Archive for Chart Of The Day – Page 2

Rail Traffic is Starting to Soften

The latest reading on rail traffic is showing some fairly substantial softening.  The weekly reading in intermodal traffic came in at -5.7% which brings the 12 week moving average to just 1.7%.  That’s the weakest reading since the middle of last year.  On the whole, this is much more consistent with the muddle through economic environment we’ve been seeing.

rails

Here’s some more detail via AAR::

“The Association of American Railroads (AAR) today reported decreased U.S. rail traffic for the week ending Feb. 15, 2014 with 270,632 total U.S. carloads, down 2.9 percent compared with the same week last year. Total U.S. weekly intermodal volume was 236,625 units down 5.7 percent compared with the same week last year. Total combined U.S. weekly rail traffic was 507,257 carloads and intermodal units, down 4.3 percent compared with the same week last year.

Two of the 10 carload commodity groups posted increases compared with the same week in 2013, including petroleum and petroleum products with 14,234 carloads, up 7.9 percent; and grain with 19,137 carloads, up 2.5 percent. Commodities showing a decrease compared with the same week last year included nonmetallic minerals and products with 26,660 carloads, down 10.6 percent.

For the first seven weeks of 2014, U.S. railroads reported cumulative volume of 1,877,070 carloads, down 0.8 percent from the same point last year, and 1,666,024 intermodal units, up 0.1 percent from last year. Total combined U.S. traffic for the first seven weeks of 2014 was 3,543,094 carloads and intermodal units, down 0.4 percent from last year.”

Charts O’ the Day: Emerging Markets on Sale?

Here’s some macro perspective for you. Yesterday, Barclay’s strategists published some good insights putting the recent underperformance of emerging markets in perspective. Value investors and macro investors alike might find some useful info here (thanks to FT Alphaville):

“Could emerging markets be the most-disliked region currently? They have been punished by investors, underperforming developed market equities by nearly 35% since Nov 2010, considerably worse than what would be suggested by their earnings (Figure 2). Amongst sellside analysts, a Bloomberg poll seems to indicate that few research houses recommend an overweight on EM equities. From our meetings as well, we find most investors have little sympathy for our recent call to overweight EM equities”

Pretty picture numero uno:

em1

 

Pretty picture numero dos:

em2

 

Pretty picture numero tres:

em3

Chart ‘O the Day: Let’s Stop with the 1929 Comparisons, Okay?

This is not 1929.  So let’s stop with that, okay?

SP500

 (Yellow Line: 2013-14, White Line: 1929 – via Pawel Morski)

Update – More here.

Corrections During the Current Cyclical Bull Market

Just passing along a good chart from Lance Roberts which puts the various market corrections from the last 5 years in the right perspective:

S&P500-Corrections

Coppock Curve Turns Down

By Tom McClellan – McClellan Market Report

A classic technical indicator gave a rare bearish signal for the DJIA with the down move seen in January.  The Coppock Curve has turned down.  More importantly, it has done so after a second big top, which seems to be the important set of dance steps to mark a major market top.

Named for the late Edwin Sedgewick Coppock, his eponymous indicator was originally developed as a way to find the upturns from major stock market bottoms.  But with the right interpretation, it can also have other uses.

Coppock was a market analyst and money manager a few decades ago, and was awarded the MTA’s Lifetime Achievement Award in 1989.  The indicator that bears his name now was something he himself called his Very Long Term (VLT) Momentum indicator.  It was based on an idea which originated from a conversation Coppock had with bishops of the Episcopal church.  Coppock asked how long it takes a person to grieve, and to get over the loss of a loved one.  The answer was 11-14 months.

So Coppock incorporated that answer into his indicator, which combines 11-month and 14-month rates of change for the monthly closes of the DJIA, and then smoothes that with a 10-month weighted moving average.  Technicians who later took up the use of Coppock’s VLT Momentum indicator gradually changed the reference to “Coppock Curve”, to honor its creator.

When the Coppock Curve gets down to a very low level and then turns up, it signals an important long term entry point.  Coppock was a money manager who wanted to find the really great long term buy signals, and was not so much interested smaller swings.  The most recent such signal came in May 2009, just after the March 2009 bear market bottom, and it was indeed a great long term entry point.

After it gives such a signal, the subsequent uses of the Coppock Curve are not as clear cut, and it was not originally meant to offer other interpretations of the market action.  Tops are especially tricky, because sometimes a downturn from a high reading is a big bearish signal, and other times it does not mean that much.  This week’s chart highlights an interesting recent behavior of the market and this indicator, which is to give a two-step long term topping condition.  Or at least that has been the case in the limited number of market cycles since the late 1990s.

