Friday, August 29, 2008
It is time to change posting on this blog to named from anonymous. If you don't like me or my blog, you are free to say so and comments will not be removed unless outright offensive. But now I want to know who is who - even if you are using a fake name.
For the anonymous commenters that ask legit questions and make legit points and criticisms, I am sorry it has to be this way. Register with Blogger for free and let's get back to talking about markets.
Wednesday, August 27, 2008
What is this? It is a chart of Dow earnings since 1929 - raw, not normalized per share or per anything else. We would expect a nice rising trend with wiggles as the likes of Alcoa and McDonald's earn more money over time.
But even a statistical chowderhead like me can tell that the current reading - IF TRUE - is well outside of normal distributions. If your Grandma is invested solely in the bluest of blue chip DJIA she experienced earnings reserved for a biotech company that just failed its last hope of an FDA drug approval trial.
That cannot be a good thing for the stock market.
Here is the link to the full article by Casey Research:
It looks like it used data from Barron's and was brought to the attention of the chat room by a trader named William. That's all I can pick out from his email address and I am sure he does not want his email address posted here. William, if you read this, please comment and let the world know who you are - if you like, of course.
Monday, August 25, 2008
It was a unique (for me) opportunity to get delayed market information and "big picture only" information rather than the tick by tick changes I am used to getting here. What did I learn? Up one day and down the next and all of it matters less than barrel full of analysts.
It's summertime and late August, specifically. That's all we have to know so that we don't read too much into anything that happens. And as much as I despise not giving my subscribers pages of analysis and trading ideas each morning it is better to look lazy than lose money for them.
It is far more noble to advise trading restraint than to take excessive risk to try to make a few dollars. As I always say, sometimes the best trade is the one you don't make but that, of course won't get you rated in Hulbert's Digest. Can you imagine going to an investor conference and advertising that you did nothing and wanted to collect a management fee? Better than losing money but you can't tell anyone about what you did not do. The fish that got away, so to speak.
They don't tell you that in "market analysis" school, do they? They certainly do not tell you it's OK to SAVE the client money instead of LOSING it while you actively "manage" things. Those of you managing client money now know that sometimes you have to talk the client OUT of a bonehead investment, right?
Anyway, that's where we are today. The market is nuts this week not in a good way - even if you are a bear.
How about taking a vacation with your family and doing something valuable like getting to know your teenagers? That's what I did last week. And if you are looking for a good family place, Smuggler's Notch, VT was pretty darn good. You can pass on the Alpine slide a few miles away at Stowe. You thought gasoline was expensive!
Tuesday, August 19, 2008
I don't put much stock, so to speak, in day to day relationships between asset classes such as "Stocks got pounded as crude oil rallies four bucks." Or "gold went down because the dollar rallied." That is all knee-jerk stuff and primarily written because journalists have space to fill.
A friend likes to answer the question of why the market went up with "more buyers than sellers." After all, both oil and gold had been rallying for years yet stocks are still a lot higher now than they were when it all began.
Anyway, now we've got stocks breaking down as both gold and oil are falling. And guess what, the dollar is flat today and well off its highs so let's not get into the gold is the anti-dollar argument again. Wait a minute - oil is falling and airline stocks are falling too! And oil stocks are up even though the Dow is down triple digits!!!
Sing with me, you Rock of Love reality fans - what-the-hell-is-going-on?
In case you are not as well versed in pop culture as I unfortunately seem to be, that is a line from the song "Unskinny Bop" by the 80s hair band Poison, led by current reality star - said with sarcasm oozing from every pore - Bret Michaels. I guess if women want Flava Flav, Bret Michaels is an alternative. Even the Anna Nichole show made more sense then women throwing themselves at these two.
But I digress.
Summertime and the markets are crazy. Whatever you do, if you choose to trade keep it light. Volatility is here and the VIX isn't recording it. Lack of liquidity exaggerates every move and nothing trades as it is "supposed" to trade.
Thursday, August 14, 2008
Analyst recommendations: –
Strong Buy – Buy
Buy - Hold
Hold – Sell
Sell – It’s too late.
Back–testing: – the art of adjusting trading system parameters so as to ensure maximum profit in the past and zero profit in the future.
Charting: - “join-the-dots” for adults.
Computerized system testing: - torturing the data until it confesses. See: back-testing
Cycle analysis: - a method of analysis that allows losing trades to be organised into regular patterns.
Derivatives: – securities that are identified by acronyms - CHIPS, COBRAS, LEAPS, PERQS, STEERS, TRIPS, ZEPOS – all of these things are derivatives. Unfortunately, little else is known about them.
Daytrading: - an activity that takes place in between meaningful periods of employment.
Eurodollars: - U.S. Dollars, of course.
False Break: – an actual break of a trendline that triggers a losing trade. False breaks confirm the usefulness of trendline analysis. Only those breaks that are false cause problems, and those breaks don’t count, because they are false.
