Chart of the Day

From Chart of the Day
Chart of the Day
Today's chart illustrates the average monthly gain of both large-caps (S&P 500) and small-caps (Russell 2000). Firstly, the chart illustrates that over the last decade, stocks (both large-caps & small caps) have had a tendency to perform well towards the end of the year. Secondly, today's chart illustrates that small-caps have had a tendency to outperform in November and December. Stay tuned...
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Source - CSI

Global imbalances, you ask?

From Bill Cara's blog
Here is the Cara Top Ten List of Global Imbalances:
10. See number 1
9. See number 1
8. Refco client-driven commodity prices and current unwinding
7. China’s insatiable demand for natural resources
6. Residential real estate markets in many countries
5. Consumer indebtedness in the U.S.
4. European fiscal deficits (Germany, France and Italy)
3. Japan’s trade surplus and rapid inbound investment of USD
2. China’s trade surplus, rapid growth of USD reserves
1. The current account and fiscal deficits of the U.S. (“the twin deficits”)

The Beige Book - October 19th, 2005

Economic growth in the Second District has moderated since the last report. Consumer confidence in the region declined moderately in September, and consumer spending has been weaker, in part due to unseasonably warm weather. The housing market has shown signs of softening, especially at the high end, though the rental market has continued to strengthen. On a more positive note, labor markets and commercial real estate markets have continued to firm, and tourism has continued to show exceptional strength. Freight traffic at the Port of New York and New Jersey has been robust and reportedly little affected by the recent Gulf hurricanes. Generally, manufacturers indicate little or no disruption from the storm and report ongoing improvement in business conditions. Finally, bankers report weaker loan demand from the household sector but little change in delinquency rates or credit standards.
More

Asian monetary union unlikely

Asian monetary union unlikely
from Forex Blog

In a recent speech, a high-ranking Australian central banker discussed the prospect of Asia forming a union similar to that of the EU and adopting a common currency. Glenn Stevens said such a union is extremely unlikely, because the economies of Asia are too diverse. There are already several multilateral trade and currency agreements that link much of Southeast Asia, leading many pundits to speculate that a common currency represents a logical next-step. However, at this point in time, it seems these nations’ respective monetary policies are sensitive to the US, rather than to each other. Dow Jones News reports:

Wile there have been various calls for a common exchange rate policy, usually based around targeting a common basket, divergent interests within Asia prevent finding an obvious acceptable exchange rate linkage.

Read More: RBA's Stevens Doubts Asian Monetary Union Any Time Soon

Weekly Outlook

From Between The Hedges
Economic reports for the week include:
Mon. - Empire Manufacturing
Tues. - Producer Price Index, Net For eign Security Purchases and NAHB Housing Index
Wed. - Housing Starts, Fed’s Beige Book
Thur. - Initial Jobless Claims, Leading Indicators and Philly Fed.
Fri. - None of note
A few of the more noteworthy companies that release quarterly earnings this week are:
Mon. - Citigroup(C), General Motors(GM), IBM(IBM), Mattel(MAT), Novellus Systems(NVLS),Wachovia(WB)
Tues. - Fifth Third Banc(FITB), Freeport-McMoRan(FCX), Genzyme Corp.(GENZ), Intel Corp.(INTC), Johnson & Johnson(JNJ), Kraft Foods(KFT), Merrill Lynch(MER), Motorola(MOT), Ryland Group(RYL), Seagate Technology(STX), State Street(STT), Wells Fargo(WFC) and Yahoo! Inc.(YHOO)
Wed. - Abott Labs(ABT), Altria Group(MO), Amgen(AMGN), Bank of America(BAC), Eastman Kodak(EK), eBay Inc.(EBAY), Electronic Arts(ERTS), EMC Corp.(EMC), General Dynamics(GD), Juniper Networks(JNPR), MBNA Corp.(KRB), Office Depot(ODP), United Technologies(UTX)
Thur. - Allstate(ALL), Broadcom(BRCM), Coca-Cola(KO), Eli Lilly(LLY), Ford Motor(F), Google Inc.(GOOG), Ingersoll-Rand(IR), McDonald’s(MCD), Pfizer Inc.(PFE), SBC Communications(SBC), Scientific-Atlanta(SFA), Southwest Airlines(LUV), United Parcel Service(UPS), Whirlpool Corp.(WHR), Xilinx(XLNX)
Fri. - Amazon.com(AMZN), Caterpillar(CAT), Guidant Corp.(GDT), Maytag Corp.(MYG), Royal Caribbean(RCL), Schlumberger(SLB), Wyeth(WYE)
Other events that have market-moving potential this week include:
Mon. - Fed’s Greenspan speaks, Fed’s Santomero speaks
Tue. - Fed’s Ferguson speaks, Semi Book-to-Bill
Wed. - BIO InvestorForum, Fed’s Geithner speaks, Fed’s Kohn speaks, Fed’s Kohn speaks, Fed’s Pinalto speaks
Thur. - Fed’s Lacker speaks, Fed’s Poole speaks, BIO InvestorForum
Fri. - Fed’s Poole speaks

