About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Sunday, August 28, 2016

Oil Price

I have kept it very simple on playing the oil market this year and have stuck religiously with the long
term seasonal pattern. There was a terrific long side trade in the market during winter - spring
this year. I have backed off since, and skipped the market when West Texas crude dropped as
expected down to $40 bl. in early Aug., which is normally a choppy month. Traders know that
from a seasonal perspective, the oil price tends to have a strong positive run in Sep. and have
been positioning for it during Aug. Traders also know that the oil price tends to weaken seasonally
from Oct. through the following Jan. and some are advising clients to begin shorting the market
in late Sep. as oil demand drops after the northern hemisphere driving season winds down. Fancy stuff. 
WTIC Weekly

The chart shows resistance now at $50 and the market must clear this hurdle to rise to $60,which
would be the next substantial hurdle. The market also must clear $50 to confirm that the uptrend
that started in early 2016 remains intact.

The concerning factor here is that bullish money down sentiment in the futures market has risen
again toward near record levels. It strikes me as odd that speculative interest in oil should be so
strong and have recovered so quickly after the price blowout in 2015. Running with the large
speculators  on the long side when they are going hot and heavy has not been a wise
practice. For my part, I'll skip the long side seasonal trade in Sep. and see what the lay of the
land is later in the autumn.  Finviz Oil future

Saturday, August 27, 2016

Long Treasury Bond

Yield directional fundamentals turned in favor of higher yields (and lower prices) much earlier in the
the year, but since the improvement in cyclical factors has so far proven very mild, the bond has been
able to maintain both long and intermediate term downtrends despite the sharper incidence of
volatility.  TYX Weekly

The long Treasury yield shrugged off the first increase in the Fed Funds Rate (FFR%) back last Dec.
and by 'Fedspeak', may face another two increases in the FFR% in the months ahead. It remains to
be seen whether the Fed will follow through on raising the FFR% at all this year, and whether the
bond market would see such a maneuver as being pro - recessionary. Nonetheless, with industrial
output having recently accelerated, and with future inflation pressure gauges still advancing, bond
traders may be more cautious near term. Also, it might be wise to watch how the US Dollar reacts
to much more hawkish Fedspeak, as a rising dollar could short circuit some of the inflation pressure
which could arise from a faster growing economy.

The bull market in the long Treasury now exceeds 30 years, and with lower economic growth and
inflation in place over that period, traditional yield premiums in the structure of the Long Guy
have been largely stripped out. The market for Treasuries and high quality corporates has fully
embraced this era of low growth and inflation as the norm.

Let's refer back to the chart. Increased financial regulation now limits exposure of primary capital
used by intermediaries to make markets in fixed income securities. With the bond market having
grown dramatically in size over the years, liquidity is eroding and volatility is on the rise. Even so,
my experience remains that the more Treasury yields drift up or down from the 40 wk. m/a, the
more one should think about hazard or opportunity as reversion to the longer run m/a is very
common. Notice how the negative spread for the bond is now narrowing after growing large at
the end of Jun. As well, I would argue the bond remains overbought when viewed against the
52 wk. ROC% in yield.

Also attached is the chart on the long Treasury ETF, which suggests the price may be entering
pullback mode for the intermediate term.  TLT Weekly

Tuesday, August 23, 2016

SPX -- Daily

The SPX daily chart is overbought on an intermediate term basis, but it is not a screamer. So, if
no happening suddenly jolts market player confidence, the charts say the SPX can drift higher
or perhaps consolidate, in the weeks ahead. SPX With Intermediate Term Indicators

The combination of an extended advance in stocks since Feb. coupled with a seasonal period
that gives any number of veteran traders and investors the jitters is giving rise for calls of an
interim top, and perhaps, one that is just over the near horizon.

From a fundamental perspective, I do not see the Fed has warrant near term to raise short rates
again and the private sector is generating more than sufficient liquidity to fund modest economic
growth. The one caveat at this location is that since the market has behaved very much in line
with my forward looking weekly cyclical indicators so far this year, it may be worth noting that
that the composite of the indicators has recently began to level off, which carries a preliminary and
inconclusive suggestion that the present improvement in the business environment could well
level off later in the autumn.

