O. Young Kwon's  Instablog

ABOUT The DMI (Daily Market Information)

Investing is a zero-sum game, meaning when one guy gains, the other guy must lose. In order to win, what must we do? The DMI might help you to have an edge over the other guys. There is too much market information on SA, TV, Newspapers, magazines, etc. The problem is there is too much info to absorb. That's why DMI is brief and well-selected.

My focus is primarily on news about two areas: The Fed policy and Business Cycles. These are macro topics. DMI is a summary of what I listen to BBR, and read WSJ, Reuters, Bloomberg, AP, and Barons (weekend) from 5:a.m. to 7:00 a.m. everyday.

With this information and the RED Spread (introduced in in my article. Link: www.seekingalpha.com/article/817551) you can grasp the current market situation.

The Daily Market Information (DMI) (May 18, 2014 Saturday)

Reuters

China April housing inflation quickens to two year high.

Wall Street Week Ahead: Correction talk gets old as rally sails along.

Bloomberg

Consumer Sentiment Index Rose in U.S. to 83.7 in May from 76.4.

The Daily Market Information (DMI) (May 17, 2014 Friday)

Michael Santoli

Rally Gives Investors a Great Year, In Just 6 Months.

Bloomberg

China Cut Red Tape as Premier Li Shows Stimulus Reluctance.

Japan Most Favored Nation in Poll Showing Abe Optimism.

Singh's Growth Push Imperiled as Graft Scandal Rattle Economy.

Central Bankers Prisoner of Policy Guidance Cutting Research.

Reuters

ECB eyes supervisor role to squeeze weak banks.

Shares fall as Fed officials talk of QE exit.

BOJ may seek ways to calm bond yields, policy on hold.

Market Watch)

U.S. jobless claims jump 32000 to 360000.

The Daily Market Information (DMI) (May 16, 2014 Thursday)

Michael Santoli

Bull-Market Behavior Flares as Stocks Melt Up.

Reuters

ECB rate cut talk pressures euro, lifts Bunds.

Japan PM's "Third Arrow" reforms seen short of overhaul.

PRECIOUS-GOLD hits 1-month low, eyes longest downturn since 2009.

Bloomberg

Japan's Economy Grew More Than Forecast 3.5% in First Quarter.

The Exchange

How the Obama Scandals Could Hurt Financial Markets.

The Daily Market Information (DMI) (May 15, 2014 Wednesday)

Bloomberg

Swan Shuns Europe-Style Austerity in Bet on Aussie Jobs: Economy.

King's Final Forecast Offer Chance to Give Positive Note.

Li Signals Reluctance on Stimulus to Boost China Growth.

Philippines Unfazed by Weak Yen as Purisima Support Japan.

WSJ

French Economy Falls Into Recession.

Import Prices Down 0.2% on Falling Oil Costs.

BusinessWeek

Asian Stocks Rises as Nikkei Tops 15000 First Time Since 2007.

Reuters

Weak German growth sends euro lower, shares near peaks.

For Japan lenders, Abenomics's pain comes first, gain later.

Analysis: For all the debt, there's a shortage of bonds.

The Daily Market Information (DMI) (May 14, 2014 Tuesday)

Reuters

Dollar pauses, euro up ahead of data.

Retail sales edge up, show strength in economy.

Bloomberg

Retail Sales in U.S. Unexpectedly Increase on Broad-Based Gain.

WSJ

European Stocks Called Higher Bonds and Dollar Fall.

Market Watch

It's a job-seeker's market in construction.

The Daily Market Information (DMI) (May 13, 2013 Monday)

Bloomberg

China's April Industrial Output Rises 9.3% From Year Earlier.

WSJ

Markets Focus on Dollar Strength.

In Korea, Slumping Yen Hits Home.

Washington Post

Plan to increase exports of liquefied natural gas could accelerate fracking boom.

Reuters

China April factory output disappoints, clouds outlook.

Strong dollar hits oil, gold; shares supported.

Insight: Housing improvement may herald return of U.S. workforce mobility.

The Daily Market Information (DMI) (May 12, 2013 Sunday)

Barron's

We Were Right. By Gene Epstein. Special Report: Record Dow - Last year we predicted the Dow would hit 15,000 in 2013. That performance may be just the beginning.

