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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Zero Hedge

European Carmakers Face Perfect Storm

Courtesy of ZeroHedge View original post here.

Authored by Irina Slav via OilPrice.com,

European carmakers are facing what could turn out to be a major crisis cooked up by EU regulators, and it’s all about EVs and emissions. The former are supposed to help solve the problem with the latter, but the likelihood of success is uncertain because there are literally millions of variables: car buyers.

The EU has been enforcing emission ...



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Black Hole Investing

 

Black Hole Investing

Courtesy of John Mauldin, Thoughts from the Frontline 

Scientists say the rules change in a cosmic “black hole” at what astrophysicists call the event horizon. How do they know that? Not by observation, since what happens in there is, by definition, un-seeable. They infer it from the surroundings, which say that the mathematics of the universe as we understand them change at the event horizon.

Or maybe not. One theory says we are all inside a black hole right now. That could possibly explain a few things about central bank policy. ...



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The Technical Traders

Crude Oil Setting Up For A Downside Price Rotation

Courtesy of Technical Traders

Crude Oil has been trading in a fairly narrow range since mid-August – between $52 and $57 ppb.  Our Adaptive Dynamic Learning (ADL) predictive modeling system suggested the downside price move in late July/early August was expected and the current support aligns very well with our ADL predictions of higher price rotation throughout most of September/October.  Please take a minute to review the original research post below :

July 10, 2019: ...



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Insider Scoop

The Street Reacts To Kroger's Q2 With Mixed Takeaways

Courtesy of Benzinga

Kroger Co (NYSE: KR) reported second-quarter results that came in better than expected. The earnings beat may have been overshadowed by management's decision to remove its prior guidance of $400 million in incremental EBIT by fiscal 2021.

Q2 A Mix Of Positives And Negativ...

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Chart School

Dow to 38,000 by 2022

Courtesy of Read the Ticker

President Trump said the Dow would be 10,000 points higher if it was not for the FED. In truth if the Dow breaks to new all time highs the next stop is 38,000 and he may be proven correct. Is there an election on? 

Of course who knows? But lets continue. 

The fundamentals behind this may be:

  • A good deal with China.
  • The FED turning on easy money with further rate cuts (very strange with a market near all time highs). FOMC Sept 17th well tell us more.
  • The above turbo charging stock buy backs.
  • Off shore money running out of foreign equity markets in to US markets (see note1).

Note1: Of course this has happened before, one particular time was just before O...



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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Lee's Free Thinking

Nonfarm Payrolls Not Seasonally Adjusted Tell the Real Story - Unspinning Wall Street™

Courtesy of Lee Adler

Not seasonally adjusted nonfarm payrolls, that is, the actual numbers, give us a truer picture of the jobs market than the seasonally adjusted garbage that Wall Street spews.

Friday’s seasonally adjusted nonfarm payrolls jobs headline numbers disappointed investors with slower than expected growth. But was it really that bad?

Here’s How The Street Spun It – Wall Street Journal Modest August Job Growth Shows Economy Expanding, but Slowly

Employers added 130,000 nonfarm jobs, jobless rate held steady at 3.7%

U.S. employment grew only modestly in August, suggesting that a global economic slowdown isn’t driving the U.S. into recession but has dente...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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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.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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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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