Momentum vs. Mean Reversion

For today's entry, an excellent essay on the pros and cons of two very popular trading strategies -- momentum and mean reversion.

Momentum vs. Mean Reversion | The Big Picture

Wall Street ends down after data; posts strong gains for month

As late as 3:30 p.m. I had checked the Dow and it was only down less than 50 points.  Not too bad, how much worse could it get in the last half hour?  Then in that last half hour it plummetted more than another 30 points to finish near 82 points down for the session.  This was attributed to an underwhelming Q4 GDP report which had been revised downwards due to an earlier miscalculation of business inventories.  But that made no sense since the GDP announcement came early in the day and the plummet did not begin until late afternoon.  So what gives?  And what did they mean by "underwhelming"?  What were the new numbers and how did they compare to the old?  This critical information was lacking.  So today I have done something I have not done before.  I am including a second report to supplement the first, the second going into considerably more detail about the GDP data and how a 0.7% cut in inventories led to a GDP downgrade from 2.6% growth to 2.2%.  But even at 2.2, it is still good news and business investment, previously reported to have contracted by 2% is now revised as having instead expanded by 1%.  Consumer demand was also revised upward from 2.8% to 3.2% growth.  Consumer spending which accounts for more than two-thirds of the economy was revised downward from 4.3 to 4.2% growth.  Still all indicators are strong and continue to signal a steady and significant recovery.  Sentiment remains high that Q1 will come in strong and the rest of 2015 to follow, though the exceptionally cold February could momentarily put a damper on things.  But strong job gains are expected to lift housing and other sectors.  At 6.5 billion shares, volume was just slightly below the month's average of 6.8 billion.

Nasdaq resumes climb; S&P 500, Dow fall with energy

After two consecutive record setting days, the Dow pulled back a tad to close 10 points down, mostly on another decline in oil.  Crude fell 5.5% today and is once again below $50.  However, we are well on track for being one of the strongest Februarys on record and THE best month in four years, great news following a very down January.  The strong rally this month is attributed to strong Q4 earnings which had originally been forecast to be anemic.  Deflation remains the best news to investors since it allows them the assumption that the Fed will continue to keep interest rates low for a while.  Volume was a little above recent averages at 6.4 billion.

S&P, edge down with Apple; Dow ends at record high

It only took a 15 point bump, triggered by another gain in oil, to put the Dow at still another record high.  Janet Yellen's second day of testimony before the Congress has investors on the fence again, still trying to get a clear picture on the future of interest rates despite continued assurances that nothing drastic is going to happen any time soon, and nothing at all is going to happen for a while.  The day's good news included a revision to Monday's home sales report, now saying the January drop was less than previously reported, and crude up 3.5% to put it again over the $50 mark.  Hedge funds have been selling off Apple to take profits.  At 6.2 billion shares, volume was consistent with recent averages.

Dow, S&P finish at records after Yellen comments

So Yellen once again affirms to the Senate today that there is no plan for an interest rate hike until late in the year and the market perks up 92 points.  Why?  Because "while economists have been expecting a hike as soon as June, some investors saw Yellen's comments as an indicator of a later liftoff for the Fed's first rate hike since 2006."  So why were some economists expecting a hike as soon as June when the Fed has consistently maintained that any hikes would come no earlier than October?  And why do these prognosticators who are so obviously wrong have so much sway on the market?  I suppose we might as well be asking why there are still people out there who believe we never went to the moon.  In other news, though existing home sales fell in yesterday's data, home prices went up 4.5% in today's data.  The services sector also fared well in February.  But with Yellen's comments having temporarily placated investors, everyone's now back on the fence awaiting next week's jobs report.  Volume remains a tad below recent averages at 5.9 billion.

Nasdaq ends up 9th session; S&P 500, Dow dip with energy

Now that the Greek issue is considered done, back to business as usual with a moderately modest 24 point drop in the Dow triggered by another drop in oil, crude once again below $50, and a small dip in existing home sales. But everyone is back on the fence again, this time awaiting Janet Yellen's appearance before the Senate Banking Committee and more hints on what's in store for interest rates.  Once again, no one seems the least impressed by the fact that Ms. Yellen has consistently stated that interest rate increases will be slow and gradual and only once the economy has stabilized.  But this never stops the market from having a panic attack every time the Fed does anything, like just meet!  Volume was 5.9 billion, a tad below recent averages, which is certainly consistent with everyone being on the fence.

