Posts Tagged ‘indicators’

On Reflexivity & Animal Spirits: What Moves the Market from Here?

Kent Thune’s wonderful blog The Financial Philosopher is not just a financial site, it’s a "learning experience."  I highly recommend that you visit him and read some of his latest inspirational articles, such as Get Busy Livin’ or Get Busy Dyin’To Embrace Death is to Embrace Life, and Entrepreneurs: Use Your Delusion, Sell the Illusion. – Ilene

On Reflexivity & Animal Spirits: What Moves the Market from Here?

ITAR-TASS 02: IRKUTSK REGION, RUSSIA. NOVEMBER 30, 2008. Early twentieth century German pendulum clock with a statuette of Mnemosyne, Greek goddess of memory, on display at the Clock Museum, Angarsk, Irkutsk Region, Russia. (Photo ITAR-TASS / Nikolai Ryutin) Photo via Newscom

Courtesy of Kent Thune, at The Financial Philosopher

Are capital markets leading economic indicators or do they provide fuel for a growing economy? Or is it both? Isn’t the function of capital markets to raise capital for the financing of corporate and government operations through the sale of securities (stocks and bonds)?

If the stock market is rising, would this not then create the economic condition it is "predicting" as an economic indicator? In the absence of government stimulus, might financial markets save themselves? If so, how? Can financial markets rise spontaneously or do they require a fundamental boost or outside stimulation?

Capital markets have many functions and their participants have numerous objectives; however, we may simplify them all into two basic categorical functions: 1) Passive and 2) Active. Depending upon economic conditions and variables, capital markets can play one or both rolls. Consider recent comments by George Soros (Hat tip to Captain Jack):

…financial markets do not play a purely passive role; they can also affect the so-called fundamentals they are supposed to reflect. These two functions that financial markets perform work in opposite directions. In the passive or cognitive function, the fundamentals are supposed to determine market prices. In the active or manipulative function market, prices find ways of influencing the fundamentals. When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified. I call the interaction between the two functions reflexivity…

Mr. Soros’ idea of reflexivity asserts, as he says, "that financial markets do not necessarily tend toward equilibrium; they can…
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S&P 500: On a knife’s edge

S&P 500: On a knife’s edge

Courtesy of Prieur du Plessis, Investment Postcards from Cape Town

Last Thursday was a so-called 90% down-day for American stock markets (and many other bourses also recorded downward dynamics). A 90% down-day is defined as a day when downside volume equals 90% or more of the total upside plus downside volume and points lost equal 90% or more of the total points gained plus points lost. The historical record show that 90% down-days do not usually occur as a single incident on the bottom day of an important decline, but typically on a number of occasions throughout a major decline. As far as the very short term is concerned, 90% down-days are often followed by two- to seven-day bounces.

The stock market is on a knife’s edge at the moment as seen in the chart below, showing the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (ROC) indicator (red line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and in 2007. And 2010? With the ROC delicately perched just above the zero line, the primary trend is still bullish, but barely so.

Source: StockChart.com.

Regarding seasonality, I have done a short analysis of the historical pattern of monthly returns for the S&P 500 Index from 1950 to August 2010. The results are summarized in the graph below.

Source: Plexus Asset Management (based on data from I-Net Bridge).

As shown, the six-month period from May to October has historically been weaker than the period from November to April as seen in the average monthly return of 1.05% for the “good six months” compared with 0.25%% for the “bad six months”. Importantly, when considering individual months, September (-0.18%) and October (-0.19%) have historically been the only two negative months of the year. (A word of warning, though: one should take cognizance of seasonality but understand that it is not a stand-alone indicator and it is anybody’s guess whether a specific year will conform to the historical pattern.)

Where does this leave us at this juncture? Considering an array of indicators, we are somewhat in no-man’s land regarding whether the bull or bear will…
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Fibozachi Forecast: Week of April 26th

Trading ideas for early next week. Courtesy of Fibozachi.

