Posts Tagged ‘price’

Price Before Volume – Don’t Get It Twisted

Joshua argues that we don’t need volume to confirm a stock market breakout. – Ilene 

Price Before Volume – Don’t Get It Twisted

Courtesy of Joshua M Brown, The Reformed Broker 

Here’s a composite quote that could come from the market strategist of virtually any major firm, I’m certain you’ve read something like this over the last few days:

"The stock market is nearing overhead resistance, a punch through would be a positive catalyst only if volume picks up before or during the breakout."

- Any Chief Market Strategist, Any Firm USA

Wrong!

Price rules in this environment.  Volume is completely and totally irrelevant until about 5 to 7% afterthe breakout.

The breakout could come with only 60% of normal volume and be just as meaningful.  In counter-distinction to the conventional wisdom, I would argue that a low volume breakout would actually bepreferable right now.  Here’s how I arrive at this idea…

Nobody is in.  Nobody.  We’ve documented the equity fund outflows ad nauseum, they are bigger than Precious after Thanksgiving dinner.  Fine.  The question becomes, what can we agree is the more motivating condition for investor psychology right at this moment, Fear or Greed?

The answer is undoubtedly Fear.  How else to explain the endless Treasury rally and the full scale retreat from equities?  Fear is the conductor of this train right now, period, end of story.  With that in mind, I ask you to think about the one thing that American investors fear more than anything else – the fear of missing out on the big opportunity.

Nothing freaks out the average investor more than watching the train leaving the station without them.  I could put up 75 charts showing parabolic blow-off tops in various markets or I could just remind you that I’ve worked with over 1000 individual investors over the years and I know this stuff.

Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario.  What could possibly draw hundreds of billions out of money markets faster than a 5% S&P rally that no one was a part of?

So please, stop regurgitating the "we need real volume" pablum, it is functionally backwards.  What we need are higher prices, the lower the participation the better.  That’s the kind of milkshake…
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Economic Value in Aitch-Two-Oh

Economic Value in Aitch-Two-Oh

Courtesy of Tim at The Psy-Fi Blog 

trout103001 -- Rainbow trout spawn in Hoyes Run in Garrett County Maryland.

Odd Water

"The world’s supply of fresh water is running out. Already one person in five has no access to safe drinking water. "

Well, so says the BBC. But water’s an odd thing. You can’t live without it but it’s not particularly valuable. In fact the stuff in your faucet is free, it’s just the cost of getting it there that we pay for.

Water is, perhaps, the pre-eminent example of the old truism that price is what you pay but value is what you get. Only thing is, how do you value something that has no market price? Fortunately teams of highly trained thinkers have been working on this, just so we know the price of everything even if we’re not willing to pay it.

Paradoxical Water

While we absolutely require water every day to survive we can live a lifetime without diamonds, although don’t tell my mother. Yet water’s effectively free while if you want a diamond you need to pay an arm and a leg. This is a paradox that Adam Smith noted:

“Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it”.

As ever, there’s a difference between price and value and that makes all the world of difference. Especially if you’re thirsty. Michael Haneman gives a fabulous review of the economic principles surrounding the use of water in The Value of Water, which we’ll only summarise here, but it’s a great starting point for anyone wondering why intangibles are invaluable.

Man Cooling Off

Marginal Value 

Basically the difference between value and price is a pretty important one for investors and economists because it makes clear that the economic value of something isn’t the same as its market price. There are things that have economic value that price doesn’t accurately measure and this fact makes investment analysis rather more tricky than simple share price followers would like.

The critical key to understanding the difference in valuation between water and diamonds is the idea of marginal value. If you have twelve litres of water to hand – which…
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Is the Stock Market Cheap?

Is the Stock Market Cheap? 

Courtesy of Doug Short

Here’s the latest update of my preferred market valuation method using the most recent Standard & Poor’s "as reported" earnings and earnings estimates and the index monthly averages of daily closes for July 2010, which is 1179.80. The ratios in parentheses use the July monthly close of 1101.60. For the latest earnings, see the accompanying table from Standard & Poor’s.