Scratching for Signal of a Market Top. By Kopin Tan. Special Report: Record Dow - Questions to ask as the bull market rises. Where's the euphoria? We don't see it yet.

Indulge Your Appetite for Stocks. By Stephen S. Sears. For now at least, the stock markets to be the only opportunity available. It's OK to buy, but keep eye on the exit.

Reuters

Wall Street Week Ahead: "Sell in May and Go Away?" Not This Year.

Chrysler recalls 469,000 SUV's worldwide over gearshift problem.

G-7 to press on with bank reform, Japan censure escapes.

Germany pushing for faster reform in euro zone: magazine.

WSJ

Dimon might leave JPMorgan if Stripped of chairmanship.

Bloomberg

G-7 Signals Acceptance of Years Drop for Now as Japan Debate.

Australian Treasurer Says Strong Dollar Delays Return to Surplus.

The REDS S&P 500 Prediction (RSP) (May 16, 2013)

My article ("The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swan?") introduced the RED Spread (REDS) (with the RED) as a Market Condition Monitor. The RED Spread is performing one-month-ahead forecasts of the S&P 500 index. The predictions follow.

The evaluation of the predictions made on 2/24/2013, 3/3/2013, 3/10/2013, 3/17/2013, 3/24/2013, 3/31, and 4/7 is available: The Forecast Error Percentages were 9.1, 9.0, 8.3,10.4, 9.0, 10.8, and 12.0 respectively; and the Mean Absolute Errors were 8.7 8.8, 8.6, 9.0, 8.8, 8.6, and 9.6; respectively. They were under-forecasts. The error were significant because the data range (5/2/2012 to 2/22/2013) don't cover a full year.

It was also because the budget negotiations have been worked out this time, surrounding the sequester (March 1) and the smooth passage of the spending bill or a continuing resolution (CR): The market not only didn't respond negatively on across-the-board spending cuts even though White House exaggerated the impact of the sequester, but the new CR keeps government open through September, averting shutting down government on March 27 when all stopgaps spending measurements will be expired.

All these timely good movements of Congress boosted the market more much than expected one month earlier.

The Model

Y (t) = X (t-1) + e,

Where Y (t) = one-month average of daily changes in the S&P 500 at t, X (t-1) = one-month average of daily changes in REDGs at t-1, and e = errors.

(1) The Data

The RED Spread or REDS from 4/3/2012 to date.

Introduction

Market forecasts refer to market perspectives of unknown events, whether in the past, present, or future. It is the future that attracts most attention of investors because the practical purpose of the forecasts is to help make and improve investment decisions, which are forward looking.

Large econometric models which have many variables and various data are available for market forecasts, but a naïve single-variable model is introduced here. For stock-market forecasts, a simple model with a well-defined set of data can compete large model because stock prices and bond yields (and bond prices in the opposite direction), all of which are highly volatile, responsive to a continuous flow of rumors and headlines that affects expectations of investors. As a result, it is almost impossible predict the future movements of the stock market in a relatively short term, say, a time horizon of one to three months which are my primary target.

The purpose of this column is not to expect to provide any acceptable results of near-term market forecasts, but rather to attempt to test a naïve autoregressive equation with seven-day moving averages of changes in both the S&P 500 index and the RED Spread or the REDS. The REDS reflects all market activities - large and small - at the closing every day. They are unbiased and directly observed. Hence I have a strong confidence on this data set.

The REDS series just starts from April 3, 2012. After making changes and moving averages, the final input series begin May 2, 2012. Changes and moving averages made the original series less noisy, but still a year-on-year forecasting is better to eliminate further any remaining cyclical or seasonal components.

Hence, weekly one-month-ahead predictions will continue to be performed using the same starting data, May 2, 2012, until May 3, 2013. After that, the starting data will change to cover just one year. As the series lengthen, two-month and three-month predictions will be performed in the future.

The evaluation of predictions will be made by two criteria: (a) The Forecast Error Percentage (FEP) and (b) The Absolute Mean Error (AME). The FEP is for at one point at the target day while the AME is for 7-day forecasts.

