Interesting Links

[Billy]

Please use this thread for posting interesting links with your comments.
I am seldom attracted by sheer links without at least some summary of its content.

Let's start with the new blog of EV member Maxime Austruy who generously shared his pivot spreadsheet with us.
References about the spreadsheet are detailed in his June 13 blog post.
The June 14 blog post about index pattern matching and predictions is most interesting and was already introduced to us by Maxime in the old VIT Google Group. I personally use this approach more as a long term risk-reward gauge from the projected trading ranges than as a leading forecasting tool. Only a sturdy backtest of past projections compared to reality could provide confidence in such projections.
Please make your comments directly on Maxime's Blog: http://small-trades.blogspot.com/
Billy

[Andrei]

Bloomberg Smart Money Flow Index.

Note how it went up from 6/17/2011.

http://www.bloomberg.com/apps/quote?ticker=SMART:IND


[Update]

Smart Money Flow Index

Description:

The Smart Money Flow Index was developed by WallStreetCourier in 1997 and is a trademark of WallStreetCourier.com. Since then WallStreetCourier is the official source of the Smart Money Flow Index for Bloomberg Professional.

The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts.

Then they move in the big way. These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. Whenever the Dow makes a high which is not confirmed by the SMI there is trouble ahead or the other way round.
Indicator Details

Updated: • daily/weekly

Signals:

Bullish: If the Dow Jones Industrial Average declines which is not confirmed by the Smart Money
Flow Index

Bearish: If the Dow Jones Industrial Average advances and the Smart Money Flow Index is lagging behind


source:http://www.wallstreetcourier.com/v/ci-smart-money-flow-index.htm

P.S I think (I may be wrong) that there is a similar index either at MarketTells, or at some different site, where flow is being derived by taking 2 different times of a day and doing some calculations. However I don't remember if index there is more longer-term or similar in nature.

[ericoleman]

I used to be a member of the Stockbee blog and Pradeep posts some very good information about trading and investing. Additionally, there are many worthwhile essays on various methods. I would still be a member, but I am intentionally limiting myself from too many external sources of information. Nonetheless, I find the site to be extremely valuable and highly recommend reading many of the free posts.

http://stockbee.blogspot.com/

[Adriano]

The rare elements theme has been quite hot in the recent months. It now seems that deep-sea mud in the Pacific Ocean has lots of them. I wonder what the extraction costs would be.
http://www.nature.com/ngeo/journal/vaop/ncurrent/full/ngeo1185.html

[nickola.pazderic]

When and if the market turns and breaks the 200 DMA, I wonder where and when the Robot will indicate a prime point to enter/jump on.

In the meantime, one might enjoy this simple comparison of 2011 and 2007 (http://www.zerohedge.com/article/guest-post-how-equity-market-prices-recession-0).

[Billy]

When and if the market turns and breaks the 200 DMA, I wonder where and when the Robot will indicate a prime point to enter/jump on.

In the meantime, one might enjoy this simple comparison of 2011 and 2007 (http://www.zerohedge.com/article/guest-post-how-equity-market-prices-recession-0).

Nickola,

2007 is not included in the best fit analoguous patterns from history.
The top-5 best-fit similar patterns are all pointing up.
http://www.etfrewind.com/members/Ponzo.png

Our friend Maxime is also doing an excellent job in this field of research.
Zero Hedge are perma-bears, keep that in mind when reading anything from them.
Billy

http://www.etfrewind.com/members/Ponzo.png

[nickola.pazderic]

I need the feedback very much.

[Billy]

Nickola, the updated link now gives much more credit to your initial posting.
The 2007 scenario is now the second best fit historical pattern and is indeed weighing very negatively on the projected average scenario compared to last week.

http://www.etfrewind.com/members/Ponzo.png

I've been following the weekly updates of this most analogous chart from its inception and my subjective feeling is that it is often more a lagging indicator than a leading one. As long as we don't have a backtesting of past projections, it is difficult to draw any conclusions. Maxime is trying to do some backtesting with his own tools.
Anyway, projecting any market from only one year pattern like Zero Hedge did is certainly a flawed concept.
Billy

[nickola.pazderic]

Billy,

I'm very impressed with the analytical minds and training of some of the people here, including Pascal, Paul and you. The complexity is typical of engineers. And it is precisely this type of thinking that makes HGSI and Pascal's book difficult for me. This is not to say I have not taken my math and advanced logic classes and aced the crucial tests. I have. Given a choice, however, I'll see the world as a specialist in qualitative methods.

All my qualitative methods are set against the background of history and geopolitics (probably one reason I like Zero Hedge). As I noted to EB in a seperate exchange, I don't talk politics, culture or religion since I became a speculator. This makes it a little difficult to express my judgments because they can be so easily misconstrued.

That said, I'll make a bold and ugly political statement: the market and the entire edifice on which it stands depends heavily on American military power and its projection. Conservatives know this at least implicitly. And so-called liberals are embarassed by it but must accept it. President Obama understands this point, as did Clinton and every other president in recent memory. There have been no doves in the White House.

From the conquering of the American West to the non war in Lybia, there has not been a time when the USA is not at war somewhere defending its national interests. This fact may not be taught in American high school history books, but, trust me, people in Asia-- especially China-- know it well. Power comes at the end of a gun, as Mao put it. And every Chinese knows this, too.

So what is my point? Consider this fact (http://www.zerohedge.com/article/cvn-77-ghw-bush-enters-persian-gulf-cia-veteran-robert-baer-predicts-september-israel-iran-w), courtesy of ZH (but ultimately from Stratfor (http://www.stratfor.com/?utm_source=General_Analysis&utm_campaign=none&utm_medium=email), a subscription service to which I subscribe):

Stratfor demonstrates, the CVN 77 G.H.W. Bush has just entered the Persian Gulf, the first time a US aircraft carrier has passed through the Straits of Hormuz in months. What is also notable is that the LHD 5 Bataan amphibious warfare ship has just weighed anchor right next to Libya: this is odd since the coast of Tripoli had been left unattended for many weeks by US attack ships. And topping it all off is that a third aircraft carrier, the CVN 73, is sailing west from the South China seas, potentially with a target next to CVN 76 Ronald Reagan which is the second carrier in the Straits of Hormuz area

Whoever controls oil, controls the global economy. Can anyone really disagree with this? (I bet some can, and I dread escalations of political aruments). In any case, a lot of power is lined up in that part of the world. By doing so, the president and the military are tacitly supporting a strong American economy and stock market. They know the biggest drag on GDP comes via high oil prices. Moreover, leaders in the USA know that Americans depend on a rising stock market for the retirement and that a poorly performing market will also prove a dead weight on American GDP growth. To me these facts are almost self evident. They are the background against which all current movements must be considered.

In other words, while all the noise inside the market and inside the media is sending confusing signals, the basic message remains: America and its allies are in control. As long as that is the case, the bias of the markets will be sideways to up.

In the meantime, we bit players will continue to make our meal money on volatility and trends, which will occur within ranges. If a carrier ever gets taken out, then all bets are off.

[ilonaross]

http://www.bloomberg.com/news/2011-07-18/reid-mcconnell-push-revised-debt-measure-as-obama-seeks-to-avoid-default.html

[nickola.pazderic]

for the last week of July... (http://blog.stocktradersalmanac.com/post/Small-Caps-One-Loss-Last-5-Days-July-Last-10-Years?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+stocktradersalmanac+(Stock+Trad er's+Almanac+Blog)&utm_term=Almanac+Investor+Stock+Trader's+Almanac+)

[ilonaross]

http://seekingalpha.com/article/285737-the-rise-of-financial-terrorism

Hmm... do we need a robot for accounting regulations...

Does anyone have an opinion? Should one of us on the board be trying to follow this stuff and report on it? Pretty arcane stuff...

Or is it already baked into the 20DMF cake?

[Andrei]

Very good Marc Faber interview on markets, on gold, on bonds etc.

http://www.zerohedge.com/news/marc-faber-best-thing-fed-could-do-markets-wold-be-collectively-resign

[Adriano]

Soros on Euro bonds, Germany, USA, China:
http://www.spiegel.de/international/europe/0,1518,780189,00.html

[ilonaross]

After over a two-year run, the bull market for stocks appears to have ended. As
I wrote on June 13, 2011:

"The operative question remains whether this is a mere correction or whether the
market is forecasting a significant slowdown in the economy and we are seeing
the beginning of the end for the 2009-11 bull market. While it is still a bit
premature to say, the continued breakdown in the former leaders from late stage
bases, the lack of leadership in any market sectors, high levels of distribution
in the tape with the inability to stage even small rallies thus far, and the
historical context of financial panics and bull markets that ensue (more on this
in my next market commentary) lead me to conclude that a new bear market could
be in its very early stages of forming.

Markets generally do not go straight down, and history shows us that our biggest
up days occur during bear phases. Therefore, even if we are entering a new bear
market, there will be numerous countertrend rallies, and big up days to suck in
those eager to believe the correction is over. Whatever course the market takes
(correction or bear market), high levels of cash until the market
follows-through and bases rebuild remain the place to be."

* * * *

In July we were treated to one of those countertrend rallies I described above,
albeit on low volume. I noted in a comment that some leaders were attempting
breakouts from bases, but the rally quickly failed later that month, and proved
to be nothing more than "a last gasp for air" for the bull market.

Since that time, the market has treated us to historic levels of distribution.
The major indices have quickly dropped approximately twenty percent with the
market showing very little ability to stage any rallies on meaningful volume.
What little leadership remained during the past week has gone by the wayside
such as former leaders PCLN, AMZN, BIDU, LULU, CMG, WYNN, DECK, FOSL, GMCR, CRM
and SODA. Other former leaders that topped out weeks or months ago have
continued to see incessant distribution such as APKT, PNRA, NFLX, ISRG, RVBD,
TZOO, OPEN, and TIF.

Simply put, we are in a bear market for stocks. This means that maintaining
high levels of cash and preserving capital are key. A few important points:

1) The Biggest Rallies Occur During Bear Markets: These rallies merely serve to
relieve oversold conditions and to suck people back in the market. Keep this in
mind. Until the market follows-through and fresh bases and leadership set up,
all rallies should be treated as mere bear market rallies. Time will be needed
for the market to set up for a new bull, and we are likely to head lower before
this occurs.
2) Ignore the Pundits: The pundits and prognosticators in the media never
change their tone during bear markets. Whether it was the dot com bust and
eighty percent drop in the NASDAQ from 2000-02, or the financial panic in
2007-2008, we hear the same thing nonsense every bear market: "Stay Invested",
"Buy the Dip", "The Market is Oversold", "Stay the Course", "The selling is
overdone", "The market is overreacting", or "Stocks are Cheap". Heeding the
advice of these people will do nothing more than cause severe looses in your
portfolios. The simple fact is this: Nobody knows how far or how deep this
bear market can go. Until a new bull is born, stocks can go lower, stocks can
get cheaper, the market can get more oversold, and the selling can get more
overdone.

3) The Difference Between an Intermediate Correction and a Bear Market: The key
characteristic of a bear market is that almost all of the former leading stocks
will top out and break down, as opposed to intermediate corrections where many
leaders will stay above key longer-term moving averages such as the 150-day or
200-day moving averages. During last summer's intermediate correction for
example, many leaders stayed above these longer-term moving averages, such as
BIDU, AAPL, CRM, OPEN, RVBD, VMW, NFLX, FOSL, and CMG. Juxtapose today's market
environment where almost every former leader has broken these key moving
averages on heavy volume. Faced with this indisputable evidence, odds favor we
are in a new bear market for stocks

4) The Obvious Good News: Every major bear market has led to a new bull market.
Bear markets get rid of the excess, froth and speculation of the prior bull and
allow new leading stocks the time to base out and set up for their future runs.
As long as one preserves his capital and stays out of the way of mother market's
wrath, he will have the opportunity to make a king's random once the new bull
market begins. Unfortunately, the average investor is so devastated by the bear
market preceding that point, that he wants absolutely nothing to do with stocks
and misses the bountiful opportunities accompanying the new bull.

