2013 – A Fantastic Stock Market Year? [ChartMill]

First of all our best wishes for 2013! We hope that you and your family may enjoy a fantastic health and have lots of wonderful and warm moments together! On a financial level we hope that 2013 will give us an exceptional rally (doesn’t matter which direction; whenever it moves and foremost: moves long ENOUGH it is OK). We must admit: those last two years were not that easy for longer term trend followers. Lots of trends started, continued for one day, and immediately fell back into their ranges or broke down. Going short generated most of the times the same problems: lack of follow through, markets rallied back and stopped us out frequently. Where the 90s were still in some kind of an “invincible up-mode”, the markets in the new millennium can be described as a volatile, go-nowhere zone (especially in the last two years).

Lots of big and famous fund managers (you know, those that were interviewed in Schwager’s book Market Wizards) didn’t manage to stay out of the red colors. This seems to be very illustrative for the period in which we are for almost two years now. While having excellent track records for decades, last two years were absolutely horrible in terms of performance. Take a look at the latest results (November) from automated trading systems:

But trend following has been declared “morte” several times so we don’t care about that. Trading is all about staying with your system, staying disciplined and prepared. You don’t have to panic if you are a longer term trader. Those periods happen and there is not much we can do about that. It isn’t necessary to change your whole system. What’s best is to adjust position sizing and start scaling in if you see more and more suitable candidates. Don’t be hasty!


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Million Dollar Traders Documentary: Hedge fund manager tries to teach ordinary people to become successful traders

Million Dollar Traders is a three part series that aired on the BBC about hedge fund manager Lex Van Dam who tries to teach ordinary people to become successful traders. The series is particularly interesting because none of the traders understand what they are doing, but they all trade as though they did and the results were terrifying, both financially and emotionally. Many great trading lessons here.




What If Stocks Decline? [vixandmore]

Successful investors are the ones that are always making plans for all sorts of contingencies, so it stands to reason that they should even prepare themselves for the possibility of stocks actually declining one of these days…

I was thinking about the coming correction in stocks and how to position my portfolio for that moment when equities once again feel the effects of gravity when I stumbled upon an interesting tool at ETFreplay.com that they call their Down Day Association Stats. In a nutshell, it looks at the performance of a group of user-specified exchange-traded products on those days in which a benchmark falls X%.

In the example below, I have chosen SPY as my benchmark, 2% (per day) as my threshold decline and 36 months as my lookback period. I looked at 25 ETPs that cover a wide range of asset classes and investment approaches.

Some of the results from the Down Day Association Stats are not particularly surprising. For instance, the long bond (TLT) and the dollar (UUP) have a strong negative correlation to stocks and generally perform well when SPY declines sharply. Some of the other bond choices (LQDPCYBWX) have been better at treading water than countertrending, but also show the benefits of diversification. The commodity choices were somewhat disappointing, generally managing to lose at best half as much as SPY, with crude oil almost matching the declines in the SPY to the penny.

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Apple to post fiscal Q4 miss on cannibalized Mac sales, analyst says [appleinsider] $AAPL

By Mikey Campbell

In a note to investors on Tuesday investment firm BMO Capital forecast Apple to post a significant miss for its fourth fiscal quarter of 2012 as Mac sales continue to be cannibalized by the company’s popular iPad tablet line.

Despite raising sales estimates for both the iPhone and iPad, BMO analyst Keith Bachman said the just-ended June quarter and upcoming final fiscal quarter of 2012 will be “challenging” for Apple as the tech giant moves into a new product cycle, reports Barron’s.

Apple could see a $5.5 billion miss from the $38.5 billion consensus for the company’s fourth fiscal quarter ending in September if its third quarter performance is in line with the current $37.5 billion forecast, according to historical patterns and outlooks.

Bachman reiterated an “outperform” rating for AAPL, however, and bumped the stock’s target price to $700 from $695 on higher iPhone sales for the ensuing six quarters. Including the fiscal third quarter that just ended, Bachman upped iPhone unit sale estimates for the next year and half by 1.5 million units and also raised his iPad sales estimate by 3.8 million units.

Apple’s strong iDevice forecast was tempered by a lowered Mac sales estimate that is expected to drop 1.6 million units over the same six quarter period. Bachman dropped his Mac sales estimate from 18.65 million units to 18.22 million for 2012 and sees that decline carrying over into 2013 which slipped to 20.18 million from 21.38 million.

