Bob Seawright is the Chief Investment & Information Officer at Madison Avenue Securities, a boutique investment advisory firm and broker-dealer in San Diego, California. He is also the author of the popular blog, Above the Market, which features data-driven analysis coupled with behavioral insights. His work and ideas have appeared in many publications including Research magazine, Investment Adviser, The Wall Street Journal, Financial Planning, Investment News, The Browser, Bloomberg BusinessWeek, MarketWatch, Advisor Perspectives and Portfolioist. He is a frequent speaker at conferences and other industry events.
Ted Williams was almost surely the greatest hitter of all-time. He was a two-time MVP, led the league in hitting six times and in home runs four times, and won the Triple Crown twice. A 19-time All-Star, he had a career batting average of .344 with 521 home runs, and was inducted into the Baseball Hall of Fame in 1966.Williams was also the last player in Major League Baseball to hit over .400 in a single season (.406 in 1941). Ted's career was twice interrupted by service as a U.S. Marine Corps fighter-bomber pilot. Had his career not been limited by his military service - especially since it was in his prime - Williams would likely have hit over 700 career home runs and challenged Babe Ruth's record. During spring training of his first professional season, Williams met Rogers Hornsby, who had hit over .400 three times and who was a coach for his AA team for the spring. Hornsby emphasized that Ted should always "get a good pitch to hit." That concept became Williams' "first rule of hitting" and the key to his famous and innovative hitting chart (shown below).
Most home builders reported earning a couple of weeks ago and were soundly pummeled by investors. It happened to Beazer Homes, $BZH, D.R. Horton, $DHI, KB Home, $KBH and Lennar, $LEN. Some down over 20% now most are recovering but have not yet clawed back half of their loss. Only Lennar is back to pre-earnings levels. When I think of building homes, the first thing that comes to mind is lumber. So how did that do over this period? Taking a look at the chart for random length lumber, it made new highs heading into these reports and held. Digging deeper itRandom Length Lumber $LB_F
Continuing our series of notes from the Sohn London Investment Conference, next up is Jim Chanos of Kynikos Associates who gave a presentation entitled 'Brazil: Resource Rich, Not Riches."
When stock markets crash, you can't pick up a newspaper or turn on the television set without someone writing or talking about it. The economic implications are clear, and therefore it deserves the press. But the price action itself is pure. The psychology behind it and the reversal in sentiment cannot be denied. So we need to keep in mind that although in some cases there is a ripple effect into our daily lives, other price crashes don't necessarily have those repercussions. But it doesn't mean that the price action isn't exactly the same.Here is a chart of 6 popular booms and busts in stock markets that have certainly made headlines over the years. We can see a lot of similarities in the behavior of these markets:
Chase Coleman's hedge fund firm Tiger Global Management has revealed a new position in Groupon (GRPN). Per a 13G filed with the SEC yesterday after market close, Tiger Global has disclosed a 9.9% ownership stake in the company with 65 million shares.According to Tiger Global's most recent 13F filing, the firm actually started their position in the third quarter as they owned 1.3 million shares as of the end of September. However, they've obviously ramped their stake up considerably since then. The 13G disclosure was filed due to portfolio activity on November 9th.
This recommendation is popular recently. The change in leadership in China and what some see as the an attractive stock chart in the ETF $FXI, iShares FTSE China 25 Index (below) are some of the reasons for this view. And in fact the FXI is confirming a reversal higher with the Relative Strength Index (RSI) bullish and turning up and a Moving Average Convergence Divergence indicator (MACD) that is improving.But what does 'Invest in China' really mean? Buying the FXI is not really buying the Chinese market. The ETF actually has a 57% weighting to Financial Stocks and its Top 10 Holdings, accounting for 61% of its total assets, include 5 banks, 4 energy companies and China Mobile. Looked at another way, this ETF contains the top 25 companies in China. Buying the FXI is not investing in China, it is investing in large cap state controlled entities in China. If you look at the broader Shanghai Composite, $SSEC, containing every A and B share traded in China, it is quite a different story. The Composite has been in the most recent bear trend lower since May. At best you might be able to argue that it is consolidating sideways. Either way this is not a time to buy. Until it breaks back over 2150 there is nothing bright about its future, and the bearish and downward pointing RSI and negative MACD concur. This divergence has existed since that run lower in the broad market in May. The ratio chart below shows a clear rising channel favoring the FXI over the Composite. The large State run enterprises outperforming the smaller, more market driven companies. What does that tell you about the broad Chinese economy? You still want to 'Invest in China'? Maybe instead the mantra should be invest in the Chinese Government.
