WSW, Sunday, 20 May 2012

General Comment

Last time I’d said:

As noted before (in comments, I think) it’s now a ‘Risk Off” world.

What’s working? Things like TIPS – inflation protected treasuries.

Cash – in particular US Dollars and Yen.

That has been a generally good posture. I could have added “Short the market”, but I’m generally poor at strategies that involve shorting. I know that it moves faster and further and presents greater opportunities to make money fast. But there is something about selling shares that really belong to someone else (you borrow other folks shares when you short a stock; and basically ‘front run’ the selling) that just seems rude to me; so not my natural behaviour.

At any rate, the shorts did well these last couple of weeks. That implies that ‘pretty soon’ it will start a ‘reversion to the trend’. That ought to be up or occasionally flat. During large ‘roll overs’, it is possible for stocks to simply fall unabated. (That was not true back in the days of the Uptick Rule, which required a natural buyer to cause an ‘uptick’ in the price before the Bear Raiders could force prices down with more short selling. But now the folks doing Classical Bear Raids can simply short stocks to oblivion until folks just can’t stand it and panic out at a hard bottom.) So while I would expect a ‘reversion to the trend’, it all depends on how aggressive the shorts choose to be.

We’ll look at the charts and see what we think. The bonds charts are showing RSI at 80, so ‘being bought in excess’. This would imply a softening of bond strength “soon”, but with Greece in the dumper “soon” could take weeks to months.

In general, as a trend ‘ages’, it is best to lighten positions in the direction of that trade. That would mean starting to lighten short positions. As I’m mostly just cash or a few very long duration high yield investments, plus the JPM high risk bottom fish trade (and a hedge against it); there isn’t a lot for me to “lighten”. Still, at some point a bottom is reached and at that time it’s best to be in cash to ‘buy at the bottom’. So somewhere between a top / roll down and a bottom / dead cat bounce; cash gets raised. Similarly, at some point the “long bonds” trade will reach an end. You don’t want to be the last one out the door when that happens.

News Flow

Mostly just more of the same on Greece. LOADS of cash being sucked out of Greek banks. A little bit on China home prices falling. We also had India demanding companies convert foreign exchange into Rupees. This cluster was looked at in the Thin Thursday posting. Basically the charts of stock markets in the PIIGS and India are falling. No real surprise… Thinly traded markets with government doing stupid things. Pretty much always the same outcome.

The USA is largely having the early stages of the Pissing Match that we call elections.

The “Occupy Movement” has managed to take the center stage from the “Tea Party Movement” (in an obnoxious and vindictive petty kind of way) while the Tea Party folks have been working behind the scenes to dump RINOs and folks who vote for more spending than income, more debt and less stewardship. We’ll see if the artificial Occupiers Movement does anything other than show what bad manners looks like. The attempt to paint Tea Party folks as somehow vindictive or racist or hateful or {the usual list of assaults, typically lies, that the Democrats use to smear anyone they do not like) has so far just made the accusers look Damned Stupid. At any rate, they have managed to push Tea Party folks off the nightly news as “Stupids Behaving Badly” makes more dramatic news than a bunch of middle aged folks that look like Mom & Pop holding neat signs saying “don’t spend my kids future” and cleaning up after themselves… We’ll see which strategy works best come election day.

The other major news story was J.P.Morgan losing $2 Billion on a badly hedged trade. Everyone gets all excited about the big number and forgets that they could lose 10 times that much and still have a very large net profit. They also forget that it WAS a hedge. Not a directional bet gone bad. No hedge is perfect, they all have some slippage. It is to be expected that sometimes one side of a hedge will lose. It was reported that they gained $1 Billion on the other side of the trade; but that didn’t make the news as much. The only real risk here is that it gives Congress cover to do more stupid things, which they are trying to do. (All they really need to do is put back the uptick rule, put back Glass-Steagall, and dampen the stupidity of “Mark To Market” accounting. It was removing Glass-Steagall, forcing Mark To Market, and eliminated the Uptick Rule that has brought us the financial problems. Well, that and the CRA mandating banks make bad loans. But reversing those decisions would required admitting they were wrong…)

We looked at this in the Frugal Friday posting which looks at the risky business of bottom fishing and trying to catch falling knives trades. The UNG natural gas ticker was also looked at then and continues to do well. JPM has RSI at 20, so likely about the bottom. We’ll see. It will depend a lot on ongoing news flow and how stupid congress can be.

