Posts Tagged ‘fundamentals’

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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Analyzing Corporate Margins As S&P500 Free Cash Flows Hits Record

Pragcap examined the same phenomenon this morning from a different perspective, that of earnings season surprises. – Ilene 

Analyzing Corporate Margins As S&P500 Free Cash Flows Hits Record 

Courtesy of Tyler Durden at Zero Hedge 

In the recent multiple expansion run up, one of the largely ignored factors has been the dramatic rise in corporate margins, be they Gross Profit, EBITDA, Net Income or unlevered Free Cash Flow. Of course, all this has been a function of massive cuts in corporate overhead as most companies have laid off the bulk of their workers, resulting in a seemingly stronger bottom line. In the meantime, assorted stimulus programs by the government have prevented revenues from crashing, thus boosting EPS, on both a historical and a projected basis.

We demonstrate the dramatic surge in margins by scouring through the S&P 500 companies over the past 3 years, and question just how sustainable this margin pick up is. As more and more analysts predict that future margin expansion is sure to drive the market higher, we can’t help but wonder 1) with stimulus benefits expiring and excess liquidity approaching an inflection point (especially in China) who will keep the top line strong, 2) as companies are forced, as a result, to hire more workers in order to drive sales, how will operating margins maintain their stellar performance, and 3) how will a decline in margins be justified from a multiple expansion standpoint. Lastly, we parse through the thoughts of William Hester of Hussman funds, who has some very critical observations on this very relevant topic.

As the chart below demonstrates, virtually every margin metric is now trading at or above its 3 year average.

One notable observation is the unlevered Free Cash Flow margin, which at 12.6% is now at a recent record. We have preciously discussed how companies have extracted major cash concession by squeezing net working capital, which is likely a factor in the disproportionate rise in FCF margins relative to all other metrics. The immediate result of this cash conservation has been of course the dramatic increase in corporate cash balances, which some have speculated is merely in anticipation of much higher corporate tax rates down the line, as well as general austerity as the reality of America’s insolvency trickes down to individual corporations.

The take home here is that margins have likely little room left to grow. This is especially true…
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IS THIS A “MAJOR MARKET TOP”?

Brilliant theories (e.g. Robert Prechter’s market thoughts) and perfect timing are two different things. Pragcap’s timing has been exceptional. – Ilene

IS THIS A “MAJOR MARKET TOP”?

Businessmen talking and gesturing

Courtesy of The Pragmatic Capitalist

A reader recently responded with several excellent reasons why this could be the formation of a major market top and what Robert Prechter referred to as the next leg down in the bear market.  Although I turned near-term bearish recently, I am not convinced that this is a major turning point.  In this piece I respond to “Our Man In NYC” and the reasons why I believe this is not a major market top, but more likely a correction within the uptrend:

Our Man In NYC:

Thanks for the great response.  I’ll give you my brief thoughts on each topic you touched on.

- CRE: Still a huge problem, but it’s a slow motion train wreck.  The majority of the troubles in CRE are spread out over the next 3 years and will hinder bank balance sheets, but won’t serve as the “all at once” wallop RRE was in 2008.

- RRE: I said that last years stability in housing was a head fake and I still think we’re heading lower, but the stimulus will continue to bolster prices in the near-term.  There will be one last surge in activity as the tax credit ends this year.  Late 2010 and 2011 has potential for substantial declines in residential as resets surge, foreclosures remain high, inventory remains high, stimulus ends and the laws of supply and demand reassert themselves after the government’s temporary price fixing.  The next leg down isn’t quite here yet.

- Sovereign Risk: Greece is getting bailed out in all likelihood, but all in all, another slow moving iceberg.  The S&P story on the UK is alarming.  As readers know, I think debt is why we’re ultimately still in a bear market, but it’s not a NEAR-TERM concern.

- Liquidity: The Fed remains accommodative.  China appears to be on the verge of a wind-down.  Alarming, but at 10.7% GDP I think investors will ultimately view the near-term downturn as a buying opportunity in emerging markets.   Stimulus and accommodative policies are nearing an end, but the process will remain lumpy as


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Chris Whalen’s 2010 Outlook: “A Grudging Admission of the Truth”

Chris Whalen’s 2010 Outlook: "A Grudging Admission of the Truth"

By Aaron Task

Financials suffered Thursday after Citigroup’s massive secondary offering was poorly received and influential analyst Meredith Whitney cut 2010 estimates on Goldman Sachs and Morgan Stanley.

The answer is "yes" (or "both"), according to Christopher Whalen, managing director at Institutional Risk Analytics.

In 2009, the momentum created by a "wall of paper fiat dollars" overcame the industry’s still-poor fundamentals, driving the sector higher, Whalen says. "Where you see the markets changing in terms of sentiment is where fundamentals are so ugly they can’t be ignored."

