WSW, Tuesday, 27 November 2012

General Comment

We’ve had some ‘market check’ postings that pretty much called things flat for a couple of months, then called a down pretty much on cycle, and finally a ‘trade up’ that was timed within a day or two. (While I thought I was a day or two early, the turn actually happened on the day of that posting). We’ve been through an election and a Holiday, and now we’re in the Lame Duck session where a lot of quacking goes on, but not much enlightenment.

Things are generally muddied right now, so time to do a full blown WSW look at things and see what can be un-muddied. My general sentiment is toward finding an OOTUS (Out Of The US) trade to park things. But some of that depends on what happens with sequestration. ( I’ve decided to stop calling it the ‘Fiscal Cliff’, since it isn’t. It’s just a budget sequestration. Probably the best thing we can do to restrain Federal government money squandering.) So we have a major point event. What will congress do. In an ideal world, monetary decisions would have little dependency on Washington. Clearly this is not an ideal world.

My expectation (or ‘story’) is that congress will do what they have done in the past. “Kick the can” on a short term patch and continue to tax and spend and borrow and spend and spend and spend and spend…. Until proven otherwise, that is the backdrop to interpretation of events.

The notion that is circulating in the news flow is that increasing money taken from the people by changing the tax rule details is better than increasing money taken from the people by changing the tax rate details. The reality is that it doesn’t really matter. More tax take is just that. Less in the private economy, more in government waste and payola to Friends Of Big Government. The notion that reducing the efficient private wealth production while increasing the public wasteful squander will make the economy better is a broken idea. It just doesn’t work.

THE problem is the huge commitment to massive government waste, pandering, squander, vote buying, and entitlements. It doesn’t matter if you borrow the money to pay for that, or tax it away, or how the tax is packaged. Until the economy is free to grow, things get worse, not better. I see nothing in the news flow that indicates any intent or ability to address the underlaying problem. At present we’re at about ‘break even’. It’s a nominal percent or two of ‘growth’. Yet the inflation numbers are, IMHO, buggered by about that much. Net of it all, we’re essentially static. As the increased taxes that are already in law (Obamacare et. al.) hit, growth and employment drops accordingly. As the increased regulation burden that is already in law and in proposed regulatory actions hits, more industry will move overseas. Growth and employment drops accordingly. Until that changes, the “outlook” for the USA has a negative bias.

Basically, just like when Brazil embraced the Socialism Shiny Thing in their economic policies with their election, and their market has been dead money or dropping since, and just like when India went for excess regulation on foreign exchange and money fled (dropping their market); the same rules apply to the the EU and the USA. But do realize that it’s not the degree of socialism, it is the direction of change. The first derivative. As we’re in a slide into more, we have a harder time. As China has been climbing toward economic freedom, they have had better times. So watch the direction and rate of change, not the absolute status. (The absolute status determines actual prosperity, but economic gain comes from change of prosperity).

Is there hope? Yes, there is always hope. “But hope is not a strategy. -E.M.Smith”

So we hope, but let the markets be our guide…

News Flow

It’s all about the pending sequester and not much else in US news.

In Egypt we have the People back in the streets about their new dictator. I wish them well.

A load of cold and rain is coming to the Northern Hemisphere. IMHO the turn into cooling is now underway. The northern hemisphere of the sun has had polarity shift and the southern hemisphere is pending. Sunspots and related indicators are way low, and this is the peak of this cycle. Alaska had snow persisting through the summer and the Southern Hemisphere as been relatively cool this year.

Not much actionable from it.

Oh, and Greece has had yet another bailout. “This time for sure!”…

Basically all of the EU and North America is betting on a Socialism Lite Keynesian Solution to work. It won’t work. The only real question is how much wealth creation ability will be destroyed in the learning process.

Oh, and Soros was reported to be buying gold (so one presumes shorting currencies … $US anyone?) and his hedge fund is continuing to bet on ‘green energy’ companies. So he’s pretty sure he’ll get a Kyoto Redeux and a socialism shiny thing driven drop of the currencies.

