Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Ken– Appreciate your stamp of approval on newsletter that I’ve been publishing for a year now as my labor of love. It’s just a free newsletter with a small circulation a couple hundred subscribers for my business. April was the anniversary issue that I emailed to you. I’m still debating whether I should mix my business with my personal trading.
Nonetheless, I’d be pleased to help out with yours once you and flota get it going. For those who may feel that you have something important enough to share with people of similar interests, these are the pointers I’ve discovered in the past year.
In my experience, newsletter is a great way to reach out to and to stay in touch with your audience. The problem is that there are so many of them out there that are simply touting their “unverifiable” achievements. I don’t think anybody’s reading them. I found it helpful staying truthful. I think most readers found that refreshing, and that may’ve explained why more people are signing up for this publication. I try to serve as a vehicle transporting the messages of the market to the reader. I’ve also started noticing some of the new subscribers have the financial institution and university domain attached to their email addresses.
It’s a lot of work, but it’s so much fun. The commitment is the key. It’s tough trying to find time in my busy life to get that newsletter out on time every month and still have enough substance to capture their imagination and attention.
Hope you and whoever may be interested get yours started soon. And, yes, everything started with a single idea. That's what dreams are made of. But, dream without action is nothing but a fantasy.
Recession Portfolio Update 4/22/2005
I'll add other sectors that I believe will perform well in a recession. Here's the performance of the existing portfolio that I've set up. The total initial cost of these 2 portfolios was approx. $10,000 with $7,000 in Bankruptcy Law and $3,000 in Sleeping Pills.
The Bankruptcy Law portfolio was set up a week ago, on 4/15/2005.
Bankruptcy Law
The Sleeping Pills portfolio was just set up yesterday, 4/21/2005.
So, the current Recession Portfolio is worth $10,308.40. which is 3% increase.
Sleeping Pills
Ken – Yes, sometimes it takes time for a technical formation to develop and to complete. PieSky was correct (and he’s funny too – “fresh as daisy”). The candlestick pattern carried a lot of strength since it came out of your Magic Box. And when it didn’t break down as other tech stocks on Friday, that shows Google shares are in very strong hands. It’s in the hands of people who truly believe in Google’s business model and future earnings. I actually was planning to flip it on Monday or Tuesday when it held at that 20-day MA or the center line of BB.
Thanks for the entropy analysis, but take your time. It was more for research purpose. flota thought I looked the way he thought I'd look in my photo too. :)
The Last Vigilante
I don’t know if this has been posted here since I’ve only signed up on iHub about a month ago. This article from one of the greatest minds in the business is worth re-posting and re-reading nonetheless. Since it’s a public document, reposting in its entirety should serve NO legal concerns. I re-set the charts for easy reading on your board.
Here’s the link to the PDF version of the article. http://tinyurl.com/cbbxu
==================================
The Last Vigilante
Bill Gross / February 2004
You don’t hear much about the bond market vigilantes anymore. They sort of rode off into the sunset a few years back, either having forgotten their role or perhaps having grown accustomed to their impotence in an era where deflation instead of inflation was public enemy number one. Their glory days were probably a little overrated anyway. Vigilantes are essentially lenders and decades ago when they first gained their reputation there were no inflation protected TIPS or real return commodity funds for a bond investor to send a message with. It was either bonds or cash, and the price of cash was set by the Lone Ranger at the Fed who was heading up the posse. All the rest of us sort of rode along, whoopin’ and a hollerin’, shootin’ our guns in the air like we were gonna lasso and hogtie those inflationary varmints. But we were kind of acting. Paul Volcker was the man, the Vigilante, and later I suppose it was Alan Greenspan, although to me he now seems more like Barney Fife than the Lone Ranger. I write this in half jest if only to introduce the notion that Volcker’s Wild West was a lot different than that of Greenspan’s today. While both marshals were entrusted with the dual responsibility of controlling inflation and maintaining a sound economy, Greenspan’s economy is a completely different one than the one Volcker rode his white horse into in 1979 and out of in 1987. Greenspan’s economy is a globalized economy, filled with negative vibrations revolving around substitution of cheap Asian and Latin American labor for workers here at home. It is an economy full of technological wonders such as the Net, cell phones, high-speed data transmission, and the like. We may not be able to go to the moon anymore, but things down here on mother Earth are certainly movin’ and shakin’. These changes have completely altered the perspective of our High Sheriff and Chief Vigilante. Now there are legitimate questions as to the natural rate of domestic unemployment in a globalized world, the sustainable level of productivity in a technology tinted economy and the resultant effects they have on inflation and economic growth – the Fed’s two primary responsibilities. It is not an easy assignment, this job of Chief Vigilante in the year of 2004.
