jlfmi:

U.S. Households Most Heavily Invested In Stocks Since 2000
From the Federal Reserve’s latest Z.1 Release (formerly, Flow Of Funds), we learn that in the 2nd quarter, household and nonprofit’s stock holdings amounted to 35% of their total financial assets. This is the highest percentage since 2000. In fact, the blow-off phase from 1998 to 2000 leading up to the dotcom bubble burst was the only time in the history of the data (since 1945) that saw higher stock investment than now.
This is one of our favorite data series because it reveals a lot about not only investment levels but investor psychology as well. When investors have had positive recent experiences in the stock market, i.e., a bull market, they have been happy to pour money into stocks. It is consistent with all of the evidence of performance-chasing pointed out by many.
Note how stock investment peaked with major tops in 1966, 1968, 1972, 2000 and 2007. Of course, investment will rise merely with the appreciation of the market; however, we also observe disproportionate jumps in investment levels near tops as well. Note the spikes at the 1968 and 1972 tops and, most egregiously, at the 2000 top.
On the flip side, when investors have bad recent experiences with stocks, it negatively effects investment flows, and in a more profound way than the positive effect. This is consistent with the scientifically proven notion we’ve discussed before that feelings of fear or loss are much stronger than those of greed or gain. Stock investment during he 1966-82 secular bear market provides a good example of this.
After stock investment peaked at 31% in 1968 (by the way, after many of the indexes had topped in 1966 — investors were still buying the dip), it embarked on steady decline over the next 14 years. This, despite the fact the stock market drifted sideways during that time. By the beginning of the secular bull market in 1982, the S&P 500 was right where it was in 1968. However, household stock investment was at an all-time low of 10.9%. If the stock averages drifted sideways, why did stock investment drop by two thirds? The repeated declines over that period left investors scorned and distrustful of the stock market. They never really started putting money back into stocks until 1991.
What is the significance of the current reading? As we mentioned, it is the highest reading since 2000. Considering the markets are at an all-time high, this should not be surprising. In fact, while most of the indexes surpassed their prior peaks in early 2013, household stock investment did not surpass the 2007 highs until the first quarter of this year. The financial crisis put a dent in many investors’ psyches (along with their portfolios) and they’ve been slow to return again. However, along with market appreciation, investor flows have seen at least streaks of exuberance over the past 18 months, boosting investment levels.
Yes, there is still room to go (7.5 percentage points) to reach the bubble highs of 2000. However, one flawed behavioral practice we see time and time again is gauging context and probability based on outlier readings. This is the case in many walks of life from government budgeting to homeowner psychology to analyzing equity valuations. The fact that we are below the highest reading of all-time in stock investment should not lead one’s primary conclusion to be that there is still plenty of room to go to reach those levels.
There are no doubt many investors who are still wary of returning to the stock market due to the two cyclical bear markets in the past dozen years. However, while there may be a certain level of investor mistrust, the moniker of “most hated bull market of all-time” does not seem appropriate. It should not be lost on investors that we are at the second highest level of stock investment ever, behind only the most speculative stock blowoff in U.S. history.
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More from Dana Lyons, JLFMI and My401kPro.
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jlfmi:

U.S. Households Most Heavily Invested In Stocks Since 2000

From the Federal Reserve’s latest Z.1 Release (formerly, Flow Of Funds), we learn that in the 2nd quarter, household and nonprofit’s stock holdings amounted to 35% of their total financial assets. This is the highest percentage since 2000. In fact, the blow-off phase from 1998 to 2000 leading up to the dotcom bubble burst was the only time in the history of the data (since 1945) that saw higher stock investment than now.

This is one of our favorite data series because it reveals a lot about not only investment levels but investor psychology as well. When investors have had positive recent experiences in the stock market, i.e., a bull market, they have been happy to pour money into stocks. It is consistent with all of the evidence of performance-chasing pointed out by many.

