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AJ, Speaking of WTIC oil, I believe it just moved from contango to backwardation, should that not encourage those holding inventory to sell? I'm ignorant about futures so any thoughts on this would be appreciated.
http://www.nymex.com/lsco_fut_cso.aspx
AJ, Thank you for going the extra effort to post your charts, I can now see your work.
If it helps, I was not able to see any of your lines (if there was any?) on this chart:
http://www.investorshub.com/boards/read_msg.asp?message_id=21183565
It says (This is a free version of a bigger chart and you can view it if your a member...)
OT AJ, It looks like the alfalfa pollination is going better then was feared, leaf cutter bees were apparently brought in.
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Bees are important because about one-third of the US diet comes from products where bees are crucial to the pollination of those products. So, from our perspective the most important crop that bees are involved with is alfalfa, which is the biggest component of good pasturage for beef cows and for dairy cows, both growing it on the ground and pasturing it and also being turned into hay. And it's the third most important feed grain - although it is one that doesn't get trading on the Board of Trade - because it's consumed locally. And it's 100% insect pollinated of which the bees are responsible for about 2/3s of that.
So if we've had this colony collapse disorder which is - depending on where you're looking at it in the States - somewhere between 30 and 90% of the population of bees in the hives they've been measuring, has disappeared. Which would suggest a dramatic fall in the production of a wide range of US crops. And for us I say the one that's most at risk frankly is anything tied to cattle.
So, it's just something that we won't probably know this for sure until about the 1st of July
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http://www.ams.usda.gov/dairy/mncs/dy20070629Wweeklyreport.pdf+honey+bees+alfalfa&access=p&output=xml_no_dtd&ie=UTF-8&client=usda&num=10&site=usda&proxystylesheet=OC" target="_blank">http://search.usda.gov/search?q=cache:Lr-JsBzIsVsJ:http://www.ams.usda.gov/dairy/mncs/dy20070629Wwee...
The fourth cutting of alfalfa is underway in various parts of the state, and somegrowers of alfalfa seed are now using leaf cutter bees for pollination due to honeybee shortages. Milk production in NEW MEXICO is steady to somewhat loweras temperatures reach into the low 100’s. Some increased demand from cheeseplants is noted as various manufacturers push to build inventory before seasonallyscheduled slowdowns. Second cuttings of alfalfa are about three fourths complete,and third cuttings have started in some parts of the state. A majority of the cropis rated as good to excellent in quality.
Don, I beleive you have been looking for lower crude oil prices through Elliot Wave methods, maybe you would be interested in this fundamental news?
http://biz.yahoo.com/pz/070706/122506.html
The new rig will be capable of drilling in water depths of up to 12,000 feet, with a total vertical drilling depth of up to 40,000 feet.
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The reason I find it interesting is because people have been using the Hubbert Peak bell curve to explain why oil prices are going higher, but are they not jumping to conclusions? Why would a oil co. spend money to explore the ocean for oil if the rigs needed to bring up the oil are not yet invented? With the average depth of the oceans at about 12,175 ft. it indicates to me that the oceans have not been explored, the earth is about 70% water and we know that some of these's waters have shown oil beneath.
Thanks AJ (EOM)
AJ, Are you refering to a Darva box? Or what do you mean by trading box?
Tea, Since you use the beautiful Erin Burnett's picture in your posts, I thought you might find this article interesting:
http://www.mediabistro.com/tvnewser/cnbc/erin_burnett_cnbcs_secret_weapon_60256.asp
Erin Burnett, CNBC's "Secret Weapon"
CNBC anchor Erin Burnett is a "secret weapon" in the coming war against Fox Business Channel, B&C says in a Fifth Estater profile.
Since making her debut on Squawk on the Street "during its relaunch in December 2005, the program is up 142% over first quarter 2006 in adults 25-54;" and her 2pm hour of Street Signs "is up 57% in the demo."
Burnett says: "I try to get to the gym a few days a week, but I end up finding story ideas most of the time, instead. I think there is a business angle to everything." More...
http://www.broadcastingcable.com/article/CA6448641.html
For the coming war between CNBC and Rupert Murdoch’s planned Fox Business Channel, the scrappy incumbent is grooming a secret weapon.
That weapon is a petite, blue-eyed brunette who makes her home at a cluttered desk in a cramped studio overlooking the New York Stock Exchange, where she is typically typing furiously on a laptop or asking questions by phone. Erin Burnett, 31, is a co-host on CNBC’s Squawk on the Street (weekdays at 9 a.m. ET), solo anchor of Street Signs (2 p.m. ET) and a frequent guest on network shows, including NBC’s Today. Since making her debut on Squawk during its relaunch in December 2005, the program is up 142% over first quarter 2006 in adults 25-54; Street Signs is up 57% in the demo.
Burnett rises every morning at 5 a.m. and hops in a car bound for the NYSE. Once there, she makes calls, checks e-mail, sets up potential guests and reads the papers—all while getting her hair blown-out and her makeup applied. “She’s a natural,” says Jonathan Wald, senior VP of business news for CNBC. “She’s both energetic and solicitous, but she never appears fawning.”
Perhaps her strongest asset, he adds, is how quickly she finds the spine of a good business story. “She can translate arcane business news to a vast general audience, or she can keep it narrow for those in the know. And she knows the difference.”
Rapid Rise
Burnett’s rapid rise has drawn endless speculation in the media and on Websites that she is being groomed by the network to ascend the “Money Honey” throne currently occupied by CNBC anchor Maria Bartiromo. Some fans call her Maria 2.0.
Does it matter that some critics see her as just another pretty anchor? “Let’s be honest,” Burnett says. “It is a factor. Initially. But if you want to be good and if you want to be at the top of your game, you have to know the material, and you have to love it. Otherwise, regardless of your looks or your age or whatever, you won’t have any staying power. And look at how many women television journalists there are of all ages. It’s a really exciting time.” Does the looming Fox venture add to that excitement?