BMO Chart

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Wall Street rises as central banks stand ready [Reuters]

(Reuters) – U.S. stocks jumped on Thursday after news major central banks are preparing coordinated action if the results of Greek elections this weekend generate turmoil in financial markets.

The central banks from major economies will take steps to stabilize markets and prevent a credit squeeze, Group of 20 officials told Reuters.

The news late in the trading day invigorated a market that has been highly volatile this week, whip-sawed by concerns the ballot in Greece on Sunday may set the stage for the country’s exit from the euro zone.

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Traders work on the floor of the New York Stock Exchange June 11, 2012. REUTERS-Brendan McDermid

Learning to Trade from a Legend [rickackerman.com]

Rick asked me to fill in for a day, and I thought I’d give you some trading and life tips I learned from Victor Niederhoffer. Victor is, above all, a speculator. Like the infamous Jesse Lauriston Livermore, an early 20th century stock investor who made and lost several fortunes in Wall Street, Victor over the past 40 years has made spectacular gains in the market and suffered some devastating losses.

I had the good fortune to work for Victor in the mid-1980s, when he was at his trading pinnacle. At his best, Victor was a short-term trader who made money consistently in the commodities markets by charting the interrelationships of commodities.

Years later, after I had left, Victor had some setbacks when he changed his trading methods to accommodate a much larger public fund. But to my mind, Victor was a trading genius whose short-term results consistently disproved the “Random Walk” theory of the market. Year after year, Victor produced amazing results.

Ten Tips

I came to Victor as a trading novice. Here are ten tips from him that helped me learn the trading game:

• Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading?

• Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures.

• All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation

• Only make a trade when the odds are at least 60% in your favor.

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Some European indexes $DAX $CAC40 $AEX (charts)



Amsterdam AEX

A Million SPX Put Contracts Traded Today…a Contrarian Timing Signal [vixandmore]

From vixandmore.blogspot.com

With a half hour to go in today’s trading session, over one million put contracts have already been traded on the S&P 500 index, which is about 2 ½ times the average daily volume. This elevated put volume comes on top of 913,000 SPX put contracts yesterday, which was the second highest for 2012.

The one million level is rarely seen in SPX puts and generally indicates an extreme amount of hedging on the part of institutional investors, as well as increased speculative activity.

Looking at the chart below, which goes back two years, one can see that in those rare instances when put volume (vertical red bars on lower half of chart) reached one million, this typically coincided with a bottom in stocks.  [Edit:  today’s finally tally is 1.28 million SPX puts, the highest total since August 9, 2011]

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Risk Aversion Money Flows Drop the HUI [Trader Dan]

he mining sector was weak to start the session even as some larger entities were attempting to force the S&P futures above the 1350 level. The problem was that gold could not move into the plus column, the Dollar was not buying the concerted push nor were the bond and note markets which refused to go negative on the day even with stocks initially rallying.

Once the S&P dropped back below the unchanged level, that was it for the mining sector shares which are now getting what looks to me like the BEGINNING of a final washout in this sector.

Note that the critical 50% Fibonacci retracement level could not stem the bleeding as the index has not yet even registered a mere bounce higher. One can almost sense the disgust and dismay that pervades this sector at the time being. While the economic world is being rocked, the proverbial safe haven of gold is being shunned in favor of…. Yep – US Treasuries here and German Bunds over in Europe. Apparently promises to pay by overstrained governments are more valuable than the ancient metal of kings in this Brave New World.

I am sending up a monthly chart once again to provide a long term view of this sector with some key technical regions noted. If we base our analysis PURELY on Technical factors, there does not seem to be anything in the way of downside support until one nears the 340 level which is the 61.8% Fibonacci retracement level of the entire rally from the low hit in 2008. if that cannot stop this rout, then the upsloping trend line (in blue) drawn off the pitchfork is the next target – that is currently near the 300 level.

Alphatrends Technical Analysis 5/14/12

Gold Probing the $1550 Level [traderdannorcini]

Gold has continued to see further selling in today’s session with traders once again exiting “RISK” trades in favor of the “Growth Off” or RISK AVERSION trades. Long commodity positions, along with long equities, are getting liquidated with money flows heading towards US Treasuries in general. This can be seen in the CCI, the Continuous Commodity Index, which is moving lower while bonds move higher, taking interest rates down even further as the yield on the Ten Year is now down below the 1.80% level. Remember, there has not been a week yet during which this yield ENDED BELOW that critical level.