COP-18 is having a party in Qatar. Champaign and Caviar while preaching the end of the world and doom!!! As China is now clearly ‘the problem’ with CO2, and China only does what benefits China, don’t expect to see much agreement. Yet whatever is agreed, expect to see the Obama admin sign onto it. If not via a ‘treaty’ signed by the Senate, then via EPA fiat. California has already started “Cap and Tax”, so expect to see yet more business leaving California for better places. Texas, start that BBQ and order some extra beer…

Conclusions and Likely Actions

Likely to continue the “swing trades” on ripples in the charts. Month long type timing.

Mostly going to continue the “watchful waiting” through December.

Looks like some OOTUS opportunities in Mexico, Australia, and Pacific Ex-Japan. Also a mix of inflation protected bonds and selected stocks might be an option.

NOT going ‘long bonds’ nor a lot of ‘buy and hold’ investing. Likely some nice dividend stocks to pick up for retirement accounts as folks dump them and lock in capital gains in this tax year ahead of future tax increases.

We’re back to an OOTUS bias and with a bit more ‘Watchful waiting’ for Congress to decide what the New Rules will be.

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 -
Tuesday, 27 November, 2012

Long Term Context

As this is a chart of weekly tick marks, there are only 4 of them added from one month to another. So not much changes in the analysis from one WSW posting to the next.

Notice that the broad NYSE ticker is underperforming all the others? That ticker has a broader exposure, including to non-US stocks with ADRs (American Depository Receipts) This indicates that the whole world, generally, is not doing all that well. Even the very big foreign companies listed on the NYSE.

Last time I’d said:

What’s flying? NASDAQ. It’s a Tech Bubble. So Apple and Cell phones are carrying the world? Hmmm… Haven’t we been here before?

Since then Apple has had a big roll over and the Nasdaq had a bit of a drop… HPQ HP has had ‘issues’ with an 8 $Billion write down, and PC sales generally are off (moving to tablets and cell phones).

Yet the non-NYSE averages have ongoing ‘higher highs’. Not a long term Bear Market, yet. But the frequency of the peaks is faster and a line connecting the highs is having decreasing slope. Things are slowing. Significantly. So more ‘swing trade’ and less ‘buy and hold’ investment.

5 Years, NYSE

5 years, NYSE

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

We have ADX / DMI (bottom band) with a very weak ADX number near 12 (that means Slow Stochastic ought to be the important indicator at this time scale and trend strength is week. For NYSE, it is, for QQQQ, it is likely much stronger. The indicators only apply to the individual ticker.) The Blue DMI+ and Red DMI- are weaving, so “time to be flexibly trading stocks”. MACD is also weaving and only a little above zero too. Also saying “be a trader”. Only Slow Stochastic is saying “time to buy” for a trade cycle. Personally, I’d shift to a faster chart and specific tickers for any trade decision.

Basically the same conclusions as last time:

OK, still going to hold a shorter time frame bias, and it looks like tech / momentum is the way to go with individual sector and stock picking. Some worry of a ‘pull back’, but we’ve got The Fed blowing the balloon hard…

We did have a ‘pull back’ and then that ‘bounce’ trade back to the SMA stack (on the faster chart).

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)

Bonds vs Stocks

IMHO, Bonds are in a bit of a bubble. Nearly no return, in an asset that is subject to inflation erosion. When this breaks, it can break hard.

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

TIP is benefiting from the Inflation Kicker, so likely still a safe place to park money.

As I’ve said for a few postings now:

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.

For TLT, DMI is weaving red/blue and the ADX line is headed down to ‘flat trend’ country. RSI is dampening to a middling 50 as MACD is drifting down to a ‘near zero’ and with a weave character forming. It ought to be giving a ‘crossover’ to blue on top and ‘buy’, but as ADX is below 25, that says “Don’t use MACD, use Slow Stochastic or move to a faster chart”. Overall, not seeing a reason to be in long term bonds. TIPs for holding cash is still OK. All we have supporting long term bonds is a fear trade. If fear starts to drop, or The Fed slows buying, or the Government issues more, bond prices will drop.