5) Exercise Patience During a Bear Market: This is something I constantly
remind myself of as it is the key to investment success. I wrote the following
in December 2008 and it is extremely relevant today:


A quick note on a topic I address now and again which I consider highly relevant
at this time. It is the virtue of patience and not overtrading. Throughout
this year, I have watched as many colleagues have tried to catch a market bottom
only to lose more money then they had to if they simply waited for a
follow-through day and waited for bases to build and breakouts to occur. It was
their lack of patience, not their lack of trading intelligence that caused these
losses. I know many extremely talented traders who are always in the market,
every single day, taking unnecessary risk because they somehow "feel" the need
to trade everyday. Without exception, this incessant need to always trade leads
to a lackluster performance and can be an extremely costly mistake that often
can be the undoing of a trader. Especially in a market as volatile as this, it
is of crucial importance to maintain discipline and not to overtrade and to be a
slave to every tick. All of the great traders I have studied, such as William
O'Neil, Nicholas Darvas, Bernard Baruch, and Jesse Livermore understood that a
large part of a successful trader's career is spent out of the market waiting
for the fat pitch, and not swinging at anything but "their" pitch. These
individuals, who all had decades of success in the market, understood this fact,
and it is what kept them consistently successful in their trading careers.

I challenge all of my readers to review their portfolios over the past year and
to ascertain how much money they could have saved by not overtrading and by
being more patient and waiting for the right opportunities. Such a portfolio
review, with an eye to eliminate needless trading, is an exercise I always find
very beneficial.

When a new bull is born, there will be new leaders that breakout and rally 250
percent or more very quickly. At a time like that, margin and aggressiveness
can reap big rewards. But, the prudent disciplined trader will await that time
and not expose capital to unnecessary risks trying to capture short term profits
on each tick.

I leave you with some words of wisdom on this topic. If you have any questions
or comments please email me. I will have a report later this week that
discusses the rally and any leadership that may develop in the coming days. For
now, I remain fully cash.


The best speculators search only for the very best opportunities. To be truly
successful, you must wait for the right opportunities to present themselves and
this often means doing nothing for long periods of time.

Nicholas Darvas

I have been in the speculative game ever since I was fourteen. It is all I have
ever done. I think I know what I am talking about. And the conclusion that I
have reached after nearly thirty years of constant trading, both on a shoestring
and with millions of dollars back of me, is this: A man may beat a stock or a
group at a certain time, but no man living can beat the stock market .... A man
may make money out of individual deals in cotton or grain, but no man can beat
the cotton market or the grain market .... "If I knew how to make these
statements stronger or more emphatic I certainly would. It does not make any
difference what anybody says to the contrary. I know I am right in saying these
are incontrovertible statements.

Jesse Livermore


The virtue of patience in trading is often overlooked as a key success factor.
Without patience, a trader may have the tendency to trade when he or she
shouldn't. Instead of waiting for the best trading set-ups, the trader would
take extra unnecessary risk by trading when not all the factors are in their
favor. Worse, this bad habit is compounded by the uncertain nature of the
markets. Some of these hastily taken trades sometimes do make profits, and do
make profits big. This reinforces the belief of the trader that he or she has
done the right thing. On those trades that lose, the trader can deceive himself
that, "It's ok, losing is part of the game. I'll win more than I lose.

Author Unknown

[ilonaross]

In my August 18, 2011 market commentary, I wrote the following:

"The major indices have quickly dropped approximately twenty percent with the
market showing very little ability to stage any rallies on meaningful volume.
What little leadership remained during the past week has gone by the wayside
such as former leaders PCLN, AMZN, BIDU, LULU, CMG, WYNN, DECK, FOSL, GMCR, CRM
and SODA. Other former leaders that topped out weeks or months ago have
continued to see incessant distribution such as APKT, PNRA, NFLX, ISRG, RVBD,
TZOO, OPEN, and TIF.

Simply put, we are in a bear market for stocks. This means that maintaining
high levels of cash and preserving capital are key. "

* * *

During the past two weeks, the market staged a classic "jam" rally off the lows,
with little leadership to speak of. Such a rally was not surprising given that
the major indices had seen historic selling off their highs. Indeed, the Nasdaq
Composite managed to rally into the 2600 level, which had marked key support for
the index in March and June of this year. Unfortunately, that support level has
now become key resistance, and that index failed its first test of that level
miserably.

The "jam" rally had little, if any, characteristics of a sustained uptrend,
other than a suspect follow-through day on August 23. That follow-through day
lacked clear and unequivocal volume to indicate that institutions were putting
money back to work in the market. In addition, in the days after the
follow-through day the major indices rallied on below-average volume, somewhat
reminiscent of the "jam" rally we saw in late June through July before the sell
off began. Third and most importantly, was the clear lack of leadership and
strong basing patterns in the market.

The few stocks that managed to make new highs recently were mostly illiquid or
defensive-related names, and not the high-quality liquid growth names that are
associated with new market uptrends.

Stocks such as PMST, MAKO, and ARCO are not exactly the type of liquid growth
names that would lead the markets by themselves out of a bear market. While
these stocks could be future leaders down the road -- without other liquid
names showing strength at this time -- they are merely illustrative of the
smaller, illiquid stocks that may buck the trend during a countertrend rally.
This reminds me somewhat of the August 2008 countertrend rally before the
historic market debacle in 2008. As my personal journal entry from August 28,
2008 reads:

"The only stocks I see breaking out or leading now are smaller illiquid names
that do not give me confidence the big money crowd is putting money back to
work. While it is nice to see a name like AVAV or AFAM buck the trend, those
stocks appear to be the exception to the bear market, and not stocks that would
lead us out of this nasty market environment. For this reason, I fear this
rally does not have a long way to go."

* * *

Although I wrote that journal entry three years ago, the fact that I could
simply substitute PSMT, MAKO, or ARCO for AFAM or AVAV, is anything but
inspiring. Again, perhaps these stocks are future leaders, but without other
liquid names making new highs and leading, the rally we saw does not correlate
well with a new sustained market uptrend at this time.

Similar to today, the often-defensive medical space in August 2008 was showing
good relative strength. At that time names like CELG and AMGN were going into
new highs only to eventually get crushed during the great crash in the fall of
2008. Similarly, during the "jam" rally, medical stocks like ATHN, MAKO, and
CERN have shown superior relative strength. Without other groups leading the
charge however, precedent tells us that rotation into the medical area can often
be a sign of a "risk-off" or defensive mindframe for the big money crowd.

Faced with suspect illiquid leadership, rallies led by defensive stocks, and
virtually nonexistent superior basing patterns in growth stocks, the "jam" rally
appeared somewhat suspect from the start. And, late last week, the indices may
have begun to tip their hands, as they turned rather swiftly to the downside
after running into logical resistance.

While our markets were closed for Labor Day, the European markets continued
their sell-offs yesterday, with the major European bourses down anywhere from
3.5-5%, and the major European banks trading to 29-month lows. This certainly
does not bode well for our markets, and coupled with last week's sell-off
certainly leads one to conclude that "jam" rally appears to have ended.

Certainly a retest of the August 8 lows, and another leg down in this bear
market appears likely at this time. For now, the only small positive is that
some of the higher quality liquid names have shown a bit of "stubbornness"
during last week's selling, as stocks like AMZN, PCLN, ISRG, MA, AAPL, BIDU,
and CMG continue to show exceptional relative strength. These "sexy seven"
should be watched carefully as they will offer an important clue as to the
duration and severity of this bear market. Should they come under heavy
distribution and break lows from last month, the odds of a further sell-off
would be increasingly likely.


In summation, faced with the negative environment described above, high levels
of cash and capital preservation remain of high import. Other than gold and
gold miners, being long in this market continues to be a recipe for disaster.
And only the fool will make useless predictions of how long this bear lasts, or
attempt to trade every wiggle and tick on the tape, shorting and going long
almost at random while masking his or her incessant need to always trade.

Just as the best poker players play only a strong hand and know to throw away
weak ones, the skilled speculators understand to only play their strong hands in
the market. And the beauty of investing, is that we never have to ante until we
see the opponent's cards -- in this case -- the cards of mother market.

Remain patient and defensive for it is an absolute certainty that sooner or
later a new bull market will be born. And like every new bull market, most will
miss it as they will be too busy shorting it or refusing to commit capital once
it begins.

[buzzman]

I have assets managed by Fisher Investments since 2002. They send me a Capital Markets Update quarterly. This most recent one may be of interest. Ken Fisher has been in the investment business for a lifetime, preceded by his father who was prominent during the Jesse Livermore days. By design, the video self-erases within approximately two weeks. The video is about 45 minutes long. Click on the following link. Hope it works and that you enjoy the information. buzzman

http://www.fi.com/weballey/autoexpire.aspx?refid=385888&key=WKtkOHfH9cgM0%2frr8OR0Qi1XKqJI6rFK0XjJaxSxVJg% 3d

[ilonaross]

I wanted to put out a brief update to my commentary from last night.

The one positive I noted was that a few large liquid growth leaders were acting
"stubborn" and showing excellent relative strength. Indeed, these stocks bucked
the trend once again today, and led the major indices to close well off their
lows in somewhat of a positive reversal day. While the market continues to
sell-off, these stocks continue to base build and, at least for the time being,
are resisting the general market's distribution.

I noted that these stocks' behavior would offer a key clue as to the duration
and severity of this bear phase. I cannot underscore this point enough. Simply
stated, the seven stocks I noted, and a few others (listed below), will let us
know whether the bear phase ends soon, or whether the indices break recent lows.
As I noted, it would be foolish to prognosticate on the outcome and I will leave
that for others to banter about. For now, I note that it remains a positive
that these stocks continue to base-build, resist the selling pressure, and show
excellent strength.

In light of this, I am providing my first watch list in quite some time. This
is not a buy list, but merely a list of companies with superior fundamentals and
that are showing the ability to resist high levels of distribution in the
market. Should the market embark on a sustainable uptrend, many of these stocks
likely will be "go to" leaders. Of course, any continued selling in the general
market likely takes many of these stocks much lower. One should exercise
patience, for there will be ample opportunity to be aggressive on the long side
should the market decide to resolve itself to the upside.

AMZN, PCLN, ISRG, MA, AAPL, BIDU, CMG, GMCR, CROX, UA, LULU, HANS, MAKO, PSMT,
ARCO, CF, POT, NTES, ATHN, CERN, NUS, PANL, V, Z, LVS, WYNN, LNKD, AWAY, ALXN,
VRUS ,JAZZ, QCOR, PRGO, CPHD, SBUX, WFM, SBH, AZO, JCOM, CPA.

[Adriano]

Three days ago I was struck by this article:
China to back London as offshore yuan hub
http://www.marketwatch.com/story/china-to-back-london-as-offshore-yuan-hub-ft-2011-09-07

Yesterday there was a comment on it:
Analysts skeptical about yuan convertibility
http://www.tradereform.org/2011/09/analysts-skeptical-about-yuan-convertibility/

A few months ago, Singapore was also involved:
Singapore Has a Leg Up In Trading-Hub Race
http://online.wsj.com/article/SB10001424052748703421204576329040728891436.html

Singapore can be offshore yuan centre, but won't surpass Hong Kong
http://www.reuters.com/article/2011/04/11/singapore-yuan-idUSL3E7FB0GW20110411

What implications will there be, if China expands to Singapore as its second yuan trading hub after hongkong?
http://www.marketcrunch.net/questions/188/what-implications-will-there-be-if-china-expands-to-singapore-as-its-second-yuan-trading-hub-after-hongkong

And so on, you can google and find other articles. I know nothing about forex, although it fascinates me. However, it seems to me that something is boiling. Not surprisingly, I would say.

