Sometimes A Beam Can Be A Diamond

Written By: DragonFly Capital

This is not about Jewelry. Nor is it about commercial construction. It is about liquor. Specifically Beam, $ BEAM, the makers of Jim Beam Bourbon. This stock has been in the news a bit lately for diluting down their premier product. But with that water under the bridge, there is an interesting phenomenon occurring in the chart. A Diamond Pattern has formed and is about to break down. This rare pattern can resolve either up or down, but is better known as a Diamond Top and that is what it is showing today. The target out of the pattern is a retracement of the move into the pattern,


and that is why it is interesting. A drop all the way back to 53 would be quite a short trade. Don’t believe in the patterns and want some quantitative support? Fine, the Relative Strength Index (RSI) and the Moving Average Convergence Divergence indicator (MACD), both measures of momentum are both pointing lower. The MACD has been out in front leading the way since the initial run up. A move under the 100 and 200 day Simple Moving Averages (SMA) below 58.95 seals the deal lower and can be used as a short entry. Hmmm, I am getting thirsty.

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Dragonfly Capital Views Performance Through February 2013 Expiry

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What it Takes to Get a Mortgage These Days

by Mike Kimel

What it Takes to Get a Mortgage These Days

About six months ago I got a job that required relocation. To make a long story short, we just purchased a new home. As part of the process, the lenders required a lot of paperwork. Not a surprise. But some of the paperwork was surprising. For example, they wanted a signed letter explaining a deposit in the amount of 0.05% of the amount of the loan, made prior to the sellers and ourselves agreeing to the sale of the house. One half of one percent. I can understand getting suspicious if we made an unexplained deposit equal to, say,
ten percent or so of the amount of the loan, but 5% of 1% of the loan?
And it wasn’t the only senseless thing we had to provide.

I worry about this means – it means the lenders probably aren’t concerned about important things that they should be concerned about. That didn’t work out so well the last time.

Angry Bear

Algos: Observations & Strategies

Organizations running computer algorithms are highly secretive, which means we’ll have to wait for a tattletale book before learning the dark mysteries of the quant universe. However, traders have a powerful tool at their disposal that let’s them deconstruct these black boxes and formulate sympathetic strategies. It’s called tape reading. Indeed, in the market’s long […]

The Dollar Index is Waking Up

Written By: DragonFly Capital

The US Dollar Index ($ DX_F, $ UUP) has been asleep for many of the crises that have been happening over the last six months moving in a narrow 3 point range between 78.60 and 81.45. But this week it seems to be awakening from its long slumber and going batty. Quite illustratively Batty. As in following a Bearish Bat Harmonic Pattern. As laid out on the chart below, the Dollar Index has a Potential Reversal Zone (PRZ) between 83.21 and 83.47 for the Bat Harmonic Pattern. The move that has taken it this far, breaking above the previous zone, has also coincided with a pullback in

usd w

the stock markets, so pay attention. Another 2 points higher could make the stock market a bit dicey in the short run and deliver that 3-5% pullback in the S&P 500 that everyone is looking for. The Bat also coincides with the view that the equity pullback will be short lived and then a rebound will occur. The initial target for the reversal lower from the Bat takes it back to 80.70 and then 78.60. That would be good for Equities. This Pattern fits the scenario that nearly every trader and analyst is looking for. Kind of freaky isn’t it? What could derail it? If you look at the daily chart below the extended neckline of the Inverse Head and Shoulders pattern that triggered last May is back in the picture as resistance. A move through that level gives the Bat target more confidence.

usd d

Oh, one more thing. I said earlier that the Bat covers the scenario that nearly every trader and analyst is looking for, a short pullback. If you look to the upper right of that chart the pink ball gives an alternative view. In fact this pattern could also be a Bearish Crab if it extends beyond the Bat target. The Crab has a PRZ at 87.50, in that ball. And that blue line, is the extended support line going back to September 2011. If the Dollar Index gets that high then the deep correction that the rest of the pack is looking for could be seen.

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What do we get 40 percent more of from the federal government compared to 2007?