“Look, there is always a lot of pressure,” Burnett says.“There is pressure to innovate and pressure to be the best. Do we feel that more accutely now? Probably. But I think it is going to be hard for anyone to challenge us.”
“Most Likely To Host a Talk Show”
Despite winning the “Most Likely To Host a Talk Show” award in high school, Burnett never had a clear vision of what to do with her life.
Born and raised in a small town on the Eastern Shore of Maryland, Burnett attended St. Andrews High School in Maryland, where she played field hockey and squash, and later attended Williams College in Massachusetts, the college her two older sisters attended. At Williams, she studied political science and economics and then landed at an investment bank after graduation.
“I wish I could say I was one of those people that grew up wanting to be Jane Pauley,” she says. “But we only had three channels. There was no cable, no satellite; there wasn’t even an NBC affiliate in my town. I remember having a big crush on Dan Rather, and I remember watching the McNeil-Lehrer News Hour, but I didn’t want to be a television journalist.”
Burnett penned a letter—at her sister’s urging—to a woman she had grown to admire, CNN’s Willow Bay, while she was an investment-banking analyst at Goldman Sachs. “It was basically a stalker letter,” Burnett laughs.
Much to her surprise, Bay telephoned and invited Burnett to visit the CNN offices. Bay, clearly impressed, offered her a position with the network a few days later. Burnett stayed in New York, quickly ascending the ranks of CNN’s Moneyline as both a writer and a booker.
From CNN, she moved to Citigroup to launch an online news network and then took a position at Bloomberg, where she anchored two hours of programming daily—and finally discovered her true passion.
“I had never wanted to be on camera,” Burnett says. “But once I started getting the interviews and connecting with people, I didn’t want to stop.” After two years at Bloomberg, she jumped to CNBC.
Ready for Anything
At 8:55 a.m., Burnett makes her way gracefully down the perilously narrow staircase that leads onto the bustling Stock Exchange floor with a few minutes to spare before Squawk on the Street begins.
“The goal of this hour is to be breathless,” she explains, oblivious to shouting traders nearby. “We want to throw out as many names as we can. We want to get the most information out there.”
Once the cameras start rolling, Burnett is unflappable. Despite her age and relative inexperience, she holds her own like a heavyweight.
She concedes, however, to being caught off-guard from time to time in the fast-paced, live broadcast. “The train bombing in India? Or when Boris Yeltsin died? These events affect the market. We have to be ready for anything.”
In her free time, she unwinds in her apartment on Manhattan’s Upper West Side. “I try to recharge my batteries on the weekend and read,” she says, citing The Historian by Elizabeth Kostova as recent favorite. “I try to get to the gym a few days a week, but I end up finding story ideas most of the time, instead. I think there is a business angle to everything.”
Erin Burnett
Title: Anchor, CNBC
Education: B.A., political economy, Williams College, 1998
Employment:Goldman Sachs: analyst, mergers and acquisitions, 1998-2000; CNN: writer and booker, 2000-01; Citigroup: 2001-03, VP; Bloomberg: anchor, 2003-05; current job since 2005
Personal: B. 1976
The Incredible Shrinking Cramer?
http://www.mediabistro.com/tvnewser/cnbc/the_incredible_shrinking_cramer_60297.asp
Monday, Jun 04
The Incredible Shrinking Cramer?
Jim Cramer's ratings must be causing some alarm in Engelwood Cliffs.
He fell below 200,000 total viewers at 6pm in May -- averaging 175,000 for the month, a 29 percent drop from his 247,000 average in May 2006. (In March, he averaged 255,000, and in April, he averaged 205,000.)
In the 25-54 demo, the declines may be more ominous. Here's the trend from January to May: 87,000, 72,000, 88,000, 59,000, 50,000. His May demo delivery of 50,000 is his worst in many months, and down 50 percent from last May's average of 100,000...
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Maybe the truth is starting to catch up with him?
Volatility regressing to mean.
The Remarkable American Consumer (courtesy Bullwinkle).
The consistency of American consumption growth is striking. Since the turmoil of 1980-82, when Paul Volcker was wringing inflation out of the U.S. economy, only two quarters have posted declines in consumption in the United States. That is two quarters out of ninety-seven. Those quarters were the fourth quarter of 1990 and the first quarter of 1991, during and after the Iraqi invasion of Kuwait, which coincided with sharply higher oil prices and a spike in geopolitical uncertainty. Those two lone quarters of negative consumption coincided with the last real recession--two consecutive quarters of negative GDP growth--experienced by the United States. While mid-2001 saw a mild recession by technical standards, it did not produce two consecutive quarters of negative GDP growth and there was not a single quarter of negative consumption growth.
http://www.investorshub.com/boards/read_msg.asp?message_id=20319825
The Remarkable American Consumer
By John H. Makin
June 2007
ECONOMIC OUTLOOK
The American consumer is a very persistent spending machine. It is American consumption growth running at higher than 4 percent annualized--well above its long-term average--that has kept the economy comfortably out of recession for the past six months as the housing slowdown has subtracted more than a percentage point from growth. Even with a substantial additional drag on the U.S. economy from other areas--inventory liquidation, weakening net exports, and rapidly rising gasoline prices--the American consumer's spending surge has still been enough to keep GDP growth in positive territory.
Durable American consumption growth is an immensely important factor for the world economy. It creates a reliable and persistent source of demand growth that accounts for over 70 percent of U.S. GDP growth and a substantial portion of rising demand for the exports of the rest of the world, including rapidly industrializing economies like China's.
