Wednesday, April 09, 2008

Market Review and Resources for Wednesday

* Banks Continue to Lag - Here we see a chart of the S&P 500 Index ($SPX; top chart) since the mid-March bottom. Beneath it is the equivalent chart for the banking sector ($BKX). Whereas the large cap market overall has vaulted above its 3/24 highs, the banks have not. Moreover, the large caps have only retraced a modest portion of their early April rally, but the banks have retraced about 50%. As my recent post indicated, the strongest sectors of late have been energy and materials--a reflection of weak dollar and strong commodities. That's not a theme that is a good foundation for a sustained bull move in stocks. The 1400 area remains important resistance for the ES futures; I don't think we'll sustain an upside breakout unless something ignites these banks.

* More on Mind and Body - An interesting research report links depression as a causal factor in Alzheimer's Disease. As some of the links I posted recently indicate, depression is also implicated in heart disease--and negative patterns of thinking are implicated in the genesis of depression. It's not too difficult to connect the dots and see fascinating patterns between how we think, how we feel, and how healthy we are. The exercises from my recent post (and the one from my upcoming post) might be helpful for more than trading alone.

* Establishing a Track Record - I see Rob Hanna's trade ideas from his tested historical patterns have performed nicely. Rob generously shares many of his patterns in his blog. If you didn't catch my Twitter link to his pattern post, it's worthy of study. And, while we're on the topic, Rennie Yang maintains a continuous track record for his "trend catcher" system and provides intraday alerts of signals. That system recent moved to new equity curve highs, amidst an increasing incidence of trend days. Excellent resources; you have to admire newsletter writers that test their ideas in advance and then track their performance in real time.

* Gaming Stocks Ahead of Earnings Reports - Kirk takes a look at issues that make his stock screening cut and then examines their earnings report patterns and expectations prior to announcements. This could be a nice way to play behavioral finance biases associated with underreactions to surprise news events. While you're at it, check out The Kirk Report's interview with economist and contrarian Irwin Yamamoto. His outlook on housing, consumer debt, and the Dow is sobering.

* Not Shorting a Dull Market - Trader Mike notes a short-term sell signal, but he's holding off until he sees volume confirming the intentions of sellers. So far, we've seen dwindling new 20-day highs among stocks in recent days, but no expansion of 20-day lows. It's the latter that would turn me bearish on this market.

* Going for the Yield - Anyone looking to park money relatively safely and achieve any kind of real returns has to be disappointed with the yields available for Treasury instruments and bank certificates of deposit. With baby boomers fearful of returns from stocks and real estate, it's only a matter of time before they swarm to AAA-rated tax-free yields that continue to exceed the aforementioned taxable rates. The Vanguard funds (intermediate-term: VWITX; long-term: VILPX) are ones I've been nibbling at, given low management fees and good diversification among AA and AAA-rated issues. Also on the radar are investment-grade corporate bonds, with long-term instruments pushing a 6% yield (VWESX). Not all safe bond funds are safe, however; check out the links at Abnormal Returns.