I supposed it’s worth noting that we’ve had a couple of days of a gold price surge. It could be a reversal of the recent falling trend, but I’d not jump on that bandwagon until the charts give a clear signal. Right now it’s a dicey wobbly point with a decision inflection in the wind.

Conclusions and Likely Actions

Last time I’d said:

Folks not wanting to short markets ought to hide out in non-Euro currencies ( likely Yen, Swiss Franc, and some few selected others). If the ‘slowdown’ scare continues, the resource currencies also get hit, so avoid Aussie Dollar and likely the Canadian as well (though only for a little while… that oil demand will return strength to it fairly quickly).

So far we’ve continued to have falling currencies as predicted. Still waiting for strength in the Canadian (that will depend on oil gaining some traction). The Swiss Franc held above the Euro, but did drop in sync with it. I suspect Swiss Central Bank intervention to manage changes relative to the Euro. At any rate, the Yen looks like the better hedge against the Euro.

The Euro took a hit, and with RSI at 80 that would imply some short term strengthening ‘soon’, but with Greece still having issues, Spain starting to nationalize banks, and the general mess in the Euro Zone, I’d wait for a MACD reversal AND a DMI “blue on top” before looking to the Euro. The Yen FXY popped up (and I suspect there is a whale involved but it could be just general broad market movement out of Euro

Pointer To Other Topics

Some general comments on how long term investing differs from trading and my thoughts on things to do for the long term investor, start with this page:

http://chiefio.wordpress.com/2011/06/12/lti-long-term-investing/

If you are expecting global warming stuff, it’s under the “AGW” categories in the right hand margin. Things specific to the NCDC data and GIStemp are under categories with those in their names.

This posting is about the other thing I do, looking at investment markets. Prior postings in this series are available here: http://chiefio.wordpress.com/category/wall-street-week/

Posts with some relevance to trades, but not in the format of a full WSW analysis, are available under this category:

http://chiefio.wordpress.com/category/economics-trading-and-money/

The “Infrastructure Charts” for stocks, bonds, commodities, etc are in the Stock Charts category:

http://chiefio.wordpress.com/category/stock-charts/

That is a bit of a play on words as “stock” can mean stock in a company, stock of goods, or as in photography, a set of standard images. To that extent, a chart of ‘the usual bond ETFs’ is something like a stock of goods, and a stock picture… ;-)

The Nature of the Charts Here

The charts in this posting, or the linked infrastructure postings, are usually live charts, so my comments will describe how it is now, but in a week it will be showing new data and a new week. If I capture a “static image” I usually label it as such. You can tell by looking at the date bars on the bottom of a graph.

I typically use the live charts since I think it is more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonable choice. Just don’t be surprised if the chart I describe is not the one you see a few weeks from now! If you would like to see the historical chart, you may enter custom date ranges on the charting tool at:

www.bigcharts.com

Or change the particular indicators or tickers of interest. I strongly recommend learning to make your own charts for your particular holdings.

Wall Street Week -
Sunday, 20 May, 2012

Long Term Context

A few weeks back I’d said:

I’d promoted this chart to the top for a while, as it was in control. Now we ought to move to the faster, daily tick mark charts.

At this point, we are through the inflection point and back to where this chart is in control. We have a new “Red on top” in both MACD and DMI on this time scale. It’s “bear market bias” until that changes. Furthermore, several of the broad averages have “failure to advance” to the upside and / or “lower highs”. All saying “bear market rules” for a while. Avoid long positions. Bias is to be in bonds and currency. Hedge any long positions with broad market or sector shorts. Expect increasing volatility. For long positions, be in low “Beta” stocks and those with large secure dividends.

