Tag Archives: Stock market

Global Markets Mental Health Test

After Friday’s mega jump in the US stock market, the expression “irrational exuberance” just doesn’t cut it anymore. Even if last week’s unemployment number should be an indicator of recovery for the US economy – which is doubtful – it is not a valid argument for sending the Nasdaq index to a 11 year high. This behavior has more in common with bipolar disorders than anything else. Europe‘s regulators now want to stress test the stock markets and the electronic trading platforms in the same way they’ve (relatively) successfully stress tested European banks in the past. Well, let me remind you that stress,  in general terms, is regarded only as a symptom of something else.

“Here it is; the first ever Global Markets Mental Health Test!”

econoTwist’s

But let me point out that there are per definition two kinds of stress – the biological kind and the mechanical kind. I’m not 100% sure, but I think the famous bank stress tests is of the mechanical type. So it may be quite possible that the authorities are missing vital facts about the stressed-out banks by disregarding the human factor. 

As reported by Tim Cave from Financial News.Com, a number of industry practitioners have called on European regulators to force exchanges and alternative trading platforms to adopt stress-tests, in a bid to improve their resilience to large-scale shocks, volatility and the rise of high-frequency trading.

While the concept of stress tests has become common in the banking sector after the financial crisis, and measures are also being implemented to simulate the resilience of clearing houses in times of stress, no similar measures have been suggested for trading venues.

Speaking at a high-frequency trading conference in Paris yesterday, Carlo Comporti, a director at regulatory consultancy Promontory Financial Group and former acting secretary-general of the European Securities and Markets Authority, said that needed to change, fiercefinance.com reports.

Bipolar Markets

However, both mechanical and biological stress have one thing in common; its a symptom that something isn’t right.

The actual problem is usually far more difficult to identify.

But with the recent market volatility in mind – here’s the clinical cognitive symptoms of stress:

  • Memory problems
  • Inability to concentrate
  • Poor judgment
  • Pessimistic approach or thoughts
  • Anxious or racing thoughts
  • Constant worrying

To me, that pretty much sums up the market sentiment at the moment.

And the similarities between biological and mechanical stress are fascinating.

“Biology primarily attempts to explain major concepts of stress in a stimulus-response manner, much like a how a psychobiological sensory system operates.”

(Source: Wikipedia)

A Market Mental Health Test

It’s also common knowledge that stress can be a symptom of a mental disease or disorder, as well as long-term stress is known to cause mental problems.

However,  to my knowledge there has never been a mental health test for the financial markets (and I’m not sure if there ever will be).

So, I have put together some free online tools that might be helpful in determine what kind of stress the stock market (and the banks) is struggling with, and give us a clue to what is the real and underlying problems.

 Here it is; the first ever Global Markets Mental Health Test!

TEST 1

Do you have a mental disorder?

(Take the test)

TEST 2

Which mental disorder do you have?

(Take the test)

TEST 9

Are you schizophrenic?

(Take the test)

TEST 4

Do you have a borderline personality?

(Take the test)

TEST 5

How depressed are you?

(Take the test)

TEST 6

How manic are you?

(Take the test)

TEST 7

How well do you manage your anger?

(Take the test)

TEST 8

Do you have a alcohol or drug problem?

(Take the test)

TEST 9

Are you addicted to cybersex?

(Take the test)

TEST 10

Are you a workaholic?

(Take the test)

TEST 11

Do you have  obsessive-compulsive disorder?

(Take the test)

TEST 12

Are you a retard?

(Take the test)

Please take the time to answer the poll:

Those of you with muliple personality, please fill in this one, too:

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Hedge Funds Even More Bearish on US Equities, But Still Buying

The percentage of hedge fund managers who are bullish to the US stock market have dropped to 25,6 in February, down from 46,2 in December last year, They belive – and are probably right – that the FED‘s QE2 have been the major force behind the upswing, and expects a severe downturn when Uncle Ben runs out of money, the latest research from TrimTabs/BarclayHedge show. However; they’re still loading up the boat…

“If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”

Vincent Deluard


Hedge Fund Managers Turn Bearish on US equities, according to the latest money flow survey from TrimTabs/BarclayHedge. Most managers attribute the recent rally in equities to the QE2, while many feel the rally will end when the quantitative easing stops. But the funny thing is; they’re still buying stocks in buckets and barrels. Why?

Hedge fund managers have turned bearish on US equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for February, released last week.

About 40% of the 89 hedge fund managers the firms surveyed in the past week are bearish on the S&P 500, up sharply from 26% in January, while only 26% are bullish, down from 37%.

“Bullish sentiment less bearish sentiment is negative for the first time since November,” says Sol Waksman, founder and President of BarclayHedge.

Adding: “Increased caution might owe in part to excellent recent performance. The Barclay Hedge Fund Index has posted a positive return for six straight months.”

About 37% of hedge fund managers are bearish on the 10-year Treasury note, while only 15% are bullish. Bullish and bearish sentiment on the U.S. dollar index are balanced at 31%.

Meanwhile, 18% of managers aim to increase leverage in the near term, while only 15% plan to lever down.

“Managers aim to lever up even though they are bearish on both bonds and stocks,” Vincent Deluard, Executive Vice President at TrimTabs notes.

“Why? They still have a large incentive to gamble with borrowed money because short rates round to nil. If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”

About 52% of hedge fund managers feel the rally owes primarily to QE2, while 35% cite the end of quantitative easing in June as the biggest threat to the rally.

TrimTabs points out that the level of the S&P 500 and the size of the FED’s balance sheet have exhibited a positive correlation of 88.4% since the start of QE1 in March 2009.

