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[Joshua Brown]

No parades outside your window? How about traders on the floor of the NYSE wearing hats or blowing noisemakers? Nope.

The Dow just smashed through 16,000 today for the first time in history while the S&P 500 broke above 1800. In the meanwhile, the Nasdaq is hovering around 4000.

And nobody gives a f*ck.

Business as usual.

Here?s how I responded to all the handwringing surrounding the Dow?s break above 15,000 from May of this year ? you can substitute 16k for 15k?

***

?Putting Dow 15,000 in Perspective?

Oh please, like I would ever write something like that.

If anything, too much perspective has been driving people out of their minds. Everyone has their perspective, whether you?ve asked for it or not. What you probably need is less perspective, or should I say more perspective from people whose perspective has been helpful.

Or maybe none at all for now. Let?s take a break from all the unqualified, inexperienced, triflingly myopic and hopelessly biased ?perspective? for the night.
Why does anyone need the record high close in the Dow Jones Industrial Average ?put into perspective?, anyway?

Why do we need another ?commentator? with no trading experience or skin in the game or ass on the line to tell us whether or not ?the Dow matters? or doesn?t matter?

Why do we need another ?take? on the reality before our eyes?

Why would we want to read yet another treatise about how the Dow is not reflective of the whole market?

Or how the Dow isn?t reflective of the economy?

Or how the Dow isn?t reflective of the experiences of job seekers or Boomers or MBAs or working women or Wal-Mart greeters or whatever the fuck they want to juxtapose it with to make investors feel apprehensive or guilty or both?

How many inanimate objects can we re-price the Dow in to convince others that everything still sucks?

Should we remind people how much less gold the Dow can buy them than it could have for their grandparents in the 1940

The Reformed Broker

[Joshua Brown]

We start with a rundown of three trades that closed with last week?s (November) options expiry.

Here are the details -

First up is the MBIA (NYSE:MBI) strangle that we initiated back on June 24th ? a trade which, unfortunately, had very little success from the get-go.

The letter was called Taking Three Trades by the Throat and involved buying out-of-the-money PUTs and CALLs on MBI with the expectation that continuing spastic gyrations in the stock would give us profitable outcomes for both legs. As we wrote at the time ?

The stock has been volatile. And we?re presuming it will remain so, particularly if the market continues to jerk around here for a while. [MBI] could go in either direction and will most likely do both!

But we were wrong. Here?s a chart of what happened since we put on the trade ?

[Joshua Brown]

The past few years have been a great time to be an investor.

Federal Reserve Chairman Ben Bernanke's zero interest rate policy has fueled large gains in just about every market sector since 2009.

There's little question that his policies are bullish in the short term, but what happens when the Fed's easy money stops?

For an answer to this, we can take a page out of baseball history.

In 1998, Mark McGwire set a record by hitting 70 home runs during the season, while Sammy Sosa hit 66. The previous record of 61 home runs had been set in 1961 by Roger Maris. In 2001, Barry Bonds broke McGwire's record by hitting 73 home runs.

At the time, baseball was an exciting sport to watch as home run records captured headlines. Later, fans learned that the hitters were abusing steroids. Home run outputs returned to normal after league-wide steroid testing became the norm in 2003.

Fed policy is acting like a performance-enhancing drug for the market. When it stops easing, I believe the markets will be unable to continue climbing at the frantic pace seen during the past year. Returns will be below average for some time, and stock selection will again become critical.

Personally, I'm not too worried about Fed easing ending. My stock selection process does not rely on a steroid-infused market.

Instead, I use a trading system that blends fundamental and technical analysis that not only tells me what to buy, but when to buy and sell.

It's been proven to work during bull markets, bear markets, wars, market bubbles and when inflation is high or low. You see, not only have I successfully used this system for years, but I've tested my stock-picking system going back decades.

Recently, I started using it to weed through the stock holdings of the 20 most prominent investors in the world and pick the best stocks from each of their individual portfolios -- investors like Warren Buffett, Carl Icahn, Steve Cohen and David Einhorn.

