Saturday, January 31, 2009
Tuesday, January 27, 2009
CNBC does it. The Wall Street Journal (digital edition) does it. Fox News does it too. It's the breaking news story.
Most of the time it isn't breaking news, but news that we know is coming. It is expected. It isn't breaking. A good example are the government data releases, like unemployment numbers and CPI, that occur almost daily at 8:30 a.m EST. From CNBC's perspective the purpose of these data points is not for thoughtful analysis of the current economic situation but as a number that can make the stock market "pop" 2%. CNBC may discuss "the number" but in general, if it is a "bad number" -one that does not cause the market to rise - it is quickly forgotten and the search for the next market popping story is quickly sought.
And why are breaking news stories generally bullish? Or why don't we see more bearish breaking news stories? These stories are just reported as the news.
I find that the breaking news stories are coming with greater and greater frequency these days, and I often wonder if it isn't a function of the bear market. The story on the ground seems rather bleak. Unemployment is rising, confidence is falling, and uncertainty is high and rising. However, the breaking news story offers hope. There is the hope that things are getting better (although we all know that one data point doesn't make a trend). There is the hope that our elected officials will "save" us and the economy. Can anyone say, "Tarp 2, Tarp 3, Tarp4"? I am not sure why this offers hope that our stewards of the economy will now get it right. We are told that it must be even though the last umteenth interventions didn't work. Oh less we forget, the same folks who were watching the candy store before this mess began are still behind the counter !!! Doesn't anyone ever question this?
The real story, as always, is somewhere in between the hope of the bulls and the reality of the bears. Yesterday, the bulls served up a good bit of hope. The government is going to buy bad assets from the banks and in the process save us and save the economy, etc. Why this was breaking news I am not sure. This was expected. But that was the spin, and this is what got the bulls all whipped again. The ball is now in the bears' court and in all likelihood, they will be serving up a good dose of reality. The ball will then be back in the bulls' court.
Back and forth they go, where they stop no one knows.
I suspect that the bottom for the stock market and the end of our economic malaise are somewhere off in the future. The breaking news story will no longer be breaking news as all hope will have been squashed.
Lastly, Figure 5 is a daily bar chart of the PowerShares QQQ Trust (symbol: QQQQ); the indicator in the lower panel is our short term oscillator constructed from breadth and sentiment data. The indicator remains in over bought territory.
Sunday, January 25, 2009
Thursday, January 22, 2009
Monday, January 19, 2009
Figure 2. "Smart Money"
Friday, January 16, 2009
I came to my "call" on McDonald's because I was just looking at the charts, and I found it kind of interesting that McDonald's is the only Dow component that has not succumbed to the bear market. Once again, McDonald's has the technical characteristics of a stock putting in a secular top.
Below is a link to a video from CNBC and it is with McDonald's CEO and Vice Chairman, Jim Skinner. Mr. Skinner discusses the prospects for his business and the economy. I have no axe to grind here, yet it will be interesting to see who is right- the CEO or the chart.
To see the video, please click on this link.
Thursday, January 15, 2009
Tuesday, January 13, 2009
Figure 2. S&P500/ monthly
I recently looked at another method of determining "When We Can Expect A Sustainable Price Move", and I came to a similar conclusion. If prices on theS&P500 traded at their average price over the past 2 months, it would take about 8 months before prices closed above the 200 day moving average.
Once again, it is all about time and there is no escaping the time factor.
Saturday, January 10, 2009
Figure 1. SPY/ weekly
Figure 3. QQQQ/ weekly
Without sentiment playing a role, I like to think that stocks now must move higher on their own investment merit. They must prove themselves. What is going to be that catalyst? Another bailout program? Unlikely. Earnings? Unlikely. Better economic fundamentals? Unlikely. The only catalysts that come to mind are the hope for a second half recovery and the hope of an Obama presidency. No doubt both are compelling, but they are only hope. As I stated last week, this a bear market, and the strategy that has worked the best is sell hope, buy fear.
