Wednesday, September 30, 2009
New Notes Online
I have two more sets of online notes to complete the Bond Market information now being covered in class. These are listed near the Bond notes on the online syllabus. If you want to download these from this post, here are the links: The Yield Curve, Stock Market, and Interest Rates and The Money Market.
Wednesday, September 23, 2009
Fed Decision?
As expected, at 2:15 today the Federal Reserve made its decision not to raise rates (thank God!), and released its short statement summarizing its assessment of the economy now and in the future. Here is a copy of the actual Fed statement. And, as I indicated to you in class, the media provided an anal and microscopic evaluation of this statement compared to the previous one (click here).
How did the stock market react? Below is an image of the S&P 500 using 15-minute intervals (click to enlarge). Look this over, as a number of the key elements for reading market momentum show up. First, note when the announcement occurred at 2:15. The initial reaction was very positive (large up bar). But, that wasn't sustainable, as the RSI(9) showed an overbought reading (above 70). The next 15 minutes, we see a classic illustration of what happens when momentum diminishes -- a bar with a significant upper tail. This indicates that the bulls were able to push price fairly high, but the bears ultimately beat them back. For that bar, note the close (of the 15 minutes) was almost identical to the open. In the next bar, the open was above the prior bar's close, but things got bad for the bulls as the bears were clearly in control at this point. Take a look at the last bar of the trading day - a large range, the bears were clearly in control by then, and the close was almost at the low for that 15-minute period.
The day ended with an ugly price bar, but a glimmer of hope for tomorrow -- the RSI was giving an oversold reading (was below 30). If price should continue to fall, how low can we expect it to fall? Let me restate this: where is the next level of support? To find this, use the rule from class: look to the left. In other words, extend the time period of the chart. In the second graph (click to enlarge), I have extended to 5 days. From this, we are able to see the next level of support at around 1058.
Let's see what happens tomorrow.
How did the stock market react? Below is an image of the S&P 500 using 15-minute intervals (click to enlarge). Look this over, as a number of the key elements for reading market momentum show up. First, note when the announcement occurred at 2:15. The initial reaction was very positive (large up bar). But, that wasn't sustainable, as the RSI(9) showed an overbought reading (above 70). The next 15 minutes, we see a classic illustration of what happens when momentum diminishes -- a bar with a significant upper tail. This indicates that the bulls were able to push price fairly high, but the bears ultimately beat them back. For that bar, note the close (of the 15 minutes) was almost identical to the open. In the next bar, the open was above the prior bar's close, but things got bad for the bulls as the bears were clearly in control at this point. Take a look at the last bar of the trading day - a large range, the bears were clearly in control by then, and the close was almost at the low for that 15-minute period.
The day ended with an ugly price bar, but a glimmer of hope for tomorrow -- the RSI was giving an oversold reading (was below 30). If price should continue to fall, how low can we expect it to fall? Let me restate this: where is the next level of support? To find this, use the rule from class: look to the left. In other words, extend the time period of the chart. In the second graph (click to enlarge), I have extended to 5 days. From this, we are able to see the next level of support at around 1058.Let's see what happens tomorrow.
Tuesday, September 8, 2009
Welcome back!
Welcome to the Fall 2009 semester.
This blog will have postings throughout the semester -- my way of communicating important information to you when we are not meeting as a class. Check in on the days after class meets, especially on weekends. To make this worth your while, there will be two or three extra credit assignments posted on the Blog throughout the semester.
The past year was dominated by a severe financial crisis and a global recession. The recession was so severe (believed to be the worst since the Depression) that it took on a name: "The Great Recession." This semester, growth remains a major concern, as there is considerable debate about whether or not a national economic recovery has actually begun. Whether or not this is so (I believe we are in the earliest stages of a recovery), credit market weakness (ongoing credit problems and further after-effects of sub-prime mortgages) will also be important, as will the behavior of inflation (will it suddenly spark as some observers fear?). In its next move, the Fed will raise the fed funds rate, as it is currently at (or near) 0. The only question that remains is when such a rate hike will occur.
