Weekly Cycle: Stay Vigilant

In 1974, near the peak of his fame, Paul Simon started taking music lessons.

Even the best don’t know what will l happen next, and it pays to stay vigilant.

Stock Market Outlook 05.14.2018

Each week, I review the market using a specific set of information sources to gauge the stock market rather than relying on headlines from news sources looking to generate attention. Weekly checkups give me the opportunity to spot trends, while not overreacting on a daily basis.

Index Performance & Technical Indicators

weekly cycle - stock market perfornace and technical indicator scores 05.14.18

Performance Observations
  • VIX is down over 11% over last 7 days
  • MJ (cannabis) up 5% in last week
  • Cybersecurity (HACK) is up nearly 15% over last 90 days
  • China Tech (CQQQ) up nearly 35% over last year
Technical Indicators Observations

Based on data and info from TradingView (Click  for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • Trading signals have turned overwhelmingly positive for nearly all indexes on list
  • BKF (BRIC index), CQQQ (China Tech), MJ (cannabis) and VFH (financials) saw biggest positive changes
  • VNQ (Vanguare REIT index) has fallen the most
OldProf’s Risk Analysis

Each week OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf short-term conditions have improved somewhat:

Short-term trading conditions have improved. The borderline rating was almost poor enough to take our trading models out of the market. A strength of our modeling approach (Thanks, Vince!) is a touch more patience than shown by many technical systems. This has a mild cost, and can reap great rewards. This week was a good example. We continue to monitor the technical health measures on a daily basis. The long-term fundamentals and outlook are little changed.


He also notes that the chance of a recession has increased to 25%. While not at a worrisome level, he notes:

That said, we watch this quite closely and plan to reduce position sizes if the risk grows much larger.


StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Hanna writes that after some worrisome consolidation, short-term conditions showed improvement late last week:

The indexes were looking a bit rocky the past few weeks, with a consolidation at lower levels with no real attempt at an upthrust — but the rally late in the week certainly helped prospects.   The bulk of weekly gains came Wednesday and Thursday but Thursday’s move up helped change the complexion of the S&P 500 and Russell 2000 charts which we’ll show below.

Short term: After a lot of consolidation at lower levels – which is a concern – we saw a reversal here late in the week.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Hacked (subscription-only) publishes a weekly technical update on U.S. indices with a weekly analysis of the S&P 500, NASDAQ, and DJIA, as well as a general market outlook. Other posts include trade recommendations (stocks, crypto & forex markets), worldwide-market updates, ICO analysis, and much more.

This week, Hacked’s outlook is “Short- and intermediate-term bullish”, which is more positive than the previous two weeks. Still, they warn “Short- and long-term bearish whenever S&P 500 and NASDAQ break their respective intermediate-term supports. Considered less likely in the short-term after this week’s price action.”

More info on in the weekly update.

Articles of note
The Projected Improvement in Life Expectancy

Bill McBride at Calculated Risk analyzed reports from the CDC and found some interesting facts on life expectancy:

Using these stats –for those born this year (in 2018) – more than two-thirds will make it to the next century.

Also the number of deaths for those younger than 20 will be very small (down to mostly accidents, guns, and drugs).  Self-driving cars might reduce the accident components of young deaths.

An amazing statistic: for those born in 1900, about 13 out of 100,000 made it to 100.  For those born in 1950, 199 are projected to make to 100 – a significant increase.   Now the CDC is projecting that 2,111 out of 100,000 born in 2014 will make it to 100.

When Intelligence Fails Miserably

Ben Carlson writes about how intelligence can backfire, citing two well known examples in Enron and Long Term Capital Management, and includes a few lessons that can apply on a much more micro level:

It’s easier to fool yourself with complexity. Complexity in business and investing makes it easier to game your own system. Enron and Long-Term Capital were run by extremely bright people who tried to implement complicated processes to run their business activities. And these complexities allowed everyone within the organizations to be fooled by randomness or turn a blind eye to what was going on.

Warner Sells Spotify Stock

Major record labels like Sony and Warner have sold off Spotify stock, and Bob Lefsetz believes it’s another example of short-term thinking, which nearly every company is guilty outside Amazon:

This is what’s wrong with the record companies, this is what’s wrong with AMERICA! The short-term thinking.

no one in corporate America is a builder other than the founder, they’re all custodians, looking to make their bonuses, playing to Wall Street.

Except for Jeff Bezos.

Tech’s Two Philosophies

Apple and Microsoft make tools for humans to use; Google aims to replace human processes, or so writes Ben Thompson in a great piece on the difference in philosphies among tech companies:

In Google’s view, computers help you get things done — and save you time — by doing things for you. Duplex was the most impressive example — a computer talking on the phone for you — but the general concept applied to many of Google’s other demonstrations, particularly those predicated on AI: Google Photos will not only sort and tag your photos, but now propose specific edits; Google News will find your news for you, and Maps will find you new restaurants and shops in your neighborhood. And, appropriately enough, the keynote closed with a presentation from Waymo, which will drive you.