A friend sent me this editorial cartoon showing the federal budget and proposed $ 85 billion “sequestration” put into perspective with a pie illustration. I think it a fun data visualization exercise, but when I looked a bit deeper I became skeptical. The cartoon shows federal spending as having grown 40 percent since 2007, from $ 2.7 trillion to $ 3.8 trillion. That did not seem credible but it is backed up by

What is it that we’re getting 40 percent more of?

[Related: my own attempt to make federal budget numbers comprehensible by dividing by 10 to the 8th power (April 2011). This analysis caught the public imagination and appeared in a bunch of magazines and Web sites, usually with the original source long forgotten.]

Philip Greenspun’s Weblog

Video Review of the Indexes 10-28-2012

Here’s a rundown of the major averages as they currently stand, along with the key levels they’re dealing with as we head into a brand new week of trading. This is where the trading week starts, knowing the impact the indexes will have on how individual names move.

Run time is 5:45.

(Direct video link is here for those interested in embedding it elsewhere to share).

Trade Like a Bandit!

Jeff White
Take a trial to our Stock Pick Service to get our trades.

The rest of the dinner table deficit/debt discussion: Equity

I promise, there are numbers here, but
lets have some fun first and write a screen play to set up the point. It is long,

“Dear, I’m getting nervous. We
seem to keep adding to how much money we owe and our income hasn’t
changed for the better. What can we do?”
At this point of the conversation, the
conservative ideology (Republican and Democratic Parties) suggests and
encourages you to believe that the answer is something like: “Well Honey, as I look over the horizon I see no possibility for improving
our current position. The only thing we can do is cut back on our
spending. We have to stop spending on anything we don’t need to
live. If we are willing to sacrifice then eventually we’ll have
savings that we can then use to invest such that we have more
Now, for most Americans at this moment
in the euphemistically labeled “business cycle” Honey’s
response would be: “But I don’t know where else we can cut!”
Of course to the conservative there is always something that money
is being spent on that is in actuality an indulgence for which one
should repent and thus cut from their spending if said spending is
greater than one’s income. This is true because no righteous
individual would ever let the devil of consumption tempt them from
the path to wealth heaven. Redeem one’s self through the power of
restraint of consumption urges.

There are multiple things wrong with
such a screenplay. For instance, I’ve noted in the past that we
really do not need banks. You and I could do everything we want
without a bank. I could build a business even, without a bank.
Granted I could not build it as big and as fast as with working with
a bank, but I could build one. What the bank does is allow one to
borrow against the future. Lending allows the acceleration of the
experience and results of the movement of money. Certainly that
acceleration can result in a loss just as easily as a win, but then
that is why we have all sorts of experts in money that can help one
make the better odds beating decision such that the acceleration
produces a win.  Dear is corrected in that they could do cuts and save and then take the next step.  It was Howard Prescott’s approach.
We’re talking about lending here.
Borrowing money. It is accepted within that part of the conservative
ideology which focuses on the concept of money that lending and
borrowing are a given. It is an indisputable fact that such activity
exists, is righteous and good. It is as much a part of the reality
of life as oxygen is. It is a fact of nature. Nothing could ever be
fully realized without lending and borrowing. Nothing! Thus banks
are a necessity for life it’s self. So I hear.
Lending and borrowing is so much a part
of nature that nature is currently ill and struggling because lending
is not happening. Business can’t get loans and thus expand resulting in job creation.  At least that is what I have been told.
Businesses can’t get loans and expand
and hire. Think about that statement and let’s change the
screenplay. “Dear, I’m worried we are missing an opportunity
here. You know our income is not changing and we are adding debt.
If you would just let me borrow some money I could hire someone to
help me around the house and buy the tickets to that ‘How to make
money in real estate’ seminar. We could apply that knowledge and
within a few years be making more money.”