Friday, January 9, 2009
I have been reluctant to present the Rydex asset data for two reasons. One and as stated above, I have already presented enough data as to why I thought the market would stall at this juncture. Two, I have less confidence in the Rydex data due to the changing nature of this data set. Nonetheless, a reader asked me about the data, so here we go.
The Rydex Mutual Fund company provides data on how much money is going into each of their funds, so in this sense, we can see where investors are putting their own hard earned cash. In general, investors and traders have found the Rydex asset data useful as a contrarian tool. If, for example, there is too much money going into their money market fund, it means that Rydex investors are fearful of further stock market losses. So this would be a time to get long. The other thing useful about the Rydex Mutual Funds is that it allows investors to bet with or against the market and if their conviction is strong enough, the Rydex investor or trader can use leverage.
So why have I lost confidence in the Rydex asset data? Honestly, I am beginning to wonder whether it is still useful as a contrarian tool. Typically, I would bet against the Rydex investor as from 2002 to the end of 2007 it represented the "dumb money". Starting in 2008, betting with the Rydex investor has been a better strategy.
Why might the Rydex asset data become the "smart money"? I suspect it has to do with the proliferation of leveraged exchange traded funds seen over the past year. Prior to these ETF products, Rydex was one of the only games in town that allowed the use of leverage, that allowed intraday trading of their funds, and allowed betting against rising prices in the market. These features made Rydex unique until the new leveraged ETF's came along. To support this notion as to why the Rydex data might no longer be relevant is that the amount of money in their funds has decreased by about 30% in 2008 alone. Maybe the only money left at Rydex is the "smart money". Of course, only time will tell if this notion of mine is correct. Data like the Rydex asset data have a tendency to change as the times change. What was once considered extreme is no longer. Investors and markets change. Money finds another home.
As per the reader request, I present the amount of leveraged assets in the Rydex bull oriented funds versus the amount of leveraged assets in the bear oriented funds. Despite my concerns above, this is one of my favorite Rydex indicators. Not only can we see how these market timers are betting on market direction, but we can also see if they are doing so with conviction (i.e., leverage). Figure 1 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ). The middle panel is the actual data of the Rydex leveraged bulls (green) v. leveraged bears (red). The indicator in the bottom panel takes the rate of change of this ratio and then looks for extremes in this value over the prior 52 week period.
Figure 1. Rydex Leverage Bull v. Leverage Bear
As you can see, the indicator has been above the upper band for several weeks now. Prior instances of the indicator being above the upper band have generally resulted in an intermediate term top or sideways movement of prices. These are noted with the purple vertical lines. Figure 1 looks at the period from December, 2004 to the present. Figure 2 looks at the period from December, 2001 to December, 2004. With the exception of April, 2003 (which was the blast off for the bull market), this indicator has done a very good job at identifying intermediate term market tops.
Figure 2. Rydex Leverage Bull v. Leverage Bear
So let's summarize. I have presented more sentiment data suggesting an intermediate term market top. Going forward, I still need to monitor the usefulness of the Rydex asset data.
Wednesday, January 7, 2009
The first is from Barron's.
The next video is from CNBC and can be found by following this link.
Monday, January 5, 2009
Figure 1. SPY/ weekly
Figure 3. QQQQ/ weekly
Figure 4. IWM/ weekly
Sunday, January 4, 2009
Friday, January 2, 2009
The obvious is that this analysis goes against the consensus opinion. The consensus opinion is that the Federal Reserve is printing money to do whatever it takes to cure the American economy. This is inflationary. And obvious to all observers.
However, the following isn't so obvious: despite all the creation of money, money is not being lent as lenders are reluctant to lend or borrowers are unable to borrow or money is going to pay off debt. I am grateful to one of our readers who sent me a chart of the M3 Money Supply (estimated) from John Williams' Shadow Government Statistics. Growth of M3 Money Supply and gold price appreciation should be roughly correlated, but what we find is that M3 Money Supply is decelerating despite the Fed's Herculean efforts. Essentially, money is not finding its way into circulation.
You can find the chart of the estimated M3 Money Supply by following this link.