As stated late Friday all the necessary components for a short term bounce were triggering except for a high over the previous day's high... but it was close enough for government work. A point here or there in the closing 5 minutes would have done the trick. It is funny how the news often fits the market, and what I mean by that is that comments out of government Friday morning set stocks off just at the point they needed to, at the 61.8% Fibonacci retracement on the S&P 500.
After several years of blogging I have found that in these types of markets, with opinions strong and scattered as to the imminent and longer-term direction of the tape, readers find my work to be of the most value when I provide technical and behavioral analysis as objectively, concisely, yet thoroughly as I can.Pictured below is a chart of the NYSE McClellan Oscillator ("NYMO"). The McClellan is a simple market breadth indicator tool. Generally speaking, when it is above 0 it tends to indicate bullishness for stocks, and below 0 it indicates bearishness. However, extreme readings can indicate overbought or oversold conditions. Above 50 is considered to be overbought, while below -50 is considered oversold. Currently, the NYMO is -92.31. Clearly, the market is now oversold. Of course, just as overbought can easily become much more overbought than seems reasonable in bull runs, so too can oversold stay that way and become more so. Thus, in order to get a better grip on current odds and probabilities, I am presenting the weekly timeframe of NYMO here so that you can compare current oversold readings to prior (deeper) bull market corrections we have seen since the March 2009 bear market bottom. As you can see, every other deep correction we have seen since 2009 has formed at least some type of tradable bottom when the NYMO knifed down under -100. There are four prior instances when this happened-The 16% summer 2010 correction, the 20% summer 2011 swoon, the Thanksgiving 2011 shakeout lower before the Q1 2012 rally, and then the 11% correction this past spring/early summer. Of the four prior instances, Thanksgiving 2011 is obviously the most applicable in terms of seasonality. Note that, unlike the other examples, there was not much of a subsequent multi-month grind following last Thanksgiving's final shake. As I noted on my video recap for Thursday, barring a complete crash a sizable gap-down sets up a more pronounced snapback rally trade than does the type of pop-and-drop-and-grind-lower action we have seen of late. Incidentally, a huge gap lower would (highly likely) push the NYMO well under -100.
Technical analysts and traders use a broad array of tools to search the playground of securities for patterns, areas where consolidation and reversals occur and other measures, attempting to gain an edge to trade. Sometimes the data that we review can be so extreme that it distorts the analysis. One way to deal with that is to ignore it, pretend it did not happen. I have done this in the 30 year chart of Copper ($HG_F, $JJC) below. Just drew a big black spot over it like it was classified. Yeah, I hear you screaming blasphemy! And to appease those hard core technicians that feel the need to throw up now, or worse, stop reading, how about just considering it a false break down. When you take this approach to Copper it looks rather bullish. After the break out above the long channel of consolidation from 1988 to 2004 it has been building a new rising channel since early 2006. And more recently since 2010, this channel has been tilting higher.Copper historically has been used as a barometer of economic activity, so as we look at this how do you resolve the dichotomy between this chart and what the economists are predicting? Actually it is not so hard to rectify the two. With the move lower throughout 2011 and no real bounce, this chart does reflect a lowered economic activity expectation. But the chart itself is also sitting near the rising trendline support just as the situation in the broad market and the forecast for the future are heading towards extreme negative sentiment. Could it be that Copper is ready to foretell or a reversal in both sentiment and the market soon? Watch the support line and make your own judgement.
I keep harping on this "emotion" aspect of the selloff -- there has been really none to it, as the selling has been orderly if persistent. Except for a few sessions losses have been quite contained at the index level even though a lot of individual equities have been hammered tremendously. In a way this is the opposite of when a healthy market sees sector rotation -- one group rallies, then rests, and another takes the baton and so on. The same has been happening but to the downside. Need there be an "emotional" type of "pukey" selling to mark at least a short term bottom? Nope, but it would make it easier to identify a short term reversal.With all that said we are now seeing some substantial oversold readings in some supporting indicators. That need not mean things cannot get more oversold -- it just serves as a warning that a sharp short term reversal can happen anytime. That said the action yesterday was just as bad as Friday's when a sharp intraday rally was decimated -- at least Friday's could be blamed on the speech by Obama, whereas yesterday's was just out of the blue. It remains an environment only for daytraders or those with multi year viewpoints. This morning we open to (wait for it) futures up. This after what is called a bearish engulfing "candle" yesterday on the S&P 500 chart. Ironically just hours before the close it was a bullish engulfing candle but that is how quickly this market is moving. Engulfing simply means the entire previous day's range was surpassed...