General Stock Markets Overview

The broad stock markets charts are here:

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

On the one year chart, SPY and QQQQ have had better performance than the other major markets. For it, we have RSI approaching 20, so the drop from last month is getting a bit old and we have had a one week run back to the SMA stack. MACD is ‘blue on top’ but also ‘below zero’. The below zero means ‘bear market trend’, so we treat this as a ‘bear market rally’ and sell at that SMA stack return. Now we wait for a determination of ‘return to bear trend’ or ‘crosses SMA stack and it was a ‘buy the dip’. Yet DMI is weaving and ADX is below 20. That says that even at this time scale, it’s not much trend, and we ought to use Slow Stochastic or move to an even faster chart. That would be 10 day 15 minute tick mark fast trading charts.

Frankly, the most interesting thing on the whole chart is that EWA Australia, held up when the SPY rolled over. I guess they were not having an election ;-) On the 6 month chart, EWG Germany and EWA show up as the winners, but even they are basically flat for 2 – 3 months, so not a great investment recently.

Looking at the sector charts at that link:

IYT Transports have just been whacked. In economic growth, transports usually rise…

Even GLD gold, has been flat (with strong wobble) the last couple of months. I’m just not seeing much of interest in the sector view of things.

In Europe, we’ve had an 8 month or so cycle. But that cycle also shows up in WIP the ‘world inflation protected bonds’ so is likely at least in part a US$ change artifact. Overall, flat, and with the last couple of months very flat with a small down bias (though Germany spiked up this last week back to net flat). EWG, EWK, and EWD continue to be the better performers. Indicators on EWG showing a ‘new entry’ but also on very weak trend, so more ‘fast trading’ than investing. EWI Italy under performing, so one might go for a ‘long EWG short EWI’ hedge.

All in all, the Euro Zone looks to be stagnating too.

The “smaller Europe” had a very nice run up over the last 5 to 6 months, but only back to where they were at the last peak (or slightly lower for some) and with the last month being a ‘wiggle going nowhere’. A fast trade could have made money, but holding for a month was a ‘heartburn and no gain’.

Last time I’d said:

On the emerging markets graph, there’s some that are ‘late to the party’, so may have more room to run up, and some that are already moving well. Again, RSI is ‘at 80′, so don’t be surprised if the run runs out ‘soon’. A month or two. Australia and Canada look best, in terms of already seen trend. A closer look at ‘the Latins’ is needed. Mexico EWW is about as strong as SPY. Malaysia EWM doing well too. Brazil EWZ and South Africa EZA in the dumper.

So what happened in the last month? Well, Mexico is strongly beating the SPY, but that’s a hollow victory, as it is still lower than the peak of a bit over a month back. Worth watching, but not seeing the ongoing momentum. FXI China and EPP Pacific ex-Japan are both holding up best at the moment.

So it looks like time to revisit “Asian Tigers” as a likely place for winners this cycle. I could see a Mexico and Asia basket with some WIP / TIP as a nice mix. Basically bet on the “drug trade countries” and inflation… ;-)

On the ‘resource economies’ chart, the surprise is ENZL – New Zealand. Go Kiwis Go! No wonder Lamb is getting so expensive ;-)

OK, I think we’ve got a theme for where to hide out. Inflation protected bonds and Pacific Coastal with emphasis on ‘near Asia’ and a bit of Mexico.

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/

The Euro is on a big bounce off the bottom. Canadian Dollar and FXB British Pound doing nicely too.

The Swiss Frank FXF looks like it is being managed in a ‘match the Euro’ channel.

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/

Last time I’d said:

Bonds, in particular US bonds, are a ‘be out’ signal. What is really impressive is the “Non-$US inflation protected” bonds and bond funds:

And that was good for about 3 1/2 weeks. Lately there’s been a bit of a rebound, but not back to prior highs. The details on various bond funds are interesting with some of them moving nicely. It’s a complex trade though, involving both currencies and sovereign risks. Still, looking in detail at ‘foreign bonds’ looks like a thing to do. Present indication is a ‘buy’ but with weak strength. Weak strength ( ADX below 25) says use Slow Stochastic and it looks like a crossover to the downside. So more a trade than a buy and hold. Hmmm….

World Inflation Protected Securities - 1 year daily

World Inflation Protected Securities - 1 year daily

Still, looks like emerging and selected European markets for bonds. At least for now.