Weekly Wrap for Oct 14th, 2005

Weekly Wrap Up from Briefing.com

Week ending 14-Oct-05 : Weekly Recap –

• Another difficult week.
• The action poor on Mon, Tues, and Wed.
• Thurs the indices stabilized and on Fri the market rebounded significantly.
• Chance worst is over.
• Market decline largely ascribed to inflation fears.
• Tese fears were not based on hard data. The market was looking for an excuse to sell. That was the situation early this week as well.
• Next week earnings reports come in droves.
• Could provide further support to the market.
• Market may not be about to take off but excessive pessimism is fading.
• Economic and earnings growth remains strong.
• Interest rates likely to keep rising, and keep stock market in check,
• but overall fundamentals are moderately bullish.

CYCLE GAUGE AND MARKET INTERNALS

CYCLE GAUGE AND MARKET INTERNALS for week ending Oct 14th 2005
S&P500
Weekly Market bull/bear skew (C+D) is still BEARISH – 77% (prev 71%) and gaining strength. The Topping skew (B+C) continues to trend down (50%). Any change of trend in this skew warns of a change of price action swing. There has been very strong rotation from Phase B into Phases C and D. Phase B continues to trend down, Phase D continues to trend up and Phase A remains flat suggesting that the current down swing may have further to go. We usually see a pick up in rotation into Phase A just before a trough in price action. The weekly Cycle Gauge is C2. This indicates that the market has been in the Distribution Phase for two weeks.

19.4% (33.5% prev) of stocks closed above their 4 week MA.
43.2% (51.8% prev) of stocks closed above their 30 week MA.
46.4% (52.8% prev) of stocks closed above their 52 week MA.

Comment

• CG is DOWN in all three time frames.
  
• Weekly CG is C2.
  
• Volatility has begun to build momentum in the medium term time frame and the RSI of volatility has crossed back above the OS zone=> expect to see trending action within the next few weeks as volatility begins to trend up from a cyclical trough.
  
• Only 19% of stocks are above their 4week MA => expect to see the down swing terminate if this number moves above 30%.
  
• 43% of stocks are above their 30week MA => this has downside implications in the medium term time frame unless it begins to pick up.
  
• Support around 1180 was breached last week but the market still hasn’t closed below it.

NASDAQ100
Weekly Market bull/bear skew (C+D) is BEARISH – 67% (prev 62%) and gains strength. The Topping skew (B+C) continues to trend down (49%). Any change of trend in this skew warns of a change of price action swing. There was rotation from Phases A and B into Phases C and D. Phase B continues to trend down and Phase D continues to trend up - expect the current down swing to develop further as the trends remain intact. The weekly Cycle Gauge is C2. This indicates that the market has been in the Distribution Phase for two weeks.