This is a very long duration chart (5 years) of NYSE. It will not change much from week to week (just one tick mark) so guides longer term attitude. During a new bull market, it can lag so much that you miss the best bits, so a ‘trend trade’ positive can be done until this one confirms. During a new bear market, it can lag so much that you get hurt if you hold stocks, so a ‘trend trade’ negative can be done until this one confirms. Basically, shift to shorter term (one year / daily tick mark) charts for trades near inflections of the Slow Stochastic here.

(Oddly, the NYSE ticker symbol stopped working, but using this saved link with the SecurityID in it does still work. I’ve added other USA Indexs for comparison)

5 Years, NYSE

5 years, NYSE

Remember that you can click on the chart to get a much larger more readable version.

Last time I’d said:

Now this time scale is a bit more conflicted.

The ‘conflicted’ character has resolved to negative.

Bonds vs Stocks

This next chart is TLT vs SPY, as the S&P 500 is the basic investment vehicle for most folks (unless you really want to pick sectors or individual stocks, you ought to start with a “SPY / Bond” oscillator, as on this long term chart). TLT is long term US Treasuries, so gives a good view of the major alternative where cash runs during times of doubt. If you plotted a line 1/2 between those two, you would get the performance of a portfolio that was 1/2 in each. A pretty good basic strategy for times that are hard to judge. They form a natural hedge pair during spikes, for example. This is a very long term chart where each tick mark is one week.

I’ve added TIP, the Treasury Inflation Protected securities ETF, so you can see how it is acting as a safe haven.

TLT vs SPY (20 year Treasury Bonds vs Stocks) with RSI, MACD and DMI

TLT vs SPY (20 year Treasury Bonds vs Stocks) with RSI, MACD and DMI

Last time I’d said:

At this time I’d “Duck and Cover” into TIP. Things are likely to be a bit “wild” for a while. It’s a relatively safe place to hide and if The Fed does more to kick up inflation, it has a protection kicker in it. The TLT indications are for a ‘crossover blue on top’ for MACD maybe “soon”, and with RSI at ‘near the middle’ the likely trade is further upside (especially in a risk off world); but I’d rather have that inflation ‘kicker’ in my hip pocket at this point.

That was generally sound, though it is worth noting that for folks with more risk tolerance, TLT moves more than TIP when things move. On the “1 year daily” scale, TLT has RSI near 80, but on this scale it has some more room to run. This implies that the longer term bias up is intact, and that on the shorter term time scale it will just ‘go flat’ for a little while, not drop. In general, it looks like buying bonds on an RSI touch of 50 or a bit below on this time scale, then selling on a touch of 80 or near 80 on this time scale, works pretty well. The MACD inflections are pretty clean then too.

General Stock Markets Overview

The broad stock markets charts are here:

http://chiefio.wordpress.com/2011/12/15/global-stocks-survey/

ALL the stock index tickers look either flat or falling. Not seeing an entry call, and not seeing any reason to take risk for no likely reward.

The Dollar Lately

Time to measure our Rubber Ruler.

The currency charts are now on the Bonds and Currencies chart here:

http://chiefio.wordpress.com/2011/12/20/bonds-overview-charts/

There was also an update on currencies in the Saturday Stuff Day posting.

The Swiss Frank FXF looks like it is being managed in a ‘slow rise against the Euro’ so took a dip when the Euro dipped. Yen rose then. I suspect Swiss Central Bank intervention. Looks like Yen is the better ‘Euro Risk’ hedge, though the $US has done nicely as well.

Were Bonds a good idea?

The bonds charts are now on the Bonds and Currencies chart here:

http://chiefio.wordpress.com/2011/12/20/bonds-overview-charts/

We’ve started the Treasury Tuesday bond postings which found

“In general, this chart is saying it is time to be in bonds (and has been for a month or so). “

That still holds, but must now have a caveat added: RSI has just touched 80. That implies “reversal soon” or flat on this time scale (though longer term continues positive).

The US Dollar strength has hit the WIP ‘inflation protected’ world bonds. They are not protected against dollar swings.

