Stocks & Equities

Game-changing events and market action?

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Posted by Larry Edelson - Uncommon Wisdom

on Monday, 17 September 2012 06:47

Last week we certainly had some game-changing events, with the German court ruling in favor of the European Stability Mechanism ... Europe going ahead with yet more bailouts ... and, perhaps more staggering, Fed Chairman Ben Bernanke committing the Federal Reserve to buying $40 billion worth of mortgage-backed securities each month on an open-ended, unending basis until employment improves.

These are possibly game-changing fundamentals for the markets.

They’re entirely consistent with my longer-term views of monetization of debt, commoditization of not just commodities but stocks as well, and monetization of paper money (or fiat currencies) by levitating and re-flating financial assets and tangible assets much higher over the longer term.

So with that in mind, we’re going to take a look at some weekly charts.

Although there have been some game-changing events in the last week or so, they have confirmed my longer-term views on longer-term bull markets in commodities and stocks.

However, I am not convinced that the recent rallies are the beginning of those long-term breakouts. So let’s take a look at this weekly chart of gold.



Stocks & Equities

Market Buzz: How the Divide Between Investing Strategies Amplifies Market Volatility

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Posted by Ryan Irvine: Keystone Financial

on Saturday, 15 September 2012 00:00

One unfortunate habit that we commonly see with investors is the tendency to look to short-term market activity for investment guidance. In Behavioral Finance this is referred to as “herding” (or convoy behavior) which is the hardwired instinct of most human beings to flock together for perceived safety. When individuals are not confident in their independent position, they typically acquiesce to the group. Unfortunately this can also be true even when individuals do have confidence in their independence. Accordingly, there is a general understanding in the money management industry that it can be okay to be wrong when your peers are also wrong, but being wrong independently can cost you your job.

Over the past couple of years global stock markets have experienced levels of volatility never before seen in history. Recently the media has started referring to this as “risk-on/risk-off”. Regardless of what you call it, markets have inarguably been exhibiting symptoms, which exhibited in a person, would be diagnosed as manic depressive disorder. And there are some fundamental justifications behind this: High-public and private debt loads, the recessionary pressures of deleveraging, unstable short-term economic prospects....it has all been said a hundred times before. Regardless of the source of the volatility, it has investors at the edge of their seats ready to hit the sell button; frantically looking for any sign that the markets might fall of the proverbial cliff like they did in 2008. Real economics are a force in the recent volatility but there is also another force at play and it has nothing to do with fundamentals. This other force is investors’ own biases (private and professional) and how we make our buying and selling decisions, also known as investment strategy. And it plays a big part in the markets’ current volatility.

You can divide investment strategy (or investment mentality) into four main camps: 1) buy and hold; 2) momentum; 3) value; and 4) pure speculation. Each of these investor types makes buying and selling decisions based on a different set of rules, and the resulting actions impact the market in different ways. The buy and hold investor is the most benign of the camps. They don’t make investment decisions and asset allocation decisions based on overall market conditions. This type of investor passively purchases stocks when they have capital available, and looks to hold his positions through market cycles and varying conditions. Momentum and value investors, on the other hand, are not passive; they actively look for opportunities. Momentum traders will buy into market uptrends and then sell into market declines, without consideration for actual economic or company fundamentals. They are basing decisions purely on volume and price movement. Value investors will take a more contrarian approach, typically buying into market price weakness and selling into market price strength. In contrast to the momentum investor, the value investor will base decisions on fundamentals and not price chart formation. The characteristics of the fourth group, the pure speculators, are less relevant to this discussion but would typically exhibit buying and selling behaviour similar to the momentum camp.

The effect that momentum trader and value investors have on market volatility is polarized. When the market moves in one direction, the momentum traders exacerbate the movement, and therefore increase market volatility, by increased buying when the market is rising and increased selling when the market is falling. In fact, momentum investors unwittingly work together to generate market extremes. But when market prices move too far in either direction, value investors get involved. When prices get too high, value investors create a dampening effect by selling into the strength. Then, momentum investors begin to see the uptrend slowing, and they start to sell. As the market weakness persists, more and more momentum trades drive prices continuously lower until value investors start to see opportunities and move in to create support though increased buying. And so on and so forth, the cycle continues.

It may be apparent that not all investors fit neatly categorized into one of these investment types, because real world investment strategy involves a lot of human behavior and is too complex to be summarized into a few lines of text. Some investors will utilize multiple investment strategies. For example, an investor can purchase on value but then transition to a buy and hold approach. Investors can also purchase on initial momentum but then sell on value. Some investors will subscribe to one strategy in theory but another in practise. Some investors switch between strategies from trade to trade. And in the case of professional money managers, there is also the structural issue of investor contributions and redemptions: the fund manager may subscribe to a value strategy, but if the fund investors decide to redeem in down markets and contribute in up markets, the impact the fund has on the market may be more closely associated with momentum than with value.

