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Tea, I think your going to be right. I went over to Big Charts to see what the SPX looked like for off presidential election years, and a low for the year or a correction from a higher level happened in the October area 6 of those 9 years. (1970,74,78,80,etc....)
And we haven't had a 10% correction in about 836 days (second longest period since 1953).
http://www.usatoday.com/money/markets/us/2006-04-03-no-correction-usat_x.htm
Thanks for this chart.
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&b=5&g=0&id=p89957452359&a=77415523&....
Thanks for your thoughts, always feel free to chime in on any of my posts.
Are you having a fun vacation?
AJ, The SOX is holding it's morning rally - which it has not been able to do in a long long time, so maybe we get that bounce.
On Yahoo it shows that there is no gap on my SOX question.
Thank you (EOM)
AJ, Would you please look at a SOX chart and tell me if there is a gap near the Oct. 2005 bottom ? When I place a horizontal line at 425 it seems to indicate that there is no gap. But when the line is removed it looks like there is a gap.
TIA
Money Market funds yields near 5 year high.
I believe I seen on Bloomberg that asset are near a 3 year high.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BE8D31A75%2DAEC3%2D4E42%2DBD19%2DD0A114C1422....
Money-market funds add $5.8 billion
Print | RSS Feed | Disable live quotes
By John Spence
Last Update: 3:17 PM ET Jun 14, 2006
BOSTON (MarketWatch) -- Money-market mutual fund assets gained $5.77 billion to $2.076 trillion overall for the week ended June 13, according to Money Fund Report, a service of iMoneyNet. Average yields for taxable funds rose 2 basis points to reach 4.44%, continuing to approach levels not seen in about five years, according to the report sent Wednesday afternoon. Meanwhile, yields for tax-free and municipal funds added 12 basis points to 2.85%. End of Story
Tea, Are you referring to M2 when you mentioned "liquidity"? The reason I ask is because of this article about M2 growth being reduced from the +6% to +1.2%. I was trying to verify it - but I'm not sure if I'm seeing what this author is seeing.
http://www.moneyshowdigest.com/digest/article.asp?aid=msd060906-3723&iid=msd060906&scode=001...
"Safe Haven in the Storm"
"The date I have written this, 06/06/06, might be appropriate, as I'm deeply concerned about the direction new Fed chairman Ben Bernanke is taking," cautions Mark Skousen. Here he looks at Federal Reserve policy and warns investors about potential risks ahead.
"Fed chairman Ben Bernanke is showing extreme efforts to curtail inflation— an inflation, by the way, that the Fed engineered in the first place by lowering interest rates and flooding the system with money after 2001. He recently warned in a speech that the new Fed policy-makers would not tolerate current inflationary pressures. ‘We will be vigilant,’ he said. Not surprisingly, it was not what Wall Street wanted to hear, and the market fell sharply yesterday.
"It could be the beginning of a major slide in the markets across the board (except Treasury bonds and other safe havens. It could even mean another stock market crash. A coming bear market or crash could hit all sorts of financial assets— stocks, gold, commodities, and real estate. We've seen this sort of thing before, when the Fed has overreacted to an inflation and irrational exuberance that the Fed engineered in the first place. Several dates come to mind: 1966, 1987, 2000.
"In fact, the summer of 2006 is eerily similar to 1987, Alan Greenspan's first year as Fed chairman. What happened in October 1987? The stock market fell 23% in a single day! I remember it well, because October 19, 1987 was my 40th birthday. Fortunately, I warned investors six weeks before to ‘sell everything,’ but few followed my advice. The stock market collapsed in 1987 because the new chairman talked tough about inflation and raised interest rates. The Treasury secretary also said he supported a weaker dollar. It was not what the markets wanted to hear.
"What's the cause of this bear market and potential crash? The Fed chairman is much more powerful than most people think. Financially speaking, he's more powerful than the president. Ben Bernanke has followed his predecessor Greenspan by raising rates further, and now he is doing something even more dramatic. He is taking away the punch bowl by withdrawing money from the system, an event nobody is talking about except us. Specifically, the Fed has slowed the growth of the money supply (M2) down to a crawl. M2 was growing at a healthy 6% rate a year ago. Now it's down to 1.2%.
"This topping out of the money supply is a clear indication that the Fed is serious about fighting inflation. The impact could be felt in the next few months: a slowdown in the economy from 5% to under 3%, maybe even 2%, a possible drop in corporate profits, and a fall in stocks, gold, and perhaps even oil. Given that the economy is already heavily burdened by massive consumer, mortgage, and government debt, the Fed's latest effort could spell big trouble on Wall Street and Main Street. In short, the Fed could create a financial crisis here in the US and abroad. It's a delicate situation.
"For all those gold bug pundits who said that Bernanke was soft on inflation, remember that he made his reputation as an economist for his work on ‘inflation targeting.’ Every country that has adopted this "inflation targeting" rule has seen a slowing down of inflation. Ben's reputation as ‘Helicopter Ben’—his eagerness to flood the country with dollar bills— was made in the context of a fear of another Japanese-style deflation in the US. Clearly this fear is no longer present. Inflation, not deflation, is the prime concern.
"I have already suggested a change in your portfolio to protect yourself from a bear market, including a 40% position in cash, prime rate funds, and other alternative income investments. Now I'm recommending that you increase your cash/income position to 50%, and take profits on some of your stock positions. Let's reduce our stock position to 40%. We’ve also taken profits on gold stocks and reduced our natural resource position from 15% to 10%. This is a time to take safe haven in the storm."
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Mv, You may be right. Since it took four years to get these to market - that was most likely the problem.
