Saturday, September 17, 2011

Market Read for Week 091911-092311


Market Read

Looks like I was dead wrong about last week's read as the market staged an almost vertical 5 day rally. You could have faded the read and I'm starting to believe that you could look to fade the strength in this week's read. Shorts got ran over again and again and again.

Whether the news out of the Europe is for real and the bailouts/money printing/can kicking continue the market still has not convinced me that risk is all clear through year end. This next few weeks should be very interesting and telling where we go from here.


Right now I am more "neutral" biased  for the foreseeable future. Global macro indicators continue to deteriorate while conversely we're getting more Central Bank action and speculation. As an intraday trader I need to constantly recite the mantra "trade what you see not what you think".

Finviz US econ calendar: http://finviz.com/calendar.ashx
Weekend update on European situation: http://www.calculatedriskblog.com/2011/09/europe-update-little-progress.html
Fed "Twist and Shout" action by John Mauldin: http://www.businessinsider.com/operation-twist-and-the-feds-latest-bailout-of-european-banks-2011-9
ECRI continues to point to a US recession (how can you be in something that isn't really defined): http://www.businessinsider.com/ecri-index-leading-economic-indicators-negative-2011-9

Bullish case:

- Markets are above their 20SMA
- Volume during this week's rally was strong
- Tech continues to lead
- Too many shorts in the frying pan
- AAPL above 400

Bearish case:

- Bear flags still around
EURUSD lost the 200SMA, high volume sell-off and has Greece default news weighing on it
- Dollar bull flagging
- Crude bear flagging looks like its going to be sub 85 before 90+
- Copper breaking down out of bear flag
- Long bond continues to put in higher lows and highs
- VIX still bull flagging
- Gold (fear trade) is still strong 
- JNK v. LQD still weak


SPX

Weekly


Daily



30 min



QQQ

Daily


30 min


IWM

Daily


30 min



Dollar


Crude



Long Bond


Copper


Gold


VIX


McClellan Oscillator


JNK v. LQD


AAPL



Monday, September 12, 2011

Explained: Knightian uncertainty


Explained: Knightian uncertainty

The economic crisis has revived an old philosophical idea about risk and uncertainty. But what is it, exactly?

The global economic crisis of the last two years has stemmed, in part, from the inability of financial institutions to effectively judge the riskiness of their investments. For this reason, the crisis has cast new attention on an idea about risk from decades past: “Knightian uncertainty.”

Frank Knight was an idiosyncratic economist who formalized a distinction between risk and uncertainty in his 1921 book, Risk, Uncertainty, and Profit. As Knight saw it, an ever-changing world brings new opportunities for businesses to make profits, but also means we have imperfect knowledge of future events. Therefore, according to Knight, risk applies to situations where we do not know the outcome of a given situation, but can accurately measure the odds. Uncertainty, on the other hand, applies to situations where we cannot know all the information we need in order to set accurate odds in the first place.

“There is a fundamental distinction between the reward for taking a known risk and that for assuming a risk whose value itself is not known,” Knight wrote. A known risk is “easily converted into an effective certainty,” while “true uncertainty,” as Knight called it, is “not susceptible to measurement.” An airline might forecast that the risk of an accident involving one of its planes is exactly one per 20 million takeoffs. But the economic outlook for airlines 30 years from now involves so many unknown factors as to be incalculable.

Some economists have argued that this distinction is overblown. In the real business world, this objection goes, all events are so complex that forecasting is always a matter of grappling with “true uncertainty,” not risk; past data used to forecast risk may not reflect current conditions, anyway. In this view, “risk” would be best applied to a highly controlled environment, like a pure game of chance in a casino, and “uncertainty” would apply to nearly everything else.

Even so, Knight’s distinction about risk and uncertainty may still help us analyze the recent behavior of, say, financial firms and other investors. Investment banks that in recent years regarded their own apparently precise risk assessments as trustworthy may have thought they were operating in conditions of Knightian risk, where they could judge the odds of future outcomes. Once the banks recognized those assessments were inadequate, however, they understood that they were operating in conditions of Knightian uncertainty — and may have held back from making trades or providing capital, further slowing the economy as a result.

Ricardo Caballero, chair of MIT’s Department of Economics and the Ford International Professor of Economics, Macroeconomics, and International Finance, is among those who have recently invoked Knightian uncertainty to explain the behavior of investors in times of financial panic. As Caballero stated in a lecture at the International Monetary Fund’s research conference last November: When investors realize that their assumptions about risk are no longer valid and that conditions of Knightian uncertainty apply, markets can witness “destructive flights to quality” in which participants rid their portfolios of everything but the safest of investments, such as U.S. Treasury bonds.