And it’s not one, as I have pointed out in Outlooks past, where you can afford to risk bludgeoning the economy with sharply higher interest rates as Volcker did in the early ‘80s. It may appear more prosperous than that of the “rust belt” ‘80s but its foundation is much weaker because of high levels of debt throughout the private and now the public sector. The Lone Ranger has been replaced with Barney Fife for good reason. We need someone afraid of his own shadow these days because there are shadows aplenty to contend with. Because beyond the risks of globalization and the blitz of technological change, I would argue the most critical reformation in the past twenty years since Volcker’s prime has been the transition of the U.S. from a manufacturing/to a service/to a finance-based economy within the span of two decades. Purists will perhaps rightly quarrel with the chronology or maybe even the logic, but it seems to me in any case that the critical difference between then and now is that profits and employment – 2/3 of the critical constituents that a Fed Vigilante must protect (inflation being the third) – are now primarily a function of the amount of debt/leverage and its cost. Because this is so, we currently reside in a finance-based economy. This is no longer Dodge City of 1984 or even 1994 when we made things and sold‘em because we could do it better than global competitors. Now we make less of them, and those that we do produce we sell because financing rates are 0%. The suburbs of Dodge have changed their character as well. Instead of buying a home with a 30-year fixed mortgage and watching one’s equity grow via monthly amortization of principal, we refi twice annually, do it with variable or even interest only loans and then spend any equity we have accumulated via “take-outs.” You’d think we were headed to a casual Friday night evening at KFC or Burger King. And if my old friend General Electric is synonymous with the U.S. corporate sector, bite on this appetizer as indicative of the transformation of the U.S. economy. In 1980, 92% of its reported profits came from its manufacturing subsidiaries. In 2003, nearly 50% of earnings were supplied by financing subsidiaries highly dependent on leverage, the cost of that leverage, and its ability to maneuver through the swaps market by turning long-term rates into cheap 1% + short term financing.
My intent here is not to create another set of media sound bites by unearthing “GE” or jesting with a Barney Fife/Alan Greenspan comparison. Greenspan is a good man and a well-intentioned public servant. He believes he is a modern-day vigilante – fighting deflation instead of inflation and he had a point for a while back in 2002. GE is a great company with a near century of “progress.” But they, as well as yours truly and PIMCO have sort of skipped down this yellow brick road of capitalism, paved not with gold, but with thick coats of debt/leverage that require constant maintenance in the form of lower and lower interest rates. I’m arguing the case that Volcker in effect was perhaps the first and last Vigilante. Greenspan, GE, Gross? Vigilantes? We’re sort of all in this finance-based economy together, are we not? While Greenspan has blessed it and GE has taken advantage of it, PIMCO has facilitated it. Who makes it possible to refi all those mortgages by holding $100 billion of them in PIMCO portfolios? 0% car loans? Who makes it possible by snapping up asset-backed securities at LIBOR plus yields? GE’s swaps? PIMCO’s got the same side of the trade.
But folks, all blame aside, I must tell you in advance that this story or movie does not have a happy ending. In terms of timing it may not be high noon, but High Noon it will be in terms of an ultimate outcome. Because in a finance-based economy that depends on more and more low cost money in order to thrive, the game ends when either the “more and more” or the “low cost” modifiers are replaced with “less” or “higher cost.” Let me explain with the two following charts.
Chart I
Chart II
Visible proof of a finance-based economy is offered in Charts I and II which point out the growth in U.S. finance over the past several decades. As shown in Chart II, debt as a percentage of GDP has skyrocketed over the past 20 years and is now at historically high levels approached only briefly during the depression of the 1930s. The ratio then was a function of the heady roaring ‘20s to be sure, but also to its aftermath in which GDP fell nearly 26% during the payback of years that followed. Now, our debt and its distribution are much more sophisticated. Government, business, and consumers can borrow freely, and their individual debts are aggregated and then split into strips, IO’s/PO’s, CMO’s, and CDO’s, which are then “repo’d” – we have “O’d” or “owed” our way to prosperity in more ways than one it seems. Whatever the reason, whoever is at fault – whether it’s PIMCO for buying it or Greenspan for blessing it, or Wall Street for pushing it – we are at a point where there’s a lot of it. That point no one can deny. And the fact that our economy has prospered in the midst of it cannot be refuted either. What is up for debate is whether our economy has prospered because of it and whether it will continue to. New Agers would basically argue that yes we have a lot of debt, but it’s because we as an economic society have made wise choices – borrowed the money to invest in productivity-enhancing innovations, or from the government’s side, to protect our way of life from the ravages of terrorists around the globe. They would also argue that because of today’s low yields, the servicing burden of that debt remains under control.
But so-called vigilantes would counter by pointing to consumerism and the ongoing cycle of buying ephemeral “things.” They would suggest that we have hardly invested wisely – witness the millions of miles of still unutilized fiber optic cables and the farcical parade of the “dot coms” as recently as a few years past. They would then top it off with an observation that Republican Bush with his Republican Congress seem to observe no limits whatsoever in the budget. $500 billion may only be a start if in fact we’re going to the Moon, Mars, and beyond. The CBO in fact has just conservatively estimated a $2 trillion addition to the national debt over the next decade.
Who’s right? Each side scores some points I suppose, but what seems obvious to me is that if debt stops growing at the same rate – if the slope of the trend line in Chart II tips over, then our economy will slow down, stagnate or worse. Who could argue that if debt as a % of GDP were still at 1980s levels as shown in the chart, that our consumption of things, our purchases of homes, our investment in technology, or our current government deficits would not be much smaller and our economic growth much lower. We are hooked on debt; we are a finance-based economy.
