Market Talk / Jan. 14 - 20

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I will open this thread for Spaf. I received a PM from him yesterday that the ice storm was taking a toll in his area. Power down, DSL down, trees and fences down.

Here in NE Missouri we are on the verge of losing our power too. If the wind kicks up we are in trouble. I can not believe the trees have not started breaking with all the accumulation on them.

Good weekend to be at home with the family!

Good luck and good trading!

:D
 
The Kingdom of TSP
Sunday Weekly
Sunday Edition
January 14, 2007 ​

FWThePol.gif

Yak, Doodles, Tea Leaves & The Tin Box

Kingdom Yak:
Pro-Yak....................................Market acts resilient to any downturn at support levels. We had a good week and are sitting right at resistance levels [$SPX].

Con-Yak...................................Careful, we have gone back into trading ranges before.

Jester-Yak................................Techs broke threw, Keep fingers crossed!

Doodles:
Socks ended up for the week.
Stops......................................Alert (-1%)......Trail (-2%)
.....$SPX..................................1416...............1402
.....IJR.....................................66.26 broken....65.56 broken
.....EFA....................................72.60 broken....71.90

Dollar.......................................85.28 up +0.62 for the week...USD Index

Lube (NYM) Closed at..................52.99, dn -3.32 for the week...NYMEX
Oil Markers................................<60= ok, 60-65= worry, >65= panic.

Tea Leaves:
Yakndoodles...............................Yellow.

Tin Box.
Leaders Ratio / Top 10 (7+3).........5.3 ......1.0 ......0.4 ......1.4 .....2.0
Leaders Play...............................G-fund, F-fund, C-fund, S-fund, I-fund

TSP (week ending),,,,,,G=11.73..F=11.14..C=15.84..S=19.08..I=22.14
....(1 week past)........G=11.72..F=11.19..C=15.60..S=18.58..I=21.99
....(2 week past)........G=11.71..F=11.14..C=15.69..S=18.76..I=22.22
....(3 week past)........G=11.70..F=11.16..C=15.60..S=18.63..I=22.02
....(4 week Past)........G=11.69..F=11.17..C=15.78..S=18.94..I=22.07


Le Charts​


SPX0112.gif

IJR0112.gif

EFA0112.gif

Charts courtesy of www.stockcharts.com​
 
Sunday, January 14, 2007
Perception vs. Reality




The image above is a scan of the front page of the business section of my local rag. If you are a contrarian and you are bullish on the stock market this should delight you. The panel of "experts" cited in this article a forecasting a weak slow growing economy this year. If you want to read the full article you can find it online here.

The problem is that the stock market does a pretty good job of discounting the future, and typically goes in the tank long before the signs of an slowdown appear in the economic data releases. And currently the stock market has been on a tear since July 2006 and the volatile and economically sensitive NDX could only muster a 5% pullback during the 6 week consolidation phase that we just broke out from to the upside last week. So, based on the action in the stock market these "experts" in this case may just be to gloomy for their own good.

Another reason to doubt the experts is the money supply chart that I have posted here a few times which shows liquidity booming. And, for what it's worth, money supply growth has a much track record at forecasting the economic future than the panel of "experts". But, the Main St. investor seems to be buying into the warnings from the "experts" that most likely are appearing in the business sections of newspapers across the nation. At least that is what the very subdued equity fund flows data suggests, which from a contrary sentiment standpoint is a bullish phenomenon, since it suggests that there is plenty of sideline cash (ie. liquidity) to push this market higher, if/when the public begin to realize that the gloomy "experts" are wrong.

Now, don't get me wrong I haven't suddenly gone stark raving, foaming at the mouth bullish. I have no allegiance to either the bull or the bear side of the aisle. I am a trader, which means that I am like a mercenary, and will fight for whichever side will pay me the most. In this case the tale of the tape is telling me that the bull side is likely to pay-off better than the bear side. And when I see positive market action in conjunction with Gloom and Doom being peddled in the business section of my local rag, well that gets the contrarian in me feeling bullish.

Short-term we've got an overbought market, with options expiration next week and a boatload of tech heavyweight reporting earnings. So, I would expert a sharp 1-2 day pullback sometimes next week, and plenty of volatility in both direction with some big earnings related gap moves in both directions likely. I'll try my best to help you navigate the cross currents. But the bigger picture is that on an intermediate-term basis any pullback here should be a buying opportunity to be followed by further upside. As a reminder, Monday is a market holiday. And I will be following up with the latest reading from the market barometer prior to Tuesday's start of the trading week.



posted by zentrader at 12:01 PM 0 comments links to this post

http://www.zentrader13.blogspot.com/
 
Big up week ahead. At least that is what my crystal ball is saying.

