Author Archives: Leisa

Existentialist Market Warrior (by Leisa)

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Prologue:  This post puts together a few things that I have read (and in some cases written about) separately.  I wanted to put them together in a post. Seasoned investors/traders know this, but my focus is always the beginning investor/trader. Pardon the length.

Justin Mamis wrote that we all find our particular way of becoming a victim in the market. That is true in life as well but without the stark price tag. Think of one of your friends or colleagues who is wonderfully interesting and engaging—who everyday has something new and exciting to share with you. Sometimes your friend buys you lunch or drinks; sometimes your friend freeloads on your nickel. At other times, your friend brings you an unexpected gift; but jilts you on your birthday. Such a friend! Except, sometimes your friend arrives late or sometimes not at all. And sometimes your friend meets you and sucker punches you.

You withstand these breaches because your friend is so exciting to be with,  and the propensity for delight and surprise makes you willing to put up with a few indignities. Friends such as that, while fun and exciting, are unreliable. You might be hanging off the mountainside with a frayed rope, and your friend will be looking for a cold beer. Good luck with that! If you expect the market to be a friend to you, that is just the type of friend it will be.

The market was not created to keep your money safe in a happily hereinafter way. To be sure, there is an entire industry crafted around that very notion.  However the laws of money dynamics (speculation!!) do not work that way.  Not everyone can be a winner. While a rising tide lifts all boats, when the wind shifts, or worse, the tide goes out, your portfolio might feel like a dinghy traversing the Cape Horn passageway.

Approaching the market with the right mental model will go a long way toward keeping your feet planted on your road to discovering your inner market genius and keeping your eyes and ears tuned to speeding vehicles that might mow you down. That model conjures up visions of raccoons and skunks in search of pheromones and all they found was the tough, acrid love of speeding tire rubber (Looking for Mr. Goodyear).   It is a vision worth keeping in your head.

We could take our mental model many rungs higher, and craft a great existentialist view of market life and our place in it. Here are a few bulleted points from the website, All About Philosophy regarding existentialism's basic tenets:

  •  Human free will
  •  Human nature is chosen through life choices
  •  A person is best when struggling against their individual nature, fighting for life
  •  Decisions are not without stress and consequences
  •  There are things that are not rational
  •  Personal responsibility and discipline is crucial

Let’s220px-Musashi_ts_pic consider the third bullet: A person is best when struggling against their individual nature, fighting for life. That, my friend, is the essence of what I want to convey with great gravitas and import. That leaves us with a more concrete model of a great warrior. The warrior is the ultimate existentialist relying on his/her capabilities to face the rigors of the world–the rigors fo battle. We must first understand and conquer our own demons before moving to outward.  Gerald Loeb wrote the investment classic, The Battle for Investment Survival—one of those timeless books that warrant your time and attention: and such a battle it is! You must learn to not be a victim in this battle.

Consider approaching the the market as a warrior—and for a warrior to survive, s/he must be prepared physically and mentally. Miyamoto Musashi, pictured (click on image to learn more about Musashi from Wikipedia), was a Japanese swordsman in addition to a long list of other accomplishments:  author, artist, calligrapher, sculptor, teacher and finally, strategist. Go Rin No Sho, or The Book of Five Rings, is the work for which he is best known. I have a cork board by my desk. To it I have pinned the following nine underpinnings of Musashi’s philosophy cum success.
  • Think of what is right and true. 
  • Practice and cultivate the science. 
  • Become acquainted with the arts. 
  • Know the principles of the crafts.
  • Understand the harm and benefit in everything. 
  • Learn to see everything accurately.
  • Become aware of what is not obvious. 
  • Be careful even in small matters. 
  • Do not do anything useless.

The Book of Five Rings
Miyamoto Musashi
Translated by Thomas Cleary, 1993; 1997 Barnes & Noble Books

It is a slim little book in a number of incarnations, and I highly recommend it. The importance of these items in everyday life is self explanatory. A rich and informed life is a mosaic of understanding arts, the crafts and science and more importantly developing skill. That integration provides balance and promotes understanding. To do battle you must have skill and confidence. To be a strategist you must have the proper perspective (seeing things accurately—and becoming aware of what is not obvious). Being careful even in small matters and resisting engaging in useless tasks are the foundation of discipline and efficacious undertakings.

