Monday Market Measurement – Just Right?
by phil - July 26th, 2010 8:08 am
Welcome to dead center!
We are finally back to the middle of our predicted trading range. It's the range that our 5% rule predicted since October of 2008 so we're hardly going to be shocked to be here now. Usually we are shocked when we're NOT in our range. I detailed the movement this weekend in our 5% Rule Update, so I won't get into it all here but let's just focus on our short-term chart and embrace the uncertainty as we move back to the middle of our range at 1,100.
I say it all the time and I'll say it again: I'm not bullish or bearish – I'm rangeish. That means I get more bullish at 5% under our line and I get more bearish at 5% over our line and I get extremely bullish or bearish as we get into that 10% zone because – if the market fundamentals don't change – then my midpoint doesn't change and the opportunity is to play us to return to "reality" at S&P 1,100 (Dow 10,200).
Just look at those nifty little resistance points we have to watch now – the 200 dma is at 1113 and the 50 dma is at 1,084 and we just ran up from 1,030 (we ignore spikes) past the 5% rule at 1,081, which just so happens to be pretty much the 50 dma so that will be our key test for the week as our bottom to top run from 1,101 to 1,102 is close enough to 10% to merit a 2% (20% of the run) pullback back to, WHOOPS!, 1,080. So 1,080, 1,080 and 1,080 is our line in the sand for the week. If the rally is real, the number will hold and, if it doesn't hold (especially with all the earnings and economic data we have coming in) then we have to look at the drop from 1,220 to 1,020 (200 points) and consider the move back to 1,120 nothing more than a strong, 50% bounce back to our mid-range.
We are past the EU Stress tests but JPM says 54 banks should have failed for the following reasons:
- Lack of rigour in macroeconomic stresses, leading to low virtual portfolio loss rates
- Sovereign haircuts were applied only to trading
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More Stress Test Shenanigans
by ilene - October 24th, 2009 12:22 am
More Stress Test Shenanigans
Courtesy of Washington’s Blog
AFP reports:
The Federal Reserve will expand its so-called stress tests of the banking system to ensure they have enough capital during difficult periods, Fed chairman Ben Bernanke said Friday.
Bernanke highlighted the positive impact of stress tests conducted earlier this year on major banks, a move aimed at ensuring their financial health and building confidence.
"Building on the success of this initiative, we will conduct more frequent, broader, and more comprehensive horizontal examinations, evaluating both the overall risk profiles of institutions as well as specific risks and risk-management issues," Bernanke told a conference organized by the Boston Federal Reserve.
The highly publicized stress tests conducted earlier this year focused on 19 major banks, and indicated 10 needed additional capital.
Bernanke said the Fed would step up efforts to review bank capital requirements to avoid a recurrence of the credit crisis that has spread around the world.
"Additional steps are necessary to ensure that all banking organizations hold adequate capital," he said.
He noted that the Financial Stability Board — a global watchdog made up of senior representatives of national financial authorities — had called for "significantly stronger capital standards," and that the Group of 20 "has committed to develop rules to improve both the quantity and quality of bank capital."
"The Federal Reserve supports these initiatives. The structure of capital requirements should also be reviewed," Bernanke said.
Should we be reassured by the new round of stress tests?
Well, let’s take a look:
- Time Magazine called the previous stress tests a "confidence game" and Geithner a "con man" for running them deceptively
- Paul Krugman called the stress tests a mere "self-esteem class" for banks that no bank would be allowed to fail
- Nouriel Roubini said the stress tests "fail the basic criterion of a reality check"
- William K. Black called them "a complete sham"
- FDIC head Sheila Bair didn’t believe they were credible
- The stress tests were a P.R. stunt devised by the banks themselves
- The government has more or less admitted that the stress tests were meaningless (see this and this)
In addition, AFP quotes Bernanke as saying:
"For example, to reduce the tendency of current capital requirements to
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Hey, Look, The Stress Tests Really Weren’t Stressful Enough
by ilene - July 3rd, 2009 4:36 pm
Hey, Look, The Stress Tests Really Weren’t Stressful Enough
Courtesy of Henry Blodget at ClusterStock
Calculated Risk illustrates what we already knew: the bank stress tests weren’t nearly stressful enough.
The chart below looks at unemployment by quarter. The green bars are the "base case" in the stress tests (the most likely scenario, in the government’s opinion). The blue bars are the "adverse case" scenario--unlikely but possible. And the red bars are what’s actually happening (Q2 is a forecast).
The larger story here, unfortunately, is that the Obama administration continues to blow its credibility on the economy. By being too optimistic from the get-go, the administration is opening the door for critics and opponents who are already arguing that the Obama plan has failed.
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Calculated Risk has a bigger version of the chart and more thoughts here >
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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...
Ilene is editor and affiliate program
coordinator for PSW.