Succinct Summations of Week’s Events 2.20.14 (+ bonus)

So once again we're at the usual Sunday night one-page eye shot of the week's events in the world of finance.  I haven't supplied a reading list lately so this weekend's bonus is today's "Sunday Reads" column courtesy of Mr. Ritholz.  

Financial Journalists Need to Understand Numbers Better If They Want to Avoid Getting Played

Barry Ritholtz's column from yesterday, very well worth the read and on a topic we can all appreciate.  Frankly, I think his analysis applies to all of modern day media, especially since we've been in this ridiculous 24-hour news cycle where every one has to be the first out the gate with each new story, quite frequently without taking time to check the facts.  But this article is directed at a problem even more injurious to the public interest, where reporters are assigned to write on topics in which they have very little training, and consequently just believe whatever their sources tell them, without any educated discernment whatsoever.  Enjoy!

Dow, S&P 500 end at record highs on Greece debt deal

The deal is done -- kind of!  And that sent the Dow up 154 points.  Germany is Europe's banker now and Greece is its biggest creditor.  So the embattled country's new leftist government had to eat a little crow but Germany got what it wanted today and the long awaited "agreement in principle" was reached.  The Greek people will have to settle for a little more austerity at least in the short term and the Greek government must promise to use the extension of credit and the new infusion of Euro dollars to only bolster its financial system and not divert the funds to prop up government agencies.  That's the status as of late Friday afternoon. The Germans now require a detailed proposal from Greece due Monday of specifically how it intends to honor these commitments.  If the German bankers are then satisfied (and it is expected they will be) then the deal goes forward.  It was enough to satisfy investors that the crisis is over and the markets can now focus on the considerable good news that is out there, rather than continuing to let all this Grexit business pull stocks down.  However, Monday's assumed closure will not be the end of it.  Once Germany is satisfied, first all the EU finance ministers must give their stamp of approval, which is scheduled for Tuesday.  Then the EC, ECB, and IMF still have to sign off.  Once that deed is done, then each indivdual EU country must pass, of which many must be by votes from their respective parliaments.  So there are still a lot of "high fives" required in the near future to make this a reality.  To add to the drama, the Greek people are nervous about the economic impact of all this and already doing massive withdrawals from the banks, 1 billion euros just in the last two days.  So there is still at least one more act to this bit of theater before the final curtain.  But at least today investors are optimistic and looking forward to getting on to business as usual sending the Dow up the 154 points.  Volume was steady at 6.2 billion.

Dow, S&P 500 slip with energy, Wal-Mart; Nasdaq gains

As far as Greece goes, the plot just keeps getting thicker.  Tuesday Greece was ready to sign the new debt deal when they claim the Dutch threw them a curve ball.  Yesterday both EU and Greek officials said they were ready to sign off today.  Today, it was the German bankers who moved to veto the whole thing.  Tomorrow's the deadline, so investors are once again nervous.  Oil slid for a second day due to another big build in crude inventories, and Walmart took a hit with a trimmed down sales forecast.  It all added up to a modest 44 point drop in the Dow, the good news being that S&P Q4 earnings have overall been better than expected.  So despite these minor daily hiccups, the macro picture continues to look very good.  Volume remained consistent at 6 billion shares.

Wall St. ends nearly flat; Fed minutes support

Another relatively calm day as, even though the expected debt deal with Greece was not reached today, it is fully expected that an agreement will be reached Thursday.  Meanwhile, oil took a bit of a hit again with crude down to $52 now; just last week it was back up to $60 again after a very long slump.  And the Fed once again reiterated its oft stated position that it will take its time raising interest rates, not to do until there is strong confidence that the economy is well on the road to recovery and able to handle it.  Curious, isn't it?  Even though the Fed has been completely consistent with this position for a long time, sometimes investors believe it and sometimes they don't.  When they do, the market goes up (or at least stems a downtrend) and when they don't, the market sinks.  Today they believed it, thus stemming a downturn.  The Dow only fell 17 points on the drop in energy.  Volume was adequate at 6 billion shares.

S&P 500 ends at record high on Greece hopes, as bonds drop

As the expectation is that Greece will finally accept the EU's debt deal at their meeting Wednesday, there was neither excitement nor panic in the markets today as the Dow moved up a modest 28 points.  So far the Ukraine ceasefire has been violated twice in the last few days and there is now little hope that the European peace deal will be able to end the months-long conflict.  Thus pressure on stocks may continue due to this ongoing crisis.  For today though things were relatively calm with okay volume at 6.2 billion shares.

