A Few More Things To Consider

*According to CNBC money continues to flow out of equity mutual funds and ETFs and into bond funds.  {At these low interest rates this fact is simply unbelievable to me!}

*Again according to CNBC consumer spending reaches its highest level in 8 months.  {This to me makes sense as all the data suggests that the economy is improving and therefore consumers probably feel better about opening their wallets.

*The Atlantic: Wall Street Thinks It Knows The Future of Obamacare:  Article suggests rising recent prices in health care stocks means Wall Street is betting on at least partial failure of bill.  {The mandate forcing individuals to buy a service has always struck me as dubious.}

*Smithsonianmag.com: Richard Clarke onWho Was Behind the Stuxnet Attack.  {Some of what is happening with computers and the internet is really scary material, makes the errant moves of the markets look like child's play over the past few years.  More telling perhaps though is how much we spend via national defense/security now on cyber warfare!}

*Finally:  Your chances of winning tonight's $540 million lottery jackpot are 1 in 176 million.  {Good luck with that!  Still gonna buy some tickets anyway!}

Some Things To Consider

Percentage of stocks trading above their 200 day moving averages:  74%  This is very high and has often signalled either a period of correction or consolidation.

Percentage of stocks trading above their 40 day moving averages: 54%.  This is down from a high in mid-February of nearly 85% and is indicative of the fact that breadth on the exchanges has been declining in recent weeks.  This means that the advance is being led by fewer companies.

New high/low ratio: 74%.  Again an elevated reading.

26 Week New High/Low ratio:  82%.  Also elevated.

Our proprietary money flow analysis statistics:
Short term:  Overbought and declining.
Intermediate:  Overbought.
Longer term:  Overbought.

Earl Scruggs

Banjo player Earl Scruggs passed away yesterday.  He was 88.  Here is his obituary.  I'm willing to bet that the majority of my readers have no clue who Earl was but if you were born in a certain era and you maybe sometimes watched a show called The Beverly Hillbillies then you heard some of Earl's work in the beginning and ending credits each week.  Sweet grass & high times Earl!  Godspeed!

an tSionna {03.28.12}

A busy chart of the S&P 500 ETF {SPY}.  Hard to say how much end of the quarter window dressing is playing out right now.  First quarter ends on Friday.

*Long ETFs related to the S&P 500 in client and personal accounts.

Report Card: Nasdaq

According to Bespoke Investment Group, year to date, the Nasdaq's 19.86% gain would rank as its fourth best first quarter ever (dating back to 1971).  The next three were the first quarter in 1991 when the index gained 29.01%. Over the rest of 1991, the index gained an additional 21.57%. Second place was the first quarter of 1975.  The index basically traded flat for the rest of that year with a gain of 2.59%. Third place was 1987.  The market ended basically flat that year after the October crash. 

Link:  Bespoke: Fourth best Nasdaq 1st Quarter in history.

Gone Fishin

Not really but I will be out today and Monday on business related travel.   I've been out and about lately and that has kept me from covering some of the issues I'd like to tackle.  Things look like they will slow down a bit next week so hope to be back with a more coverage then.

an tSionna {03.22.12}

*Long ETFs related to the S&P 500 in client and personal accounts.

The Price of Gasoline

I'll be back later today but first there was a great editorial in the Chicago Tribune by John Kass about the political problems of rising gasoline prices.  Your first assignment today is to read this. 

Out Today

A busy day of meetings and appointments.  I will post back here tomorrow.

PreMarks {A Thought}

It's all about Apple today {see post below}.  Yet I'm thinking about the warmer weather.  We're now into our 2nd week of way above normal temperatures here.  Saturday's St. Patrick's Day parade saw temperatures in the 80's and was the warmest in something like 130 years!  This in turn has me thinking about the very mild winter we've experienced in most of the northern part of the US.

I'm thinking about this because while I've heard a lot of discussion in recent weeks about how the cost of gasoline is putting a crimp on consumer wallets, nobody is talking about the weather's effect on heating bills.  We have all the windows open here and I don't think my heat has turned on for the past week.  That's unheard of in mid-March.  That has got to be between a 50-75 dollar reduction in my next heating bills.  That hedges a lot of the increase in gas prices so far.

*Long AAPL in certain client accounts. Long QQQ in client accounts.

an tSionna {03.19.12}

Apple Computer {AAPL} announced today that it would begin to pay a $2.65 a quarter dividend and buyback 10 billion dollars worth of its stock.  At closing prices on Friday, the dividend carries about a 1.8% yield.  One of the best indirect ways for investors to own AAPL is to own the Nasdaq 100 composite ETF {QQQ} as AAPL makes up around 20% of that index.  Above is my review of the QQQ over the past two years.  Notice the similarity between the moves in 2010-2011 and the current advance. 

