SPY Trends and Influencers May 24, 2014

Written By: DragonFly Capital

A weekly excerpt from the Macro Review analysis sent to subscribers on 10 markets and two timeframes.

Last week’s review of the macro market indicators suggested, heading into the Memorial Day Weekend, and the official start of ‘work 4 days and then head to the Hamptons’ saw the equity markets recovering a bit but not turned around fully. It looked for Gold ($ GLD) to continue its consolidation while Crude Oil ($ USO) remained biased higher. The US Dollar Index ($ UUP) and US Treasuries ($ TLT) also looked higher with Treasuries perhaps ready for another short term pullback. The Shanghai Composite ($ SSEC) looked to consolidate over 2000 and Emerging Markets ($ EEM) were biased to the upside. Volatility ($ VIX) looked to continue to be subdued keeping the bias higher for the equity index ETF’s $ SPY, $ IWM and $ QQQ. Their individual charts told a different story with all in consolidation including the SPY, but the QQQ’s biased higher while the IWM was biased lower..

The week played out with Gold continuing sideways while Crude Oil broke its consolidation and moved up. The US Dollar also broke its flag and moved higher while Treasuries pulled back but found a bottom at a higher low. The Shanghai Composite continued to bounce along the 2000 level while Emerging Markets continued the stair step higher. Volatility fell to a 14 month low. The Equity Index ETF’s responded with the SPY printing a new all time high and the IWM and the QQQ turning back higher. 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 week by confirming the Hammer from last Friday higher but reversed Tuesday. Wednesday through Friday though printed a bullish 3 Advancing White Soldiers candlestick pattern, looking for continuation higher. It ended the week with a new intraday and closing all-time high. The daily chart shows a RSI that bounced off of the mid line and is near a move over 60, that could be very bullish. The MACD has crossed higher, adding to the check marks in the bullish column. The weekly view is also pointing higher. The candle on the week broke the consolidation in a series of small body candles with a beefier real body and closed near the top, virtually no upper shadow unlike the prior 4 weeks. The RSI on this timeframe is firmly in the bullish range and heading higher while the MACD is about to print a bullish cross up as it starts to rise. There is no resistance higher but a Measured Move to 197.30 from the weekly chart. Support lower comes at 188.90 and 186.75 followed by 185. Continued Upward Price Action.

As we kick off summer and head into the shortened Holiday week the equity markets look solid and positive. Elsewhere Gold looks stuck in a holding pattern while Crude Oil continues to rise. The US Dollar Index and US Treasuries are both biased higher. The Shanghai Composite is doing a good job of holding support but showing no signs of strength while the Emerging Markets are biased to the upside. Volatility looks to remain subdued and biased lower keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts agree with the SPY and QQQ looking strong on both timeframes while the IWM lags on the weekly timeframe. The Dollar, Treasuries and Oil moving higher will cause many to raise caution on equities as they do not all move together in theory. But they can advance for long period before any change. Stick to what the price action is saying. Use this information as you prepare for the coming week and trad’em well.

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Thomas Piketty, Apple fan-boy and sample biacist

Thomas Piketty, in Capital in the Twenty-First Century, is apparently an Apple fan-boy:

Note, too, that Steve Jobs, who even more than Bill Gates is the epitome of the admired and talented entrepreneur who fully deserves his fortune, was worth only about $ 8 billion in 2011, at the height of his glory and the peak of Apple’s stock price. That is just one-sixth as wealthy as Microsoft’s founder (even though many observers judge Gates to have been less innovative than Jobs)…

[As long as Piketty is deciding who deserves to be rich, why did he not set aside any $ billions for the shareholders of Xerox who financed the development of the modern personal computer at PARC? Or for the researchers who programmed the Alto?]

This is part of a chapter where Piketty says that he has determined that extremely rich people earn a better return on investment than average schmoes (in the case of Steve Jobs, of course, he might be right due to Jobs’s ability to grant himself backdated stock options (nytimes)). Piketty did this by looking at the Forbes 400 and similar journalist-produced lists of rich people around the world.

it is perfectly possible that wealthier people obtain higher average returns than less wealthy people. There are several reasons why this might be the case. The most obvious one is that a person with 10 million euros rather than 100,000, or 1 billion euros rather than 10 million, has greater means to employ wealth management consultants and financial advisors. If such intermediaries make it possible to identify better investments, on average, there may be “economies of scale” in portfolio management that give rise to higher average returns on larger portfolios. A second reason is that it is easier for an investor to take risks, and to be patient, if she has substantial reserves than if she owns next to nothing. For both of these reasons—and all signs are that the first is more important in practice than the second—it is quite plausible to think that if the average return on capital is 4 percent, wealthier people might get as much as 6 or 7 percent, whereas less wealthy individuals might have to make do with as little as 2 or 3 percent.