World Inflation Protected Securities - 1 year daily

World Inflation Protected Securities - 1 year daily

Base Metals vs. Precious Metals

Precious metals:

http://chiefio.wordpress.com/2011/12/13/gld-gold-vs-silver-and-currencies/
Last time I’d said:

The precious metals and base metals both looking crummy. Just stay out for now and wait for a clear bottom indication. Even gold is more or less flat with high wobble. Not a great idea. If you want to hide, hide in TIPs instead.

And that has held up nicely. However, both the gold and silver charts have RSI at 20. The Simple Moving Averages are still declining, so price is likely to bounce up to that SMA stack from below, then fall away again. This is a ‘reversion to trend’ trade, NOT a new bull market. (yet…) We still have MACD “red on top” and DMI “red on top” and MACD is “below zero”. Bear Market Counter Trend Rally, so any long trade in gold and silver needs to be fast cycle time, exit at the SMA stack or put a tight stop loss behind it then. IFF if crosses the SMA stack, returns from above, and fails to penetrate it, does this turn into a new Bull Market Trend. Until then it is a fast counter trend rally and nothing more. Personally, I don’t like counter trend rally trades. They move way too fast to avoid large ‘slippage’.

Still, precious metals are very volatile, so often those counter trend rallies punch fairly high and simply trading on a fast oscillator can make money. For the strong of constitution gambler… Personally, I’m sitting this one out.

SLV Silver ETF

SLV Silver ETF

Base Metals infrastructure chart posting is here:

http://chiefio.wordpress.com/2011/12/14/base-metals-vs-gold-and-silver/

In a Risk Off world with economic slowdown in the wind, they fall. Right now, they are falling…

What about Brazil? Also India and China.

Last time I’d said:

Pretty much “dead meat” for now. We wait for RSI to show “higher lows off of 20 ish” and for MACD to show a clear “blue on top” with a decent up slope toward a zero crossing. DMI needs a clear “blue on top” and ADX moving higher too. Until then, it’s watch and wait, but don’t touch.

Still waiting… RSI is now below 20 and things are just getting crushed. “Emerging Markets” can be brutal when the “First World” has pneumonia… When they fall, the ‘resource economies’ fall with them. So Australian and Canadian markets falling too.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

EWZ  - Brazil
GLD  - Gold fund
BZF  - Brazilian Real currency
IDX  - Indonesia
FXI  - China
EWA  - Australia
EPI  - India - WIsdom Tree fund
EWC  - Canada
EWW  - Mexico
GUR  - Middle East Fund

Sectors

ETFs with Dividends

Things have not changed much from last time, but a narrower set still rising. If you must hold long positions in a falling market, these offer some choices. VZ and T seem to be rising and there were some “Talking Heads” talking them up the last couple of weeks.

These guys are holding up more or less flat. Nice. Dividends protecting them. A reasonable diversification with modest risk. Lower volatility. I’d look at buying modest positions on dips to the low side of the ‘flat roll’. Cell phone providers in particular look to be doing reasonably well. Some other utilities too.

http://chiefio.wordpress.com/2011/12/29/dividend-etfs/

Ag Commodities & Ag Related Companies

Before I’d said:

Grains look like a decent trade. Hmmm….

Not a dramatic trade, but workable.

And that continues to be about the only trade here (other than shorts). Trading those periodic ripples.

With grain now showing “lower lows”, I’d step out of trading those ripples. You are gaining downside risk and not adding to the upside potential bias.

http://chiefio.wordpress.com/2011/12/31/agriculture-stocks-and-commodities/

FUD "food" and JJG "gain" vs DBA an agriculture basket benchmark

FUD "food" and JJG "gain" vs DBA an agriculture basket benchmark

Not seeing anything of interest in the Ag sector, really. Even the nitrogen producers with fat dividends have plunged. RNF – Rentech Nitrogen Partners – claims a dividend over 18% and looks to have hit support, so it ought to be investigated as a ‘bottom fishing’ candidate. IFF that dividend is secure, it’s a heck of a deal. (If it is going to be bankrupt, not so much ;-)

Transports

Still dismal, only more so. No real change from last time, other than that you ought to already be out:

Despite the falling oil, I’d step out of any transports. Even the Canadian Rail CP looks flattened. If China slows, they don’t need as much rail shipments…

http://chiefio.wordpress.com/2011/12/31/transports/

Oil And Fuels?