22% (37.5% prev) of stocks closed above their 4 week MA.
44% (53.5% prev) of stocks closed above their 30 week MA.
43% (46.6% prev) of stocks closed above their 52 week MA.

Comment

• CG in both the short term and medium term time frames is DOWN.
  
• Weekly CG is C2.
  
• Volatility continues to lose momentum in the medium term time frame and the RSI of volatility has turned up from near the OS zone => expect to see strong trending action within the next few weeks as the trend in volatility continues to trend up.
  
• RSI of volatility in the short-term time frame is trending up => warns that the current down swing may develop further.
  
• Only 22% of stocks are above their 4week MA => expect to see the down swing terminate if this number moves above 30%.
  
• 44% of stocks are above their 30week MA => this has downside implications in the medium term time frame unless it begins to pick up.
  
• Support around 1550 taken out last week.

An update on Sarbane

An update on Sarbanes Oxley from the Wall Street Journal – Podcast

Sarbanes Oxley WSJ Podcast

Look Ma, No Inflation!

Friday, October 14, 2005 | 07:30 PM

from the Big Picture blog

in Economy

There is no inflation, and we's gots da data to prove it (Pay no attention to the man behind the curtain).

CPI (I cannot stop laughing, it hurts so much, please make it stop)

So let me make sure I understand this: U.S. consumer prices rose at the fastest pace in 25 years, and that is somehow a positive for the economy and/or the markets?

Puh-leeze.

Let's drill down into this nonsense before it costs too many people too much money (although Darwin might suggest that we allow the terminally dumb to starve themselves to death so as not to pass along their fool BLS-believin' genes).

1) Core commodities prices up .1%. This is taken as proof that, except for items going up in price, there is little in the way of inflation.

While that no inflation (ex-inflation) may be plausible to the naive, I interpret it very differently. To me, this means that there's little ability to pass along producer price increases to the consumer. This will inexorably lead to margin squeezes, and sure as day follows night, that will impact earnings negatively.

Commodities
5 Year Chart (no inflation here -- just rising prices)

2) Core services I:
With Housing Prices at all time highs and the affordability index at 14 year
lows, we see that "Owner Equivalent Rent" is up a mere +.1%. Need I
detail how silly this is? Home prices are up dramatically, and recently we see
that morgage rates have ticked up significantly (now over 6%).
Its no surprise that mortgage apps have dropped 3 consecutive weeks.

3) Core services II: Medical Service prices up a mere
+.3%. Anyone who has so much as a had a cavity filled knows the correlation of this tortured data to reality is approaching zero.
4) Wage Pressure: The only real bright spot in the inflation data is "Worker earnings relative to inflation. They fell, as the the Labor Department reported "real average weekly earnings of U.S. workers, adjusted for inflation, fell 1.2% in September." That marks the third consecutive monthly decline of real wages (average hourly earnings rose 0.2%).

So the only place where there is no inflation is in the pocketbooks of the consumer, whom I must remind you accounts for 70% of the economy.

(Hey
Ritholtz, any other cheery news you can bring to our attention?)

Yeah, the new
consumer bankruptcy laws take effect
Monday.

That is all . . . Source:

Consumer Price Index Summary (PDF)
BLS, SEPTEMBER 2005
http://www.bls.gov/news.release/cpi.nr0.htm

Consumer Prices Jump 1.2%; Retail Sales Advance by 0.2%
DEBORAH LAGOMARSINO and NICOLAS BRULLIARD
DOW JONES NEWSWIRES, October 14, 2005 9:15 a.m.
http://online.wsj.com/article/SB112929099168268730.html

Technical Tools That Work

in Financial Press | Technical Analysis

Yesterday, Gary B. Smith made reference to my Delphi comments on Wednesday (thanks for the kind words, G-man).

My key takeaway in this discussion -- one that is easy to overlook -- is the simple fact that technical analysis is a tool. Whether you choose to avail yourself of it or not is up to you. But I do not understand the insistence by some that it is of absolutely no utility whatsoever to anyone anywhere for anything.