This is a surprising hypothesis since generally the larger the fund the closer the results are to indices. Also, the main investment vehicle that is available to rich people but not to the rabble is the hedge fund. Yet hedge funds, on average, have underperformed the S&P 500 in recent years (see this Bloomberg article, which notes that “Hedge funds last beat U.S. stocks in 2008″) and, except for the high fees, may not differ from the S&P 500 in the long run (see “The 20-Year Performance Of Hedge Funds And The S&P 500 Are Almost Identical”).

Piketty cites one or two examples of tracking individuals, e.g.,

Take a particularly clear example at the very top of the global wealth hierarchy. Between 1990 and 2010, the fortune of Bill Gates—the founder of Microsoft, the world leader in operating systems, and the very incarnation of entrepreneurial wealth and number one in the Forbes rankings for more than ten years—increased from $ 4 billion to $ 50 billion.

This 13.5 percent annual growth (compared to 8.5 percent for the S&P 500 over the same period) is presented to support the proposition that rich people get high returns, with no discussion of whether or not it might have more to do with the worldwide growth of the PC, the explosion of the consumer Internet, and the substantial monopoly that Microsoft enjoyed until its corporate suicide with Windows 8.

Piketty does the rest of his analysis basically by looking at the enormously rich as a group in 1987 and then looking at the enormously rich in 2010. Thanks to vibrant economic growth worldwide, today’s super rich are indeed ridiculously richer than the super rich of 1987. From this Piketty concludes that super rich people get great returns on investment. A potential problem with his analysis is that he has made no attempt to track the extent to which these are the same rich people/families in 2010 as in 1987. Thus he has succumbed to sample bias (classic example of sample bias: interviewing people in baggage claim and asking “what percent full was your flight?” will result in an overestimate of load factor because there are more people on full planes than on half-full planes).

The sample bias in the case of the Forbes 400 is stated right at the top of the article: “these are the richest bastards in the world.” Anyone who had a big pile of cash in 1987 and invested it in underperforming assets will, by definition, not be on the Forbes 400 list in 2010. And someone who made big leveraged bets that went well (see John Paulson) is a likely candidate for the list.

For completeness, here is the rest of Piketty’s analysis:

Furthermore, today’s global growth rate includes a large demographic component, and wealthy people from emerging economies are rapidly joining the ranks of the wealthiest people in the world. This gives the impression that the ranks of the wealthiest are changing rapidly, while leading many people in the wealthy countries to feel an oppressive and growing sense that they are falling behind. The resulting anxiety sometimes outweighs all other concerns.

[Note the French academic focus on the anxiety being felt by rich people in rich countries. Did he actually interview rich people in Europe and North America to come to the conclusion that they worry 24/7 over whether a family in India has a bigger private jet or nicer house?]

Yet in the long run, if and when the poor countries have caught up with the rich ones and global growth slows, the inequality of returns on capital should be of far greater concern. In the long run, unequal wealth within nations is surely more worrisome than unequal wealth between nations.

[Why the focus on national borders? Because I do not have $ 70 billion in my Bank of America account, I feel like a pauper compared to Carlos Slim. Would I feel even worse if I moved to Guanajuato and had less than $ 70 billion in a Banamex account?]

The oldest and most systematic ranking of large fortunes is the global list of billionaires that Forbes has published since 1987. According to Forbes, the planet was home to just over 140 billionaires in 1987 but counts more than 1,400 today (2013), an increase by a factor of 10 (see Figure 12.1). In view of inflation and global economic growth since 1987, however, these spectacular numbers, repeated every year by media around the world, are difficult to interpret. If we look at the numbers in relation to the global population and total private wealth, we obtain the following results, which make somewhat more sense. The planet boasted barely 5 billionaires per 100 million adults in 1987 and 30 in 2013. Billionaires owned just 0.4 percent of global private wealth in 1987 but more than 1.5 percent in 2013, which is above the previous record attained in 2008, on the eve of the global financial crisis and the bankruptcy of Lehman Brothers (see Figure 12.2). This is an obscure way of presenting the data, however: there is nothing really surprising about the fact that a group containing 6 times as many people as a proportion of the population should own 4 times as great a proportion of the world’s wealth.

The only way to make sense of these wealth rankings is to examine the evolution of the amount of wealth owned by a fixed percentage of the world’s population, say the richest twenty-millionth of the adult population of the planet: roughly 150 people out of 3 billion adults in the late 1980s and 225 people out of 4.5 billion in the early 2010s. We then find that the average wealth of this group has increased from just over $ 1.5 billion in 1987 to nearly $ 15 billion in 2013, for an average growth rate of 6.4 percent above inflation.2 If we now consider the one-hundred-millionth wealthiest part of the world’s population, or about 30 people out of 3 billion in the late 1980s and 45 out of 4.5 billion in the early 2010s, we find that their average wealth increased from just over $ 3 billion to almost $ 35 billion, for an even higher growth rate of 6.8 percent above inflation. For the sake of comparison, average global wealth per capita increased by 2.1 percent a year, and average global income by 1.4 percent a year, …