The charts are here:

http://chiefio.wordpress.com/2012/01/01/oil-and-energy-stocks-and-etfs/

We had our first Energy Humpday posting which found:

“The trend is your friend” would say they are all in a downtrend, so the best you can expect is a ‘return to the SMA stack’, and that’s a day trade at best. Personally, I’d just stay out with this look to things.

That has stayed true pretty much the whole time. RSI is now at 20 for oil, so the decent ought to slow soon, but no sign of a change yet. UNG Natural gas continues to rise. This Wednesday we’ll have a new Energy Humpday report, and that is a likely time for any reversal indications to show up. Until then oil and energy products will likely continue weak into that report.

The various energy company stock prices have continued weak and falling. CCJ (the nuclear fuels company) had a dead cat bounce and is revisiting the lower bound price. It will be interesting to see if it holds. ( It ought to, but in a generally falling market, bottom fishing can have ‘lower lows’ even when they ought to hold on an individual stock basis – folks shorting broad indexes putting pressure where there is no reason for it…)

In general, no joy in the energy patch, and, at best, time to be watching for ‘bottom fishing’ opportunities ‘some day’.

REITS

Along with everything else, the REITS took a hit in the down market pressures. The charts still show longer term uptrends, but with the occasional ‘air pocket’ drop back to the SMA stack. In general, I’m not fond of holding anything but cash or bonds in bear markets, so I would lighten any REIT positions; but if holding them for long term dividends, the chart would say “hold at least to the next up wobble” and assess then.

There was also a Real Estate Sunday posting. with a nice selection of less volatile REITS. Some of the tickers on this chart clearly dropped much more than others. With DMI “red on top” and MACD “red on top” and headed to below zero, the indications are that the past up trend is ended, so an exit is the lowest risk path; but charts for any particular individual REIT ought to be used to make the decision for individually.

REITS Race

REITS Race

PEI  Pennsylvania Real Estate - Mall REIT (REMOVED to make better graph)
VTR  Ventas - sr. care, nursing homes, hospitals
PSA  Public Storage - junk storage units
BXP  Boston Properties - office REIT on BosWash corridor  
HCN  Health Care REIT -  extended care, senior care, medical offices
HCP  Health Care Properties - ex. care, senior living, Dr. offices
PCL  Plum Creek Timber - lumber and trees REIT
SPY  S & P 500 broad stock market benchmark
RPT  Ramco Mall REIT
PLD  Prologis - logistics 

Monthly Running Stocks

Well, the “up / down ratio” is pretty grim. More risk than reward.

So what “won” and “lost” over the last month? (though remember, they may not be the winners next month… it’s just to provide ‘context’).

One Month

10 Best Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Fixed Line Telecommunications Index 	7.17%
Dow Jones U.S. Telecommunications Index 	5.54%
Dow Jones U.S. Home Construction Index 	4.90%
Dow Jones U.S. Biotechnology Index 	2.86%
Dow Jones U.S. Multiutilities Index 	1.59%
Dow Jones U.S. Electricity Index 	1.05%
Dow Jones U.S. Conventional Electricity Index 	1.05%
Dow Jones U.S. Soft Drinks Index 	1.05%
Dow Jones U.S. Beverages Index 	0.80%
Dow Jones U.S. Utilities Index 	0.74%

Telephone companies. A tiny bit of homebuilders on a ‘not dead yet’ trade. Some more utilities and ‘consumer staples’.

Classic “risk off” stocks (low Beta) but not a lot of gain to be had.

How about the losers?

10 Worst Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Furnishings Index 	-21.92%
Dow Jones U.S. Steel Index 	-21.73%
Dow Jones U.S. Platinum & Precious Metals Index 	-21.26%
Dow Jones U.S. Coal Index 	-20.71%
Dow Jones U.S. Gambling Index 	-19.22%
Dow Jones U.S. Industrial Metals Index 	-18.16%
Dow Jones U.S. Clothing & Accessories Index 	-16.54%
Dow Jones U.S. Commercial Vehicles & Trucks Index 	-16.32%
Dow Jones U.S. Basic Resources Index 	-16.05%
Dow Jones U.S. Nonferrous Metals Index 	-15.75%

Just crushed. Stuff we all buy (but are not right now) and commercial / industrial inputs. Coal on an “Obama Picks Losers” trade. Folks staying home from the gambling tables.