[Adriano]

Does the Euro Have a Future? Soros explains his point of view:
http://www.nybooks.com/articles/archives/2011/oct/13/does-euro-have-future/

[ilonaross]

http://www.bloomberg.com/news/2011-09-15/european-bank-blowups-hidden-with-shell-games-jonathan-weil.html

[adam ali]

Ilona,

I sent you a private message (i.e., question), if you could check your Notifications tab on the site.

Thanks,

Adam

[buzzman]

By Fisher Investments Editorial Staff, 05/16/2011

Story Highlights:
• An accounting rule change proposal was made formally Friday that would move a step further away from the disastrous aspects of FAS 157.
• This should help resolve the debate over fair value accounting standards, but other aspects seen as contributing to 2008’s financial panic remain open for discussion.
• Regulators are busy trying to determine which banks pose “systemic risk” and which do not.
• Tellingly, some banks are lining up to say they’re small enough to fail.

Friday was a busy financial news day, with headlines dominated by better-than-expected eurozone GDP and slowing US CPI (i.e., inflation). But quietly, the Financial Accounting Standards Board (FASB) announced a proposal to adopt the International Accounting Standards Board’s (IASB) version of fair value requirements.

It might seem a bit out of character for accountants to make a noisy to-do about a rule change, but this strikes us as significant. The proposal represents a further step away from (and could essentially sound the death knell for) problematic aspects of FAS 157—the well-intended accounting principle that significantly contributed to 2008’s financial panic before losing much of its teeth following March 2009’s congressional hearings on the subject.

For some time now, discussion over merging US and international accounting standards to “harmonize” rules has occurred—a fine idea, but one also raising the possibility of FAS 157-like policy being reborn. After Friday, that’s still possible—but seems extremely unlikely. (We’re not superstitious, but we just knocked on wood.) If the rule is adopted as proposed, banks will still be required to report the fair value of assets held. But mark-to-market values for less-liquid assets intended to be held to maturity will be reported in footnotes (as they are, thankfully, today). This is vastly different than the period from November 2007 through March 2009—when banks were, disastrously, forced to give equal treatment to very dissimilar assets. This proposal, which the IASB and many banks support, should satisfy most seeking transparency, but is more measured—so bank balance sheet health won’t hinge on the immediate liquidation values of illiquid assets. While this decision should help resolve the fair value debate, other heavily discussed aspects of the panic still await resolution.

For one, regulators are busy trying to determine which banks pose “systemic risk” and which do not. In fact, many banks are arguing they’re small enough to fail—which some might see as odd (that is, if you assume corporations might want some sort of government backstop against their failure), but not if you consider 2008’s actual events.

Was the problem really all about some banks’ sizes, or was it more that investors couldn’t figure out the government’s next steps? Consider: Lehman Brothers and Bear Stearns were roughly the same size and type of institution—yet the government took entirely different paths in dealing with them (not to mention other troubled firms). The result? Widespread uncertainty leading to even greater credit- and equity-market volatility.

Some banks now seemingly think if they’re designated systemically insignificant, investors still have to ponder potential bankruptcy risk—but not handicap regulators’ schizophrenic actions. Being small enough to fail also removes those banks from potentially stricter government regulation, fees and oversight the “Too Big to Fail” (TBTF) banks could receive—which could expose TBTF firms to more subjective regulation ahead. Of course, the flip-side could also be true: TBTF banks could be a competition killer as customers flock to banks perceived to have an extra government security blanket. But these small- and mid-size banks wanting to avoid TBTF designation evidently see greater benefit in avoiding potential future government involvement.

Evenly applied, well thought-out regulation is a clear plus, but the government’s actions in 2008 don’t meet that definition. The financial panic was seriously exacerbated—if not initiated—by a series of regulator choices showing close to zero consistency or understanding of potential unintended consequences. No doubt, weak housing and credit market displacements played roles, but absent misapplied accounting rules and haphazard government responses, the crisis likely wouldn’t have been so steep and deep. Folks, 2008’s panic cannot be simply explained by claims it was the inevitable byproduct of banker greed run amok, “toxic” assets, wealth inequality or subprime and/or housing market woes. Those might be easy explanations to deliver and comprehend—and they largely exonerate regulators from blame—but they simply don’t fit the facts, nor do they provide investors with insight helpful in obtaining a sense of closure.

[Neil Stoloff]

Speaking of robots: http://www.computerworlduk.com/news/networking/3302464/algorithmic-stock-trading-rapidly-replacing-humans-warns-government-paper/

"Algorithmic stock trading rapidly replacing humans, warns government paper

"Regulatory framework needs to be updated to keep pace with effects of technology"

UK report by The Foresight Panel, led by Dame Clara Furse, the former chief executive of the London Stock Exchange, found "'no direct evidence' that the computer trading in itself increased volatility,... but in specific circumstances it was possible for a series of events with 'undesired interactions and outcomes' to occur and cause massive damage."

[ilonaross]

http://www.nytimes.com/2011/09/18/business/economy/as-europes-crisis-grows-over-there-is-over-here.html?_r=1&ref=business

[ilonaross]

Despite a large percentage move for the major indices last week, the tape leaves
much to be desired. While the Nasdaq and Nasdaq 100 climbed slightly above some
resistance levels last week, and a few select breakouts have succeeded, there
appears much more wrong than right with this tape:

First, the major indices lack any accumulation. Other than Friday's options
expiration -- which caused volume to surge -- and Thursday's higher volume
churning action on the Nasdaq, volume has been absent when the indices have
moved higher. This underscores the lack of demand for stocks from the big money
crowd. Moreover, the Russell 2000, NYSE Composite, Dow, and s and p 500 have
lagged considerably and created divergences that do not correlate well with a
market seeing high levels of money flows. Until this changes, caution is
warranted.

Second, leading stocks continue to form late-stage faulty bases. While
late-stage bases can work if the patterns are constructive, most of the leaders'
basing patterns have fundamental flaws such as wedging handles, low levels of
accumulations, or v-like structures. At a minimum, these stocks need more time
to correct these flaws and build proper bases.

Third, stocks that have attempted to breakout have acted rather sluggishly.
While a few names like ATHN and PSMT have broken out and advanced, larger liquid
leaders such as GMCR, MA, V, and PLCN have struggled when they have attempted to
breakout. In strong markets, liquid leaders will breakout and give a patient
investor little chance to buy them as they will advance rather quickly. The
sluggishness of these breakouts argues that -- at the very least -- the market
needs more time to base-build.

Fourth, the few stocks that are leading come from industry groups that are
rather defensive in nature, such as the auto-replacement part stocks, gold
miners, utilities, discount retailer and "dollar stores", medical stocks (which
tend to be of a more defensive posture), and large-cap consumer stapes like
Procter and Gamble and Colgate. When recession-proof defensive names are
leading the market, it does not bode well for a sustainable uptrend.

Fifth, stocks that are economic bellwethers have absolutely lagged this rally.
Names like Federal Express and Caterpillar have acted extremely weak and refuse
to rally with the broad market.

Sixth, emerging markets -- which have lead rallies the past few years -- refuse
to do so. The charts of Brazil, Hong Hong, mainland China, or the other Asian
emerging markets remain in horrid shape.

Seventh, the financial stocks still act highly distributive. While most of the
large banks have held their August lows, they cannot gain much traction and lack
any volume to the upside. While banks do not have to lead a rally, continued
deterioration in the technical patterns of these stocks does not correlate well
with a sustainable uptrend.



Despite the negative characteristics I described, it is always possible that the
market is in a "repair stage" similar to what we saw in the summer of 2010.

In 2010 (after a severe intermediate correction from May to July), the market
bottomed on July 1, followed-through, and had a similar rally to today's rally
with little power or leadership from growth stocks. Then, for the last three
weeks of August, the indices sold off aggressively, but did not undercut the
July 1 low. During those three weeks, the stocks that would provide leadership
for the fall rally began to tighten up and act constructively such as AMZN,
RVBD, CMG, SINA, and PLCN. The market staged a lasting follow-through on
September 1. Unlike the July follow-through, leaders broke out almost
immediately and began monster moves. The power from breakouts early in
September was the key ingredient that was missing from the July rally.

The recent rally has similar characteristics to the "flawed" July 2010 rally,
which ultimately set the stage for the "real" rally in September 2010. If that
is the case, we should watch closely for a wave of selling similar to August
2010, where the leadership tightens up, coils, and sets up to break out in a few
weeks.

Of course this is just one possibility and trying to predict where the market
goes or what course it will take is fool's gold. But, by examining the weight
of the evidence, I am left to conclude that the market's recent rally is
somewhat feeble, and not the "fat pitch" where the prudent speculator would want
to be aggressively long and expose large amounts of capital. THAT CAN CHANGE IN
A MOMENT'S NOTICE, but until powerful breakouts succeed (other than a few
exceptions), and quality liquid growth stocks break out of proper bases, the
prudent speculator should remain patient and be ready to seize this opportunity
when it occurs, whether it's next week, next month, or next year.

This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,

[Pablo]

Despite a large percentage move for the major indices last week, the tape leaves
much to be desired. While the Nasdaq and Nasdaq 100 climbed slightly above some
resistance levels last week, and a few select breakouts have succeeded, there
appears much more wrong than right with this tape:

First, the major indices lack any accumulation. Other than Friday's options
expiration -- which caused volume to surge -- and Thursday's higher volume
..............................
This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,

Interesting. I think we are in the firt scenario the author gives, I also remember 2010 and was kind of convinced it would break down, they came the QEII and the developments the Mr Hornstein relates as a consideration of what could be an alternative escenario.......... a rally resume mode.......... In early summer 2010 there were lot of indicator pointing to a posible doble deep as this 2011 summer, I consider this time is more clear will see contraction on GDP (yoy) one or more of these quarters ...... international developed economies talking ..........but just in case I´m too wrong and for the similar 2010 escenario is good to know that german Bundesbank has said today they envise a robust growth for the 3 quarter just about to end (http://www.bloomberg.com/news/2011-09-19/bundesbank-predicts-robust-german-growth-in-third-quarter.html)....... german economy is very open (Imports+Exports as % GDP are high, they are 2nd rank in export countries) and the guys in Bundesbank have good info or course.........

PD: I arrived here trough EB forum (http://www.effectivevolume.com/forumdisplay.php?6-English-Bob-s-eMini-Trading-Forum)

[Adriano]

Quite impressive:
http://thingsappleisworthmorethan.tumblr.com/

[ilonaross]

http://www.huffingtonpost.co.uk/2011/09/27/alessio-rastani-hoax-on-bbc_n_983156.html

Stay tuned.

[ilonaross]

I will have a full market update this weekend. However, I wanted to put out a
quick note to underscore two points.

First, and most important, is that high levels of cash and preserving capital
are key. In my past report, I discussed the characteristics that led me to
believe the market's rally off the August 8 lows was anything but a "fat pitch"
and lacked the power associated with a new uptrend. Since then, the market
indices have traded sideways, while institutions have rotated from sector to
sector distributing stocks en masse. It now looks plausible that the August 8
lows will be taken out and that another down leg in this bear phase is upon us.