By semester's end, you will come to understand that all of the factors we will be discussing throughout the semester are interrelated. And, as the semester unfolds, we'll see what the collective actions of the world's central banks will be, and if their assessments of what they need to do prove to be correct.
For now, read all of Stikki Stock Charts for next Thursday and visit the web site: Stockcharts.com. On the online syllabus I have added introductory material that will assist you in using that web site (we will be referring to it all semester).
If you have any questions throughout the semester, don't hesitate to e-mail me (llardaro@uri.edu) and/or stop by my office, Chafee 804. DO NOT LEAVE PHONE MESSAGES!!
This blog will have postings throughout the semester -- my way of communicating important information to you when we are not meeting as a class. Check in on the days after class meets, especially on weekends. To make this worth your while, there will be two or three extra credit assignments posted on the Blog throughout the semester.
The past year was dominated by a severe financial crisis and a global recession. The recession was so severe (believed to be the worst since the Depression) that it took on a name: "The Great Recession." This semester, growth remains a major concern, as there is considerable debate about whether or not a national economic recovery has actually begun. Whether or not this is so (I believe we are in the earliest stages of a recovery), credit market weakness (ongoing credit problems and further after-effects of sub-prime mortgages) will also be important, as will the behavior of inflation (will it suddenly spark as some observers fear?). In its next move, the Fed will raise the fed funds rate, as it is currently at (or near) 0. The only question that remains is when such a rate hike will occur.
By semester's end, you will come to understand that all of the factors we will be discussing throughout the semester are interrelated. And, as the semester unfolds, we'll see what the collective actions of the world's central banks will be, and if their assessments of what they need to do prove to be correct.
For now, read all of Stikki Stock Charts for next Thursday and visit the web site: Stockcharts.com. On the online syllabus I have added introductory material that will assist you in using that web site (we will be referring to it all semester).
If you have any questions throughout the semester, don't hesitate to e-mail me (llardaro@uri.edu) and/or stop by my office, Chafee 804. DO NOT LEAVE PHONE MESSAGES!!
Thursday, April 23, 2009
Oil Price
As I stated in class today, oil prices ($WTIC) have recently made, but not completed, a double top. The chart (click to enlarge) shows this, along with how to calculate the target price. First, it is important to point out that for a double top formation to be completed, market price must break below the neckline, which has not yet happened (also, remember this chart is EOD, or End of Day). The calculation of the lower price target is given on the chart. In the pres
ent example, assuming that this pattern is completed, so that price closes below the neckline, the falling price target is just under $40/barrel.
I have drawn a horizontal line at (approximately) that price target. Something interesting emerges: if the target is reached, we can expect a re-test of support that has existed since the beginning of 2009. Notice that there were a few false breakdowns below this support in February, but support there held.
The important question for ECN 335 is the informational content of this formation. In other words, what is this market telling us about the direction of the overall economy, commodity prices, or other factors in the near term?
Start by modeling oil prices (and commodity prices in general): demand for goods (predicated on production), and the strength of the US Dollar are major factors. In addition to these, factors specific to this particular commodity (ex: geopolitical problems concerning oil production) should also be taken into account. Next, view oil price alongside other indicators such as cyclicals ($CYC) and determine whether it is a lagging, coincident, or leading indicator (read Carnes & Slifer's text to help with this).
ent example, assuming that this pattern is completed, so that price closes below the neckline, the falling price target is just under $40/barrel.I have drawn a horizontal line at (approximately) that price target. Something interesting emerges: if the target is reached, we can expect a re-test of support that has existed since the beginning of 2009. Notice that there were a few false breakdowns below this support in February, but support there held.
The important question for ECN 335 is the informational content of this formation. In other words, what is this market telling us about the direction of the overall economy, commodity prices, or other factors in the near term?
