Posts Tagged ‘Stock Market’

The Straw that Could Break the Camel’s Back

Thursday, November 26th, 2009

The US Government and Wall Street have declared an end to the worst of this financial crisis that has plagued the world for so long. Is it really over, have we crossed the worst of it?

I am reminded of a common movie scene where the characters are climbing up a mountain to get to safety only to find a seemingly endless set of mountain ranges. The risk with declaring an end may be the straw that breaks the camel’s back. Can we take the double dip? What happens to the US consumer if there is another bout of mass layoffs.

There is no short of predictions for the future equally positive and negative. The current momentum seems to rest much of the world recovery on emerging markets and a weak dollar. Stimulus in the US has failed to create a meaningful impact on unemployment and the credit market has shrunk even with the massive bailouts last year. The US housing market has been kept on life support with government supported interest rates and tax rebates. My real concern is that nothing that has been done really is sustainable. Over the past year the US government has thrown money at everyone but its tax payers. Maybe the real solution is to let us spend our own money and when I say “us” I mean everyone regardless of income.

Interesting that Washington DC over the past years seems to have become just as disconnected to Main Street as Wall Street. Has Wall Street moved into Washington? Over the past year I have had discussions with many people who have lost their jobs or had a pay cuts, not one of them ever mentioned healthcare as a major problem right now.

Happy Thanksgiving! The Emerging Market of Dubai’s possible credit problems may give a new meaning to Black Friday or just another straw on the camel’s back.

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Earnings – Where is the Surprise?

Thursday, October 22nd, 2009

Over the 3rd quarter US Government officials and the majority of the Wall Street community had declared an end to the recession. Consumer expectations where the driving force behind Consumer Sentiment numbers. So is it any surprise that earnings for the 3rd quarter are showing some signs of life. Earnings are a reflection of the past. The real questions is whether the 4th quarter and 2010 can live up to the lofty expectations of Wall Street for the “V” shape recovery in the face of extremely high unemployment and conservative consumer spending. Eventually the facts have to live up to the predictions or the market will fall and 6500 on the DOW will look like a gift.

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Coming Soon!! The New Expectations Indicator

Sunday, May 3rd, 2009

The market has shown investors since its inception that stocks don’t trade purely on fundamentals; they seem to trade more on expectations. Expectations are influenced by the companies and interoperated by Wall Street. Expectations on Wall Street are missed, met or exceeded.


Expectations that are missed typically have a negative impact. Expectations that are met typically have a neutral effect. Lastly expectations that are exceeded, most of the time, command a positive effect. The interesting effect of expectations is that they seem to supersede the underlying real data or action.

Imagine two children attend the same school and take exactly the same classes. One of the children is an A student and the other is a B student. On report card day both come home with straight A’s. The A student met expectations and the B student exceeded them. I will bet you the parents’ response will be more favorable for the B student who exceeded expectations, even though they got the same exact grades.

The Expectations Indicator is hopefully a way to show trending expectations for a sampling of the market and individual sectors. This indicator is not meant to give advice on market sentiment, but more of an understanding of its expectations. The expectations indicator views measureable changes in earnings expectations.

When expectations are low, typically it is easier to exceed them. If expectations are high, it is usually easier to miss them. When expectations are neutral, expectations are just as easy to miss or exceed.

The first Expectations Indicator results should be released Monday from information gathered on Friday May 1rst, 2009. Since Expectations Indicator concept is new, only time will prove this it useful or useless. This indicator will be released weekly until proven not useful. We will also be using popular Indexes to measure its success from the previous week. The indicator when released is for information purposes only and is not meant to constitute any type of financial advice.

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Support and Resistance – What is really happening?

Thursday, April 30th, 2009

Support and resistance in technical analysis typically refers to a price of stock, commodity, and similar investment tools that becomes a stopping point. The support is the low point of the trading range and the resistance is the top.

What causes a stock or other investment tool to find a support and resistance? Support is the point where buyers exceed sellers. Resistance is the point where sellers exceed buyers. Basically support and resistance is the tug a war between the bulls and bears. Some say that the winner is typically the one who convinces the long term investors to follow them.


Currently the bulls have made a stand at 6500 on the Dow Industrial and the bears have made theirs at about 8000. Over the past two months there have been several reports citing the lack of the individual investor participation. Consumer confidence released Tuesday April 28th, 2009 has shown that Main Street is starting to feel more confident about the future, but their current situation is rather unchanged.