*Long AAPL in certain client accounts.  Long QQQ in client accounts.

Beannachtaí na féile Pádraig

Beannachtaí na féile Pádraig!

{Happy St. Patrick's Day}

Guinness

What would the season be without a Guinness add, or two?

Enjoy a bit of Irish {and English humor!}

St. Patrick's Day

Once again St. Patrick's Day is upon us.  It is the only "day" that I know that somehow extends itself into a "fortnight".  One way I can measure the years is to note that this is the first time in a decade that I am not chasing my daughters around the Chicago area as they do the Irish Step Dance thing.  It will be the first time since Bill Clinton was President that I have not marched in the official St. Patrick's Parade downtown!  Instead I will be ferrying my girls {eldest daughter home on Spring Break with friends} downtown so they can watch it from the sidelines.  Old habits die hard and I will be looking for the Sheila Tully Irish Dancers as they step dance their way down Columbus Drive.  

To honor the date I thought I'd update 10 facts about the Irish, the parade or about Ireland which are not well known. Just trying to have some fun with the season and we will get back to more serious matters soon. Irregardless if you are 100% Irish, part Irish (like my family) or just Irish For The Day- Cead Mille Failte!

1) Ireland is slightly larger than West Virginia. If it were part of the U.S. it would rank approximately 19th in terms of population between Wisconsin and Maryland according to 2000 census figures.

2) The Gross Domestic Product of the U.S. is in excess of $11 Trillion dollars & is ranked 1st in the world. Ireland is ranked 30th at $183 billion dollars. Chicago's GDP has been estimated at around 380 Billion.

3) According to the Chicago Tribune, "Corned Beef and Cabbage" is an Irish-American staple and more Budweiser is consumed in Ireland than Guinness.

4) Musicians with Irish ancestral ties include Paul, McCartney, John Lennon & George Harrison of the Beatles; Bruce Springsteen & Keith Richards.

5) 17 American Presidents have Irish Ancestry. This list not only includes obvious Presidents such as Kennedy and Reagan but also includes Andrew Jackson, Both Bush's, Bill Clinton and President Obama. Every elected President since 1960 claims Irish ancestry. 

6) New York City has the largest St. Patrick's Day parade in the world. Last year more than 150,000 marchers participated and it attracted roughly 2 million viewers. That is roughly 500,ooo more souls attended the parade than the combined populations of Dublin, Belfast, Limerick & Cork.

7) Michael Flately of Riverdance fame is credited with popularizing Irish Step Dancing around the world. It is widely assumed that Flately is a native of Ireland but in fact he was born and raised right here in the Chicago area. Perhaps because of this it is claimed that over 100,000 young women in Chicago and its surrounding environs actively participate in some form of Irish Dance.

8) George Clooney, Harrison Ford, Mel Gibson, Gregory Peck, Barbara Stanwyck, John Travolta, Spencer Tracy, Judy Garland & John Wayne all had Irish ancestors.

9) Guinness & St. Patrick's Day seem to go hand in hand. (At least they do in my neck of the woods). They also have a side business of that World Record Book. Almost 2 billion pints of Guinness are served each year. More Guinness is served on St. Patrick's Day than on any other day of the year.

10) Finally the best for the last. It is claimed that Ireland has never had a population greater than about 8 million people. The Irish have emigrated all over the world. The majority of their descendants are found in Canada, the U.S., Australia, New Zealand and the United Kingdom. 47 million Americans claim Irish Ancestry. Their descendants can also be found in more unexpected places like Chile, South Africa, Mexico, Argentina and even China. Former Mexican President Vincente Fox is of Irish ancestry. Altogether it is estimated that perhaps as many as 90 million people can trace some part of their family tree back to Ireland. This is over fourteen times the population of the island of Ireland itself!

Dia dhuit.

Amazing Market Stats!

Some amazing market statistics courtesy of Pragmatic Capitalist

Germany’s DAX: +20%, 96% annualized

S&P 500: +11%, 52% annualized
S&P 500: up 67% of all sessions, just one -1% day in 51 trading sessions.
Nasdaq 100: +19%, 91% annualized, up 73% of all sessions.
Homebuilders Index: +23%, 110% annualized
S&P Financials: +21%, 100% annualized
Apple, the world’s largest company: +45%, 216% annualized

Link:  Pragmatic Capitalist: Market Statistics.