The strain on the consumer as the principal support for maintaining growth is beginning to show, as growth in the first quarter of this year slipped perilously close to zero, at just 0.7 percent. Yet, even that disconcertingly low figure may not mean that a recession is imminent, provided that the U.S. consumer continues to supply just an average contribution to growth while the drag from housing, inventory disinvestment, and negative net exports subsides. If, alternatively, consumption slips, a recession is likely. Consumption is the key to the current growth outlook.
Consumption Seldom Slips
It is testimony to the market's faith in the American consumer that the consensus expectation is for U.S. GDP growth to recover to around a 2 percent annual rate in the second quarter and to rise more rapidly in the second half of the year, assuming consumption growth will hold up at close to its long-run average of 2.5 percent to 3 percent. Growth pessimists, however, point out that consumption growth may falter because household savings rates are still negative, while household debt levels relative to income are unusually high. Additionally, gasoline prices have risen to a point at which they are subtracting more than 1 percent from disposable income.
Still, the odds are against those who bet against the American consumer. Perhaps that is why the Federal Reserve's own forecast is for growth to pick up in the second half of the year. The persistent strength of consumption is related to some unusual positive developments in the U.S. economy over the past twenty-five years, including faster-than-usual wealth accumulation and the evolution of a more elastic credit system, which have altered the relationship between consumption spending and income.
The consistency of American consumption growth is striking. Since the turmoil of 1980-82, when Paul Volcker was wringing inflation out of the U.S. economy, only two quarters have posted declines in consumption in the United States. That is two quarters out of ninety-seven. Those quarters were the fourth quarter of 1990 and the first quarter of 1991, during and after the Iraqi invasion of Kuwait, which coincided with sharply higher oil prices and a spike in geopolitical uncertainty. Those two lone quarters of negative consumption coincided with the last real recession--two consecutive quarters of negative GDP growth--experienced by the United States. While mid-2001 saw a mild recession by technical standards, it did not produce two consecutive quarters of negative GDP growth and there was not a single quarter of negative consumption growth.
Consumption Grows While Saving Falls
The persistence of consumption growth since the early 1980s is even more remarkable (on the surface at least), in view of the fact that since 1982-85, personal saving as a share of disposable personal income has dropped from a range of 8 to 10 percent to minus 1.3 percent over the past year. The most rapid drop in the personal saving rate occurred between 1982 and about 2000, by which time the saving rate had fallen to what was then viewed as a dangerously low 2 percent. After hovering around 2 percent until 2003, the personal saving rate made another swoop down and has been in negative territory since 2003. It is, of course, the negative personal saving rate coupled with public sector deficits that has boosted American net borrowing from abroad to about 6 percent of GDP. That said, a negative saving rate and rising indebtedness to the rest of world have failed to dent the persistent rise in American consumption, due in part to the willingness of foreigners to lend to America at low interest rates the funds necessary for it to keep spending in excess of income.
The persistent strength of American consumption growth during the quarter-century since the early 1980s, and its partial financing by a progressive drop in the savings rate over the same period, suggests strongly that income growth is not the only factor that determines consumption growth.
The level of wealth, the accumulated assets of American households, has proven to be an important determinant of spending habits. The breakdown of the usual connection between savings and wealth accumulation has made many casual observers of American consumption behavior uncomfortable over the past twenty-five years. The most common way to accumulate wealth is to restrain consumption, boost savings, and thereby acquire assets. The traditional story of the evolution of an American family in the early post-Depression years saw households restrain consumption, save, accumulate financial wealth, and then, perhaps with the help of a loan equal to half the value of the house, purchase the major asset of most traditional American families--the primary residence.
Compare that model with a more contemporary one rising out of the late stages of the recent housing boom. During 2005 and early 2006, so-called subprime lending enabled households with virtually no accumulated assets to borrow 100 percent of the purchase price of residential real estate. Such easy credit led numerous, more adventurous households (many located in California and Florida) to buy multiple speculative real estate units, say, several condominiums, with no money down. These steps were, by the way, totally rational. If a lender is willing to lend 100 percent of the purchase price--even in a risky market--the borrower may as well take up the offer and exercise what amounts to infinite leverage on real estate speculation. Should he be unable to sell the speculatively purchased units, he need only walk away from the loan, leaving the subprime lender to suffer the loss.
Subprime lenders thought that they were invulnerable based upon having sold the subprime mortgages in tranches to the credit derivatives market. What tripped them up was the clause in the subprime lending contract specifying that if a borrower failed to make even the first payment on the loan, the loan reverted back to the subprime lender. During 2006, when weakening market conditions in Florida, California, and elsewhere caused many speculative borrowers to walk away from their loans without making even a first payment, subprime lenders were submerged in a cascade of bad paper that pushed many of them out of business.
Elastic Credit Markets
The contrast between the traditional "save-and-then-borrow-moderately" paradigm and the "borrow-it-all" subprime paradigm illustrates another factor operating on American consumption: American credit markets have become far more elastic, especially over the past decade. While some abuses, such as in the subprime sector, have arisen for American households that have, through rising asset prices, accumulated wealth at an unusual pace without saving, elastic credit markets have provided an important additional degree of freedom that enables most middle-to-upper-income households to maintain spending at a level close to income. In effect, the elastic credit market has turned the primary asset of American households, residential real estate, into a flex-ible line of credit. Home equity loans and mortgage equity withdrawal mirroring the rise in the value of residential real estate have contributed to a more stable American spending stream that has persistently risen relative to income.
It is worth noting that the elasticity of the credit system applies also to American corporations. Privatization and credit-financed leveraged buyouts (LBOs) essentially amount to a substitution of debt for equity on terms that enhance the value of the corporation. The debt issued to finance retirement of equity is then sold to global investors by dividing it into blocks of securities of different quality--risky to less risky. This process is carried out in what has come to be called the credit derivatives market. The full operation of that sector and its ultimate viability are still being determined. Suffice it to say for now that the LBO and private-equity booms are manifestations of the increasing elasticity of America's credit system that parallel the increasing elasticity of the credit available to American households.