Profund's short and leveraged ETF's out in June per this article:
http://www.smartmoney.com/etffocus/index.cfm?story=20060607
ALMOST FOUR YEARS to the day since it first applied to the Securities and Exchange Commission, ProFund Advisors finds itself finally on the verge of introducing ProShares Trust, a family of exchange-traded funds aimed at helping investors profit during falling markets. The launch could prove well timed. The Dow Jones Industrial Average shed nearly 200 points on Monday alone.
ProFund's proposed ETFs seek to produce the opposite, or inverse, return to the Dow, Standard & Poor's 500, Nasdaq 100 and S&P MidCap 400 indexes. That is, when an index falls 10%, the corresponding ETF gains 10% before fees. ProFund also plans to launch the first ETFs to use leverage, or borrowed capital. The four "ultra" short ETFs seek to return 200% of any decline in the same four indexes, while the four "ultra" long ETFs expect to double any upside in the indexes. ProFund currently uses the same strategies in some of its mutual funds.
"These funds will solve some of the problems retail investors have experienced trying to short ETFs," says David Fry, founder and publisher of ETFDigest.com, an online investment newsletter. "This also opens up the whole retirement fund industry to ProFunds. Many IRA and 401(k) retirement funds restrict individuals from shorting stocks. However, if you can buy a fund that shorts the market, that solves that issue."
The ETFs will be managed by an investment team led by Augustin Fleites. Fleites, the former head of ETF distribution at State Street Global Advisors, quit the industry pioneer in May 2005 and joined ProFund in August as chief investment officer.
"At the time, people took it as a sign that ProFunds was about to get approval," says Dan Culloton, Morningstar's lead ETF analyst, "or make a big push to get approval and get into the ETF market in general."
ProFund declined to comment because it's in a quiet period ahead of the launch. Industry insiders expect the new ETFs to debut on the American Stock Exchange by the end of June.
It's been a long road for ProFund Advisors. The Bethesda, Md., company first registered to sell its bear-market ETFs on June 5, 2002, when stocks were just beginning their last significant slide. That day the Dow closed at 9797, and over the subsequent four months it lost a quarter of its value. But the SEC, known for taking its time in approving products from first-time ETF issuers and even more notorious for its cautious approach when it comes to novel ETFs, was in no rush to act. Four years later the wait finally appears over.
"ProShares are more esoteric because they use all kinds of derivatives, so it took longer," says Culloton. "Probably because the SEC has a lot on its plate, and this was a more complicated structure and they wanted to take a good hard look at it before letting it out in the marketplace."
Hedging Your Bets
The years-long delay could work in ProFund's favor. As the application moved toward approval, the Dow climbed to a six-year high of 11643 — not exactly the environment that would attract many buyers of bear-market ETFs. Since peaking on May 10, however, the Dow has tumbled 5.5% amid sinking investor sentiment.
"It's very common for this kind of market, one with fast money, to become excessive on the upside, and I wouldn't be surprised if we were excessive on the downside as well," says Gary Tapp, quantitative strategist at Atlanta investment bank SunTrust Robinson Humphrey. "I think 1225 on the S&P 500, which is 3% from where we are now, might be around the bottom. Still, the ability to hedge through a bear ETF could add some protection to a portfolio."
The period when investors can comment on ETFs before they can receive trading clearance ends Wednesday, says SEC spokesman John Heine. "Next Monday ends the period when the public can request a hearing on the exemptive relief from provisions in the Investment Act of 1940," he says. "As for when the registration statement becomes effective, there's no timetable."
Barring any last-minute snags, investors will soon have the ability to play a declining market as well as hedge long portfolios against one. For average investors, some experts say hedging may be the preferable and less risky strategy. By investing a small sum in bear-market ETFs, a well-balanced portfolio can be protected to a degree against a sudden market correction. Less appealing to average investors is making substantial long-term bets on broad stock declines.
"I would caution anyone against making a major investment in a bearish bet unless they are very savvy and able to monitor the market," says Tom McManus, chief investment strategist at Bank of America Securities. "I believe that stock prices move higher over time and therefore you have to be tactical and not strategic."
There's a strong argument for the stock market to fall further in the near term. The dollar is weak, the economy is slowing, and Federal Reserve Chairman Ben Bernanke has made it clear he won't hesitate to continue raising rates to keep inflation in check. A rising-rate environment generally doesn't favor equities. The bearish outlook is compounded by the start of hurricane season and worries over a nuclear standoff with Iran.
"A 5% decline is really nothing after a four-year advance that gets up within a few hundred points of the Dow's all-time high," says Raymond DeVoe, market strategist at New York-based brokerage Jesup Lamont Securities. "This year is beginning to look like a remake of 1987. [Back then] it started as a dollar crisis, which became an interest-rate problem, which then became a stock-market problem. And there are some imponderables that could not only go wrong, but could go terribly wrong. These start with the housing market, the consumer, inflation, interest rates, fallout from the crash in emerging markets, the dollar. And a president with a 29% approval rating means people don't expect a rosy presidency."
Of course, bulls can make equally compelling arguments for stocks. Corporate profits are strong, unemployment is low, and the economy, though slowing, is still on solid footing by most measures. And even if the market is in the midst of a correction, the slide may be neither steady nor long lasting, which could squeeze aggressive investors in bear-market ETFs.
"Bear markets seldom drop off a cliff, or head straight south," said James Stack, president of InvesTech, an independent technical research firm in Whitefish, Mont., in a May 19 report. "Expect a reflex rally of some type to unfold over the next several weeks [at least technical odds suggest such a rally].... We think bear markets are something to survive, not make a killing in."