Greece defies creditors, seeking credit but no bailout

Happy President's Day though many more of us than usual took the holiday today due to the coldest February 16th now on record, besting by one degree an historic low from 1875.  Of course the U.S. markets were closed but that hardly meant the day was uneventful.  The Greek debt talks which were expected to last all day and all night (as today was the so-called deadline) collapsed after only four hours.  No worries, the drop-dead deadline wasn't so drop dead after all and the ECB has now given Greece until Friday.  But it is no longer a question of Greece qualifying for the extension.  The EU has already offered it, the deal is set awaiting only Greece's acceptance. But at least on the face the Greeks aren't budging, insisting they will not let the EU run them, especially not with austerity measures.  However, sentiment still remains strong that practicality will win the day and that there will be a deal by week's end, a prediction voiced even by Greece's Finance Minister.  Even the Greek banks now have changed their tune, senior officials now saying the deal is now the best thing going.  There's also some backbiting with the Greeks insisting they were ready to sign a deal today until the Dutch bankers changed the terms; and of course the Dutch maintaining that the opposite happened.

Whatever happens (and it will probably work out), the irony that is now at work is that the very same electorate that voted this government in such a short time ago because they wanted a "Grexit" has now gone in the opposite direction.  68% now want the parliament to take the bailout, and 81% now want to stay in the EU after all.

Succinct Summation of Week’s Event for 2.13.15 ( + 2 bonuses)

It's Sunday night again and the usual week-end one-page eye shot of the week's events in the world of finance.  This weekend there are also two quite interesting bonuses, once again courtesy of Mr. Ritholtz  First there is a short video of an interview with Ritholtz discussing one of the most important topics to those of us interested in managing risk -- behavioral finance.  Following that is another quite good and concise analysis of the impact of the recent oil glut on the economy in general and our portfolios in particular.  Enjoy the holiday weekend (though truly only Uncle Sam and our venerable financial institutions will be taking tomorrow off) and happy reading.  

10 Weekend Reads

by Barry Ritholtz - February 14th, 2015, 7:00am

That was some week! The S&P is now positive year-to-date, and is at record highs, as the Nasdaq is coming up on its 2000 highs. Settle in with a big cup-o-joe, and enjoy our longer-form weekend reads:

• Life in the Algorithm: The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market. The surveillance society. The police state, and the drones. All guided by a force we never see. (Adbusters)
• Ten years ago, a video-sharing site called YouTube was born. Then, this happened (Telegraph)
• The life, death, and rebirth of BlackBerry’s hometown (Fusion)
• How The New York Times Works (Popular Mechanics)
• At 92, the man who brought you the lithium-ion battery is still having creative breakthroughs (Quartz)
• Last to see: The future rise of extinction tourism (Factor) see also The monarch massacre: Nearly a billion butterflies have vanished (Washington Post)
• Send in The Weathermen (NBC News)
• The Birth of the Cheesesteak (Priceonomics)
• Bill Carter on Covering ‘SNL’ and Lorne Michaels: “Many Lost Their Minds in Pursuit” of His Approval (Hollywood Reporter)
• To Fall in Love With Anyone, Do This (NY Times) see also No. 37: Big Wedding or Small? (NY Times)

S&P closes at record, Nasdaq hits 15-year high

Despite all the saber rattling, all the smart money says that Monday will bring a debt agreement between Greece and the EU, the posturing dismissed as politics as the newly elected anti-EU parliament must put on a good face for its constituents.  But there is high confidence that practical realities will win the day.  Cisco Systems had a strong week leading to overall sentiment that the tech sector may be coming back.  Oil continues to rise, now back over $60.  All this and Ukraine to boot added another 47 points to the Dow.  However, after the market closed there have been reports of renewed fighting in Ukraine so this cease-fire, only one day old, may be very short-lived, and that may be reflected in Monday's numbers.  Between that and Greece, there is much riding on Monday right now.

Wall St. ends sharply higher on tech, Ukraine deal

A ceasefire was brokered today between Russia and Ukraine and that shot oil up 4.9% and the Dow up 110 points.  Domestic data was ho-hum with various indicators either improving or falling just ever so slightly but not enough to get anyone excited.  Volume was 6.7 billion, getting a little closer to the year's elevated averages, but I suspect most investors are still waiting on Greece.  But even though debt talks collapsed yesterday, the word on The Street is that the market remains hopeful.  A second round of talks begin Monday the 16th, which is also the deadline for applying for the critical extension the Greek banks will need if a deal is successfully brokered.  So Monday will tell all.