Base Metals vs. Precious Metals

Precious metals:

http://chiefio.wordpress.com/2011/12/13/gld-gold-vs-silver-and-currencies/

In general, the currencies and metals show a major swing cycle. No real trend, just a dollar rise / fall / rise going nowhere net. SLV Silver and EUO double short Euro formed an ‘opposite set’ so a natural hedge, or nice swing trade oscillator pair. Lots of smoke and fury going nowhere, net. GLD has swung over the year, net nowhere too.

SLV Silver ETF

SLV Silver ETF

So a real swinger, good for trades, but more ulcers than it’s worth, IMHO. Still, saying to buy in now and be ready to jump quick. I’d trade it on a faster chart, though…

Base Metals infrastructure chart posting is here:

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

Last time I’d said:

Base Metals have taken a jump off the bottom across the board. DBB is the basket, JJC is copper and the standard. JJN – Nickle, looks to have the most volatile upside still in front of it.

And since then base metals have risen. But it looks like PALL Palladium has had the best move. Wonder if the cold fusion world is heating up or folks just want a cheaper ‘precious metal’ to trade? Still, looks like buying things like Palladium, Nickel, PPLT Platinum all have potential (and, IMHO, beats holding pretty pieces of paper…)

What about Brazil? Also India and China.

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

Same thing we saw above. Australia, Mexico, Germany… IDX Indonesia doing well too.

Sectors

ETFs with Dividends

Looks like a bit of a spanking from the ObamaTax on dividend income. CEL Celcom Israel has a 14% dividend and is not rolling over with the US cell carriers. It got crushed about 6 months back and is in a long slow rise off a bottom. Likely the ‘war jitters’ over Egypt during the Egyptian revolt. If you think Jews will keep on talking, looks like a bargain to me. (TKC is Turkcell for any folks wanting to bet on Muslims talking. Chart up nicely, but gone flat the last couple of months. Might make a nice hedge with CEL ;-)

Utility ETFs / Funds have rolled over with bonds. Telecoms, especially cell phone companies, are shooting up. If you want ‘dividends with growth’ shop there.

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

Ag Commodities & Ag Related Companies

Last time I’d said:

“On the drought news, grains took a shot up. Now we’ve got the indicators saying to be out of JJG.”

You can see that grains have been dropping since then. ;-)

Still not a time to ‘be in’, but looks like bottoming ‘soon’, so time to start watching it again.

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

Last time I’d said:

Ag is mostly flatish. CZZ the sugar / energy / land company in Brazil is rising nicely. RNF and RTK are rising too.

CZZ now looks topped to me. ADX headed to below 25, so trend weakening. MACD drooping toward zero. Book it and reduce size. Maybe exit all together. Most of the Ag space looks ‘topped and rolled over’ to me. RNF looks a bit flat, but has an 8% dividend. RTK still rising (but a bit speculative).

Transports

Mostly dead money or down. Oddly, the airline index is up. NEVER buy an airline (but sometimes fast trade them…).

At most a ‘weak trade buy’ signal, but I think there are better trades than something in the EPA / Obama cross hairs.

RCL Royal Caribbean and HRZ Horizon look like they are in nice trends, so maybe some shipping. RCL makes sense, as a lot of rich Chinese will now want cruises…

Last time I’d said to buy rails, and especially those shipping coal or in Canada. Since then CP Has been rising nicely. Looks like it’s still steady up.

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/

The oil and energy sector looks pretty bleak. Only RTK showing life, and it’s more a chemical company now. ICO popped up, but it’s a small coal miner and would need close inspection to understand it before buying.

REITS

There’s a bunch of selling to lock in gains under this years cap gains rate ahead of any changes of law. Also that dividend tax. IMHO this is looking like a buying opportunity setting up with RSI at 20. Charts are not yet positive, and you need to know the specific REIT, but I think it’s time to put them on the watch list.

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

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 	Percent Change (over time selected)
Dow Jones U.S. Tires Index	14.20%
Dow Jones U.S. Travel & Tourism Index	10.70%
Dow Jones U.S. Home Improvement Retailers Index	8.90%
Dow Jones U.S. Building Materials & Fixtures Index	7.99%
Dow Jones U.S. Auto Manufacturers Index	7.35%
Dow Jones U.S. Footwear Index	6.88%
Dow Jones U.S. Automobiles & Parts Index	6.39%
Dow Jones U.S. Transportation Services Index	6.22%
Dow Jones U.S. Construction & Materials Index	6.09%
Dow Jones U.S. Telecommunications Equipment Index	6.08%

Tires? Really? So a bunch of consumer oriented things, including some more durable goods and some home improvement / travel. We’re all feeling a bit better and holidays are on the way. (New tires for the drive to Granma’s?)

