MackTheKnife's Blog Posts on People And Picks

The Trend Is Your Friend (Until the End)

Mon, 24 Jan 2011 04:54:33

The Standard & Poor's (S&P) 500 (SPX) has moved from a closing level of 1,047.22 on Aug 26 to a closing level of 1,283.35 on Friday, with its steady progress impeded by neither a consolidation nor a correction along the way.

In association with this major move, the S&P 500's extreme readings ranged from the 1,039.70 reached intraday on Aug 27 to the 1,296.06 reached intraday last Tuesday. I believe there is an intermediate probability the latter value may represent the high-water mark for SPX this month. And I think there is a high probability the index may soon experience either a consolidation or a correction for the first time since last summer.

Assuming 1,296.06 proves to be a short-term top and drawing on the definitions of terms expressed in Lions, and Tigers, and Bears! Oh, My! (http://tinyurl.com/yeyb9jc), I thus would consider an S&P 500 level of 1,231.26 the signifier of a consolidation and an SPX level of 1,166.45 the signifier of a correction. All things considered, the former potential event appears more likely to occur than does the latter.

Interestingly, I find employing 1,296.06 as the most recent significant high and 1,039.70 as the most recent significant low in the calculation of Fibonacci retracements produces these index readings:
-- 1,235.56 at the 23.60% level.
-- 1,198.13 at the 38.20% level.
-- 1,167.88 at the 50.00% level.
-- 1,137.63 at the 61.80% level.
-- 1,039.70 at the 100.00% level.

As an equity-market chameleon, I therefore believe I may be swapping the bear suit for the bull suit once the ...

Is There a Santa Claus Rally?

Thu, 23 Dec 2010 13:00:16

Dear MackTheKnife:
I am 80 years old.
Some of my little fiends say there is no Santa Claus Rally.
My kids say, "If you see it on the People & Picks Blogs, it's so."
Please tell me the truth: Is there a Santa Claus Rally?
Virginia O'Morgan (nee O'Stanley)
11 Wall Street
New York, NY 10005

Virginia, your little fiends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except they see. They think that nothing can be which is not comprehensible by their little minds. All minds, Virginia, whether they be adults' or childrens', are little. In this great universe of ours, a human is a mere insect, an ant, in one's intellect, as compared with the boundless world all about us, as measured by the intelligence capable of grasping the whole of truth and knowledge.

Yes, Virginia, there is a Santa Claus Rally. It exists as certainly as love and generosity and the morning line at Aqueduct exist, and you know that they abound and give to your life its highest beauty and joy. Alas! How dreary would be the world if there were no Santa Claus Rally! It would be as dreary as if there were no Virginias. There would be no childlike faith then, no capital gains, no dividends to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which Warren Buffett fills the world would be extinguished.

Not ...

Cluster Bombs Away at the ISE

Sat, 11 Dec 2010 09:50:05

Exploding of late like the fireworks customarily appearing in the New Year's Eve sky over Central Park in New York, the International Securities Exchange Sentiment Index (ISEE: http://tinyurl.com/yvypu9) commands daily attention here at the home office of the completely fictional Druids Investment Group -- Can You DIG It? -- as indicated in about a zillion places at P&P.

In discussing my employment of the ISEE as a market-sentiment indicator in this blog post, I note it is actually not one index but three indices (i.e., the All Securities ISEE, the All Equities Only ISEE, and the All Indices & ETFs Only ISEE). Today, the discussion centers on the All Equities Only ISEE.

By way of background, it may be helpful to quote the ISEE vs. Dow Jones Industrial Average: 2008 in Review white paper (http://tinyurl.com/27g28go): "A high ISEE value indicates many more calls than puts are purchased, typically seen as a bullish investor view, and a low ISEE value typically indicates a bearish investor view of the market. In previous analyses, however, we found that at clusters of consecutive lows and highs the market moved in the opposite direction, making it a contrarian indicator."

With this contrarian interpretation of the ISEE's extreme behaviors in mind, I reproduce the following data:

All Equities Only ISEE: Top 20 Daily Values
Between Jan 3, 2006, and Dec 10, 2010

Source: DIG Table Based on ISE Data

Drawing on the data in the table, I note ...