  • TTM P/E ratio = 18.3 (17.1)
  • P/E10 ratio = 21.7 (20.3)

Background 
A standard way to investigate market valuation is to study the historic Price-to-Earnings (P/E) ratio using reported earnings for the trailing twelve months (TTM). Proponents of this approach ignore forward estimates because they are often based on wishful thinking, erroneous assumptions, and analyst bias.

TTM P/E Ratio 
The "price" part of the P/E calculation is available in real time on TV and the Internet. The "earnings" part, however, is more difficult to find. The authoritative source is the Standard & Poor’s website, where the latest numbers are posted on the earnings page. Free registration is now required to access the data. Once you’ve downloaded the spreadsheet, see the data in column D.

The table here shows the TTM earnings based on "as reported" earnings and a combination of "as reported" earnings and Standard & Poor’s estimates for "as reported" earnings for the next few quarters. The values for the months between are linear interpolations from the quarterly numbers.

The average P/E ratio since the 1870′s has been about 15. But the disconnect between price and TTM earnings during much of 2009 was so extreme that the P/E ratio was in triple digits — as high as the 120s — in the Spring of 2009. In 1999, a few months before the top of the Tech Bubble, the conventional P/E ratio hit 34. It peaked around 47 two years after the market topped out.

As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of 2008 Q4 (-$23.25) is something…
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TECHNICAL PERSPECTIVE: WHERE’S THE VOLUME?

TECHNICAL PERSPECTIVE: WHERE’S THE VOLUME?

Courtesy of The Pragmatic Capitalist 

By Decision Point:

FROM A SUBSCRIBER: Hi Carl. I’ve never written but have followed you for many years (since AOL) and have learned more about reading the market from you than any other source. You have such a clear and common sense view that it is really refreshing. I love the new daily blogs and am so glad Erin is learning the ropes. I would write her directly, but don’t see her email address anywhere. I rarely disagree with what is said, but in this case I am very suspicious of a bullish interpretation of today’s (May 27) rally, mostly due to the low volume. It seems more like a bear market, short covering rally to me. Was wondering what you think of the volume issue. Thanks for any comments. 

Thanks for the compliment!

I try not to engage in discussions in order to reconcile differences of opinion about the market, because, even if I manage to convince my “opponent”, it doesn’t mean I’ll be right about the outcome. We try to be methodical in our analysis and clear in presenting our conclusions.

After several days of sloppy, downward-sliding price action, on Thursday the market finally had the first day of what could be a full rebound from very oversold conditions. Sloppy action in oversold conditions signals a very dangerous situation, one from which a crash can result, and on Thursday we breathed our first conditional sigh of relief.

While we have emphasized the danger involved “buying into weakness” with oversold markets, we have believed that the odds favor an end to the correction because we are technically in a long-term bull market, and corrections rarely morph into bear markets in those conditions.

It is true that volume was pathetic, but volume has been unimpressive throughout this bull market, and for Thursday there is also the issue of the upcoming Memorial Day weekend. People are leaving town early.

We can also see a clear descending wedge pattern, a bullish pattern which has a high reliability for resolving to the upside.

Chart

Most important is our philosophy that price is primary, breadth and volume are secondary. Not that we don’t look at breadth and volume, but they need to be subjectively interpreted based upon the bull or bear bias of the market. As a result, none of our mechanical timing…
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Anchoring, The Mother of Behavioral Biases

Anchoring, The Mother of Behavioral Biases

Courtesy of Tim at The Psy-Fi Blog

Anchors underwater

Behavioural Biases (5): Anchoring

Just as an anchored ship rarely strays too far away from its tethering point, a human being prefers to stick close to the references with which they feel most comfortable. Anchoring is an easy-to-demonstrate, hard-to-eradicate behavioural bias that has all sorts of nasty implications for investors, many of them not obvious. In fact, along with availability, it has the claim to be the mother of all biases.

The fundamental investment problem lies in the difficulty in deciding what something is intrinsically worth. A skilled negotiator will start from an extreme position, such as a very high price, in order to frame the subsequent discussions. Anywhere and anytime someone presents us with a number in order to start negotiations we’re being anchored. So if it really matters then you need to start from your own number or walk away.