And so? Why not just keep on going. So far so good the New Agers would claim. What’s wrong with 400% of GDP or 500% of GDP? What’s wrong with dropping it from helicopters if we have to as good Ben Bernanke has suggested? Well, let me tell you what’s wrong. Debt levels and debt ratios have limits. When and if interest rates do go up, the servicing costs of an accelerating debt economy eventually bite the hand of its master. A true bond vigilante is a vigilante that knows that buying a bond, mortgage, or any of the innovative “O’s” that have popped onto the scene in recent years is really lending someone some money, someone else’s hard earned cash that they expect to get back in inflation-adjusted terms and then some. Lending is not mimicking some index or buying a hot new issue with the intention of flipping it to some other sucker when the spread narrows. It’s not gloating about being in the top decile of the money manager universe while producing less negative total returns than 90% of your competition. And it’s certainly not buying dollar denominated bonds with the ulterior motive of putting 20-30 million of your citizens to work a year à la the Chinese, or better yet, the Japanese. These investors may be clever, but they’re not vigilant. A bond market vigilante makes loans, she demands a fair inflation adjusted return and when that visibility shrinks, she seeks alternatives. My point is that at some point on this seemingly never ending ascent of debt/GDP, someone will say “no más.” Maybe it’ll be PIMCO and PIMCO think-alikes; maybe it’ll be foreign holders of bonds grown tired of currency/inflationary erosion of principal; maybe it’ll be risk takers in high yield/emerging market/levered hedge funds scared to death from a future LTCM crisis. Hard to tell, but I’m telling you it’ll happen, helicopter or no helicopter and with it will come an economic slowdown/recession unseen since at least the early 1980s when Volcker began his vigil. High noon.
So far, I’ve confined this “finance-based economy” treatise to the growth of debt and the willingness of lenders to go along for the ride. The second rather simple explanation for our ongoing prosperity is that during this period of accelerating growth, the cost of the financing has gone down, down, down as shown in Chart III. Talk about productivity!
Chart III
In a finance-based economy this IS productivity. Instead of cheaper and cheaper labor per unit of output, we have cheaper and cheaper interest rates per unit of debt. Long-term real interest rates have dropped from an estimated 9% in 1980 to 2.5% now. I hearken back to my argument about 0% loans and historically low mortgage financing rates. How much consumption would have taken place without these trends? The undeniable answer is “not as much.” Perhaps even “a lot less.” My point is that yields are about as low as they’re going to go. When you have negative real interest rates, even a half awake vigilante will “someday” demand redress, or a half awake Fed Chairman will “someday” be forced to rebalance, or a half asleep foreign central bank will “someday” switch to a basket of currencies which offer more protection via higher real rates of interest.
As real short rates climb from negative to only slightly positive (PIMCO’s longstanding forecast), this reversal in trend will be enough to call a halt to the higher and higher productivity of debt in a finance-based economy. Simply put, it means that borrowers will pay more in real terms, affecting consumption, home building and buying, business investing, and government deficits alike. The lower real interest rate “wind” at their backs will instead turn into a mild headwind. The economy will slow. It may falter. The timing is uncertain. For contrary thinking, pessimistic investment managers or economists, “someday” is often frustratingly “out there” like some phantom force in the X-Files. Still, it suggests caution as we move inexorably closer to our High Noon.
Readers wishing me to get to the bottom line or even jumping ahead of me to draw their own conclusions may find this “High Noon” parallel a little bit hard to digest even in PIMCO terms. Have I not been preaching the inevitability of “reflation,” recommending TIPS and commodities, advocating shorter than average durations filled with intermediate maturities to take advantage of the carry trade? That I have – but reflationary attempts by Fed Chairman and Presidents alike do not presuppose successful reflation in terms of economic growth. The pace of future growth is the true conundrum, not the obvious reflationary efforts of governmental authorities to generate it. Believers in past Keynesian successes and promises of future helicopter droppings are confident it can be done – that our U.S. and global economy can ultimately exhibit stable long-term growth rates with the government’s wind at its back. I have my doubts. Keynes like Volcker conjured his magic in a simpler manufacturing/agricultural based world. In a finance-based economy it is the growth in leverage as well as its costs that call the shots. And a true vigilante, a lender who lends money not as a participant in some money management game or contest, but with the expectation of getting his or her money back in inflation-adjusted terms and then some, will demand that the growth of leverage cease and/or that its cost increase to reflect the increased risk. Either demand will force this economy to retreat. Risk markets will be at “risk” should we move towards this outcome. And too, Treasury interest rates may then ultimately fall instead of rise as reflation fails and debt deflation takes hold. But that is a story/movie for another year and that tale’s telling demands the reincarnation of a host of vigilantes long since stripped of their common sense and their ability to say no.
William H. Gross
Managing Director
MARKET WRAP 4/22/05: Something Funny Happened Too
Of a dozen or so newsletters plus Barron's and WSJ I glanced over yesterday, the general consensus seemed to indicate either uncertainty or the continuation of the little rally into Friday due to Thursday's momentum. Some newsletter editors did mention the usual if this then that type of non-committal forecast. I wonder why no one had noticed this on Thursday.