Weekly Wining and Losing Sectors

The best and worst of the week? Do they tell a different story on the short term trade?

Up/Down ratio is all down. Better to be in cash than ANY sector this past week…

10 Best Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Fixed Line Telecommunications Index 	-0.20%
Dow Jones U.S. Nondurable Household Products Index 	-0.39%
Dow Jones U.S. Gold Mining Index 	-0.72%
Dow Jones U.S. Telecommunications Index 	-0.73%
Dow Jones U.S. Broadline Retailers Index 	-1.00%
Dow Jones U.S. Internet Index 	-1.18%
Dow Jones U.S. Pharmaceuticals Index 	-1.35%
Dow Jones U.S. Conventional Electricity Index 	-1.57%
Dow Jones U.S. Electricity Index 	-1.57%
Dow Jones U.S. Tobacco Index 	-1.57%

What can be more clear than that? That’s why I tend to just “step out” on downturns. You either have to pick sectors and individual stocks with ever more perfection OR simply loose in any sector. Why bother?

Dropping?

10 Worst Performing Industries Industry Name 	Percent Change (over time selected)
Dow Jones U.S. Coal Index 	-16.37%
Dow Jones U.S. Full Line Insurance Index 	-11.19%
Dow Jones U.S. Steel Index 	-10.99%
Dow Jones U.S. Hotel & Lodging REIT Index 	-10.92%
Dow Jones U.S. Life Insurance Index 	-10.40%
Dow Jones U.S. Marine Transportation Index 	-9.77%
Dow Jones U.S. Building Materials & Fixtures Index 	-9.53%
Dow Jones U.S. Industrial Metals Index 	-9.29%
Dow Jones U.S. Gambling Index 	-9.10%
Dow Jones U.S. Construction & Materials Index 	-9.03%

Yeah, that’s 16% down to near 10% in one WEEK. That’s a Classic Bear Raid where shorts can short anything at will and “Fattest Wallet Wins” via destruction of market value. Coal clearly reflecting the Obama Hates You effect.

All in all, pretty dismal

Momentum Trades

First off, the caveat page. Know how to exit before you enter a momentum trade:

http://chiefio.wordpress.com/2011/10/26/when-momentum-fails/

This is NOT buy and hold investing, OK?

The general approach is to find lists of stocks going up, then look at their chart for ‘what is in a good configuration and likely to continue’, then wait for an entry. That last part can be particularly frustrating in stocks with a strong momentum as the ‘dips’ either never come, or come at the eventual blow off top of an exhausted big momentum run. So sometimes I’ll just ‘scale in’ to momentum stocks. Buy some each dip, and exit all of it on a topping indication.

This posting gives an overview of the method of picking:

http://chiefio.wordpress.com/2011/07/20/alpha-bubbles-and-lists/

The original set of stocks inspected this was was last documented in the WSW posting here and folks following those stocks can check the charts there. Many have ‘rolled off’ in the recent downturn.

I’ve gone to periodic “Momentum Monday” postings that will include new selections in each list. The most recent one will be linked here.

http://chiefio.wordpress.com/2012/05/15/momentum-monday/

Right now those charts show most of the momentum stocks took a tumble with the general market. You will also note that I opened that posting with a set of “Heat Maps” showing the decay of rising stocks and a warning that it was unlikely anything would rise against that falling tide:

“Got it? BAD idea to buy anything “long” at this time.”

So the momentum stocks are worth watching for a reversal and ‘buy on the reversal’ when the indicators say the context is better. For now there’s perhaps a bit less risk in them, but it is fighting a negative tide. There is a best season to each style of trade or investment, and momentum trades are best in a rising market context. Right now we have a falling market context.