Complexities aside, most investors, whether they know it or not, are largely loyal to their respective strategy. Equally true is the growing trend in favour of momentum strategies. This trend, which naturally increases volatility, is due to a number of reasons. The evolution of discount brokerages and low cost trading has made trading easier from a logistical and financial perspective. Many brokerages also encourage excessive trading by offering lower fees to high-frequency traders and platforms which provide momentum-based, technical analysis research tools. Next, a virtual explosion has occurred in the market for computerized trading programs that promise to automate the BUY/SELL decision for retail investors who have limited research skills. These retail trading programs are also based on momentum indicators. Of course, legitimate global economic risks have also reduced investor confidence in long-term stock market returns, and increased investor scrutiny. These factors make investors, on average, more willing to hit the sell button at the first sign of trouble and potentially the buy button when the market appears to be improving. And finally we have the onset of high frequency trading (HRT) companies, which have exploded in numbers and importance over the past several years. HRT uses sophisticated computing programs to execute (in some cases) thousands of trades per minute, resulting in profits of a faction of a cent per trade. The impact of HRT in today’s market is becoming more and more evident. Estimates will vary, but the research we have seen is staggering: in August 2011 (an extremely volatile period) Bloomberg reported that the percentage of average daily volume attributable to high frequency trading had exceeded 80% in the US markets.

We only need look to the Flash Crash of 2010 (also referred to as The Crash of 2:45) for a recent example of how momentum trading creates abnormal volatility. The Flash Crash occurred on May 6, 2010, when the Dow Jones Industrial Average plunged about 1000 points and then quickly recovered after a few minutes. This was the biggest intraday point decline in the Dow’s history. On September 30th, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) issued a report on the crash after a five month investigation. The report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral.” The report also discussed how immediately before the crash, a large institutional investor sold an unusually large number of S&P 500 contracts. The report concluded that this activity put selling pressure on an already weak market, which triggered high-frequency traders to start selling aggressively, causing a mini-crash to occur.

Put into context of the divide between different investor camps, the amplified market volatility we have seen in the past year becomes easier to understand. There has always been a divide between momentum and value investors. The difference today is that technology has facilitated a trend towards momentum trading, which in conjunction with real fundamental risks, has had the effect of amplifying market volatility. Since none of the trends that are facilitating momentum investing show any sign of slowing, it may be perfectly rational to conclude that higher volatility is the new normal, regardless of whether the world finds a solution to its financial woes. While this may be disconcerting for some value investors, it really shouldn’t be: remember, value investors move in to restore rationality when momentum investors distort valuations. When the Flash Crash occurred at 2:45 pm, it only took a few minutes for the Dow to recover from its 1,000 point decline. A market recovery requires buyers, and those value investors who recognized the opportunity of the Flash Crash were able to generate a nice profit on the momentum traders’ hysteria. Ultimately, a stock is a piece of a business, and as long as that business generates positive cash flow then it will be able to invest in growth, pay a dividend, and command a fair price in a takeover transaction. There is nothing disconcerting if momentum traders give value investors the opportunity to purchase these companies at discounted prices, and then potentially sell them right back when those prices become inflated.

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Disclaimer | ©2012 KeyStone Financial Publishing Corp.


Stocks & Equities

Incredible Times: Grandich Market Update: Stocks, Bonds, Oil, Gold, US Dollar

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Posted by Peter Grandich - Grandich.com

on Friday, 14 September 2012 11:44

The Fed’s “All-In” move may keep the house of cards from folding until 2013 and greatly help Obama limp over the finish line, but it shall prove to be the last silver bullet before a long period of economic, social, political and spiritual upheaval grips America for years to come.


While the junior resource market left egg on my face this year, I’m very pleased with how I approached the rest of the markets I follow. Here’s a quick update on them.

U.S. Stock Market – It’s worth repeating my constant cry that many times it’s not what you make but what you don’t lose that makes you a winner over time. Despite numerous questioning on why I still won’t short the U.S. stock market and almost daily emails showing me why such a decision shall prove wrong, the fact is the market has reached highs not seen in years.

The marginal new high I spoke of is well within reach now. But as it has been since day one, such a feat would be the completion of the greatest bear market rally in a secular bear market that can eventually retest the lows made in early 2009. It shall have to endure a long period of economic, social and political upheaval that shall be longer and harder than most could ever imagine.

Such a period is still months or even a year or so away but starting to plan for it while the “Don’t Worry, Be Happy” crowd runs wild with the FED’s “All-In” is strongly suggested.