To succeed as a warrior you must meld strategy with mental and physical preparedness.  It is a practice–to inculcate these skills into life (thought and action). You might find this warrior metaphor a little odd. There is an aphorism, “there is nothing new under the sun”. That saying is true in market and non-market life. Using a warrior metaphor will help you remember that there are many skills that you need to bring to the battleground (market and non-market life).  Failing to see the parallel between market and non-market life means that you will bring to the market the same potential for victimhood as you do in your non-market life. Two other passages from this wonderful book are instructive:

Two essential elements of ancient martial and strategic traditions:

  • The first of these basic principles is keeping inwardly calm and clear even in the midst of violent chaos;
  • The second is not forgetting about the possibility of disorder in times order.
~~~~~

Harmony and disharmony in rhythm occur in every walk of life. It is imperative to distinguish carefully between the rhythms of flourishing and the rhythms of decline in every single thing.

 The last item that I would leave you with is something that I have found very useful when I find myself in a rhythm that is akin to running the market gauntlet. This passage is from Yagyu Munenori.  I often cite this passage when I see my on-line colleagues frustrated by market events or their own actions:

When fighting with enemies, if you get to feeling snarled up and are making no progress, you toss your mood away and think in your heart that you are starting everything anew. As you get the rhythm, you discern how to win. This is "becoming new."

The Book of Family Traditions on the Art of War Yagyu Munenori Translated by Thomas Cleary, 1993; 1997 Barnes & Noble Books

I hope this little post helps provide you with a model for crafting a mental model that works for you.  I hope that you find your rythm and harmony as a trader, and indeed, in your own life.

Weekly Sector Report | 02/04/11 (by Leisa)

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The bulls found their footing after stumbling the previous Friday. The broad market sector was up 2.75% Here's how the cylinders were firing on the markets' engine (click all images for enhanced viewing):

Moving to the industry level, here are the Top 10 Best/Worst performers:

The sharks are swimming in the current areas:

We close with the broad market index:

With this week's close, it has poked its price nose above the long volume bar that has previously acted as resistance. As usual, I have created a full report for you:

Weekly Sector Report | 01/28/11 (by Leisa)

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Such a day in the market on Friday!  The unrelenting march forward was stopped and then pushed back.  For the week, though, the change was merely a .35% decline.  However, looking at the sector/industry charts, you will note that that there has been some serious damage done to these charts.  Drilling down to individual stocks, the carnage is even more brutal.

We must be ever cognizant that market indices are like a house which goes up brick by brick.  For an index, the bricks are individual stocks and their collective performance.  An index house will eventually roll over once the sector bricks are weakened one by one–but that rolling over is through a successive failures in stocks/sectors. That is why topping is a process. And while the market tops over a period of months (e.g. Financial topped in Feb of 2007 (in fits and starts); Basic Resources topped a full 16 months later), they all seem to bottom at the same time, with October 2008 and March 2009 a collective double bottoming for every sector. I've been providing a view of the total stock market index. 

Let's take a look at that daily chart here (click all images for enhanced viewing):

As we can see by the volume@price bars, we have quite a bit of price memory here.  Note that the last peak is at the bottom of the bar which would offer the next range of support with some worrisome vacuum underneath. How did our sectors fare over the week?

Here are the top/bottom ten performers at the industry level (This is weekly only):

In days such as yesterday when all the world is going to hell (or seemingly so), spotting divergences is informative (for those of you that trade individual securities v. indices).  For those of you inclined that way, this weekend is a good time to review that information which you can do easily on FINVIZ (though I have prepared my usual report for you which you can find here):

  • Industry subsector performance: You can find the industry subsectors here. (sorted in best to worst).  If you like to see this information graphically, you can do so here.
  • Individual stock performance:  You can find individual issues here (sorted best to worst)–be sure to use the filtering tools to pull out thin capitalizations and low priced stocks–a graphical rendition is found here where you can see the sector + individual notables (the good, bad and the ugly).
  • Short interest change:  You can the change in short interest (in addition to the total short interest here.
  • Relative Volume:  Viewing sectors by relative volume can also be fruitful.  You can find that view here.

Let's see where the short interest changes are:

Whether we had a healthful consolidating pullback or something more will be determined with the passage of time. Many of the sector leaders (e.g. automobiles/parts) have been weakening over the past couple of weeks. Price action has moved ahead of the news. News is now coming out that informs the correctness of the market's anticipation of future events.

The market by its nature is anticipatory; however, we should always remember that its crystal ball is cloudy. It does act decisively when its expectations are not met. We should as well. I wish you good trading for next week, and I hope that that you find some use from this week's report.