ETF Focus Archive
Tea, If we get the rotation into big caps that your looking for how long do you think it will take for that to be apparent?
In my opinion it took about 3 months from the 3-11-03 bottom to see small/mid. caps leadership starting to develop.
3-11-03 to 5-30-03
iwm + 29%
mdy + 22%
spy + 20%
dia + 19%
Small/mid caps kept their leadership.
3-11-03 to 5-11-06
iwm + 121%
mdy + 106%
spy + 60%
dia + 53%
Newly, Thanks for your outlook on gold. I have a poor record with trading and timing gold, so I stopped trying and only watch for any indications commodities might be sending.
The S&P 500's P/E Ratio is near a 10-Year Low.
http://www.crossingwallstreet.com/archives/2006/05/the_sp_500s_pe.html
Despite all the 1987 Redux talk on Wall Street, the market's P/E dipped to a 10-year low this week.
The S&P 500 is now trading at just under 16 times trailing operating earnings. The P/E ratio hasn't been this low since October 1995.
Here's a chart of the S&P 500 (black line, left scale) with its earnings (blue line, right scale). Whenever the two lines cross, the P/E ratio is at 20.
image742.png
The market often anticipates the flow of earnings (meaning, the black line moves before the blue). You can see that's what happened in 2000. As a result, the P/E ratio often decreases in the initial stage of a bear market, and increases at the beginning of bull run.
What was unusual about the rally that began in March 2003 is that it came well after the bottom in earnings. I think that indicates how much investor confidence had been rattled by Enron and 9/11, and the coming showdown with Saddam.
Here's the market's P/E ratio:
imagepe.png
Posted by edelfenbein at May 26, 2006 10:29 AM
Newly, This info. from Navellier may help gold:
http://www.navellier.com/marketmail/
One of the biggest reasons for the latest decline in the U.S. dollar has to do with the appointment of Goldman Sachs' Henry Paulson, Jr. as the new U.S. Treasury Secretary. Why Paulson's appointment caused the U.S. dollar to stumble has to do with a PBS interview in 2004, when he said, "I really believe that the decline in the dollar, the orderly decline in the dollar, will lead to a natural adjustment" in the trade deficit. Translated, Paulson apparently has no problem letting the U.S. dollar steadily decline, since it will in turn help to boost U.S. exports and, in theory, help to reduce the U.S. trade deficit.
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I was unaware of this position he had in 2004 and I don't know if he still has it, the subject may be clearer in his conformation hearings. He may say he prefers a strong dollar, but his actions may lead to a weaker dollar. A lower dollar may lead to gold strength.
Note that's four "may's" in one paragraph, so I think that covers me.
LG, Brinker is one of the strangest multi-millionaires I've ever come across in my life. But.... He has put up very good numbers over multi year time frames:
http://investment.suite101.com/discussion.cfm/7/891-900
Author: MrsTopes
Discussion: Bob Brinker FREE Forum: 61,408+ Posts and growing!
Date: June 3, 2006 3:17 PM
Subject: Bob Brinker Perfrmance Record
A lot of discussion on Bob's performance lately in this forum. Much of it negative.
Here is Hulbert's April 2006 risk adjusted performance results for Mutual Fund NewsLetters:
- Past 15 years: #3 out of 23 newsletters
- Past 10 years: #2 out of 35 newsletters
- Past 5 years: #4 out of 40 newsletters
----------------------------------------------------------------
Thank you for your thoughts on inflation, deflation, and stagflation.
And thank you for your imputs on these threads - as I find them very educational.
Lone Ranger/Chainik - Brinker seems to have attempted to define his concept by adding the word "Aggregate", A caller brought this up in I believe the second hour of the Sunday show, but I did not understand Brinkers answer.
This was written about Sat. show:
http://investment.suite101.com/discussion.cfm/8
>>Brinker is “disappointed at lack of understanding on the part of the members of the FOMC” over something that he says he has talked about on the “Moneytalk” many times. That is: (he claims) Rising oil and gas prices are not inflationary in the AGGREGATE—only inflationary in the energy complex and the transit complex.
Bob Brinker quote: “Yet we continue to see these LAME-BRAIN COMMENTS coming from members of Federal Open Market Committee about oil prices and inflation. Some of them JUST DON’T GET IT. That’s a shame, but there is nothing you can do about it, there’s nothing I can do about it until they finally see the light—that what we’ve talked about on this program for a long time is in fact the way it is. That is, rising oil prices do not AGGREGATE inflation."
814 Days since a 10% correction, that ranks it at the third longest since 1950 and closing in on the 1966 spot of 830.
Tea, your nicely thought out chart would correspond with a 10% selloff from the 1327 high (SPX 1194).
http://www.usatoday.com/money/markets/us/2006-04-03-no-correction-usat_x.htm
4/4/06 <<< Note date of article
NEW YORK — There has been one thing missing from the bull market that began three years ago: the absence of an angst-inducing 10% price drop.
The current Wall Street rally has gone 772 trading days without a "correction," which analysts define as a decline of at least 10% in a stock index such as the Standard & Poor's 500. That ranks as the fourth-longest stretch without a double-digit percentage drop — and the longest since the record-setting run of 1,767 sessions from 1990 through 1997, according to an analysis by Bill Livesey of Ned Davis Research (NDR).
A lack of a meaningful price pullback in the past 40 months is significant because corrections have been a fairly regular — and healthy — event throughout history. Since 1965, there have been 32 drops of 10% or more. On average, these "moderate" declines have occurred roughly once a year, NDR says. The average time between 10% corrections is 161 trading days. The current worry-free 38.2% rally has lasted nearly five times longer.