Whalen is sticking by a prior forecast that the fourth-quarter will be a "bloodbath" for the banks but says the real ugliness won’t occur until the middle of 2010…

But even prior to Thursday’s selloff, a lot of traders were nervously watching the poor action in the financials as a possible "tell" for the broader market. The question is whether the recent weakness is just profit taking after the big gains earlier this year or concern about the fundamentals heading into 2010.

Read full article here.>>

 


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TRANSPORTS CONFIRM THE ECONOMY IS WEAK

TRANSPORTS CONFIRM THE ECONOMY IS WEAK

Courtesy of The Pragmatic Capitalist

Nothing has been more confounding during this equity rally than the weakness in the underlying fundamentals of the transports.  Without fail, the data from the transports has been an excellent leading indicator in past recessions.  Warren Buffett has even admitted that the rail data is his single favorite indicator to watch.  But as equity market have ripped higher, the rails and other transports have lagged.

Of course, as time has passed we have witnessed the enormous influence of government stimulus on the economy and the incredible impact of money printing on asset prices.  As we begin to see signs that government stimulus is failing to generate jobs and a sustainable recovery, the transports continue to forecast a very weak recovery.  Have the transports been right this whole time or is the Fed’s liquidity induced rally a more accurate reflection of the economy?

Late last week, Union Pacific CEO Jim Young said the economy had stabilized, but was not recovering just yet:

“So, it looks like the economy has bottomed out, but unfortunately we’re not seeing an upturn yet.

The weekly rails data we report has shown certain signs of stability and even a slight uptick of late, but whether this warrants the extreme recovery optimism we hear about on a daily basis is highly suspect:

rails5

Of course, the weakness in the transports isn’t just in the rails.  The Air Transports reported a 13% year over year decline in cargo just last week and the latest truck tonnage data shows that the recovery in trucking is also very weak:

ATA

In terms of market implications, Richard Russell is now growing very concerned about the action in the Transports:

“From a Dow Theory standpoint, the Transports are now worth watching. They’re sort of sinking out of sight on higher volume. And look at MACD which has now turned bearish. Transports could be a problem. And note today’s plunge of over 100 points.”

From a trading perspective, we saw heavy put action in the Transports late last month as they were beginning to top out.   Since then, traders have become very concerned about a potential double top leading to further weakness in the transports sector.

transports

The fundamentals seems to rhyme with the technicals.   Some traders couldn’t ask for a better set-up….

 


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The Long View

The Long View

Courtesy of Binve at Market Thoughts and Analysis

I have written several posts the past several months talking about the long term. As most of these posts talked about problems in the economy, outlooks of future weakness, and the serious issues with our nation’s monetary policy, I have a decidedly bearish forecast on most asset classes for the next several years. And since many of these observations have taken place in a fairly spectacular bear market rally, I have been labeled a perma-bear and been somewhat ignored. No worries, that is not new territory for me :)

But as we start closing in on the end of the bear market rally (Primary Wave 2), I want to rehash some of these issues. Undoubtedly I will be labeled by even more people as a perma-bear, because every government economist is declaring "end of the recession" and analysts are all declaring "new bull market".

But I assure you I am not, in fact I would rather be long. I went long big time at 700 on the SPX. I did cash out of them far too early, and went short far too early, but that is because when I look at the economy I do not see strength. Not now, and certainly not for the future. I try to be honest with myself with my analysis, both fundamentally and technically. I am not a bear for the sake of being a bear. I try to be as realistic as I can be. Sometimes that means I get things wrong (and yes, being too early is wrong in my book), and that’s fine. Just part of the game. But these are my honest opinions.

Fundamentals

There are still so many long term issues that have not been dealt with. The economy is still structurally the same (70% consumer spending) and besides a lot of optimistic rhetoric, none of the problems that got us into this mess have been fixed. There have been a lot of band-aids applied. And even to an open festering wound a band-aid will apply some "relative" amount of relief (vs. doing nothing) in the *very short term*. But if you have a severed carotid artery and you put on a band-aid, it will soak up excess blood for a couple of seconds, before that band-aid…
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The 5 Keys to Identifying a Fundamental Day Trade

For a free subscription to Phil’s Stock World, click here (it’s easy, no credit card required). 

David, at The Oxen Group, has been kindly providing us with day-trading picks before the market opens. He has an excellent track record, which is posted in Oxen Group section and updated every few days. Below is an outline of the factors he considers when identifying high-probability trading opportunities. For more, visit The Oxen Group website and sign up for a free newsletter. - Ilene

The 5 Keys to Identifying a Fundamental Day Trade

day trading, quotesOne of the main sections of our site is our Oxen Picks. These are day trades that The Oxen Group makes everyday that are ideas for stocks we believe will move up for a single day that investors can make 3-5% on each day. The Oxen Picks have had some significant growth since we started them, making nearly 40% on a $3,000 portfolio. The portfolio has no long-term stocks. Every stock we buy, we sell the same day. And, we only buy one stock every day. The method behind it, however, is sound and continues to foster growth. That method begins with fundamentals and the 5 Keys to Identifying a Fundamental Day Trade.