Meanwhile, managers are concerned about oil prices. About 24% believe oil is more likely to hit $150 per barrel than the S&P 500 is likely to ascend to 1,600.

“We’ll take the other side of that action,” Deluard says.

“We did see a similar surge to $150 from $100 in 2008, and tension in the Middle East is obviously higher now.  But oil spiking to $150 from here represents a move of nearly seven standard deviations, while the S&P 500 climbing to 1,600 represents a move of less than three standard deviations. The market participants who agree with us that concern about sharply higher oil prices is overdone might consider capitalizing by selling long-dated out-of-the-money call options on oil futures.”

Related by the Econotwist’s:

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Best Investment Advise of 2011

There’s plenty of advice floating around these days when it comes to investing in the financial markets. The problem is to find the ones who really is worth something, like the famous “Bob Farrell’s 10 Rules of Investing.” But once in a while I stumble over something that sounds quite wise to me, and I happy to pass it on. Here is the top 20 investing rules for 2011 from the independent advisers at Cabot.net, (And, of course, a copy of Farrell’s classic ” Top 10″.

“Markets are never wrong; opinions are.”

Jesse L Livermore

There is of course different advise for different types of investors. So,the first thing you should determine is what kind of investor you are; a speculator investing to make as much money as possible in the shortest amount of time? Are you investing to save money and preserve the wealth you already have? or maybe you’re an ethical investor trying to make some kind of statement by the way you invest?

There is – however – some advice that are valid regardless of what kind of investor you are.

The following 20 tips from Cabot.net is the kind of sound, good common sence advise. and can be applied to almost every type of strategy.

Enough jaba-jaba from me – here they are:

Cabot’s 20 Best Investment Advise For 2011

1. Cut losses short (definitely rule #1 for growth stock investing).

2. Search for strong sales and earnings growth (especially triple-digit sales growth).

3. Search for revolutionary products with major benefits. First Solar and Crocs filled the bill in 2007 and were our two biggest winners.  This year we’ve benefited from Green Mountain Coffee Roasters’ revolutionary Keurig single-cup brewer.

4. Heed the message of the overall market–never fight the main trend!

5.  Never average down in growth stocks.

6. Be prepared for all contingencies (always have an exit plan ahead of time).

7. Never try to buy at the bottom or sell at the top (if you try, you’ll just lose more money).

8. To avoid gut-wrenching volatility, stick with stocks that are liquid (at least 500,000 shares traded per day or more).

9. Only put more money to work after your past purchases are showing you a profit.

10. Be humble—making money in stocks is tough, so don’t kill yourself over one or two bad trades. Be thankful when you hit a big winner.

11. Find an investing system that works for you, then follow it. The best way to deal with stress from the market is to have a game plan ahead of time. If you wait until things are blowing up in your face, it’s too late—by then, your emotions are out of control and you’re likely to do the exact opposite of what’s constructive.

12. “Markets are never wrong; opinions are,” is a quote from Jesse L. Livermore, one of the most colorful, flamboyant, and respected market speculators of all time. At Cabot, we agree wholeheartedly with his comment and truly embrace this thinking. And you should, too, if you want to become a successful growth investor.

13. When looking for potential purchase candidates, examine both the company’s fundamentals and its stock’s technical performance. When analyzing the technicals, focus on the stock’s momentum and price chart, along with its volume pattern and 50-day moving average.

14. Find a company that has a big idea … one that leaves few if any limits on its future growth potential. It’s these big ideas that create an atmosphere that can push a growth stock to dizzying heights!

15. Warren Buffett once said there were only two rules to follow with your investments: Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.

16. Our goal is to get you heavily invested while the market is trending higher. During those times, when investor perceptions are improving, investors are willing to pay more and more for stocks. This is when you can make big money! But, of course, no market moves in one direction forever. So, when the intermediate-term trend of stocks is down, your best move is to play defense. Easing up on new purchases, while building up cash by selling your weakest stocks, is a good idea.

17. Be an optimist. In our more than three decades of publishing investment advisories, we’ve seen many ups and downs for both the market and our country. But after every tough event our dynamic country and economy have eventually rebounded. So no matter how bleak the situation, always stay optimistic because our country and stock market will give you some dazzling opportunities!

18. Diversify your portfolio. For our Model Portfolio in Cabot Market Letter, 12 stocks provide plenty of diversification for your growth portfolio. Smaller investors can do well with as few as five stocks, but you should never have all your eggs in one basket.

19. Once you’ve invested in a stock, be patient. Recognize that time is your friend. Frequently stocks don’t go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you’ll have a great advantage.

20. Buy growth stocks with strong Relative Performance (RP) lines. RP studies are a superb way to identify successful companies and to avoid problem companies. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding. The best investing tips come from the performance of the stocks themselves. So ignore hot tips!

Bob Farrell’s Classic Rules

When it comes too investment advise, it’s impossible to get around Bob Farrell’s 10 classic rules of investing.

Every trader, saver or investor should have a copy pasted on their wall, or somewhere where they’re sure to be remembered when turbulence are rocking the boat and the so-called experts are more confused than ever.

(You can download a copy at the link below.)

Here’s a quick summary of Farrell’s “10 Rules of Investing”:

1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras — excesses are never permanent.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-outfundamental downtrend.
9. When all the experts and forecasts agree — something else is going to happen.
10. Bull markets are more fun than bear markets.

Download: Bob Farrell’s 10 Rules of Investing

See also: David Rosenberg: How To Play 2011

On a personal account, I’d like to remind you of John Maynard Keyes well-known quote: “The markets can stay irrational longer than you can stay solvent.”

Worth keeping in mind in this age of quantitative easing.

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