Archive for May, 2016

Regression to Trend: The Latest Look at Long-Term Market Performance

Courtesy of Doug Short’s Advisor Perspectives.

Quick take: At the end of May the inflation-adjusted S&P 500 index price was 81% above its long-term trend, down slightly from 83% the previous month.


About the only certainty in the stock market is that, over the long haul, over performance turns into under performance and vice versa. Is there a pattern to this movement? Let’s apply some simple regression analysis (see footnote below) to the question.

Below is a chart of the S&P Composite stretching back to 1871 based on the real (inflation-adjusted) monthly average of daily closes. We’re using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range.

The regression trendline drawn through the data clarifies the secular pattern of variance from the trend — those multi-year periods when the market trades above and below trend. That regression slope, incidentally, represents an annualized growth rate of 1.79%.

Regression to Trend

The peak in 2000 marked an unprecedented 142% overshooting of the trend — nearly double the overshoot in 1929. The index had been above trend for two decades, with one exception: it dipped about 15% below trend briefly in March of 2009. At the beginning of June 2016, it is 81% above trend, within the 69% to 91% range it has hovered in for the past 31 months. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 1140 level.

Incidentally, the standard deviation for prices above and below trend is 40.6%. Here is a close-up of the regression values with the regression itself shown as the zero line. We’ve highlighted the standard deviations. We can see that the early 20th century real price peaks occurred at around the second deviation. Troughs prior to 2009 have been more than a standard deviation below trend. The peak in 2000 was well north of 3 deviations, and the 2007 peak was above the two deviations.

Stanrdard Deviations


Footnote on Calculating the Regression: The regression on the Excel chart above is an exponential regression to match the logarithmic vertical axis. We used the Excel Growth function to draw the line. The percentages…
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“Silver Trap” UK Style: Brexit Odds Way Off?

Courtesy of Mish.

We now have an update from Matt Singh at Number Cruncher Politics on the odds of Brexit.

Despite massive shifts in two polls by The Guardian (online and telephone polls both show Brexit in the lead), and a Telegraph poll yesterday which showed the Brexiteers only trailing by 6 points, down by 15 points the week before, Singh bumped up the odds of Brexit by a mere 2 percentage points to 21%.

Is Singh misreading the polls and a sentiment change just as Nate Silver did with Donald Trump in the US?

Please consider Is Britain heading for Brexit? Latest polls.

Today we got a pair of parallel phone and online polls from ICM for the Guardian. Online showed a 3 point lead for Leave, which is pretty unremarkable. But what was really fascinating was the big swing in the phone poll, compared with a fortnight ago, to show Leave 3 points ahead there too.

Coming on the heels of yesterday’s ORB/Telegraph poll, which showed the Brexiteers only trailing by 6 points (having trailed by 15 points the week before), certainly got people talking. Is this a Leave surge on the back of last week’s migration figures?

It could be. But there are a couple of reasons to be cautious. First of all, while substantial shifts in public opinion can and do happen, polls often overshoot, even when there is an apparent reason. When the draft EU deal was published in February, we some some huge Leave leads that didn’t last. A move has to be genuine and sustained, and very often big event-driven swings (see voting intention polling after party conferences and budgets) often haven’t been.

The other complicating factor is that the fieldwork for these polls was done over a bank holiday.

The effect on the forecast is relatively small – the central projection is now 55-45 and the Brexit probability has increased a couple of points to 21%. This illustrates the whole point of a polling average – to smooth out sudden moves. But if we continue to get polls like today’s, expect the forecast to move down and the Brexit probability to move up quite a bit further.

Matt Singh’s Brexit Odds 2016-05-31

Brexit 2016-05-31

Despite major moves in three separate polls, Singh bumped up his Brexit odds a mere


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“Jesus, Marx, & Darwin Would Be Banned From Today’s Universities” – Oxford Professor Slams ‘Safe-Space’ Politics

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The impact of US-style “safe space” politics, in which causing offense is held to be a grave sin, is also limiting freedom of speech abroad. As Oxford Professor of European Studies Timothy Garton Ash exclaimed, figures like Jesus, Charles Darwin and Karl Marx would all be banned from British universities today due to the rise of social justice warrior pressure groups and correspondingly populist counter-extremism legislation.

This is “a double-pronged attack on free speech,” Ash told an audience at the Hay literary festival on Monday.

As RT reports, as well as Marx, Darwin and Jesus, he warned that philosophers like Rousseau and Hegel would today be banned from campuses.

Referring to the UK government-led Prevent scheme, intended to keep extremism out of educational institutions, Garton Ash warned that:

“securocrats in the Home Office” are imposing bans which would “prevent even non-violent extremists speaking on campus.”