Maybe you don’t think spending money on
“How to make money in real estate” is the smart move, but is the
proper natural answer to say: “Honey, you know we have to cut
back on our spending and wait until we have saved enough to implement
your plan.” ?
Is the proper natural answer to tell someone to
wait until they have saved their money before they decide to get an
education? If your business is auto repair, is the proper answer to tell
someone to wait until they have saved their money before they buy the
tools needed for fixing cars? Would RI have been able to implement
their emissions testing which required the purchase of dynos by the
garages if the answer was: Wait until you have saved the money to buy
the dyno?
Of course not. So this gets to one
reason why the conservative concept, government borrowing is the
wrong course of action, is it’s self so wrong never mind completely
blasphemous according to their ideology. It is also why, when conservatives are in charge they do not cut and save.  They spend and borrow.  It is natural.
Let’s take Honey’s and Dear’s
screenplay a little further. “But Dear, right now the rates
are very low, lower than our mortgage. Also, the equity we have in
the house is about 86%. I’ve consulted with the accountant,
your friend the business consultant, listened to CNBC, Fox Business
and interviewed others regarding ‘How to make money in real estate’.
They all agree, my plan is doable and appears sound. If we just take
about 15% of the equity, invest it in our knowledge and then apply
the knowledge we will be doing better.”
We are now at the stickler of our dear
conservative’s answer. “… I see no possibility for improving
our current position…”. This is the part of the answer one
has to believe in if you are to accept that the solution is only to
cut and save. This is the part of the answer that completely will
not fit, will make you choke, will make you stumble when considering
any other scenario related to the dear conservative’s understanding
of nature. Lending and borrowing is natural, righteous and good.
Do you want to make the banks extinct in nature? If the answer is to
“cut and save” then that is the implied desired results if
we are to believe “I see no possibility for improving our
current position”. Go ahead, try to gel the two concepts. Try
to make your brain hold “I see no possibility, we must cut and
save” and “lending and borrowing are natural, righteous and
good” at the same time.
I ask you, be honest. Which screenplay
seems the more likely for Honey and Dear as they sit around the
table. Is it the one where they only cut spending or the one where a
plan is laid out and they go to the bank so that they can accelerate
the implementation and thus achieve the benefits sooner?  Which plan has the greater potential gain?  And, which
one would be considered adding to the nations GDP? Are the vast
majority of the 99% really just sitting back and accepting their lot
or are they actually trying to plan and implement the plan? The
simple fact that GDP is growing confirms the latter.
Here is the next thing wrong with the
first screenplay but correct about the rewritten screenplay: equity.
At no time is the conservative
(Republican or Democratic Party) using that word. Have your heard
anyone talk about the nations equity? Its assets worth… net worth?
Even by those who know we need to spend (the freshwater
Keynes minded economists) I have not seen it mentioned as part of why we could
borrow without fear. Borrowing is always justified with the rates are
low, it would create jobs and grow the economy. Of course with the
subscript caution note of maybe inflation in the future.
OK, everyone gets that part. Honey got
that part. But, Honey understood it further: equity. Hell, the
reason we had the real estate bubble is because the masses understood
equity. The righteous and good and natural banks pulled a Monsanto
genetic manipulation and turned it into a retail product removing it
from it’s natural environment and contaminated everything but, that’s
another story.
Assets. Tangible or otherwise.
Currently the entire discussion regarding our debt and deficit are
all done based on income. The numbers look huge.  $ 16.5 trillion in
debt.  Deficits to add to the debt in the trillions and only $ 14
trillion per year to try to pay for it all. 
First, lets get Honey and Dear’s
situation straight.  There is a very large chance as with you and I
that their annual income did not and was in fact much less than the
value of the house they purchased. Second, there are a vast majority
of people who have, over 20 plus or minus years have paid off that
house or are getting close to doing so with an annual income that is
still multiples less than the value of the house. Get it? At the
same time, that less than the value of the house annual income
probably purchased some home improvements adding to the value of the
assets? The income probably purchased some education, adding to the
value of the assets? The income probably purchased some happy time,
assuring the value of the knowledge assets? That less than the value
of the house annual income has created assets over time worth more
than the annual income. Multiples more. But, and lastly there is
one major difference between Honey and Dear and We the People nation.
The nation never will retire. Think about it for a moment.
I have been thinking about the problem
with the use of the dinner table discussion as a vehicle for
explaining the drive toward deficit reduction. I know the government
is the counter force to all that the private sector does in an
economy. I know about the World Banks report on intangible assets
and our wealth creation. I have noted the 1% income was rising
faster than our GDP. How long do you think that could/can go on,
talk about dinner table discussion!  However, the public is in tune
with the idea of dinner table discussions and the idea of cutting back to make
ends meet at this moment in the “business cycle”. So what was
The public knows you can’t spend more
than you have at ever greater rates. I venture that the small
business person knows you can’t take money out of the business faster
than you can make it too. So, to try to convince them that deficit
spending is the correct approach becomes the metaphor of spitting
into the wind.
What was missing from the dinner table
discussion was the word “equity”. Honey mentioned equity and the
entire conversation took on an entirely different perspective. So,
US equity? What is the value of our assets? What is our equity?
Have we mortgaged so much of the equity that we can’t take advantage
of nature and borrow? Of course, if this were the pre-recession
period for sure the answer would be no. In fact, we would be able to
borrow over 100% with no money down and no income check.  But, We the People have learned
even if banking has not.
I went looking for equity numbers and found this article:
Total Assets of the U.S. Economy $ 188 Trillion
The best source of asset market, or
balance sheet, information we have today is the document Z1: Flow of
Funds of the United States produced after the end of each quarter by
the army of economists working at the Federal Reserve Board.
One way to do it is to add up the
numbers that we do know. I have done so in line 13. We know there are
$ 141,512 billion in financial assets. We know that just three of
those sectors own $ 46,301 billion in tangible assets. Adding those
two numbers together produces a (reported) total asset number of
$ 187,813 billion…
I’m not going to argue with or for this
persons approach to the calculation. There are some very good
comments there regarding how to calculate the number. One person suggested this method:
A reasonable tack to estimate the
networth of the nation is to use our traditional financial technique
of discounting the future predictable cash flows, using a ‘elected’
rate for discounting the cash flows….So using this DCF discipline,
we can posit that our net worth is about $ 234T.
My first house in 1988 was purchased based on this method.  I had $ 60K in the bank but, based on my income, presto…I was now worth $ 250K.  I was smart and only bought the house I knew I could afford, not what my new found wealth suggested.

