Sunday, March 27, 2011

The BETXT Index Bullish Potential

The BETXT Index has just stepped into a new cycle with a strong bullish potential. As noticed in the weekly chart above, the first stop in the uptrend could be the April 2010 highs and the weekly SMA around 620 and then the 750 area towards the cycle end in August.

In the daily chart above we notice the index is marching towards the April 2010 highs around 620 after entering with a trending mood in a new cycle (ending mid-April until when the target might be touched) and shattering the 61.8% final Fib retracement. With all three moving averages heading higher the picture is bullish while the rising 50-days EMA playing the stop loss level.

Wondering if the recent FP inclusion in the index is distorting the picture? Time will tell but we have no surprises so far and I would bet the targets (and stop losses) stay the same without any needed adjustments.

Saturday, March 26, 2011

Why You Should be Freaked Out About the Stock US

"This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it's a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn't go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.
Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me this is QE 2. If it was then the monetary base should have spiked in late 2010, NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

So if you think that all is well "behind the scenes" you're in for a rude surprise. Something BIG is going down and it's NOT good.

And rest assured, by the time the mainstream media announces what it is, it will already be in full swing."

Source: Graham Summers via Zero Hedge

Second Biggest Weekly VIX Drop In History

"With the VIX closing the day and the week at approximately a 17.70 level, it marks a 40% decline from its closing print recorded on March 16, when it hit 29.4, just as the Nikkei was about to flash crash to the high 7,000 range. This represents the 2nd largest closing drop in the history of the volatility index, beaten only by the weekly VIX drop from November 4, 2008 (when the VIX dropped from 80 to 47.7). And stunningly, on an intraday basis, when the VIX dropped to the day's lows of just over 17, it briefly represented the biggest weekly drop in the VIX ever."

Source: Zero Hedge - Second Biggest Weekly VIX Drop In History

Friday, March 25, 2011

On Pattern Recognition

"The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements."

Jesse Livermore

TGN: The End of Its Relative Strength

As noticed in the daily relative strength chart (against BETXT) above, TGN overperformance broke its uptrends following a year long of consistently beating the index.

The short term trend is clearly down and the technical damage is increasing the probability of a longer term underperformance cycle.

Cash-basis, TGN's longer term first support is in the 225 - 235 area (as noticed in the weekly chart above). Holding above this area keeps the probability of the stock tilted towards the long side.

Using a P&F chart (above) we identify the 215 level under which the uptrend starting in 2009 is probably reversed.

Wednesday, March 23, 2011

AZO Spikes

The spiky AZO is bouncing higher pushing into Fib resistance (the most important Fibonacci level being the 61.8% retracement of the 2008 huge 88% drop).

The 0.7 round level should prove hard to pass though we cannot rule out a trip towards 0.75 (due to the spiky nature of this stock) until around mid April cycle wise.

Thursday, March 17, 2011

James Montier's Seven Immutable Laws of Investing

1. Always insist on a margin of safety

2. This time is never different

3. Be patient and wait for the fat pitch

4. Be contrarian

5. Risk is the permanent loss of capital, never a number

6. Be leery of leverage

7. Never invest in something you don't understand

Source: GMO

Tuesday, March 15, 2011

The Tsunami on the Japanese Nikkei 225 Index

A first sign of the drop had already been given on the day before the earthquake when a new local low and a breach of the 50-day EMA signaled potential weakness ahead (see daily chart above).

The 9 degrees magnitude temblor and the subsequent powerful earthquakes (see table above) followed by the tsunami and the nuclear accident threat developed into a black swan that sent the index towards the crisis lows (see weekly chart below) in the biggest two-day drop since 1987.

The uptrend in the Nikkei Index is technically damaged and the damage is spreading worldwide in a panic wave which may have locked the highs of the main developed markets indexes for some time to come.

Monday, March 14, 2011

Cicada-Like Synchronized Traders Have Fewer Losses

"Traders who align their transactions much like cicadas synchronize their chirping make a profit more of the time, according to a study of market behaviors.

The more often traders acted within the same one-second window, the more money they made at the end of the day, according to a study in the Proceedings of the National Academy of Sciences. Traders make a profit 60 percent of the time when they're in sync, more than the overall average of 55 percent profitable trades, said study author Brian Uzzi, who is the co-director of the Northwestern Institute in Complex Systems at Northwestern University in Evanston.

Synchronized behavior benefits individuals and groups in a variety of animals, Uzzi said. Cicadas who chirp at the same time are less likely to be spotted by a predator, according to previous research. The cicada chorus, works like the trading patterns, arising spontaneously through local interactions, without a central leadership.

"If you go to animal behavior, synchronicity usually occurs when animals are faced by complex information problems, and any individual in a school of fish or flock of birds is overwhelmed," Uzzi, who also teaches at the Kellogg School of Management, said today in a telephone interview. "So it gave me the hunch that where humans are likely to be overwhelmed by the pace or volume of information, we might be able to find synchronicity."