That fact has investors wondering if the rally is running out of time. Or whether the market is under solid footing and has the oomph to break out to multiyear highs. History shows stocks can keep going up in a straight line for surprisingly long periods. But there's also a sense on Wall Street that a breather is imminent.
"The fact that we have gone three years without a correction tells me we are overdue for one," says Bob Doll, chief investment officer for Merrill Lynch Investment Managers. "Markets don't go in one direction without interruption."
The current run reflects investor confidence in the economy, solid profit growth and relatively tame inflation levels, says Kenneth Tower, investment strategist at CyberTrader.
Tower disputes the notion that a correction is imminent just because it's been a while since the last 10% drop. "There are no signs the market is in trouble," he says.
All three major U.S. stock indexes are at five-year highs and show no sign of weakness. But even Tower acknowledges that stocks, now in the fourth year of a bull market, could fall due to fatigue and emerging risks. Monday, the Dow Jones industrials pulled back from a 139-point gain to finish up 36 points at 11,145.
There is no shortage of risks that could spark a pullback. If the Federal Reserve keeps raising interest rates to fend off inflation, consumers and homeowners might spend less due to higher borrowing costs, causing an economic slowdown. Oil prices, now above $66 per barrel, also could go higher. Foreign investors could yank money out of U.S. Treasury bonds, pushing bond yields up.
"There's complacency in the market," says Richard Suttmeier, chief market strategist at Joseph Stevens. "In my experience, the correction (tends to be) a bigger one the longer you go without one."
Navellier(Permabull) thoughts on inflation and Bernanke :
http://www.navellier.com/marketmail/
Marketmail - Friday, June 02, 2006
Welcome to the summer months, which can often be best described as the dog days of summer. Normally, stocks drift sideways on light trading volume in the summer, because a lot of folks have "sold in May and gone away." However, this time around I expect that the summer months will be much more exciting in the wake of the sharp stock market correction in May. Bargain hunters are already snapping up stocks at discount prices. The good news is these investors appear to be targeting the fundamentally superior stocks, expecting that these companies will release strong second-quarter earnings between mid-July and mid-August. This is obviously a comforting sign for our portfolios.
The odd thing about the stock market's correction in May was that it was basically triggered by rising commodity prices (caused by Latin American nationalization fears), which provoked inflation alarm. However, based on the latest economic data, it now appears that inflationary forces are moderating, and that the Fed should not raise key interest rates on June 29.
The problem is there were some shocking developments found in the Fed's minutes from the May 10 FOMC meeting. In the minutes, which were released on Wednesday, Fed officials actually discussed raising rates by 50 basis points, 25 points, or not at all. 50 basis points?! Where did that come from? Apparently some Fed members were clearly rattled by the jump in the core CPI in March, which rose 0.3%. The bad news is the Fed had not yet seen the April core CPI result, which came in at 0.3% as well, just a few days after the FOMC meeting.
The bottom line is it appears that the U.S. economy is experiencing a soft economic landing, and inflationary pressures are moderating, which means that the Fed should not increase key interest rates for a 17th consecutive time on June 29. Remember, most of the previous 16 rate hikes still have not fully impacted the economy.
The Fed has said its next move would be data dependant, which lately is coming in much softer than most economists expected. As a result, market interest rates have settled down. Let me give you some examples of how the U.S. economy has decelerated.
Economists were stunned when the Commerce Department announced that orders for U.S.-made durable goods fell by 4.8% in April (analysts expected only a 0.5% decrease). This was the sharpest decline since January, and the second drop in orders in the past three months. Transportation goods fell 12.7% in April, due to a 32.2% drop in aircraft orders. Excluding transportation, durable goods orders fell 1.1% (consensus +0.5%). No matter how you slice it, the April durable goods order was a big disappointment.
The Commerce Department also announced a significantly weaker than expected first-quarter GDP revision. First-quarter GDP was revised higher to 5.3% from 4.8%, but the result was substantially lower than the 5.8% consensus. This is further evidence that the U.S. economy is not as strong as many economists thought.
The ISM manufacturing index dropped to 54.4 in May from 57.3 in April. The May result was well below the 55.7 consensus, and the new orders component dropped to 53.7, a 12-month low.
Jobless claims have been trending up lately, but much of the increases were being discounted by economists because of the partial shutdown of the government in Puerto Rico. However, last week's jobless claims data shouldn't have been tainted by the shutdown, and claims still managed to rise to 336K, much higher than the 320K forecast.
Today's employment data confirmed the weakness in claims. Specifically, payrolls rose only 75K in May, substantially below the 170K consensus. The unemployment rate did drop to 4.6%, but the clear deceleration in payroll gains should almost guarantee that the Fed will not raise rates in June.
Some Fed officials have said that they believe core inflation will accelerate temporarily, then recede once the impact of the 16 rate hikes takes full effect to slow the U.S. economy. In fact, in a recent letter,
Some of the specifics of Bernanke's letter were statements like "Although increases in energy prices have pushed up overall consumer price inflation over the past couple of years, core inflation has been more stable." Bernanke added that "The core PCE price index increased 2% over the 12 months to March of this year, about the same as the increase over the preceding 12 months." He also stated that "Similarly, the core CPI has increased 2.25% over each of the past two years." Bernanke summed it up when he stated that the stability of core inflation "has been enhanced by the fact that long-term inflation expectations appear to remain well contained." This statement is consistent with the FOMC's statement after its May 10 meeting that "the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation" and that "inflation expectations remain contained."