At Wikipedia I learned that in 2008 the
UN put our value at $ 118 trillion.

This is quit the range. $ 118 to $ 234
Let’s rewrite the screenplay now. Honey
convinced Dear that they should borrow the money so now they are
talking to the bank. 
Natural Bank: “Hello Dear and Honey, how may
I help you?”
Honey responds “Well, we need some
money. Currently our income is $ 14 trillion dollars and our debt is
about $ 16.5 trillion and we are getting a little behind. However, we
have a plan to borrow some money and use it to improver our income
flow. Here is our business plan”.
Natural Bank: “Well my quick read of
your cover page looks promising, but I will need to let the
department study it further. In the meantime, what are your assets
worth, do you have any equity?”
Honey responds: “Yes, based on the
latest evaluations for property tax purposes our equity
conservatively measured is $ 118 trillion but based on income flows as
high as $ 234 trillion. We like to use our own data tables from our
accounting software and thus come up with $ 188 trillion”.
Natural Banker: “My, if this is true then
certainly there is room to work with you. How much were you
considering to borrow?  We don’t get many potential clients such as yourself.  I think we can give you a special rate too!”
Kind of changes the ending of the
dinner table discussion doesn’t it? Honey and Dear have a debt that
is between 7% of equity and 14% of equity. Natural Bank is normally
willing to go 75% of equity. That gives us somewhere between $ 88.5
trillion and $ 175.5 trillion to invest in ourself. That is money
right now we could put to work that, as every Honey and Dear
including Honey and Dear Small Business knows, if they invest it with
an eye on improving their life, their income from the increased value
of the assets will more than pay for the loan. Also, the investment
can only further improve the equity thus reducing the debt to equity
ratio. We’ll ignore inflation’s effect on debt. This also ignores
the fact that Dear and Honey are collecting rents from some of their
assets that are well below historical market rates. They were doing
some of their friends a favor, unfortunately at their personal
There is one more thing. As noted the nation
will never retire. There is no time in the life of the nation,
unlike Honey and Dear where it will not work to produce income.
Never. That means there is no time in the life of the nation where
it will need to rely on savings to pay it’s bills.   In fact, if the
nation decided to do this, it would die. Kind of like parts of
Europe currently.
What do you think? Are you going to be
the Dear that tells Honey “forget it”, just cut your spending until
you can save the money?
I think if you do, Honey is going to tell you
where to go. In fact, I believe Honey has been telling Dear where to
go for a while based on the polls. “If only you would just listen
to me for once!”