Start by modeling oil prices (and commodity prices in general): demand for goods (predicated on production), and the strength of the US Dollar are major factors. In addition to these, factors specific to this particular commodity (ex: geopolitical problems concerning oil production) should also be taken into account. Next, view oil price alongside other indicators such as cyclicals ($CYC) and determine whether it is a lagging, coincident, or leading indicator (read Carnes & Slifer's text to help with this).
Friday, April 17, 2009
Gaps and the NASDAQ
On occasion, gaps appear in price charts. These arise almost exclusively in daily and intra-day charts. There are a number of things that cause gaps to emerge in individual stocks, such as news or earnings announcements (positive or negative) coming out after a day's trading has ended, which causes a new equilibrium price that is different enough to gap up or down from the prior day's trading range. Actually, there are several different types of gaps. There is a good article about them at Chart School in StockCharts.com, and another about how to trade gaps on Investopdia.
The reason for this blog post is that the NASDAQ has seen several gaps over the past few weeks. The chart below (click to enlarge
) shows this. One thing that many of us who follow the market utilize is the tendency for gaps to be filled. How long it takes for this to occur, however, can vary widely, and it depends on the type of gap (see the articles above). Some, breakaway gaps, for example, can take quite a while to fill, if they even end up being filled. At the other extreme is exhaustion gaps, which are very likely to fill (see articles). The gaps in the NASDAQ chart are merely "plain vanilla" or standard gaps. Note an interesting pattern for the last two gaps: they both filled on the third day (almost sounds biblical!). DO NOT make anything of this, it is merely a coincidence.
I do want to point out a trading strategy related to the typical gap. Since gaps tend to eventually fill (again, depending on the type), some traders will essentially place trades that presuppose this. In other words, they trade in the opposite direction of the gap. This is called fading the gap. While I have used this on a number of occasions in the past, I did so with added criteria. So, according to this trading philosophy, if a down gap emerges, go long in anticipation that price will rise and fill the gap.
How likely is it that a gap will be filled in a reasonable time period? Use technical indicators to make this determination. If there is an up gap, for example, and price moves fairly close to resistance and/or the RSI shows an overbought reading, the odds of gap filling are in your favor. It might take longer than you are comfortable with, however. This has a bearing when traders are using options which have a time decay factor that lowers their prices each day as you wait for the filling to occur. Similarly, if a gap down occurs, moving price close to support and/or the RSI is at oversold readings, the likelihood of filling the gap are fairly good. As always, identify either bullish or bearish divergences improves the odds of your being correct even more.
When I originally planned to write this blog, another pattern existed that has now ended. The most likely support for the NASDAQ at present is its 50-day moving average. If a gap emerges that is not very far from the 50-day, and the RSI is at or near an overbought reading, the odds that the gap will be filled as part of a retest of support (at the 50-day moving average) are very favorable.
Let me end this post by transcending exclusive reliance on technical criteria. If you are attempting to determine where price will eventually go, create a price forecast using economic criteria. Identify the primary explanatory variables that will influence price over your time period of interest, then predict what each of them will do. Once you have done this, determine the dominant changes and along with that, your price forecast. For the market as a whole, price depends on interest rates and profit expectations. You then find several variables for each of those factors. At the firm or industry level, the choice of factors can differ. For example, interest rates might not be very influential (ex: consumer staples), or how cyclical the firm or its industry are must be accounted for. That leads to your identifying additional factors to use in your forecast.
Hopefully, it might have crossed your mind that it is also highly useful to incorporate intermarket relationships into this type of analysis. What is the commodity market signaling? How about currencies? The bond market? Put all of this together (as you must for the course paper) and you have a very educated guess about the overall market's direction.