According to a recent study by Fed economists, the CPI likely overstates inflation by about 0.9 percentage points, which Bernanke included in his letter to Representative Saxton. The PCE price index is better, but also has some upward bias according to Chairman Bernanke. There is no doubt that the PCE price index is preferred by the Fed over the CPI as an inflation measure, because it is constructed in a way that captures changes in consumer behavior as prices change. The relative weighting the PCE puts on various consumer categories is also more accurate according to Bernanke. Specifically, the PCE index gives rents less weight than the CPI, while giving more weight to medical expenses. Bernanke stated in his letter that one downside to the PCE price index is that it includes prices of some goods and services that are set in the marketplace, and therefore "may add some noise to the overall index as a proxy for the cost of living."
One thing that Bernanke did not mention in his letter to Representative Saxton is that the Commerce Department calculates a separate PCE price index that includes only market-set prices, which might provide a partial solution to some of Bernanke's PCE index concerns. The market-based core PCE price index has increased 1.5% in the past year, down from a 1.8% gain in the year ending in March 2005, which is maybe why the Fed is expecting inflation to moderate a bit.
WHY STOCK MARKETS CAN SUDDENLY BE SO VOLATILE
I can tell from your e-mails that a lot of clients are wondering how the stock market can correct so sharply, without much concrete reasoning. The truth of the matter is that the stock market typically has a sharp correction every six months or so. Last year, the corrections occurred in April and October. This year there was a sharp, but brief correction in February, and then May's sudden sell off. At the end of a strong quarterly earnings season, it is not unusual for profit-taking to ensue, and for a correction to develop.
What made the May correction so severe was that there was literally nowhere to hide. Not only did the stock market rotate very quickly and hit key industry groups, but it swept around the globe and hit some very hot stock markets, such as India and Latin America. What was especially odd about the May correction, was that the U.S. dollar slipped very precipitously, which usually helps international companies prosper due to the underlying currency appreciation that boosts their shares.
Why both domestic and international stock markets corrected in May is actually very easy to explain. Electronic trading systems have essentially taken over the world. Whether it is Instinet (owned by NASDAQ), Archipelago (owned by the NYSE) or EuroNet, which the NYSE is now trying to buy, electronic trading systems have taken over. The good news is that spreads between the bid and ask are now just a few cents. The bad news is that there is very little inventory of stock available, so a surge of sell orders can cause the stock market to gap down.
Essentially, the stock market now functions like eBay. Just like you can get on eBay and pay an excessive price if you bid too aggressively, if too many investors sell too much too fast, the lack of stock inventory means that stocks all too often gap down and plummet in a freefall until new buyers emerge. In other words, electronic trading systems have made stock markets more volatile than ever.
The good news is that stock markets can "melt up" almost as fast as they can "melt down," which is why I am so obsessed with tracking money flows in my quantitative rankings. Typically, when there is persistent buying pressure underneath a stock, it tends to move independent of the overall stock market (i.e., alpha) and its volatility (i.e., standard deviation) tends to fall. Alpha divided by Standard Deviation is my secret formula for ranking stocks. It's my Reward/Risk Ratio.
In addition to my quantitative rankings that try to identify money flow and buying pressure underneath stocks, I have found that fundamentally superior stocks will typically "bend, but not break." My best examples during the correction may have been Hansen Natural and NutriSystem. When a stock has superior fundamentals, it typically rebounds very quickly after a correction, due to the buying pressure that tends to emerge after any significant pullback when the bargain hunters come out.
I must add that micro and small cap stocks typically move in a "herky, jerky" manner due to the fact that their liquidity is sporadic. Unfortunately, micro and small cap stocks tend to move like "bunnies" in that they often "sit" and "hop" due to their erratic liquidity. This is why superior fundamentals are so important with micro and small cap stocks. Even if a stock has been struggling, when its earnings come out, it will often rebound impressively in the wake of its latest quarterly earnings. Sterling Construction is a good case study of how micro and small cap stocks can move in a herky, jerky manner only to surge in the wake of very strong earnings results. As a result, when you invest in micro and small cap stocks, superior fundamentals are incredibly important.
Overall, between my quantitative and fundamental criteria, I try to stack the odds in my favor. During earnings pre-announcement season and during earnings season I am usually very confident. However, after earnings season, stocks can all too often be vulnerable to profit-taking. What happened in May is that the profit-taking quickly spread into a very nasty correction that embraced all stocks, regardless of their industry or country. As we go to press, fundamentals appear to be working and will likely prove to be our salvation as the second quarter earnings pre-announcement season and earnings season commences. As a result, now is a great buying window for the vast majority of stocks in our portfolios, in my opinion.
SUMMARY
I am confident that the best buying opportunity that we will witness for the rest of this year is now present. The stock market essentially corrected in May on inflation and interest rates fears that are looking more baseless everyday. Realizing they made a mistake, the bargain hunters are now snapping up fundamentally superior stocks. I expect that many stocks in our portfolios will fare especially well later this month, since they tend to attract institutional buying pressure at the end of the quarter, for window dressing.
After the July 4th holiday, most investors should be in a good mood as earnings pre-announcement season hits full swing; when the second quarter earnings season commences in mid-July, most of our holdings should fare especially well. Despite that it is widely anticipated that U.S. economic growth peaked in the first quarter, the average stock in the S&P 500 should post double-digit earnings growth for the 17th quarter in a row, and forward earnings estimates are still climbing!
The Fed should not hike key interest rates for the 17th consecutive time at its next FOMC meeting on June 29. Fed Chairman Bernanke has stated that the Fed believes core inflation will recede once the impact of 16 rate hikes takes full effect to slow the U.S. economy. In fact, in a recent letter, Fed Chairman Ben Bernanke told a congressman that core inflation remains well contained. This was unquestionably big news.