That is simply a false statement. It may have little utility for Cody's model, and that's fine, but that does not invalidate it.

I'll let you in on a little secret: Jim Cramer is a closet Technician (he doesn't even know it). Cramer is very aware of breakouts and break downs, talks of stocks trading "heavy," intuits relative strength or weakness; He also is quite conscious of trends.

These are all tools of the Technician.

Like other tools, there are craftsmen who do astonishing things with them. I may use a knife to spread butter on toast, while others use similar intruments to carve ice or perform open heart surgery.

If you find any particular form of analysis (technical, fundamental, quantitative) that provides you with a way to improve your performance, that's terrific. But I find it hard to understand why people are so dismissive of a tool that so many bright people have demonstrated a personal skillset with -- one that makes them money.

Consumer prices zoom in U.S., Fri, Oct. 14, 2005, 9:23 AM

From www.billcara.com

Total CPI in the U.S. for September was anticipated by Wall Street to be +0.9 pct Month over Month. Instead it was +1.2 pct. But rather than run for the hills, the TH’s have spun some nonsense that the War On Inflation is being won. They point to a number called “core”, which strips out energy, food and all other items we have to buy daily, and state proudly that “core” was just up +0.1 pct M/M.

I told you this would happen. I told you that Wall Street and its bought-and-paid mass media just can’t get it right.

In fact, to point out just how much these people lack intellectual honesty and integrity, I recently pointed out that during the 2000-2002 period (“The last great bear market”), the same people would urge the public to ignore “core” and focus instead on Total CPI. That’s because, during that time, the Total CPI number was falling M/M faster than Core.

Retail sales in the U.S. grew by +0.2 pct M/M, but the TH’s tell the audience that this disappointingly low number ought to be ignored because ex-autos it was really +1.1 pct M/M, which is a highly impressive number that “proves” that the U.S. economy is healthy and robust, yada, yada.

Sometimes, I want to puke. But that’s because I treat this stuff seriously. Capital markets involve real money. It is non-fiction. Instead we get crapola along the lines that the world is favored by a “Goldilock’s Economy...not too hot, not too cold.”

I ask you, who is the village idiot who came up with that slogan for the Sell Side.

Dumbing Down of America. You allow yourself to fall into that trap, and shame on you.

The facts are this: Inflation continues to rocket higher in America. Retail sales in America are slowing, but not yet in terrible shape. Unless interest rates and energy prices recede from their rising tide, all boats tethered to the dock will get pulled under.

That last analogy will make my wife smile as she reads it.

Years ago, I had just bought a new sailboat. Unknown to me, and others, was the fact that the engineers had designed part of the plumbing in reverse, so that the overflow was supposed to exit the boat but didn’t because the pipes were reversed. That meant that if, as, and when the waterline ever reached higher than the outlet on the side of the boat, it would be allowed into the boat. So after an all-day drive from Atlanta to just north of West Palm Beach Florida, where I kept my boat at the time, arriving with two young children asleep in the back of the car, we arrived at 2:00am to a sunk boat. In my absence, the inexperienced marina crew had tied my boat tight to the dock before a storm that caused a tidal surge of about four feet. That rise of water and the tethered boat worked together to sink my boat.

So there you have it: life is full of experiences that you can learn from, which in fact you ought to learn from if you are going to avoid problems in the future.

With my boat, I had relied on the expertise of boat designers and engineers who were the recipients of worldwide awards for excellence as well as a marina crew who were supposed to know their job. They failed me. I learned to rely on myself.

Four and five years ago, the TH’s who today are telling you to ignore Total CPI and rely on Core are the ones who were telling you to ignore Core and focus on Total CPI. They hold themselves out as experts.

You have to figure out these things for yourself. Your common sense becomes more acute with experience. Mine is telling me that consumer prices have zoomed this month, and last, and the ones before that, and that prices facing my friends and associates in other countries are rising quickly as well.

Of course, my common sense is aided by the excellent charts from Haver Analytics below.

