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

Small Business Optimism Surges As Plans To Raise Wages Soar Most In 30 Years

Courtesy of ZeroHedge View original post here.

After stagnating for much of the past year following its 2018 all time highs, small business optimism posted the largest month-over-month gain in 19 months, since May 2018, rising 2.3 points to 104.7 in November, up from 102.4, and beating the consensus estimate of 103.0.

The "exceptional" Optimism Index reading was bolstered by seven of the 10 Index components advancing, led by a 10-point improvement in earnin...



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Phil's Favorites

The Myth Of The "Great Cash Hoard" Of 2019

Courtesy of Lance Roberts, RealInvestmentAdvice.com

Tell me if you heard this one lately:

“There’s a trillion dollars in cash sitting on the sidelines just waiting to come into the market.” 

No.

Well, here it is directly from the Wall Street Journal:

“Assets in money-market funds have grown by $1 trillion over the last three years to their highest level in around a decade, according to Lipper data. A variety of factors are fueling the flows, from higher money-market rates to concerns over the health of the 10-year economic expansion and an aging ...



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Kimble Charting Solutions

Are Bank Stocks Sending Bullish Message To Investors?

Courtesy of Chris Kimble

Just as the health of the banking sector is a big deal to the economy, it’s equally important to the S&P 500 (SPY) and broader stock market.

Although the bull market has grinding higher, it’s awaiting confirmation from the banks and banks stocks.

Today’s chart is of the S&P 500 Bank ETF (KBE) and shows how the banks are at an important juncture in time and price.

KBE (the bank ETF) is testing the upper end of a falling channel, offering bulls an opportunity for a breakout – see point (2).

The banks were at a similar juncture nearl...



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Insider Scoop

KalVista Shares Sink On Failed Mid-Stage Study Of Diabetic Macular Edema Drug

Courtesy of Benzinga

Shares of thinly-traded micro-cap biotech Kalvista Pharmaceuticals Inc (NASDAQ: KALV) are seen moving to the downside Monday.

What Happened

Massachusetts-based KalVista, which focuses on developing small molecule protease inhibitors, said a Phase 2 study that evaluated its KVD001 in patients with diabetic macular edema, who were poor responders to previous treatment with anti-VEGF t...



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Digital Currencies

The Road To Retirement: Millennials Put Their Faith In Bitcoin But Goldman Says Go With Gold

Courtesy of ZeroHedge View original post here.

"Drop Gold" - the ever-present tagline of Grayscale's Bitcoin Trust TV commercial - appears to be working its magic on a certain cohort of society.

2019 has seen assets under management in GBTC soar...

Source: Bloomberg

And for Millennials, according to the lates...



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Lee's Free Thinking

Chart Shows the Fed Ramping Up Not QE - Funding Almost All Treasury Issuance

 

Chart Shows the Fed Ramping Up Not QE – Funding Almost All Treasury Issuance

Courtesy of Lee Adler, Wall Street Examiner 

The Fed is ramping up “Not QE” .

The Fed bought $2.2 billion in notes today in its POMO, “not QE,” operations. Actually $2.15 billion because they sold back a whole $50 million. Must have been a little glitch in the force.

This brings the Fed’s total outright purchases of Treasuries to $170 billion since it started Not QE, on September 17.

It also did $107 billion in gross new repo loans to Primary Dealers to buy Tre...



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Chart School

Silver stock taking the sector higher

Courtesy of Read the Ticker

As the US economy begins to show late cycle characteristics like: GDP slowing, higher inflation, higher wage costs, CEO confidence slump. 

Previous Post: Gold Stocks Review

The big players in the market are looking for the next swing off good value lows. This means more money is finding it way into the gold and silver sector, and it is said gold and silver stocks actually lead the metal prices.

The cycle below shows prices are ready to move in the months ahead (older chart re posted).


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Members' Corner

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

 

Sacha Baron Cohen Uses ADL Speech to Tear Apart Mark Zuckerberg and Facebook

By Matt Wilstein

Excerpt:

Sacha Baron Cohen accepted the International Leadership Award at the Anti-Defamation League’s Never is Now summit on anti-Semitism and hate Thursday. And the comedian and actor used his keynote speech to single out the one Jewish-American who he believes is doing the most to facilitate “hate and violence” in America: Facebook founder and CEO Mark Zuckerberg.

He began with a joke at the Trump administration’s expense. “Thank you, ADL, for this recognition and your work in fighting racism, hate and bigotry,” Baron Cohen said, according to his prepared...



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The Technical Traders

VIX Warns Of Imminent Market Correction

Courtesy of Technical Traders

The VIX is warning that a market peak may be setting up in the global markets and that investors should be cautious of the extremely low price in the VIX. These extremely low prices in the VIX are typically followed by some type of increased volatility in the markets.

The US Federal Reserve continues to push an easy money policy and has recently begun acquiring more dept allowing a deeper move towards a Quantitative Easing stance. This move, along with investor confidence in the US markets, has prompted early warning signs that the market has reached near extreme levels/peaks. 

Vix Value Drops Before Monthly Expiration

When the VIX falls to levels below 12~13, this typically v...



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Biotech

Why telling people with diabetes to use Walmart insulin can be dangerous advice

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

 

Why telling people with diabetes to use Walmart insulin can be dangerous advice

A vial of insulin. Prices for the drug, crucial for those with diabetes, have soared in recent years. Oleksandr Nagaiets/Shutterstock.com

Courtesy of Jeffrey Bennett, Vanderbilt University

About 7.4 million people ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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