While the mass media is now admitting this is a bear market, the market has
given us plenty of clues over the past few months that its tone was anything but
healthy. In fact, the tape is much worse than what the indices tell us- many
former leaders have fallen 50-75 percent while many financial and commodity
stocks are selling at levels not seen since the crash of 2008-09.

The bottom line is that we are in a bear phase for stocks, the market's trend is
down, and there continues to be serious damage and distribution almost every
day. Faced with these indisputable facts, preserving your capital, and
psychological capital is of utmost importance.

Second, while it is fruitless to predict how long the downtrend will last, the
good news is that this bear phase will end too. As we move lower, and selling
picks up, the doomsdayers will grow louder and louder that the world is ending.


The market has an incredible ability to forecast the future, so do not be
surprised when the market ultimately bottoms while all the news is bad. I can
promise you it will. I always maintain that these bear phases are a prudent
speculator's best friend- as they lay the foundations for future bull markets.
Our economy has survived many wars, political unrest, economic hardship, panics,
stock crashes, depressions etc. So to will it survive the various problems
facing it today. While significantly lower prices could be in store for the
market in the near future, a strong bull opportunity could arrive sooner than
people realize. (I will outline this over the weekend). While the negativity
is rampant as stocks go lower, remember the importance of preserving capital to
take advantage of the next giant opportunity that will most certainly emerge
from the depths of this bear market.

As always, please email me with any questions or comments.
This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing.

[Billy]

A very clear, concise and practical description of Tuesday's bottom by Ivan Hoff

http://stocktwits50.com/2011/10/08/stocktwits-50-october-8/
Billy

[Adriano]

Some interesting data about Indonesia, Malaysia, Philippines, Thailand, Vietnam:
http://asia-jobs.fins.com/Articles/SBB0001424052970203388804576614813439419154/Malaysia-Indonesia-Thailand-the-New-Frontiers-of-Asia

[Rembert]

The global debt clock
An interactive overview of government debt across the planet

http://www.economist.com/content/global_debt_clock

[Adriano]

Chinese investments, what and where:
http://www.heritage.org/research/projects/china-global-investment-tracker-interactive-map

[mnoel]

http://quantifiableedges.blogspot.com/search/label/IBD%20Follow%20Through%20Day

[nickola.pazderic]

Slope of Hope. (http://www.slopeofhope.com/)

[adam ali]

NYT review of "Margin Call":

http://movies.nytimes.com/2011/10/21/movies/margin-call-with-zachary-quinto-review.html?adxnnl=1&hpw=&adxnnlx=1319199049-eBpzYzJb0caz+0/1ne3QVA

[Billy]

http://www.schwab.com/public/schwab/resource_center/expert_insight/todays_market/sonders/sonders_101711.html
Key Points
Market volatility has spiked, starting with 2010's flash crash and culminating in this year's wild August, bringing asset-class correlations up with it.
High-frequency trading and the use of leveraged exchange-traded funds (ETFs) are the primary culprits, but the impact isn't all bad.
What are regulators doing and saying about the phenomenon?

Billy

[adam ali]

The failure of economic thinking/models by academicians; as relevant today as it was when it was written in 2009:

http://blogs.ft.com/maverecon/2009/03/the-unfortunate-uselessness-of-most-state-of-the-art-academic-monetary-economics/#axzz1bbhiuJpi

The readers' comments are also interesting and instructive.

[ElksFB1]

http://club.ino.com/trading/2011/10/a-simple-humorous-look-at-bank-derivatives/


Little humor on bank derivatives ..... thought I would share with EV group.

Enjoy!

[Neil Stoloff]

The upper bound for HF trading is the speed of light. It looks like we're about there.

http://www.bbc.co.uk/news/science-environment-12827752

Neil

[nickola.pazderic]

The few times realized volatility has eclipsed implied volatility, it presaged large declines (http://yfrog.com/h6pgdp)

[mnoel]

http://www.tradingtheodds.com/2011/11/veterans-day-and-year-end-seasonalities/

Conclusion(s): With Veterans Day behind us, we’re entering into the favorable year-end seasonality, and historically it had been even more favorable in the event the S&P 500 was (already) up year-to-date on the close of Veterans Day. Any short-term consolidation of the market’s recent gains right at the beginning of next week might provide a favorable buying opportunity for those with an intermediate term investment horizon (until the end of the year).

[mnoel]

http://www.sentimentrader.com/comments/20111115_gaps.htm

Interesting blog on the number of unfilled gaps.

[adam ali]

Martin,

Nice find. I have previously wondered aloud about what seemed like an inordinate number of gap openings occurring - this puts it into context.

Thanks.

[ernsttanaka]

http://www.thereformedbroker.com/2011/11/20/how-to-spot-buy-and-sell-programs/


interesting read on the mechanizes of the market and the difference between the /es and the spx.

Ernst

[xr-3609]

http://narrowtranche.blogspot.com/

USD OIS spread blows out

greg

[Andrei]

Well-paid corporate managers, lawyers and doctors are contributing to the demise of an entire economy.

http://english.caixin.cn/2011-12-09/100336506.html

[mnoel]

Paul Macrae Montgomery Universal Economics, 12/26/11

“Lowry's ‘'Selling Pressure' and ‘Buying Pressure' are great indicants of the Supply and Demand for US Stocks. In Bull markets Demand should be more robust than Supply, and the reverse in Bear markets. Today the DJIA is almost back at its July high but ever since that high, Demand has been in a sustained downtrend, and Supply has been in a robust uptrend. In fact, Buying and Selling Pressure both hit their most Bearish levels in 15-18 months on Monday. Both of these data sets improved significantly the rest of the week, but unless the prevailing Negative trends actually do reverse, these time-honored indicants suggest US stocks are in a Bear market rally.”

[Andrei]

https://www.gmo.com/websitecontent/JGLetter_ShortestLetterEver_3Q11.pdf

[nickola.pazderic]

...a call for a general strike of speculators (http://www.youtube.com/watch?feature=player_embedded&v=18A698QQex0#!)

also, a familiar refrain for the professional speculators here; I'm finding this video pop up here and there: All I wanna do is retire! (http://www.youtube.com/watch?v=AVWB9SnQlP0&noredirect=1)

[ilonaross]

http://www.tigeruniversity.com/mp3/SCR010512.mp3

Link to a short radio interview of Ed Hornstein by Kate Stalter, formerly of IBD. The interview starts about two thirds of the way through.

[Billy]

http://dynamichedge.com/2012/01/04/tactics-for-market-gaps/

[ilonaross]

A New Year has dawned upon the market, but not much has changed since late last
year. For the reasons I describe below, I continue to play this market
defensively until I see more characteristics indicative of a bull market move.

First and foremost, an examination of historical follow-through days shows that
the market's recent follow-through should be treated with caution.

We know that no bull market begins without a follow-through day and that around
two thirds of follow-through days lead to bull moves. However, what we also
know is that over 85 percent of successful follow-through days have occurred
BEFORE day 17 of an attempted rally. The December 20, 2011 follow-through day
occurred ON day 17 of an attempted rally. At the outset, the odds of this
follow-through day leading to a large bull market move are somewhat diminished
to begin with.

Of course, later follow-days have occasionally worked. On August 15, 2006 the
major indices flashed a 21st day follow-through day that led to a giant bull
market for growth stocks. Even after that follow-through, the "fat pitch" for
the growth investor did not kick into gear until almost five weeks after the
follow-through day when former leader RIMM (on its earnings report on September
29, 2006) gapped out of a base on stellar volume. That one stock was the "go"
sign for growth investors, and thereafter a plethora of other growth stocks
staged powerful breakouts. Prior to the RIMM breakout, growth stocks were
meandering around and simply base-building -- other than a few select stocks
such as MA and CPA which broke out around the August 15th follow-through day.

In any event, even when a delayed follow-through day in 2006 worked, growth
investors were rewarded only if they exhibited patience and waited for the "fat
pitch" around ten weeks after the market bottomed and five weeks after the
delayed follow-through day. As I describe below, we have not entered a sweet
spot for growth investors, which means that plowing into this market is anything
but a prudent approach.

Second, most strong markets follow-through very quickly off their lows (usually
as early as days 4-7 of attempted rallies), and display more then a few
breakouts in growth leaders around the time of the follow-through day.

For example, during the days surrounding the market's March 17, 2003 follow
through-day (which unofficially ended the 2000-2002 bear market), leaders CME,
AMZN, CRDN, GRMN, and YHOO broke out of basing patterns and began their price
accelerations on heavy volume. A similar phenomena occurred on September 1,
2010, when the market-followed through on the fourth day of a rally attempt, and
leaders CMG, SINA, AAPL, AMZN, NFLX, RVBD, and PCLN all broke out of bases in
the days surrounding market's follow-through.

The key concept here is that successful follow-through days generally contain
growth stocks moving into new highs around the time of the follow-through day,
leaving anyone but the quick and astute speculator far behind.

Focusing on the current market, there were virtually no stocks breaking out on
good volume around the December follow-through day. Instead, defensive areas
have provided leadership such as food and beverage stocks, utility stocks,
consumer staple stocks, and tobacco companies such as MCD, PG, WMT, MRK, KFT,
PFE, AMGN, PM, CVS, ABT, UNH, HUM, AEP, NEE. Indeed, the IBD growth indices
have outright lagged the general market indices and defensive names. Bull
markets generally show the opposite trait.

Third, three months removed from the market's October bottom, leadership is
virtually nonexistent (with a few recent exceptions that I describe below). This
is further underscored by the paltry number of 52-week highs in the market. If
you remove the various close-end funds from the new high list, it continues to
look nothing like what it should from an important market bottom. Until the list
expands considerably, caution is warranted for the intermediate speculator.

Fourth, bull markets generally begin with healthy skepticism and negative news.
While the news generally has been negative for the past few months, sentiment is
anything but negative. Indeed, the latest reading from the AAII recorded one of
the lowest prints for bearish sentiment in the past few years. Only 17 percent
of respondents had a bearish view of the market environment, and almost 50
percent of respondents are bullish (which is one the highest levels in almost
one year).

The high level of bullishness and low level of bearishness flies directly in the
face of people that believe that the market "has to" rally because everyone is
so negative. First, the market never has to do anything at all. Second, with
the level of bears at historic lows (at least as read by the AAII), it suggests
that most people have not treated this rally with healthy skepticism. Throw in
the steep sell-off in the VIX, (although it still is not very low by historic
measures) and clearly there are higher levels of complacency and bullishness
than one would generally want to see at the outset of a new bull market.

Fifth, an examination of s and p 500's monthly chart shows that its 12-month
moving average has almost always contained every bull and bear market going back
to 1994. From 1994-2000 the s and p only closed two months below its 12-month
moving average. In 2002-2002, the 12-month moving average contained the entire
bear market. The moving average also contained the entire 2003-2007 bull
market, and the ensuing bear market from 2008-2009, as well as the 2009-2011
bull market (with a quick closing undercut in the summer of 2010). Presently,
the s and p is just shy of its 12-month moving average, so this should be
watched closely. A failure at this level would bode ill for the bulls, however
a monthly close above this level would be extremely bullish.

Lastly, January historically has been one of the trickiest and sloppiest months
to get a read on trends, as the market's action can usually best be described as
"Jell-o moving on the plate". The first week of January 2012 has been no
exception. In addition, markets often run up in early January only to roll over
hard later in the month or early in February. January can often give false
senses of hope to the bulls, so some caution is certainly prudent until earnings
season kicks into gear later this month which should give us a better read on
the intermediate and longer term trends of the market.


Despite the reasons to maintain a defensive posture at the moment, there have
been some positive developments in the market during the past few weeks.

First, most of the major indices have retaken their longer term 200-day moving
averages. The longer these indices stay above these levels, the more likely the
200-day moving averages can become support instead of resistance.

