Although the hedge fund industry attracts the best and the brightest, few fund managers are considered to be a “genius.” I think Baupost’s Seth Klarman deserves such accolades, and people like Warren Buffett and George Soros are inarguably brilliant. But the smartest manager in the business may be one that many have never heard of. I’m talking about Jim Simons. According to a recent glowing profile in the New York Times Simons:        — Received his doctorate at 23;         — Advanced code breaking for the National Security Agency at… Read More

Although the hedge fund industry attracts the best and the brightest, few fund managers are considered to be a “genius.” I think Baupost’s Seth Klarman deserves such accolades, and people like Warren Buffett and George Soros are inarguably brilliant. But the smartest manager in the business may be one that many have never heard of. I’m talking about Jim Simons. According to a recent glowing profile in the New York Times Simons:        — Received his doctorate at 23;         — Advanced code breaking for the National Security Agency at 26;         — Led a university math department at 30;         — Won geometry’s top prize at 37;         — And founded Renaissance Technologies, one of the world’s most successful hedge funds, at 44. At Renaissance, Simons has built a strong long-term track record, by deploying a massive amount of computing power to identify winning picks, known in the field as “quant investing.” Based on his recent stock buys, we have a pretty clear sense of what Simons’… Read More

Last month, I looked in disbelief at how quickly the media was to trumpet the “great” news of the job report for June. Here’s the first few lines of a CNN Money story I read when the news broke. The reporters seemed absolutely giddy:  The U.S. economy added 288,000 jobs in June, the Bureau of Labor Statistics (BLS) reported Thursday. That number beats economists’ expectations and comes along with other good news: Job growth was revised higher for both May and April. Along with CNN Money, most in the news media rejoiced.  Hot on the heels of a… Read More

Last month, I looked in disbelief at how quickly the media was to trumpet the “great” news of the job report for June. Here’s the first few lines of a CNN Money story I read when the news broke. The reporters seemed absolutely giddy:  The U.S. economy added 288,000 jobs in June, the Bureau of Labor Statistics (BLS) reported Thursday. That number beats economists’ expectations and comes along with other good news: Job growth was revised higher for both May and April. Along with CNN Money, most in the news media rejoiced.  Hot on the heels of a reported 2.9% contraction in the economy for the first quarter of the year, it was welcome news. And after a seemingly endless stretch of false economic starts and mixed job reports since 2009, this was a seemingly good sign of traction for the economy.  But here’s what the mainstream media didn’t tell you about those 288,000 jobs added…  Dig a little deeper into the Bureau of Labor Statistics’ June report and it details that there were 799,000 part-time jobs added in June, but a staggering 523,000 full-time jobs were lost.  You can see for yourself in… Read More

Today’s article is about “dumb money” vs. “smart money.” Some of what I’m about to tell you may come as no surprise to you… Some of it may shock you or make you a little uncomfortable…  But hopefully by the time you’re done reading today’s essay you’ll understand why it’s so important to have a firm grasp of why markets sometimes behave irrationally and how it causes so many investors to lose money. And perhaps more importantly, how to invest alongside the “smart money”… #-ad_banner-#But before I get to all that, let me share with you an interesting story that caught… Read More

Today’s article is about “dumb money” vs. “smart money.” Some of what I’m about to tell you may come as no surprise to you… Some of it may shock you or make you a little uncomfortable…  But hopefully by the time you’re done reading today’s essay you’ll understand why it’s so important to have a firm grasp of why markets sometimes behave irrationally and how it causes so many investors to lose money. And perhaps more importantly, how to invest alongside the “smart money”… #-ad_banner-#But before I get to all that, let me share with you an interesting story that caught my attention a few weeks ago. It’s about a little-known stock that gained a mind-numbing 23,000% in a matter of weeks. It’s the perfect illustration of the kind of insanity that routinely takes place in markets — especially when it’s continuously charging higher. And as I’ll explain in a moment, this kind of market madness certainly isn’t new.  The pinnacle of market-madness If you haven’t heard of Cynk Technology Corp, don’t feel bad. In fact, that’s probably a good thing. Only recently did the company begin to attract headlines in the financial media — and for all the wrong… Read More

Major U.S. indices closed mixed last week, with the broad-market S&P 500 and tech-heavy Nasdaq 100 closing higher and the blue-chip Dow industrials and small-cap Russell 2000 closing lower. The bigger takeaway to last week’s lack of direction is that the bellwether S&P 500 has been moving sideways for the past month and is essentially unchanged since July 1. #-ad_banner-#This recent loss of upward momentum suggests some distribution/profit-taking has been occurring and defines a near-term decision point in the index, bordered by 1,986 on the upside and 1,953 on the downside, from which its 2014 advance must resume if still… Read More