This system -- which I call my "Guru Trader" system -- has two profound benefits. First, each of these "guru" investors has a team of analysts, money managers and traders to do their bidding. So when one of them picks a stock, you know it has been vetted by some of the greatest financial minds in the industry.

Second, this "Guru Trader" system has the added advantage of reducing risk. My system pinpoints stocks with strong technicals, but only signals a buy if the underlying company has strong fundamentals.

Take a look at how this system performed over the past 10 years in backtesting...

[Joshua Brown]

Video of the day

Russ Kinnel and Christine Benz talk mutual funds with Consuelo Mack. (Wealthtrack)

Markets

For now indicators point towards more risk-on behavior. (Reading the Markets)

We are in the ?mature phase? of the bull market. (Dynamic Hedge)

Are these really reasons to be bearish? (Macro Man)

Strategy

Another reason not to buy actively managed funds. (Rick Ferri)

What happens to stocks when disaster strikes? (Crossing Wall Street)

The disappearance of the roll yield has killed the case for commodities. (SSRN via CXOAG)

Finance

More 401(k) plans are coming with advice. (Time)

Social media

Can social media firms ever monetize their users? (ValueWalk)

Is Snapchat a fad or something more permanent? (Farhad Manjoo)

Why Facebook ($FB) needs a Snapchat. (NYTimes)

Global

The implications of secular stagnation. (Gavyn Davies, FT Alphaville, Marginal Revolution, MoneyBeat)

A flaw in the UK recovery story. (Business Insider)

Economy

On the myth of the destruction of the US dollar. (Business Insider)

Q4 GDP is tracking just below 2.0%. (Capital Spectator)

Homebuilder confidence ticks down. (Calculated Risk)

Books

What went wrong: The Mortgage Wars: Inside Fannie Mae, Big-Money Politics, and the Collapse of the American Dream by Timothy Howard. (Reading the Markets)

A nice review for Walter A. Friedman?s Fortune Tellers: The Story of America?s First Economic Forecasters. (Marginal Revolution)

Earlier on Abnormal Returns

What you may have missed in our Sunday linkfest. (Abnormal Returns)

Bitcoin

Why have there been so many Bitcoin thefts? (Business Insider)

An interesting look at Bitcoin price dynamics. (FT Alphaville)

Mixed media

[Joshua Brown]

It might be pie-in-the-sky thinking that Rackspace Hosting (NYSE: RAX) could overtake Amazon Web Services as king of cloud hosting -- at least not in the near future.

That?s not necessarily a bad thing for investors. While Amazon.com?s (Nasdaq: AMZN) enormous profile has cast a shadow over Rackspace for some time now, being No. 2 in this arena is nothing to sneeze at.

Back in March 2012, my StreetAuthority colleague David Sterman named RAX one of the most overvalued stocks in the market -- but these days, Rackspace is getting some rather special attention at current prices. When Dave's article was published last year, RAX sold for about $54. It subsequently grew even more expensive, to nearly $78 a share this January, but it has since fallen nearly 50% from that high.

Last Monday, RAX's share price of $49.31prompted investors to acquire 21,687 call options on the company, about 815% more than usual. That same day, Rackspace reported third-quarter earnings, showing higher than expected revenue ($389 million, up15.7% from a year ago) but lower than expected earnings per share (EPS), which came in at $0.11 compared with the $0.16 expected.

So, you had some investors selling shares -- price fell by 12% mid-day -- and others betting that the stock would go up. Here a few possible reasons for the dichotomy.

Rackspace's earnings miss was due in part to the company's bigger than expected investments on new Performance Cloud Servers, a move being applauded by its critics and one that differentiates itself from Amazon. Without getting too technical, the servers use Intel's (Nasdaq: INTC) Xeon E5 processors with 120 GB of RAM, meaning they?re faster, more reliable and less prone to failure.

According to IT research firm IDC, ?Everyone is gunning for (Amazon Web Services) right now, and performance is one area where competing public clouds feel they can differentiate from them.?