The rising elasticity of America's credit system is an important factor to consider in a discussion of the persistent growth of American consumption. Paradoxically, it may also turn out that the same elevated credit elasticity forms the basis for the return of the American business cycle, which has been largely absent for the past twenty-five years. The fact that credit is so elastic--both for households and corporations--can lead to imbalances whereby, for example, too many houses and condomin-iums are produced because of credit-driven speculative demand. If the demand abates because, say, of a sudden contraction of credit, unwanted stocks of such real estate, like excessive inventories or an excessive stock of traditional capital, have to be worked off over a period of time. Furthermore, when stocks are being reduced, production of new units, say, of houses or condominiums, has to be sharply curtailed. The result, as we have seen since mid-2006, is a substantial drag on U.S. GDP growth--at a rate of more than a percentage point of GDP--from falling residential investment. Going forward, the biggest uncertainty facing the U.S. economy is whether such adjustments will spill over into consumption behavior. The Fed and the markets are betting they will not. We will probably learn the answer between now and next fall.
Wealth and Consumption
The other big factor underlying persistent American consumption growth and resultant stable GDP growth has been--as already noted--an unusually rapid pace of wealth accumulation over the past twenty-five years that is not tied to saving, per se. Between 1980 and the end of 2006, the real net worth of American households grew at about 4 percent per year, while overall income grew at about 3 percent per year. As a result, the ratio of household real net worth to annual disposable income rose from about 4.4 to 1 in the early 1980s to 5.7 to 1 in 2006. A peak ratio at about 6 to 1 occurred in 2000 after the spike in the American stock market.
The growth of wealth relative to income at a pace that boosts the wealth-to-income ratio--while personal savings as a share of disposable income is falling from about 8 percent to minus 1 percent--is a remarkable development. This conclusion holds, notwithstanding some measurement issues arising from the fact that about 15 percent of consumption consists of spending on durable goods, which, due to their ability to supply consumption services over time, contains some saving. That said, the consistently measured saving rate has fallen steadily, even accounting for the fact that the durables component of consumption means that it may be downwardly biased.
Measurement issues aside, the key reality is that the two major sources of household wealth--financial assets and real estate--have increased in value at an unusual pace. The fact that households own these assets has meant that they are better able to sustain consumption, even when income growth slows or confidence slips. A high wealth-to-income ratio helps to cushion consumption at times when income growth may be reduced or when the inclination to spend a given level of income is reduced by uncertainties such as the Gulf War, Hurricane Katrina, the 9/11 attacks, and other disasters. U.S. consumption has recovered quickly after these incidents, and, even immediately afterward, since the Gulf War consumption growth has not dropped below zero.
Exogenous Wealth Creation
What are the sources of what we shall call exogenous wealth creation--that is, wealth creation not driven by traditional savings and accumulation? Knowing the sources (which we cannot fully do) is important because this is the headiest form of wealth accumulation, that is, that tied simply to the ownership of appreciating assets rather than through restricted consumption and elevated savings. My favorite candidates for the causes of the broad exogenous wealth creation of the past quarter-century are two: the Great Moderation, or the more stable path of the U.S. economy since 1982, in which lower and less volatile inflation have been associated with less volatile growth; and innovations in the credit system that have contributed to the ability of households to manage income and spending decisions with lower holdings of highly liquid savings and more funds invested in less-liquid assets such as equities, bonds, and real estate.
Some circumstantial support for these explanations of exogenous wealth creation come from observing China--today's most rapidly growing emerging economy. There, wealth accumulation has, so far, been achieved the old-fashioned way. Households save up to 40 percent of income in order to accumulate assets in a volatile economy with a primitive credit system. Without well-developed government health and retirement systems, households must accumulate assets to provide for old age and medical costs. The credit system into which those assets can be invested is far less developed and far more risky, as the experience in China's stock market and credit markets over the past decade has shown.
China's growth rate and inflation rates are both higher and more volatile than those in the United States, contributing to the uncertainty that households in China must manage as they make decisions about savings and consumption. Chinese households want to get richer, and they are saving at an extraordinary rate in order to do so. The saving motive is reinforced by the uncertainty they face, which in turn is tied to economic volatility and poor facilities for wealth storage. The persistent exogenous wealth creation that Americans have been fortunate enough to experience since the early 1980s has not been as available in China, although it probably will begin to emerge.
Another insight into American consumption behavior and its relationship with wealth is gained by looking at the period before 1980. During that time, say, between 1960 and 1980, American wealth was growing at a rate of about 3.5 percent a year while income was also growing at a slightly higher rate. The wealth-to-income ratio, which reached about 5 percent in the early 1960s, had fallen to 4.2 percent in the mid-1970s after the massive exogenous shock of a quadrupling of oil prices imposed the equivalent of a heavy tax on American consumers while rendering obsolete much of the American capital stock that had been oriented toward cheap energy. Over the decades, when income was rising faster than wealth, American savings held in a range of 8 to 10 percent, peaking at about 12 percent in the highly uncertain period after the first oil crisis in the second half of the 1970s, when rising inflation and inflation uncertainty penalized growth and increased household concerns about being able to sustain consumption.
Looking Ahead
Interesting questions arise about the American business cycle and the sustainability of consumption growth in excess of income growth going forward. Now that the traditionally defined saving rate is virtually zero, can exogenous wealth creation and rising elasticity of the credit system contribute to a continuation of consumption spending in excess of income? We do not know the answer, but it seems unlikely that exogenous wealth creation will continue at the extraordinary pace of the past twenty-five years. The pace of productivity growth will provide a clue, with a steady, high level suggesting that exogenous wealth creation may continue, while lower productivity growth may signal declining wealth creation.