“Now non-violent extremists? That’s Karl Marx, Rousseau, Charles Darwin, Hegel, and most clearly Jesus Christ, who was definitely a non-violent extremist,” the academic said. The Home Office “wouldn’t want him preaching on campus,” he added.

But state intervention is only one side of the coin, Garton Ash said, arguing that the impact of US-style “safe space” politics, in which causing offense is held to be a grave sin, were also limiting freedom of speech.

He said there is a “certain push from below from our own students demanding so-called safe spaces” which involved “no platforming” people simply on the basis that particular students disagreed with them.

“It’s one group of students censoring another,” he said, warning this resulted in free speech being “salami sliced” away.

Garton Ash said the UK, “which in a way invented the modern version of free speech in the 17th century, is in my view much too feeble when it comes to standing up for free speech.”

As we explained previously,

The Only Safe Space Is Your Home

111315-RickMcKee2

No matter where you go in life, someone will be there to offend you. Maybe it’s a joke you overheard on vacation, a spat at the office, or a difference of opinion with someone in line at the grocery store. Inevitably, someone will offend you and your values. If you cannot handle that without losing control of your emotions…
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Pause in Advance

Courtesy of Declan.

With indices knocking on the door of new highs for 2016 it was of new surprise to see some profit taking.




The S&P has struggled when it gets to 2,100, but each run at this resistance level weakens its importance as resistance. I have left the marker for the head-and-shoulder reversal, but a close above 2,111 will negate it.






The Nasdaq was one of the indices to buck the trend by posting a gain on significant accumulation. It hasn’t yet breached 4,969, but when it does it will result in a new swing high when it happens.  Technicals are net positive.





Small Caps had looked like it was going to take out the April high, but it just wasn’t able to hold out by the close of business.  With technicals net positive it looks like it won’t be long before it happens. Surprisingly, despite the gain it hasn’t been able to improve its relative performance against the Nasdaq.





For tomorrow, look for further challenges on 2016 highs. Shorts could go aggressive, but the chance of a stop out are high.




You’ve now read my opinion, next read Douglas’ and Jani’s.




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If you are new to spread betting, here is a guide on position size based on eToro’s system.









Moving Averages: May Month-End Update

Courtesy of Doug Short’s Advisor Perspectives.

Valid until the market close on June 30, 2016

The S&P 500 closed May with a monthly gain of 1.53% which follows a gain of 0.27% last month. All three S&P 500 MAs are signaling “invested” and all five Ivy Portfolio ETF MAs are signaling “invested”. In the table, monthly closes that are within 2% of a signal are highlighted in yellow.

The Ivy Portfolio

Monthly Close Signals

The above table shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. We’ve also included a table of 12-month SMAs for the same ETFs for this popular alternative strategy.

For a facinating analysis of the Ivy Portfolio strategy, see this article by Adam Butler, Mike Philbrick and Rodrigo Gordillo:

Backtesting Moving Averages

Over the past few years we’ve used Excel to track the performance of various moving-average timing strategies. But now we use the backtesting tools available on the ETFReplay.com website. Anyone who is interested in market timing with ETFs should have a look at this website. Here are the two tools we most frequently use:

Background on Moving Averages

Buying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets. In essence, when the monthly close of the index is above the moving average value, you hold the index. When the index closes below, you move to cash. The disadvantage is that it never gets you out at the top or back in at the bottom. Also, it can produce the occasional whipsaw (short-term buy or sell signal), such as we’ve occasionally experienced over the past year.

Nevertheless, a chart of the S&P 500 monthly closes since 1995 shows that a 10- or 12-month simple moving average (SMA) strategy would have insured participation in most of the upside price movement while dramatically reducing losses.

10-Month MA

Here is the 12-month variant:

12-Month MA

The 10-month exponential moving average (EMA) is a slight variant on the simple moving average. This version mathematically increases the…
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Neocon Kristol Announces That “There Will Be An Independent Candidate” To Sabotage Donald Trump

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Michael Snyder via The Economic Collapse blog,

It has long been my contention that the elite are more than willing to do whatever they have to do to keep Donald Trump out of the White House.  There are many forms that this could take, and one potential option just became a little bit clearer.  On Sunday, the founder and editor of the Weekly Standard, Bill Kristol, announced on Twitter that there “will be an independent candidate–an impressive one, with a strong team and a real chance.”  Kristol has very, very deep ties to the Republican elite, and so this is certainly not an idle threat.  At this point we do not know who the candidate will be, but some of the names that have been mentioned include Mitt Romney, John Kasich, Nebraska Senator Ben Sasse and billionaire Mark Cuban.  Of course dividing the conservative vote would be suicidal and would virtually ensure a victory for Hillary Clinton in November.  So why would Kristol and other Republican elitists want to do this?