The reason for this blog post is that the NASDAQ has seen several gaps over the past few weeks. The chart below (click to enlarge
) shows this. One thing that many of us who follow the market utilize is the tendency for gaps to be filled. How long it takes for this to occur, however, can vary widely, and it depends on the type of gap (see the articles above). Some, breakaway gaps, for example, can take quite a while to fill, if they even end up being filled. At the other extreme is exhaustion gaps, which are very likely to fill (see articles). The gaps in the NASDAQ chart are merely "plain vanilla" or standard gaps. Note an interesting pattern for the last two gaps: they both filled on the third day (almost sounds biblical!). DO NOT make anything of this, it is merely a coincidence.I do want to point out a trading strategy related to the typical gap. Since gaps tend to eventually fill (again, depending on the type), some traders will essentially place trades that presuppose this. In other words, they trade in the opposite direction of the gap. This is called fading the gap. While I have used this on a number of occasions in the past, I did so with added criteria. So, according to this trading philosophy, if a down gap emerges, go long in anticipation that price will rise and fill the gap.
How likely is it that a gap will be filled in a reasonable time period? Use technical indicators to make this determination. If there is an up gap, for example, and price moves fairly close to resistance and/or the RSI shows an overbought reading, the odds of gap filling are in your favor. It might take longer than you are comfortable with, however. This has a bearing when traders are using options which have a time decay factor that lowers their prices each day as you wait for the filling to occur. Similarly, if a gap down occurs, moving price close to support and/or the RSI is at oversold readings, the likelihood of filling the gap are fairly good. As always, identify either bullish or bearish divergences improves the odds of your being correct even more.
When I originally planned to write this blog, another pattern existed that has now ended. The most likely support for the NASDAQ at present is its 50-day moving average. If a gap emerges that is not very far from the 50-day, and the RSI is at or near an overbought reading, the odds that the gap will be filled as part of a retest of support (at the 50-day moving average) are very favorable.
Let me end this post by transcending exclusive reliance on technical criteria. If you are attempting to determine where price will eventually go, create a price forecast using economic criteria. Identify the primary explanatory variables that will influence price over your time period of interest, then predict what each of them will do. Once you have done this, determine the dominant changes and along with that, your price forecast. For the market as a whole, price depends on interest rates and profit expectations. You then find several variables for each of those factors. At the firm or industry level, the choice of factors can differ. For example, interest rates might not be very influential (ex: consumer staples), or how cyclical the firm or its industry are must be accounted for. That leads to your identifying additional factors to use in your forecast.
Hopefully, it might have crossed your mind that it is also highly useful to incorporate intermarket relationships into this type of analysis. What is the commodity market signaling? How about currencies? The bond market? Put all of this together (as you must for the course paper) and you have a very educated guess about the overall market's direction.
Tuesday, April 7, 2009
Which Way Will the Market Go?
The recent rally has taken a pause at best, and perhaps the recent rally has run its course. While the market has declined for the past two days, today's decline was much larger than Monday, as the S&P fell by almost 20 points back to 815.6. How can we gauge whether this is the end of a rally or merely a pause in an uptrend?
Technical indicators are helpful for this. The following chart (click to enlarge) is the daily S&P performance over the past s
ix months. There are two conflicting signals in this chart. First, note the performance of the RSI. While the S&P has recently risen sharply, that momentum was not confirmed by the RSI (see the lines in the chart). Recall, this is a bearish divergence. But if we work with moving averages, we get a buy signal. In the chart I have added the 20-day and 50-day moving averages. Notice that in the past few days, the 20-day has crossed above the 50-day moving average. This could potentially be considered a buy signal (recall: this is related to the average-marginal relationship we discussed earlier in the semester).
So, which indicator should we rely on? Since moving averages are lagging indicators and a bearish divergence of the RSI is a leading indicator, I would tend to go with the RSI's "signal." But that is still no guarantee that the rally is over -- it merely indicates a short-term pullback is in store which we are now witnessing.
In a situation such as this, you should look at weekly data for whatever information it contains, since weekly data does not contain as much "noise" as does daily price data. The chart below shows weekly S&P data (click to enlarge).