We have seen that the elasticity of the credit markets may have already been extended beyond viable levels in view of the difficulties in the subprime and lower-level mortgage markets. Indeed, the elasticity of the credit markets may replace inventory dynamics as a primary source of business cycle developments. Whatever the outcome, it will depend importantly on the continued resilience, or lack thereof, of the American consumer and, in turn, on the factors that affect the path of consumption over time.
John H. Makin is a visiting scholar at AEI
http://www.aei.org/publications/pubID.26268/pub_detail.asp
SOX is undoing yesterdays damage.
chainik, I believe this is one of the studies that Newly might be referring to on moving averages, I don't know the source.
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http://www.investorshub.com/boards/read_msg.asp?Message_id=14019517&txt2find=aj
AJ once posted a link to a study on moving average crossovers. The best one was basically no cross at all. If today is up, go long tomorrow. If today is down, go short tomorrow. It is a moving average of 1. I'll see if I can find it.
Edit: Here it is:
MOVING AVERAGE TRADING
There's been a lot of press recently concerning the fact that the S&P500 has
closed above its 200-day moving average, which sounds a lot more impressive
than it really is. We've done extensive research on moving averages, and as
far as the major stock market averages are concerned, a close above the 200-
day moving average is absolutely meaningless. In fact, simple moving averages
in general, except for the very short-term ones, should be disregarded in my
opinion. Our studies clearly show that the best performing moving average (the
1-day average) isn't an average at all - it's simply today's close. If it's
higher than yesterday's, the trend is up. If it's lower, the trend is down.
This most basic of 'strategies' blew away all longer-term moving average
strategies by a mile, as you'll see by the results of the studies below. And
you can bet these results won't make it to the mainstream media anytime soon.
No one would believe it.
We're going to review three typical strategies for employing moving averages -
the 'penetration', the 'crossover' and the 'slope' - beginning with a brief
explanation of each strategy, and followed by a short list of the moving
averages that produced the best returns in terms of buying and selling the
S&P500. In every case, simple moving averages were used, and performance
figures are based on the daily S&P500 close beginning in 1970 and finishing at
the present.
Moving Average Penetration
This strategy goes long the market when the S&P500 closes above its X-period
moving average (upside penetration), and goes short the market when the S&P
closes below its X-period moving average (downside penetration).
Best performing moving averages:
2-day moving average: +54,859%
3-day moving average: +46,038%
4-day moving average: +10,371%
Other "popular" moving averages:
10-day moving average: +974%
200-day moving average: +601%
50-day moving average: +370%
Clearly, the shorter the moving average, the more effective the 'penetration'
strategy. Using a 2-day average would have returned nearly 55,000% since 1970,
meaning $10,000 would have turned into a cool $5.5 million. Approximately 40%
of the trades were winners, and the average winner was 1 1/2 times the average
loser. Of course, with nearly 4,000 trades in 33 years, you'd be establishing
a new position roughly every other day, making you very popular with your
broker. The oft-mentioned 200-day moving average penetration, that gets more
press than any other moving average setup, underperformed buy & hold
significantly. Why does it still warrant such attention?
Moving Average Crossover
This strategy goes long the market when an X-period moving average crosses
above a Y-period moving average, and goes short the market when an X-period
moving average crosses below a Y-period moving average.
Best performing combinations:
60/190 moving averages: +798%
2/200 moving averages: +792%
2/180 moving averages: +690%
Other "popular" combinations:
50/200 moving averages: +648%
60/180 moving averages: +538%
40/200 moving averages: +502%
The best performing crossover signals all occurred using a very long-term
average (180 days or more) and a short-term average (anywhere from 2-60 days).
I've also included some of the more popular crossovers for comparison,
including the 50/200 and 60/180. However, an important point to keep in mind
when it comes to all of the crossover strategies is that every single one
underperformed buy & hold, most by a significant amount. Therefore, we can
safely conclude that the concept of using two moving averages that cross one
another to trigger buy and sell signals does not work.
Moving Average Slope
This strategy goes long the market when an X-period moving average is greater
than the previous day's moving average (slope is positive), and goes short the
market when an X-period moving average is less than the previous day's moving
average (slope is negative).
Best performing moving averages:
1-day moving average: +54,859%
2-day moving average: +20,912%
111-day moving average: +1,250%
Other "popular" moving averages:
200-day moving average: +244%
20-day moving average: +143%
50-day moving average: +47%
All of the popular averages (20-day, 50-day, 200-day) underperformed buy &
hold significantly, which suggests that looking at the slope of these averages
is not beneficial in the slightest. Again, it's the very short-term averages
that performed best, beginning with the 1-day (which isn't really an average
at all), followed by the 2-day and then the 111-day. That last one is
interesting, since there were a number of moving averages in the 110-120 day
range that outperformed buy & hold. If you were thinking of including a
longer-term moving average in your work, one in this range would be more
beneficial than the 200-day average. You might also notice that the 1-day
moving average performance is the same as the 2-day 'penetration' performance,
and that's because they are the same. Think about the concept of the
penetration strategy. If today's close is higher than yesterday's close, it'll
also be higher than the 2-day average of today's close and yesterday's close.
Similarly, if today is lower than yesterday, it'll also be lower than the 2-
day average of today and yesterday. Hence, the 1-day slope and the 2-day
penetration strategy trigger the exact same signals. Both simply take into
account solely what happened today, and use that as the basis for what may
occur tomorrow. Clearly, if you're utilizing moving averages in your trading
methodology, it's most important to see what's occurring right now, as opposed
to what's occurred on average over the past X amount of days. This also tends
to suggest that exponential and/or weighted moving averages, which give more
weight to current data and less weight to past data, would probably be more
effective overall than simple moving averages.
