So, here we are. More than two years into what started out as a credit crisis, one plus year after the Lehman collapse and a question that pertains to the one of the central workings of the equities market cannot be answered.
At last evening’s Market Technicians Association Educational Foundation seminar, the question your trusty moderator (that’s me) posed to the esteemed panel with its decades of experience was in regards to volume. Specifically, the equity markets’ volume as recorded each day for every stock traded. That is, the volume that accompanies the price action that results in the market capitalization of the stock market that results in the market value of every investor’s portfolio.
Many market analysts have noted the low volume that has accompanied this bull rally. Some have used this fact as a reason to be more cautious, even bearish. Others have cited that low volume bull rallies have occurred in the past and this one is no different. However, in the past, the volume recorded for equity trades completed were quite accurate and reliable, being recorded on exchanges and reported accordingly. Today, the picture is not quite so clear.
With so much trading occurring in the off the exchanges hidden recesses of dark pools and structured products, I asked my very knowledgeable panel, can any investor rely on the volume figures being generated in this current market to measure the strength of the price action of a stock? The answer received was, "We don’t know". Well, if this well connected, highly informed group of individuals doesn’t know, you can easily assume that just about no one knows. Do you?
The importance of understanding this issue goes beyond its impact on basic market analysis tools (such as technical analysis) and cuts to the heart of a financial system that is still shrouded in opaqueness.
Transparency remains elusive. Yet, transparency (knowing what investors need to know) is vital to the restoration of a sustained confidence in a system that can be measured. When trades occur in the dark corners of dark pools and other off-exchange structured products, clarity as to what exactly is transpiring becomes the victim and investors seeking to measure the market become the equivalent of a bystander to a drive-by financial shooting.
…. And by "Chart Dump", I don’t mean all these charts belong in the toilet
So like I said on Friday, I wish Primary 2 was done, I *want* Primary 2 to be done. I just don’t think it is done. But I do think it is very close to being done, next week looks very likely for the top.
But the whole point of this post is to look at a whole host of indices, sectors, asset classes, and sentiment indicators to show that there are some very substantial divergences taking place. Some of the "leader indices" show that they have already potentially topped (are not making higher highs with the broader markets). The Dollar and the VIX may have already bottomed. Volume is drying up (or at least substantially declining) in most of the indicies. In short a lot of the signs that we expect to see with Primary Wave 2 have occurred, and things are more or less "on track" for a large trend change in equities.
The other reason for this massive update this weekend is that our first born child is due any day now, and my blogging and chart updates will drop off dramatically next month. binve’s life is about to get a lot more interesting.
This post contains a lot of charts that I show often, but every chart is completely updated with new annotations and analysis. I believe it is a useful post and tells the picture of the markets from a macro view. Enjoy!
The Primary Wave 2 Checklist
There are several signals that we should see that help to let us know we are at the end of Primary Wave 2. There are some characteristics that Elliott (and then Frost and Prechter later) put forth that would describe some of the technical, fundamental and sentiment aspects of Wave 2. Here are some of those (modified to be bullish, as this Wave 2 is bullish):
From EWP: “Second Waves often retrace so much of Wave one that most of the losses endured are gained back by the time it ends. At this point investors are thoroughly convinced that the bull market is here to stay. Second waves typically end on very low volume…
Here is an advance preview of the monthly moving averages I track after the close of the last business day of the month. At this point, before the open on the last day of the month, three S&P 500 strategies are now signaling "invested" -- unchanged from last month. Two of the five of the Ivy Portfolio ETFs, Vanguard FTSE All-World ex-US ETF (VEU) and PowerShares DB Commodity Index Tracking (DBC), are signal "cash" -- also unchanged from last month.
If a position is less than 2% from a signal, it is highlighted in yellow.
Note: My inclusion of the S&P 500 index updates is intended to illustrate a popular moving moving-average timing strategy. The index signals also give...
Submitted by Nick Nanda And Kai Wu of Kaleidoscope Capital (pdf)
The Fed Is The New Value Investor
THE DEMISE OF HEDGE FUNDS
Something strange seems to be developing beneath the surface in markets since the financial crisis. Stocks, especially U.S. stocks, have delivered abnormally high returns. The S&P 500 has produced an astounding 15% per year for the last five years. But when you strip away market exposure, active managers have had a surprisingly hard time beating the market. Outperforming the market is always difficult, but even well-known professionals with stellar track record...
Daniel Banas at Equities.Com interviewed me last week via phone for their profile series on "the most distinct and noteworthy voices in the world of financial blogging."
The interview transcript follows. First a few words ...
I am honored to be on that list.
The interview kicked off with a question on how I got started. I have commented on this before, but the short story is I was out of work, hanging around stock message boards, and Bill McBride (Calculated Risk) created the first template to my blog. Bill had just started his own blog and within a few years we became two of the top three economic blogs in the US.
(ETFTrends.com by Todd Shriber): "Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW's insider sentiment strategy." [Editor's note: KNOW tracks the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM)]. Read article
Suppose you had the technical ability and raw materials to print up counterfeit dollars, euros or yen that were identical to the real things. Assume you could spend them as fast as you could create them with no fear of any repercussions.
Would you prudently print up only as much fresh currency as you needed for your current lifestyle? Would you create just a bit more than that to help relatives or those in need?
It is most likely you’d have your printing press running 24 hours a day, seven days a week. Becoming the richest person in the world would confer great power upon you.
You could rationalize this action because you plan to use the money for good purposes. Imagine the warm feeling you’d get by giving every person in America one million do...
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So as I was saying yesterday (Bitcoin: The Biggest Clown Show In History?), Bitcoin has several obstacles on the path to potential success as an alternative currency. But I forgot to mention hacking and theft at Bitcoin exchanges and other technical problems. This is related to the lack of government backing and the fact that the value of Bitcoins is based entirely on confidence.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
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 firstname.lastname@example.org 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.
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considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
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