I have added the 13-week moving average since this corresponds to a quarter. Note how well this fits the price data.
The weekly RSI shows very different momentum information than does the daily chart. Note the weekly RSI is far from overbought, and there is no bearish divergence. Actually, the RSI has failed for some time to move beyond 50, which would have indicated movement to more bull-market-type momentum.
In this situation, I recommend that you view an RSI value of 50 as resistance for the S&P's price movement. So, based on the weekly RSI, this rally failed at (RSI) resistance. I would only place bets on upward continuation when (and if) the RSI is able to sustain a break above 50. Were this to happen, daily data would clearly have to show an end to the recent pullback.
Technical indicators are helpful for this. The following chart (click to enlarge) is the daily S&P performance over the past s
ix months. There are two conflicting signals in this chart. First, note the performance of the RSI. While the S&P has recently risen sharply, that momentum was not confirmed by the RSI (see the lines in the chart). Recall, this is a bearish divergence. But if we work with moving averages, we get a buy signal. In the chart I have added the 20-day and 50-day moving averages. Notice that in the past few days, the 20-day has crossed above the 50-day moving average. This could potentially be considered a buy signal (recall: this is related to the average-marginal relationship we discussed earlier in the semester).So, which indicator should we rely on? Since moving averages are lagging indicators and a bearish divergence of the RSI is a leading indicator, I would tend to go with the RSI's "signal." But that is still no guarantee that the rally is over -- it merely indicates a short-term pullback is in store which we are now witnessing.
In a situation such as this, you should look at weekly data for whatever information it contains, since weekly data does not contain as much "noise" as does daily price data. The chart below shows weekly S&P data (click to enlarge).
I have added the 13-week moving average since this corresponds to a quarter. Note how well this fits the price data.The weekly RSI shows very different momentum information than does the daily chart. Note the weekly RSI is far from overbought, and there is no bearish divergence. Actually, the RSI has failed for some time to move beyond 50, which would have indicated movement to more bull-market-type momentum.
In this situation, I recommend that you view an RSI value of 50 as resistance for the S&P's price movement. So, based on the weekly RSI, this rally failed at (RSI) resistance. I would only place bets on upward continuation when (and if) the RSI is able to sustain a break above 50. Were this to happen, daily data would clearly have to show an end to the recent pullback.
Wednesday, March 25, 2009
Happy Days are Here Again!?
There have been several pieces of good economic news lately. Today, durable goods (remember these are a leading economic indicator) rose unexpectedly, and sales of new homes also increased. You can read about these (homes, durable goods).
In following the economy, it is always advisable to track not only growth rates (rates of change) but levels as well. And, remember from the first few lectures, there are different ways of measuring growth rates (sequential, like month-to-month, or year-over-year). The media doesn't make this easy for you, all of the releases lately have focused on rates of growth and included only graphs of growth rates and not levels.
How can you go beyond this? Let me recommend a terrific web site for this: Economy.com's Freelunch. Its URL is: http://economy.com/freelunch. To access the data (for free) you need to first create an account, then disable pop-up blockers for that site so the graphs with data can appear.
Let's first look at new home sales. On the main page, this is under Real Estate and Sales. You are given a number of choices on the page that emerges. Choose View for New One-Family Housing Sold. A pop-up window with data and a graph emerges. Note that on the graph, you can change the data frequency (ex: go from monthly to quarterly), and/or you can change from the level of this variable to various rates of change (then click on the Refresh Data link).
Below is a table of what the markets are celebrating today: a rise in (sequential) new home sales of almost 5%, as sales went from 322,000 to 337,000 (seasonally adjusted). Look over these data and determine for yourself how well home sales are doing (always feel free to agree or disagree with the market for a longer-term perspective).
Now let's look at the graph (click to enlarge) from Freelunch of the entire set of values (current levels). Isn't the cause for today's celebration by the stock market in response to this number obvious? It isn't for me!