Of course, the crystal isn't a clear as it used to be. The ice storm in the midwest left it a little foggy. Everytime I bring it in from the car into the house, it fogs up for about an hour. If you rub it hard it clears up a little.


Tells me all three (C,S,I) are going to be better by weeks end.....
 
Sunday, January 14, 2007
The Speculate-O-Meter


The above chart shows a sentiment indicator in my arsenal that I like to call the "Speculate-O-Meter" because it shows the amount of bullish speculation going on in high beta or high risk stocks. The theory is that when investors are feeling risk averse they tend to buy more defensive, less volatile, and less economically sensitive stocks, the kind of issues that sport low P/E ratios and pay high dividends. Conversely, when investors are feeling giddy or irrationally exuberant (to borrow a phrase from the "Maestro"), they tend to make big bets on volatile risky stocks which typically sport high growth rates and high P/E ratios. The Speculate-O-Meter simply quantifies this level of risk aversion.
In the chart above you can see that in late 2005 and early 2006 bullish speculation had massively overshoot it's "danger zone", and then came crashing down starting in May 2006. Just like a rubber band that stretches too far in one direction, it then saw an equal and opposite reaction into extreme risk aversion in the August to September 2006 timeframe. Surprisingly, the strong rally of the past 6 months has had little impact on the Speculate-O-Meter, as investors still seem to be showing a great degree of risk aversion.

This creates an interesting sentiment dichotomy. On the one hand my options sentiment indicator is showing a lack of fear or complacency on the part of options traders. But on the other hand my Speculate-O-Meter shows that investors remain positioned very defensively and continue to shun risky high beta stocks. What this tells me is that there is risk of a short-term correction to bring back some fear in the options pits, but that the risk of a major market top is quite far away. Before any major market top I would expect to see the typical resurgence of bullish speculation emerge, and based on the above chart we aren't even close.
posted by zentrader at 8:38 PM 2 comments links to this post

http://www.zentrader13.blogspot.com/
 
It's good to see that the Speculate-O-Meter is not moving. I wrote this awhile back but it still applies today. Look at the angle of ascent longer term of the NYAD - the more acute the angle, the more powerful the trend of money flow is. We are at the most acute angle right now where the only real comparison was in the 2003 period, the same time in which both the 9 month and 4 year cycles last bottomed together from March forward. The Dow managed a 3,000 point gain ending in Feb. '04. We've only done about 1,700 so far. This market is screaming higher and nothing is going to stand in its way. This market is growing stronger on fear. Don't ya like it Ferdinand.
 
Note:

Why the market was up on Friday:

Three things:
1. Solar flare activity has subsided
2. Geomagnetic storm possibilities are rising, and

3. Comet McNaught is now clearly visible in many locations. The comet is visible in daylight. See photos at:

http://www.spaceweather.com/


Hey, you got a better reason?
 
Looks like the foreign markets are mostly flat this morning too.

Nikkei nearly flat at -0.04%, but the dollar falling again, offsetting the stock drop.

Watch the FTSE though- could be a rate hike there that would sock the London market.
 
Last edited:
Mexican Government Predicts Drop in High Tortilla Prices Within a Month

MEXICO CITY (AP) -- Mexico's economy secretary said he was confident tortilla prices, which have skyrocketed over the past year because of high international demand for corn, will stabilize in less than a month.

Several government departments will monitor corn-tortilla prices three times a week while officials wait for the market to regulate prices, Eduardo Sojo said Monday. Prices have risen as much as 14 percent in the past year and led to threats of protest by unions and opposition leaders.
 
08:00 am : S&P futures vs fair value: +3.0. Nasdaq futures vs fair value: +4.5. Early indications suggest stocks may pick up where they closed on Friday, trading higher. The bullish implications for inflation and the economy that were clearly a factor in the underlying positive tone last week as oil prices plunged nearly 6% have carried over into this morning's action. Crude oil prices are down almost 2.0% and below $52/bbl. Dow component General Electric (GE) acquiring Smiths Group for $4.8 bln in cash is lending some additional reassurance about economic growth prospects.
 
08:33 am : S&P futures vs fair value: +1.6. Nasdaq futures vs fair value: +3.0. The S&P 500 and Nasdaq 100 futures continue to trade above fair value; but early sentiment has weakened in sympathy with a weaker than expected read on regional manufacturing activity. The January NY Empire Index, today's only scheduled economic release, fell to 9.1, below economists' forecasted reading of 20.0. Bonds, which were modestly higher ahead of the data, have strengthened in response to the report. The 10-yr note is now up 8 ticks to yield 4.74%.
 
The Dow Transports are rolling this morning up +73.65 to 4833.92. 4998 is the previous all-time high. We may blow by that number this week.
 
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