To sum up: since the 1980s, global wealth has increased on average a little faster than income (this is the upward trend in the capital/income ratio examined in Part Two), and the largest fortunes grew much more rapidly than average wealth. This is the new fact that the Forbes rankings help us bring to light, assuming that they are reliable. Note that the precise conclusions depend quite heavily on the years chosen for consideration. For example, if we look at the period 1990–2010 instead of 1987–2013, the real rate of growth of the largest fortunes drops to 4 percent a year instead of 6 or 7.4 This is because 1990 marked a peak in global stock and real estate prices, while 2010 was a fairly low point for both (see Figure 12.2). Nevertheless, no matter what years we choose, the structural rate of growth of the largest fortunes seems always to be greater than the average growth of the average fortune (roughly at least twice as great). If we look at the evolution of the shares of the various millionths of large fortunes in global wealth, we find increases by more than a factor of 3 in less than thirty years (see Figure 12.3). To be sure, the amounts remain relatively small when expressed as a proportion of global wealth, but the rate of divergence is nevertheless spectacular. If such an evolution were to continue indefinitely, the share of these extremely tiny groups could reach quite substantial levels by the end of the twenty-first century.

For example, if the top thousandth enjoy a 6 percent rate of return on their wealth, while average global wealth grows at only 2 percent a year, then after thirty years the top thousandth’s share of global capital will have more than tripled. The top thousandth would then own 60 percent of global wealth, which is hard to imagine in the framework of existing political institutions unless there is a particularly effective system of repression or an extremely powerful apparatus of persuasion, or perhaps both. Even if the top thousandth’s capital returned only 4 percent a year, their share would still practically double in thirty years to nearly 40 percent. Once again, the force for divergence at the top of the wealth hierarchy would win out over the global forces of catch-up and convergence, so that the shares of the top decile and centile would increase significantly, with a large upward redistribution from the middle and upper-middle classes to the very rich. Such an impoverishment of the middle class would very likely trigger a violent political reaction.

As we will see, only a progressive tax on capital can effectively impede such a dynamic.

Piketty’s analysis has, I think, the same logical and mathematical merit as the following process:

  1. look at People magazine’s World’s Most Beautiful List for 2013 and compute that the average age is 35
  2. look back to find that Michelle Pfeiffer was top of the list in 1990 at age 32
  3. conclude that therefore Michelle Pfeiffer and other 1990 winners are aging at only 3/23rds or 13% of the rate as the rest of us (comparatively ugly) people

[This process has the advantage that the researcher gets paid a comfortable university salary to spend time looking at pictures of Michelle Pfeiffer. Combining Piketty’s love of French history and the challenge of thoroughly investigating the slowed-down aging of People’s Most Beautiful one would need to start by viewing Dangerous Liaisons]

[Finally, for those who are curious, “sample biacist” in the headline is my own coinage.]

Philip Greenspun’s Weblog

The Weekend Trader – Where’s Don?

I’ll make this post fairly short as I continue to be actively engaged in efforts that are far more important than any business (which yes, does go on … but that’s for another time).

As I mentioned in “Chronicles …”, one of the joys of trading – or any income-producing business for that matter – is the ability to purchase “time” that can be used to pursue higher goals.

To that end, I’ve been actively involved in the Southern New England Emmaus community with a wonderful team of volunteers over the past several months as we’ve prepared for this Spring’s walks, as well as having just completed another Alpha program at our local church.

I continue to share these life aspects not as a “do-gooder”, yet instead as a humble servant simply trying to become more aware of life’s truths as God continues to open my eyes and encourage me to share with others.

Last night, I viewed “Heaven is For Real“, which was as good as the non-fictional book it portrayed from a few years ago and a wonderful testimony for all the world.

And after watching barely 20 minutes of the “Wolf on Wall Street” recently before walking out with absolute disgust, it was indeed welcome to see such an inspirational event shared with all.

Enjoy the weekend and have a stellar trading week!

Don Miller’s S&P Trading Tank

Everybody Eats So…..

Written By: DragonFly Capital

Conagra, $ CAG, crept onto the radar this past weekend and is consolidating nicely ahead of a possible breakout. The chart below shows the tapping against resistance at 31.65 and near the 200 day SMA. The RSI is rising and

cag d

in the bullish zone while the MACD is rising and investors are accumulating the stock. The Measured Move higher takes it to about 34 on the broad scale and 33 on the shorter scale. And a move to those levels would break the downtrending resistance on the weekly chart as well. Maybe this is a good longer term hold as well.

cag w

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Dragonfly Capital

Thomas Piketty, talent management consultant

A couple of weeks ago, I wrote about a talent management consultant helping companies recruit and retain employees, which is apparently a challenging problem. Thomas Piketty, in Capital in the Twenty-First Century, offers a different perspective. According to Piketty, employers can pay whatever they choose:

What is in fact the justification for minimum wages and rigid wage schedules? First, it is not always easy to measure the marginal productivity of a particular worker. In the public sector, this is obvious [why? because government workers don’t exhibit any productivity?], but it is also clear in the private sector: in an organization employing dozens or even thousands of workers, it is no simple task to judge each individual worker’s contribution to overall output. To be sure, one can estimate marginal productivity, at least for jobs that can be replicated, that is, performed in the same way by any number of employees. For an assembly-line worker or McDonald’s server, management can calculate how much additional revenue an additional worker or server would generate. Such an estimate would be approximate, however, yielding a range of productivities rather than an absolute number. In view of this uncertainty, how should the wage be set? There are many reasons to think that granting management absolute power to set the wage of each employee on a monthly or (why not?) daily basis would not only introduce an element of arbitrariness and injustice but would also be inefficient for the firm.