The Long Term Context

Here is another interesting chart where you can see how volatility spikes at market bottoms and drops lower during times of topping actions. It also has “momentum” on it which can act as a reminder of how much force a trend has, and which way. Slow Stochastic is better for a faster trade behaviour when ADX (of the DMI / ADX indicator above) is below 20 or so.

If this all looks like “too much”, just remember that you don’t need to look at more than the one basic chart. The rest of these indicators give more depth of insight into “why”, but not better answers as to when to be in stocks vs bonds.

SPY vs TLT with Slow Stochastic, Volatility (fast) and Momentum

SPY vs TLT with Slow Stochastic, Volatility (fast) and Momentum

VIX the Volatility Index

We’re continuing to see the low volatility at ‘tops’ and the rising volatility in the dips. To me this is still saying “stay out” for now.

Volatility Index and Related

Volatility Index and Related

VIX  - Volatility Index (not a ticker, you can't trade it)
VXX  - Short term VIX futures ETN (a ticker you can trade)
VXZ  - Medium term VIX futures ETN (a ticker you can trade)
FXY  - Japanese Yen
SH   - "Short" sell of SPY
SPY  - S&P 500 benchmark
IYT  - Transports, a leading sector
XHB  - Homebuilders, a leading sector and "canary" 
XRT  - Retail
Volatility Index and Related

Volatility Index and Related

You could make some money on volatility trades, but it’s a dicey fast trade. A 6 month ‘close up’ shows recent trends.

Stock Indicators – what and how

When the long duration charts say “maybe making a top, but perhaps a ‘buy the dip’ moment”, I look at the faster charts and faster indicators and move to a faster time scale with faster trades. But I’m a trader.

For long term investors, you just ride the ride until the chart says “top is definitely in” and “buy the dip” until proven otherwise by a confirmed roll over (price below SMA stack). In general, I’d put very long term bias as “be in”. Trend is up, dip happened. Be in. But you just can’t ignore that the price plot looks very “rolled flat” at least… and we’re all waiting for DC and Germany to “make their moves”… So you must WATCH the chart each week, even if not acting to be out of the market yet.

If all this talk of indicators is leaving you wondering what the heck I’m talking about, hit the link in the heading of this paragraph and there is a bit of an explanation.

Click for Disclaimers, Disclosures, and Where To Get Charts

Remember that on any stock or ticker I say I’m looking at, you don’t just go buy it. You wait for a stock entry indication to get the best possible entry into the position.

Subscribe to feed

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Wall Street Week... and tagged , , , , . Bookmark the permalink.

8 Responses to WSW, Sunday, 20 May 2012

  1. Sera says:

    Here are some numbers and a good analysis from Patrick about the China real estate situation.

    http://chovanec.wordpress.com/

    This is the part that got my attention…

    “Land sales, meanwhile, fell off a cliff. Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year (RMB 60 billion), and -47.0% compared to March (RMB 51 billion). Total area sold was down -52.5% compared to last April, and -43.4% compared to March (the year-on-year comparison here relies on a similar reverse calculation as before).

    It should be no surprise, then, that foreign investors are pulling back from China’s property sector. Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.”

  2. wolfwalker says:

    Chiefio, I have a stock-market-related question, perhaps a stupid one to an experienced investor or analyst, but it’s honestly confusing me.

    After its IPO, Facebook stock bounced briefly upwards, then settled back to end right about where it started, the IPO price of $38 a share. Everyone interpreted this as a disaster for Facebook. Why was it a disaster? It seems to me that if the price settled back where it started, then the initial price was probably a pretty accurate estimate of the stock’s correct current value. Isn’t that what you want in an IPO?

  3. E.M.Smith says:

    @Sera:

    Thanks for the added info!

    @Wolfwalker:

    There are no stupid questions, only stupid answers ;-)

    Change “everyone” to “all the folks making a story for a living” and it’s about right.

    In fact on one of the finance channels (Fox Business?) there was a discussion with one of the folks actually having it right: The IPO is really incredibly successful in that they where “perfectly priced”. They go the maximum money possible for the company and the price neither collapsed with under subscription nor had a giant $20 “pop” meaning the company lost $20 / share they COULD HAVE HAD with better pricing.