Thank AJ. (EOM)
Thanks Don. (E.O.M.)
Don, Would you mind telling me how you came across "Weird Wolly Wednesday" and roughly what year it was, it was a nice find and I was just wondering about it's history.
Double nine-to-one-up day review:
http://www.marketwatch.com/news/story/update-marchs-double-9-to-1-up/story.aspx?guid=%7B2C2D03CB%2D1...
ANNANDALE, Va. (MarketWatch) - It's been a little bit over two months since the triggering of a rare, and historically very bullish, technical signal.
( Read my March 22 column.)
Can we count on the bullish winds of that signal blowing into the stock market's sails for a while longer?
Fortunately, yes.
The particular technical signal I'm referring to is sometimes called a "double nine-to-one-up day." It is based on the volume of all NYSE-listed stocks that go up on a given day, expressed as a percentage of the total volume of all stocks that rose or fell on that same day. A single nine-to-one-up day would occur when rising stocks' volume is at least 90% of the total volume for both rising and declining issues.
A "double nine-to-one-up day" refers to the second such event within three months of another. This happened on March 21, as both that day and March 6 saw trading volume of up issues on the NYSE exceeding 90% of total volume for both up and down issues.
As I wrote in my March 22 column, there is strong statistical support for the belief that double none-to-up days are bullish for the stock market. I reported on econometric tests conducted by David Aronson, an adjunct professor of finance at Baruch College, and author of a recent book entitled Evidence-Based Technical Analysis (Wiley, 2007), in which he discusses how to use the "scientific method and statistical inference" when judging investment strategies.
In the tests I reported on in March, Aronson looked at what happens in the stock market in the 60-trading-day period following a double nine-to-one up day, versus what happens the rest of the time. In those 60-trading-day windows, the S&P 500 index
historically produced an average annualized return of over 22%, vs. 4.5% annualized the rest of the time.
Applied to the March 21 double nine-to-one up day, the 60- trading-day window still has two more weeks to run. But it is already clear that the March 21 signal will more than live up to the historical pattern. The S&P 500 index is up since then at an annualized rate of nearly 40%.
What can we expect after this 60-trading-day window has fully run its course? I asked Aronson this question Thursday afternoon.
In response, he stressed that there is nothing magical about the 60-trading-day window that he employed in his original tests. In fact, he said, additional tests he has conducted with his students over the last two months show that the stock market's upward tendency following a double nine-to-one up day extends at least 90 trading days, not just 60.
To be sure, Aronson found that this upward bias is somewhat weaker in this longer window. But it is still very significant from a statistical point of view, he said.
So those who invested in stocks in late March on the basis of that month's double-nine-to-one-up day need not automatically sell out of stocks once the 60-trading-day window in Aronson's original tests come to an end in mid-June.
For those who are counting: 90 trading days from the March 22 double-nine-to-one up day take us up until the end of July.
Tea, The divergence between the SOX and SPX is the main reason what has me at a 100% cash position in my spec. account.
Chainik, I seen this long term COT chart and thought you might find it useful.
http://www.traders-talk.com/mb2/index.php?s=dd95877d4b3f34c7b69ff841efde2a2a&showtopic=69848
AJ, It appears that he uses relative strength as the main determinant.
http://209.85.165.104/search?q=cache:i8rt86QB1-IJ:www.powershares.com/news/pdf/NR%2520021507%2520DWA...
"A primary feature of the Technical Leaders Index is that it will adapt over time to changes in marketleadership, whether those leadership changes are based upon market capitalization, style, industrysector, or other factors,” said Tom Dorsey, President of Dorsey, Wright & Associates. “Numerous studieshave demonstrated that relative strength is an extremely powerful and robust stock selectionmethodology. Relative strength is unique in that it does not rely on a company’s financial information,which can easily be manipulated by management.”
Technical Analysis E.T.F. is beating the Market:
http://www.etfconnect.com/select/fundpages/etf_funds.asp?MFID=170022
The Fund seeks investment results that correspond generally to the price and yield of an equity index called the Dorsey Wright Technical Leaders Index before fees and expenses of the Fund. The Fund will normally invest at least 90 percent of its total assets in common stocks that comprise the Technical Leaders Index. The Fund Adviser will seek to match the performance of the Technical Leaders Index. The Technical Leaders Index is comprised of stocks of approximately 100 U.S. companies that are selected pursuant to a proprietary methodology of Dorsey Wright and Associates designed to identify companies that demonstrate powerful relative strength characteristics. Relative strength characteristics evaluate companies quarterly, and then ranks based on a proprietary algorithm. Stocks that are selected receive a modified equal weighting.
1B - Nice read on the SOX breakout, I went over to the Option Wonderland and Trader Talk sites to try to get a idea of your methods on viewing the markets, and it seems to be 95% TA and about 5% fundamental, would I be close on that guess?
AJ, Nice call here.
TC, I thought you might find this site interesting, it may help you make more people aware of your work.
http://www.collective2.com/cgi-perl/session.mpl?session=18235764964766813611865228538211912&sawr...
Thanks Tea (EOM)
Tea, Would you mind sharing your latest thoughts on volatility ?
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http://www.economist.com/finance/displaystory.cfm?story_id=9009170
Sting in the tail
Apr 12th 2007
From The Economist print edition
Is low volatility making the world too complacent about risk?
ONE can only marvel at the financial sector's ingenuity in finding new assets to trade. Unfortunately, though, its innovations often only create more things to worry about.
Twenty years ago, volatility—the rate of change of asset prices—was not a separate type of investment. Investors would have happily agreed that sharp falls in prices were a bad thing, and left it at that. Now commentators worry about why the volatility of most financial markets has been so low. Even the recent turbulence, including a stockmarket plunge on February 27th, proved short-lived.