I see that MarkM has given us his insight with respect to this morning’s CPI. Please read his comment to the previous article.

Posted by Bill Cara on October 14, 2005 09:17:09 AM

Bill Cara: Why is Wall St selling out Technical Analysis?, Wed., Oct. 12, 2005, 12:12 PM

Bill Cara: Why is Wall St selling out Technical Analysis?, Wed., Oct. 12, 2005, 12:12 PM

October 12, 2005

Why is Wall St selling out Technical Analysis?, Wed., Oct. 12, 2005, 12:12 PM

I am asked every day or so why I think Wall Street is selling out Technical Analysis? I have the answer.

Technical analysis is a buy-side tool. Wall Street is the sell-side.

Wall Street is starting to acknowledge that clients are no longer duped into believing these investment dealers can also be fiduciaries for the buy-side. They are starting to say, “Better to wear one hat”.

They have known that for years mind you. But after Eliot Spitzer has reamed their personal bank accounts for several billions in the aggregate, they are starting to acknowledge that the next step will be class-action lawsuits for conflicted “advisory” services.

I hold the regulators accountable for this botch-up you know. Twenty-five years ago the dealers started replacing the titles of their sales force with the term “financial advisor”, removing the term “registered representative”.

You know, any idiot can call himself or herself “advisor” but only industry registrants can be called “registered” – but that’s another story I want to write about some day.

Did you know that anybody can call himself or herself “accountant”, so today there is no differentiation between the village idiot and the professional chartered accountant or certified professional accountant. And now you have the self-styled professionals encroaching on the turf of the real pro’s.

Who’s to blame? The regulators of course. They are the ones who allow this nonsense.

This is a real story. In 1982-83, I had been the rightful holder of two professional designations: the chartered accountant (CA) and the certified management accountant (CMA). I was a ten-year member in good standing, an Old Boy of both KPMG and PriceWaterhouseCoopers.

Then one day while working for Dominion Securities Investment Management (now RBC), I got to thinking about my life, and why I was paying these two accountancy institutions so much annual dues for the privilege of having my mailbox stuffed every day with marketing literature. So I called the Canadian Institute of Chartered Accountants and asked them to consider differentiating accounting professionals from the rest of us, and, by the way, considering low annual fees for the rest of us.

They respectfully declined. So too did the CMA organization. Both of them pointed out the importance to my career of holding such fine credentials.

In turn, I told them that the day I needed to wear a badge on my chest to show the public who I was as a person would be the day I got down on my knees to kiss their derrieres. They didn’t like that talk and, since they refused to at least listen to my arguments, I refused to pay my fees, and agreed forthwith to not use their credentials.

You see, the CA, CPA, CMA, CGA, etc, etc, are royalty plans for people in Ivory Towers, who by the way are dead from the ankles up. They have two jobs in life: (i) to tell the world how skilful their members are, and (ii) to deposit their members’ fees in the club’s bank account.

But, you know, a fact is a fact, so these people cannot ever hold me back from telling anyone that I met all the requisites for professional designation, and was a member in good standing for ten or eleven years until I (not they) decided to pull the plug, because of my personal values.

The securities regulators also know what end’s up with this issue. Maybe new SEC Head Chris Cox, who is not a former Wall St broker-dealer and NYSE chief, will get around to returning registrants to “registered representative” status one day.

So, back to Technical Analysis, and the decision by some Wall Street dealer firms to snuff their technical analysts: good on you. Terrific move.

And to Ralph Acampora, formerly of Prudential Financial, one of the good guys on the Street, whom I met about 20 years ago at a meeting of the Market Technicians Association, I wish nothing but the best. I cannot imagine the crap he had to put up with in his former position, and I know that, should be move over to the Buy Side, he’ll get back to teaching, and informing, and being more right than wrong.

That’s what the owners of capital need.

Posted by Posted by Bill Cara on October 12, 2005 12:14:01 PM | Category: Trader Tools