Gold’s move down towards $1550 has in the past attracted very substantial Central Bank gold buying. Hopefully this will remain the case as the market is now pushing towards the lower band of an eight month long trading range. If speculative selling of the metal is not absorbed down here and the market were to break below $1520 and fall to recover quickly, it will more than likely drop below $1500.

My own thinking on this is that the markets are moving so quickly away from risk and out of basically everything except Treasuries or cash, that the Fed is going to have a major problem on their hands if they do not soon give some sort of signal that they are preparing to act to stem the deflationary decline. JP Morgan’s $2 Billion credit derivatives-based loss has spooked the banking sector and that is the one sector that the monetary officials do not want to see going from bad to worse. Keep in mind that back in 2008, once Lehman went under with Bear Stearns following, it was the woes of the financial sector that pulled the rug out from under the entire US economy and the US equity markets. The Fed is well aware of this and I suspect will not want to wait too long before beginning to make some noise to keep the markets from becoming too roiled.

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Stock Trading Is Still Falling After ’08 Crisis [nytimes.com]


Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder.

Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy.

The decline stands in marked contrast to past economic recoveries, when Americans regained their taste for stock trading within two years of economic shocks in 1987 and 2001.

This time around, the stock market has many more players, including high-speed trading firms, which have recently come to account for over half of all stock market activity. But even they, like all other major groups, have recently been doing less overall trading.

“When you keep in mind recent history, this is kind of uncharted territory,” said Justin Schack, an analyst at Rosenblatt Securities.


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European Markets overview post French and Greek elections











Nikkei hits three-month low after France, Greece polls [Reuters]

(Reuters) – Japan’s Nikkei average shed 2.6 percent to hit a three-month low on Monday after elections inFrance and Greece raised concerns on whether struggling euro zone economies will continue to pursue austerity measures and as U.S. jobs data came in weaker than expected.

“It’s red all over the place. It’s pretty bad,” a trader at a U.S. bank said, adding that concerns over the euro zone and slowing growth in the United States triggered yen buying, which further weighed on Japanese exporters.

The Nikkei .N225 was down 242.08 points at 9,138.17, breaking below its 52-week moving average near 9,158 but holding above its 200-day moving average near 9,066.

Among exporters, Honda Motor Co (7267.T) dropped 4.6 percent, Toyota Motor Corp (7203.T) shed 3 percent and Sony Corp (6758.T) fell 3.9 percent.

Financials also suffered as investors cut their exposure to risky assets. Nomura Holdings (8604.T), Japan’s top investment bank, sank 6.4 percent, insurer Tokio Marine Holdings (8766.T) dropped 3.9 percent and lender Sumitomo Mitsui Financial Group (8316.T) lost 2.9 percent.

Greek voters enraged by economic hardship caused by the terms of an international bailout turned on ruling parties in an election on Sunday, putting the country’s future in the euro zone at risk and threatening to revive Europe’s debt crisis.

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Jim Rogers – Markets rely on Fundamentals not short term News

Shanghai Exchange to start Silver futures trading on May 10

BEIJING (Commodity Online): The Shanghai Futures Exchange (SHFE) is all set to launch silver futures trading on May 10, 2012. China is one of the biggest producers and consumers of silver in the world.


This will be the second precious metals futures contract on offer by the SHFE following gold and will be aimed a proving an efficient hedging tool for producers and consumers in China.


“China’s miners, manufacturers, retailers and other enterprises, which rely on the precious metal, will undoubtedly welcome the start of domestic silver futures trading, which will allow them to hedge against fluctuating global silver prices”, the Global Times had quoted Li Ning of Shanghai Cifco Futures earlier.