Angry Bear

STTG Market Recap Feb 22, 2013

As was mentioned yesterday, after the two days of selling the next few sessions would be tricky – indeed that proved true.   Once again, just as with the late December action, the S&P 500 broke below its ascending channel but shortly thereafter jumped right back into it, confounding bears.   This time it was just a 1 day trip and it took a lot of buying pressure late in the day for this to be achieved.  Investors walked in to a gap up open as comments from various Federal Reserve officials were leaked to the press (along with one very publicly on CNBC) essentially refuting the minutes from the central bank released mid week.  The message they wanted to send was we are here and will have easy money for you for a long time, you need not worry.  The long term effects of this continuous hand holding of the market are going to be bad, but in the short run this is the only thing that speculators wants to hear.  And the market reacted as it typically did.  The S&P 500 gained 0.88% and the NASDAQ 0.97%.  There was no general theme today, a lot of the worst hit stocks bounced the largest amount as they were short term oversold.

Here are the two index charts – you can see the breakdown and then reversal noted above in the S&P 500 below.  If this can hold over the next few sessions it might be back to business as usual, and this long national nightmare (a 2 day selloff) will be forgotten.

The NASDAQ bounced back as well, but as has been the theme throughout 2013 its chart is nowhere as near as attractive as the S&P 500.

One divergence in the theme this weak is the rotation out of aggressive sectors – which had been mostly leading this year – and into safe sectors.  The two best areas were consumer staples (i.e. items you need to buy like toilet paper and diaper makers), and utilities.  These are not usually hallmarks of bull market runs.   If this continues next week and the indexes still rally it will raise some eyebrows.

Strangely commodities have been almost nowhere to be found in this rally of 2013.  Oil has been a stagnant actor while gold and silver have been acting very poor.  Copper acted well until this week when it rolled over and another group – the soft commodities, namely agriculture – have been awful.

The leading fertilizer stocks have followed suit – you can see very poor action out of Agrium (AGU) and Mosaic (MOS).   This marks very different action than you usually see with such names during a “risk on” rally.

There are also some mines out there in the consumer space – after the Walmart leaked memo mid week, and a warning by Burger King on the weakened consumer, we saw lowered guidance today by teen retailer Abercrombie & Fitch (ANF).  But thus far the market has mostly been in hear no evil, see no evil mode.  This is starting to become enough companies that it is a pattern.

Abercrombie & Fitch Co. (ANF) declined the most in five months after the teen retailer forecast a loss for the first quarter, citing concern about the weak economy’s impact on sales.   Abercrombie said it anticipates a “slight” loss in earnings per share in the first quarter compared with a 25-cent loss last year, citing a tough economy and difficulty tied to cold-weather inventory.

Next week will be a very busy one as the market makes up its mind if it will soon forget the mid week selloff.  Bernanke testifies to Congress for 2 days (investors will only want to hear “hi we are from the pseudo government and we are here to print money”) and a flurry of economic data will be released late in the week, both in the U.S. and overseas.  Expect volatility to remain high.