    So, IMHO, Facebook WAS priced right. It just doesn’t make a very good story to say “IPO happened at the set price and traded at that price. Underwriter manged a good IPO.”

    OK, why do people want a “pop”? First off, the folks who buy the IPO want to make a profit. If they pay $20 and get $40 in the “aftermarket’ they are happy. Some of them are the managing investment bank and all their friends. They are the ones who are disappointed….

    When a company floats a little bit of stock, say 10%, they want a pop as later sales (of that other 90%) can generate a lot more money. But Facebook floated a very large part of the stock they intend to float, so don’t need a ‘pop’. Again, highest price NOW is actually what they wanted.

    In the longer run, if an investment bank has too many IPOs with no “pop” so “Friends of Bank” don’t get a lot of instant profit, the Investment Bank can have trouble rounding up folks to buy into a new IPO (but that isn’t a problem for Facebook).

    In short, it isn’t really a failure of any kind. It’s just a story that “works”.

    There was one failure. NASDAQ had a failure to deliver trade notifications. So some folks in the aftermarket pulled out and didn’t place more buys / trades. ( How can you if you don’t know what you bought in your first order?). The underwriter had to step in and support the price at $38 a couple of times (largely due to that drop in orders later) but again, that’s not a failure of or for Facebook. They already had their money by then.

    So there you have it. The answer is in the fact that different people want different things from an IPO and some of them want opposite things. Oh, and the copy writers want a story with drama and “failure” is more dramatic than “Banker does job”….

  4. George says:

    Facebook is doing a faceplant.

  5. E.M.Smith says:

    @George:

    The publicly traded stock, yes. The company, no. It has pocketed the cash and is done.

    Basically, there was a LOT of hype going into the IPO. The folks who bought the hype got burned, and have now spurned the stock, so dumping.

    The company made a bundle and is largely uninvolved at this point.

    Frankly, any time an IPO raises the quantity on offer, and raises the offer price, in the last couple of days into the IPO: I avoid the stock as this kind of thing often happens.

    This one was a bit more than most due to the hype being more, but the pattern is about the same.

    @All:

    Looks like a “reversion to the trend mean” may be starting. All those “RSI near 20″ charts showing a bit of rise today. Watch when the prices make it to the middle of the SMA stack (about the 50 day line) as if it falters there, the present dropping trend likely to resume with a vengeance. Only if prices make it through that trend is a new trend possible.

    Usual pattern is either one or two days of rise and then the fall continues, or more common is a spotty rally on low volume back to the SMA lines, and a resumption of the trend lower. About one in three it hits the SMA lines and has a few days of jitter, then makes it through as a new rising trend. I’d not expect that until about November, but the charts will show when.

    I’m stopped out of most of the JPM and exited the hedge on it as well. Still have a small core holding for a long term value investment and ‘marker position’ for a possible reentry. When J.D. announced ending the stock buyback program that was a killer. He ought to have been buying his own stock at this point providing support. That action not only removes price support but raises a lot of questions. While I suspect it was mostly done to prevent political hay making (politicians love to complain about companies buying their own stock while in some hypothetical way cheating the public, for reasons that I simply can’t figure out) it remains an unexpected action until it IS explained.

  6. George says:

    So I am reading this story and thinking to myself, man, these people have no clue about the markets they write about: http://www.cnbc.com/id/47503280

    What caught my attention was this:

    “The drop was so steep that circuit breakers kicked in a few minutes after the open to restrict short sales in the stock, according to a notice from Nasdaq”

    It is my understanding that there will be no short sales in Facebook until Friday, after it has been on the market for one week.

  7. Bruce Ryan says:

    Is there a place to put your money and forget it? My work puts me out of contact during the day and pretty much not suited to thinking in the evening.

  8. E.M.Smith says:

    @Bruce Ryan:

    Not “A”place, and not optimal, but a mixed collection of about 5%-10% gold and commodities, 20% REITS, and 30% or so each of S&P 500 (some can be EEM) and a diverisfied bond fund is fairly stable.

Comments are closed.