Wall St. ends flat while investors await Greece, Ukraine news

Wall Street continues to sit on the fence via the Greece situation as tense talks began today with a hard-headed Greek Finance Minister at loggerheads with the ECB, the only consensus being that whatever would happen would take time.  The Dow ended at nearly a dead standstill, down only 6 points during a session that was down 100 at one point at up 100 at another.  Greece is playing hardball so who knows what will happen?  Meanwhile, peace talks continue over the Ukraine issue.  Today's good news was that over 350 of the S&P companies have now reported in and 72% have beaten forecasts.  As the markets awaits an outcome from Greece, volume remained below average at 6.4 billion.  (Note:  late news at 9 p.m. has it that the debt talks failed.  A new round of negotiations will resume Monday.) 

Wall St. rises on Greek deal hopes; Apple hits record

It's like yesterday never happened, this despite this morning's vote of confidence from the new Greek parliament for the new anti-EU prime minister who's shaking things up.  But regardless of Monday's ruckus, the ECB proceeded today as if there are still negotiations in play with the Greek banks, and the banks responded in kind.  There is still the expectation that scheduled talks regarding paying off the debt will go on tomorrow just as was mentioned on Friday and that there will be an application for extension by the 16th.  It seems the big players are simply ignoring yesterday's events, and that shot the market up 140 points.  In other positive news, new job openings surged to 5 million in December, the highest in 14 years.  But at 6.5 billion shares, volume was still below average for the month, just as it was yesterday, so maybe things do remain on the fence with Greece.  I guess we'll find out tomorrow. 

Wall St. ends down on Greece, China worries

Friday the world was looking forward to Greece negotiating a debt deal with the ECB.  Today, the Greek prime minister said no, there would be no deal, there would be no extension, there would be no reforms.  It's amazing the market only went down 95 points.  Additionally, China's imports fell 20% in 12 months, far worse than expected, and fears of rising interest rates continue to dog things.  At least oil had another good day, rising for the third consecutive session after OPEC forecast greater demand.  Volume was okay at 6.2 billion.  (Maybe that's the good news, investors not taking the prime minister's remarks too seriously.) 

The Golden Age of Financial Writing (+ w/e summary)

Doing something a little different this Sunday evening.  I found such a terrific bonus this weekend that, instead of starting with the usual Sunday night one-page eye shot of all the week's financial events, I am starting with the bonus, which is a terrifically concise list of all the best of the financial media.  This is independent of Barry Ritholtz's column but, as you will see, he had to share it with us since he found his blog made this list.  So enjoy this valuable resource.  It is followed by the Week's Summary, which is then followed by the unabridged article regarding financial writing.

10 Weekend Reads

by Barry Ritholtz - February 7th, 2015, 6:30am

Good Saturday morning. Pour yourself a mug of strong brew, settle into your favorite easy chair, and get ready for our long-form weekend reading:

• Roger Goodell’s Season from Hell (GQ)
• Mac McQuown Is Reinventing the Corporate Bond. Is He Solving a Big Problem or Creating an Even Larger One? (Bloomberg)
• Why Google Glass Broke (NY Times)
• The Hack That Warmed the World: Europe’s carbon-trading market became a playground for gangsters, international crime syndicates, and even two-bit crooks — who stole hundreds of millions of dollars in pollution credits. (Foreign Policy)
• A Dozen Things I’ve Learned From Tren Griffin (A Wealth of Common Sense)
• The loneliness of the long-distance drone pilot (Daily Dot) see also America’s 14th-Century Drone Policies (Slate)
• Creator or Buyer: Who Really Owns the Art? (Art Law Journal)
• Why Do Many Reasonable People Doubt Science? (National Geographic)
• The Megyn Kelly Moment (NY Times) see also Meet the man who predicted Fox News, the Internet, Stephen Colbert and reality TV (Salon)
• The Beginner’s Field Guide to Dim Sum (Lucky Peach)

Wall St. ends down on interest rate, Greece jitters

Investors really do have to decide whether they want a recovery or not.  This happens over and over.  Today's employment numbers came in much better than expected, once again indicating solid progress in the recovery.  But that also means that the Fed may decide to start increasing interest rates sooner than expected, keeping in mind that interest rates have been kept low specifically for the purpose of stimulating the recovery.  It has always been the plan to start raising interest rates again as the economy continued gaining strength.  But everytime there is good news, the market takes it as a negative since an interest rate hike might dampen this historic bull market we've been in for some time.  So even though the Fed has made no indication that it plans to raise interest rates sooner than next fall, the market still fears it might be sooner.  Thus whenever good news comes along as it did today, the reaction is a sell-off, this time to the tune of 120 some points but recovering in the last hour of trading to end down 60 points.  The strong employment numbers also indicated that two million new people who had previously given up, now sufficiently encouraged by the growing job market, had rejoined the labor force and, though more jobs had been added, this expansion caused the unemployment rate to go up to 5.7%.  There was also more tension from Europe.  As noted yesterday, though investors were elated by Greece's new proposal to pay off its debt, it was still not known whether the ECB was on board.  Today we found out -- it's not on board, at least not yet.  On February 11th, the Greek banks will meet with the ECB's finance ministers to present the details of their proposal.  If at that time the terms are found to be acceptable, Greece will have just five more days to apply for the needed extension or lose it.  So once again, next week all eyes will be on Greece.  Volume was high at 7.7 billion shares.