U.S. Bonds – The very fact that many in the last 18 hours or so expressed a belief that bonds can’t lose during this “All-In” phase is the icing on the cake I desired for fulfilling my “worst investment for the next 10 years” belief of bonds. There’s no rush to establish a short position but the closer the 10-year T-Bond drops towards a 1.25% yield, the more I would want to be short. When the dark days come (and in my book it’s a question of when, not if), rates shall rise like they did through Europe the last couple of years despite overall weak economics.


U.S. Dollar – Direction? Go and see how many people dare suggest the Euro could see a major short covering rally well over $1.25 just a couple of weeks ago. Try to understand how almost 96% bulls on the U.S. Dollar in the currency futures markets are now getting crushed.


Gold – While we can see a period of consolidation on either side of $1,800, the upside remains wide open. Go back and look and see what was being said when gold was in the low $1,500’s. Bears were running wild and the vast, vast, vast majority of gold commentators had turned very cautious, if not outright bearish. Let it not be said that at a critical point, yours truly was willing to bet $2 million reasons why gold was going over $2,000.

Any and all excess was washed out in the almost year-long correction/consolidation so it shall likely be a long period before we get seriously overbought again. The perma-bears have never grasped the earth-shattering changes to the gold market and much of the financial media shall continue to follow these pied-pipers over the cliff as gold marches towards and over $2,000.


Oil and Natural Gas – No changes here.

And finally, the junior resource market has seen its horrific lows and while it can work higher for the balance of the year, the wounds are deep and the need to finance great. This shall limit the rebound but once we get near years-end, the rebound can gather a longer-lasting head of steam and help 2013 make 2012 just a bad memory. Remember, I never said to assign anything more than capital that you’re mentally and financially prepared to lose part or all of. These vicious bear markets in a business where failure is the norm always ends up showing most didn’t meet this requirement. How do I know this? A sampling of the hate mail does it all the time. I just wish my wife stop writing-lol


Ed Note: Be sure to check out Peter's website for updates on markets, the economy and individual stocks: Grandich.com

Picture 1

About Peter Grandich:

Though he never finished high school, Peter Grandich entered Wall Street in the mid-1980s with no formal education or training and within three years was appointed Vice President of Investment Strategy for a leading New York Stock Exchange member firm. He would go on to hold positions as a Market Strategist, portfolio manager for four hedgefunds and a mutual fund that bared his name.

His abilities has resulted in hundreds of media interviews including GMA, Neil Cavuto’s Your World on Fox News, The Kudlow Report on CNBC, Wall Street Journal, Barron’s, Financial Post, Globe and Mail, US News & World Report, New York Times, Business Week, MarketWatch, Business News Network and dozens more. He’s spoken at investment conferences around the globe, edited numerous investment newsletters, and is one of the more sought after commentators.

Grandich is the founder of Grandich.com and Grandich Publications, LLC, and is editor of The Grandich Letter which was first published in 1984. On his internationally-followed blog, he comments daily about the world’s economies and financial markets and posts his views on social and political topics.  He also blogs about a variety of timely subjects of general interest and interweaves his unique brand of humor and every-man “Grandichism” expressions with his experience gained from more than 25 years in and around Wall Street. The result is an insightful and intuitive look at business, finances and the world, set in a vernacular that just about anyone can understand. In his first year, Grandich’s wildly-popular blog had more than one million views. Grandich also provides a variety of services to publicly-held corporations on a compensation basis.

Grandich’s autobiography, Confessions of a Wall Street Whiz Kid, was publiched in fall 2011.

He is the also the founder of Trinity Financial Sports & Entertainment Management Co. [www.TrinityFSEM.com], a firm with a Christian perspective which he started in 2001 with former NY Giant and two-time Super Bowl champion Lee Rouson.  The firm offers services to celebrities, athletes and average folks.  Peter Grandich is a member of the National Association of Christian Financial Consultants, and a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.

Grandich is also very active in Christian sports ministries including the Fellowship of Christian Athletes and Athletes in Action.

He resides in New Jersey with his wife Mary and daughter Tara.



Stocks & Equities

Fed Pulls Trigger - New Pumping Begins

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Posted by Money Talks

on Thursday, 13 September 2012 12:43

The Federal Reserve fulfilled expectations of more stimulus for the faltering economy, taking aim now at driving down mortgage rates until an improvement in unemployment that the central bank says will be a problem for several years.  Ben Bernanke recently spoke of the benefits of “non-traditional policies”

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing. The Federal Reserve said it will “increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40bn per month”. Interest rates in the US have been close to zero for several years now. 

The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve. 

“The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions,” said the Fed, led by chairman Ben Bernanke

The stock market, which had been slightly positive prior to the decision surged while bond yields, particularly farther out on the curve, jumped higher.