How about the losers?

10 Worst Performing Industries	Percent Change (over time selected)
Dow Jones U.S. Coal Index	-13.43%
Dow Jones U.S. Mining Index	-10.61%
Dow Jones U.S. Gold Mining Index	-10.37%
Dow Jones U.S. Brewers Index	-6.83%
Dow Jones U.S. Conventional Electricity Index	-6.25%
Dow Jones U.S. Electricity Index	-6.25%
Dow Jones U.S. Utilities Index	-5.76%
Dow Jones U.S. Multiutilities Index	-5.68%
Dow Jones U.S. Consumer Electronics Index	-5.30%
Dow Jones U.S. Health Care Providers Index	

Up / Down ratio about a wash. Needed to pick the right sectors to win. Most of what’s down is “Stuff Obama is Whacking”, not a surprise given the election. Though I note we’re not drinking as much beer… (Wonder if whiskey sales are up hard? ;-) and we’re not buying as much electronics (or the margins are down).

Weekly Wining and Losing Sectors

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

10 Best Performing Industries	Percent Change (over time selected)
Dow Jones U.S. Specialized Consumer Services Index	4.79%
Dow Jones U.S. Real Estate Holding & Development Index	4.35%
Dow Jones U.S. Home Construction Index	4.06%
Dow Jones U.S. Tires Index	3.71%
Dow Jones U.S. Computer Hardware Index	3.51%
Dow Jones U.S. Business Training & Employment Agencies Index	3.41%
Dow Jones U.S. Real Estate Holding & Development	3.12%
Dow Jones U.S. Building Materials & Fixtures Index	3.04%
Dow Jones U.S. Construction & Materials Index	2.98%
Dow Jones U.S. Airlines Index	2.98%

Nice gains. Happy Consumer things. Tires and home construction. Airlines (trade only…) and consumer services.

Dropping?

10 Worst Performing Industries	Percent Change (over time selected)
Dow Jones U.S. Coal Index	-3.61%
Dow Jones U.S. Steel Index	-0.83%
Dow Jones U.S. Hotels Index	-0.63%
Dow Jones U.S. Aluminum Index	-0.36%
Dow Jones U.S. Mining Index	-0.14%
Dow Jones U.S. Residential REIT Index	-0.09%
Dow Jones U.S. Industrial Suppliers Index	-0.06%
Dow Jones U.S. Health Care Providers Index	-0.05%
Dow Jones U.S. Oil Equipment & Services Index	
Dow Jones U.S. Oil Equipment Services & Distribution Index	0.07%

Had to bet ‘exactly wrong’ to lose much. Coal? Buy Coal with Obama elected? That would be crazy… Steel? Going to China. Ditto Aluminum. We can see the industry being pushed out of the country. Energy, oil and coal, steel, mining, aluminum, Industrial Suppliers. And healthcare being socialized. Also our residence (apartments REIT) and hotels demand likely to drop.
Mostly the same story. Things dependent on fuel. “Safe” trade stocks like booze and water, utilities. Forestry is odd..

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.

As of right now, I’ve not done anything new on this momentum part. It will come later.

Last posting was this one:

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

The Long Term Context

At this point it looks like a ‘hedge’ of about 50/50 stocks and bonds would be a decent low volatility line between those two trends.

Generally saying “be in” stocks but without much conviction. As though the trade is getting a bit long in the tooth.

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

Volatility has gone “way low”. That’s a very bad thing, and usually precedes market drops.

This is a very worrying thing I’ve put a chart of SPY with volume on it down below.

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
S&P 500  one year daily tick chart wth Volume, Volatility, and Momentum

S&P 500 one year daily tick chart wth Volume, Volatility, and Momentum

Momentum is weakly positive. Volume and volatility both low (a negative) but it sometimes does that during holidays while meaning little to nothing. Still, while I’d like to endorse that ‘long term positive’ chart, this shorter term chart is saying “not yet”… So have a positive bias, but patient execution to the long side…

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.