Float (initial public offering): - stock that is offered to you because other people have turned it down. The guiding principle in relation to floats is as follows: “never participate in a float that you are able to participate in.”
Fundmental analysis: – a method of analysis that provides compelling reasons for why a stock shouldn’t fall in price when it does.
“Fundamentally sound”: - the condition in which an economy finds itself immediately after a stock market collapse.
In-house analyst: – an employee of a broking house who dresses mutton up as lamb and advertises it on special.
Institutional investor: - someone who dumps a stock big-time, a day or two after you’ve bought it, for no apparent reason.
Live feed: - a technology that enables the instant incorporation of bad ticks into a charting program.
Market report: - a concise explanation of why a market traded up or down. 99% of market reports are drawn from other market reports. The remainder are whimsical.
Money-management: - the art of hiding trading losses from a spouse.
Over-bought: – a market is considered to be in an over-bought condition when everyone else appears to have bought it, but you haven’t.
Position trade: - a short-term trade that is in deficit, and will be closed out as soon as it breaks even, however long that takes.
Price/Earnings Ratio: - a ratio that indicates whether the price of a stock is attractive in relation to last year’s earnings. A low number indicates a bargain. However a low number can also indicate a lemon. If a company starts going down the tube, its stock price will appear very attractive in relation to last year’s earnings. The P/E Ratio is a versatile indicator.
Seasonal analysis: - the assumption that other people who trade Heating Oil Futures know nothing about winter.
Stochastics: – a technical indicator so-named because the name sounds technical.
Stop-loss: – the trader’s equivalent of a condom. It’s something you know you should have used after it’s too late.
Support: - a line drawn on a chart, the breaking of which is deemed extremely significant, even if the only people trading the stock at the time are two of three ladies at the tennis club.
Support/Resistance: - supposed allies that flee at the first sign of trouble.
Tankan Index: - a closely watched figure, that measures the extent to which the Japanese economy is tanking.
Technical analysis: – subjective analysis of the markets dressed up in a lab coat.
Technical indicator: – a transformation of a price series that contains less information than the series itself. Different technical indicators throw away information in different ways.
They: - the members of a powerful international conspiracy who target small, private traders in order to make their lives miserable. For instance, “they ran the market to my stop and then turned it around.”
Trading floor: - the traditional venue for the negotiation of securities, now made redundant by screen trading. Trading floors that remain open serve a valuable purpose as colorful backdrops to market reports on television.
Trading genius: - a reckless spirit in a bull market.
Trendline analysis: – a form of analysis that works best on a computer screen, where lines can be erased and re-drawn without trace.
Zero-sum game: – a game in which the players slug it out and the broker wins.
Wednesday, August 13, 2008
And now, we have a citing of Bigfoot, caught and killed by some hunters somewhere out there in the US. I did not even pay attention to the news report at the time since I was too busy selling stocks so I'd like to know where it was.
Anyway, the social mood guys should have a field day with this stuff. What does it mean for the stock market when monsters are found out there? Or should we say, we want to believe, a la Fox Mulder, that there is something out there waiting to eat our babies?
Social mood is rather terrible these days as we bicker over presidential candidates' policies, lament over how little money we have in our pockets and worry about who is kicking our backsides on the world stage (business, research, sports, money, etc). And the socionomics guys predicted the war in Georgia, so they say.
From my knowledge on the topic, wars happen after stock market declines are well underway but not over. The bigger the decline, the bigger the war.
From Hollywood, movies give us more clues. Last year's blockbuster? Hairspray? High School Musical? Happy, happy, joy, joy.
This year's blockbuster? The Dark Knight featuring a dead actor playing the scariest role many of us have seen in a long time. That is bear market mood.
Monday, August 11, 2008
I know that everyone is quick to raise prices when input costs rise - crude oil for one. But the local bagel shop still sports a sign in the window explaining why bagels now cost a lot more than they did a year ago. Wheat prices are through the roof!
But check out this chart. They are not at those lofty levels anymore and bagel, pizza and beer prices have not budged lower.
Perhaps main street knows something we don't know? Perhaps Washington, with its record inflation report recently, knows something for a change?
And speaking of Washington, the CNN anchor and the weather guy made a funny today. Temperatures in DC are lower this week and congress is out on vacation. Coincidence? I think not!! (think lack of hot air).
By the way, the stock market also seems to do better when congress is not in session, too. Look that one up in your Funk & Wagnall's.
Sunday, August 10, 2008
No, I am not straying into politics as this blog is about money and portfolios. But think about it - the USA up to its eyeballs in debt, at the mercy, so it seems, of oil producing nations, and is for sale to the rest of the world thanks to our cheap currency.
Don't tell me the dollar has bottomed and the world is A-OK for American business. The word "dramatic" was used to describe it but give me a break. Look at this chart and tell me how significant it really was.