That is a very good question, and it goes to the very core of how the game of politics is played in America today.

The truth is that the elite are accustomed to being in control of both parties, and that is why things never seem to change very much no matter who is elected.

But this time someone that the elite do not control has miraculously captured the Republican nomination, and this scares them to death.

So now the mission is to destroy the Trump candidacy at all costs, even if that means having the Republican elite sabotage the Republican nominee.

I wasn’t sure if they were actually going to pull the trigger on a major third party candidate, but Bill Kristol now says that this is absolutely going to happen

Just a heads up over this holiday weekend: There will be an independent candidate--an impressive one, with a strong team and a real chance.

— Bill Kristol (@BillKristol) May 29, 2016

Of course Donald Trump was horrified when he learned of what Kristol had said.  He responded with a series of very angry tweets…

Bill Kristol has been wrong for 2yrs-an embarrassed loser, but


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Comment by hanjongin

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  1. hanjongin

    Tom/VLO  too soon – but thats just my read of chart price action.







Alan Greenspan: “We’re Running To A State Of Disaster”

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Back in March, the former Fed chairman said that we’re in trouble because “productivity is dead in the water, and real capital investment is way below average because business people are very uncertain about the future.” Greenspan went on to add that entitlement programs are crowding out capital investment, and thus crowding out productivity.”

Alan Greenspan is back delivering more warnings about the state of the global economy, hammering home the same key points made back in March.

“We have a global problem of a shortage in productivity growth and it’s not only the United States but it’s pretty much around the world, and it’s being caused by the fact that populations everywhere in the Western world are aging, and we’re not committing enough of our resources to fund that. We should be running federal surpluses right now not deficits. This is something we could have anticipated twenty five years ago and in fact we did, but nobody’s done anything about it. This is the crisis which has come upon us.”

Of course nobody has done anything about it Alan, your prior employer makes it so that precisely zero fiscal accountability needs to take place.

Entitlements are still a hot button issue with Greenspan (as they should be for everyone), saying that if we don’t fix this issue we’re headed for a disaster. Greenspan wants entitlements (and the America’s inability to fund them in any way shape or form) to be the central issue of the presidential debate.

Entitlements are crowding out savings, and hence capital investment. Capital investment is the critical issue in productivity growth, and productivity growth in turn is the crucial issue in economic growth. We’re running to a state of disaster unless we turn this around.

This should be the central issue of the presidential debate. Unless and until we can rein in entitlements, which have been rising at a nine percent annual rate in the United States and comparable levels throughout the world, we are going to find that productivity is going to maintain a very low rate of increase”

Greenspan also doesn’t really view recession as the biggest problem right now, he is concerned (rightfully so) about the longer term problem of low economic growth and soaring entitlement growth.

“I don’t think that’s


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Weekly Gasoline Price Update: Regular and Premium Up Again

Courtesy of Doug Short’s Advisor Perspectives.

It’s time again for our weekly gasoline update based on data from the Energy Information Administration (EIA). The price of Regular and Premium are up four and three cents, respectively, from last week. According to GasBuddy.com, California has the highest average price for Regular at $2.81 and San Francisco is averaging $2.97. Mississippi has the cheapest at $2.08. The WTIC end of day spot price closed at 49.10, an increase of 0.99 from last week.

How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here’s a visual answer.

Weekly Gas Prices Since 2000

The next chart is a monthly chart overlay of West Texas Light Crude, Brent Crude and unleaded gasoline end-of-day spot prices (GASO).

WTIC BRENT GASO

In this monthly chart, WTIC end of day spot price closed at 49.10, up 0.99 from last week.

WTIC

The volatility in crude oil and gasoline prices has been clearly reflected in recent years in both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). For additional perspective on how energy prices are factored into the CPI, see What Inflation Means to You: Inside the Consumer Price Index.

Consumer Price Index

The chart below offers a comparison of the broader aggregate category of energy inflation since 2000, based on categories within Consumer Price Index (commentary here).

CPI Components

Here are some additional commentaries related to gasoline prices:





Banks Should Get Down on Their Knees and Pray for Regulation

 

Banks Should Get Down on Their Knees and Pray for Regulation

Courtesy of Joshua M. Brown, The Reformed Broker

Everyone’s talking about this Wall Street Journal article that covers the regulatory flood. The banks brought it on themselves because of their actions before and after the Great Financial Crisis. And now they’ve got to live in the world they’ve created…

The 2010 Dodd-Frank law … is one of the most complex pieces of legislation ever. At more than 22,200 pages of rules, it is equivalent to roughly 15 copies of “War and Peace”…

The six largest U.S. banks by assets in 2013 together spent at least $70.2 billion that year on regulatory compliance, up from $34.7 billion in 2007…

At J.P. Morgan, the nation’s largest bank by assets, the head count associated with what it calls “controls,” which includes many compliance-related staff, has grown to 43,000 in 2015 from 24,000 in 2011…

I have a few comments.