In particular, it may be efficient for the firm to ensure that wages remain relatively stable and do not vary constantly with fluctuations in sales. The owners and managers of the firm usually earn much more and are significantly wealthier than their workers and can therefore more easily absorb short-term shocks to their income.

This justification of setting wages in advance obviously has its limits. The other classic argument in favor of minimum wages and fixed wage schedules is the problem of “specific investments.” Concretely, the particular functions and tasks that a firm needs to be performed often require workers to make specific investments in the firm, in the sense that these investments are of no (or limited) value to other firms: for instance, workers might need to learn specific work methods, organizational methods, or skills linked to the firm’s production process. If wages can be set unilaterally and changed at any moment by the firm, so that workers do not know in advance how much they will be paid, then it is highly likely that they will not invest as much in the firm as they should.

[emphasis added]

Employers apparently are not constrained by the possibility of their workers choosing to work for someone else, choosing to stay home with family and/or collecting government-provided Welfare benefits, etc. Nor do employers have to pay about the same or a little more than other employers in a region if they want to attract workers.

It occurred to me that I actually do know employers who live in this world: elite universities. Harvard University can get bright hard-working well-educated people to come work as researchers and teachers at whatever wages it offers, even $ 0. Presumably that is true of the institutions where Piketty has studied and taught. Thus the employer’s world that he paints is the world of Academia that he knows. People get paid so much in prestige and the social fun of interacting with other smart people that they are happy to work basically for free.

Because all employers, as least as far as Piketty can tell, are able to get people to come work for whatever wage they choose, central planning is critical, with wise government officials setting wages:

In the United States, a federal minimum wage was introduced in 1933, nearly twenty years earlier than in France.5 As in France, changes in the minimum wage played an important role in the evolution of wage inequalities in the United States. It is striking to learn that in terms of purchasing power, the minimum wage reached its maximum level nearly half a century ago, in 1969, at $ 1.60 an hour (or $ 10.10 in 2013 dollars, taking account of inflation between 1968 and 2013), at a time when the unemployment rate was below 4 percent. From 1980 to 1990, under the presidents Ronald Reagan and George H. W. Bush, the federal minimum wage remained stuck at $ 3.35, which led to a significant decrease in purchasing power when inflation is factored in. It then rose to $ 5.25 under Bill Clinton in the 1990s and was frozen at that level under George W. Bush before being increased several times by Barack Obama after 2008. At the beginning of 2013 it stood at $ 7.25 an hour, or barely 6 euros, which is a third below the French minimum wage, the opposite of the situation that obtained in the early 1980s (see Figure 9.1). President Obama, in his State of the Union address in February 2013, announced his intention to raise the minimum wage to about $ 9 an hour…

Britain introduced a minimum wage in 1999, at a level between the United States and France: in 2013 it was £6.19 (or about 8.05 euros). Germany and Sweden have chosen to do without minimum wages at the national level, leaving it to trade unions to negotiate not only minimums but also complete wage schedules with employers in each branch of industry. In practice, the minimum wage in both countries was about 10 euros an hour in 2013 in many branches (and therefore higher than in countries with a national minimum wage). But minimum pay can be markedly lower in sectors that are relatively unregulated or underunionized. In order to set a common floor, Germany is contemplating the introduction of a minimum wage in 2013

it seems likely that the increase in the minimum wage of nearly 25 percent (from $ 7.25 to $ 9 an hour) currently envisaged by the Obama administration will have little or no effect on the number of jobs. Obviously, raising the minimum wage cannot continue indefinitely: as the minimum wage increases, the negative effects on the level of employment eventually win out. If the minimum wage were doubled or tripled, it would be surprising if the negative impact were not dominant.

the best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills. Over the long run, minimum wages and wage schedules cannot multiply wages by factors of five or ten: to achieve that level of progress, education and technology are the decisive forces.

In other words, Piketty has no idea at what hourly number the minimum wage should be set, or why Germany and Sweden have lower-than-American-wage-inequality without any minimum wage at all, but he assumes that if the government is setting wages then the number is going to be optimal. How well have the central planners in France managed the minimum wage?

