid out his short thesis at a New York investment conference and...



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Option Review

Big Volume In Saks Options As Shares Rip Higher

 

Today’s tickers: SKS, USG & PFE

SKS - Saks, Inc. – Timely bullish bets initiated in Saks options just seconds prior to the closing bell on Tuesday are generating sizable gains for at least one trader today, with shares in the high-end retailer up at the highest level since 2008. The stock closed Tuesday up 11% on the day at $13.67 after the company reported first-quarter revenue above average analyst expectations. Within minutes of the close shares in SKS moved sharply to the upside after the New York Post, citing a source familiar with the matter, reported...



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Market Montage

Putting in a Bearish Outside Candle Today

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

The indexes along with a host of stocks are putting in a bearish outside candle today (over yesterday's highs and below yesterday's lows).  Typically this is … well bearish.  But in the QE era when a technical signal screams bearish it has tended to be completely forgotten within a few days, causing those who follow it to get squeezed if you are short or left behind if you go to cash.  This is the difficulty of the current market – QE causes it not to behave as normal.  In the "old days" today would be a day to take major note of.

The RSI I noted at an extremely rare 75 this morning, is...



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All About Trends

Mid-Day Update

Reminder: David 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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OpTrader

Swing trading portfolio - week of May 20th, 2013

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

Optrader 

...

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Stock World Weekly

Stock World Weekly

NEW: Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's the latest Stock World Weekly! Just sign in with your PSW user name and password, or sign up to try it out. 

...

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IRA Strategy/Income Trader

The IRA portfolio

Reminder: Craigzooka is available to chat with Members regarding his virtual portfolio performance, comments are found below each post.

By Craigzooka

I am going to share with you how I manage my IRA and the power of reducing your cost basis.  My goal each year is a 20% return in my IRA.  Sometimes I make it and sometimes I don't, but I believe that all of my success is due to reducing my cost basis.  To illustrate the power of reducing your cost basis here are some trades we did last year.  These trades are taken from an educational portfolio we ran in a paper-trading account for a little more than a year.

  • We bought RIG on 5/15/2012 for $44.13, sold it on 1/18/2013 for $46 but booked a profit of $1,154.
  • We bought MT on 1/4/2012 for $19.24, sold it on 12/21/2012 for $15 but booked a profit of $454.
  • We bought CHK on 1/27/2012 for $21.93, sold it on 10/19/2012 for $18 b...


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ETF Selector

Stock Market Gets Big News After Friday’s Close

Courtesy of John Nyaradi.

Stock market posts another record setting week, but the big news came after Friday’s close.

Courtesy of NASA

The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.

For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...



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Pharmboy

Give Them an Inch, They Will Take a Mile

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

Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi.  Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward.  So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...



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About Phil:

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...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the Favorites backup site (blogroll, archives, more). Contact Ilene to learn about our affiliate and content sharing programs.

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