Note how stock investment peaked with major tops in 1966, 1968, 1972, 2000 and 2007. Of course, investment will rise merely with the appreciation of the market; however, we also observe disproportionate jumps in investment levels near tops as well. Note the spikes at the 1968 and 1972 tops and, most egregiously, at the 2000 top.

On the flip side, when investors have bad recent experiences with stocks, it negatively effects investment flows, and in a more profound way than the positive effect. This is consistent with the scientifically proven notion we’ve discussed before that feelings of fear or loss are much stronger than those of greed or gain. Stock investment during he 1966-82 secular bear market provides a good example of this.

After stock investment peaked at 31% in 1968 (by the way, after many of the indexes had topped in 1966 — investors were still buying the dip), it embarked on steady decline over the next 14 years. This, despite the fact the stock market drifted sideways during that time. By the beginning of the secular bull market in 1982, the S&P 500 was right where it was in 1968. However, household stock investment was at an all-time low of 10.9%. If the stock averages drifted sideways, why did stock investment drop by two thirds? The repeated declines over that period left investors scorned and distrustful of the stock market. They never really started putting money back into stocks until 1991.

What is the significance of the current reading? As we mentioned, it is the highest reading since 2000. Considering the markets are at an all-time high, this should not be surprising. In fact, while most of the indexes surpassed their prior peaks in early 2013, household stock investment did not surpass the 2007 highs until the first quarter of this year. The financial crisis put a dent in many investors’ psyches (along with their portfolios) and they’ve been slow to return again. However, along with market appreciation, investor flows have seen at least streaks of exuberance over the past 18 months, boosting investment levels.

Yes, there is still room to go (7.5 percentage points) to reach the bubble highs of 2000. However, one flawed behavioral practice we see time and time again is gauging context and probability based on outlier readings. This is the case in many walks of life from government budgeting to homeowner psychology to analyzing equity valuations. The fact that we are below the highest reading of all-time in stock investment should not lead one’s primary conclusion to be that there is still plenty of room to go to reach those levels.

There are no doubt many investors who are still wary of returning to the stock market due to the two cyclical bear markets in the past dozen years. However, while there may be a certain level of investor mistrust, the moniker of “most hated bull market of all-time” does not seem appropriate. It should not be lost on investors that we are at the second highest level of stock investment ever, behind only the most speculative stock blowoff in U.S. history.

_________

More from Dana Lyons, JLFMI and My401kPro.

Alibaba IPO closing price contest

microfundy:

image

I’m conducting a contest on twitter, where contestants guess the price they think Alibaba will close on the first day of trading (9/19/2014).

The contestant whose guess is closest to the actual closing price will receive one share of Alibaba ($BABA). Specifically, the winner will get a PayPal transfer of the amount equal to the closing price of one share.

In order to be eligible, please follow me on twitter, and tweet me your guess.

You are free to make guesses in the comments below but in order to be eligible, you must make your guess @ me on twitter.

Contest will close 10:00AM sharp.

- Aron

Twitter: microfundy

photo credit: @CNBCtech

Fine Print: Guesses under $40 and over $136 will not be recorded. If more than one contestant guess the same winning amount (or more than one guess is the closest to the closing price) the prize will be split between the winners.

Thursday’s Notable Options Activity: Bullish Yahoo Flow Ahead of Alibaba IPO

dannathan:

Calls were much more active than puts among single stocks, led by YHOO ahead of today’s Alibaba IPO.

1.  YHOO – Options traded around 3x the average 1 month volume.  The largest single print was a buyer of 15k x 30k of the Nov 46 / 50 1×2 call spread for a 0.01 credit.  That trade does not lose money unless YHOO is above $54 on Nov expiration.  We’ve seen several 1×2 call spreads in the past few days as options traders take advantage of the inverted upside skew in YHOO, which we discussed in this CotD post from last week.

