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Sunday, July 12, 2015

And some weekend news


Haven't even checked my RSS in 2 days. I have studying to do. This is just the stuff that I came across earlier this week:


New Deal Demoncrat - corporate profits as a long leading indicator. Why care, says the clownish TA blogger? This is why:
The relationship is straightforward: if corporate profits are a long leading indicator for the economy, and stock prices are a short leading indicator, then logically corporate profits should lead stock prices at least in terms of direction, if not necessarily in terms of volatility.
And so how are corporate profits doing? This is how:


So quit piddling your frilly pink panties and buy the S&P 500.

Or if you'd rather chuck all of fundamental valuation theory and trade based on dice rolls like most TAs and bloggers, there's this:


BI - Tom Lee sees a buy signal that works 93% of the time. Quote:
"This past week, we saw several measures that point to extreme risk-aversion and hence, a reliable contrarian 'buy' signal is generated (with lows established either already or in the next few days). We do not expect any material damage to US fundamentals, and hence, see these contrarian signals as supporting our bullish call for a 2H rally."

After reviewing five measures of the market, he concluded there was a 93% probability of an S&P 500 rally, with gains of 9% by the end of the year.

We summarize the conditions that support his bullish view:

1. The implied volatility term structure has inverted

The VIX term structure just inverted again on Wednesday, which could be a good thing. Excluding recession years, Lee says, this inversion has happened 11 times since 2004 — and in seven of them, the sell-off ended within days. Three of the other inversions saw longer sell-offs during 2010-2011 because of the impeding threat of a US government shutdown.

According to Lee, returns after inversions are impressive, with markets rallying an average of 6% (in three months) and 10% (in six months), with 100% and 90% win ratios, respectively.

2. US investors are so bearish, it's bullish

The American Association of Individual Investors' net percentage of bulls minus bears was at -12% on July 2, the second-lowest level since 2013 (the lowest being -13% on June 11). But, as Lee has pointed out before, extremes in this case usually mean the opposite: "Historically, the AAII survey is a contrarian indicator with a very good track record at the extremes," Lee wrote in a note last month. "For instance, since 1987, whenever the net bulls reading is this low, stocks have seen a subsequent six-month rally 100% of the time, with an average gain of 7%."
Blah blah etc etc. Or you could just say "in a secular bull market you win whenever you buy a 5% pullback that's accompanied by stupid insane fear, simply because in a secular bull market stocks go up". But I'm sure dice-rolling and chart-spewing can make you look just as clever.


Yahoo Finacne - traders pump cash into leveraged A-shares ETFs. Just in case you thought ASHR isn't bad enough and you want to do the trading equivalent of having unprotected sex with radioactive chainsaw-wielding silverback gorillas in a shark tank.


Econospeak - Jens Weidmann on central banks not being lenders of last resort. This is why Europe will always fail:
I don’t think we should let this pass. Jens Weidmann, Germany’s representative on the governing council of the ECB and considered by most Germans (and their media) as a paragon of economic and financial wisdom, is quoted as saying, “Central banks, although they have the means, have no mandate, in my view, to safeguard the solvency of banks and governments.” Note that he refers to central banks in general and not only the ECB.

Frankly, I think Weidmann should sue the reporter who put these words into his mouth—obviously a crude attempt to make him sound like a yahoo who doesn’t know the first thing about his line of work.
Ha ha! See what he did there?

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