The International Monetary Fund's latest semi-annual Global Financial Stability Report is sanguine about concerns such as the American housing market. But it frets about a potential “volatility shock” in the financial system that could “precipitate sharp portfolio adjustments and a disorderly unwinding of positions,”—or, in other words, a panic.
The fund suggests the low volatility of recent years may be owing to greater economic stability, improved central-bank credibility or the better dispersion of risks around the financial system. But part of the explanation could also be cyclical, notably abundant liquidity, low borrowings by companies and high risk appetites.
These factors can feed on themselves. When volatility is low, investors are tempted to take more risks. They will borrow money in low-yielding currencies to invest at higher yields elsewhere (the carry trade). They will write options, earning premiums for selling insurance against extreme market movements. The danger, as the IMF points out, is that investors can be badly caught out when trends change.
Volatility can be measured in two ways. Realised volatility looks at the actual movements of prices in financial markets. But the more commonly used ratio, the Chicago Board Options Exchange's Vix, looks at “implied” volatility. This is backed out of option prices. The price an investor is willing to pay for an option depends on a number of factors including interest rates and the relationship between the market price and the exercise price. What remains when all these factors have been eliminated is the mystery ingredient—implied volatility.
The ever-inventive financial sector has found ways to trade the difference between realised and implied volatility. Investors can take part in a “variance swap”, whereby one counterparty agrees to receive implied volatility and the other receives realised.
So if you want to take a bet on market turbulence, you would generally opt for the “realised” part of this swap. But unless that turbulence appears quickly, such a bet will lose money. This is because implied volatility is generally higher than realised. In other words, most of the time, it pays to bet on volatility staying low.
Indeed, volatility has a “curve”, rather like the bond market, which generally slopes upwards over time. The Vix represents the short-dated end of that curve. Only rarely, as on February 27th, does the curve “invert” so that short-term implied volatility is higher than long-term.
So it need not necessarily be that investors are complacent in allowing implied volatility to drift so low. The expense of betting on higher volatility may simply be putting them off.
The IMF is unconvinced. It detects a worrying sign of complacency—“tail risk” in the options market. Ever since the crash of October 1987, when Wall Street fell nearly 23% in a day, investors have been sensitive to the risk of an extreme fall. They have been willing to pay a higher price (as measured by implied volatility) for extreme out-of-the-money options than for contracts that insure against smaller market declines. But this premium has been declining sharply in recent years. In other words, investors are becoming less worried about extreme events.
Since 2003, being blasé has been the most profitable strategy. Risky assets have performed well; for example, the spreads on emerging-market debt recently hit an all-time low. Market shocks have been subdued. Even February 27th's 400-point fall in the Dow Jones Industrial Average came low down the historical league table of percentage daily falls.
But what might cause risk appetite to change and volatility to soar? The simple answer is Harold Macmillan's phrase, “Events, dear boy, events”, perhaps some geopolitical incident or unexpected corporate failure. Emerging-market debt would be a big casualty of such a shift. The IMF reckons that, if volatility moved to two standard deviations above its post-1990 average, emerging-market debt spreads would more than double. Something to worry about indeed.
AJ - Unemployment being a lagging indicator is a good point, my thinking is that Greenspan/Bernanke have a soft landing right now - so Ben will try to protect that by lowering rates, and that will take off the pressure that you imply the consumer may feel.
AJ, I gave up on Roach many many years ago, IMO He's wrong about 5 times for every 1 He's right.
IMO with 95.6% of the people (in the U.S.) who want to work - working - we should be fine.
The most under reported story?
http://www.theage.com.au/articles/2007/04/05/1175366408038.html
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By contrast, the global economy is in the midst of its strongest period in more than 25 years, as China logs growth rates above 10 per cent and expansion in Japan and Europe picks up.
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The IMF in September predicted world GDP would increase 4.9 per cent this year, the fourth straight year above 4.5 per cent. That is the best performance since IMF records dating from 1980.
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More stuff here:
http://news.bbc.co.uk/2/hi/business/5343016.stm
http://news.bbc.co.uk/2/hi/business/6528601.stm
Don't hold your breath waiting for the "if it bleads it leads" main street media to make people aware of this.
AJ - If my memory serves me correctly you have looked at end of month into the new month as a period of strength. If so I thought you might find this article interesting.
http://www.marketwatch.com/news/story/seasonality-timing-back-track-thats/story.aspx?guid=%7BE007E7C...
ANNANDALE, Va. (MarketWatch) -- I received more than a few e-mails a month ago about the timing of the mini-crash in the stock market on Feb. 27.
That was the day, of course, in which the Dow Jones Industrial Average dropped 416 points.
That big a drop would have been upsetting regardless of the day of the month on which it occurred. But what made that particular day's drop particularly noteworthy is that it came within the period of positive month-end seasonality that more often than not sees the stock market rise, rather than fall.
It led some of you to wonder whether the stock market has stopped exhibiting the seasonal patterns to which it largely has adhered for decades.
That, if true, would be a big deal indeed. The best performing stock market timing system by far over the past 25 years, among any that the Hulbert Financial Digest has followed, is one that mechanically switches between the stock market and cash according to the calendar.
The idea behind this timing system, which traces to research conducted by Norman Fosback in the early 1970s, is that the stock market has a bullish bias around the turns of each month and in the sessions immediately prior to each exchange holiday. At all other times, the model calls for being out of stocks and safely invested in a money market fund. It therefore incurs very little risk.