So it would appear we are at a tipping point. I would assume if Main Street starts to see a more measurable improvement in their current financial situation the bulls could win the war. If Main Street current financial situation either stagnates or gets worse than the bears would probably win. So what if the bulls or the bears win this one, who will win the next one?

Support and resistance is all about expectations. If you are a bull and expectation are exceeded, then the market will move your way. If you are a Bear and expectation are missed, then the market will probably move in your direction. High expectations are negative for bulls, since they are harder to exceed. Low expectations are negative for Bears, since they are harder to miss. What are you expectations?

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Earnings Expectations

Sunday, April 26th, 2009

So the long awaited earnings season is upon us and overall the market is holding up rather well. Earning either miss, meet or exceed expectations. Surprisingly many companies are exceeding expectations, even though the last quarter had been extremely challenging. But does missing, meeting or exceeding earnings expectation constitute good earnings?

On Thursday April 23rd, 2009 Microsoft released earnings that met expectations. Expectations were for 39 cents (excluding 6 cents in charges) a share which they met. Year over year earnings fell 32% from the same period last year. 60 days ago earnings estimates were for 40 cents a share.

On Thursday April 23rd, 2009 American Express released earning which exceeded expectations. Expectations were for 12 cents a share and they reported 31 cents a share. Year or year earnings fell 56% from the same period last year. 60 days ago earnings estimates were for 28 cents a share.


On Thursday April 23rd, 2009 Amgen reported earnings which missed expectations. Expectations were for $1.15 a share and they reported $1.08 a share. Year over year earnings fell 4% from the same period last year. 60 days ago earnings estimates were for $1.16 a share.

All three companies’ earnings are down year of year. The company who exceeded expectations actually saw the largest decrease in earnings year over year. The company who missed expectations saw the smallest decline in earnings year over year.

What are more important, expectations or actual earnings? Earnings are the product of companies; expectations are the product of Wall Street. In the above examples the expectations seemed to give the assumption that the company whose earnings are down the most year over year is doing better than the other two examples. What do you think?

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A Good Leading Indicator – Oil

Thursday, April 23rd, 2009

Crude oil prices over the past few months have show strong resilience to the ever building inventories. Week after week crude oil inventories have built to now a 19 year high reserve in the USA. The stock market seems to be speculating a relatively strong recovery and it seems like oil is attempting to price in the same by shrugging off the overall bearish reports.

Since the stock markets appear to be more speculative than realistic these days, crude oil supplies look to be a better indicator to economic activity in the United States. As the old saying goes “America runs on oil”, so it stands to say that if oil demand is retrenching than probably US production is doing the same.

Here is a chart of crude inventory supplies in the USA:

crude-oil-inventories-4-22-09

Crude oil supplies have continued to build at a relatively quick pace since October 2008. You will also notice that crude oil supplies broke above the June 2007 highs in February 2009 after a brief stabilization of the inventories in January till mid February.

The stock market started its most dramatic decent in October 2008. The stock market over the past month and a half has been rallying off data showing stabilization in the economy from January and February.

Every week a report is released by the Energy Information Administration tracking crude inventory supplies in the United States. Because oil is measured by barrel, coming up with this report is not open to interpretation or future adjustments.

If you believe America truly does run on oil, then this should be a good leading indicator to how fast America really is running.

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A Real Economic Indicator

Wednesday, April 15th, 2009

Yesterday consumer spending started back down the path of contraction. Remember one of the major sparks for the March rally was the improved retail sales numbers. It is funny how a once very pessimistic market can turn overly optimistic in such a short period of time.


Wall Street and the US government rely heavily this economic data for their analysis of the economy and its current state. Interesting how this data did not reveal the current state of the economy sooner. A year ago very few could have predicted the current crisis and its depth. It would seem that this method of data collection is too slow in reporting present conditions (especially with the recent dramatic revisions of past reports).

The US Federal Reserve went to a tightening status to combat inflation in April 2008 based off of this type of data (which was extremely late to the relatively obvious state of increased inflation). With an already low overnight bank rate, the Federal Reserve was forced to use up its most effective tool to stimulate the economy by taking it to 0% to .25% target. The Federal Reserve has also started to rapidly expand its balance sheet using “innovative” methods to promote lending. When considering debt and leverage, there really are limits to “innovation”; debt still needs to be repaid.