At this time, I am not certain about the likely outcomes of this experiment. The only hope is this model with this innovative data set would shed some light in a very changeable area of predictions of the equity market with an explicit link with the bond market.

Background

The origin of The REDS went back to early 1980s when a paper was submitted to the American Economic Association [AEA] meeting in Montego Bay, Jamaica. The paper was to predict stock markets (the level of the S&P 500) by employing the NBER composite indexes which were compiled at the Center for International Business Cycles Research [CIBCR]. Since the S&P 500 is one of the components of the Composite Leading Index, the paper used the Composite Lagging Index inverted: The inverted Lagging index normally leads the Leading Index.

Last summer a science-oriented reader and I exchanged our views on whether the REDS can predict the market or not, as follows:

Reader - "Here are my predictions for today at closing based on your chart above RED REDS S&P 500 10Y T Yield 9/28/2012 52.8 5.0% 1445.99 1.665."

Author - "It is pretty difficult to grasp the relevance of your comment which perhaps is based upon a presumption that the RED and the RED Spread can forecast the closing prices of the S&P 500 and 10-year Treasuries. I wish your comment works, but unfortunately it cannot because economics (finance) is not an exact science."

Reader - "Still, I look forward to your post on Monday to see how far off I am and in what direction."

Author -- Yesterday (September 28) numbers were: RED = 52.*% RED Spread = 4.6% S&P 500 = 1,440.69 10-Y Treasury Yield = 1.64%...[A]ny economic forecast should be done with an explicit model…[W]e should build two equations as:

Y1 = a1X1 + b1X2 (1)

Y2 = a2X1 + b2X2 (2)

Where Y1 = the S&P 500, Y2 = the 10-Y Treasury yield, X1 = the RED, and X2 = the RED Spread. A further discussion along this line of thought is beyond of the scope of this article."

(From our comments on "The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swan?".)

The experimental work is to show my analysis to the reader (quoted above) and all other readers who might be interested in a short-term market forecast which is not seen on Seeking Alpha.

The Market Stress Index (MSI) (May 20, 2013, Monday)

This post is based on my article, titled "The Relationship Between A New "Market Stress Index (MSI)" And The Market" (seekingalpha.com/article/1187701

Three distinguishable political events - the 11/6/2012 election, the 12/31/2012 tax deal, and the 1/23/2013 House Debt-Limit-Extension bill --, as explained in my "A Lackluster Market Ahead As Budget Fight Is Looming" seekingalpha.com/article/1135161, are used to make the benchmark of the MSI.

Daily updates of the MSI indicate the level of market strains, caused by various outside data such as monetary and fiscal policies, political events, and other natural and geopolitical disruptions.

The market stress level has risen since Wednesday (February 6, 2013), affected by looming budget battles. The MSI has became in a low level, ranging 21.4 to 28.6 from 3/7 (Wednesday) to 3/14 (Thursday). From 3/15 (Friday) to 3/25 (Monday) the MSI jumped to a range between 42.9 and 50.0. These high MSIs reflect the Cyprus worries.

Between on 3/26 (Tuesday)and 4/9 (Tuesday) it was in a range between 35.7 and42.9. Between 4/10 (Wednesday) and 4/18 (Thursday) it was in a range of 28.6 and 21.4. On 4/19 (Friday) it was 35.7. On 4/22 (Monday) and 4/23 (Tuesday)it was 50.0. Between 4/24 (Wednesday) and 4/29 (Monday) it was 42.9. Between 4/30 (Tuesday) and 5/2 (Thursday) it was 50.0. On 5/3 (Friday) it was 57.1.

On 5/6 (Monday) and 5/7 (Tuesday) it was 50.0. On 5/8 (Wednesday) it was 57.1. On 5/9 (Thursday) it was 50.0. The market recovered from the Boston Incident, but the market stress is mounted with the market a double-bottom signal as shown in the Daily Market Condition (DMC) until 5/9 (Thursday..

On 5/10 (Friday) it was 35.7. On 5/13 (Monday) it was 28.6. On 5/14 it was 21.4. On 5/15 (Wednesday) it was 35.7. On 5/16 (Thursday) it was 42.9. On 5/17 (Friday) it was 35.9. On 5/20 (Monday) it is expected to fall to 28.6. Does the MPI calm down?