Today, I am going to lay out for you the five keys to executing the fundamental day trade that will help you become a better day trading investor by identifying 5 signals that can help you select a trade. These signals are easy to understand and they will help transform your trading style into a much more astute investment strategy.

Identifying the Fundamentals

To begin to look for that perfect stock or ETF that will move up 4-5% in a single day, we first need to look for something that can propel the stock. Even the best technicals seldom can give you 5% upward movement intraday alone. This 4-5% movement we are talking about, additionally, is not from yesterday’s close, but it is movement within the day. That means we want to identify a stock that can be bought sometime in the morning and sold later in the day that will give us significant upward movement from our entry.

Stocks do not move on their own, though, therefore there are a number of fundamentally bullish categories that we can use to identify stocks:

1. Earnings

There are multiple ways to play a company’s…
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Zero Hedge

Powell's Stock Trades Leaked, Show Multi-Million Sale As Market Tanked

Courtesy of ZeroHedge View original post here.

With leaked trades in their personal accounts already costing two Fed presidents their jobs, and a third - vice chair Richard Clarida - currently on the ropes amid speculation he will soon follow, a few weeks ago we joked that if forces within the Fed want to get rid of all the hawks, they should just leak Esther George - the Fed's last remaining uberhawk - trading record.

If the Fed wants to get rid of all the hawks, they just need to leak Esther George's etrade blotter

— zerohedge (@zerohedge) ...

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Phil's Favorites

Another Fed Bank President's Financial Disclosures Fail the Smell Test

Courtesy of Pam Martens

Atlanta Fed President, Raphael Bostic

Private Banks operated by the mega Wall Street banks have an unseemly reputation. So when we opened Atlanta Fed President Raphael Bostic’s financial disclosure forms and saw that he had a financial relationship with Morgan Stanley’s Private Bank, a red flag went up immediately.

Citibank’s Private Bank was previously the subject of an investigation by the U.S. Senate’s Permanent Subcommittee on Investigations. At a h...



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Chart School

Price and Volume Swing Analysis on Bitcoin and Silver

Courtesy of Read the Ticker

Many take guidance from news, pundits or advisors. Well sometimes the swings of price and volume are a better measure of what happens next.

The big boys do not accumulate or distribute in single 1 second trade, they build positions over weeks, months and years. They use price swings in the market to build or reduce positions, and you can see their intent by studying swings of price and volume and applying Tim Ord logic as written in his book called 'The Secret Science of Price and Volume: Techniques for Spotting Market Trends, Hot Sectors, and the Best Stocks'.

Tim Ord is a follower of Richard Wyckoff logic, his book has added to the studies of Richard Wyckoff, Richard Ney and Bob Evans.

Richard Wyckoff after years of...

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Digital Currencies

Ethereum's Turn To Outshine Bitcoin Is Coming, UBS Says

Courtesy of ZeroHedge View original post here.

After a stellar start to the year, which saw its price soar to an all time high above $4,100, trouncing virtually all of its crypto peers, Ethereum has stagnated in recent weeks, with its place in the spotlight taken by bitcoin whose impressive outperformance has been the result of now confirmed speculation that a bitcoin futures ETF is coming. It also meant that what has traditionally been a close correlation between the two largest cryptos has broken in favor of the larger peer; it would also suggest that ethereum is trading about $1000 cheap vs bitcoin.

...



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Politics

Steve Bannon faces criminal charges over Jan. 6 panel snub, setting up a showdown over executive privilege

 

Steve Bannon faces criminal charges over Jan. 6 panel snub, setting up a showdown over executive privilege

Defiant or following Trump’s direction? John Lamparski/NurPhoto via Getty Images

Courtesy of Kirsten Carlson, Wayne State University

The House committee investigating the Jan. 6 attack on the U.S. Capitol is tasked with providing as full an account as possible of the attempted insurrection. But there is a problem: Not everyone is cooperating.

As of Oct. 14, 2021, Steve Bannon, a one-tim...



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Biotech/COVID-19

Ivermectin is a Nobel Prize-winning wonder drug - but not for COVID-19

 

Ivermectin is a Nobel Prize-winning wonder drug – but not for COVID-19

While ivermectin was originally used to treat river blindness, it has also been repurposed to treat other human parasitic infections. ISSOUF SANOGO/AFP via Getty Images

Courtesy of Jeffrey R. Aeschlimann, University of Connecticut

Ivermectin is an over 30-year-old wonder drug that treats life- and sight-threatening parasitic infections. Its lasting influence on global health has been so profound...



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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.