And yet, unlike most other market-timing systems that are in cash more than half the time, this system historically has been able to make just as much money as the overall stock market if not a tad bit more. Since the beginning of 1982, for example, according to the Hulbert Financial Digest's calculations, a portfolio that switched between the Dow Jones Wilshire 5000 index and 90-day T-bills on this system's signals would have produced a 13.7% annualized return through the end last year, in contrast to 12.9% for buying and holding.
Not bad for being out of the market more than half of the time.
But then came the stock market's unfortunate drop on Feb. 27, which occurred on the first of the several days the system called for being in the market in order to exploit the turn-of-the-month seasonality between February and March.
What should we make of that? Is it anything more than a temporary hiccup in this timing system's long-term record? Or does it mean that the system has lost its touch?
To find out, I analyzed its track record in the Hulbert Financial Digest database going back to 1982. I found no evidence to support the notion that the system has stopped working.
For example, the worst year for this timing system since 1982, which is when the Hulbert Financial Digest data for the system begins, came in 1998. That year, according to the HFD, a portfolio based on that timing system lagged a buy-and-hold strategy by 20.6 percentage points.
Lest you think this was the beginning of a trend, consider that the best year for this timing system since 1982 came in 2000, when it beat a buy-and-hold by 27.4 percentage points.
In other words, the timing system's performance relative to the overall market is quite volatile. It has not beaten a buy-and-hold in each and every year.
That in turn means that recent experience is well within the norms of what we have seen historically.
In any case, I note that the seasonality timing system appears to be back on track. Positive seasonality for the turn of the month between March and April began on March 28, and over the six trading sessions since then the Dow Jones Industrial Average has posted a gain each day - its first six-day win streak in more than four months.
Tea - Thanks for posting your charts in that new format, I can now see the entire chart.
Thank you AJ (EOM).
Interesting article on inflation/money:
http://article.nationalreview.com/?q=MzViNmMyODZkZGU3ZWEyYWVmYmU1NzBhNzU4YWIwNjM=
AJ, It appears that CSCO is finding support near the 25 area, do you still consider this a canary for the market?
Lucien Hooper > December Low Indicator:
http://www.stocktradersalmanac.com/sta/research_tool_DecemberLow.jsp
When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January’s first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday-shortened week. Instead, said Hooper, “Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!”
Twelve of the 26 occurrences were followed by gains for the rest of the year – and full year gains – after the low for the year was reached. Hooper’s “Watch Out” warning was absolutely correct. All but one of the instances since 1952 experienced further declines, as the Dow fell an additional 10.7% on average when December’s low was breached in Q1. Only three significant drops occurred when December’s low was not breached in Q1 (1974, 1981, and 1987).
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Dec 1 close 12,194.13
http://finance.yahoo.com/q/hp?s=%5EDJI&a=11&b=1&c=2006&d=11&e=31&f=2006&....
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=6&dy=0&id=p77416733330
China raises interest rates:
http://www.marketwatch.com/news/story/china-hikes-rates-again-slow/story.aspx?guid=%7B162A655E%2DF01...
CHICAGO (MarketWatch) -- China's central bank is raising interest rates for the third time in less than a year to tighten up credit and investment to keep the world's fourth-largest economy on an even keel, Reuters reported Saturday.
'In light of the data over the past few days, this isn't the slightest bit of a surprise.'
— Jim O'Neill, Goldman Sachs
As of Sunday, the People's Bank of China's one-year yuan lending and deposit rates would edge up 0.27 percentage point apiece, bringing the one-year deposit rate to 2.79 percent and the lending rate to 6.39 percent.
"The rate increase is conducive to the reasonable growth of credit and investment, to stabilizing prices, to the stable operation of the financial system, to balancing growth and improving the structure of the economy, and to promoting the healthy but rapid development of the economy," the central bank said in an online statement.
The latest increase follows a boost of lending rates on April 27 of 2006, along with a rise in both in August. Banks' required reserves have also been raised five times since June to soak up liquidity generated by a balance-of-payments surplus, Reuters noted.
Economists had expected the central bank to make a move after strong February data showed a surge in credit, expanded factory output factories and 50% jump in exports form the year-ago period.
Banks put 981.4 billion yuan ($127 billion) worth of paper on the street in the first two months of this year, the same as 30 percent of all yuan credit offered in 2006.
"In light of the data over the past few days, this isn't the slightest bit of a surprise," Jim O'Neill, chief global economist at Goldman Sachs, told Reuters.
OT - Tea I thought you might find this story interesting, although you probable would like to forget it.
http://www.thestar.com/article/188324
February was coldest in 28 years
Mar 05, 2007 12:13 PM
Curtis Rush
Staff Reporter
If you thought February was particularly cold, you were right.
Frigid conditions made the month the coldest February in 28 years, according to Environment Canada’s senior climatologist David Phillips.
Not since 1979 has February dished up such bone-rattling conditions.
The average temperature was -8.4C, which was three degreescolder than normal.
That also made it the fifth coldest February since 1937 when weather records were first kept at what is now Pearson International Airport.
It followed an unusually mild January.
The month was also distinguished by a lack of rain.
Usually in Feburary, the temperature rises enough that we get some rain.
However, this was the first February since 1978 and only the second ever when we didn’t get one drop of rain.
"This was winter at its worst," Phillips said.
Today’s weather will be cold, but there is the promise of spring around the corner.
Environment Canada is predicting temperatures will rise to 3C by Friday.
And although we have had snowfalls right through May in some years, the law of averages suggests we may have had our last snowstorm of the season.
In the months of March, April and May, there is only a 21 per cent chance of any snow falling, according to Phillips.
Environment Canada is also calling for normal temperatures through March, April and May.
Thanks U C(EOM)
Thanks AJ (EOM)
AJ - Do you find it curious that the SOX is falling inline with the market, shouldn't the high beta SOX be falling harder?
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=$sox&freq=9&compidx=SP500%3...