Now we have a downturn from a second top, as of the end of January 2014.  That completes this iteration, and arguably sets the market onto the course of a long term corrective move.  Given the math of the Coppock Curve, it will be a long time before we can get another upturn.

 

DJIA Coppock Curve

 

To help visualize this principle, the next chart compares the DJIA to the price level needed to achieve a reversal in the Coppock Curve, what I call the “Coppock Unchanged” value.

DJIA vs Coppock Unchanged level

When the DJIA crosses down through the Coppock Unchanged line, that turns down the Coppock Curve.  If such a move happens at a major top, it is a pretty unequivocal signal.  But crossings at other points can give whipsaw signals as with any other type of trend following indicator.  To get back up on top of the Coppock Unchanged line and turn up the Coppock Curve, the DJIA would need to close above 16238.07 at the end of February 2014, and that number keeps on rising.

So is this January 2014 downturn a legitimate signal, or just another whipsaw?  That’s the important question.  But consider that the DJIA has now completed the familiar 1-2 topping pattern seen at the major tops in 2000 and 2007.  And this arises at a time when the stock market still appears to be following the 1929 top’s price pattern, albeit with a much smaller overall magnitude of price movement, and the Fed is pulling away the QE punchbowl.  That adds up to a compelling case for a meaningful top and downturn.

You can calculate your own Coppock Curve series with this spreadsheet.  See also Calculating The Coppock Curve.


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Chart In Focus Archive

Buffett’s Index Fund Bet is Sitting Pretty

In 2008 Warren Buffett made a bet against hedge fund Protégé Partners. The bet was fairly simple. Protégé Partners could pick a group of hedge funds to perform against a simple S&P 500 index fund over the course of 10 years. Buffett bet $1 million that they couldn’t outperform the simple index.

So, how’s that bet looking today?  Not so good given the huge run in the S&P 500 in the last few years.  According to Fortune the hedge funds have returned just 12.5% while the S&P 500 is up 43.8%.  But it hasn’t always been that lop-sided.  In fact, it looked pretty bad for Buffett in those first few years (I am just guessing that they’re using the HFRI since the HFRI just happens to also be up 12.5% since 2008):

buffett_bet

 

This has the potential to look very bad for the hedge fund industry when all is said and done.   And the weirdest part is that they didn’t even agree to risk adjust the returns, which is the whole point of the hedge funds in the first place! So, in essence, they made a bet that they would generate stable returns and that the stock market roller coaster ride would just so happen to be on its way down when the 10 year bet happened to be ending.  They don’t even seem to have considered the fact that the S&P 500 was bound to be SUBSTANTIALLY more volatile than the HFRI. And not surprisingly, it’s been almost twice as volatile thus far.  So that 43% looks good, but it doesn’t at all reflect the level of risk that’s being taken.  And since the bet involves the nominal return at the end of 10 years, no one will care about this when and if the hedge funds lose.  Which kind of defeats the whole point of the bet to begin with and will completely mislead the general public when the media inevitably runs with a story about how much better the index fund is than the hedge funds….

Chart of the Day: Don’t Think Like a Drug Addict

Every time the market takes a tumble these days everyone seems to blame the “taper” or QE.  I guess there’s always a need to apply a cause to every market gyration.  But I wanted to bring some perspective back to this conversation because I am afraid that some people are starting to think like junkies.  They act like drug addicts who think things can never be okay without another hit of this or that drug.  In other words, they can’t remember that the US stock market didn’t always have QE.  And in fact, it did pretty well before QE ever existed.

Before QE was implemented in 2008 the Dow Jones Industrial Average increased by 350X over the prior 112 years.  So let’s keep some perspective here.  I know these are unusual times, but that doesn’t mean the US economy is going to be addicted to Fed policy for the rest of eternity.  And in fact, if the long-term is any guide, we’re likely to do just okay without relying on QE like a drug all the time.  So let’s not think like drug addicts and focus excessively on the near-term here and what some people think is a stock market drug.