2.  FXI – Seller of 47,600 of the Dec 42 calls at 0.78 to open.  That’s after someone sold 46k of the Dec 42.5 calls on Wednesday.  FXI made a 3 year high of $42.56 earlier this month, but has sold off back below the $42 resistance level in the past 2 weeks.

3.  SLB – Buyer of 24k of the Feb 115 calls for 2.05 to open.  SLB’s all-time high of $118.76 was set on July 1st.  SLB’s next earnings report is in mid-October, and the stock is still up 16% year-to-date despite the selloff of the past 2 months.

4.  MT – Risk reversal traded, with someone selling around 20k of the Dec 13 puts at 0.13 to buy around 20k of the Dec 16 calls for 0.41, paying 0.28 for the risk reversal.  MT has lagged the other steel stocks in the past month, and has not traded above $16 since mid-May.

5.  BAC –The financials sector hit a new yearly high this week, and BAC touched $17 for the first time since early April.  Calls were active, with nearly 80k of the weekly 17 calls trading at an average price of 0.12, and around 40k of the Oct18th 17 calls trading for an average price of 0.445.

6.  C – Another large cap bank with active options yesterday.  The Oct18th 52.5 call was the most active line, trading over 17k at an average price of 1.60.  C hit its highest level since January, and is 3% away from its 52 week high of $55.28.

This post by Enis Taner (@enistaner) originally appeared on RiskReversal.com

Forget the Cup and Handle, Buy a Pint and Handle of Brew

dragonflycap:

image

It’s late in the week, and we have already gotten through the Federal Reserve Open Market Statement, with Alibaba and Scotland votes on tap. Time for a beer. Specifically a Craft Brewers Alliance, $BREW. Not to drink, you still need a clear head for the rest of the week and Option Expiration, but to add to your portfolio.

brew

The chart above tells why. After a long downtrend this year capped by the falling red resistance line, the stock price is now breaking to the upside. Additionally there is a Cup and Handle pattern triggering as the price moves over the most recent prior high level at 13.57. This gives a target to the upside at 17.07, near the start of that red line. That sounds good as it is. But with a little imagination you can see that a move over 15 the late April high would make for another big Cup and Handle, maybe a Pint and Handle that would target 20. Cheers!

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

theirrelevantinvestor:

The Market is Preparing For Rising Rates
The prospect of rising rates has been the most widely talked about topic among market participants for the last year. Fed language is being scrutinized and dissected like maybe no other time in market history. It has been fascinating to witness;all the while we were told to prepare our portfolios for rising rates and to the chagrin of many, yields have done nothing but fall. 
Today, in lieu of conjecture, I want to point your attention to the facts. As the 5-year treasury note yields hit their highest levels since May 2011, the XLF/XLU ratio is up over 2% and is having the fourth largest daily increase of 2014.
This is something worth paying attention to because these sectors are both very sensitive to interest rates, albeit in different ways. In theory banks should benefit from rising rates while utilities and their bond like characteristics benefit from falling rates. 
I’m not concerned with what people say, I’m more interested in what they do. Today we are seeing signs that market particpants are starting to prepare for rising rates, I’ll be watching these sectors closely.
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theirrelevantinvestor:

The Market is Preparing For Rising Rates

The prospect of rising rates has been the most widely talked about topic among market participants for the last year. Fed language is being scrutinized and dissected like maybe no other time in market history. It has been fascinating to witness;all the while we were told to prepare our portfolios for rising rates and to the chagrin of many, yields have done nothing but fall. 

Today, in lieu of conjecture, I want to point your attention to the facts. As the 5-year treasury note yields hit their highest levels since May 2011, the XLF/XLU ratio is up over 2% and is having the fourth largest daily increase of 2014.

This is something worth paying attention to because these sectors are both very sensitive to interest rates, albeit in different ways. In theory banks should benefit from rising rates while utilities and their bond like characteristics benefit from falling rates.

I’m not concerned with what people say, I’m more interested in what they do. Today we are seeing signs that market particpants are starting to prepare for rising rates, I’ll be watching these sectors closely.