This is what I saw yesterday (Thursday) on the 5-minute intraday chart.
**********************************************************
This is what happened today.
More on my Weekly Chartmentary coming up this weekend.
MARKET WRAP 4/22/05: Something Funny Happened Too
This is what I saw yesterday on the 5-minute intraday chart.
**********************************************************
This is what happened today.
More on my weekend Chartmentary.
MARKET WRAP 4/21/05: Something Funny Happened
Something funny happened on the way to the closing.
Intraday 5-minute chart over past 5 days
MARKET WRAP: Something Funny Happened 4/21/05
Ed, hang in there with that USPIX. Something funny happened on the way to the forum, I mean, the closing.
Intraday 5-minute chart over past 5 days
Disclosure: I don't own USPIX, yet.
Trade on News: AWA vs. LUV Closed
The “news” did nothing against the fundamentals and the technicals. The stop was set at a tight 1% combined loss for this highly speculative experiment. That was hit this morning for a loss of $107 or 1.07%.
Setting up trades against my own intuition and experience didn’t pay this time. However, sometimes it's a good excercise to break out of our own thinking pattern. It's easy to get too set in our own way of thinking.
Recession Portfolio: Sleeping Pills Stocks
I’m continuing to add to my Recession Portfolio. One sector I believe would benefit from circumstances related to a recession is the Sleeping Pill pharmaceuticals. Currently, 66 million people suffer from insomnia. The number is expected to increase exponentially in economic downturn.
I know there are non-drug treatments for sleep disorder, but human nature is not going to change. We want the easy way as long as the government says it’s harmless. We want to believe whatever we want to believe. Anyone interested should research on the fundamentals or the history of the Sleeping Pills and their legal challenges. I did.
Here are 3 of the most well known companies. One thing worth noting is that Sepracor’s Lunesta is the very first one without the requirement of a warning label about taking the drugs for longer than 7-10 days. And for that reason I’ve actually owned shares of SEPR.
Sepracor Inc. (SEPR) – Lunesta
Sanofi-Aventis (SNY) – Ambien
Neurocrine Biosciences Inc. (NBIX) – Indiplon (to be approved by FDA)
For tracking purpose, I’m allocating a hypothetical $1,000 each based on today’s intraday prices. We’ll start keeping track of them along with the Bankruptcy Law portfolio.
Sepracor Inc. (SEPR) Trade Journal
Bought Sepracor (SEPR) at $58.95 as part of my Sleeping Pills sector of the Recession Portfolio. More details on next entry.
Trade on News: AWA vs. LUV Supplement
Just one more inside track on my thought process for those interested. I’m no Bob Bright, but one strategy used in some of my pair-trading is using the Weighted Average Ratio (WAR).
First thing is to determine which is the “primary” trade and which is the “secondary” or the backup trade. In this trade, shorting Southwest Airlines (LUV) was the main course while taking the long position in America West (AWA) was a backup measure.
For this trade, the Long position I took on AWA was 36%, based on 21-day moving average of AWA-to-LUV ratio on 4/19/2005. Once the trade is set up with appropriate stops, I pretty much would just leave it alone, and let it play out. There's nothing to do actually other than watching every tick on the monitor. But, why do that? If it works, that's fine. If not, you move on.
&r=7875>
So, if I were to allot $10,000 for this trade, $6,400 would be invested in LUV short position while $3,600 in AWA long position.
And, this is the result of Day # 1. I’m down $0.24.
GDP by INDUSTRY
Hi Bullwinkle,
Thought it'd be appropriate to post this on your board here. I received the latest econ report from BEA (Bureau of Economic Analysis) this morning with the following highlights. By the way, ICT means Information Communication Technology producing industries.
..................
Newly-available data on the industry distribution of growth in GDP show the services sector led the economic expansion in 2004. Manufacturing, within the goods sector, continued its recovery but was outpaced by the services sector.
Pernod Ricard-Fortune to Buy AED in $14 Billion Deal
I think I've waited too long on this one. This should've been one of my "Recession Portfolio" collections in the Booze sector. I've been waiting for the gap in the beginnig of April to fill to no avail.
Congrats to those who own this. This is one of the biggest shake-ups in the global-spirits industry in years.
................
-- Pernod Ricard SA of France and Fortune Brands Inc. have agreed to a $14 billion takeover of the U.K.'s Allied Domecq PLC, sparking one of the biggest reshuffles of the lucrative global spirits industry in years.
Allied Domecq's board agreed to the deal today, in which the company will be broken apart and divided among Pernod and Fortune if the acquisition is successful, people familiar with the matter say. The deal is expected to be announced Thursday, when Allied reports its first-half results.
&r=9742>
OBSERVATORY 010: MMM, IBM
&r=0046>
***************************************
&r=3138>
***************************************
&r=8830>
GDP by INDUSTRY
I’ve just received the latest econ report from BEA (Bureau of Economic Analysis) this morning with the following highlights. By the way, ICT means Information Communication Technology producing industries.
..................