(Ed Note: Chart below taken at 12.45 pm PST)

Screen Shot 2012-09-13 at 12.51.02 PM

Gold and other metals gained at least 1 percent across the board while the dollar slid against most global currencies. (Ed Note: Gold chart taken at 12:58 PST)

Screen Shot 2012-09-13 at 12.56.49 PM

"There's strong hints that they'll do Treasurys next," Joe LaVorgna, chief economist at Deutsche Bank Advisors, said in a phone interview from London. "They're pulling out all the stops to try to get this economy to gain some traction and, most important, to get unemployment down."  (Ed Note: It would seem that investors are thinking the Fed will act next on Treasurys as T-Notes rallied back to their pre-announcement levels. Chart taken at 1.06 pm PST)

Screen Shot 2012-09-13 at 1.03.31 PM


...read more:

Fed's Stimulus Move Ignites Wall Street

Fed Bets Big in New Push To Rescue Economy

Federal Reserve to buy more debt to boost US Economy



Stocks & Equities

The Little Guy Has an Advantage

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Posted by Tyler Bollhorn of StockScores

on Wednesday, 12 September 2012 07:25

Picture 2

perspectives commentary

The Canadian market is likely to start catching up to the US market which has outperformed year to date, This week's Market Minutes video highlights shows how. Check it out by clicking here. (Ed Note: The Outlook for Canadian Stocks, US Stocks, Gold & Oil is are in Tyler's Sept. 10th Market Minutes video)

I wrote a new book over the summer, it will be available in a pre-release version to Stockscores users before the end of the year. Over the next few weeks I will share excerpts from the book, The Mindless Investor - Make Money in the Market by Overcoming Your Common Sense. Here is a piece from the chapter, The Little Guy Has an Advantage.

Performance Is Easier with Less Capital
Assuming you don't have hundreds of millions of dollars or more in your trading account, you have an advantage over any fund manager. It's a lot easier to double $100,000 than to make a 100% return with $100 million, $1 billion or $10 billion. With a method that is appropriate for the amount of capital you have to invest, you can beat the market, and doing so is easier with a relatively small amount of capital.

The key, of course, is having a good method for trading the market-one that gives you the ability to beat the market. With that and a relatively small pool of capital, you can outperform even the most successful big money managers.

As an individual investor you can choose strategies that require you to move in and out of stocks quickly, to hold them only when they are trending and to get out when the trend is losing momentum. Since the size of your positions will be relatively small, you can buy and sell quickly and without a significant impact on the price you pay when you buy or the price you receive when you sell.

You can trade opportunities that can only be taken advantage of if the trade size is small. One of my strategies requires that I buy stocks as close to the open of the trading day as possible. This strategy works well, but there are few stocks that trade actively enough to absorb a trade of more than half a million dollars in the short time this strategy requires. A large investor could never make these trades and have an impact on the performance of the fund.

The Right Approach for the Capital You Have
The less capital you have to trade with, the less your ability to do in-depth analysis of the companies you buy. Analyzing a company's business properly takes time, knowledge and costly resources. When you try to compete with large investment funds on this level, it's unlikely that you can produce better results than a fund that has industry experts and millions of dollars to devote to research.

But you can be on a level playing field with the big investment funds if you use stock charts and trading data to make your decisions. This information is easily available and comes at a low cost. Whether you're a large or small investor, you look at the same stock chart.

There are advantages to being small. As an individual investor, you can probably enter and exit any trade in just seconds. You have a greater opportunity to beat the market because the market-beating opportunities you find can have a dramatic effect on the overall value of your portfolio. Provided you have the knowledge and discipline to trade well, it is better to manage your own money than to leave it to someone who has a large amount of capital to invest on behalf of many people. Not because the person running an investment fund lacks skill, but simply because the challenge of beating the market increases as the capital under management goes up. With an approach that matches your capital base, you can beat the big funds.

perspectives strategy

The US markets have moved up in anticipation of stimulus from the ECB and US Fed. We have already learned of Europe's plan to lower interest rates through the purchase of short term bonds and this week we will hear if the US Fed will do anything stimulative.

The market has been speculating that there will be action by the US Fed, causing stocks to go higher and the US Dollar to go lower. We are now seeing money rotate in to the commodity and financial sectors.

If the Fed does take stimulative action this week, expect that the Canadian market will benefit the most. The TSX has underperformed the US market this year and has a lot of catching up to do. A rotation in to commodity stocks will help the TSX improve its performance.

This week, I did my Market Scan for Canadian stocks with good charts. Here are a few names to consider:

perspectives stocksthatmeet

1. V.MEI

Breaking out from a long term cup and handle pattern with strong volume today, looks likely to continue the strength it has shown over the past couple of months. Support at $1.80.

chart 1

2. T.JAG

I featured this in my daily newsletter (available at www.tradescores.com) on Monday, the stock appears to be in the early stages of a turnaround. Support at $1.09.

chart 2


  • Get the Stockscore on any of over 20,000 North American stocks.
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    This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don't consider buying or selling any stock without conducting your own due diligence.


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