As I have stated before, the Fed really does not want to raise key interest rates too much and kill the U.S. economy going into an election in November. Ben Bernanke went from the head of the Council of Economic Advisors straight to Fed Chairman, and was not appointed by President Bush to kill the U.S. economy in an election year. Additionally, all the voting members of the Fed are Republicans like Bernanke.
Overall, it appears that the U.S. economy is in the midst of a soft landing and will continue to grow at approximately a 3% pace for the remainder of the year. Commodity prices have moderated slightly and inflation appears temporarily contained. Although many investors have "sold in May and gone away," the bargain hunters are back, and as the second quarter earnings season nears, fundamentally superior stocks should fare especially well.
Aggressive investors should be fully invested now, despite the possibility that the stock market may try to retest its recent lows in the upcoming weeks. Aggressive investors should be fully invested by June 20th at the latest, so that they can benefit from the quarter end window dressing, a time when our stocks typically attract a lot of institutional buying pressure.
It appears they have had a lot of trouble getting these up and running, but I believe they are close to final clearance:
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=yhoo&guid=%7B39F0677....
By John Spence, MarketWatch
Last Update: 12:01 AM ET May 29, 2006
BOSTON (MarketWatch) -- ProFunds Advisors LLC is readying the first leveraged exchange-traded funds that, if approved, would allow bullish investors to double the gains of the U.S. stock market while giving those in the bear camp a way to profit from market declines.
The Bethesda, Md., money manager recently filed an updated prospectus for groundbreaking funds that seek to provide daily returns twice that of bellwether stock indexes.
The planned ProFunds offerings cover three basic approaches. The first is a "bullish" ETF uses leverage to double the market's normal return. For example, if the S&P 500 index rose 2% in a day, the corresponding ProFunds ETF is designed to give investors a 4% return.
Second is a "bearish" strategy that aims to deliver the exact opposite, or inverse, of the market's return. Accordingly, if the index declines 2%, then the inverse ETF aims for a positive 2% return.
Finally, a leveraged "ultra-short" bearish fund seeks to provide twice the opposite of the market's return. So in the case of a 2% market decline, this portfolio would gain 4%.
"There are financial advisers, institutional investors and hedge funds who employ these strategies to hedge market exposure," said Dan Culloton, a fund analyst at investment researcher Morningstar Inc. who follows ETFs.
High-octane ETFs like those proposed by ProFunds have been expected, but some analysts advise treading carefully here because these investments can magnify losses as well as gains. Additionally, many question the need for such offerings since investors can already short ETFs or buy them on margin, since they trade like stocks.
"I appreciate there are sophisticated investors who crave this sort of flexibility, but would caution average investors against using them because they are difficult to use in a long-term portfolio," Culloton said.
Others welcome the leveraged and inverse ETFs as handy tools for aggressive investors seeking to profit from market volatility. Read related story.
Still, investors shouldn't expect these funds to deliver exactly double or the inverse of an index due to trading costs and other fees. And the turnover rate for the ETFs is expected to be greater than 100%, according to the prospectus.
"A high level of portfolio turnover may negatively impact performance by increasing transaction expenses and generating taxable short-term capital gains," the filing said.
Doubling down
ProFunds is one of a handful of mutual-fund companies such as Rydex Investments and Direxion Funds (previously known as Potomac Funds) that accommodate active traders.
With the planned ETFs, ProFunds is duplicating strategies employed by some of its existing mutual funds. However, the ETFs would allow investors to trade throughout the day because their net asset values are updated continuously during the session, while traditional mutual funds are priced daily at the market close.
Fees for the new ProFunds ETFs have not yet been determined, according to a regulatory filing. A spokesman for the company declined to comment on the funds during the "quiet period" at the Securities and Exchange Commission.
An SEC spokesman said the agency has opened a comment period on the ETFs, which have not yet been declared effective.
The funds would trade on the American Stock Exchange, according to regulatory documents. The ETFs would use derivative instruments such as futures and options to achieve the leveraged- and inverse index returns.
The Amex has amended its rules to allow trading of the ProFunds ETFs, and funds normally begin trading shortly after the SEC's comment period unless a legitimate objection is raised.
The ETFs would be managed by an investment team headed by Agustin "Gus" Fleites, who joined ProFunds as chief investment officer last year after a sudden departure from ETF heavyweight State Street Global Advisors, a unit of State Street Corp.
Fleites was a key figure at ETF pioneer State Street, and known for his expertise on the complex funds as well as the financial-adviser market. At the time of his ProFunds hiring, industry insiders speculated he was brought on board to help get the leveraged and inverse ETFs through at the SEC, where they had languished in registration for years. See related story.
Said Jim Wiandt, editor of trade publication Journal of Indexes: "It seems as if the longest-stalled ETF in registration at the SEC is about to make it through the regulators and onto the market." End of Story
ETF TraderJim Lowell, Editor
Thanks for the information. Good luck trading.
I didn't know that. I've never traded futures, if you go short and the vehicle goes against you and you do not want to stop out would the contract lose value as time goes on? If it does would these new products not be a way to hold a position longer without decay?
New shortable and leveraged ETF's from Profunds
http://www.finanznachrichten.de/nachrichten-2005-09/artikel-1954132.asp
Seems like a fresh idea to me, I only trade in a IRA to avoid the IRS tracking and taxes, and since you can not have a margin acct. in a IRA I was left to shorting using Profunds - but with the end of day only trading it's not very appealing. Since they're unique the volume on these might be high so the bid and ask might be tight.