What happens if the home sales numbers start to show weakness again? What happens if (when) commercial real estate write offs start to replace the consumer debt write-offs on banks balance sheets. Do we have any other weapons to throw at the problem?

Unemployment is on the rise and Americans are more interested in saving money than spending right now. The US Government is trying to cure the problem by expanding lending while the US Citizen feels the solution to their problem is to reduce their debt. Interesting how the government and its people can be on such different pages.

Consumer spending makes up 70% of the United States GDP (I would argue that without the consumer we would not have the other 30%). The US Government and Wall Street have declared the worst is over. The average consumer does not feel the worst is over as seen in the retrenchment of retail sales, continued high savings rate and decreased consumer debt. What economic indicator should we believe?

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Is This More of the Same – Speculation

Monday, April 6th, 2009

The stock market over the past month has gained over 20% on most the major averages. Matter of fact almost everything has been going up, even oil, which still is showing a dramatic reduction in demand on a weekly basis. This feverish buying has been on the heels of some financial data that has marked an improvement from analysts’ estimates.


These economic improvements have been touted by Wall Street as the beginning of the long awaited recovery. According to much of Wall Street the worst is over and the “bottom” is in. There is a population of Wall Street who feel that we have not seen the worst, but interestingly the bulls hog the air time with the financial press. (see Contrarian to Mainstream in Weeks – Stock Market for more insight)

Let’s take a look at some of this improved data:

Retail Sales:

Retail Sales

Retail Sales

Existing Home Sales:

Exisiting Home Sales

Exisiting Home Sales

Durable Goods Orders:

Durable Goods Orders

Durable Goods Orders

The above numbers helped launch the stock market averages to achieve historical gains in a short period of time. Does one month constitute a so called bottom? The data improvement was really in the month to month change. Year over year the data is still quit grim. If this is recovery then these numbers should not look back. What happens if they start to decline again? Where is the growth coming from? Has anything really changed over the past month or two?

Here is a piece of data that did not affect the market the way it probably should have:

Unemployment Rate:

Unemployment Rate:

Unemployment Rate:

Personally I feel that the “bottom” will be reached when everyone gives up on calling the bottom.

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The Wall Street Alchemist –Analysts

Friday, April 3rd, 2009

What job other than a Wall Street Analyst can you be wrong so often and still command such respect? Meteorologist?

Everyday new data is released to the market that can dramatically affect the market action for that day or even several days. This data alone would be less of an impact if where not for the analysts’ estimates that are either met, beaten or missed.


The market interoperates a miss as things are worse than expected. When the data beats the analysts numbers the market views things better than once thought. Lastly when the number is right on, we are status quo.

My question is how we can take the “educated guess” from a small group of people and determine whether the data released is positive, negative or status quo. Most analysts work for the investment community directly, so are their estimates driven by an agenda. These “educated guesses” somehow have become benchmarks. Lately these guesses have moved markets dramatically in short periods of time to the upside and downside.

Are these estimates for professional traders or investors? Should brokerage firms be able to release estimates, since they can have such an impact on the short term markets? Why do the markets seem to trade a step ahead of the news, is it because they set the benchmarks?

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No Longer a Buy and Hold Stock Market – What?

Monday, March 30th, 2009

So it seems like the consensus of Wall Street professionals is that we cannot just buy and hold stocks or mutual funds (for the short term). Apparently stocks are trading more on momentum and less on fundamentals.


So basically we are now being told that this market has very little to do with the fundamentals and everything to do with speculation right now. Now if you have a 5 to 10 or 20 year outlook then this is a cheap market according to Wall Street. Keep in mind if the market goes down another 50% from here, then the market would need to go up 100% just to get back to where you started from.

If fundamentals are really not playing a factor and it is all about speculation then aren’t we really just gambling with our money? At least if I go to a casino the rules are the rules and they can’t change in the middle of the game. Is the real goal of investing in the stock market to roll the dice?

Look at the products that being introduced into this market. I especially have noticed the increased popularity of “ultra” short or long Exchange Traded Funds (ETFs). On any given trading day these products typically show up on the most active securities list. These products promise a multiplier effect on the sector, index or commodity that you are investing (betting?) in. If you are Long Financials with an ETF “ultra” fund 3x, then if the Financials go up 2% the ETF is suppose to go up 6% (vice versa on a down day). Does this product sound like an investment?

Investors make stocks grow for the long term because they typically”buy and hold “stocks. Does this market seem like it is mostly made up of investors or speculators?

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