Second, while new highs and breakouts remain lacking as a whole, there have been
a few areas starting to assert themselves in recent days such as medical stocks
(ALXN, SLXP, CBST, CNC, ISRG, BIIB, JAZZ), and oil stocks (SNP, ATLS, CLR,
AREX). In addition, a few growth leaders broke out recently and held their
breakouts such as GOOG, ISRG, and SCSS. While it remains a rather narrow tape
for leadership and new highs, it has expanded a bit in the past week few weeks.

Finally, an increasing number of stocks have tightened up in their basing
patterns and/or climbed the right sides of potential bases such as LULU, NUAN,
LQDT, CFX, TYL, PNRA, BWLD, CMG, WFM, AAPL, SYNA, MELI, KLAC, NKIE, UA, COH,
MELI, SNDK, QCOM, DE, MON, JBL, INTC, IGT, and SLAB). If some of these stocks
can stage breakouts on volume in the coming weeks, it should bode well for an
improved market environment.



In sum, a defensive posture and a decent amount of cash reserves remain the best
bet for the intermediate speculator at the present time. In spite of the fact
that the indices continue their assent higher in the short-term, the evidence at
hand suggests that the market lacks power, leadership, and many other
characteristics of a healthy bull market move. If things change (WHICH THEY CAN
IN A MATTER OF DAYS), I will provide a timely market update.

This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing.

[ernsttanaka]

Tom Preston on of the smartest minds in the option business - I believe double PhD's and a successful pit trader for decades wrote I think a great article on the VIX.

http://www.thinkmoney-digital.com/thinkmoneygreen/winter2012#pg12


Enjoy the weekend,

Ernst

[adam ali]

For members in the NYC area, this event is coming up:

http://www.moneyshow.com/tradeshow/new_york/traders_expo/

[ernsttanaka]

http://www.ritholtz.com/blog/2012/02/5-signs-you%E2%80%99ve-matured-as-a-trader/

[ilonaross]

http://dealbook.nytimes.com/2012/03/01/greek-crisis-may-test-the-value-of-swaps/?smid=tw-nytimesdealbook&seid=auto

[Rembert]

Understanding the Link Between Volatility and Compound Returns :

http://cssanalytics.wordpress.com/2012/03/12/understanding-the-link-between-volatility-and-compound-returns/

[Rembert]

http://www.chartmill.com/documentation.php?t=Equity+Curve+Control


The truth is a once working system (ok if it’s not merely based on a technical arbitrage) never dies. It merely runs in and out of synch with the market.

[Rembert]

http://markminerviniblog.blogspot.com/2012/04/lesson-in-valuation-part-1.html


In the stock market, what appears cheap could actually be expensive, and what appears "overvalued" may become your next big winner. Our own historical study of huge price performers found the potential for earnings growth was a much more important factor than the current PE or valuation level.

[ilonaross]

After a healthy bull run since the beginning of this year, the market's uptrend
is showing signs of stalling in the intermediate term. The action in the major
indices, leading stocks, and my own P and L, tell me that the tenure of the
market may be changing in the intermediate term. Faced with the evidence I
outline below, higher levels of cash, and a defensive posture is probably
prudent until the market's uptrend shows signs of resuming.


The Major Indices

All of the major indices have suffered high levels of distribution in recent
weeks. Our leading index -- the Nasdaq Composite -- has approximately eight or
nine distribution days of its recent high in late March. Indeed, the Nasdaq has
not flashed one above average volume day since February 28. The other major
indices have similar amounts of distribution. Some of the broader indices that
have lagged much of the rally -- like the NYSE composite -- trade well below
their 50-day moving averages, while the s and p 500 and Nasdaq are just slightly
below those important support levels and looked poise to break below those
areas.. In addition, after trending upwards in quiet fashion since January, the
major indices have exhibited volatile up and down action in recent days that can
be symptomatic of a market that needs a rest after a long uptrend.

Faced with this evidence, a cautious tone is certainly prudent, until the market
can show signs of accumulation in the form of a new follow-through day.

Leading Stocks

While most of the leading growth stocks have showed resilience in the face of
distribution in the broader market, some early warning signs are flashing that
the correction could deepen.

Leader AAPL has shown high levels of distribution off its recent high. Last
week, AAPL closed at the low end of its weekly range on its biggest volume week
since its original breakout back in January. The stock is currently sitting on
its ten-week moving average, and reports earnings tomorrow, so this action this
week should give us an important clue about where the market is heading in the
intermediate term.

PCLN is still sitting comfortably above its ten-week moving average, but similar
to AAPL has flashed some high levels of selling volume off the recent highs. A
feeble rally earlier last week occurred on lighter volume. While this stock
still looks in good shape longer term, the high levels of distribution off its
recent high need to be monitored closely.

KORS, recent broke below its 50-day moving average on high volume, and has shown
little inclination to get back above that line. The chart is plagued with high
volume down days and low volume up days, and is another sign that the tenure of
the market's leaders have changed. The stock may be forming its first real base
since its IPO, but nevertheless appears to have lost its "mojo" for the time
being.

CMG was distributed off its earnings report last Friday. Like AAPL the stock
closed the week at the bottom of its weekly trading range on it highest volume
since the move began. Given the run up this stock has had, a basing period
and/or correction would be normal, but the recent action may also be a clue that
the market's tenure has changed in the intermediate term.

Other leading stocks have also broken below their ten-week moving averages on
volume including PNRA, TPX and QCOM.

In addition many tech stocks, particularly in the cloud computing area, contain
extremely wide and loose behavior off their earnings reports, including VMW and
FFIV. Such wide and loose action is not indicative of a strong healthy
intermediate bull move.

Not all leaders are acting suspect, and many continue to hold up well for the
time being, including UA, ISRG, and CRM. However for the first time since
January, many leading stocks are flashing some cautionary signs in the form of
high levels of distribution off their recent highs.

P and L

Another area I used to measure market health is my own P and L. After a long
period of progress, if my own P and L stalls and cannot make much progress for a
few weeks, it can provide an internal feedback mechanism that the market's
uptrend is coming to an end. Indeed, if I were to plot my P and L on a graph,
one might say that it has churned at its recent highs similar to many stocks in
this market. This certainly is something I watch and tells me not to press
things and play defense at this time.

In conclusion, the high levels of distribution in the major indices, some
deterioration in leading stocks, and my own P and L, tell me to play defense and
maintain a decent amount of cash at this time. If the correction does deepen,
this should allow new bases to be built and enough fear and negative sentiment
to set the market up for another potential rally later this year. At a minimum,
until I see a follow-through day and a resumption of the uptrend in leading
stocks, I believe taking a step back and playing some defense is prudent.


Please email me with any comments or questions.
This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing.

[ilonaross]

Last time I wrote two weeks ago, I concluded with the following observations:

"In conclusion, the high levels of distribution in the major indices, some
deterioration in leading stocks, and my own P and L, tell me to play defense
and maintain a decent amount of cash at this time. If the correction does
deepen, this should allow new bases to be built and enough fear and negative
sentiment to set the market up for another potential rally later this year.
At a minimum, until I see a follow-through day and a resumption of the
uptrend in leading stocks, I believe taking a step back and playing some
defense is prudent."

In the past two weeks, the situation has continued to deteriorate. While the
market managed to stage a feeble rally from deeply oversold levels, the lack of
a follow-through on the Nasdaq Index (the de facto leader of the bull move this
year), coupled with continued wide and loose action in leading stocks seems to
be foreshadowing another leg down in the market correction.

The Nasdaq Composite managed to retake its 50-day moving average two weeks ago
on a big earnings gap-up from AAPL. However in the days thereafter, the Nasdaq
could only rally marginally on low volume, and then suffered a massive stalling
day on Wednesday of last week. Last Thursday and Friday, this index suffered
two high volume distributional days as it broke its ten-week moving average. If
we step back and objectively examine this index, we see a breakdown last month
on heavy volume, followed by a low volume feebly rally with stalling and heavy
distribution late last week. This appears to favor more downside for this index
before the correction ends.

Another clue that the rally was suspect was the fact that the Dow Jones, the
lagging index this year, led the rally and made a marginal new high while the
Nasdaq and s and p 500 failed to do so. Indeed, the s and p 500, like the
Nasdaq, has broken below its 50-day moving average on heavy volume and looks
ready to take out its recent lows.

Leading stocks do not favor more upside from here either. In my last report, I
discussed the high volume break of AAPL to the downside. A quick gap-up on
earnings was nothing more then a headfake, as the stock quickly faded in the
days thereafter and is approaching its old lows from two weeks ago. AAPL, which
had been leading the market higher this year, is now leading the market in the
opposite direction to the downside!

Leader CMG also tells the tale of a stock that seems to have lower prices in
mind. The stock quickly broke down to its 50-day moving average on high volume,
staged a feeble rally on low volume, and now has turned back down again on heavy
volume. The look of the volume bars looks like a red volume sandwich, where the
big red bars are the bread, and the little blue bars are the meat in between.
Red volume bar sandwiches are not something the bulls want to see in leading
stocks.


The leading cloud stocks such as RAX, FFIV, and CRM continue to shape wide and
loose faulty bases. Even the strongest cloud-type stock, EQIX, has been unable
to hold its earnings gap from a week ago. While the stock still is intact on
its weekly chart (for now), the inability of it to hold its earnings gap tell
us, at a minimum, that the market is not rewarding leading stocks bursting into
new highs at this time.

Many retail and apparel stocks attempted to stage breakouts earlier last week
such as KORS, UA, and LULU. However, a close examination of these weekly charts
shows bases that are extremely short and contain some wide and loose action,
which may signal that more time is needed if these stocks want to lead the
market higher. LULU continues to hold its breakout for now, but should selling
persist, the stock is likely going to need to wait for a better market
environment to thrust higher.

Other leaders such as ALXN, V, CLR, BWLD, CF, EL, EZCH, FAST, FOSL, FRAN, HLF,
LVS, NUS, PNRA, QCOM, RL, and UBNT all continue to live below their ten-week
moving averages and show a lack of buying pressure coupled with systematic
selling pressure.

Another issue for the general market (at least in the intermediate term) is the
continued "massacre" in the financial and commodity sectors While these groups
do not contain many leading stocks, they do weigh heavily on the major indices.
It is somewhat disturbing to see the large financials such as BAC, MS, and GS
unable to find bids and continue to sell off and break support areas. This most
certainly is something to be watched closely in the weeks ahead.

Sure we have a few leaders acting well, such as SWI, WFM, and LNKD. But the
weight of the evidence in the market suggests that in the intermediate term, the
general market and most leading stocks have lower prices in mind. Therefore,
the most prudent stance is to continue to maintain high levels of cash and use
any quick bounces that can occur to get into a more defensive posture.

Staying out of the market until the planets align is one of the most important
things one must master to obtain success in the stock market. In due time, a
new uptrend will commence where they were be ample opportunity to reap huge
gains. Keep in mind that the great thing about the market is that one does not
need to play every hand. Unless the odds are in one's favor, the best course is
to stay disciplined and maintain high levels of cash while letting others lose
money because of their impatience and inability to wait for the "fat pitch."



This email was sent by Edward Hornstein, 60 east 42nd street, suite 1144, ny,
NY 10165, using Express Email Marketing. You were added to this list as
ilonaross@aol.com on 12/1/2008.

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[ilonaross]

In my last report dated May 6, 2012, I discussed the continuing technical
deterioration in the market and that:

"[t]he weight of the evidence in the market suggests that in the intermediate
term, the general market and most leading stocks have lower prices in mind.
Therefore, the most prudent stance is to continue to maintain high levels of
cash and use any quick bounces that can occur to get into a more defensive
posture."