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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...
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17 Responses to WSW, Tuesday, 27 November 2012

  1. R. Shearer says:

    I’ve been playing with gun stocks and coal stocks and doing pretty well, especially ACI as it is in a oscillating pattern of about 1 month period and at a buy point right now just above support. Got to get in and out though and just take advantage of its volatility. I had the fortune to buy Sturm Ruger (RGR) on election day, I also got SDS but took profit too soon. RGR has given good appreciation and dividend, I sold a third today and plan to hold the remainder for the December special dividend of $4.50/share and see how it is shaping up then.

  2. E.M.Smith says:

    @R. Shearer:

    Yeah, it’s a whole lot easier to pick moments and hold for days or weeks instead of months… I didn’t think about the gun stocks… then again, I’ve not bought a gun in years (as I already have more than enough) so likely I’m not paying enough attention to them.

    I find the ‘flat rollers’ convenient. Usually something makes it ‘ring’ and the range is fairly reliable. The “specialist” has to make money somehow, so runs it up and down “price discovery” they call it… just pick the end points fairly well and make a ‘friend of the specialist’ trade; helping push it which ever way he’s headed…

  3. DirkH says:

    I’ve been accumulating German DAX, MDAX and SDAX stocks since start of October. (And a few Americans)

    Germany had an Obama re-election dip – I bought the dip as well.

    We are a relatively small and nervous market, often news driven, but the companies are stronger than their at times volatile charts suggest. German investors are a fickle lot. Or a lot of internatinal money flows in and out, don’t know which.

    What’s happening in Europe is a huge German wrecking ball driven by German taxpayer money (free loans for Greece etc.) wrecking the industries of the weaker uncompetitive countries in the Eurozone.

    For instance, Volkswagen kills Peugeot and Renault.

    Has happened before: After the re-unification of Germany, with the uncompetitive East German industries.

    The uncompetitive countries have no means of resisting, witness France: They elected themselves a president that promised free stuff (lowered the pension age again); they DECIDED to become MORE uncompetitive. Now he’s “saving” Peugeot with taxpayer money, good luck with that – as soon as a company is on the govt dole it tends to LIKE it a lot, just like Greece LIKES getting more interest free loans, like they just did.

    I’m not in for long. I’ll be out of the market on the 8th of February, after that risk becomes too high (speaking from seasonal statistics); Small Black Swans tend to occur (or maybe even a big one. Small ones were Macondo Well and Fukushima, big one was the BFC.)

  4. crosspatch says:

    I agree that it is time to start watching REITs as the foreclosures begin to cycle out. Problem is going to be that they are very market specific. A REIT in Nevada is not the same as one in the Midwest. Also, if we head into another downturn after the first of the year, I’d stay away from commercial property.

    I have a few different “pots” of money. I have a 401K with my work, a rollover IRA that holds an old 401K I had from the late 1980s and “my” money. “My” money is not in any tax advantaged plan. It’s just a little bit I put away every month. I did two things this month.

    1: Cashed in a good bit of it and bought a new car. I bought a 2012 4WD SUV that gets crappy gas mileage but will get me across an open field without a road. Reasoning was that finance rates are good right now, there were a lot of incentives because it was last year’s model sitting on the lot costing the dealer money every month it sat, and if we are going into rough times with the possibility of inflation, I wanted a good reliable vehicle that will get me out of California on the back roads if I need it to. I didn’t want to pay a greatly inflated price for one 2 years from now.

    2. Moved about 80% of what remains out of equities and parked it in cash. My small regular monthly additions go into an S&P 500 index fund. I took most of that and moved it to cash and I’m thinking it is more likely the market will drop than fall. If I am making regular monthly purchases of the S&P 500, I’d rather be buying on the way down. In other words, I feel we are near the top we are going to see for a while.

    3. Moved some of my 401K into foreign equities. I don’t have much choice where those go, though, as my investment choices are rather limited.