Weekly Sector Report | 01/21/11 (by Leisa)

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The week saw the broad market index decline 1.05%. Only two sectors, media (+1.3%) and utilities (+.42%), were positive. Here is the weekly profile on the sectors (click all images for enhanced viewing):

For the subsectors, here is a graphic of the top/bottom performers.  GE led the Diversified Industrials with a 4.9% change for the week:

This week short interest changes were reported. Familiar sectors are still on the top 10 list.  I am also including for you the top absolute % changes in short interest so that you can see where the bears are increasing their holdings.

As is usual, I have prepared for you a chart book.  I have a lagniappe for you!  I included chart thumbnails for the 148 subsectors as well as the 24 sectors (in addition to the detailed weekly/daily charts).  Sometimes the bird's eye view helps build perspective.  You can find the chart book here.

And finally, I will close with the chart of the total stock market index–both daily and weekly. First the daily, then the weekly. 

The weekly chart (2nd chart) shows no damage to the trend lines, and the daily chart is showing some bumping against its trend lines.  (Note that a 13 EMA on a weekly chart is a 13 week EMA, while on a daily chart it is a 13 day EMA). I hope you find this information and the weekly chart book download helpful to your due diligence efforts.

(Source:  http://theperplexedinvestor.blogspot.com/)

Weekly Sector Report | 01/14/11 (by Leisa)

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The broad market advanced .73%.  Much is being made of how January starts as a great prognosticator for the balance of the year.  Statistics for the first week in January and what that bodes for the entire market abound, along with analogs, ideologues and all manner of other 'stuff'.  History repeats, rhymes, and more often reminds that we never step into the same river twice, but most times our feet will get wet, sometimes the river has run dry and sometimes we just might drown.  I find that to be a useful mental model as an antidote for over generalizations and wild prognostications.

Here is how the major sectors performed (click on all images for enhanced viewing):

From the subsectors, here is a view of the best/worst performing areas:

I have created a chart book for you which you can find here. Asset Managers is the second best subsector.  Let's take a look at the sector chart:

 There are many constructive charts in this space (so long as the market remains hospitable!).  I created a chart book for you for the names in this space for those interested.  You can find it here.

Let's close with looking at the broad market chart. I'm including both a weekly and a daily chart.

The weekly chart remains in the overbought area.  On the daily chart, the daily is making a new high without the oscillator–a bit of negative divergence. As you can see from the broad sectors, money is moving into new sector leadership…and so long as this broad index moves up, that also denotes new money coming in.

I wish you good trading this week.

Weekly Sector Report | 01/07/11 (by Leisa)

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The first week of the new year saw the broad market index advance 1.05%, and some big winners and losers among the sectors.  Let's take a look (click on images for enhanced viewing):

Automobiles and Parts was the big sector winner.  GM (+5.75%) and F (+8.8%) were big contributors along with  LEA (+7.18%) and MGA (14.83%).  HOWEVER, the auto parts stores had a drag of a week. Big sector losers were Gold Miners and Platinum and precious metals–largely a reaction to the USD's strength.  Here are the top/bottom performers (using sub-sectors):

Home Construction experienced a surge with KBH's good news.  This sector is heavily shorted and the bears got caught with their hands in the honey jar.  I created a chart book for you with the short interest and the weekly charts.

Let's take a look at the broad market index:

There is some negative divergence between the oscillator and the price action; however, the daily chart is not extended relative to the trend line.  Earnings will be coming out soon and will feed the charts with new information.  As we know, it is not the news, but the market's reaction to news that is instructive.

For your weekly research, I've prepared a chart book for you on the major sectors as well as some weekly change in price and short interest on subsectors. You may download it here (9.1mb).

Disclosure:  I have no positions in any stocks mentioned.

Weekly Sector Report | 12/31/10 (by Leisa)

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The last week of the year saw the broad market index eek out a .03% increase. However, we know that the action is in the sectors, so let's see which cylinders are firing in the market's motor (click on all images for enhanced viewing):

Basic Resources, Oil and Gas and Telecommunications were the winners.  Healthcare, Personal and Household Goods and Travel and Leisure were the losers for the week.  Taking a look at subsectors, here are the 10 top/bottom performers:

I was interested in the Mobile Telecommunications sector's performance.  There are some interesting chart set ups in that sub-sector.  I created a chart book for you with the Communications Equipment tickers which you can find here . You can also visit FINVIZ to get a deeper profile for the names in this sector by clicking here.

Short Interest:  Here are the sub-sectors with the highest short interest.  Note that short interest is updated 2x per month.

To close, I want to present a chart of DWCF, which is the Dow Jones Total Stock Market Index…it includes all US listed stocks that have a readily available quote.  You can see a linkable version of this chart here

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I created a chart book for you, which you can access here.

Best wishes for the New Year!