Original post: STTG Market Recap Feb 22, 2013

Stock Trading To Go

SPY Trends and Influencers February 23, 2013

Written By: DragonFly Capital

Last week’s review of the macro market indicators suggested, heading into the Presidents Day shortened week Gold ($ GLD) looked to continue lower toward the bottom of the long term channel as Crude Oil ($ USO) consolidated in the move higher. The US Dollar Index ($ UUP) looked to continue towards a test of the top of a broad consolidation with US Treasuries ($ TLT) consolidating but biased lower. The Shanghai Composite ($ SSEC) was biased to the upside and Emerging Markets ($ EEM) were biased to the downside short term in their rising trend. Volatility ($ VIX) continued to look to be no factor creating an environment for the equity index ETF’s $ SPY, $ IWM and $ QQQ, to move higher. Their charts agreed, all with a bias higher, with the IWM strongest followed by the SPY and then the QQQ. A hard reversal on Treasuries or major move higher from the US Dollar seemed to be the only outside influencers that could derail the equity move higher.

The week played out with Gold continuing lower before stalling just over support while Crude Oil pulled back to support. The US Dollar broke higher in a meaningful way while Treasuries continued their consolidation below resistance. The Shanghai Composite began a pullback while Emerging Markets took their queue from broad equities, dropping after the Fed minutes were released. Volatility bounced off of the lows but sold off to end the week well off the highs. The Equity Index ETF’s fell quickly after the release of the Fed minutes Wednesday but recovered nearly half of the losses Friday. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $ SPY
spy d
SPY Weekly, $ SPY
spy w

The SPY started the shortened week making a new high and then took a header upon the release of the Federal Reserve Meeting Minutes on Wednesday afternoon. The pullback lasted all of 2 days and 3 points before a bounce higher to end the week Friday. The Relative Strength Index (RSI) on the daily chart also bounced after a trip near the mid line, remaining in bullish territory with a Moving Average Convergence Divergence indicator (MACD) that is continuing to roll over. The latter signals that maybe we are not done pulling back yet. The weekly picture shows a Hanging Man candle holding over the rising wedge. This is a reversal candle if confirmed lower next week. The RSI on the weekly picture is bullish and strong though and the MACD signal line is still rising and no where near extreme levels, with a histogram that is leveling. This view could be stronger but it is not showing downside. Support lower is found at 150 and then 147.10 followed by 145.10 and 142.25. Resistance higher comes at 153.28 and then 157.46. Monday’s candle will likely determine the direction for the week. Short Term Potential Pullback Within Longer Term Uptrend.

Moving into the last week of February the markets gave a wake up call, but then hit the snooze button. Gold is the exception testing long term support while a Crude Oil pulls back in the uptrend. The US Dollar Index looks to continue its move higher with US Treasuries consolidating in the short term downtrend. The Shanghai Composite and Emerging Markets are biased to the downside as well. Volatility looks to remain low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. The charts show potential for a short term pullback in the SPY and IWM but the longer term looks to the upside. This pullback could be triggered by a continued strong rise in the US Dollar through the nearby major resistance, Gold and Oil turning long term bearish, or Treasuries reversing higher. The QQQ however looks to be comfortable back in its channel within the long term consolidation. Its eventual breakout could be the key to the long term market direction. Use this information as you prepare for the coming week and trad’em well.

Join the Premium Users and you can view the Full Version with 20 detailed charts and analysis: Macro Week in Review/Preview February 22, 2013

The post SPY Trends and Influencers February 23, 2013 appeared first on Dragonfly Capital.

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Markets Need Regulators – Food Edition

by Mike Kimel

Markets Need Regulators – Food Edition

Back in college, I had a chat with one of my more libertarian economics professors about the need for regulation. He thought regulation was completely un-necessary.

“But what about mislabeled food?” I asked, “How do we even know that what is labeled on the side of the box or the can is what is inside?”

His reply was one I’ve heard, in one variation or another, many times since, “A company that sells customers something than they ordered will quickly go out of business.”

I’ve known it was BS every time I heard that, but it is interesting and unfortunate to see validation lately.

In the US, we have mislabeledfish:

Chicago diners who think they are eating red snapper may actually be munching on goldbanded jobfish.

Those who order Alaskan cod may really be tucking into a threadfin slickhead. And fans of yellowtail could just be getting a fish tale.