    Oh, and keep an eye on Chile. Interesting country. They have firmly adopted capitalism, have the right kind of social security program so they don’t have to worry about that sending them to the poorhouse, and have a good mix between raw materials (lot of mining going on there), industry (a good bit of that going on, too), and food production. Chile is, in my opinion, one of the better managed countries right now. They are running 6.5% unemployment rate, the central bank benchmark interest rate is 5%. The 2013 budget is growing less than 5% year on year, the 2012 budget had a surplus of 1.4% of GDP, and their inflation rate is 2.9%/year. I’d have no problem putting some money in Chilean sovereign debt. The 10yr bond is yielding 5.45% which is better than you are going to get in any CD at a bank and if the dollar goes south, you get some protection. The CLP to USD hasn’t been doing so bad if you are holding CLP.

  5. crosspatch says:

    Oh, and Chile’s GDP is growing at about 6% annual rate right now (1.4% absolute growth in the latest quarter) so a 5% increase in the budget is quite tolerable.

  6. Another Ian says:

    E.M.

    From one who is here – I’d scrutenise any investment in Australia with a very intense scrut given the goings-on!

    (FYI – it probably isn’t in any dictionary but there are a raft of these expressions – like “Ignored with a large Ig”. Which might sound familiar?)

  7. philjourdan says:

    What I appreciate most about your writings is not that you tell me a lot I do not know, but you say it in a way that makes more sense than when I try to explain it.

    Such is this WSW. Pretty much right on what I expect, but worded in a clearer way than I have done in the past. It also tells me what I need to do with my meager holdings over the next several months.

    As far as the “change in direction” of the slimy socialism issue, that is another great example of clarifying what I already believe. But put another way, while the US (Brazil and the rest of the insane west) turn more towards socialism, their starting point is still a lot higher than China. China is starting from the bottom, so the only way is up. Hence with their movement to more freedom, their SOL (Standard of Living) and Markets will go up. Eventually, as the west and China meet in the middle, both will be at the same SOL, so any change of any of the countries towards freedom or towards socialism, will have the respective effect on both wealth creation, and hence their market values.

    In short, we are screwed for the next 4 years at least. After that, it depends upon if you have any faith in the populations of the western world. Frankly, mine is very slim, bordering on none. The best you seem to indicate (indirectly) and I believe is that we will bottom out short of total destruction and have a new normal. But the fall to get there is going to be costly. Once there, if we can maintain it without devolving further into stupidity, then we can start looking for some kind of future.

  8. p.g.sharrow says:

    Chaos = Opportunity. pg

  9. p.g.sharrow says:

    Somebody just sold 24 tons of Gold in one shot! Price is down $23.00. IS a whale jumping or a government dumping? pg

  10. E.M.Smith says:

    @P.G.Sharrow:

    Hard to say. Soros is playing in gold, so he could do it. Most of the time that big a move is a National Treasury or Bank (often to defend a currency – sell gold, buy their currency). But BOJ just said they are moving to a 1-3% inflation target ( i.e. buggering their currency more) so not defending. Euro is already moving up relative to $US, so not interested in ‘defending’. $US is in the borrow and spend (not buy and defend) mode. So who would it be? If note one of those three, there ought to be a spike in the ‘minor currency’… So one quick way to ‘look around’ would be to do a currencies chart, 10 day hourly. The spike ought to show up (whenever gold ‘settles’).

    My guess would be someone who was betting on a ‘failure to agree’ from congress has gotten nervous that they ARE going to make a deal on the sequester… so expecting a $US rebound. But that’s only a guess. Could just as easily being Greece or Spain raising some capital due to bills to pay and no Euros in the bank… Usually private parties sell in small traunches to avoid spooking the market while “Govt Employees” just place the “at market” order and don’t care or think about it… So unless someone is “beating the bushes” to panic the gold bugs, I’d suspect a government agent…

    @Others:

    More in a bit. I’m posting this from Vector Linux in a VMbox and it’s a bit hard to scroll… probably a setting I’ve got wrong ;-) as part of the page is off the bottom of the screen… Not a bad Linux, and seems to work well.