This second philosophy, that computers are an aid to humans, not their replacement, is the older of the two; its greatest proponent — prophet, if you will — was Microsoft’s greatest rival, and his analogy of choice was, coincidentally enough, about transportation as well. Not a car, but a bicycle:

He notes Steve Jobs’ bicycle analogy, which I particularly like here at Bicycles&Blazers,

But fortunately someone at Scientific American was insightful enough to test a man with a bicycle, and man with a bicycle won. Twice as good as the Condor, all the way off the list. And what it showed was that man is a toolmaker, has the ability to make a tool to amplify an inherent ability that he has. And that’s exactly what we’re doing here.

Tesla is another company that appears to want to replace humans by doing the driving for them, especially compared to other companies offering self-drive assist features. Volvo requires drivers to go no more than ~10 seconds without touching the wheel using their self-drive feature.

Should our machines sound human?

Last week, Google held a presentation where they introduced Duplex, which can have human sounding conversations. The tech is impressive and it raises a number of concerns. Jason Kottke rounds up a few links on the subject and concludes:

For now, it’s probably the ethical thing to do make sure machines sound like or otherwise identify themselves as artificial. But when the machines cross the AGI threshold, they’ll be advanced enough to decide for themselves how they want to sound and act. I wonder if humans will allow them this freedom.

Final Thoughts

There’s been a lot of concern around the short-term market conditions recently. This week there’s an improvement among technical indicators and expert analysis.


Is the artisan trend a precursor to a Big Tech backlash?

In the Economist’s 1843 magazine, Ryan Avent writes about the resurgence of the “artisan” culture in Crafting a life:

Before the Industrial Revolution, the craft economy was simply the economy. Clothing, processed food, furniture, wood and iron tools were all made by hand, using simple equipment, one unique batch at a time. Artisans learned their trade through years of observing experts, within the family or in a structured apprenticeship. The quality of both the instruction and the finished products was highly variable. There was virtually no opportunity for mass education in trades, nor a chance for better producers to capture increased market share by scaling up production.

The Atlantic ran a similar piece recently Craft Beer Is the Strangest, Happiest Economic Story in America.

At the same time, the number of public companies has decreased and the “Big 4” tech companies make up 24% of the market cap of $SPY. Some amazing numbers, per Scott Galloway in Esquire:

Over the past decade, Amazon, Apple, Facebook, and Google—or, as I call them, “the Four”—have aggregated more economic value and influence than nearly any other commercial entity in history. Together, they have a market capitalization of $2.8 trillion (the GDP of France), a staggering 24 percent share of the S&P 500 Top 50, close to the value of every stock traded on the Nasdaq in 2001.

How big are they? Consider that Amazon, with a market cap of $591 billion, is worth more to the stock market than Walmart, Costco, T. J. Maxx, Target, Ross, Best Buy, Ulta, Kohl’s, Nordstrom, Macy’s, Bed Bath & Beyond, Saks/Lord & Taylor, Dillard’s, JCPenney, and Sears combined.

Meanwhile, Facebook and Google (now known as Alphabet) are together worth $1.3 trillion. You could merge the world’s top five advertising agencies (WPP, Omnicom, Publicis, IPG, and Dentsu) with five major media companies (Disney, Time Warner, 21st Century Fox, CBS, and Viacom) and still need to add five major communications companies (AT&T, Verizon, Comcast, Charter, and Dish) to get only 90 percent of what Google and Facebook are worth together.

And what of Apple? With a market cap of nearly $900 billion, Apple is the most valuable public company. Even more remarkable is that the company registers profit margins of 32 percent, closer to luxury brands Hermès (35 percent) and Ferrari (29 percent) than peers in electronics. In 2016, Apple brought in $46 billion in profits, a haul larger than that of any other American company, including JPMorgan Chase, Johnson & Johnson, and Wells Fargo. What’s more, Apple’s profits were greater than the revenues of either Coca- Cola or Facebook. This quarter, it will clock nearly twice the profits that Amazon has produced in its history.

Will the trend of the big getting bigger continue? Or is there enough of a Big Tech backlash to make things start regressing to more normalized levels?

We’re certainly not making a call and will continue to look for further evidence.


Google’s AI Ranks Photos on Merit

NIMA uses a CNN that is trained to estimate what photos a user would find aesthetically pleasing or technically proficient on a scale of 1 to 10. Coming up with this number relies upon object recognition networks which help the AI recognize elements within the image.

via Google’s Artificial Intelligence Now Ranks Photos on Merit at Light Stalking

Is DuckDuckGo an answer for even more privacy

DuckDuckGo is moving beyond search into a broader suite of privacy offerings. They have built up the trust of users over the years and can now apply that to a wider set of problems.

via DuckDuckGo Moves Beyond Search at A VC