The substantial increase in French inequality between 1945 and 1967 was the result of sharp increases in both capital’s share of national income and wage inequality in a context of rapid economic growth. The political climate undoubtedly played a role: the country was entirely focused on reconstruction, and decreasing inequality was not a priority, especially since it was common knowledge that inequality had decreased enormously during the war. In the 1950s and 1960s, managers, engineers, and other skilled personnel saw their pay increase more rapidly than the pay of workers at the bottom and middle of the wage hierarchy, and at first no one seemed to care. A national minimum wage was created in 1950 but was seldom increased thereafter and fell farther and farther behind the average wage. Things changed suddenly in 1968. The events of May 1968 had roots in student grievances and cultural and social issues that had little to do with the question of wages (although many people had tired of the inegalitarian productivist growth model of the 1950s and 1960s, and this no doubt played a role in the crisis). But the most immediate political result of the movement was its effect on wages: to end the crisis, Charles de Gaulle’s government signed the Grenelle Accords, which provided, among other things, for a 20 percent increase in the minimum wage. In 1970, the minimum wage was officially (if partially) indexed to the mean wage, and governments from 1968 to 1983 felt obliged to “boost” the minimum significantly almost every year in a seething social and political climate. The purchasing power of the minimum wage accordingly increased by more than 130 percent between 1968 and 1983, while the mean wage increased by only about 50 percent, resulting in a very significant compression of wage inequalities. The break with the previous period was sharp and substantial: the purchasing power of the minimum wage had increased barely 25 percent between 1950 and 1968, while the average wage had more than doubled.20 Driven by the sharp rise of low wages, the total wage bill rose markedly more rapidly than output between 1968 and 1983, and this explains the sharp decrease in capital’s share of national income that I pointed out in Part Two, as well as the very substantial compression of income inequality. These movements reversed in 1982–1983. The new Socialist government elected in May 1981 surely would have preferred to continue the earlier trend, but it was not a simple matter to arrange for the minimum wage to increase twice as fast as the average wage (especially when the average wage itself was increasing faster than output). In 1982–1983, therefore, the government decided to “turn toward austerity”: wages were frozen, and the policy of annual boosts to the minimum wage was definitively abandoned. The results were soon apparent: the share of profits in national income skyrocketed during the remainder of the 1980s, while wage inequalities once again increased, and income inequalities even more so (see Figures 8.1 and 8.2). The break was as sharp as that of 1968, but in the other direction.

Piketty’s perspective on the supposedly absolute power of employers to set wages reminds me of conversations that I have had with American academics. They love their jobs, which to them are like daily cocktail parties stuffed with interesting people. This leads them to disagree with anyone who suggests that higher tax rates will result in people working fewer hours (despite a huge quantity of research by fellow academics showing precisely this correlation, e.g., this NBER paper, a Forbes summary of a 2006 paper). They’d go to work for free, so even a 100% tax rate wouldn’t discourage them!

An academic was fuming about income inequality on Facebook, passionately supporting Barack Obama’s proposals for new laws, taxes, and regulations. After reflecting on his wife’s millions of dollars of earnings from writing fiction, I emailed him privately:

This seems like a tricky idea when you look at people in different fields, e.g., what kind of income disparity should exist between myself (computer programmer/helicopter instructor) and Justin Bieber (singer?)? But it should be easier when comparing people who do the same thing, e.g., all programmers.

But then I thought about your peculiar situation. You are married and therefore your household income includes that of your wife (cc’d). Your wife is a fiction writer. The median income of a fiction writer is $ 0 (since more than half can’t get anything). It is hard to think of an occupation where there is a greater and crueler disparity of income as well as non-economic benefits (fame, readership, satisfaction). How far does your advocacy of greater equality go? Would you support a higher tax on Judy’s [name changed] income so that fiction authors currently earning $ 0 per year were able to receive something for their work? Will you say that Obama needs to take action to stop Judy from receiving a $ 1 million advance for a book when there are novelists who’ve been working full-time for 30 years who cannot get published at all? Or who receive only $ 5,000 as an advance?

So how does an advocate for income equality go home to a woman who works in a field that has more income inequality than almost any other?

The wife (also a PhD) wrote back

Your example about my income is pretty specious. For one thing, I take issue with your cited median income of a fiction writer. I could just as easily say that the median income of a computer programmer is $ 0, since we have to account for all those people who take computer programming classes but who can’t go on to get jobs as computer programmers. The market rewards writing as it rewards computer programming, I would think. Skill plays a part, but so does timing, connections, and sometimes luck. In actuality, the median advance for a work of fiction from a Big Six publisher is about $ 50,000. Do people write fiction who can’t get published (or paid)? Sure. But if they’re not paid, then they’re not professional fiction writers. They are avocational fiction writers. There are avocational singers and computer programmers too. Is it unfair that most fiction writers get advances of 50K when a select few command six or even seven figures? Yes, it is. But the entertainment industry is increasingly structured on a blockbuster system that shrinks from risk.  …

Solving income equality isn’t about figuring out what the average wage should be for a given field. It’s about raising median wages on the whole so that anyone who has a job is able to support him or herself by doing that job. It’s about creating incentives to support industries that will generate well-paying jobs for more people, rather than incentives for financialization and consolidation in industries (like tech) that employ fewer people than manufacturing once did. And it’s about people giving from each according to his ability, to each according to his need, which a graduated income tax ensures.