Newly-available data on the industry distribution of growth in GDP show the services sector led the economic expansion in 2004. Manufacturing, within the goods sector, continued its recovery but was outpaced by the services sector.
S&P Without the Fed's Liquidity Interruption
Looking at history from a different perspective.
Instead of uncertainty and fragility, we could've been in the beginning of a solid recovery since December 2004 had the Fed's super liquidity monetary policy not interrupted the bear correction.
Totally Off-Topic: F-35 IS A BEAUTY!
Look at that vertical take-off!
What you can’t see, can hurt you.
Trade on News: AWA vs. LUV
Counter-intuitive and Speculative
Fundamentals favor Long: LUV
Technicals favor Long: LUV
Trade: Short LUV @ $15 and Long AWA @ $4.81.
We'll see how this experiment works out. Which one wins, News or Technical & Fundamental?
News Aler This Afternoon
US Airways (in bankruptcy) and America West Airlines are in advanced merger talks to create a national low-cost airline rivaling discount king Southwest Airlines in size, say people familiar with the matter.
Together, US Airways, the nation's seventh-largest carrier, and America West, which is No 8, would form an airline that would overtake Southwest as the sixth-largest, based on 2004 traffic statistics. With America West's hubs in Phoenix and Las Vegas and US Airways' in Philadelphia and Charlotte, N.C., the bulked-up discounter would have the distinction of offering low fares on an integrated hub-and-spoke network that would offer many more choices of routings.
That would contrast with other hub-and-spoke airlines, which have much higher costs -- both US Airways and America West have slashed expenses in recent years -- and could prod some airlines toward embracing a low-cost model. It also would contrast with the far more profitable Southwest, which is a point-to-point budget airline that serves heavily traveled routes.
LONG
&r=0781>
SHORT
&r=4599>
Ken - Don't think gridlines are necessary, but it would be great to have the fried calamari with BBQ or Ranch source.
Seriously, I thought it looks perfect the way it is.
Have a great day everyone. Another busy day but will check back later tonight. I've sent some MARKET BREADTH data to Ed. Perhaps he'd find time to post that here just to share. He's got some pretty good data on that too. Ed's another true student of the market.
Bill - Thanks. A vacation sure sounds good. I asked flota, but he refused to put me in one of their luggages on their trip to Europe. I hope my posts didn't sound too burned out. :) I almost missed this post of yours. A belated response.
Good to see ya back, Bill. Hope you had a nice trip. I'll catch up with you.
MAXIMUM ENTROPY METHOD aka Calamari Analysis
Ken - I think you might be onto something here with the giant squid. You're correct. No one else has used this anywhere, on or off iHUB. If this is the MEM Optimizer, then it's way too advanced for most people.
I drew some lines just to show the rhythms of the squids. I hope everyone can see the cycles. I’d like you to run a few more of this before I can draw any conclusion. You can email them to me if you want.
And if I think I’m seeing what I’m seeing, the market’s really in trouble, big time. I’d like to back test this a few years back just to see what happened then.
Can you expand the X axis to perhaps 3 - 7 years, the longer the better? You can use the monthly data. You can use perhaps NYSE composite index or whatever. Let’s see what shows up.
O.K. that's it for me now. Just got home a couple hours ago, and I'm ready to unwind.
Has JOHN MURPHY Been Copying My Charting Style?
I would like to think so but don’t believe so. It would’ve been a great honor. Here’s an excerpt from his daily commentary for today. That charting style looks awfully familiar. :)
It’s been a busy day. Will check back later tonight. Have a great one to all.
Ed, I agree. Market Breadth is also one of the most important elements of the veteran technician, Ralph Acampora’s main focus. He’s also the managing director of Prudential Financial. Feel like doing a daily update on the breadth here? :)
Incidentally, EFA, referenced by Murphy, was also one of the ETF positions I closed today.
...................
GLOBAL MARKETS USUALLY FALL TOGETHER -- JAPAN TAKES THE BIGGEST HIT -- A FALLING YEN HAS ALSO HURT THE EWJ
NO DIVERSIFICATION ON THE DOWNSIDE ... Over the last few years, foreign markets have done a bit better than the U.S. market primarily because of the falling dollar. Having said that, however, global stock markets have been and remain highly correlated. The three lines in Chart 1 make that point. The purple line is the S&P 500 over the last year. The pink line is the Dow Jones World Index (DJW). The gold line is the Europe Australia and Far East (EAFE) Index. The point of the chart is that it's hard to tell the three lines apart. That's because they're very highly correlated. Global stock markets move up and down together. Some may do a little better than others at times. For example, foreign markets did better than the U.S. when the dollar was falling. Emerging markets did a little better than developed markets during the cyclical bull market. But when the global bull market peaks (and I think it has), expect them to fall together as well. This morning's headlines reported big losses in foreign markets over the weekend. That was in response to Friday's big losses in our market (when foreign markets were closed). That means that the idea of using global diversification to shield one from losses in the U.S. market is largely a myth. When the U.S. market falls, the others will fall as well -- even the Japanese market.
David's Note: Oh, and in addition, here's that 1140 SPX support that we've also been talking about... I wonder if he hangs out with us here.