FF

  

Short Trade Candidates

GME: Gamestop (Short-Term to Intermediate-Term) 

Current Price25.22

Candlestick PatternsNone

 

After rallying for eight consecutive weeks, Gamestop appears due for a pullback that allows price to digest gains and consolidate before re-testing a wide band of horizontal resistance that spans 26 – 28.  With price quickly approaching resistance at 26.05, the chances of registering a multi-week swing high appear well above-average.  Last week’s narrow range (near doji) plotted alongside the highest weekly volume tally since the first week of January.  This type of high-volume ‘churn’ is a flashing yellow light, warning of possible inflection ahead.

 

EntryImmediate (with daily confirmation) or with a move below 24.77

Target (Short-Term)22.75

Target (Long-Term)21.11

Stop-Loss26.06 or higher

Potential Risk:  $1.29

Potential Reward (Short-Term)$2.02

Potential Reward (Long-Term)$3.66

Reward: Risk Ratio1.6  &  2.8

 

GME

 


WAT: Waters Corporation (Short-Term to Long-Term)

Current Price70.03

Candlestick PatternsDoji

 

Last week’s high-volume doji marked an end to WAT’s eleven week non-stop rally from 56 – 72 and now is an ideal time to begin looking the other way.  WAT appears primed to pullback towards 63 over the next few weeks, where even a bull flag would target 64 – 65 before inflecting.  An extended move would carry price down towards the previous swing low area of 56 – 57 from the first week of February.

 

EntryImmediate (with daily confirmation) or with a move below 68.36

Target (Short-Term)63.00

Target (Long-Term)57.00

Stop-Loss71.62 or higher

Potential Risk$3.26

Potential Reward (Short-Term)$5.36

Potential Reward (Long-Term)$11.36

Reward: Risk Ratio1.6  &  3.5

 

WAT

 


 

LINTA: Liberty Media Holdings (Intermediate-Term to Long-Term)

Current Price16.38

Candlestick PatternsDoji (Perfect)

 

LINTA has now registered back-to-back dojis up at a previous swing high, which is a specific trading setup that we scan across markets for each and every day.  While last week finally provided a bit of venting for Liberty’s eleven week monster rally, price popped back up at week’s end to close just a single penny lower for the week; some weekly…
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THE BIG MONEY IS BULLISH WHILE SMALL MONEY IS BEARISH

THE BIG MONEY IS BULLISH WHILE SMALL MONEY IS BEARISH

Courtesy of The Pragmatic Capitalist  

Bear and bull sculptures outside the Frankfurt stock exchange

As a futures trader I routinely check the commitment of traders report released by the CFTC.  For those who aren’t familiar with the report it is a breakdown provided by the CTFC of each Tuesday’s open interest for market positions in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.  It’s widely followed in trading circles and gives a glimpse into what the big money, commercial money and even the small money is doing with their positions.

What piqued my interest in this data were comments in Tuesday’s “Breakfast with Dave” by Gluskin Sheff’s David Rosenberg implying that the equity markets were overly bullish because the commitment of traders showed a net bullish position of 151,000 contracts.  Let’s put this in context, however.  (See here for the current allocation of large institutions – a much more useful indicator).

I have found over the years that the commitment of traders report tends to be a fairly weak short-term indicator.  In fact, the COT tends to be more useful in following the long-term trends of large institutions and where they are currently investing money.  Mr. Rosenberg’s implication that the current net bullish position should be seen as a contrarian sign is not necessarily true.  After all, big money moves prices and knowing where the big money is going is more often than not a good indicator of where to put your money as opposed to what to avoid.  But let’s go even further.

One of my favorite indicators is actually the reporting of small speculators in the CFTC’s report.  This shows us what the amateur and small-time futures traders are doing with their money.  I have found over the years that this is a fairly reliable contrarian indicator.  As you can see in the chart below these traders were net bullish in just 4 weeks over the last year.  The last time small traders were substantially net bullish was just before the market crumbled at the beginning of 2009.  But what is it telling us now? As of last week’s report it is showing the largest net short position since the week following the March 8th bottom.  In other words, small speculators were this…
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Zero Hedge

Pentagon's New "Law of War" Manual "Reduces Us to the Level of Nazis"

Courtesy of ZeroHedge. View original post here.

Submitted by George Washington.

The Pentagon’s new Law of War Manual – a 1,200-plus page document issued in June by the Defense Department’s Office of the General Counsel – is barbaric.