Random Pricing

Anchoring is almost trivially easy to demonstrate and it’s been replicated many times by many researchers in many situations. Perhaps the simplest example is to use peoples’ social security numbers as a reference. As Dan Airely shows here, by simply getting people to write down the last two digits of the number and then asking them to submit mock bids it’s possible to get people with higher numbers to bid up to twice as much as their lower number companions. Unconsciously the brain sets the social security derived number as the reference point and then adjusts accordingly.

It’s worth dwelling on that. I think it’s simply astonishing and truly shocking that highly evolved, smart primates like ourselves can be fooled into utterly stupid behaviour through a trivial piece of misdirection. And it affects us all.

Anchoring is a particularly pervasive problem and occurs in all sorts of scenarios, being particularly beloved by opinion poll surveyors, real-estate agents, stockbrokers, car salesmen, supermarkets and, well, virtually everyone who wants us to buy things. Wherever and whenever anyone presents us with a number and then asks us to do something with it you can be sure we’re be tricked into behaviour that probably isn’t in our best interests.

Multiple Choice, Multi-Buys

Multiple choice surveys on some kind of sliding scale are an especially fun source of anchoring issues since people will invariably anchor


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Price, Demand, and Money Supply as They Relate to Inflation and Deflation

Price, Demand, and Money Supply as They Relate to Inflation and Deflation

Courtesy of Jesse’s Café Américain

There are three basic inputs to the market price of something:

1. Level of Aggregate Supply
2. Level of Aggregate Demand
3. Relative Value of the Medium of Exchange

Let’s consider supply and demand first, since they are the most intuitively obvious.

The market presents an overall demand, and within that demand for individual products in particular.

Supply is the second key component to price. We are not going to go into more detail on it to here, since what we are likely facing now is a decrease in Aggregate Demand.

It can seem a little confusing perhaps. Just keep in mind that if the demand decreases for products overall for whatever reasons, like unemployment, if supply remains available the prices will drop overall with some variance across products because of their inelasticity to change. This is known as the Law of Supply and Demand.

How we do know when Demand is decreasing?

Gross Domestic Product = Consumption + Investment + Government spending + (exports − imports),
or the famous economic equation GDP = C + I + G + (X − M).

Consumption, or Aggregate Demand, is a measurable and key component of our GDP figures.

Given the huge slump in GDP, it should be obvious that we are in a demand driven price deflation on many goods and services.

Now, that covers supply and demand as components of price, but what about money supply?

Money

Notice in the above examples we talk about Price as a value without a label.

Money is a medium of exchange. It is the label which we apply to give a meaning to our economic transactions.

If you are in England, or France, or Argentina, or China, the value label you apply to Price is going to be different.

Money is the predominant medium of exchange that a group of people have agreed to use when engaging in economic transactions.

The source and store of wealth are the ‘credits’ within the system which one uses to exchange for products. The money is the medium of exchange.

If you work for a living, you are exchanging your time and your talent, which is your source of


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Zero Hedge

Japan TV Shows Footage Of US Aircraft Carrier Just Hours Away From Korea

Courtesy of ZeroHedge. View original post here.

After a mangled deployment of Trump's aircraft carrier "armada" during which miscommunication between the White House and the Pentagon meant the USS Carl Vinson would arrive off the North Korea coast weeks after what Trump had initially suggested, on Saturday Japan's public broadcaster NHK aired footage of the U.S. aircraft carrier sailing off the coast of Nagasaki prefecture in southern Japan, hours after the latest failed ballistic missile test by North Korea..

...



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Financial Markets and Economy

How North Korea gets its oil from China: lifeline in question at U.N. meeting (Reuters)

As the United Nations Security Council decides whether to tighten the sanctions screws on North Korea, the country's increasingly isolated government could lose a lifeline provided by state-owned China National Petroleum Corp (CNPC).

Anything-But-Soft Earnings Data Starting to Smack of Rally Years (Bloomberg)

Among the spate of bullish trends visible after three weeks of earnings reports: analysts, who almost always cut full-year estimates in April, are now raising them, p...