WHY CHARTISTS ARE TALKING ABOUT 1140 ... Last Friday I expressed my view that the S&P 500 was headed toward its August low near 1060. A number of chart analysts, however, have been talking about the market being oversold and in chart support near 1140. Chart 7 shows what they're referring to. The daily RSI line is in oversold territory. There's also chart support along the June and October peaks near 1140. That's a logical spot to expect a short-term bounce. Expect initial overhead resistance at its 200-day average at 1154. Even if it gets through that, there's a lot of overhead resistance over 1160 which marked the January low. I'd use any S&P bounce to do some selling. Any bounce in the S&P should coincide with pullback in bear market funds. I'd use a pullback there to do some buying.
Technical Analysis is like Forensic Science in The Sense that we try to use different techniques to verify a hypothesis or assumption. Nothing’s 100%, but what we’re looking for is the forensic evidence to confirm our findings. That's the way I see it.
Sometimes all these forensic researches pointed to the same conclusion. That’s when you know you have the confirmation. The confirmation of a probability. And, that’s all we can ask for since we’re not given the ability to predict the future.
Putting down one technique over the other is very ignorant. And, most of the time it’s from people who know little about that particular technique.
And, I don’t think adding gridline on the giant squid is necessary. We should call it Calamari Analysis. I'll try to run that formula as well if I could only find some free moments.
Your Resident Chartmentator, who happens to be a little busy selling off... Hehehe...
xe2dy - Everyone should bookmark your link and use that for reference.
Ed, good work there. And your sharing is much appreciated, by me anyway.
MARKET MONITOR: The Dow Theory
Under Estimating AROON ANALYSIS
Ken, a lot of people under-estimated the usefulness of Aroon (Dawn's Early Light) indicator. If there's nothing else, Aroon would be one of the few indicators that I would pay serious attention to. Your post reaffirms the importance of Aroon.
It's not glamorous or as dazzling as cycles and waves, but it is one of the few indicators that really works.
Ken - I like your entropy chart although it looks like a giant squid to me. :)
Please keep this going on different stocks. I know it's a lot of work, but it's much appreicated.
Bliss – Thanks. Latest from Tomlinson for You.
Much appreciated. I’ll see you on other boards. You got a mark from me, so I’ll be seeing you. This is really it for me here now. O.K.? :) Oh, thanks for the book recommendation. I've always enjoyed reading. I'll definitely check it out.
Here’s the latest excerpt from Larry Tomlinson for you. I think it’s O.K. to post excerpt instead of the entire newsletter. His targets were in line with my Fibonacci Retracement analysis.
Take good care, and Good Luck to you. :)
******************************************
Friday the S&P dropped into the 180 day cycle projected low from Jim’s (Curry) projection model. The yellow highlight triangle area is where support for this week is at. Notice a normal time period ellipse is at the 1120s area with the shadow at 1150? Odds of dropping below that ellipse during this down leg are remote. Odds are we test it, bounce to 1155/1163 into May 06 then drop into May 23rd near 1100. As this weekend that is the favored path so we see how this week turns out and take it from there.
*****************************************end.
These 1163, 1150, & 1120 target prices happened to be in line with my Thursday night’s (west coast time) post of the Fibonacci Retracement price targets at 61.8%, 50%, and 38.2%.
http://www.investorshub.com/boards/read_msg.asp?message_id=6053947
Recession Portfolio: Bankruptcy Law Stocks
We're going to keep track of our technical assumption of a coming recession. This group of stocks that I've just set up is based on my previous Bankruptcy Law analysis. I'll continue to add other stocks that may perform well in a recession.
Based on Part III of my new bankruptcy law analysis, this portfolio is NOT supposed to begin its growth until we hit the trough. It also has unresolved issues with the recent FDIC guidelines, which has put these stocks under pressure lately.
http://www.investorshub.com/boards/read_msg.asp?message_id=5991122
I placed a hypothetical $1,000 in each of these stocks based on Friday, 4/15/2005, closing prices. We'll see what happens.
Weekly Market Chartmentary April 17, 2005
I’ve been having difficulty posting this message – perhaps too many large image chart files. I’ll provide a link to a webpage at the bottom just incase..
David’s Weekly Market Chartmentary
4/17/2005
The purpose of this "Chartmentary" is to only take into account the technical implications of the market action, simply, the language of the market, without the undue influence from the news media. I tried not to read all the newsletters and commentaries as much as possible until I'm done with this report. We'll just follow the charts and see where take us.
So saying, when I looked at these items last week, I came to a logical conclusion that a market rally, regardless of the magnitude, seemed to be in place.
(1) M3 MONEY SUPPLY
The M3 money supply had been increasing by $20 billion and $38.1 billion 2 weeks in a row over the two week periods of 3/14/2005 - 3/28/2005
(2) COMMODITY, BOND, & CRUDE
Meanwhile the elements that caused such fear of inflation in the financial market had also seemed to begin the reversion to the means. Let's take a look at this chart that contains the price action of some of these elements. It would appear that Crude Oil, CRB Commodity, and Bond Yield were all on the downtrend.