These are some of the findings of a Chicago fish fraud investigation to be released Thursday by conservancy group Oceana.

After its troubling seafood fraud investigations in East and West Coast cities over the last two years, the group expanded its testing to other cities, including Chicago. Thirty of 93 fish samples taken from Chicago restaurants, retail chains and sushi bars were mislabeled, mirroring percentages found in other cities.

Eight of nine Chicago red snapper samples tested by Oceana turned out to be different fish, the report said. And none of the three
yellowtail samples tested was actually yellowtail. Single samples sold as corvina, jack, mackerel and even perch did not match those descriptions, according to Oceana’s DNA tests.

The ocean conservancy organization does not list the names of the restaurants or stores where it bought the fish because “we didn’t know where, along the supply chain, the mislabeling first occurred,” said Beth Lowell Oceana’s seafood fraud campaign director.”So we didn’t want to call out businesses that may not have known their fish was mislabeled.”

This comes in the heel of the horsemeat (and occasionally donkey meat) sold as beef scandal in Europe.

What is interesting is that a) these behaviors have been going on for a long time and b) they were either spotted by a shrunken regulator (in Europe) or a non-profit (in the US). The market’s incentives didn’t stop any of the players involved.

Now, one could respond that “this didn’t actually harm anyone’s health.” That may be true, but it is fraud. Lack of damage isn’t true of all cases. We’ve all read about cases where adulterated food products did kill, where mechanical components that didn’t meet stated standards caused deadly accidents, or pharmaceuticals that weren’t as stated caused tremendous harm. Different fields have different stories. Decades ago, I knew people who worked with blood banks, buying and selling blood products for use in medical and pharmaceutical tests and manufacturing. Apparently it wasn’t uncommon for low quality, poorly tested, and badly identified blood from East Germany to be surreptitiously mislabeled as its high quality, tested-to-the-nines West German equivalent, and with a wink and a nod, enter the bloodstream so to speak. Who knows how many people were harmed by that? More familiar to most Americans these days is the mislabeling of financial products – there were an awful lot of risky financial products mislabeled as being AAA safe.

For commerce to work, confidence in the products being sold needs to exist. But the marketplace by itself can’t provide that – the financial incentive apparently is just a bit too strong for some of the players.

Angry Bear

Divergent Market Internal Checkup for February 13

With the S&P 500 pushing to the 1,525 target – a new recovery high – what do Market Internals say about the health of the rally that price doesn’t reveal alone?

Let’s pull back the hood of the market to assess an interesting pattern forming in Market Internals:

The chart above shows the S&P 500 Index on the 30-min chart with Breadth ($ ADD) and VOLD ($ VOLD) to represent the difference in advancing and declining issues (NYSE).

The NYSE Internals give a broader perspective, though I’ve included an SP500 specific Breadth chart below for clearer reference.

What we see is not technically a pure divergence, but a compression in Internals.

Yes, price made higher highs on steadily decreasing highs in both Breadth and VOLD for a classic negative divergence, but Breadth and VOLD lows ALSO compressed toward the zero line resulting in a compression.

Typically, price tends to eject or break out into an impulse move when we see this type of compression pattern so we’ll be on guard for any sort of range breakout or expansion phase from the low-volatility ‘creep’ we’ve been seeing.

We can get a clearer perspective by viewing SP500-specific internals:

The S&P 500 Advancing minus Declining issues – not surprisingly – also shows the triangle compression pattern that corresponding with the recent push to new recovery highs.

In numerical terms, the most recent high in internals was on February 5th with a session-high reading of 410 while the S&P traded at 1,514.

Today’s new SP500 recovery high near 1,525 registered a simultaneous Breadth high of ‘only’ 230 stocks.

At that moment of the new recovery high, roughly 361 stocks were positive on the session and roughly 139 stocks were negative on the session.

That’s not the shining example of bullish strength that was exhibited earlier with clearly higher Breadth readings while the SP500 traded at lower levels.

It’s a warning or caution sign to be sure, and bears will take it as a short-sale non-confirmation signal it will add to the growing chorus of bearish evidence that suggests a reversal or at least a minimal retracement is due.

