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Ted Kavadas
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I believe that our economic situation is vastly misunderstood. The future adverse consequences of this misunderstanding can not be understated. It is for this reason that I write about our economic condition, with a focus toward (economic) Sustainable Prosperity and the future economic condition... More
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  • The Stock Market - Technical And Sentiment Measures Indicating Excess
    In this post I would like to highlight various areas which I believe indicate excessively positive sentiment and problematical technical analysis measures in the stock market.

    While the full list is extensive, I believe the list below represents a "sample" of how there is a high level of "frothiness" and other excess in the markets, which is a dangerous condition.

    The stock market, as well as other financial markets, have been on a "tear" since the October 4 low of 1074.77 on the S&P500. This price action has been especially frenetic since the start of 2012. This is illustrated in a 1-year daily chart of the stock market :

    (click on chart to enlarge image)(chart courtesy of; chart creation and annotation by the author)

    One item that stands out is the large spread between the VIX and VIX Futures. As of this morning, the VIX stood at 17.80, while the March VIX futures were at 20.55, the June VIX futures were at 25.10, and the August futures were at 26.50. This spread is outsized and is one "red flag."

    I have in the past commented upon the VIX level of 20 as being significant in itself, and it continues to be an important demarcation.

    Additionally, the site had various statistics of note in the Friday evening comments of last week. As seen in that note, the list of extremes that were bearish (i.e. skewed too highly bullish) for the market was very extensive, with 31 listed. This high imbalance of indicators has been persistent since roughly mid-December.

    In the comments, I found these to be especially notable :

    An index that looks at various methods of hedging shows that there is very little of it going on. The Equity Hedging Index has dropped to one of the lowest levels in a decade.
    Commercial hedgers in stock index futures have gone net short several major indexes to nearly the largest degree in nine years.
    A surge in buying pressure today took the short-termIntraday Cumulative TICK for the Nasdaq to its 2nd-highest reading in 5 years. The highest was +11800 on 10/27/11 (the Nasdaq corrected over the next few weeks).
    Another measure that is highly extended is the percentage of NYSE stocks above their 50-day moving average (at 89.32 as of Friday's close).

    Other notable aspect includes the steep trajectory of the QQQ in 2012 (from the 2011 close of 55.83 to 61.93 currently), as well as the continuing trend of "hot" tech stock IPOs being launched at (at least) 10x revenues and very high earnings multiples.

    While these extremes can persist and in some cases have persisted, for a while, they usually serve as a warning sign. These excessive sentiment and worrisome technical analysis indicators constitute a subset of what I have written concerning the building level of financial danger.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 07 6:01 PM | Link | Comment!
  • Stock Market Volatility And Its Significance
    This post is an update to recent posts that began on October 6 ("A Chart Of Recent S&P500 Price Volatility") on stock market volatility.
    While I track many different measures of volatility, I find the following chart to be both simple and clear in depicting the recent outsized volatility in the stock market.
    This chart depicts the S&P500 in 60 minute intervals from July 20 through yesterday’s (December 5) close.  As such, it encompasses the progression of the stock market since its July 25 daily high of 1344.32:
    (click on chart to enlarge image)(chart courtesy of
    The blue line is a 50-period moving average.  The light blue circle represents a period of reduced price fluctuations.
    I continue to believe that this volatility is notable and has important implications.
    As I wrote in the above-referenced October 6 post:
    What I find notable is the frequency and extent of the price volatility.  As one can see, there have been several episodes of advances and declines of roughly 80-100+ points in rapid fashion – some even happening over the course of a few days.
    While there are various ways to interpret such volatility, my overall belief is that such is (yet another) cautionary sign.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 07 8:52 AM | Link | Comment!
  • Deflationary Forces - Gold's Achilles' Heel?
    In my April 27 post ("Reasons Behind Gold's Ascent") I outlined a variety of factors that I believed were driving Gold's advance.

    Point #4 on the list was " expectation of high future inflation."

    It should be also noted that the inverse of this condition - an expectation of deflation - can serve to depress Gold's price.

    This is particularly noteworthy at present, as Gold has recently been in a correction after a very steep rally.  I am very closely monitoring Gold as I believe a steep, abnormal correction could serve to (further) indicate deflationary pressures - which of course would have outsized impacts on financial markets, the economy, and economic policy (particularly QE3 or some other large intervention.)

    For reference, here is the daily Gold price chart since 2008, updated through yesterday, shown on a LOG scale with both the 50dma  and 200dma lines as indicated and a solid blue trendline shown since early 2009:

    (click on chart to enlarge image)(chart courtesy of; annotations by the author)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Oct 14 11:14 AM | Link | Comment!
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