Nevertheless, Dow lost 3.57%, S&P 500 dropped 3.27%, and NASDAQ plunged 4.56% for the week of 4/11 - 4/15/2005. Here's the 10-minute intraday chart that I've posted before shows S&P rush downhill like a runaway train.
What happened?
Although this has been on my mind for sometime now, I've never thought the time has already come for the market to start expressing itself of this concern. The concern of a coming recession.
With the rise of the healthcare and the pharmaceutical sectors and the decline of the commodity price, the crude oil, and the bond yields, the falling market is expressing its concern over decreasing corporate profits, declining consumer spending, and slow economy growth. Of course, what happens in our country affects the world economy. So, we took them down with us. All major international indexes fell across the board - from Nikkei to German DAX. To take this a step further, I wonder if we're also seeing a global economic slowdown. A global recession?
Back to our own backyard. Let's take a look at this chart that compares the weekly change of the M3 aggregate money supply to the S&P 500. I've been keeping track of the Fed's money supply for a while now because that's considered to be one of the epic centers.
What interests me most was how they trend together. The black line represents 4-week moving average of weekly M3 change; the green line is the weekly S&P closing price; the orange line is the weekly change of M3 Money Supply. The trending correlation was astounding. The possible problem area could be where I've circled.
It appears that the Fed's recent pumping of liquidity may have been a little too late. While the M3 4-week average had reversed the recent downtrend and started to move up, the S&P fell right through it. I wonder if the Fed had overdone it in its tightening of the monetary policy. The M3 started to level off since October, and then it started turning down in late January.
What now?
My main concern is that the market may not have been oversold yet. In essence, I've not seen us hitting the bottom yet, wherever that bottom may be. Let's revisit the TRIN-McClellan chart again and see where we stand. This first chart was the one I posted on 3/31/2005. This shows the past oversold pivot points. You may've noticed in an oversold condition, 10-day MA of TRIN (blue) rose to the top and McClellan (red) fell to the bottom.
The problem I'm having is that this updated chart still shows no sign of bottoming yet as of Friday, 4/15/2005.
In addition, this is what I've done trying to find another confirmation. In early March 2003 when the market made the bottom, it was confirmed by the 20-day moving average of VIX (volatility index).
Coincidentally, that was the time when the VIX 20-week MA finally confirmed the weekly VIX top, which occurred in 1998. It took 5 years for this confirmation. As it stands right now, the weekly VIX bottom that occurred in 1995 has not been confirmed by the Moving Average. Due to VIX fluctuation tendency, I believe using the trailing moving average for confirmation may be of some validity. We'll see.
And, this is where it could become very dangerous for amateur players. Again, for me, the best strategy is no strategy at all, which is keeping cash or money market funds till the dust settles. For people who still believe they can play the market a little bit, diversification is the most important thing to keep in mind.
....................
Here's the webpage link. http://tinyurl.com/7k26t
Weekly Market Chartmentary April 17, 2005
===============
I've tried to post this for about 30 minutes now to no avail. I've no idea why - perhaps too many large image files (charts) on this message. I went ahead and set up a webpage just to make it easier. I'll provide the link at the bottom of this partial report. I'll also try it again on my Hub and see what happens.
===============
When I looked at these items last week, I came to a logical conclusion that a market rally, regardless of the magnitude, seemed to be in place.
(1) M3 MONEY SUPPLY
The M3 money supply had been increasing by $20 billion and $38.1 billion 2 weeks in a row over the two week periods of 3/14/2005 - 3/28/2005
(2) COMMODITY, BOND, & CRUDE
Meanwhile the elements that caused such fear of inflation in the financial market had also seemed to begin the reversion to the means. Let's take a look at this chart that contains the price action of some of these elements. It would appear that Crude Oil, CRB Commodity, and Bond Yield were all on the downtrend.
Nevertheless, Dow lost 3.57%, S&P 500 dropped 3.27%, and NASDAQ plunged 4.56% for the week of 4/11 - 4/15/2005.
What happened?
Although this has been on my mind for sometime now, I've never thought the time has already come for the market to start expressing itself of this concern. The concern of a coming recession.
With the rise of the healthcare and the pharmaceutical sectors and the decline of the commodity price, the crude oil, and the bond yields, the falling market is expressing its concern over decreasing corporate profits, declining consumer spending, and slow economy growth. Of course, what happens in our country affects the world economy. So, we took them down with us. All major international indexes fell across the board - from Nikkei to German DAX. To take this a step further, I wonder if we're also seeing a global economic slowdown. A global recession?
Back to our own backyard. Let's take a look at this chart that compares the weekly change of the M3 aggregate money supply to the S&P 500. I've been keeping track of the Fed's money supply for a while now because that's considered to be one of the epic centers.
What interests me most was how they trend together. The black line represents 4-week moving average of weekly M3 change; the green line is the weekly S&P closing price; the orange line is the weekly change of M3 Money Supply. The trending correlation was astounding. The possible problem area could be where I've circled.
It appears that the Fed's recent pumping of liquidity may have been a little too late. While the M3 4-week average had reversed the recent downtrend and started to move up, the S&P fell right through it. I wonder if the Fed had overdone it in its tightening of the monetary policy. The M3 started to level off since October, and then it started turning down in late January.