DJIA

Rail Traffic Slips

Rail traffic fell in the second week of the year with intermodal recording a -6.7% reading.  This was the worst reading since early December.   This brought the 12 week moving average to 6.77%.

rails

Here’s more details via AAR:

“The Association of American Railroads (AAR) today reported decreased U.S. rail traffic for the week ending Jan. 11, 2014 with 256,849 total U.S. carloads, down 8.2 percent compared with the same week last year. Total U.S. weekly intermodal volume was 235,987 units down 6.7 percent compared with the same week last year.   Total combined U.S. weekly rail traffic was 492,836 carloads and intermodal units, down 7.5 percent compared with the same week last year.
Two of the 10 carload commodity groups posted increases compared with the same week in 2013, including grain with 20,367 carloads, up 10.1 percent. Commodities showing a decrease compared with the same week last year included motor vehicles and parts with 11,051 carloads, down 22.5 percent; metallic ores and metals with 20,143 carloads, down 20.3 percent; and, nonmetallic minerals and products with 25,177 carloads, down 16.0 percent.
For the first two weeks of 2014, U.S. railroads reported cumulative volume of 503,695 carloads, down 3.4 percent from the same point last year, and 422,865 intermodal units, down 1.9 percent from last year. Total combined U.S. traffic for the first two weeks of 2014 was 926,560 carloads and intermodal units, down 2.8 percent from last year.”

When Will Corporate Profit Margins Contract?

There are few signs of impending doom that are more widely cited than record high profit margins and the inevitable mean reversion that always comes following such an environment.  It’s true.  As you can see in the chart below profit margins have averaged about 6.5% over the last 65 years and every time they’ve gotten well above that 6.5% range they’ve come back to earth.

margins2

(Chart via Orcam Financial Group)

Now, I think there’s some validity to the idea that margins are structurally high (see here for details).  In other words, 6.5% isn’t necessarily a magnet sucking profit margins during contractions.  But I think it’s safe to say that 10.5% certainly isn’t the new normal either.

But this isn’t a question of if.  It’s a question of when.  Profit margins will mean revert at some point.  But they could also stay high for many years and you could miss huge gains like 2013 waiting for the mean reversion to actually occur.

One thing we know is that recessions are devastating for corporations.  And they’re not only devastating for corporations, they’re often devastating for markets.  In the last 60 years all of the year over year 30%+ declines in the S&P 500 have occurred inside of a recession.  In other words, outlier tail risk type returns tend to occur inside of a recession.  And if we look at profit margins we find something similar.  They almost always contract inside of a recession or within a few months of a recession.

margins

(Chart via Orcam Financial Group)

So again, it comes down to being able to forecast a recession.   I hope your model works.

Individual Investor Stock Allocation Hits Post-Crisis High

The latest asset allocation survey from AAII showed a new high in demand for stocks and new lows for both cash and bonds.  Stocks experienced a notable jump to a 68% allocation from just 64% in November.  Bond holdings were down 2% to just 15% and cash holdings were down 2% to 16.5%.

Historically, stocks have averaged a 60% allocation.   The 68% level is not only high historically, but is also the highest level since July 2007 just before the S&P 500 peaked.

aaii

Source: AAII

Rail Traffic Ends 2013 at a 2.5 Year High

Rail traffic finished 2013 with a boom.  Intermodal jumped 10.6% on the week which brought the 12 week moving average to 7.6%.  That is the highest 12 week average reading since May of 2011.  Here’s more details from AAR:

The Association of American Railroads (AAR) today reported increased U.S. rail traffic for the week ending Dec. 28, 2013 with 230,933 total U.S. carloads, up 8.1 percent compared with the same week last year. Total U.S. weekly intermodal volume was 172,396 units up 10.6 percent compared with the same week last year.   Total combined U.S. weekly rail traffic was 403,329 carloads and intermodal units, up 9.2 percent compared with the same week last year.

Nine of the 10 carload commodity groups posted increases compared with the same week in 2012, including grain with 18,201 carloads, up 36.8 percent; petroleum and petroleum products with 13,532 carloads, up 29.8 percent; and nonmetallic minerals and products with 19,174 carloads, up 14.3 percent. Commodities showing a decrease compared with the same week last year included metallic ores and metals with 22,064 carloads, down 7.2 percent.

For the 52 weeks of 2013, U.S. railroads reported cumulative volume of 14,608,403 carloads, down 0.5 percent from the same point last year, and 12,831,692 intermodal units, up 4.6 percent from last year. Total combined U.S. traffic for the 52 weeks of 2013 was 27,440,095 carloads and intermodal units, up 1.8 percent from last year.”

Chart via Orcam Financial Group:

rails

CBOE SKEW Index Spikes to Bearish Levels

Throw this one in the “signs of frothiness” bin.  The CBOE’s SKEW Index attempts to measure the potential for an outlier event.  Readings at current levels are extremely unusual and consistent with a market that is susceptible to unusual events.  Here’s how the CBOE describes the index:

“The CBOE SKEW Index (“SKEW”) is an index derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant.”

And the visual via (via J. Lyons Fund Management):

skew (1)

 

* See more updated market and economic indicators here.