Consider this, too. From a seasonal perspective, the oil price has behaved relatively nicely compared
to its pattern this year. Should we see further harmony in the weeks ahead, the oil price should
rise seasonally through Sep., and this could give the stock market a boost.

Friday, August 19, 2016

Monetary Policy

The classical case for a Fed rate hike remains absent. Cyclical pressure within the economy has
increased lately, but remains suppressed with a few indicators such as capacity utilization %
consistent with a mild recession. My short term credit / supply demand reading remains at a
mild +5 in favor of demand, but there is sufficient private sector growth to fund the needs of the
entire real economy with excess to spare. The CPI was up only 0.8% yr/yr through Jul. Moreover,
a key element of my inflation pressure gauge, the yr/yr % change of the CRB commodities
index, has improved from a dramatic -30% seen since early 2015 to a negative 1.05% recently.
The trend of this measure is signaling higher inflation eventually, but it has been a slow rise so
far.  CRB Weekly

Through July of 2016, my proxy for US business sales is up just barely on a yr/yr basis to +0.3%.
In more normal times, when cyclical pressures are on the rise, this measure might be expected to
be 6 - 7% ahead of the prior year.

Ms. Yellen is scheduled to speak next week at the annual KC Fed junket in Jackson Hole, WY.
She probably can get way with an extended rehash of recent Fed views on policy, but unless
she can offer some assurances how nicely the economy is set to perform over the next year, it
would be helpful to develop a wider discussion on further Fed options and the issue of federal
stimulative measures.

Sunday, August 14, 2016

SPX -- Weekly

Technical and Psychology
The SPX remains in an intermediate term uptrend following the breakout above 2100, which has
extended the market up into new high ground. The SPX is losing positive momentum and has
been progressing toward a substantial overbought, although it is not at extreme levels yet.
SPX Weekly

From a seasonal perspective, mid - Aug through the end of Oct. is a time in the year when traders
become jittery with all veterans able to tell horror stories from the past. Players are also concerned
about whether this year might see troublesome uncertainties regarding the upcoming election.
Since one wheel has come off the Trump bandwagon at least, anxieties may be tamped down for
now, but rest assured, efforts will continue to get The Donald squared away before it is too late.
Remember too, that there could be some zingers headed Hillary's way.

The bottom panel of the chart shows the VIX or 'fear index" has dropped down to levels consistent
with investor complacency. In sum, with the SPX nearing an intermediate term overbought, extant
signs of a more relaxed 'investorate', and the temporal progression toward a more jittery time for
market players, expect more calls for an interim top in the market.

The business environment has been improving slowly, and SPX net per share finally turned up
in Q2. Twelve month SPX eps has recovered to $98.75. The market remains expensive on the
basis of old fashioned fundamentals. As testimony to how hard a slog it has been on the ground
for business, SPX profits now stand only about 7.5% above the highs seen in 2007 right before
the roof started to fall in. 


Saturday, August 13, 2016

Stock Market -- Longer Term Issues #2

For more years than I care to remember, I have worked on the assumption that, over the long pull,
US business would grow about 6% annually. The figuring has been 3% real growth in output of
goods and services and 3% in pricing gains (inflation). This assumption has served well in many
ways, but now it is threatened. The 3% real growth factor has been based on a combination of
projected gains in the labor force plus productivity increases. In recent years though, labor force
growth has decelerated to about 1% per annum and productivity to below 1.5%. Moreover,
business pricing power has fallen well under 3%, down to 1%. Now, US business sales growth
potential is but 3.5%. If profit margins hold up, earnings should also grow by 3.5%, and if you
want to earn 10% on risk capital, then the market p/e ratio must rise steadily or the dividend
yield must be substantially higher or some combination of the both must obtain. Nothing will be
tidy or welcoming here.