No need for my Profund account now - I wonder how many others will also close their acct. to avoid the high money market expense ratio?
New shortable and leveraged ETF's from Profunds
http://www.finanznachrichten.de/nachrichten-2005-09/artikel-1954132.asp
Seems like a fresh idea to me, I only trade in a IRA to avoid the IRS tracking and taxes, and since you can not have a margin acct. in a IRA I was left to shorting using Profunds - but with the end of day only trading it's not very appealing. Since they're unique the volume on these might be high so the bid and ask might be tight.
No need for my Profund account now - I wonder how many others will also close their acct. to avoid the high money market expense ratio?
Landm19/Nomoweed - INTC once was the top holding in the SMH but that changed awhile back. On 2-28-06 it was:
Texas Instruments Incorporated 17.93%
Intel Corporation 16.87%
But INTC may have slipped some since.
http://www.etfconnect.com/select/fundpages/etf_funds.asp?MFID=46279
Newly - Here's Jerry's next to last post:
http://www.investorshub.com/boards/read_msg.asp?message_id=9200222
Lone Range/CaribbeanJim - The best place to follow Bob Brinker is at http://investment.suite101.com/discussion.cfm/7 . Kirk Lindstrom knows Brinker better than almost anyone on the planet. I started tracking Brinker over 10 years ago and in my opinion Kirk adds value to decoding him.
Shorters Prison Blues
http://investment.suite101.com/discussion.cfm/312
From: revbulworth (Reverend Bulworth)
To: da_cheif (don wolanchuk)
Date Posted: April 06, 2006 at 06:57:15
Subject: Shorters Prison Blues
Reference: It must be very painful......snort
Shorters Prison Blues
I hear that C-wave comin'
it's rolling round the bend
and I ain't seen correction since I don't know when,
I'm stuck in Shorters prison, and time keeps draggin' on
but the Market keeps a risin, into the great beyond..
When I was just a newbie Don Wollie told me. Son,
always be a good bull, don't ever short for fun.
But I opened up some Tempest just to watch it fly
now every time I hear Maria I hang my head and cry..
I bet there's rich folks eating in a fancy dining car
they're probably drinkin' coffee and smoking big cigars.
Well I know I had it coming, I know I can't be free
but the Market keeps a movin'
and that's what tortures me...
If I escape my short position
if that big ole Bull was mine
I bet I'd move just a little further down the line
far from Shorters prison, that's where I want to stay
and I'd let that awesome C-wave take my blues away.....
Tea - Plexxus daily chart seems to indicate the "very interesting spot" you mention.
http://stockcharts.com/h-sc/ui?c=smh,uu[w,a]dhcayiay[d20041107,20061231][pb50!b200!f][vc60][iub14!la....
I've tried to grasp technical analysis over the years and Robert New is one of the few that I can decipher.
Teaparty, Greetings from Texas - Thank you for your views. Would you agree that the Sox could be used as a leading indicator of the general market ?
Using Bigcharts I went back in time(and did not use a time machine)to see from 1994 to present:
Sox + 300%
Nas + 200%
Dow + 200%
Rus.2000 + 200%
From 1994 to area of most mkts. tops (Mar.2000)
Sox + 1000%
Nas + 600%
Dow + 200%
Rus.2000 + 100%
I think it's interesting that the Sox is still outperforming after the vicious selling that was inflicted on the sector, We were all short the semis and made a bunch of money - right? Well not me... But thanks to Bob Brinker I raised my cash position to 65% in Jan. of 2000 (the highest cash % since I started investing in 1982.
If I understand you correctly you're in general agreement with Newly2b that the area around 465/475 could be key to the next big move ?
Thank you for your time.
Newly, Many thanks for sharing your thoughts, some of them have sent me googling and into Stockcharts school (congratulation for sending me to school-my parents would be envious of you and the truant officer would be baffled).
The subject of Bradley cycles came up after your post and it reminded me of a situation where Jerry Favors (may he rest in peace) was on CNBC many years ago, Ron Insana would build up that Jerry would be on the program as a ongoing tease and Jerry would come on and use Bradley turns to explain with great confidence where the mkt. was going, and month after month he would be wrong - it got so bad that Insana started reading angry viewer questions. I guess he was having a good streak before Insana had decided to have him on the show and then it fell apart on him, that was when I decided not to investigate Bradley stuff.
Have a nice day and a pleasant tomorrow.
Hello Newly2b, The Sox breaking under 510 was one of the reasons I raised some cash on Thurs. I use the Sox as a leading indicator, so when it acts poor I sell and ask questions later. Speaking of questions... would you mind answering the question you pose:
(Sox bottoming?).
Robert New(Plexxus)shows strong support near 480 and mentions the Doji you pointed out.
http://stockcharts.com/h-sc/ui?c=$sox,uu[w,a]dhcayiay[d20050307,20061231][pb50!b200!f][vc60][ila12,2....
Your opinion is just that - and it will not be used against you in any way on the planet earth. (There-by covering the disclaimer for you).
I hope you have a nice weekend.
Big oil find in Mexico, getting very little media coverage:
http://thestar.com.my/news/story.asp?file=/2006/3/14/apworld/20060314072608&sec=apworld
Tuesday March 14, 2006
Mexican President says new deep-water oil found
MEXICO CITY (AP) - Mexico has made a deep-water oil discovery in the Gulf of Mexico that could be larger than the country's giant Cantarell offshore field, President Vicente Fox said on Monday.