*In one form or another I am long all of the above securities mentioned via ETFs either directly or indirectly in client and certain individual accounts.  I do not directly own Apple but certain clients do.  I indirectly own it via ETFs.

Overbought

Bespoke Investment Group  published this piece yesterday on the market's being overbought:

"As shown in the first chart {above}, the S&P 500 is now trading two standard deviations above its 50-day moving average, putting it into extreme overbought territory. The index hasn't been this extended since last October. While the number of new 52-week highs expanded significantly today, the percentage of stocks in the S&P trading above their 50-days is only at 83%. Back in October when the index was as overbought as it is now, the percentage of stocks above their 50-days was in the 90s. Breadth still has some work to do."

Comment:  Markets can stay overbought and oversold for longer periods of time than most investors think.  I think the thing that we are perhaps overlooking is the money that is potentially shifting out of bonds into equities.  I also think the issue of low volume, not addressed here but something the chattering investment class has spilled a lot of ink over, is being masked by the amount of money that is going into ETFs instead of traditional equities.

*Long ETFs related to the S&P 500 in client and personal accounts.

Link:  S&P 500 Trading Range & Breadth Charts

Goldman Sachs Resignation Letter

This resignation letter masking as an Op-ed piece is on the front page of the New York Times today.  The author takes Goldman Sachs to task for losing its traditional client centric focus and becoming more interested in how it can make money off of its clients instead of helping them.  The article really doesn't lend itself to an excerpt but I think it is an important piece and should be read.  I will however quote one sentence out of the story. "It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are."  This quote bothered me because it seems that too often the major investment houses never seem to understand this basic tenant.  Trust is my business is our major stock in trade.  Sadly Goldman seems to be succumbing to the same philosophy that has been tearing the fabric of the investment business apart for the past 15 years.

In my days as a broker working for three different investment houses I had an annual meeting at the end of each year with my boss.  These would be reviews of how I'd performed and what my goals were for the upcoming year.  I always had bosses that were interested in my production {how much I had produced in sales commissions} and how many new accounts I thought I could open in the next year.  I never had a boss ask me about the performance for my clients or how they had done that year.  Goldman used to seem to me to be above that.  No it seems they are the same as everybody else.   

an tSionna {03.13.12}-Energy

One are of divergence to note though is that energy stocks as represented here by the Energy Select Spyder {XLE} have rolled over.  By our work they have now taken out their trendline from last fall and have now started cascading into a series of lower highs and lower lows.   Our money flow work indicates that these are a source of funds right now as well.  We'll have to see if this turns around.  Perhaps today is the day as the market is set to have a strong open today.

We'll continue to monitor this.

*Long certain energy ETFs in client accounts.

an tSionna {03.12.12}

*Long ETFs related to the S&P 500 in client and personal accounts.

A Milestone!

One of our employees turns 50 today.  {Hint it's not the ugly fellow on the left!}

Earnings Continue To Increase

From Bloomberg.com:

"Corporate profits have topped analyst estimates for 12 straight quarters. Analysts that cover companies in the S&P 500 project earnings will rise this year to $104.40 a share, the highest level ever, according to data compiled by Bloomberg. That would represent a 70 percent increase in earnings since 2009, compared with the 22 percent rally in the index in the past two years......The S&P 500 has recovered 24 percent since its low on Oct. 3. Its price-earnings ratio of 14.1 matches the average level last year. The valuation has trailed the five-decade average of 16.4 for the longest stretch since the 13-year period beginning in 1973, according to Bloomberg data."***

Assuming this is a good number then the valuation cone on the S&P for 2012 would look something like this: 

10X earnings =1,044   Earnings Yield =10.44%
11X earnings =1,148   Earnings Yield =  9.1%
12X earnings =1,253   Earnings Yield =  8.3%
13X earnings =1,352   Earnings Yield =  7.7%
14X earnings =1,462   Earnings Yield =  7.1%
15X earnings =1,566   Earnings Yield =  6.7%
16X earnings =1,670   Earnings Yield =  6.3%
17X earnings =1,775   Earnings Yield =  5.9%

Current yield on S&P 500 1.87%**

Yield on US two year = 0.31%**
Yield on US ten year  = 2.04%**
Yield on US 30 year   = 3.20%**

*Long ETFs related to the S&P 500 in client and personal accounts.
**Source Bloomberg.
***Link:  Bloomberg: S&P 500 gets 9% cheaper.

Three Year Anniversary

Three years ago the markets bottomed.  That period represented the culmination of the worst period I've ever experienced in this business and probably is the closest we've been as a country to stepping over the edge of the abyss.  We were closer to a repeat the Great Depression back then than most people realized. 