Now how does it look? Real dramatic, right? The final peak of this chart took place in early 2002 and last week's dramatic rally is barely noticeable.
I'm not saying that the dollar has not bottomed. All I'm saying is that we are searching for anything nice to say and behind it all we seem not to want to piss off the Chinese.
Now, that is power.
Here's one more tidbit thanks to the Foundation for the Study of Cycles. The power on planet Earth moves from East to West and back again in a more or less 500-year cycle. Asia dominated a millennium ago. Then Europe rose to power and ceded it to the USA. And now where is it already settling?
What's in your international portfolio?
Friday, August 8, 2008
Whoopee for us!
The pace of the dollar rally this week has gotten a tad euphoric though. It broke through not one but three resistance features (subscribers know what they were) in short order and that is not exactly what you want to see in a sustainable bull market. The tide rushed in. It can rush out, too. What we want is a reasonable advance to a place that brings out seller. A mild pullback as everyone tries to trade. And then another reasonable advance as demand is able to soak up all the supply offered by the bears.
The strong dollar and falling commodities, since commodities are priced in dollars, combined to send the stock bulls out in droves. But then again, the same conditions happened Thursday and the Dow fell 220 points. Media, do me a favor and stop trying to fit the news to the market. There is no correlation between oil prices and stock prices. Go explain why stocks rallied in 2007.
And if oil and gold fall when the dollar rises, will someone please 'splain me why stock prices should not fall for the very same reason. Are Mom and Pop investor buying their 10 shares of IBM in euros?
Yeah, yeah, a strong dollar means there is demand for domestic assets and that can overcome the currency thing. Whatever. But please don't tell me the market moved on one bit of news. It's not linear. It is far too complex for that.
I wrote weeks ago that the dollar will hold the key to the stock market and right now it should mean the bear market rally should become a bull market rally. Not so fast. The dollar may be marginally above its bear market trendline, at least the one from 2006, but years of studying market action tells me that it is far from a reliable breakout at this time. Emotions drove the move higher (although they blame the European economic outlook for it even though the rally began days before that news). If this truly is a new trend in the US dollar then I would expect a small pause here and then another breakout. That one I might believe.
Wednesday, August 6, 2008
Well, other than the lack of respect he has a lack of facts. Here is a chart from Yahoo on the Brazil/US dollar exchange rate in dollars per Brazilian Real (ree-al).
Not only has the Real been in a bull market vs. the buck for the past 4-plus years but is has not even seen a pullback as major currencies have had over the past few months.
I rest my case. Time to move on to more important matters, like helping my subscribers make money.
Tuesday, August 5, 2008
He was more like the "argumentative economist" and the stronger these types argue their points the more I know they are wrong. For starters, he berated me for saying the dollar was weak. True, it is up for a few weeks - sort of - but it is still in a six-year bear market. OK, perhaps some currencies were falling relative to the greenback but overall vs. the currencies that matter the dollar has been crushed and is still not in a bull market.
A subscriber of mine, whom I respect, has argued that it is on the verge of a breakout and I'd agree. But "verge" is not "actual" so let's give the bear the benefit of the doubt. And also, let's keep in mind that the breakout would be through a short-term trendline, not the bear market line.
Anyway, this contrarian of manners was arguing about falling commodities, the stimulus package and rising dollar. Of course, wiser economists than either of us have opined that the 27-year high in inflation expectations ate up the stimulus. He also said, "you media types" during his argument, which is rather funny since he is on more media than me.
I also mentioned that the stock market does not necessarily bottom when commodities peak. It may happen but we have to be sure commodities have actually peaked. They are under severe pressure, for sure, but I'd like to see long-term trendline is gold and oil that are actually broken first.
It's a bear market no matter what the gentile host thinks. I am just glad that my corporate parent has black balled his show from ever seeing our content again. Larry Kudlow may have strong opinions and argue them vigorously against his guests but he is a gentleman about it and always treated me with respect. This mook, who asked me if I ever heard of Brazil, is going to wallow in the third tier forever.
Monday, August 4, 2008
Last week, I wrote in Barron's Online that energy stocks were attractive again. It was simply based on the risk/reward ratio they presented after falling hard and landing on support. But over the course of the week they failed to rally and as I always say, strong markets do not hang around support for long. With today's oil plunge, it looks as if the trade failed.
However, since we had good money management controls in place - in other words, a stop - we took only a few lumps. It could have been a home run but we ended up grounding out to the pitcher. Better than a double play, though.
But nothing ventured nothing gained. We have to take prudent risks in the markets or we'll never earn anything, The secret is to live to trade another day.
We'll revel in the success of our trade in T-3 Energy, which was stopped out at a nice profit this morning.
So, oil drops on a weak economy. But inflation is at a 27-year high. But gold is falling, too.
Something is very weird here and whatever it is, it cannot be good for the stock market.