The oil find is under 950 meters (3,117 feet) of water and a further 4,000 meters (13,120 feet) underground, Fox said in an interview with Dow Jones Newswires.
The find will be formally announced Tuesday, he said.
"We have been investing $5 billion (euro4.2 billion) a year in exploration, and that work, that investment, is now bearing fruit,'' Fox said.
Original total reserves at Cantarell, Mexico's largest oil field, stood at 11.5 billion barrels but its output has been steadily falling.
Production at Cantarell is expected to decline 6 percent this year, to 1.9 million barrels a day, and decline even more sharply in subsequent years.
Fox said that state oil monopoly Petroleos Mexicanos, or Pemex, contracted a private company to drill the well, and that the result "indicates reserves that exceed those of Cantarell.''
Pemex sees deep-water crude as one of its best bets for replacing reserves and for increasing production as Cantarell declines.
The fastest way for Pemex to get the oil out would be by forming alliances with companies that have the deep-water technology.
However, current laws forbid private companies from exploration and production activities in Mexico except when they are under contract to Pemex.
Energy Secretary Fernando Canales told Dow Jones Newswires the ban on Pemex forming alliances for deep-water drilling would slow down the process of developing the reserves, but won't keep Pemex from getting at the oil.
"We don't need just one, but many wells,'' Canales said.
He declined to give further details of the new oil find.
The Fox administration has been attempting to ease foreign investment restrictions in the state-run energy sector.
But all his initiatives have been blocked by the opposition-dominated Congress.
Nevertheless, Fox said his government has pushed for expansion and development in the oil sector.
"We haven't been sitting with our arms folded,'' Fox said.
Pemex produced 3.33 million barrels a day of crude oil last year, of which it exported 1.82 million barrels.
This year, the company expects to raise production to about 3.42 million barrels a day.
Pemex hit its first deep-water oil in late 2004, when it contracted Diamond Offshore Drilling to drill a well at a depth of 681 meters (2,235 feet) in Campeche Sound, producing an initial flow of 1,200 barrels a day of very heavy crude.
Latest business news from AP-Wire
----------------------------------------------------------------
21 largest oil fields
in the World
http://www.gravmag.com/oil.html
1. Ghawar, Saudi Arabia 75-83 billion barrels
2. Burgan, Kuwait 66-72 billion barrels
3. Cantarell, Mexico 35 billion barrels
Iblayz, Once upon a time I traded Fidelity Electronics fund - as like you I wanted exposure to that area, but I became frustrated as the fund was not tracking the Sox index very well, so I was excited when the SMH was introduced - and as you've pointed out the components weighting is different so it has not tracked perfectly. I have stopped using that sector as a trade and use it as a leading indicator along with the DOT.
Are you aware of the new PSI from Powershares ? Since the start of 2006 it has been tracking the Sox better then the SMH. But it has a .60% exp. ratio.
http://www.powershares.com/psifund.asp
LG/Newly2B, Thank you both for your help. Have either of you had a opportunnity to check out the VTO RSI-5 System that has been circulated for many years on Zeev's and other boards ? This is probably not helpful to what both of you do as it's more simple - but for my simple mind it has worked a bit! I don't use the qqqq but average into a ETF vehicle that appears to have momentum and offer more diversification to me like IWM / MDY / EEM.
I use it more of a guide but since it never had a losing year and it spends most of the time in cash the risk/reward should be relatively good - right? I appreciate any of your thoughts.
http://www.vtoreport.com/rsi.htm
Hope you both have a profitable day.
Iblayz, Thank you for your input - I may have read that many years ago but had forgotten. As the comic Steve Wright said " I suffer from Deja vu and Amnesia - I think I have forgotten this before".
I stopped trading indivdual stocks over 5 years ago and only trade ETF's. If you were me would the differences you point out effect your trading or investing in them ?
Hello Newly2b - I hope you had a enjoyable weekend. My reason for asking you these questions is due to the respect I have for you as I've read some of your posts over the past year or two.
My risk/reward thinking has me wondering that as the more successful a pattern is - then the less likely it will continue to work. Lets say that a very easy to spot regular or inverted Head and Shoulders pattern develops in a major index like the S&P - would you consider that less likely to play out vs. a Head and Shoulders pattern in a small cap stock that has very little following or would they adhere to the same failure rates that you've posted?
I'm reminded of the "January Effect" and how it stopped working as more people became aware of it and how that could start to negate the more sucessful trading patterns.
Thank you for your time.
Newly thank you for your thoughtful reply. I would like to focus on a few of the more reliable patterns and not get too bogged down in all the many indicators - so you've been helpful. I was wondering why Plexxas (Robert New)
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID897936
was using Head and Shoulders and Rectangles so much - and I now have my answers. Thanks again!
Newly, Sorry to follow on your question with a question, but you seem to have a strong grasp of technical trading thru studing its history. I once read a study that pointed out that there are only a few patterns that have a predictive % that is meaningful:
1 - Head and Shoulders
2 - Double Tops
3 - Rectangles Tops and Bottoms
Do you agree with this ? Can you place a percentage on which patterns have the highest success rate ?
I thank you for your time and any thoughts you can offer, It seems to me that chart reading is very objective and as it has expanded it's now convoluted. Obviously I know you cannot provide me with a silver bullet.
Hello Ajtj - I checked over at etf connect
http://www.etfconnect.com/select/fundpages/etf_funds.asp?MFID=46279
to see if you were right and it now looks as though Texas Inst. has overtaken Intc. I guess the beating that intel has lately received changed their ranking.
Texas Instruments 17.09 % weighting
Intel Corporation 16.94 % weighting
I enjoy your site.