Another factor in Rackspace's miss on earnings might be the nearly 4,800 physical servers it added in the second quarter, which marked a significant increased from the previous two quarters and brought its total number to just shy of 99,000.

After being criticized for the slow pace of growth in its cloud computing business, this was welcome news for investors. The reason for all the new servers: a deployment of new cloud infrastructure in Virginia, Australia and Hong Kong that required added capacity -- which, by the way, is all due to be upgraded soon with Xeon E5 processors.

Unfortunately, Rackspace has been caught between a rock and a hard place. On one hand, as new business churns out revenue, the $5.9 billion company also requires more servers and additional capital expenditures. As a result, second-quarter investments totaled $119.8 million, compared with $188 million for the previous two quarters combined.

?We?ve increased our investment levels to play for a bigger long-term outcome," CEO Lanham Napier says. "This is how we see things right now.

We think now is the time to really go for it.?

Some analysts and the financial media think so too.

? Fortune magazine, citing Warren Buffett's famed advice ?to be fearful when others are greedy, and be greedy when others are fearful,? reported that RAX is now considered oversold according to its relative strength index reading.

? JMP Securities concluded Rackspace made a worthwhile investment in the new servers and expects the company to grow 20% in 2014 with a target price of $67.

? Oppenheimer reiterated a buy rating on RAX with a $62 price target.

On the other hand, analysts at Evercore Partners cut their number from $56 to $52.50.

[Joshua Brown]

Here?s Bob Peck of SunTrust Robinson Humphrey relaying an interesting comScore preview of this year?s online holiday shopping season?

Big picture, eCommerce is set for its first $300b+ U.S. year, growing north of 12%. Mobile commerce growth accelerated in 3Q to 26% from 24% and should be a major driver in 4Q, growing >35% according to comScore. Desktop eCommerce has been growing in the low to mid double digits, accounting for 9.4% of Commerce from 8.7% last year. Consumers continue to worry about unemployment and rising prices.

comScore has 5 bold predictions for the Holiday season:

1) Total US eCommerce is set to grow 15-17%
2) Mobile commerce will reach 12-13% of eCommerce and break $10b
3) Cyber Monday will break online spending records at $1.8b
4) Late shopping will be big, at 25% of the season?s shopping
5) Cyber week will have 5 consecutive $1b+ days

[Joshua Brown]

Random Thoughts



Before the Saints game (who dat!?), I was able to hook up with a long lost friend. As usual, conversations quickly turn to the markets. Since he's a physician, he wanted to know how Obamacare is going to affect the markets. I told him, well, the S&P is at all-time highs, the Nasdaq is at multi-year highs, Drugs are at all-time highs, Biotech-which recently looked like it was rolling over-is coming back and not too far from all-time highs, Insurance is at all-time highs, and Health Services is at all-time highs. I reminded him that after all, I am known as the Trend Following Moron. I try not to confuse the issue with facts ( www.dontconfusetheissuewithfacts.com and www.donotconfusetheissuewithfacts.com ).

So, how will Obamacare affect the market? So far, so good. The Market seems to like it. Obamacare appears to be good for the markets. And, as long as the market continues to bang out new highs, I'm going to continue to stick to that belief. My personal belief? Who cares. We're here to talk about trading.

People seem to be passionate about the issues. You can't let your passion get in the way of your trading. As I wrote in The Layman's Guide To Trading Stocks, "unless you're Bill Clinton, what is, is."

In addition to the aforementioned sectors at new highs, Retail, Transports, Chemicals, I can go on and on, are also at new highs.

So what do we do? Well, since things look pretty rosy, should we run out and buy, buy, buy? Well, I'm still not seeing a whole lot of new meaningful buy setups. This is perfectly normal since the methodology requires a pullback. I am still seeing a few short side setups but I see no reason to swim against the tide. Considering this, continue to focus mostly on existing positions. Take partial profits as offered and trail your stops higher. Put together your momentum list (or pay me to do it for you) and watch for new setups. Get ready to get ready.