Many investment strategy commentators, now mindful of seemingly more modest growth ahead,
are saying that the market is set to deliver lower, but positive returns going forward and that it
is time to set one's sights on the prospects for more modest total returns over the longer term.
But, they say, this is still bullish, since the returns on high grade bonds and Treasuries will be
lower than for stocks. If this be true, my reaction would be to not bother with stocks or bonds
except under rare conditions and focus your attention elsewhere.

The liquidity to support faster growth and higher inflation is there.With operating rates just above
75%, there are ample physical resources to support faster economic expansion and to trigger
faster capital spending to keep up as needed. The work force remains seriously underemployed
and if the US presses on, businesses will find ways to bring the longer term unemployed off the
sidelines, and in Washington, pressures can be brought to bear to create a balanced program of
of increasing immigration based primarily on skills and much less so on ethnicity. If needs be,
there are a range of fiscal initiatives that can enacted to spur growth and tax policies developed
to help finance such programs. This is easy stuff for sensible people to do for Christ's sake.

So, I am not ready to buy off on a new 'era' or 'paradigm' of low everything and since no one
is paying me to chart the fortunes of the US, I am at liberty to move on from this blog to other
stuff if people do not start to wake up and fly right soon. 

Monday, August 08, 2016

Stock Market Sentiment

Stock market sentiment turned bearish about a year ago and despite the extended rally in the market
since Feb. of this year, finally began to turn more bullish as we entered Jul. of this year. The equities
put / call ratio shows players are bearish when the 30 day m/a is above .70 and that they are too
bullish when the put / call falls to around the .55 level  $CPCE

From a contrarian perspective, investors and traders should be thinking about the long side of the
market when the p/c is at .70 or above and be looking to lighten positions when conditions are
frothy at .55. I use a crossover of .625 to demarcate the bull / bear sentiment line. So, sentiment is
currently edging toward bullish for the first time since mid - 2015, although it is well above the
.55 line, when everything is deemed to be coming up roses. From a contrarian perspective, the
market is edging toward an intermediate term overbought.

Net selling pressure in stocks hit an important interim peak in the late summer / autumn period
last year when the market began a period of intermittent sell downs that lasted through mid - Feb.
of 2016. The selling pressure for NYSE stocks has abated steadily since then, and as measured
by the 30 day m/a of this gauge is now entering overbought territory for the first time since Apr.
of last year. Net buying pressure holds forth presently and it can certainly persist and strengthen
from here. But note that on a 30 day m/a basis it has not done much better than currently over
the past five years. $TRIN

Note as well, the 30 day TRIN chart indicates a deep oversold when selling pressure rises to
1.50 on this indicator.

Thursday, August 04, 2016

SPX -- Monthly

Early in 2015, I made a big deal out of warning that a downturn in the monthly MACD indicator
for the SPX did not bode well for the market outlook. And, it did not as the SPX dropped rather
sharply on three occasions through early 2016. This Aug. is far from complete, but to be fair, it
is worth noting that the SPX monthly MACD (middle panel of the chart), after falling sharply, is
now struggling to gain a positive reversal.  SPX Monthly
Look, this move up in the MACD shorter term line may be just a quirk, but evidence over the long
term suggests the possibility of significant directional change for this monthly indicator is often worth
attention and interest. What, beyond merely freakish speculation, could sustain a rising market?
One argument would go as follows: The US economy will gradually regain expansion momentum.
the Fed will commence raising short rates very slowly. Because there is still slack in the economy,
not only will profits begin to recover, but market players, seeing potential for further growth, will
rotate out of bonds into stocks as they anticipate weakening bond prices and some upside in the
equities market. This development is what the range of my favorite economic and market indicators
suggest. We need to see some further improvement in the US economy and perhaps, some measures
of fiscal stimulus with a new administration in Washington in 2017 and, of course, a degree of
panic in the world's bond markets which are widely overvalued on a longer term basis.

As long as my indicators provide support, I will probably stick with this view for a while, even
with recognition that stocks are already overvalued as well as noting that there are a growing
number of social, economic and political dumpster fires around the world. Besides most of the
old guys out there like me are so reserved in their thinking, that a contrarian 'last hurrah' fits
my love of irony to a T.