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Market News

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Financial Markets and Economy

Top investor bets against 'dizzying' American stocks (The Telegraph)

Donald Trump’s election has put fire in the belly of the US stock market. Investors have become excited about the dealmakers in his administration and his plans to cut taxes and spend big on roads and other infrastructure projects.

The hottest thing in the markets right now is an obscure metal mined in DR Congo (Quartz)

The financial markets have an unlikely new hero. In recent months, the best way to make a serious amount of money in a short amount of time has been to buy cobalt.

...

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Digital Currencies

Is The Blockchain About To Disrupt This $7 Trillion Industry?

By Teeka Tiwari, International Man

[Posted at Zero Hedge]

Recently, I wrote about a small $100,000 trade of cheese and butter.

Why?

This one trade changed 400 years of history in just four hours.

How so? Normally, it would take 10 days to handle the paperwork. But this trade concluded in less than fou...



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ValueWalk

The First (and Last?) Competitive Advantage

By VWArticles. Originally published at ValueWalk.

Farnam Street Q1 letter to investors

Also see

2017 Hedge Fund Letters Hedge Fund Letters: 2016

The First (and Last?) Competitive Advantage

“Capitalism is a pretty brutal place.”

– Charlie Munger

]]> Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email ...



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Kimble Charting Solutions

Gold Miners; Largest outflows in history could be bullish, says Joe Friday

Courtesy of Chris Kimble.

Could historical outflows present an opportunity? Yesterday Sentimentrader.com reported that outflows from Gold Miners ETF’s GDX and GDXJ topped $800 million on 4/26, the largest single day outflows in history. 

Below looks at Gold Miners ETF GDX, reflecting where these large outflows took place.

CLICK ON CHART TO ENLARGE

The long-term trend since...



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Chart School

Semiconductors Tick Along

Courtesy of Declan.

It was another quiet day for indices but the Semiconductor index was able to add over 1% on the day. This also helped post gains to the Nasdaq 100, although there was a relative gain for the Semiconductor Index against the latter index.


The Nasdaq 100 registered an accumulation day despite its underperformance against Small Caps. The index remains well placed to make a move to upper channel resistance.

...

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OpTrader

Swing trading portfolio - week of April 24th, 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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Members' Corner

Should I buy that stock?

Courtesy of Phil Stasukaitis (pstas)

I was asked by my local investment club to do a presentation on "how to buy a stock?" As I pondered the question, I began by noting all the elements that I monitor regularly and which come in to play as part of my decision process. As the group is comprised novices to experts, I tried to gear my discussion to cover both basics and more advanced concepts.

Four Part Discussion

  1. Macro Economic Indicators
  2. Market Indexes
  3. Fundamental Analysis
  4. Technical Analysis

1. Macro Economic Indicators

We'll start with reviewing some basic concepts and measurements that have direct effects on the stock market. 

A. Gross Domestic Product (GDP)

...

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Mapping The Market

Bombing - Right or Wrong?

Courtesy of Jean-Luc

I am telling you Angel – makes no sense… BTW:

Republicans Love Bombing, But Only When a Republican Does It

By Kevin Drum, Mother Jones

A few days ago I noted that Republican views of the economy changed dramatically when Donald Trump was elected, but Democratic views stayed pretty stable. Apparently Republicans view the economy through a partisan lens but Democrats don't.

Are there other examples of this? Yes indeed. Jeff Stein points to polling data about air strikes against Syria:

Democr...



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Biotech

CAR-T & CRISPR - the Future is Now

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

PSW Members....it has been a while since my last post, but since many have all been on the board following the chat, it is time for a scientific lesson in a few of the companies we are long.  In addition, another revolution is coming in the medical field, and it will be touched upon as well.

CAR-T - stands for Chimeric antigen receptors (CARs) and the T is for T-cell.  

From the picture above, T-cells are one cell type of our immune system that fight off infection as well as they are one player at keeping rogue cells from becoming cancerous. Unfortunately, cancer somehow evades the immune system and so it begins.

CAR-T came along in the late1980s via a brilliant scientist, Zelig Eshhar...



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Promotions

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Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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Some other great content in this free eBook includes:

 

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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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