Not 'Groupthink'

Unlike groupthink, synchronicity arises from multiple people solving the same problem separately. Groupthink, which is comparable to herding in animals, happens when traders see others trading and join. Syncing doesn't always lead to herding, and when it does, it usually takes place before the herd behavior, Uzzi said.

Uzzi's study followed 66 traders over a year and a half. The traders are talking to a few people at once, ignoring what's going on in the larger market, he said. Multiple traders are looking at different parts of the market and when they begin to process masses of information, such as IMs, RSS feeds, and news from various sources, they begin to act in concert. Trade after the sync, and the "solution" will be priced into the stock, Uzzi said.

The trades and the cicada chirps are examples of how complex systems emerge out of simple interactions. Although neither the cicadas nor the traders are centrally organized, their behavior isn't random. Trading houses may wish to design software that notices moments of sync, enabling traders to wager more money during that time, Uzzi said."

This article reminds me of the website motto: "So, what about the stock market? The universe of numbers that represents the global economy. Millions of hands at work, billions of minds. A vast network, screaming with life. An organism. A natural organism."

Source: Cicada-Like Synchronized Traders Have Fewer Losses, Study Shows

Paul Desmond's Market Musings

"On a fundamental basis, the fundamental factors are always different in every bull market or every bear market. But the technical factors are based upon something much simpler. They are based on human psychology. Investors tend to go from periods of extreme depression at market bottoms, to extreme elation at market tops. And there are always a different set of circumstances that help boost that change in psychology. But the range of human psychology remains pretty much the same. And we simply move from panic at market bottoms, fear at market bottoms, and finally we move to greed at market tops. And that is the limit of what technical analysis is really doing — measuring the psychology of investors regardless of events that may have inspired their bullishness or bearishness."

"You cannot time the market off of fundamental information, because the stock market operates off of expectations as to what is going to happen six months or nine months down the road. In other words, investors don't buy stocks because of what they know today. They buy because of what they think they are going to know six months or nine months from now. So the market is always ahead of the economy. And as a result, if you are trying to look at fundamental information, you are always too late."

"..if we were in the fall foliage season prior to winter, what we would tend to see in the trees up north, we'd start to see leaves dropping off the tree one at a time. And the stock market is very, very similar, that as you get into the latter stages of a bull market, individual stocks tend to peak out and begin to drop into their own individual bear markets, while there are still a lot of stocks continuing to advance. As the bull market becomes more and more mature, a greater number of individual stocks tend to fall off the trees, so to speak, and drift to the ground, whereas the investment community is not watching the leaves, they are watching the indexes."

"You have to be willing to buy in the face of bad news. By the same token, at market tops, the news is dominated by good news, and that is the time to watch out because if the news can't get any better then all it can do is get worse."

"..the important things for investors to realize is that market declines start out with complacency as being the most dominant emotion at that time. And the means that most people are half asleep, and they are just not paying attention. They don't think the markets can go down, so they don't think there is any need be watchful, but that is exactly when an investor needs to be particularly alert. The last stages of a decline, the very last couple of months of a market decline are the most intense, because that is when the panic sets in, and that is when it is absolutely essential that you are already out of the market. You surely don't want to go through that final stage."

Source: Q&A: Paul Desmond of Lowry's Reports

Wednesday, March 09, 2011

The Zurich Axioms

On Risk:
- Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
- Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
- Resist the allure of diversification.

On Greed:
- Always take your profit too soon.
- Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
- When the ship starts sinking, don’t pray. Jump.
- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
- Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
- Chaos is not dangerous until it starts to look orderly.
- Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
- Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
- Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.

On Mobility:
- Avoid putting down roots. They impede motion.
- Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
- Never hesitate to abandon a venture if something more attractive comes into view.

On Intuition:
- A hunch can be trusted if it can be explained.
- Never confuse a hunch with a hope.

On the Occult:
- If astrology worked, all astrologers would be rich.
- A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

On Optimism & Pessimism:
- Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.

On Consensus:
- Disregard the majority opinion. It is probably wrong.
- Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

On Stubbornness:
- If it doesn’t pay off the first time, forget it.
- Never try to save a bad investment by “averaging down”.

On Planning:
- Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans or other people’s seriously. In essence these axioms point to the benefit of having an investment strategy and sticking to it, regardless of what other investors say or do. If you don’t have an investment strategy, you could do worse than adopt these principles. However, don’t be afraid to add or subtract ones according to what works for you.

Source: Max Gunther's Zurich Axioms via TBP

Saturday, March 05, 2011



As noted in a previous post, EURRON was heading towards the 4.19 - 4.20 area which was touched before bouncing higher (see the updated chart above).

A clear drop through the mentioned area increases the probability of a return to the 2010 lows (around 4.06) or even lower.