• With 0% of the Vote In….
    Posted by on November 2nd, 2010 at 10:44 am

    While we’re all waiting for the election returns to come in, here are a few items I found interesting:

    Bespoke has a great post that notes the divergence in the recent rally. The weaker dollar is helping more internationally-focused companies. As a result, stocks of companies with no foreign sales are up just 10.36%. But stocks with more than half their sales coming from outside the U.S. are up 17.55%.

    Michael Stokes takes a look at trading gold using my gold model.

    The latest Intrade data shows the GOP gaining 63.75 seats with a standard deviation of 11.3. That’s based on the 50-seat and 60-seat contracts. If we use the 60-seat and 70-seat contracts, it’s a gain of 64.3 seats with a standard deviation of 13.

    The lede of this story sounds like it’s from a Carson monologue from 1986:

    Gov. Arnold Schwarzeneger says welfare recipients can no longer use state-issued debit cards at medical marijuana shops, psychics and other businesses whose services have been deemed “inconsistent with the intent” of the program.

    On November 5, 1974, Jerry Brown was first elected Governor of California. The Dow was at 674.75.

    Check out Josh Brown’s great Star Wars-themed roundup of the financial blogosphere. I’m honored to have been named a Jawa.

  • It’s Mid-Termania!
    Posted by on November 2nd, 2010 at 10:23 am

    The market is up again today but don’t get too excited. We had trouble holding on to gains yesterday which is exactly what happened a week ago.

    For the last seven trading sessions, the closing high has been 1,185.64 and the closing low has been 1,182.45. Kinda narrow. Today we’ve been as high as 1192. Our Buy List is currently up 0.85% today compared with 0.67% for the S&P 500.

    Of course, the big news today is the election. If the polling is to be believed, the Democrats are in for a major defeat. Intrade currently sees the GOP gaining over 60 seats in the House.

    I should caution you from reading too much into the market from politics. I’ve called this the “Larry Kudlow Syndrome” where every uptick or downtick in the market is due to something in Washington.

    I’m reminded of the story when Richard Nixon was asked what he’d be doing if he weren’t president. Nixon said that he’d probably be down on Wall Street buying stocks. They asked an old-time Wall Streeter what he thought of that. He said that if Nixon weren’t president, he, too, would be buying stocks.

    The Federal Reserve also begins its two-day meeting today in Washington. The big news will come tomorrow at 2:15 pm when they will announce their Quantitative Easing plan. As I said before, I expect everyone else to be disappointed so don’t be surprised to see a minor pullback.

    Then on Thursday, we’ll have three more earnings reports. If that isn’t enough excitement, on Friday we’ll have the jobs report. After that, however, most of November ought to be pretty dull.

  • Morning News: November 2, 2010
    Posted by on November 2nd, 2010 at 7:28 am

    Rate Futures Report: Some Doubt About QE2 Before FOMC Meeting

    Australia, India Raise Rates to Slow Inflation Before Fed Move

    Oil Rises a Second Day on U.S. Stimulus Bets, Falling Fuel Supply Forecast

    China Yuan Up On Weak Dollar Ahead of Fed Meeting

    Why the Economy’s Growth Isn’t Easing Unemployment

    GM to Sell over $13 Billion of Shares

    BP Profit Down on Oil Spill Charges

    BBVA to Buy Stake in Turkey’s Garanti Bank for $5.8 Billion

    Gold Miner Newmont’s Third-quarter Profit Soars

    Dell Plans Cloud Computing Acquisition and Tablet PC Push

    The Hedge Fund Structure Is Dead

  • Sysco Moves in the Right Direction
    Posted by on November 1st, 2010 at 2:59 pm

    Michelle Leder spotted some more responsible behavior from Sysco (SYY). The company will no longer foot the bill when an senior exec takes a loss on a house. Michelle is careful to note that her praise is muted but that the company is moving in the right direction.

    Stay tuned for earnings on Thursday.

  • The Turn-of-the-Month Effect
    Posted by on November 1st, 2010 at 2:39 pm

    I’m reposting this from February. I had done some research on the turn-of-the-month effect:

    Since 1932, most of the S&P 500’s capital gain has come during a seven-day period at the turn of each month—specifically, the last four trading days and the first three trading days of each month. This represents about one-third of the total trading days. During the rest of the month, the stock market actually lost money.