    FWIW, I’m pretty much settling on Debian as the base system for my “Safer Computing Appliance”. Many different build options, including Knoppix and cluster builds, and it’s the base for Privatix. So ‘next steps’ are to build a Debian (both on real hardware – likely an old white box PC from the garage, and a VMBox), then make a custom build from it. Looking at the ‘build process’ it is different from others, so a new thing to learn. Looks like a reasonably good process, but just different. They also have an ARM port, so likely to work well on the ARM based boards. (Almost placed order, but reached “out of stock” page… dang it. Trying again tonight / tomorrow…)

    Right now I’m pruning the various ‘not so useful’ virtual machines from the loaded library (recovering a few GB of disk each ;-) so you might see postings from ‘odd environments’ as I pick and choose keepers and tossers ;-)

  11. crosspatch says:

    Debian was my linux of choice going back to the late 1990’s. These days I use Ubuntu which is based on the Debian packaging system and can use Debian packages “out of the box”. Good choice.

  12. p.g.sharrow says:

    I have a Ubuntu release 6.1 and beginners book ;-) on hand. Should I start studying them? or am I a little ahead of things? and need to do Debian first? I don’t need something to do just yet, just looking forward. pg

  13. E.M.Smith says:

    @P.G. Sharrow:

    Ubuntu is a ‘spin’ of Debian. Playing with it is reasonable experience base for anything else I’m looking to do. The ‘install’ is a bit different (in that Ubuntu points you at their copy, not the Debian archives), and it’s a ‘Fat’ build, while I’m headed toward lighter builds.

    But all that is rather like saying I’m working on a 56 Chevy Coupe and Ubuntu is the Oldsmobile Wagon from ’59 … There’s a whole lot more ‘the same’ than different…

    I’m basically settling in on a ‘family’ ( that is, deciding not to base off of Red Hat / CentOS family, nor Slackware family, nor …) so not looking at “RPM” (Red Hat Package Manager) build method nor the Slackware equivalent nor… but on the Debian “.deb” package method (and the variations on it used by Ubuntu, Privatix, Knoppix, etc. that are much more ‘.deb’ like than not…)

    Though my end point is likely to be a pre-built image that folks can just ‘download and run’…

    FWIW, I’m not yet settled on a ‘desktop’ and that’s what most folks see as their ‘experience’. I generally like KDE types, and find Gnome a fat ugly pig… but the smallest and lightest are the LXDE and Xfce class. (Cinnamon and Unity are of no interest to me…)

    https://en.wikipedia.org/wiki/Desktop_Linux

    So if you DO decide to play with Ubuntu, you might want to do it with one of the ‘lightweight’ desktops and not with Unity, Cinnamon, GNOME… KDE is considered “old” now by many, and I’ve grudgingly come to accept LXDE and Xfce style interactions. Presently I like iceWM for small resource usage and nice ‘look and feel’.

    Frankly, I think getting comfortable with a couple of “LiveCD” Linux distributions like Privatix and Knoppix would likely be a reasonable place to start. Then again, I think Ubuntu lets you build a LiveCD if you like. (Though it has become hard to fit Gnome based or Unity based systems onto a CD… so they are going more to LiveDVD builds).

    I’ve found it kind of fun to just download a .iso build and launch it in VirtualBox to try it out… then gain, I’m a Linux / Unix Geek ;-)

    Bottom line is that ANY Linux experience is better than none. Ubuntu is a closely related release (even if it does have a fat and ‘different’ user interface window manager) and as good as any to learn on. Last time I installed it, though, it wanted to download a whole lot of fonts from their web server. Part of why I’m not all that keen on it. I’ve installed a lot of Linux out in remote sites without internet access or with limited dial-up access. Having an install hang on a few hundred MB of fonts is a PITA. Probably some way to bypass it, but still…

    OTOH, even just doing that lets you start finding out “what works for you and what doesn’t”…

  14. crosspatch says:

    From a production standpoint, I will never use Red Hat. My experience with it has been terrible. Debian and its derivatives are designed to be maintained over the network. At one time I managed over 600 servers in Chicago from my living room in California and never had a problem with upgrades. Red Hat has been a disaster. If anything goes wrong during the upgrade process you can be left with a system that will not boot. The only “safe” way to upgrade systems using the RPM package manager is to physically visit the machine, put a CD in the thing, and upgrade it manually. I have managed systems for years with Debian and variants doing upgrades over the network without any problems.

  15. p.g.sharrow says:

    56 Oldsmobile Wagon…………… Hell! I’m more an old 52 Gimmy pickup type. ;-) pg

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