[emphasis added]

To me the bold-faced sentence above is the most revealing. Academics love their jobs and might well pay the university to keep them. It doesn’t bother them that someone would enjoy a comfortable Welfare-funded home-based lifestyle for decades. What does bother them, however, is if a person goes to a job that they don’t love and yet still does not earn enough to enjoy a comfortable lifestyle.

Authors tend to write what they know. Even when an author has a PhD in Economics, what he or she knows about employer-employee relations is mostly in fact about employer-employee relations at top universities. But Harvard, Yale, MIT, and Princeton are in a much stronger position relative to workers than is Walmart and the employee experience of a teacher/researcher at a university is different than the employee experience of a worker at a Walmart store.

 

 

Philip Greenspun’s Weblog

Top Trade Ideas for the Week of May 19, 2014: The Rest

Written By: DragonFly Capital

Here are the Rest of the Top 10:

American Electric Power, Ticker: $ AEP
aep

American Electric Power, $ AEP, has been moving higher since October. But the recent pullback since late April is finding support and gives a good reward to risk trade higher, The RSI is turning back up but with the MACD continuing lower.

Altera, Ticker: $ ALTR
altr

Altera, $ ALTR, is a bottoming play. it is trying to reverse off of support at 31.50-32. The RSI is rising along with the MACD as price is finding support at the high volume bar.

BP, Ticker: $ BP
bp

BP, $ BP, is a stock we have had a long position is for quite some time. Last week made a higher low and is breaking out higher. The RSI is bullish and the MACD reversing higher after a short fall off.

CIT Group, Ticker: $ CIT
cit

CIT Group, $ CIT, is reversing up after fining support at 41.50. The RSI is rising and the MACD is rising and crossed up, supporting more upside. There is a large gap to fill to the upside.

Express Scripts, Ticker: $ ESRX
esrx

Express Scripts, $ ESRX, gapped lower following earnings, but has been rising ever since. The current consolidation at the 200 day SMA in a bull flag has support for a move higher from the rising RSI and MACD, which has also crossed up.

Up Next: Bonus Idea

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If you like what you see sign up for more ideas and deeper analysis using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, heading into Memorial Day Weekend, and the official start of ‘work 4 days and then head to the Hamptons’ the equity markets have recovered a bit but not turned around fully. Look for Gold to continue its consolidation while Crude Oil remains biased higher. The US Dollar Index and US Treasuries also look higher with Treasuries perhaps ready for another short term pullback. The Shanghai Composite looks to consolidate over 2000 and Emerging Markets are biased to the upside. Volatility looks to subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their individual charts tell a different story with all in consolidation including the SPY, but the QQQ’s biased higher while the IWM is biased lower. Use this information as you prepare for the coming week and trad’em well.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades from Amazon.

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Piketty on why stated U.S. GDP is so high

Thomas Piketty’s Capital in the Twenty-First Century addresses the apparent paradox of why U.S. GDP is so high yet Americans don’t seem to be living commensurately larger than Europeans:

the most recent available survey shows that while some European prices (for energy, housing, hotels, and restaurants) are indeed higher than comparable American prices, others are sharply lower (for health and education, for instance)

if a private health insurance system costs more than a public system but does not yield truly superior quality (as a comparison of the United States with Europe suggests), then GDP will be artificially overvalued in countries that rely mainly on private insurance. Note, too, that the convention in national accounting is not to count any remuneration for public capital such as hospital buildings and equipment or schools and universities. The consequence of this is that a country that privatized its health and education services would see its GDP rise artificially, even if the services produced and the wages paid to employees remained exactly the same.

Related: a June 2013 posting on Denmark’s bicycle infrastructure (GDP discussion at the bottom). The U.S. also spends a huge amount on litigation compared to most European countries (see this posting on divorce in Denmark, which is pretty typical for Civil Law jurisdictions). Lawyers arguing over who gets to own what are a big component of our GDP but the arguments don’t make Americans as a group better off.

How about GDP growth? Americans are champions and the Japanese are laggards, right?

Piketty reminds us to look at population growth as well:

it is important to decompose the growth of output into two terms: population growth and per capita output growth. In other words, growth always includes a purely demographic component and a purely economic component, and only the latter allows for an improvement in the standard of living. In public debate this decomposition is too often forgotten, as many people seem to assume that population growth has ceased entirely, which is not yet the case—far from it, actually, although all signs indicate that we are headed slowly in that direction. In 2013–2014, for example, global economic growth will probably exceed 3 percent, thanks to very rapid progress in the emerging countries. But global population is still growing at an annual rate close to 1 percent, so that global output per capita is actually growing at a rate barely above 2 percent (as is global income per capita).

