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Posted: 11 Oct 2011 11:30 AM PDT
Posted: 11 Oct 2011 09:00 AM PDT
Posted: 11 Oct 2011 07:30 AM PDT
A fantastic quote bubbled up in comments the other day:
I find this hilarious, because it it true.
Posted: 11 Oct 2011 06:00 AM PDT
Very interesting data points via Absolute Return:
Posted: 11 Oct 2011 05:31 AM PDT
Markets await the vote of the Slovakian Parliament to approve the expanded EFSF, the last country of the 17 euro members to do so. After the head of the opposition party said he would vote yes on a 2nd vote if the 1st vote failed, it eased concern of a failure of passage. Assuming no surprises, attention has shifted to what comes next and DJ is quoting an EU senior official saying finally, “The discussion is on a haircut, how big it needs to be and whether sovereign creditors may be involved.” Last night Juncker, who heads the euro finance ministers, said a 60% cut may be necessary but his spokesman said he didn’t mean to give an exact figure and only meant to say it would be above 21%. Either a debt swap or outright haircut will be the two options. The ECB will certainly be pushing for the former since their balance sheet is polluted with junk sovereign debt. Once a decision is made amongst the parties involved, the focus will then be on containing the collateral damage both to other sovereigns and to the banks that hold sovereign debt. Also today, the troika today will release their decision on whether Greece behaved enough to get their next allowance check and release of it is expected. In the first monetary step of an Asian central bank to reverse the economic concerns, Indonesia unexpectedly cut interest rates by 25 bps to 6.5%, reversing its Feb hike. China’s sovereign wealth fund bought Chinese bank stocks in the secondary market, news of which was announced after the Shanghai index close but before the Hang Seng closed
Posted: 11 Oct 2011 05:30 AM PDT
The Wall Street Journal – Chart Watchers See Upbeat Turn
Several Technical Analysts Say Stock Moves Last Week May Signal a Market Bottom; 'Upside Breakout' Ahead?
We decided to take a further look at the highlighted statement above to see if we have hit a 'significant bottom' in the stock market after 3 consecutive daily rallies of 1.75% or more last week.
Our analysis shows this is not the fourth time since WWII that the market had three consecutive daily rallies of at least 1.75%, but the eleventh. Additionally, this has occurred 34 times since the 1929 stock market crash. However, this has only occurred 4 times since 1974. We look at these periods in detail below.
Let's begin with the 3-day period in 1974. The chart below shows the S&P 500 from June 20 to December 31 1974. Between October 7 and October 14, 1974 the S&P 500 rose about 16%. Although the market continued to move sideways for the next couple of months, this was, in fact, a significant bottom in the stock market. Technicians would argue that this large three-day "thrust" did not trigger a technical breakout, but this move did occur near the low.
In the beginning of August 1984 the market saw another 3-day period of consecutive daily rallies of 1.75% or more. As the chart below highlights, the market rallied 8% between August 1 and August 3, 1984. The market continued to rally until the 1987 crash over three years later. Technicians would argue that "thrust" produced a breakout and the market responded by not looking back for over three years.
The chart below shows the next 3-day period in which stocks advanced by 1.75% or more each day. Between August 6 and August 8, 2002 the market rallied 8%. As the chart below shows, this was not a significant bottom. The market continued to fall another 11% by October of that year (three months later).
The chart below shows last week's 3-day advance from October 4 to October 6, 2011. Much like the 2002 incident, it is hard to make the case this "thrust" resulted in a breakout.
A lot of people have been talking about this pattern. The implication is this represents a thrust off a low and the start of a significant move higher. History shows this has only been the case when this pattern results in a breakout of the previous range (see 1984). When this thrust results in a move back into a defined range (see 2002), it has little meaning. When the market only barely broke out (see 1974), the market churned sideways for months before moving higher.
Has the market's trend changed? For now, the answer appears to be "no." Until a breakout is established, we would not get that excited about the three consecutive daily rallies of 1.75% or more.
Posted: 11 Oct 2011 04:30 AM PDT
OK, today is the big day.
Lots of you asked if there would be an audio or video recording — and we have retained FORA TV to shoot the entire event. They will edit, digitize and host the entire event, for what I am told is a moderate amount (as in under $100). I’ll post updates as they occur.
Here is what I am doing all day:
Posted: 11 Oct 2011 03:30 AM PDT
To avoid suffering from excess selective perception, I try to hunt out people who have differing views from my own. It is a challenge to find someone who 1) has a methodology that is defendable; 2) reaches a different conclusion than I do; 3) Has a respectable track record and so 4) cannot be dismissed outright. Ed Dempsey and Michael Gayed are two such people.
New highs this year are certainly possible, but are not what I am expecting. Regardless, this is a rather interesting pair of videos, coming out before yesterday’s face ripper:
Source: After Predicting the "Summer Swoon," Ed Dempsey Now Sees a "Fall Melt-Up" by Yahoo Finance
Source: The Stock Market: Now More Volatile Than Ever! by Yahoo Finance
Posted: 10 Oct 2011 10:00 PM PDT
We asked last week if the S&P500 (our proxy for risk markets) was capable of clearing the "red zone", the zone of resistance between 1175-1195, which included the 50-day moving average. The market's answer? Like a hot knife through butter!
Interestingly, the S&P500 closed at its high of the day at? 1194.91! Not a sold out crowd today as the volume was super light. Nevertheless, impressive. The bears need to take a goal line stance right here and push back the momentum or the next stop is S&P500 1230, the top of the recent trading range which began with the August collapse.
We have posted several pieces on the three macro bears that have been weighing on equities: 1) Europe's sovereign debt and banking crisis; 2) The slowing of the U.S. economy and employment problem; and 3) China hard landing concerns. We're not sure — and have our doubts — all three bears have gone into hibernation for the winter, but they do appear to be, at least, napping.
Today's intervention to support the banking system by the Chinese government was a big, yet under appreciated, catalyst for the rally, in our opinion. The FT writes,
The U.S. economic data looks to be improving and Europe has a plan to have a plan to recapitalize the banks and fire break the contagion of a Greek default.
We're always flying blind with China due the country's lack of transparency, but the equity markets have been hammered over there and should rebound on the intervention news providing more confidence for the global markets. The announcement of intervention came after the market closed but Asian ETFs were up big in New York trading.
The U.S. data, including Friday's employment number, are not great, but beating to the upside. The key now is for earnings to confirm the U.S. economy is not sliding into recession. Company outlooks are more important in this season than almost any we can recall.
We're most worried about Europe. There is more time for the markets to continue to hope as the E.U. summit meeting has been postponed to October 23rd to give policymakers more time to hammer out the details. They really need to get this right.
A big commitment by a national government to backstop its banking system could have adverse consequences for the sovereign's credit rating, which negates the positive contribution of the recapitalization. This destablizing feedback took down Ireland and the worries seem to be the biggest point of disagreement between Merkel and Sarkozy.
The markets aren't focused on these concerns and want to believe the three bears are hibernating for winter. They want to rebound from the August collapse like a beach ball held underwater. And that they are. Stay tuned.
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