One solution offered by Caballero to stem these moments of panic is government-issued investment insurance for large financial institutions. In this sense, the existence of Knightian uncertainty is not just a quasi-philosophical dispute; the subjective perception of Knightian uncertainty among businesses is a pressing practical problem.



http://web.mit.edu/newsoffice/2010/explained-knightian-0602.html

Saturday, September 10, 2011

Why Obama's new jobs proposal won't work & will continue to fail

Dylan Ratigan's "extraction" rant by everyone from politicians to businesses to China to Wall Street using the US national credit card without limit.




The problem with Obama's pro-business proposal(s) is that he assumes if A then B. If he gives business what they want (he's basically on his hands & knees now) they will give him what he wants "jobs" (or 4 more years). So far businesses  continue to take government stimulus, hoard it, bonus themselves out and re-invest abroad. They've learned that as long as this economy stays stuck in the mud from a labor/economic standpoint the government will continue to print money and give it to them. "Extraction" seems like a pretty good word to describe this on-going process. This relationship sounds more parasitic than symbiotic. The silent killing bi-product of all these bailouts will be the thing everyone talks about but no one takes seriously "morale hazzard" which is the ultimate structural cancer.

Market Read for Week 091211-091611

Market Read

Overall I'm still short biased (for the foreseeable future). While we have seen strong short squeezes via seller's revolts there has not been sustained buying indicative of true risk ON appetite. I don't see any evidence of an "all clear" signal or clarity appearing on the horizon and only risk increasing as the Western world appears to be heading into a protracted recession and low growth phase just when they need the increased revenues to out-grow their out of control debt-load. But there are many joker wild cards being deployed all the time now from central banks around the world.

Finviz US econ calendar: http://finviz.com/calendar.ashx


Bullish case:

- AAPL still above 50SMA

Bearish case:

- Bear flags everywhere
- EURUSD lost the 200SMA, high volume sell-off and has Greece default news weighing on it
- Dollar finally broke out of it's consolidation base (above 80 & crude sub 80 you can start QE3 chatter)
- Crude looks like its going to be sub 85 before 90+
- Copper breaking down out of bear flag
- Long bond continues to put in higher lows and highs
- VIX looks ripe to break it's bull flag
- Gold (fear trade) is still strong and silver still sticking to it's 45+ target
- JNK v. LQD broke bear bag indicating continued waning for risk

SPY


30 min


QQQ


30 min


IWM


30 min


Dollar


Crude


Long Bond


Gold


Copper


VIX


McClellan Oscillator


JNK v. LQD


AAPL



Monday, September 5, 2011

A look at the EURUSD

Under 1.40 then sub 1.38 or 61.8% fib. If this holds (via ECB intervention or some other can kicking gimmick not looking likely as Germany seems be losing bailout support) then could re-test 1.46+

Saturday, September 3, 2011

Market Read for Week 091311-091611

After the run we had for most of the week stocks fell on Thursday and gapped down on Friday. I'm not certain what caused the strong rally from Monday through Thursday afternoon but the most popular explanation I hear is window dressing. Or it could just be the vicious bear market rally where sellers revelot and shorts (on margin?) get fried (short interest is historically high via @zerohedge)


Overall I'm still more neutral to short biased (for the foreseeable future) unless this wedge turns bullish and we stay above the 20 SMA for an extended period. I don't see any evidence of an "all clear" signal or clarity appearing on the horizon and only risk increasing as the Western world appears to be heading into a protracted recession and low growth phase just when they need the increased revenues to out-grow their out of control debt-load. But there are many joker wild cards being deployed all the time now from central banks around the world.


Finviz US econ calendar: http://finviz.com/calendar.ashx


Bullish case:

- SPY & QQQ held the 20SMA on the daily
- Tech is still outperforming the rest of the market
- Dollar still sub 75
- Approaching TL support on most charts

Bearish case:

- Bear flags everywhere
- 20/50 SMA Death Cross on daily 
- EURUSD starting to roll threatening it's 200SMA while the dollar looks like it's putting in LT base
- Crude looks like its going to be sub 85 before 90+
- Copper looks like its forming a bearish rising wedge
- Long bond continues to put in higher lows and highs (Friday spike)
- VIX looks like its bull flagging holding above 30
- Gold (fear trade) is still strong and silver still sticking to it's 45+ target
- AAPL looks like it could see 360 before 400
- JNK v. LQD appears to be bear flagging


SPY

Weekly


Daily


30 min


QQQ

Weekly


Daily


30 min


IWM

Weekly


Daily


30 min


Dollar


EURUSD



Crude


Copper


Long Bond


Gold


Silver


VIX


McClellan Oscillator


JNK v. LQD


AAPL