In the past two weeks, selling pressure has intensified with the market indices
exhibiting a "waterfall" decline down to their 200-day moving averages. Indeed,
the Nasdaq Composite has corrected 11.4 percent off it highs seen only about six
weeks ago. Areas that lagged the uptrend earlier this year have been decimated,
such as the commodity and financial sectors. In fact many stocks in these
groups have approached lows seen all the way back last October at the end of
last summer's mini meltdown!

Other leading stocks that had been holding up well broke intermediate support
recently, including LULU, UA, LNKD, KORS, PCLN, AAPL, and TDC.

The prudent intermediate speculator certainly had ample opportunity to move to
the sidelines given the "clues" the market offered throughout April and early
May in the form of high levels of distribution in the market indices, and
substantial breakdowns in many leading stocks. With high levels of cash and a
defensive posture still being the general theme at this juncture, the question
now arises whether yesterday's large up day off the lows will amount to a
substantial bottom and rally, or merely a one-day or one-week wonder that
eventually fizzles and leads to lower prices.

The truth is NO ONE knows the answer to that question, and trying to decipher
the answer is a fruitless exercise. As the famous speculator Bernard Baruch
wrote "Don't try to buy at the bottom and sell the top. This can't be done-
except by liars."

Instead, the prudent speculator will simply observe and watch the action develop
over the next few days and weeks to see if a rally confirms an uptrend in the
form of a follow-through day. Indeed, "speculator" comes from the Latin word
"speculari", which means to spy out and observe, or to get the facts, form a
judgment, and take action accordingly. For now, that is exactly what I am
doing: observing, watching and waiting to see if a meaningful rally develops
or if the rally attempt which began yesterday rolls over.

Presently, there is a lack of leadership due to the heavy distribution that
occurred this month. However, there are certainly a few stocks that have stuck
out and resisted the selling pressure and are worth watching should the rally
confirm. They include: EXPE, TRIP, MLNX, SXCI, FIRE, EQIX, GNC, AMZN, EBAY,
SWI, CRUS, ALGN, ULTI and CRM.

Other former leaders which COULD be forming new bases (and have not presently
broken LONGER TERM SUPPORT) include AAPL, CRM, LNKD, UA, LULU, CMG, SBUX, PCLN,
MA, V, ISRG, ALXN, BWLD, KORS, RHT, STX and TFM.

For now we simply Watch and wait to see how the events unfold. If the attempted
rally in the general indices dies and the indices break their longer term
200-day moving averages, what has been a normal intermediate correction could
turn into something of longer term consequence. In that case, high levels of
cash will continue to be the theme of the summer.

However, if the market can follow-through and confirm a rally attempt, some of
the stocks listed above should provide the leadership necessary to propel the
market to higher prices.



Lastly, this is a reminder that I will be speaking at the International Traders
Expo in Dallas, on Friday, June 8, between 4:30 and 5:30 PM. Details can be
found at the following link: http://www.moneyshow.com/tradeshow/dallas/traders_expo/speakers/speaker_details/?speakerid=815376B

I hope some of you can make the event, and look forward to meeting with those of
you that do. Please email me if you have any questions about the event.

[Billy]

A very pertinent interpretation of SPY outlook based on weekly volume spikes analysis.

http://www.etfdigest.com/commentary/SPY-Using-Volume-As-An-Indicator.html#comments

Billy

[Billy]

http://etfprophet.com/the-future-is/

[ilonaross]

http://www.nytimes.com/2012/09/16/nyregion/the-lonely-redemption-of-sandy-lewis-wall-street-provocateur.html?pagewanted=1&pagewanted=all

[ilonaross]

The major market indices continue to climb higher off the confirmation of the
rally attempt we witnessed approximately seven week ago on July 27. In
addition, a number of liquid growth stocks have broken out and exerted
themselves as market leaders. As I noted in my interview with the MoneyShow on
August 20:



"Over the past week or two, though, I'd say there's been a gradual improvement
in the leadership of the market out there. We've had a few more stocks, which we
can discuss, that gapped up out of bases on earnings and are holding their
gains. Recently we've had a few other of the liquid 'glamour stocks' either
break out into new high ground, or kind of tighten up and are attempting to
break out right now. That missing piece from this rally, which is powerful
leadership, is kind of starting to come on right now. So we have the potential
to be in a transition phase here, where if this rally is going to work over the
next few weeks, you would expect to see a lot of these leading stocks start to
substantially outperform the market indices."



With the major indices last week pushing into new high ground for the year, the
number of new 52-week highs expanding, and little if any distribution, there is
not much to say except the intermediate and long-term trends in the market
remain up, and the market appears to be setting up for higher prices. Any
short-term pullbacks have been nominal and rotational, and have served to pause
and refresh the major indices and leading stocks.


In addition, many sectors that have suffered large amounts of distribution over
recent months continue to repair and rebuild. Areas such as the financials, and
commodity-based stocks have shown impressive accumulation off their lows in
recent weeks, which had led to a "broadening" of the market rally. For example,
the major banks such as GS, BAC, JPM, WFC, and C continue to power higher on
good volume. While buying these stocks does not fit within with my overall
methodology, it certainly is a positive sign to see this sector in gear.

Furthermore, commodity areas such as cooper, gold, silver, and oil stocks
continue to power higher off lower level bases. Indeed, the volume in the gold
and silver etfs -- GLD and SLV -- is quite impressive as these proxies power
higher in their overall secular bull markets.

More importantly, leading growth stocks are powering ahead as the rally gains
traction. For example, leaders AAPL and GOOG powered into new yearly high
ground today ahead of the market indices. In the biotech space, leaders GILD
and BIIB went into new high ground today on good volume.

Last week, we saw leaders LNKD and AMZN power into all time high ground and the
stocks are now digesting their gains quietly on low volume.

Retail leaders GPS, KORS and UA continue to consolidate on low volume after
showing power early in the month.

Even MLNX, which emerged as a leader in the late summer, appears to be
correcting and digesting its massive gains, and despite a quick "shakeout" is
hugging its 50-day moving average, and could reassert itself at any time.

Simply stated, the market remains in a confirmed rally, pullbacks have been
short and rotational, and the leaders are doing what they should be doing --
leading the market higher. For now, I sit back, stay positioned in "core"
leading stocks I own, and ride the uptrend until distribution appears in the
general market and leading stocks
As always, here is my focus list of leading stocks:

AAPL, GOOG, LNKD, AMZN, CRM, KORS, GPS, URBN CRUS, GILD, BIIB, REGN, MLNX, CF
AGU, COST, EBAY, EQIX, EXPE, HD, UA, CAB, PANW, TUMI, PNRA, RAX, SWI, MON, REGN,
CAB, PANW, TUMI, TOL, LEN.

As always, please email me with any questions or comments. And a Happy and
Healthy New Year to all those celebrating the Rosh Hashanah holiday.

[Billy]

There is an excellent series of articles going on at alletf.com that will help many of us to better understand what ETF market makers are exactly doing and therefore get a better execution for our own trades.

For example, why, most of the time, we should avoid placing orders in the first minutes of trading; how is the creation/redemption process going on and how it distorts volume readings; why we should monitor the Intraday Net Asset Value of the ETF; when the ETF liquidity is an illusion or a reality, why hard stops are dangerous with the risk of flash crashes,etc…

Billy

http://alletf.com/content/tag/best+practice

[Billy]

Some interesting market volume statistics and their impact on the big boys trading desks performance. I was quite surprised by the new reality of the profession.

http://finance.yahoo.com/news/wall-street-equities-traders-face-135753646.html

Billy

[ericoleman]

Hi group,

I found this particular link to be particularly interesting. It contains a wide assortment of interviews with various money managers discussing their respective strategies. Of note were the interviews of Mike Novogratz, Ping Jiang, and Danny Yong.

http://www.opalesque.tv/index.php

Best,

Eric

[ericoleman]

This link is for a recent interview with Stan Weinstein. He talks about his index of leading "glamour stocks" and his longer-term outlook. It is really quite a good interview and insightful, too.

http://www.financialsense.com/financial-sense-newshour/big-picture/2012/11/10/01/stan-weinstein/markets-lower-next-3-6-months

Best,

Eric

[ilonaross]

http://www.nytimes.com/2012/12/22/business/cost-of-12-days-of-christmas-totals-107300.html?src=rechp

Happy Holidays.

[ilonaross]

I wanted to drop everyone a quick note and attach a link to a new book from the
folks at IBD entitled:

"How to Make Money in Stocks Success Stories: New and Advanced Investors Share
Their Winning Secrets" by Amy Smith.

The book can be purchased on Amazon at the following link.

http://www.amazon.com/Make-Money-Stocks-Success-Stories/dp/0071809449/ref=sr_1_2?ie=UTF8&qid=1356577593&sr=8-2&keywords=success+stories+from+how+to+make+money+in +stocks#_

I am honored to be featured in a section of the book on what I believe is pages
123-126. I have not read the entire book yet but I heard Amy Smith has done a
fabulous job.

I have been quite busy the past few months, as my wife and I recently welcomed
our second child, Avery Reese. Nonetheless, once the New Year begins, I will be
writing more frequent market updates, (about two times a month).

For now I am maintaining high levels of cash and playing defense as many former
leaders continue to break down and/or form longer term tops. What looked like a
potentially promising rally a few weeks ago, is now beginning to look like a
rally that could fail soon. More on this in my next market update early next
week.

I wish everyone a happy and healthy holiday and New Year.

[ilonaross]

http://i.imgur.com/XaiUx.gif

[Pascal]

Below is an eye opening figure regarding the evolution of corporate profits. This is a long-term view. Note that the left and right axes are inverted, which means that there is a strong inversed correlation between corporate profits as a share of GDP and the next 4 years average profit earnings growth.

This tells us that even though the market might go up some more, on a longer-term period, it will go down.

This Figure and the text comes from Hussman's weekly analysis.

http://www.hussman.net/wmc/wmc130114.htm


16926

hussman writes:

On the outlook for corporate profits

Presently, corporate profits as a share of GDP remain about 60-80% above their historical norm, depending on the measure one uses. Meanwhile, Wall Street is enthusiastic not only to take current price/earnings multiples at face value, but to extrapolate strong future rates of earnings growth. As a reminder of the reality that will predictably follow this mistake, the chart below shows the ratio of corporate profits to nominal GDP (left scale), along with the subsequent annual growth rate of corporate profits over the following 4-year period (right scale, inverted). Note that the inverted right scale means that higher values represent slower profit growth.

At present, current profit margins are consistent with earnings contraction over the coming 4-year period at something close to a -10% annual rate, implying a drop in corporate profits by more than one-third in the coming years (even assuming intervening growth in GDP). That sort of decline would be consistent with a normalization of profit margins, without taking them below their historical average. Investors who believe that stocks are “fairly priced” on the basis of “forward operating earnings” seem to have no appreciation of the extent to which depressed savings rates and massive government deficits have temporarily boosted corporate profits over the past few years

[xr-3609]

Each AM US this site gives a factual account of the previous evenings overseas gold market -

http://www.caseyresearch.com/gsd/home

[engr_358]

Faber's comments and analysis from SeekingAlpha:

A pullback will be coming....the golden question is when and how deep will it be? EV combined with TA will be the tools to help us stay on the right side of the market. My problem has always been trying to anticipate the market and then getting burned. I've been right on the direction before , but my timing has been off. That's why I am attracted to EV analysis to improve my decision making and lower the market timing risks.

http://seekingalpha.com/article/1175971-dr-marc-faber-expects-10-correction-in-equities

[ilonaross]

http://www.nytimes.com/2013/02/17/your-money/stock-market-keeps-ignoring-washingtons-gloom.html?src=recg

[Pierre Brodeur]

I came across this link which is a whitepaper on a new indicator the CBOE has created in order for traders to refine their VIX market timing signals

http://www.cboe.com/micro/skew/documents/SKEWwhitepaperjan2011.pdf

[xr-3609]

Andrew Left's short website has a very interesting view of 3D Printer stocks:
http://www.citronresearch.com/wp-content/uploads/2013/02/DDD-final1.pdf

His record with China stocks:
http://www.citronresearch.com/citron-knows-china/

And website:http://www.citronresearch.com/

[Pascal]

Andrew Left's short website has a very interesting view of 3D Printer stocks:
http://www.citronresearch.com/wp-content/uploads/2013/02/DDD-final1.pdf

His record with China stocks:
http://www.citronresearch.com/citron-knows-china/

And website:http://www.citronresearch.com/

Very interesting article on DDD. Thanks for posting!