Major U.S. indices closed mixed last week, with the broad-market S&P 500 and tech-heavy Nasdaq 100 closing higher and the blue-chip Dow industrials and small-cap Russell 2000 closing lower. The bigger takeaway to last week’s lack of direction is that the bellwether S&P 500 has been moving sideways for the past month and is essentially unchanged since July 1. #-ad_banner-#This recent loss of upward momentum suggests some distribution/profit-taking has been occurring and defines a near-term decision point in the index, bordered by 1,986 on the upside and 1,953 on the downside, from which its 2014 advance must resume if still healthy and intact. Small Caps, Volatility Will Be Key Again This Week In the July 14 and July 21 Market Outlooks, I pointed out that the Russell 2000 and the Vanguard Small Cap Growth ETF (NYSE: VBK) were situated right on top of major support levels and amid favorable conditions to resume their 2014 advances — if they were still valid. Following initial rebounds, Friday’s sharp decline positioned both back on top of these levels — 1,143 on the Russell 2000 and $121.53 on VBK. A key determining factor of whether these support… Read More

All major U.S. indices closed lower last week, led by the Russell 2000, which collapsed 4%. This pushed the small-cap index back into negative territory for the year, although all other major indices are still positive for 2014. #-ad_banner-#Defensive utilities and consumer staples were the only sectors that posted gains last week. This, combined with the collapse in the Russell 2000 — which along with the tech-heavy Nasdaq typically leads the broader market both higher and lower — suggests that investor assets are making a subtle shift into safer places, perhaps in anticipation of an upcoming correction. Russell 2000 Fails… Read More

All major U.S. indices closed lower last week, led by the Russell 2000, which collapsed 4%. This pushed the small-cap index back into negative territory for the year, although all other major indices are still positive for 2014. #-ad_banner-#Defensive utilities and consumer staples were the only sectors that posted gains last week. This, combined with the collapse in the Russell 2000 — which along with the tech-heavy Nasdaq typically leads the broader market both higher and lower — suggests that investor assets are making a subtle shift into safer places, perhaps in anticipation of an upcoming correction. Russell 2000 Fails to Make New 2014 Highs In the June 30 Market Outlook, I pointed out that the Russell 2000 had broken overhead resistance at 1,137, clearing the way for a retest of the 1,213 March 4 high. The index tested 1,213 resistance as expected on July 1, but immediately failed there and has since collapsed back into underlying support at 1,150 to 1,139, which represents the index’s 50-day (minor trend proxy) and 200-day (major trend proxy) moving averages. This sets up a near-term decision point for the Russell, from which its November 2012 uptrend should aggressively… Read More

Investors saw some bullish fireworks as the Dow exploded past 17,000 for the first time last week just before they checked out to celebrate the Fourth of July. #-ad_banner-#The breaching of this psychologically significant threshold is quite a feat for a market that just five years ago was knocked silly by the worst economic downturn since the Great Depression. In fact, the Dow closed at 8,280.74 before Independence Day in 2009. That means that the Dow has more than doubled in five years. So far in 2014, the bull market has not only been in stocks, it’s also been in… Read More

Investors saw some bullish fireworks as the Dow exploded past 17,000 for the first time last week just before they checked out to celebrate the Fourth of July. #-ad_banner-#The breaching of this psychologically significant threshold is quite a feat for a market that just five years ago was knocked silly by the worst economic downturn since the Great Depression. In fact, the Dow closed at 8,280.74 before Independence Day in 2009. That means that the Dow has more than doubled in five years. So far in 2014, the bull market has not only been in stocks, it’s also been in bonds and commodities. This is an unusual situation, because usually when stock prices rise, bond prices falter, and/or commodity prices fall. Sure, stocks, bonds and commodities can move up together for short periods of time, but through the first half of 2014, all three asset classes are higher, which hasn’t occurred since 1993. In the first six months of 2014, the S&P 500 index rose 6.1%. Commodities, as measured by the PowerShares DB Commodity Index Tracking (NYSE: DBC), saw a year-to-date gain of 3.4%. And bonds, as measured by the iShares 20+ Year Treasury Bond (NYSE: TLT), spiked 11.5%.  The… Read More

The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy Nasdaq 100 and small-cap Russell 2000 were the strongest performers. As long as the May trend of relative outperformance by these two market-leading indices continues, so should the current broad market advance. #-ad_banner-#The two strongest market sectors last week were consumer discretionary and utilities. My own asset-flow based metric shows that the biggest increase in sector bet-related assets over the past one-week and one-month periods was in utilities, which supports more upcoming strength… Read More

The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy Nasdaq 100 and small-cap Russell 2000 were the strongest performers. As long as the May trend of relative outperformance by these two market-leading indices continues, so should the current broad market advance. #-ad_banner-#The two strongest market sectors last week were consumer discretionary and utilities. My own asset-flow based metric shows that the biggest increase in sector bet-related assets over the past one-week and one-month periods was in utilities, which supports more upcoming strength in this sector. A strengthening utilities sector is often driven by declining long-term U.S. interest rates, which we saw last week as the yield on the 10-year Treasury note declined by 9 basis points to 2.53%. This encourages yield-seeking investors to accept more credit risk (via utility stocks) in exchange for potentially higher returns. Therefore, as long as long-term interest rates continue to decline, it should drive more investor assets into utilities and buoy Treasury prices, which move inversely to yields. Small Caps, Tech Should Continue Leading the Way In the May 19 Market Outlook, I pointed… Read More

