The Bernank spoke, and gold rocketed up. It looks like “Bugger the Dollar” will continue for some time.
Congress continues to argue over who ought to fleece whom rather than realize that the game is in the end stages and it is just not possible to continue the fiction that the Federal Government will hand out 211 $Trillion of “goodies” in entitlements in the coming years, all unfunded, on the backs of the GenX, GenY / Millennials and eventually GenZ.
The reason is simple, we’re moving from 10 workers per retired person when Social Security was founded to nearly 1 : 1 ratio as we move forward. Just not going to happen. It takes roughly 2 : 1 just to provide care to the elderly, add in running a society too and you need 4 : 1 to about 6 : 1 in my opinion to be viable. “Demographics is Destiny” and our demographics are already set. All the children of those generations have already been born. The numbers are set. At the same time, longer lifespans and greater medical ability have lead to an explosion of medical care demand. There simply is no physical way to make this work without rationing access, one way or another.
So congress is arguing over how many deck chairs and of what comfort level to put on the deck of the USS Economic Titanic… Denial is an amazingly flexible tool…
Democrats and other Progressives want to tax more and spend more, raising tax rates on the rich. Never mind that the Laffer Curve and economic history show they can not raise any more money that way (only drive more economic activity out of the country or out of business). Republicans want to freeze spending at a sustainable level, and with more tax cuts to stimulate businesses. Admirable, in that it is the correct way to stimulate economic activity and reduce the negative impacts of government… yet… It ignores completely the simple fact that then the US Federal Government (and many State governments too) would need to stop doing about 40% of what it does now AND would still need to find a way to dodge a lot of their present retirement / Medicare / Social Security / Medicaid / etc false promises. Just not going to happen. Certainly impossible to do if the debt wall is hit, hard, in August.
BTW, that’s the real lesson the Congress Critters are learning right now, painful as it is to watch: There is no way to balance the books in August without a debt ceiling hike, yet it is lethal to Republicans with their “base”; and even with the hike, there is no way to continue to pay all the ‘entitlements’ going forward – no matter how high you make tax rates; yet that is lethal to Democrats with their “base”. We are watching two groups argue over what channel to set on the radio as the bus they are driving heads off the cliff…
So what is most likely to happen?
The stock and bond markets are fickle things. The people from whom they are made are equally divided into “pro debt” and “anti”. As each sees their “side” winning or losing they buy or sell. Silly, really. They, too, are not addressing the reality, only the win criteria as they root for their favorite station on the radio (cheering from the back of the bus…)
So the Rating Agencies have said that the US Congress needs to get another larger credit card as it’s run all the $14 $Trillion it already has to being so full it can’t ever pay it off. Strange, that. The same folks who typically spank a private borrower for over spending and then demand that added credit be cut off, saying exactly the opposite for The Federal Government… But, in their view, if the US Govt gets more debt then the credit rating is good, but if we live inside our ability to pay, that’s bad. Go figure. One “bright spot” is that S&P have at last said “May even downgrade US Paper on too much spending even IF the debt limit is raised.” – if you can call that hope.
The Market Mavens on various talking head shows are on both sides, too. So the markets are likely to be based on “fattest wallets win”. A balance tug of war between these two sides, swinging back and forth with the news flow. On CNBC a minor verbal war broke out between Rick Santelli and Steve Liesman over the debt limit issue. Rick is an ‘in the pits’ bond trader. He knows debt markets. Steve is a great economist, but has an economists bias. This is the same argument being writ large in the ‘practice vs theory’ debate of our political parties.
(There is a great video in that link, btw).
It would be great to hunker down in cash, were it not for the fact that the value of our currency is exactly what is “in play”. It would be great to be in non-$US cash, were it not for the fact that the exchange rate is in play. Basically, it’s going to be a volatile mess. Best idea I’ve got on it is to be diversified and hedged to remove the risks. Some gold, some other metals, some Swiss Francs, some Yen, some $US Dollars, some WIP and TIP bonds, some stocks, etc. Yet I doubt I’ll do it as the work is just more than I care to do at the moment. Perhaps better to just “seek Alpha” and find things rising fast enough on growth that the rest of it just washes out of the equation…
At any rate, 2 or 3 weeks from now, we have our SHTF moment. I suggest practicing “duck and cover” along with “decontamination drills”.
