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Nasser Khraishi
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I hold a PhD in Electrical Engineering (Control Theory) from Stanford University and a Masters Degree in Engineering-Economic Systems (now called Management Science and Engineering at Stanford). I have been fascinated by the stock market since I was 14 (that is 37 years ago at writing). It has... More
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Quantitative Finance
  • Weekly Perspective October 19, 2013 0 comments
    Oct 19, 2013 8:42 AM

    The week passed and the financial world did not end. As we stated in our previous post, it is not clear that anyone in the Administration, House or Senate would be suicidal enough to cause a catastrophic result they will be remembered with for generations to come, a la Herbert Hoover.

    Yes, it is a random world, and the possibility was not nil, but the worst that could have happened is that the Congress would not have approved anything, then ability to borrow openly would have ended. What would have followed is one of three things for the Administration: either borrow covertly, which they do have tools to do. Or not borrow, but finance debt, which means cutting funding for programs of their choice, and most probably that would mean programs in Republican areas or ones favored by Republicans. Or, default, which the Administration knows that everyone understands it was a political choice, given the two previous available choices, and hence they will be squarely blamed for it. That is, if you want to look at it from a game theoretic point of view, the best strategy for the Administration would have been to actually let the Republicans not increase the debt limit, and not fund the Government, but actually continue to finance debt, recycle expiring debt, and let the pain flow to Republican strongholds and programs of choice. Actually, from political brinkmanship point of view that would have been a better outcome for the Democrats than the agreement that did happen. I am still amazed that all the intellects in the Republican camp did not see that coming. Just for the record, I am registered as neither Democrat nor Republican.

    Enough game-theoretic analysis of politics and back to the market. Our concerns were not alleviated by the temporary pullback. The DJIA was the only index of the three we follow to show healthy retraction. It seems that the indices are intent on continuing the strong showing of the past few months with any serious correction being adjourned, to a possible crash. The weekly index charts (SPX, DJIA, COMP) indicate that, with all the hype, the action of the last couple of weeks was less significant than what we saw in May and August. Effectively, everybody understood that the politicians were bluffing.

    The equity indices charts are still showing healthy OBV and MF patterns for both the daily and weekly charts. The weekly money flow actual statistics are confirming that.

    As for bond yields (TNX & TYX), both continued their pullback from the recent highs, despite the overall upward trend. Interestingly, Gold prices are still showing topping-off signs, as they continued their downward march, despite the apparent rise.

    We hope to get fresh data (NYSEARCA:CPI) now that the government shutdown is over. The Federal Reserve Balance sheet history continued its upward march from $3,758,663 million on October 9, 2013 to $3,813,599 on October 16, clearly not abating.

    I still believe that bond rates and Gold should revert to their (up-trending for rates, down-trending for Gold) longer moving averages in the coming weeks, as they are continuing their slow zigzagging journeys (upwards for rates, and downwards for Gold).

    My usual tables follow. This is as of the end-of-day October 18, 2013.

    Index/ETF Symbol and Name Daily 3-EMA-7 Weekly 3-EMA-7   Perceived Trend  
    SPX S&P 500 Index Up Up   Positive  
    DJIA Dow Jones Industrial Average Up Up   Positive  
    COMP NASDAQ Composite Index Up Up   Positive  
    GLD SPDR Gold Trust ETF Down Down   Neutral  
    VIX CBOE Volatility Index Neutral Neutral   Negative  
    TNX CBOE 10 Year Treasury Note Yield Index Down Up   Negative  
    TYX CBOE 30 Year Treasury Bond Yield Index Down Up   Negative  

    Important to note that TNX and TYX move in the opposite direction of the underlying treasuries (Positive for Yield is Negative for Bond price).

    The usual per equity tables are below. My oscillator of assigning a +1 for a Positive Perceived Trend, -1 for Negative, and 0 for Neutral had a reading of 24 at the end of the week (38 is the maximum possible). Noting that its worst score was -30 the week before, underscoring the enormous shift in sentiment over the course of a few days. The previous high score was 28 on September 18. Given the lack of conviction in a correction, as indicated by the indices, it seems that most of the action was carried out by momentum players seeking to make a profit out of the uncertainty rather than systematic institutional position taking/dumping.

    Symbol and Company Name Daily 3-EMA-7 Weekly 3-EMA-7   Perceived Trend   Is a Current Holding?
    jcp JC Penney Company, Inc. Down Down   Negative    
    jpm JPMorgan Chase & Co. Up Up   Positive   Yes
    gs The Goldman Sachs Group, Inc. Neutral Up   Neutral    
    nly Annaly Capital Management, Inc. Up Down   Positive   Yes
    mo Altria Group, Inc. Up Neutral   Positive    
    t AT&T Inc. Neutral Down   Positive   Yes
    vz Verizon Communications Inc. Up Down   Positive   Yes
    gps The Gap, Inc. Down Down   Negative    
    anf Abercrombie and Fitch Co. Down Down   Neutral   Yes
    jwn Nordstrom, Inc. Up Neutral   Positive   Yes
    dis The Walt Disney Company Up UP   Positive   Yes
    mcd McDonald's Corp. Down Down   Neutral    
    mdlz Mondelez International, Inc. Up Up   Positive    
    ba The Boeing Company Up Up   Positive    
    lmt Lockheed Martin Corporation Up Up   Positive   Yes
    cat Caterpillar Inc. Up Neutral   Positive    
    de Deere & Company Up Neutral   Positive    
    emr Emerson Electric Co. Up Up   Positive    
    dow Dow Chemical Co. Up Up   Positive    
    adm Archer, Daniels, Midland, Co. Up Up   Positive   Yes
    mon Monsanto, Co. Up Up   Neutral    
    pot Potash Corp. of Saskatchewan Inc. Neutral Down   Neutral   Yes
    pfe Pfizer Inc. Up Up   Positive   Yes
    bmy Bristol-Myers Squibb Company Up Up   Positive    
    abc AmerisourceBergen Corporation Up Up   Positive    
    aapl Apple, Inc. Up Up   Positive   Yes
    intc Intel Corporation Up Up   Positive   Yes
    csco Cisco Systems, Inc. Down Neutral   Negative    
    hpq Hewlett-Packard Company Up Neutral   Positive   Yes
    cvx Chevron Corporation Down Neutral   Neutral    
    bp BP plc Up Neutral   Positive   Yes
    ngg National Grid plc Up Up   Positive   Yes
    ni NiSource, Inc. Up Up   Positive    
    wmb Williams Companies, Inc. Neutral Up   Neutral   Yes
    wm Waste Management, Inc. Up Up   Positive    
    cnw Con-way Inc. Up Up   Positive   Yes
    csx CSX Corp. Neutral Up   Neutral   Yes
    nsc Norfolk Southern Corp. Up Up   Positive    

    IMPORTANT DISCLAIMER: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.

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