Monday, January 05, 2015

Crossing the Desk to Start the Market Week

*  One of the things I have my eye on is cross-sector volatility within the U.S. stock market.  This is a measure of realized volatility, not volatility implied by options pricing (like VIX).  Generally, volatility peaks early in a market cycle and troughs ahead of price highs.  We've recently come off a peak, similar to patterns we've been seeing with market breadth.  

*  I also note that the end of 2014 saw quite an expansion in the shares outstanding of the SPY ETF and many of the sector ETFs.  (Data from State Street).  That's been a pretty good sentiment gauge over the years:  demand for stocks expands the supply of ETF shares and bearish sentiment leads to a contraction of shares outstanding.  In the past 10 days, we've seen a rise of almost 14% in the shares outstanding for SPY.  Going back to 2006, when shares outstanding for SPY have been up by 10% or more over a 10-day period, the next 20 days in SPY have averaged a loss of -2.18%.  That compares to an average 20-day gain of +.77% for the rest of the sample.  When ETF demand soars, that enthusiasm has not led to good returns in the past, and 2015 thus far has been consistent with that.

*  Interesting article on creating an early morning routine.  Also check out the morning routines of successful people and the early rising habits of successful CEOs.  I consistently find that the quality of my early morning hours impact the quality of the remainder of my day.  I'm not at all sure that it's "discipline" that gets people up early.  It might just be that they're doing what they are good at and what they love doing.

*  Such a great idea:  Abnormal Returns tracks the book buying of its readers.  It's an excellent crowd sourcing of book recommendations.

*  Sound advice from Worch Capital on limiting trading losses.  Here's an article with worthwhile perspectives on sizing trading positions.  Tough to win the game if you can't stay in the game.

Really useful way to visualize correlations among stocks from MKTSTK.  See also their use of heat maps to capture market correlations.  Great way to see if a portfolio is as diversified as it might seem.

Have a great start to the trading week!