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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ValueWalk

DRF Legend Steven Crist On Value Investing And Horse Betting

By VintageValueinvesting. Originally published at ValueWalk.

I’m not at all a gambler.

In fact, I used to be proud to say that, thinking that gambling was only for chumps.

But after reading Crist on Value, I’m beginning to reconsider my position on the activity.

Let me explain…

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Phil's Favorites

Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2

Courtesy of Mish.

Eurozone Target2 imbalances have touched or exceeded the crisis levels hit in 2012 when Greece was on the verge of leaving the Eurozone. Others have noted the growing imbalances as well.

I had a couple of questions for the ECB regarding Target2, which they have answered, I believe disingenuously.

First, we will explain Target2, then we will take a look at various charts, viewpoints, and the email exchange with the ECB.

Target2 Background

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Ac...



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Zero Hedge

Is This Overlooked Statistic Signaling Investor Complacency?

Courtesy of ZeroHedge. View original post here.

Via Dana Lyons' Tumblr,

The number of unchanged issues on the NYSE has spiked, often a sign of complacency among investors.

While the price structure and breadth in the stock market remain solid and supportive of higher prices, one area of concern that we have been noting is investor sentiment. Specifically, it is too complacent for our liking. Investors and traders seem to be outright dismissing the notion of risk in the stock market. And while extreme bullishnes...



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Kimble Charting Solutions

Crude Oil; Energy stocks suggesting its about to fall, says Joe Friday

Courtesy of Chris Kimble.

Below takes a look at the price action of Crude Oil, Energy ETF (XLE) and Oil & Gas Exploration ETF (XOP) over the past three years.

Could Energy stocks be suggesting the next big move in Crude Oil again? Which direction are they suggesting?

CLICK ON CHART TO ENLARGE

At this time the intermediate trend in Cru...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Dollar Falls With Stocks Amid Dovish Fed Minutes: Markets Wrap (Bloomberg)

The dollar fell while Treasuries advanced after minutes from the Federal Reserve’s latest meeting showed officials confident they can raise rates gradually amid little threat that near-term inflation will accelerate.

U.S. Solar Surged 95% to Become Largest Source of New Energy (Bloomberg)

Solar developers installed a record 14.6 gigawatts in the U.S. last year, almost double the total from 2015 and enough to make photovoltaic panels the largest...



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Members' Corner

People With Cats Will Understand?

Courtesy of Nattering Naybob.

Taking a "potty break" from "in the Toilet Thursday" or "Thursday's in the Loo".

This week's subject is self evident, starring two lovable felines Cole and Marmalade in, People With Cat's Will Understand.

...

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Chart School

Market Pause

Courtesy of Declan.

Nothing really to add to yesterday. Markets took minor hits, but there was little intraday spread. The biggest spread was in the Russell 2000 which was underperforming heading into today's session. It reversed most of yesterday's gains, but it has some way to go before it begins challenging the breakout


The New Lows and Highs is in a secular bullish pattern, and it will take continued pressure in spike lows to generate a sustained sell off - none of which is happening here.

...

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Digital Currencies

It's Time To Beat Up On Credit Suisse and Their Woefully Misinformed Bitcoin Advice

Courtesy of Reggie Middleton at Zero Hedge

Credit Suisse has been posting cryptocurrency advisories over the last few weeks. They are quite one-sided, although couched in the appearance of objectivity. To explain why it's couched in the appearance of objectivity, and not actually objective, let me give you some background. 

The Obama administration enacted a law known as the Fiduciary Rule, as per Investopedia

The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conce...



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OpTrader

Swing trading portfolio - week of February 20th, 2017

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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Mapping The Market

NSA May Be Withholding Intel from President Trump

By Jean Luc

These GOP guys were so worried about Hillary's email server and now we find out that we had something close to a Russian mole in the White House. In the meantime, Trump keeps on using his unsecured phone, had high level conversation in his resort in front of dinner guests! It's getting so bad that rumors are now circulating that the NSA is not sharing information with the WH:

NSA May Be Withholding Intel from President Trump

By 

….Our spies have had enough of these shady Russian connections—and they are starting to push back….In light of this, and out of worries about the White House’s ability to keep secrets, some of our spy agencies have begun withholding intelligence fro...



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Promotions

Phil's Stock World's Las Vegas Conference!

Learn option strategies and how to be the house and not the gambler. That's especially apropos since we'll be in Vegas....

Join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017            

Beginning Time:  9:30 to 10:00 am Sunday morning

Location: Caesars Palace in Las Vegas

Notes

Caesars has offered us rooms for $189 on Saturday night and $129 for Sunday night but rooms are limited at that price.

So, if you are planning on being in Vegas (Highly Recommended!), please sign up as soon as possible by sending...



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Biotech

The Medicines Company: Insider Buying

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

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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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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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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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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