The Manual is so bad that one of the leading experts on the law of war (Dr. Francis Boyle) – who wrote the Biological Weapons Anti-Terrorism Act of 1989, the American implementing legislation for the 1972 Biological Weapons Convention, served on the Board of Directors of Amnesty International, and teaches international law at the University of Illinois, C...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

U.S. stocks set for bumpy end to a wild week (CNN)

After some of the wildest days on markets in recent memory, the weekend can't come soon enough for many. Panicked selling Monday and Tuesday gave way to a scramble to buy Wednesday and Thursday.

While Many Panicked, Japanese Day Trader Made $34 Million (Bloomberg)

While a lo...



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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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Phil's Favorites

Fed Queen Race: Personal Income Rises 0.4% as Expected; Good for Rate Hikes? GDP?

Courtesy of Mish.

Personal income for July rose as expected in today's Personal Income and Outlays report. Consumer spending rose nearly as expected, led of course by auto sales. Price pressure was nonexistent.
There's no hurry for a rate hike based on the July personal income and outlays report where inflation readings are very quiet. Core PCE prices rose only 0.1 percent in the month with the year-on-year rate moving backwards, not forwards, to a very quiet plus 1.2 percent. Total prices are also quiet, also at plus 0.1 percent for the monthly rate and at only plus 0.3 percent the yearly rate.

On the consumer, the data are very solid led by a 0.4 percent rise in income that includes a 0.5 percent rise in wages & salaries which is the largest since November last year. Other income ...



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Kimble Charting Solutions

Dangerous Place for a kiss of resistance, says Joe

Courtesy of Chris Kimble.

Anyone noticed its been a wild week? Has anything been proven with all the volatility the past 5-days?

What happens at (1) below, could tell us a good deal about what type of damage did or didn’t take place this week!

CLICK ON CHART TO ENLARGE

The large decline on Monday cause the S&P 500 to break support of this rising channel.

The mid-week rally pushed the S&P higher and as of this morning it is kissing the underside of old support as resistance now, near the 50% retracement level of the large decline over the past few weeks.

Why could th...



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Chart School

Shorts Rally - But For How Long?

Courtesy of Declan.

A second day of gains keeps pressure on shorts in squeezing them out of their positions, but is also looking to sucker shorts into trying to second guess when this rally will end.

The S&P is heading fast towards 2,044. Given the speed at which it has enjoyed this advance it will be there by Tuesday! In reality, it will likely slow before it gets there. When markets do head lower it will be important they do so slowly to sow further doubt into shorts.


The Nasdaq will be testing resistance tomorrow, and is close to coming up against its 200-day MA.  Those who bought the low will be very happy.

...

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Sabrient

Sector Detector: Finally, market capitulation gives bulls a real test of conviction, plus perhaps a buying opportunity

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

Courtesy of Sabrient Systems and Gradient Analytics

The dark veil around China is creating a little too much uncertainty for investors, with the usual fear mongers piling on and sending the vast buy-the-dip crowd running for the sidelines until the smoke clears. Furthermore, Sabrient’s fundamentals-based SectorCast rankings have been flashing near-term defensive signals. The end result is a long overdue capitulation event that has left no market segment unscathed in its mass carnage. The historically long technical consolidation finally came to the point of having to break one way or the other, and it decided to break hard to the downside, actually testing the lows from last ...



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OpTrader

Swing trading portfolio - week of August 24th, 2015

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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ValueWalk

Some Hedge Funds "Hedged" During Stock Market Sell Off, Others Not As Risk Focused

By Mark Melin. Originally published at ValueWalk.

With the VIX index jumping 120 percent on a weekly basis, the most in its history, and with the index measuring volatility or "fear" up near 47 percent on the day, one might think professional investors might be concerned. While the sell off did surprise some, certain hedge fund managers have started to dip their toes in the water to buy stocks they have on their accumulation list, while other algorithmic strategies are actually prospering in this volatile but generally consistently trending market.

Stock market sell off surprises some while others were prepared and are hedged prospering

While so...



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Digital Currencies

Bitcoin Battered After "Governance Coup"

Courtesy of ZeroHedge. View original post here.

Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - is due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on with some believing ...



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Pharmboy

Baxter's Spinoff

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

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...



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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 

Since...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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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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