What is the market really reacting to today? Is this one month change a blip or the actual bottom? It is impossible to know this. Will data revision next month remove February's increase? Will we return to more declines in March?
Let me state a few rules of data analysis rules I have always lived by:
RULE #1: NEVER MAKE TOO MUCH OUT OF ONE PERIOD'S VALUE.
RULE #2: ALWAYS ATTEMPT TO FIT A GIVEN PERIOD'S VALUE INTO THE BROADER CONTEXT OF A TREND.
RULE #3: ALWAYS INCORPORATE ECONOMIC ANALYSIS INTO ANY ANALYSIS OF DATA TO TRANSCEND THE SHORT-TERM AND TO BEGIN THE PROCESS OF VISUALIZING WHERE AND HOW THE DATA WILL ACTUALLY BE MOVING IN THE FUTURE.
If the graph above were a price chart, what do you think the RSI would be telling us? Remember: just as positive rates of growth can become unsustainable, the same is true for negative growth rates (thank God!). We are clearly due for the equivalent of "oversold bounces" in much economic data. These should be able to sustain the current bear market bounce for a while. But for how long?
To arrive at an answer to this, the final thing I recommend that you do is to identify the sectors that performed best and make intermarket sense out of the pattern that emerges. Personally, I will have to wait to see what Jim Cramer says before I can reach any meaningful conclusions!
In following the economy, it is always advisable to track not only growth rates (rates of change) but levels as well. And, remember from the first few lectures, there are different ways of measuring growth rates (sequential, like month-to-month, or year-over-year). The media doesn't make this easy for you, all of the releases lately have focused on rates of growth and included only graphs of growth rates and not levels.
How can you go beyond this? Let me recommend a terrific web site for this: Economy.com's Freelunch. Its URL is: http://economy.com/freelunch. To access the data (for free) you need to first create an account, then disable pop-up blockers for that site so the graphs with data can appear.
Let's first look at new home sales. On the main page, this is under Real Estate and Sales. You are given a number of choices on the page that emerges. Choose View for New One-Family Housing Sold. A pop-up window with data and a graph emerges. Note that on the graph, you can change the data frequency (ex: go from monthly to quarterly), and/or you can change from the level of this variable to various rates of change (then click on the Refresh Data link).
Below is a table of what the markets are celebrating today: a rise in (sequential) new home sales of almost 5%, as sales went from 322,000 to 337,000 (seasonally adjusted). Look over these data and determine for yourself how well home sales are doing (always feel free to agree or disagree with the market for a longer-term perspective).
| 2009M2 | 337 |
| 2009M1 | 322 |
| 2008M9 | 434 |
| 2008M8 | 448 |
| 2008M7 | 505 |
| 2008M6 | 499 |
| 2008M5 | 515 |
| 2008M4 | 542 |
| 2008M3 | 513 |
| 2008M2 | 572 |
| 2008M12 | 371 |
| 2008M11 | 387 |
| 2008M10 | 404 |
Now let's look at the graph (click to enlarge) from Freelunch of the entire set of values (current levels). Isn't the cause for today's celebration by the stock market in response to this number obvious? It isn't for me!
Let me state a few rules of data analysis rules I have always lived by:
RULE #1: NEVER MAKE TOO MUCH OUT OF ONE PERIOD'S VALUE.
RULE #2: ALWAYS ATTEMPT TO FIT A GIVEN PERIOD'S VALUE INTO THE BROADER CONTEXT OF A TREND.
RULE #3: ALWAYS INCORPORATE ECONOMIC ANALYSIS INTO ANY ANALYSIS OF DATA TO TRANSCEND THE SHORT-TERM AND TO BEGIN THE PROCESS OF VISUALIZING WHERE AND HOW THE DATA WILL ACTUALLY BE MOVING IN THE FUTURE.
If the graph above were a price chart, what do you think the RSI would be telling us? Remember: just as positive rates of growth can become unsustainable, the same is true for negative growth rates (thank God!). We are clearly due for the equivalent of "oversold bounces" in much economic data. These should be able to sustain the current bear market bounce for a while. But for how long?