Wall St. climbs with energy rebound, Pfizer deal

The rally that began yesterday but was so abruptly and severely reversed in the last half hour of trading continued in force today with the Dow gaining another big 211 points.  This mostly came from another bounce in energy.  Crude got a 4% bump and is once again over $50/barrel.  But the big news was once again from Greece with a new proposal to the ECB to defer debt payments until May in exchange for a firm vow that the besieged nation will avoid default at all costs and once and for all put to rest the issue of the "Grexit."  No word yet as to whether the ECB is on board with this but investors took it so positively that it's considered already a done deal and the market is feeling more relaxed about any potential short-term crisis.  Other factors boosting the index was Pfizer's $15 billion acquisition of Hospira and a weekly jobless claims report that was less than forecast, this ahead of tomorrow's January employment report.  Volume was healthy at 6.9 billion shares.

Wall St. ends lower with oil prices, renewed Greece worries

Another wild back-and-forth day with the Dow up over 100 points as late as 3:30 p.m., then crashing in the final half hour to end just 6 points in positive territory.  What happened?  The Greek debt deal that investors had so strongly depended on fell through.  Now Greece must come up with tens of billions of euros in the coming weeks to ensure liquidity.  All eyes will be ever more intensely on the Greek banks with the consensus that there is going to be a liquidity crunch if the so-called Grexit problem does not get resolved.  The bad news hit energy hard again with crude dropping nearly 9% and once again closing below $50.  Again, volume was brisk at 7.8 billion shares.

Wall Street posts second day of strong gains, led by energy

The rally continues as energy sustains its gains and crude rises again, today up 7% to close above the $50 mark at $53.05.  That plus increasing optimism over the potential Greek debt deal sent the Dow soaring 305 points.  Strong January car sales also supported the advance.  Volume was heavy at 8.4 billion.

Wall St. rallies late on Greek deal hopes; energy gains

Friday's rout was followed by today's boom, which I suspected would be the case since the entire rout happened in a panic in the last hour of trading on Friday.  It was also quite a tumultuous day with the Dow dropping 150 points right out the gate, then rallying more than 300 points for the rest of the session.  Friday's panic was caused by a statement from Greece saying "no cooperation with the EU," so it made sense that today's big rally was caused by yet another statement from Greece saying "cooperation with the EU."  That's right, after months of Syriza campaigning for what they have dubbed the "Grexit" from the EU, it took just one day of global crash-and-burn to change their minds.  Today, Greece proposed a compromise solution with the EU that has them swapping their debt for new growth-linked bonds.  Everyone's happy now - Greece, the EU bankers, global investors - and the Dow shot up 196 points.  Energy also continued its Friday rally today, the index up another 3% and crude rising nearly as much and now already back to just under $50/barrel.  On the downside, though Friday's reports showed a big rise in consumer confidence, today's reports show a big disappointment in consumer spending.  One day, one bad report, and they're already predicting that the savings from oil will not translate into more consumer spending.  Volume was quite healthy at 7.7 billion shares.

Succinct Summations of Week’s Events 1/30/15 (+ 2 bonuses)

Today marks one month since I've launched this Marias Capital Management blog, which I created primarily for the benefit of my FastTrack study group (comprised of 5 people) in order to provide them with my own quick daily summary of the day's market news via Reuter's Business news web site.  To date the blog has had 86 pageviews, though granted half of those occured on the day of the launch, with several coming from Germany, plus a handful from such places as France, Poland, and Malaysia.  Since the launch, only our friends in Germany have continued to follow my daily snippet, but I have consistently been getting 1-3 views per day, meaning there's either one or two loyal followers among you who check each daily report, or all of you are checking once or twice a week.  Natch, I expected light usage at first, but hopefully it will grow as I begin to share pearls of wisdom of investment strategy from my own studies.  This is the baseline, I am hoping that as I grow my practice and grow my fund, that number will eventually be in the thousands.