Pascal

[ilonaross]

http://www.bloomberg.com/news/2013-02-27/gold-miners-come-clean-on-costs-after-lost-6-years-commodities.html

[adam ali]

http://marketsci.wordpress.com/2013/02/28/day-of-month-seasonality-for-march/

[lisa]

long but interesting video: http://www.bloomberg.com/video/druckenmiller-i-see-storm-coming-bigger-than-2008-Pu%7EcwiXcRle8XEcPKIbXJw.html

lisa

[adam ali]

http://www.financialsense.com/contributors/carl-swenlin/interest-rates-turning-up

[Billy]

http://www.etfdigest.com/commentary/Crude-Oil-Finding-Correlations-in-the-Currency-War-USO-.html#comments

[adam ali]

Anyone have a thought here?

http://www.distressedvolatility.com/2013/03/chart-vixs-vix-is-diverging-with-vix.html

[Pascal]

This is an article of November 2012 that explains the gold leasing by central banks

http://victorthecleaner.wordpress.com/2012/11/26/central-bank-gold-leasing/



Pascal

[adam ali]

http://www.nytimes.com/2013/04/01/business/as-market-heats-up-trading-slips-into-shadows.html?smid=tw-share&_r=0

[adam ali]

http://www.businessspectator.com.au/article/2013/4/1/markets/greenspans-bullish-time-sell

[Pascal]

It is still decreasing for now (Last update = March 28.) No inflation is building in.

http://research.stlouisfed.org/fred2/series/M2V

Pascal

17869

[ilonaross]

Pascal: My storage rental unit is now $140 vs. $99 in 2005. The particular foods I buy are up even more, and one of my favorite grass-fed boutique dairies just closed his doors because he couldn't make a profit and he was already too expensive. Not to mention gas, health insurance, blah blah up sky high. I'm not sure there's no inflation, at least on this side of the pond. There's no housing inflation, no wage inflation, for sure. So I did a search, and this is what came up.

http://www.zerohedge.com/contributed/2012-08-10/inflation-m2-and-velocity-money

[ilonaross]

http://www.mauldineconomics.com/images/uploads/pdf/130528_1OTB_PDF.pdf

[Pascal]

This is an interesting article about QE and the transmission mechanisms in general.
Nothing "tradable" here, but a well balanced opinion.


Pascal


http://coppolacomment.blogspot.com.au/2013/05/inflation-deflation-and-qe.html

[adam ali]

This article in Der Spiegel discusses the possibility that German economic policy has recently undergone a significant change in approach to the EU. While I'm hesitant to ascribe any wholesale transformation based on one article, I will say that if there has been a serious shift toward growth policies by Germany, it may prove to be the final nail in the coffin for the secular bull market in bonds.

I am surprised others are not focusing on this possibility. Perhaps it's because there have been so many starts and stops in Europe, that it's difficult to know what to believe. I'm also curious what Pascal, Billy and others who actually live in Europe think.

http://www.spiegel.de/international/europe/german-government-to-test-stimulus-instead-of-austerity-a-901946.html

[Mike]

This article in Der Spiegel discusses the possibility that German economic policy has recently undergone a significant change in approach to the EU. While I'm hesitant to ascribe any wholesale transformation based on one article, I will say that if there has been a serious shift toward growth policies by Germany, it may prove to be the final nail in the coffin for the secular bull market in bonds.

I am surprised others are not focusing on this possibility. Perhaps it's because there have been so many starts and stops in Europe, that it's difficult to know what to believe. I'm also curious what Pascal, Billy and others who actually live in Europe think.

http://www.spiegel.de/international/europe/german-government-to-test-stimulus-instead-of-austerity-a-901946.html

The article may be what is behind this chart:

18615

[Pascal]

This article in Der Spiegel discusses the possibility that German economic policy has recently undergone a significant change in approach to the EU. While I'm hesitant to ascribe any wholesale transformation based on one article, I will say that if there has been a serious shift toward growth policies by Germany, it may prove to be the final nail in the coffin for the secular bull market in bonds.

I am surprised others are not focusing on this possibility. Perhaps it's because there have been so many starts and stops in Europe, that it's difficult to know what to believe. I'm also curious what Pascal, Billy and others who actually live in Europe think.

http://www.spiegel.de/international/europe/german-government-to-test-stimulus-instead-of-austerity-a-901946.html

I believe that Germany cannot continue to say no to everybody else, but for election reasons has difficulties to openly say that it will fund more bailouts for the South. However, I am pretty sure that they will accept to fund a special package to help the younger generations. The package will however be small compared to the size of the problem and also compared to the size of past bailouts.

Hollande and Merkel will build a great communication campaign out of this special program for the younger generation.

This is however a distraction against the main issue, which is related to the potential disruption for bond holders and Governments when the interest rates will start rising.


Pascal

[adam ali]

For sure, it will be tricky, but what is the alternative? Continue to focus on austerity leading to greater deficits leading to greater concerns about sovereigns' ability to repay? I think, counterintuitive to most, that a serious growth initiative out of Germany will actually be rather well received by bond markets. Interest rates may go up, but for positive reasons, i.e., growth has returned to the continent rather than negative ones, i.e., credit quality has deteriorated.

Markets are all about changes at the margin, and while Germany may delay a larger program until after the election, it does appear they are more willing to go along with the rest of Europe in trying to stimulate growth. As I said earlier, if true this is a seismic shift in the macro environment.

[Pascal]

For sure, it will be tricky, but what is the alternative? Continue to focus on austerity leading to greater deficits leading to greater concerns about sovereigns' ability to repay? I think, counterintuitive to most, that a serious growth initiative out of Germany will actually be rather well received by bond markets. Interest rates may go up, but for positive reasons, i.e., growth has returned to the continent rather than negative ones, i.e., credit quality has deteriorated.

Markets are all about changes at the margin, and while Germany may delay a larger program until after the election, it does appear they are more willing to go along with the rest of Europe in trying to stimulate growth. As I said earlier, if true this is a seismic shift in the macro environment.

Why would "a serious growth initiative out of Germany" come out of Germany if not in the interest of Germany.
Such an initiative would come if it does not increase the German liability and helps Germany's economy.
If it goes out to help the South and increase German liabilities, then it will be perceived as throwing good money after bad. The South and especially Italy is not manageable right now. How will a "growth program" be managed in Italy, except if it is just free money available to be spent around?

Anyway, things move very slowly here and will be stopping soon for the holidays season. We need a very big crisis for people to meet and decide. So.... Interest rates will trigger a crisis!


Pascal

[adam ali]

Yes, the question comes down to one of self-interest, doesn't it? I believe it's in Germany's self-interest to see the EU succeed rather than disintegrate with all the attendant social and economic chaos, not just to other countries but itself as well. They understand that, and now are starting to recognize for that to happen the continent will need to embark on a serious plan for growth, rather than the austerity path taken to date. That's the seismic shift here...if the Der Spiegel article is to be believed. If true, I believe it spells the end of the global secular bull market in bonds.

[ilonaross]

http://www.nytimes.com/2013/06/02/business/in-bank-earnings-quantity-over-quality.html?ref=business&_r=0

[lulzasaur]

Thought this was interesting read:

http://www.sprott.com/markets-at-a-glance/redemptions-in-the-gld-are,-oddly-enough,-bullish-for-gold/

[Pascal]

Thought this was interesting read:

http://www.sprott.com/markets-at-a-glance/redemptions-in-the-gld-are,-oddly-enough,-bullish-for-gold/

Thank you for posting.
This is an interesting point of view that I am happy to know.


Pascal

PS: I like Sprott, but they are always positive on gold. It might be that their business is to sell PM ETFs.

[Pascal]

This is a very interesting article about gold.
This article does not say that gold will go lower or higher. It says that it is in the interest of those who control the money that gold stays low and it is also a matter of market structure why gold pulled down.

I have long believed that physical gold is an insurance policy against the possibility that the system breaks or against the possibility that it does not break but indefinite taxes increase to pay for Government spending (that will be used to pay the mounting debts.) Physical gold is "out of the system" but becomes by definition highly illiquid.

http://fr.scribd.com/doc/144050211/Gold-Is-Different-David-Evans

On the other hand, trading the markets offer the great advantage of analyzing and understanding where things are going.




Pascal

[adam ali]

To my point last week about Germany, austerity and the end of the secular bull market in bonds:

http://www.businessinsider.com/byron-wiens-smartest-man-bullish-on-europe-2013-6

[lulzasaur]

Been reading everything I can about gold. Thought this link was interesting. The author's premise is certainly interesting.

http://seekingalpha.com/article/1514602-ignore-the-fed-s-doublespeak-and-get-to-gold

[adam ali]

Michael is the PM/CIO of the Mainstay Marketfield Fund which has been an excellent performer since inception in 2007. He is well known to old stock hands as one of the three co-partners of the famed Comstock Fund (along with Stan Salvigsen and Charles Minter; these days the Comstock Fund is managed solely by Minter).

Michael is a brilliant thinker and a true contrarian. His latest monthly commentary is well worth a close read: http://www.nylinvestments.com/MainStay/Features/MainStay-Marketfield-Fund

[1bullseye]

In December De Mark called for a 48% gain for the China market. I havent heard anything from him since and China has sunk like a rock.

[adam ali]

Check Bloomberg website today...

[adam ali]

http://www.marketwatch.com/story/sell-signal-from-key-market-indicator-2013-07-17?dist=beforebell

[ilonaross]

http://www.nytimes.com/2013/07/28/opinion/sunday/sunday-dialogue-our-attitudes-about-debt.html?src=recg

[ilonaross]

Here's the class.

https://class.coursera.org/money-001/class

It just started.

The professor promises that at the end of the class we'll be able to understand every word of the FT and will be able to explain it to anyone in plain English.

So far I've listened to the first lecture and read the first reading (57 pgs written by a 1920s era monetary expert; even though they're free, these classes are no joke.) btw he says the environment today is closer in many ways to that of Bagehot in the 19thC than to that of Irving Fisher in the mid 20thC, and that's on the reading list too.

If anyone wants to take it, I'd love to have some company from someone on this board.

If you don't know what Coursera is, pls go to Coursera.org because the class offerings are amazing. There's also edx and venturelab out of Stanford.

ilona.

[Harry]

Always beneficial to see how the brightest minds (manages 19 billion) in the industry can boil it down so simply. Excellent cartoon accompanies talk: http://blogs.marketwatch.com/thetell/2013/09/22/bridgewater-boss-explains-how-he-avoided-the-financial-crisis/

Harry

[ilonaross]

http://qz.com/124721/the-secret-financial-market-only-robots-can-see/

[Pascal]

http://www.mining.com/web/james-rickards-when-the-international-monetary-system-collapses-its-going-to-be-about-how-much-gold-you-have/

I found the this article interesting, because it says in a few words that:

- One major trend is in rising Americans on food stamps, rising number of Americans either unemployed or underemployed, rising number of Americans on disability.
- The Fed is manufacturing a new stock market bubble on the base of a false business cycle economic model without any impact on the structural problems
- Emerging markets that produce commodities (Brazil) will be the next victim of the Fed manipulation.