What now?
My main concern is that the market may not have been oversold yet. In essence, I've not seen us hitting the bottom yet, wherever that bottom may be. Let's revisit the TRIN-McClellan chart again and see where we stand. This first chart was the one I posted on 3/31/2005. This shows the past oversold pivot points. You may've noticed in an oversold condition, 10-day MA of TRIN (blue) rose to the top and McClellan (red) fell to the bottom.
The problem I'm having is that this updated chart still shows no sign of bottoming yet as of Friday, 4/15/2005.
...Continue to the Webpage...
Here's the link - (I can't even type in the full webpage URL here wihout using the tinyurl.)
http://tinyurl.com/7k26t
Snap – one rule about Demand Index as a lagging indicator is that when it penetrates the level of zero, it indicates a change in trend is coming. By the same token, when CMO is at zero level, the net momentum is 0, which also means a change of momentum. Very good observation on your part. You’re really working hard.
I’ll have to run some charts just to verify my memory, but I think CMO + - 50 level is quite similar to RSI’s 70/30 level. I’m running out the door – late for dinner. I’ll check back later, and I’m going to have to write up my commentary for next week as well. Hopefully, I’ll have time to do that. :)
Here’s a quick chart to show an interesting inverse correlation between CMO and DMI (Directional Movement Index, not Demand Index).
Bon Appetit!!!
Chande Momentum Oscillator Analysis
Snap - I like that. I'm reposting your chart here. Hope you don't mind. Good work. I'll even put up with you and xe2dy's super size charts. :)
mr_cash4 – JESSE LIVERMORE FACTS
This is important for me to see other readers have the correct information about Jesse Livermore. And, that is it for me here. Thanks for the hospitality. Good luck to all.
mr_cash4 wrote:
david, I am not trying to pick a fight with you, but check your facts: Livermore made his fortune PRIOR to the 1929 stock market top and then lost it all during the 1929-1932 bear market, that's why he died broke.
This is what the transcript of the PBS documentary wrote:
NARRATOR: There were some people, however, whose investment strategies made money. On October 29th, Jesse Livermore's wife, hearing of the crash, ordered the servants to move all the furniture out of their mansion into a small cottage on the estate.
Mrs. LIVERMORE: So when Mr. Livermore got home that night, he walked into a totally vacant house. When she told him that she had effected the move because she was sure that they had lost all their money, he told her that he had made more money that day than he had ever made before.
And here’s the link to the transcript.
http://www.pbs.org/wgbh/amex/crash/filmmore/pt.html
Snap – You’re trying to make me work while I’m having a glass of wine? :)
Congratulations on your retirement. I wish I could too. I still think the best thing to do for now is to keep your cash. When you keep your cash, you’re shorting the market anyway. There’d be time when the opportunities present themselves. I’d rather be safe. Anyway, it’s just me.
I still think there’s going to be a rally, but these past few days have made me think twice about that. I’m going to check on the Fed’s money supply data as well as other indicators tomorrow morning, and write another market forecast for next week.
You’re very good indeed. 1125 is indeed THE SUPPORT. If you’d refer back to my Fibonacci Retracement chart, you’d see 1125 would be the 61.8% line. And once that’s broken, it’s over. But, first the bear would have to take out the neutral zone defense. And, Monday we’ll see.
Hey, don’t worry too much. It’s not worth it.
O.K.?
Snap - Still up? Yeah, I know... but it's not my support. It's what the market's given to us. We'll see...
Hey, I'm still looking at your upside down E-Wave chart while having a glass of wine. You're good.
Thanks for showing me that.
Yes, it would seem that way. I hope my Moving Average confirnation is not warranted. It's more of an uneasy feeling, and therefore the need (for me anyway) to seek confirmation.
My thinking was that there would be one more possible rally because VIX has not hit the bottom yet. And, that final bottoming is going to trap a few traders when VIX started to rise again without warning.
Thanks Ed. It's been a pleasure.
Good night.
Correction: Imminent break OUT not breakdown.
I wrote:
when it topped out in March, the monthly VIX was finally confirmed by the 20-month MA. That’s about the time I started seeing an imminent breakdown.
It should've been:
when it topped out in March (2003), the monthly VIX was finally confirmed by the 20-month MA. That’s about the time I started seeing an imminent break out (to the upside).
Sorry about the confusion. It's time for a glass of wine and say good night. And here's that chart again.
Coincidentally, after that confirmation, S&P seemed to be getting ready for a rally to break out to the upside. And here's the daily chart with the overlay of 20-day MA VIX.
VIX Bottomed?
It could be, but I thought I’d just check one more thing here. I’m not sure if this is required before it made the bottom. However, when it topped out in March, the monthly VIX was finally confirmed by the 20-month MA. That’s about the time I started seeing an imminent breakdown.
Therefore, I wonder if the bottoming requires similar confirmation. And before we have that confirmation, I’m not sure if VIX had made a bottom yet. Just my take. And thus, is it possible for one more head fake to suck in more traders before it's all done?