The contract size is set at 15 Kg (500 troy ounces) with a minimum margin requirement of 7%. The daily price range has been fixed at 5%


Volatility at World’s End: Two Decades of Movement in Markets

ht to @Ferravix

Taking a Broad View – Three Charts [FinancialSense]

As read on http://www.financialsense.com/contributors/richard-russell/taking-a-broad-view-three-charts


The following is an excerpt from Richard Russell’s Dow Theory Letters

“Fools and fanatics are always so certain of themselves, but wiser people are so full of doubts.” — Bertrand Russell

Every once in a while I like to take a very broad view of all the markets — the US and the rest of the world. So here it goes. The first chart below includes the Dow Jones World Stock Index. Here we see the World Index forming a top below a preceding top and then sinking below its (blue) 50 day MA. Not very good.

dow jones

This second chart below shows Morgan Stanley’s world stock average, minus the US stocks. This Index is a bit weaker than the one above, showing that US stocks are stronger than stocks in the rest of the world. Here again we see declining tops, which are usually bearish, and the Index has now fallen below both its 50-day MA and its 200-day MA. Conclusion: weakness.


This third chart shows the Wilshire Index and its three upward surges over the last three years. Of course, the Wilshire deals with almost all US stocks (over 5,000 of them) on our three US stock exchanges: the NYSE, the AMEX and the NASDAQ.

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By Martin T., Macronomics

“The degree of leverage now being reversed is staggering, and the underlying global imbalances – notably between the savers and the spenders – will require long and painful adjustment.”
Vince Cable

In their latest Scorecard Nomura is wondering if the corporate deleveraging implies a new golden age for credit given that credit has outperformed equities over the last decade:

Credit returns are leveraged to have the same volatility as respective equities over this horizon – Nomura

They make the following interesting points in their note:

-Corporates around the world have been deleveraging for longer than most people realise, starting around the time of the tech bubble in 2000.
-Deleveraging is generally bad for equities, but good for credit assets.
-In the US, Europe and Japan, credit has outperformed equities by any reasonable measure (e.g. volatility, drawdowns, absolute).
-As credit is far less volatile than equities, some leverage is sensible. Even leveraged credit can be less risky than unleveraged equities.
-Among other indicators, corporate leverage is a key focus of theScorecard.s credit positioning. This has enabled the Scorecards to outperform standard long-only credit.
-Unlike corporates, financials have just started what is likely to be a long deleveraging process, suggesting opportunities in financial credit.
-As dealers, they will carry lower inventories. As investors, they will have less demand for assets. And they will be supplying assets to the market.

Point number 1: Corporates in US, Europe and Japan have been de-leveraging for some time

“Events since 2008 have highlighted the excessive leverage of households, banks and various governments‟ balance sheets in US and Europe. However, less well-recognised is the fact that corporate leverage (ex-financials) in these countries has been on a steady decline since 2000 (Figure 2).

Figure 3 shows the same trend by looking at free cash flow to debt ratios. Free cash flow is the cash available within a company for distribution among its various security holders. An increase in this ratio, therefore, denotes an increased ability to repay debt holders. The decline in company debt may be linked to increased corporate conservatism in the US and EU after the many high profile defaults at the turn of this century. The same behaviour was visible much earlier in Japan. After the leverage bubble of the 1980s, Japanese corporates have spent nearly two decades trying to repair their balance sheets.”

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Keep a Close Eye on Institutional Cash


I find the assets of institutional money-market fund, published by the Fed on a weekly basis, an extremely useful tool in determining the direction of the U.S. stock market. Institutional money-market funds comprise approximately 65% of all money-market funds but to focus on liquidity in terms of value per se may be misleading, though, as the asset allocation including liquidity of retirement funds is highly regulated. The actual liquidity of regulated funds in terms of value is therefore likely to grow in line with the overall value of retirement funds in rising stock markets.

Although not scientifically correct, I express the institutional money-market funds as a percentage of the total U.S. stock market capitalization as represented by the Wilshire 5000 Price Index as a proxy of total institutional funds to get a better picture of institutional fund liquidity, and named it the institutional liquidity ratio. In the graph below it is evident that the liquidity ratio remained virtually unchanged from 1991 to end 2000, meaning that liquidity moved in line with the broad stock market. Since the end of 2000 the face of fund management changed as five major events rocked investors: 1) the ICT bubble finally burst; 2) 9/11; 3) U.S. corporate scandals; 4) the housing bubble; 5) Lehman/great financial crisis. The events in 1, 2 and 3 took the liquidity ratio to 15% while the Lehman Saga and the subsequent global financial crisis saw the liquidity ratio peak at 35%.

liquidity ratio vs sp500

Sources: FRED; I-Net Bridge; Plexus Holdings.