All major U.S. indices finished with gains last week, led by the small-cap Russell 2000, which was up 2.2% and moved back into positive territory for the year. Year to date, the strongest major index has been the tech-heavy Nasdaq 100, up 5.9%. Since technology and small-cap stocks typically lead the broader market, both higher and lower, we will view upcoming performance in these two key indices as a barometer of the market’s ability to extend its 2014 advance. #-ad_banner-#From a sector standpoint, one that I will be watching closely over the next month is consumer staples. My proprietary asset… Read More

All major U.S. indices finished with gains last week, led by the small-cap Russell 2000, which was up 2.2% and moved back into positive territory for the year. Year to date, the strongest major index has been the tech-heavy Nasdaq 100, up 5.9%. Since technology and small-cap stocks typically lead the broader market, both higher and lower, we will view upcoming performance in these two key indices as a barometer of the market’s ability to extend its 2014 advance. #-ad_banner-#From a sector standpoint, one that I will be watching closely over the next month is consumer staples. My proprietary asset flow metric shows that it has had the largest investor inflows over the past one-week and one-month periods. For perspective, similarly aggressive investor inflows into the energy sector in early March preceded 9% relative sector outperformance versus the S&P 500 between then and now. VIX Suggests Stock Market Advance Isn’t Over Yet ​In last week’s Market Outlook, I pointed out that the CBOE Volatility Index (VIX) finished the previous week just below its 50-day moving average at 13.01. I noted, “The past three times that the VIX made a… Read More

It’s awfully quiet out there. Perhaps too quiet.  #-ad_banner-#The S&P hasn’t made a 1% move — in either direction — since April 16.  How unusual is it for the market to go 43 trading sessions (and counting) without a one-day move of 1% or more? Going back to 1980, the market has only had three longer streaks, according to MKM Partners’ Jonathan Krinsky. If we reach 48 straight days without a 1% move, this current streak will move into third place.  What happens when such streaks end? The market has invariably dropped at least 3% within a month of the… Read More

It’s awfully quiet out there. Perhaps too quiet.  #-ad_banner-#The S&P hasn’t made a 1% move — in either direction — since April 16.  How unusual is it for the market to go 43 trading sessions (and counting) without a one-day move of 1% or more? Going back to 1980, the market has only had three longer streaks, according to MKM Partners’ Jonathan Krinsky. If we reach 48 straight days without a 1% move, this current streak will move into third place.  What happens when such streaks end? The market has invariably dropped at least 3% within a month of the streak’s end, according to MKM.  As you’d expect in such a quiet market, investors are exhibiting little fear. In a weekly survey of investor sentiment, the American Association of Individual Investors (AAII) noted that roughly 45% of responders were bullish. That’s the highest reading yet for 2014.  And the VIX, also known as the fear gauge, has fallen back to very low levels. “The perception of U.S. equity market risk is as low as it has been since 2004-06 when Fed predictability peaked,” notes UBS’s Maury Harris.  Indeed, the Federal Reserve’s announcement earlier this year that it will steadily reduce… Read More

All major U.S. indices finished last week in negative territory, giving back a significant portion of their May gains. Interestingly, the decline was led by the defensive Dow industrials, while the Nasdaq 100 and Russell 2000 fared better, down just 0.5% and 0.2%, respectively. Despite the decline, all major U.S. indices except for the Russell are still in positive territory for the year. #-ad_banner-#The only sector of the S&P 500 that finished last week in the black was energy, gaining 1.7%. My own asset flow-based metric shows that the largest sector bet-related inflows over the past one-week, one-month and three-month… Read More

All major U.S. indices finished last week in negative territory, giving back a significant portion of their May gains. Interestingly, the decline was led by the defensive Dow industrials, while the Nasdaq 100 and Russell 2000 fared better, down just 0.5% and 0.2%, respectively. Despite the decline, all major U.S. indices except for the Russell are still in positive territory for the year. #-ad_banner-#The only sector of the S&P 500 that finished last week in the black was energy, gaining 1.7%. My own asset flow-based metric shows that the largest sector bet-related inflows over the past one-week, one-month and three-month periods were in energy. Largely due to these inflows, energy has outperformed with an 11.2% year-to-date gain versus 4.8% for the S&P 500. Trend Still Bullish, but Beware of Seasonal Headwinds In the May 12 Market Outlook, I pointed out an emerging bullish pattern in the SPDR Dow Jones Industrial Average (NYSE: DIA). I said, “A sustained rise above $165.51 would confirm a breakout from four months of sideways indecision in DIA that would target a 7% advance to $177.” The breakout I was expecting actually took place on… Read More