There would have been no reason to think that the period of March 6-10, 2009 was any more than a short step from the market losing another 15-20% of its value.  However if you had bought stocks during that period you would have experienced..... 

....returns.....

...like these shown above. 

Note that even if you had missed the bottom and waited a couple of weeks or even a few months you still had the opportunity to have made substantial amounts of money from those investments.  Instead nearly 2 trillion dollars of cash has been yanked from the markets during that time and the money flows into bond funds at generational low interest rates has continued for much of this year.  What was the harder trade then?  Stocks or bonds?  What is the harder trade now?

*Long ETFs related to the S&P 500 in client and personal accounts.  Long ETFs related to the NASDAQ 100 in client accounts.

Q& A Session

Press of the day will keep me from doing the Q&A I discussed yesterday until the beginning of the week.

An tSionna {03.08.12}

Been getting a lot of questions about my changes to markets the other day.  I thought I would have the opportunity in this post to answer most of those today.  Unfortunately being mostly out of pocket yesterday with my root canal has me a bit swamped right now.  I will try to do a more in depth piece tomorrow on those questions and also on where I see the market here in mid-March.  Take a look at this chart though because I'll reference it in tomorrow's piece.

Regarding the root canal, the worse part of the whole procedure was the night before.  I was in so much pain that the only thing that alleviated what was happening to me was to basically suck on ice for the 12 hours prior to the procedure.  Needless to say I did not get much sleep Tuesday night!  How people survived with this prior to modern dentistry is beyond me and leads credence to a comment I heard once from a historian who said that tooth decay & its complications probably has killed as many people as most other historical diseases that we are all aware of.

*Long ETFs related to the S&P 500 in client and personal accounts.

Ratings Changes

To reflect what we've done since the middle of last week we will change our shortest term rating to NET MARKET SELL and lower our intermediate rating to NET MARKET NEUTRAL.  You can go here for a definition of these terms.  

Remember these are not market timing calls.  These simply reflect what we have been doing in client accounts on a net basis.  These moves largely reflect the very overbought nature of the markets and the fact that we have had such a strong move since late November.  I still believe that stocks have the potential to move higher between now and the end of the year.  It seems though that a pause is in order and to reiterate again this simply reflects what we've been doing for clients as both the game plan and the playbook say that a more defensive posture is warranted at this time.

A Bit Of A Situation

So I've had a couple of unexpected events cross my path the past several days.  The first is that I've all of a sudden had quite a few meetings scheduled for tomorrow and given my day I think it's unlikely that I'll be able to put anything up here.

The second is that I found out today that I need to have a root canal!  So come 9:15 Wednesday morning I'm going to be in the dentist's chair strapped down with a drill attached to my mouth.  I don't think I'm going to feel like posting after all that is done.

Right now I plan to be back with something Thursday.  We'll see how I feel as we get closer to that date.

Divergence

Divergence in the past week as Small cap stocks {as represented by the blue line in this chart} have begun to underperform the broader market as represented above by the S&P 500 ETF SPY.  This bears watching as small cap stocks will often lead the market.  That is they will often be the first stocks to either turn positive or negative at the beginning of a new stock phase.

{Chart from Yahoo Finance} 

*Long ETFs related to the S&P 500 in client and personal accounts.  Long IWM in certain client accounts.

On The Road

I have some client meetings out of the office tomorrow so there will be nothing here until Monday.

Have a nice weekend!

Davy Jones: On That Last Train To Clarksville!

Davy Jones ex of the 60's group The Monkees boarded that "Last Train to Clarksville" yesterday.  Jones was 66 and died of an apparent heart attack.

Here's to the "Daydream Believer".  Davy-RIP

Best Start!!!

According to CNBC  the S&P 500's 8.7% gain since the beginning of the year is its best start since 1991.  Here's a monthly chart that goes back to that time.  What that chart doesn't show is that in February, 1991 was the period that the markets finally recovered from the 1987 stock market crash.  Over that 3 1/2 year period stocks basically went nowhere.  They worked through the aftermath of that crash and also had to deal with the first Gulf War.  By 1991 the price to earnings multiple {PE} on stocks had contracted to the point where stocks were attractive again.  Sound familiar?

By the way if you look at that chart you'll see that stocks had a pretty good run of it during that decade long before stocks went parabolic in 1995.  I think that's the kind of potential we could possibly see over the next couple of years now in our markets.   

*Long ETFs related to the S&P 500 in client and personal accounts.