Pascal

[ilonaross]

https://class.coursera.org/renminbi-001/class/index

Coursera is also offering the above class, via a Chinese university, and the titles of the first set of lectures echo precisely what Rickards asserts, e.g. the need for a "multipolar" currency system, currency reform, SDRs.

[ilonaross]

http://online.wsj.com/news/articles/SB20001424052702303722104579239831640276094

[ernsttanaka]

http://www.pimco.com/EN/Insights/Pages/Demystifying-Gold-Prices.aspx


A pimco article on "what moves the price of gold"

[lulzasaur]

http://www.mineweb.com/mineweb/content/en/mineweb-radio-gold-weekly?oid=226908&sn=2010+Detail

a podcast on what has changed in terms of what moves gold. somewhat complimentary to the pimco article, but goes much broader.

[Billy]

Many here are quant-oriented and I found this website to be a gold mine for quantitative studies. There, you will never miss any study or research anymore as they are constantly posted in real time from all around the internet.

http://www.thewholestreet.com/

Billy

[mnoel]

Thanks Billy. A lots of interesting stuffs.

[Pascal]

An interesting comment about the market evolution.

Pascal

http://tradestrongmanagement.blogspot.be/2014/10/trading-realities.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TradestrongManagement+%28TRADES TRONG+MANAGEMENT%29

[Pascal]

http://www.marctomarket.com/

[PeterR]

Today, I stumbled upon this report: Millionaire migration in 2015

I think we saw and will see a reflection of this in the money flows.

A great metric to understand the world a little bit more, IMO.
It's also a sobering fact sheet: people vote with their feet.

Source (http://www.nw-wealth.com/)

News about (http://www.ibtimes.co.uk/france-sees-millionaire-exodus-religious-tensions-rise-1552423)

the report (http://nebula.wsimg.com/6e5712bf40ffe85cc116a52402d5a7d7?AccessKeyId=70E2D 0A589B97BD675FB&disposition=0&alloworigin=1)

[Pascal]

Today, I stumbled upon this report: Millionaire migration in 2015

I think we saw and will see a reflection of this in the money flows.

A great metric to understand the world a little bit more, IMO.
It's also a sobering fact sheet: people vote with their feet.

Source (http://www.nw-wealth.com/)

News about (http://www.ibtimes.co.uk/france-sees-millionaire-exodus-religious-tensions-rise-1552423)

the report (http://nebula.wsimg.com/6e5712bf40ffe85cc116a52402d5a7d7?AccessKeyId=70E2D 0A589B97BD675FB&disposition=0&alloworigin=1)

Thanks for the links.

I doubt very much that insecurity in France due to religion issues is the main reason for the exodus in 2015. I would say that millionaires try to escape from the grip of the state and its taxes. This is not new.
Most exodus are from leftist countries because they have a tendency to view financial success as "immoral" and hence tend to tax more millionaires.

In general, money moves out much before people. Moving your home is really the last step after "everything else" is gone.



Pascal

[PeterR]

I doubt very much that insecurity in France due to religion issues is the main reason for the exodus in 2015

I was thinking the same, it's taxes and economic environment.
The reasons they give are not convincing.
I should have mentioned this.

Also they missed that China outflows are often hidden in corporate oversea investments, since private
outflows are legally difficult.

Yet the raw numbers show the movements, for whatever reasons.
E.g. into US, into Australia (pot proxy New Zealand ? )

I also agree, its probably a lagging indicator.

[Pascal]

This article dates of March 2015, but is really a good summary of the forces around currencies and especially the US$.
Reading commentaries also takes some time, but interesting for a week-end reading.

https://mises.org/library/why-it-matters-if-dollar-reserve-currency



Pascal

[Pascal]

Interesting article about the placebo effect of the Fed.

http://www.marketwatch.com/story/the-fed-is-offering-the-markets-a-placebo-and-nothing-more-2016-04-29



Pascal

[Pascal]

Interesting Article about the Precious/industrial metals ratio as a predictive tool.
Long-term analysis with only three past data sets, but interesting view nonetheless.

http://jlfmi.tumblr.com/post/144638690495/heavy-metals-sending-a-warning-to-economy


Pascal

[PeterR]

There seems to be a lot of stress at DeutscheBank.

36811

[PeterR]

This article reports on PBOC's selling of US bonds and buying of Japanese bonds:

http://asia.nikkei.com/Politics-Economy/Economy/China-gobbling-up-Japanese-government-bonds

They analyzed the latest TIC report - I think.

I post this here because I draw the following from it:


PBOC seems to act as a trader -not as an investor (I saw posts on blogs about the "PBOC-Trader" in the past)
PBOC sold into bond strength from January on.
PBOC chooses JGBs as alternative


a contradicting argument is:

PBOC simply has to reduce their reserve holdings, because of the slowdown at home.

[PeterR]

This article highlights the sentiment of Japanese CFOs that President Trump is a negative for US economy.

http://asia.nikkei.com/Politics-Economy/Economy/Japanese-CFOs-see-a-President-Trump-as-top-risk-to-US-economy


More than 70% of Japanese chief financial officers consider a Donald Trump presidency a near-term risk to the American economy

This could be one reason of recent US equity and REIT weakness.

I don't agree with this judgement.
Trump's proposed fiscal policies seem way healthier for the US economy than Hillary's policies.

Finally, in the American system, the president's political power position (ex-military) is one of a proposer - not an implementer (that lies with congress and senate).
So the identity of the president does not weight too much.

The Japanese behavior seems to be a case of herd/group-think effect.

IMHO, another reason to look to fade this break in US equities, once the election uncertainty wanes.

---
Now that I think about. A similar sentiment might be present with Europe's CFOs (and other Asian, Chinese ones).

[PeterR]

I consider George Friedman one of the most sharp-sighted contemporary.
His model based analysis is unparalleled, testable and tested.
Here is the summary of his The World in 2017 report.
The rest is here: https://geopoliticalfutures.com/the-world-in-2017-2/
------------------------------------------------------------------------------------------

Summary

Our 2017 forecast includes projections for several regions. Here are some highlights.

The United States:

U.S. foreign policy will shift toward nationalism and this will change U.S. relationships throughout the world.
The U.S. will not experience a recession in 2017 but will show signs of one by the end of the year.
The U.S. will seek to enforce or renegotiate trade deals such as NAFTA. Further multilateral trade agreements are unlikely.
The U.S. will seek to redefine trade relationships on a basis more advantageous for the U.S. and China will be the first target.
The U.S. will try to limit exposure to instability in the Middle East and Eastern Europe by shifting the burden of maintaining stability to allied forces.
In Asia and the South Pacific, the U.S. will maintain close military relationships with key countries, such as Japan and Australia. The U.S. will also continue to develop closer ties with India and will maintain relations with smaller countries like the Philippines.
The U.S. will increase cooperation with Russia in fighting the Islamic State in the Middle East.
Despite these improvements, the real relationship between the U.S. and Russia will continue to be defined by opposing fundamental interests.
The U.S. will work with the Turks to stabilize the situation in Syria at the expense of the Syrian Kurds; the U.S. will increase cooperation with Iran in the fight against IS in Iraq.
The U.S. will not be able to disengage from fighting IS or defeat IS decisively.
In Afghanistan, the U.S. will keep limited troop numbers on the ground but the Taliban will continue to advance their control over parts of the country.

Europe:

Germany will see a drop in exports in 2017.
Italy’s banking crisis will continue. It will morph into a political crisis and a confrontation with Germany and the European Union.
Non-euro EU member states, especially those in Eastern Europe, will be exposed to the stagnation in the German economy.
The refugee crisis will continue in 2017. Differences between European countries on how to deal with the crisis will continue and border controls, already a fact of life, are likely to be extended.
The U.S. will pressure the Europeans to commit to NATO. European states will agree but will not live up to their financial commitments to the organization.
Brexit will continue to have a political impact on Europe in 2017 but will have a limited effect on the U.K. and the EU member states’ economies.
The U.S. and NATO enforcements on the Eastern containment line with Russia will continue in the East, while the West will focus on debating better ways for the EU to defend its borders and increase internal security.

Russia:

Russia’s economy will face severe challenges, and this will begin to manifest as social unrest, especially in the countryside.
Oil prices in 2017 will not rise high enough to offset Russia’s economic woes.
Russia will seek to continue and formalize the frozen conflict in Ukraine.
Russia will be open to a certain degree of cooperation with the U.S. over fighting IS in the Middle East.
Russia will use proxies to assert its influence in some of its traditional borderlands, including the Balkans, Central Asia and the Caucasus.

East Asia:

President Xi Jinping will solidify his dictatorship in China in 2017, and the crackdowns on unrest and potential rivals will increase in severity.
Unemployment in China will increase in 2017 and lead to unrest, but not enough to undermine the Communist Party’s rule.
China will feel pressure from the U.S. and will look to respond in asymmetric ways, such as involving itself in the domestic affairs of other countries in the region.
No war will occur in the South China Sea or the Taiwan Straits.
Japan will increasingly appear to be the decisive power in East Asia.
North Korea will continue to develop its nuclear program, but no war will break out as a result.

Central Asia:

Central Asia’s instability will accelerate into crisis. Kazakhstan, Uzbekistan and Turkmenistan are the most vulnerable countries.

South Asia:

Indian Prime Minister Narendra Modi will try to increase the power of the state, especially over the Indian economy and will fail. GDP growth and foreign direct investment will fall.
India and Pakistan will not go to war over Kashmir.
The Taliban will build on gains made in the past year, gaining more control of Afghanistan, and Pakistan will see an increase in domestic insurgency due to spillover.

The Middle East:

Regional powers will compete for influence as a result of the chaos in the Sunni Arab world; Turkey and Iran will be the most active competitors.
Turkey will increase its military footprint in Syria, and Iran’s position in Iraq will improve in 2017.
Saudi Arabia will be forced to scale back its regional policy agenda, especially concerning the war on its southern flank in Yemen.
Raqqa will not fall in 2017, but the Islamic State’s conventional power will weaken.

South America:

Gridlock in the Venezuelan government will break in 2017. The government of President Nicolás Maduro in its current form will not survive 2017.
Brazil’s economy will finally end two years of deep recession and return to modest GDP growth.
The Argentine economy will show signs of normalization as a result of President Mauricio Macri’s reforms.

Africa:

The U.S. and France will very selectively engage in security operations in Africa.
Low-income countries in East Africa – Ethiopia, Kenya, Tanzania and Uganda – will see their economies grow multiple points above global and regional average growth rates in 2017.

Long-Term Technological Transformation:

2017 will be the beginning of a long decline in microchip-based industries that will not be reversible. These industries will be reduced to desperately looking for new and more dubious applications.
Between now and 2030, there will be an overlap with a new technology that is not yet obvious, which will revolutionize life the way the internal combustion engine and the microchip did.

----------------------------------------------------------------------------

[flywest]

http://www.businesswire.com/news/home/20170926005655/en/Intercontinental-Exchange-Announces-ICE-Futures-U.S.-Contract

FAANG might as well have their own index they already control the Nasdaq....lol

[Pascal]

This is indeed interesting.

I plan to publish the NQ8 RT Money Flow before the end of the week. The NQ8 includes the Fang list, except Chinese stocks (BIDU, BABA)


Pascal