First, the takeoff in growth that began in the eighteenth century involved relatively modest annual growth rates. Second, the demographic and economic components of growth were roughly similar in magnitude. According to the best available estimates, global output grew at an average annual rate of 1.6 percent between 1700 and 2012, 0.8 percent of which reflects population growth, while another 0.8 percent came from growth in output per head.

Such growth rates may seem low compared to what one often hears in current debates, where annual growth rates below 1 percent are frequently dismissed as insignificant and it is commonly assumed that real growth doesn’t begin until one has achieved 3–4 percent a year or even more, as Europe did in the thirty years after World War II and as China is doing today. In fact, however, growth on the order of 1 percent a year in both population and per capita output, if continued over a very long period of time, as was the case after 1700, is extremely rapid, especially when compared with the virtually zero growth rate that we observe in the centuries prior to the Industrial Revolution.

Indeed, according to Maddison’s calculations, both demographic and economic growth rates between year 0 and 1700 were below 0.1 percent (more precisely, 0.06 percent for population growth and 0.02 percent for per capita output).

The most spectacular reversal no doubt involves Europe and America. In 1780, when the population of Western Europe was already greater than 100 million and that of North America barely 3 million, no one could have guessed the magnitude of the change that lay ahead. By 2010, the population of Western Europe was just above 410 million, while the North American population had increased to 350 million. According to UN projections, the catch-up process will be complete by 2050, at which time the Western European population will have grown to around 430 million, compared with 450 million for North America. What explains this reversal? Not just the flow of immigrants to the New World but also the markedly higher fertility rate there compared with old Europe. The gap persists to this day, even among groups that came originally from Europe, and the reasons for it remain largely a mystery to demographers. One thing is sure: the higher fertility rate in North America is not due to more generous family policies, since such policies are virtually nonexistent there.

Should the difference be interpreted as reflecting a greater North American faith in the future, a New World optimism, and a greater propensity to think of one’s own and one’s children’s futures in terms of a perpetually growing economy?

Related: a June 2004 posting about whether a large number of U.S. children born into poor families might actually be a sign of optimism; an August 2008 posting about Gregory Clark’s A Farewell to Alms.

Philip Greenspun’s Weblog

SMBU Trading Tip of the Week ($WWE)

In this SMBU Trading Tip of the Week, Bella, author of the “trading classic” One Good Trade and The PlayBook, talks about finding a signal to get bigger in $ WWE.

Highlights from this trade:

1) Your position size should increase as new data confirming your trade appears

2) Use VWAP to add size to your trade

3) Learn the signal that alerted Bella to increase his trade size from Tier 1 to Tier 4

4) Learn to turn small profits into much bigger profits

We hope you enjoy this trading education video.

You can be better tomorrow than you are today!

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides Read more […]
SMB Capital – Day Trading Blog

Talent Management in Silicon Valley

While on this trip to San Francisco I ran into a “talent management” consultant.

I asked What is that? “We help companies figure out how to recruit and retain employees.”

How much do companies pay for his services? “Certainly hundreds of thousands of dollars would be the minimum engagement.”

Why would they pay that much when there are 15 million unemployed Americans presumably eager for jobs? “If there is a talented person among those 15 million then my clients haven’t found him or her.”

[Separately, the Wikipedia article notes that this field was created by McKinsey in 1997, i.e., right about the time that Enron was organizing all of its incentive structures according to McKinsey advice (Guardian).]

What kinds of companies are most interested in talent management? “We get a lot of technology companies. They have tremendous trouble with retention. There is no loyalty in Silicon Valley. Companies are paying signing bonuses of $ 100,000 and more. Before making real money people used to have to work for years, wait for stock options to vest, and hope for a startup to succeed. Today there are engineers at big companies earning $ 1 million and more as straight salary and bonus.”

A Mountain View resident confirmed that non-managerial engineers could easily earn $ 400,000 per year at Google or Apple [a huge step up from the 1980s, when a top engineer might have earned the equivalent of about $ 140,000 in today’s dollars] but thought that $ 1 million was rare. Why weren’t more people studying engineering trying to get in on this? “You have to remember that the cost of living here is crazy high. A decent house is $ 2 million. You pay the highest tax rates in the U.S., outside of New York City. There are very few women who want to hang around in the Valley longer than necessary to get pregnant and collect child support. You’ll be working and/or commuting through horrible traffic 60-80 hours a week, mailing child support checks to an address in Santa Cruz or Napa, then going home to your lonely single guy apartment.”

[Fact check from the Web:

  • Zillow says the median home value in Palo Alto is $ 1.8 million ($ 1118/square foot; the median includes condos). A single-family home in Mountain View, on the other hand, has a median price of $ 1.35 million.
  • See the San Jose Mercury News for some traffic data.
  • According to https://www.cse.ca.gov/ChildSupport/cse/guidelineCalculator , a one-night encounter with a Silicon Valley engineer earning $ 400,000 per year and paying a mortgage on that “decent house” would yield tax-free child support of about $ 43,000 per year ($ 777,600 over 18 years).  This is roughly the after-tax median household income for Californians ($ 61,400 pre-tax according to the Census Bureau, fed into the ADP calculator) and could be doubled or tripled by having additional children with additional engineers.
  • This article talks about working hours at Apple.