The value of the liquidity ratio lies in its smoothed annualized growth rate that is calculated by using linear smoothing − similar to how I estimate ECRI in calculating the smoothed annualized growth rate of the WLI.  When the growth rate surged in the third quarter of 2000 it indicated a change of heart by fund managers as they upped their liquidity at the cost of stocks, resulting in the ensuing bear market in stocks. When they slashed their liquidity levels in favor or stocks in the second quarter of 2003 it happened to be the bottom of the market. In 2006 the first warning signals appeared as the growth rate of the liquidity ratio turned positive. In the fourth quarter of 2007 the growth rate of the liquidity ratio jumped as institutions again favored liquidity ahead of stocks. When the growth rate of the liquidity ratio turned negative again, indicating that institutions were again favoring stocks, the downtrend in the S&P 500 since the start of 2008 was finally broken. It is also clear that the institutions have favored equities ahead of cash since then, except for a slightly positive move in the liquidity ratio’s smoothed growth in October last year.

liquidity ratio nsa smoothed annualized growth rate

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Charles Biderman: The Problem with Rigged Markets

Chart Of The Week: This Is Who Is Selling [Zerohedge]

Tyler Durden's picture

Submitted by Tyler Durden on 04/01/2012 11:59 -0400

As we have pointed out before, the ongoing market tension is so palpable it can be cut with a knife. As a reminder, institutional investors are now about as “all in” as they can be, spinning narratives about economic growth, housing bottom, and general improvement (despite all facts to the contrary), while waiting for one simple thing: to get retail investors buying again. Because unless the Fed or ECB pumps another trillion or so in new liquidity there is simply no new purchasing money.


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By Comstock Funds on Pragmatic Capitalism

A growing number of indicators suggest that the market is running out of steam.  Equities have been in a temporary sweet spot where investors have been factoring in a self-sustaining U.S. economic recovery while also anticipating the imminent institution of QE3.  This is a contradiction.  If the economy were indeed as strong as they say, we wouldn’t need QE3.  The fact that market observers eagerly look forward toward the possibility of QE3 is itself an indication that the economy is weaker than they think. We can have one or the other, but we can’t have both.

At the same time the problems in Europe have been put on the back burner, giving the market some temporary relief—-and we do mean temporary—-from the relenting dire headlines that have often dominated the financial news.  This, too, is not likely to last very long.

The U.S. economy has benefited over the last few months from the inability of seasonal adjustment factors to account for an exceedingly warm winter and the distortions introduced by the fact that the worst of the recession in 2008-2009 occurred in about the same months.  Although it is difficult to put a number on this, we suspect that the seasonal adjustments made the economy appear much stronger than it actually was, and that the payback is about to come.

Adding to these distortions, Fed Chairman Bernanke recently pointed out that Okun’s Law may have been a factor in the improving unemployment numbers.  Okun’s Law, based on empirical observation rather than theory, states that for every 2% change in GDP, unemployment changes 1% in the opposite direction.  Bernanke stated that at the worst of the last recession, unemployment increased by far more than it should have based on the decline in GDP.  Recently, however, unemployment dropped by far more than it should have in relation to the increase in GDP, and that this was payback for the prior distortion.  The takeaway is that the unemployment rate will not improve much in the period ahead, an assumption that is undoubtedly a major reason for the Fed’s continued caution on the outlook and promise of near-zero rates into 2014.

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Trendlines intact, but showing bearish divergences. $RUT $SPX

Nothing to add. Charts say it all.

Soros Insider-Trade Appeal Rejected by Human Rights Court [Bloomberg]

Billionaire investor George Soros lost a challenge to his 2002 insider-trading conviction, with the European Court of Human Rights’s Grand Chamber refusing to review whether France had violated his rights.

The court declined to hear Soros’s appeal it said in a statement today, without providing any reasoning. Soros, 81, was convicted by Paris courts in 2002 for using inside information about Societe Generale SA (GLE) in his trading. He argued that French market regulations weren’t clear enough to hold him responsible.

As “a famous institutional investor, well-known to the business community and a participant in major financial projects,” Soros should have been “particularly prudent” in ensuring he was obeying insider-trading laws, the Strasbourg, France-based European court said in its October decision.

In the French case, Soros was ordered to repay 2.2 million euros ($2.93 million) he’d made from the share purchase and subsequent sale after judges found he’d acted with the knowledge that the bank might be a takeover target. The fine was reduced after a 2007 decision by France’s supreme court to about 940,000 euros.

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