    Here are the numbers: Since the beginning of 1932, the S&P 500 has gained nearly 14,000% which is about 6.5% annualized. Investing in just the last four days and first three days of each month would have returned over 63,000% (not including trading costs). Annualized, that’s 8.6%. However, if you consider that it’s really only 32% of the time, the true annualized rate is over 28%.

    The rest of the month — the other 68% of the time — has resulted in a combined loss of close to 78%.

    Let me add some important caveats. First, I’m not offering this as trading advice. I’m merely showing that the market has historically experienced outsized gains at the turn of each month. Remember that trading in and out of the market is costly and these results don’t include taxes or commissions.

    Secondly, this only refers to capital gains not dividends. A very large part of the market’s total return is due to dividends, and if you’re only invested one-third of the time, you’re going to lose out.

    Having said that, here’s a graph showing what turn-of-the-month investing looks like. The S&P 500 is the red line. The blue line is performance during the seven-day period and the rest of the month is the black line.

    image902.png
    Here’s a look at the average daily gains.

    Day Daily Gain Stand Dev
    Fourth to Last 0.068% 1.064%
    Third to Last 0.021% 1.055%
    Second to Last 0.071% 1.037%
    Last 0.088% 0.997%
    First 0.118% 1.117%
    Second 0.168% 1.065%
    Third 0.155% 1.077%

    Why has the market shown this performance? It’s hard to say. One idea is that we’re seeing a pattern that’s simply the result of random behavior. If you splice and dice any data long enough, you’re bound to find some anomaly.

    My hunch, however, is that there’s something to the turn-of-the-month effect. Perhaps it’s new money coming in or maybe positive business news is more likely to be announced.

    Still, as powerful as the historical data is, I think the effect is too transient to base any investment strategy on.

  • Dollar/Yen Hits Reality, 15-Year Low
    Posted by on November 1st, 2010 at 1:52 pm

    The dollar is being battered by the yen.

    The dollar fell to a fresh 15-year-low against the yen early Monday before investors backed off, reluctant to risk the possibility of another strong Japanese intervention.

    The pair fell to Y80.21, its lowest in 15 years and the closest it has come to the Y79.75 level that has stood since April 1995 as the dollar’s lowest point since the end of World War II.

  • Noonish Market Update
    Posted by on November 1st, 2010 at 12:46 pm

    It’s Monday and it’s another rally we’re having trouble holding onto. The ISM report is helping the market. The S&P 500 got as high as 1195.81 which is just shy of last Monday’s high of 1196.13.

    As of right now, the Buy List is up 0.30% compared with 0.44% for the S&P 500. Intel (INTC) is doing particularly well with shares up over 2% on news of a pickup in chip sales.

    Sysco (SYY) is closing in on $30 just ahead of its earnings report. This tends to be a very stable stock, but I think it could make a run over $30 very soon.

  • ISM = 56.9
    Posted by on November 1st, 2010 at 10:37 am

    Still more confirmation that the Double Dip was a bunch of hooey: the ISM is now at its highest level since May.

    The ISM’s U.S. new orders climbed to 58.9 from 51.1, while the production index jumped to 62.7 from 56.5.

    Employment, Exports

    The employment gauge rose to 57.7 from 56.5, and the index of export orders increased to 60.5 from 54.5.

    The measure of orders waiting to be filled fell to 46 from 46.5 and the index of prices paid increased to 71 from 70.5.

    The inventory index fell to 53.9 from 55.6 in September, which was the highest since July 1984, while a gauge of customer stockpiles rose to 44 from 42.5. A figure higher than 50 means manufacturers increased stockpiles.

    Consumer spending rose less than forecast in September and incomes dropped for the first time in more than a year, a Commerce Department report showed today. Purchases rose 0.2 percent, the smallest gain in the third quarter. Incomes dropped 0.1 percent, the first decrease since July 2009.

    See that little dip earlier this year? Yes, that’s the scary Double Dip. That’s what had the bears screaming from the rafters all summer.

  • Latest from Intrade
    Posted by on November 1st, 2010 at 9:48 am

    With one day to go before the election, I update my implied House result using prices from Intrade:

    Here’s my earlier post which explains how I was able to derive these numbers.

    The latest prices are 54.0 for the 60 seats or more and 85.0 for 50 seats or more. That works out to a GOP gain of 60.1 House seats with a standard deviation of 10.7 seats.

  • The Baby-Step Rally
    Posted by on November 1st, 2010 at 8:54 am

    The market has done very well since late August, even though it’s been in very small increments. Since August 30th, the largest correction has been 1.59%.