]

Philip Greenspun’s Weblog

STTG Market Recap May 9, 2014

Today we had the S&P 500 add 0.15% and the NASDAQ 0.50%; both were in the red much of the first half of the day but rallied late.   Beaten down tech stocks and small caps had a bounce – they were due.  At this point the NASDAQ is just trying to bounce back a bit from very oversold levels while the S&P continues to carve out a range it has been in for 2 months.

If you are curious Chris Kimble, who runs a charting service, was noted by Yahoo Finance as saying there has only been twice in the past 35 years when the NYSE is hitting new high as the Russell 2000 falls below the 200 day moving average – and both those years are pretty infamous (2007, 1999).  Bad things happened right after; now this is a very small sample size but those were 2 major peaks so if 2015 turns out badly …  it certainly will be an interesting indicator to watch go forward.

spx

nasdaq

Apple (AAPL) fell on news that it is close to paying a record $ 3.2 billion for Beats Electronics, an expensive foray into music streaming and headphone gear.  Congrats to Dr. Dre for striking it rich again.  After breaking out of the top of the flag Tuesday we’ve had 3 down sessions so nice headfake there.

aapl

Netflix Inc (NFLX) shares rose after the company increased the price of its most popular video streaming plan by $ 1 a month….however you can see from the chart it is like a lot of NASDAQ charts – lost in space.

nflx

Even when you think these safety stocks are running out of steam they continue to make a move like 1999 internet stocks – see boring old General Mills (GIS).

gis

That said, the run in utilities might be getting close to an end – we are starting to see some signs of distribution here unlike consumer staples which are still chugging.  If you want something to short in your portfolio as a hedge against long positions, something like XLU in the $ 43 area, with a stop at new 52 week highs ($ 43.50) sure looks like a low risk foray.  It has come a long way in a short time.

xlu

Have a good weekend, we’ll see you on the other side.

 

Original post: STTG Market Recap May 9, 2014


Stock Trading To Go

SPY Trends and Influencers May 10, 2014

Written By: DragonFly Capital

A weekly excerpt from the Macro Review analysis sent to subscribers on 10 markets and two timeframes.

Last week’s review of the macro market indicators suggested, heading into the ‘Sell in May and Go Away’ season that the equity markets were looking better. Elsewhere looked for Gold ($ GLD) to consolidate in its uptrend with a bias higher while Crude Oil ($ USO) continued lower. The US Dollar Index ($ UUP) seemed biased lower while US Treasuries ($ TLT) were biased higher. The Shanghai Composite ($ SSEC) and Emerging Markets ($ EEM) were both biased to the upside. Volatility ($ VIX) looked to remain subdued keeping the bias higher for the equity index ETF’s $ SPY, $ IWM and $ QQQ. The indexes themselves all looked better to the upside in the short term with the SPY strongest followed by QQQ and then IWM.

The week played out with Gold starting higher before finding resistance and falling back while Crude Oil found support and bounced slightly. The US Dollar found a bottom and moved slightly higher while Treasuries pulled back from overhead resistance. The Shanghai Composite basically moved higher all week while Emerging Markets continued the drift higher. Volatility continued sideways under the moving averages. The Equity Index ETF’s continued their recent pattern with the SPY and QQQ running in a range, but the IWM continuing lower. 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 continued to move sideways on the week, holding over the tightly bound 20 and 50 day SMA’s. Combined with the last 2 weeks the consolidation following the dip lower continues. The daily chart shows that the Bollinger bands, a measure of volatility have remained wider since the dip, despite the VIX at lows not seen since late January. The RSI on the daily chart is moving sideways, holding over the mid line and in the bullish zone with the MACD looking like it will kiss the signal line and bounce instead of cross down. The weekly front shows the consolidation at the highs going on since mid February. The RSI on this timeframe is rising again in the bullish zone while the MACD is flat but under the signal. There is support at 186.75 and 185 followed by 181.80. Resistance comes higher at 188.90, which held it Thursday, and 189.70 before a break out higher. Continued Consolidation in the Uptrend.

Heading into next week the equity markets are becoming bifurcated. Elsewhere look for Gold to continue in a range along with Crude Oil although the latter has a bias to the upside short term. The US Dollar Index looks to continue to gain strength while US Treasuries are biased lower in the short term in their uptrend. The Shanghai Composite looks weak and is biased lower while Emerging Markets are biased to the upside in their consolidation range. Volatility looks to remain quite low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts are not so enthusiastic though with the SPY the strongest and only looking to continue consolidation while the QQQ consolidates with a downside bias and the IWM looking for more downside. 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 May 9, 2014

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades from Amazon.

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The post SPY Trends and Influencers May 10, 2014 appeared first on Dragonfly Capital.

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