The first is, “Good.” These companies forgot that their very purpose is to foster economic growth and development and to help money and credit circulate around the business world. Finance is a utility and ought to be treated as such. Utilities are highly regulated because of how critically important their health is to society. Banks are equally important and their health is of paramount concern, not their profit growth. A profitable bank is a healthy bank, of course, but the question is about where the profits come from.

Activities that earn profits for the banking system but jeopardize its survival should obviously not be celebrated. They no longer are – have a look at the multiples that large US banks currently trade at – price/book, price/earnings – all severely depressed. This will get better, but not much better. We probably won’t see a return of the empire building that got started in the late 1990’s. The age of the global-hedge-fund-as-bank ended eight years ago. The multiples from that bygone era are not soon to return.

We should be okay with this. Banking is not meant to be a swashbuckling endeavor or a means to its own ends, it’s meant to support real activity in the real world.


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Phil's Favorites

DARK TOWERS by David Enrich

 

In his best-selling book Dark Towers, David Enrich, finance editor at The New York Times, chronicles the complicated history of Deutsche Bank and its entanglement with Donald Trump. Reviewing Dark Towers, Roger Lowenstein writes, 

"Enrich’s most tantalizing nugget is that in the summer of 2016, Jared Kushner’s real estate company (which received lavish financing from Deutsche) was moving money to various Russians. A bank compliance officer filed a “suspicious activity report,” but the report was quashed and she was fired. The suggestion that maybe the money was payback for Russian campaign meddling isn’t one that Enrich can prove. Similarly, we will have to wait to see if Deutsch...



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Zero Hedge

NYSE Announces Disaster-Recovery Test Due To Virus Fears

Courtesy of ZeroHedge View original post here.

In a somewhat shocking sounding move, given administration officials' ongoing effort to calm the public fears over the spread of Covid-19, The New York Stock Exchange has announced it will commence disaster-recovery testing in its Cermak Data Center on March 7 amid coronavirus concern, Fox Business reports in a tweet, citing the exchange.

During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Stree...



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Chart School

Dow, Three strikes and your out!

Courtesy of Read the Ticker

The Dow has topped out with major events, the current virus could be the third strike!

2001 - 9/11 Twin Towers
2007 - Bear Sterns
2020 (?) - C19 Virus


Chart explains all. Dow Jones Industrial's comparing market tops 2000, 2007 and 2020.


Click for popup. Clear your browser cache if image is not showing.












Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of ...

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ValueWalk

Cities With The Most 'New' And Tenured Homeowners

By Jacob Wolinsky. Originally published at ValueWalk.

Homeownership is a major investment. Not just financially, but when a person or family purchases a home, they’re investing years – if not decades – in that particular community. 55places wanted to find out which real estate markets are luring in new homebuyers, and which ones are dominated by owners that haven’t moved in decades. The study analyzed residency data in more than 300 US cities and revealed the top 10 cities with the most tenured homeowners – residents who’ve lived in and owned their home for more than 30 years – are sprinkled across ...



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Kimble Charting Solutions

Financial Crisis Deja Vu: Home Construction Index Double Top?

Courtesy of Chris Kimble

Most of us remember the 2007-2009 financial crisis because of the collapse in home prices and its effect on the economy.

One key sector that tipped off that crisis was the home builders.

The home builders are an integral piece to our economy and often signal “all clears” or “short-term warnings” to investors based on their economic health and how the index trades.

In today’s chart, we highlight the Dow Jones Home Construction Index. It has climbed all the way back to its pre-crisis highs… BUT it immediately reversed lower from there.

This raises concerns about a double top.

This pr...



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Insider Scoop

A Peek Into The Markets: US Stock Futures Plunge Amid Coronavirus Fears

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. South Korea confirmed 256 new coronavirus cases on Thursday, while China reported an additional 327 new cases. Data on U.S. international trade in goods for January, wholesale inventories for January and consumer spending for January will be released at 8:30 a.m. ET. The Chicago PMI for February is scheduled for release at 9:45 a.m. ET, while the University of Michigan's consumer sentime...



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Biotech & Health

Could coronavirus really trigger a recession?

 

Could coronavirus really trigger a recession?

Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. AP Photo/Ng Han Guan

Courtesy of Michael Walden, North Carolina State University

Fears are growing that the new coronavirus will infect the U.S. economy.

A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; ...



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The Technical Traders

SPY Breaks Below Fibonacci Bearish Trigger Level

Courtesy of Technical Traders

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

Some recent headline articles worth reading:

On January 23, 2020, we ...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship

 

Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...



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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

 

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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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