As a point of reference, the most recent visual negative divergence occurred on January 29th where I drew the highlighted region.

The lengthy negative divergence preceded only a small retracement, though price did correct sideways instead of continuing its trend without a pause.

Continue watching price relative to current levels and be on guard for any sort of breakout or clear directional movement in Internals out of the current compression triangle pattern.

Corey Rosenbloom, CMT
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Afraid to Blog

Trouble Across the Pond

Written By: DragonFly Capital

Who is the big loser in the currency wars? Well at this point it appears to be jolly old England. Using the Currency Shares British Pound Sterling Trust, $ FXB, it is deathly obvious. Look at the daily chart below. It broke below the long descending wedge Wednesday and gapped below the

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previous low from June. The target on the break lower takes it to about 149. Not much further thankfully for our BFF’s and world beating allies. Oh, until you take a look at the monthly chart. This view suggests that the damage is just getting started. Time to call in Daniel Craig or maybe host

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the Olympics again. The break out of the symmetrical triangle lower carries a target of 120. That is a long way down. Maybe it is time for Kate to pose in Playboy for the good of the Country. Ok, I guess that went a little to far.

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Health care IT industry profits from crony capitalism

The New York Times published an article yesterday about how people who donated money to senators and election-related groups such as the Democratic Senatorial Campaign Committee earned billions of dollars in additional profits from selling software that typically has few benefits for patients or society (see this January posting).

In that January posting I talked about how a system such as Google Docs would deliver, for free, most of the benefits of the systems for which our society is now spending tens of billions of dollars. One of my spies within Google sent me the following email in response:

In the days immediately after the Haiti earthquake there was a severe problem around collecting basic patient information and records… folks were getting moved between medical camps, doctors were moving around, all sorts of workers from different non-profits were helping out in different areas with no information sharing standards. Frequently patients would go to different doctors and due to the lack of infrastructure – buildings, power, etc., there were basically no medical records or patient histories being collected ever, which caused problems if one doctor prescribed medicine and then the patient went to another doctor, lots of wasted effort collecting the same information every time a patient came in, etc.

Anyway the engineers came up with a total hack that they wanted to try out – create a Google Apps for Business domain, stick every doctor and nurse into it with an account, and then setup an enormous domain-wide shared Google Docs folder where anyone could put patient histories. Each patient history would be a single doc with the patient’s name and everything was appended as text. They thought the cell network could be kept up and running on generators so they made a really simple iPhone app (at the time very few doctors were using Android) that used the Docs APIs to make it a little bit easier to find patient records and append text to them.

They got the whole thing working in a couple of days; I don’t know how widely it was deployed, I was only involved briefly at the beginning when they needed to figure out how to set up the domain and provision users and came to the Enterprise team with questions. It was interesting how the requirements affected their design – because of the totally absurd time-crunch – people were dying and they needed to make efficient use of the doctors – basically all the requirements around privacy of information, structured records, limiting who can see whose data and keeping audit trails, etc – went out the window. And once they were gone it was actually a really easy system to build and deploy.

It is a little bit interesting that the New York Times never loses its enthusiasm for Big Government. They publish articles lauding proposals by politicians to spend billions in taxpayer money on something that is supposed to do a lot of good. Then a year later the newspaper will publish an article about how great it is that the do-gooding is actually happening. Then a year or two later the newspaper will do a follow-up about how much or most of the money turned out to be wasted, funneled into the pockets of cronies, etc. These cycles continue, usually about 50 of them in parallel, without the Times ever running an article on how government spending tends to be wasteful and to result in the enrichment of cronies.

Philip Greenspun’s Weblog

[Recording] The PlayBook Webinar Series: The Technical Trade in High Beta Stocks

If you missed this Webinar with Mike Bellafiore, author of the “trading classic” One Good Trade, Mike discussed the breakout on a high-beta stock at an important technical level.

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  • How you can be more selective with your setups on high-beta stocks
  • Risk management
  • How to find important technical levels

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SMB Capital – Day Trading Blog