To arrive at an answer to this, the final thing I recommend that you do is to identify the sectors that performed best and make intermarket sense out of the pattern that emerges. Personally, I will have to wait to see what Jim Cramer says before I can reach any meaningful conclusions!
Friday, March 13, 2009
Cramer vs. Jon Stewart
At last, the eagerly awaited confrontation on the Daily Show between Jon Stewart and Jim Cramer has taken place. I can only sum it up with one word: WOW!
I had wondered (and discussed with several of you in class) how Cramer should handle his appearance. Obviously, any temper tantrum would be a total disaster for both Cramer and CNBC. I had expected him to be very nice and self deprecating. His actual performance even exceeded my expectations: he fell on the proverbial "sword," which was probably his best strategy. But I will let you judge for yourself. Here is the link to that show.
I hope that the mystique surrounding CNBC has finally begun to disappear at long last. Now all CNBC needs to do is get rid of those egotistical "I am CNBC" short segments about the "stars" that appear on their network.
For the record, though, let me reiterate something I have said several times in class: the contention by CNBC, specifically Jim Cramer, that the President should do what the stock market is telling him to do, is totally asinine! Hopefully, such absurd advice, which emerged as a by-product of the metamorphosis of CNBC "reporters" into hacks and ideologues, will never be given again. Should such advice ever be offered in the future, don't hesitate to categorically reject it from the outset.
There are two lessons to be learned from all of this. First, never confuse charisma with competence. But, what about persons (who will go nameless) who possess both of these traits? The second lesson is: some people who are more than capable of dazzling you with their knowledge will, based on an incessant need to sustain their inflated egos, opt to also baffle you with bull ----.
I had wondered (and discussed with several of you in class) how Cramer should handle his appearance. Obviously, any temper tantrum would be a total disaster for both Cramer and CNBC. I had expected him to be very nice and self deprecating. His actual performance even exceeded my expectations: he fell on the proverbial "sword," which was probably his best strategy. But I will let you judge for yourself. Here is the link to that show.
I hope that the mystique surrounding CNBC has finally begun to disappear at long last. Now all CNBC needs to do is get rid of those egotistical "I am CNBC" short segments about the "stars" that appear on their network.
For the record, though, let me reiterate something I have said several times in class: the contention by CNBC, specifically Jim Cramer, that the President should do what the stock market is telling him to do, is totally asinine! Hopefully, such absurd advice, which emerged as a by-product of the metamorphosis of CNBC "reporters" into hacks and ideologues, will never be given again. Should such advice ever be offered in the future, don't hesitate to categorically reject it from the outset.
There are two lessons to be learned from all of this. First, never confuse charisma with competence. But, what about persons (who will go nameless) who possess both of these traits? The second lesson is: some people who are more than capable of dazzling you with their knowledge will, based on an incessant need to sustain their inflated egos, opt to also baffle you with bull ----.
Wednesday, March 11, 2009
Determining Size/Emphasis for Price Momentum
As you probably know, there are different sized firms (small, medium, and large capitalization), and there are different emphases among them in ETF's. In this post I focus on growth and value orientations.
To get the symbols for these, I went to the ishares.com web site, which has an easy navigation method. On the left, select the US Market Cap/Style tab. Sub-tabs appear giving the different market cap possibilities, and when you click on one of these, you get the symbols for the market cap and emphasis of that ETF.
You can use these symbols to determine the size/orientations that are outperforming (hopefully) the market using PerfCharts in StockCharts.com. I have done this for you. Click on the following link to get the PerfChart for this.
You will neeed to convert this to a bar chart, so click on the bar designation below the graph on the bottom left.
- To compare performance to the S&P click on the S&P tab above the bar chart.
- On the bottom right below the graph, drag the bar to select the time period you will investigate. NOTE that the dates you end up with are given in the top left of the graph.
Once this is done, you will be able to see which sizes are performing best, or which orientation is doing better than others. At present, growth is outperforming value.
As an investor, how can you use this information for selecting stocks or ETF's? Obviously, the ETF's outperforming the S&P are obvious choices for investment. BUT, make sure you check the technicals of this ETF before deciding whether to purchase shares (using the regular SharpCharts in StockCharts.com).
If you want to purchase individual stocks, what can you do? The answer to this is simpler than it would appear: Get the symbol of the ETF that is outperforming, return to ishares.com, and investigate it there. Enter the symbol on the ishares home page or go to the tab to get to that ETF's page. There you will find the primary holdings in that ETF (you can click to find all holdings if desired), and its sector breakdown. Then, you can exam the technicals for each graph.
But, as a first step, I recommend getting the symbols for the major holdings, returning to PerfCharts, entering those symbols, then determining which individual stocks have outperformed the other ETF holdings. Once you identify those, THEN move to a graph of its technicals and make a decision (you should also have a sense of where the overall market is going). If you click on View All Holdings in ishares.com, symbols for each holding are given.
Finally, you must appeal to the great oracle of stock market wisdom to finalize your choices. Make sure Jim Cramer approves of the stocks or ETF's that you have selected. Absent Cramer the Omnisient One's blessings, you are probably venturing out into needlessly dangerous territory!
To get the symbols for these, I went to the ishares.com web site, which has an easy navigation method. On the left, select the US Market Cap/Style tab. Sub-tabs appear giving the different market cap possibilities, and when you click on one of these, you get the symbols for the market cap and emphasis of that ETF.
You can use these symbols to determine the size/orientations that are outperforming (hopefully) the market using PerfCharts in StockCharts.com. I have done this for you. Click on the following link to get the PerfChart for this.
You will neeed to convert this to a bar chart, so click on the bar designation below the graph on the bottom left.
- To compare performance to the S&P click on the S&P tab above the bar chart.
- On the bottom right below the graph, drag the bar to select the time period you will investigate. NOTE that the dates you end up with are given in the top left of the graph.
Once this is done, you will be able to see which sizes are performing best, or which orientation is doing better than others. At present, growth is outperforming value.
As an investor, how can you use this information for selecting stocks or ETF's? Obviously, the ETF's outperforming the S&P are obvious choices for investment. BUT, make sure you check the technicals of this ETF before deciding whether to purchase shares (using the regular SharpCharts in StockCharts.com).
If you want to purchase individual stocks, what can you do? The answer to this is simpler than it would appear: Get the symbol of the ETF that is outperforming, return to ishares.com, and investigate it there. Enter the symbol on the ishares home page or go to the tab to get to that ETF's page. There you will find the primary holdings in that ETF (you can click to find all holdings if desired), and its sector breakdown. Then, you can exam the technicals for each graph.
But, as a first step, I recommend getting the symbols for the major holdings, returning to PerfCharts, entering those symbols, then determining which individual stocks have outperformed the other ETF holdings. Once you identify those, THEN move to a graph of its technicals and make a decision (you should also have a sense of where the overall market is going). If you click on View All Holdings in ishares.com, symbols for each holding are given.
Finally, you must appeal to the great oracle of stock market wisdom to finalize your choices. Make sure Jim Cramer approves of the stocks or ETF's that you have selected. Absent Cramer the Omnisient One's blessings, you are probably venturing out into needlessly dangerous territory!
Update on CNBC Critique -- Reply to Cramer
After the Daily Show absolutely blasted CNBC and its "reporters" for their shortcomings (see the video clip on the March 5 post), Jim Cramer apparently whined on his Street.com blog about how unfairly he had been treated on the Daily Show. Big mistake! The Daily Show did some research and showed that Cramer had actually blundered more substantially than they had said.
Here is a link to the video clip for this Daily Show "update."
Here is a link to the video clip for this Daily Show "update."
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