In other news…
The economy continues tepid (gee… everything up in the air and continued threats of tax hikes to pay for the impossibly large debt; why would anyone be afraid to invest and hire now…) with a very high unemployment rate and growth just a tiny above zero.
Profits are good, though, as companies squeeze their staff post layoffs and as the weak $US Dollar makes foreign sales look better via more dollars, but at no real increase in value. Play those accounting games…
The Euro Zone continues to lurch toward implosion. Germany will eventually discover that the “other people’s money to spend” is theirs, and it’s being spent as rapidly as it is handed over to the PIIGS. Greece is saying “Send More Money”. If the northern states do not, then Greece defaults and implodes, leaves the Euro, and the Euro Zone starts to unravel. (As Portugal, Italy, etc. follow suit). If money IS sent to Greece, then the others line up for THEIR share of the largess. Repeat until Germany is bled dry; then the Euro Zone collapses.
The only way out of THAT dilemma is for the PIIGS to cut back on spending and entitlements. Like that is going to happen…
No, the political will for it just does not exist. Inflating away the obligations is the only way to sweep the lie under the rug. Then it is the fault of “inflation” and not the politicians. They pay the full pension amount, it just buys a lot less. Same effect as cutting the entitlements, but less blame.
IMHO, this drama will run a couple of more years as things get increasingly unstable. Then the Euro Zone starts to unravel, or Germany accepts an inflating currency. One wonders at this point how many current German voters really have a cultural memory of the hyperinflation anymore…
In Australia, Ms Gillard is having a “read my lips, no new taxes” moment with the “carbon tax”. Have to admire her for staying nailed to that cross she has chosen. Too bad she couldn’t have decided to ‘stick with conviction’ to her original promise of ‘no tax’ rather than the reneging position of “tax, for sure!”. The people of Australia now have a choice, and many of them are not particularly happy with “Labor”. I think things are likely to blow up politically in the next year or two. Until then, Australian markets will be volatile as the tax situation is in play.
Other markets, such as Brazil, China, India; all have the issue of some doubts about their ability to avoid Sovereign Risk or market scandal in one way or another. Brazil is playing with penalizing foreign investment via differential taxes (again) and as a result is now underperforming. China is growing like a weed, if only you can believe their “accounting”… and has made some “trust issues” via fleecing a couple of hedge funds of a few $Billion. If folks of that caliber are getting burned with the diligence they do; what hope does the Average Joe or Jane have?
All in all, just a giant mess.
Welcome to summer in a year before an election cycle, in a decade of doldrums, in a generation of over promise, under deliver.
Maybe we’ll be “lucky” and Katla will blow it’s top starting a New Little Ice Age and setting a clear enough direction that even our Congress Critters can see it…
Watch the US Congress. (At least the show will be fun to watch, even if the ticket price is beyond astounding.)
Watch The Greek Tragedy reprise.
Conclusions and Likely Actions
On the sidelines and looking for “duck and cover” or selected protective positions.
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:
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: https://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:
The Nature of the Charts Here
The charts in this posting 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
Wall Street Week – Saturday, 16 July, 2011
The Dollar Lately
Time to measure our Rubber Ruler.
The prior evaluation is still valid:
Dollar in a classical “Dead Money” bottoming pattern. Just dribbling along after a drop. Slightly “higher lows” but highs not rising. OK, we can use it for a stable guide line for a few months, but no trades really.
The big thing of note is that rocket up in GLD. “The Fear Trade”. Rush to gold and bonds (so TBT, the bond short, dropped).
Here’s the same chart with the main ticker being “UDN” the “Dollar Down” ticker and TLT instead of TBT.
Gold and Swiss Francs. Most other stuff roughly flat, with some roll. FXE the Euro ‘surfing down’ with ‘lower highs and lower lows’ since May.
And here is the 10 day Euro chart, with BZF the Brazilian Real added.
You can really see the ‘Bernanke Put’ hitting gold and FXF. Even the Japanese Yen FXY doing well.
On the longer term charts, we still have a “hump” from the Silver Bubble. It will take a while for that to work off the left edge… You can see the “dead cat bounce” after the plunge, and how now it’s back to a more normal “reversion to the mean”. It looks like it has finished ‘ringing down’ to a flat dead money price. We now have a new ‘breakout’ above the Dead Cat Bounce level. Silver ought to be in a new run for a while (at least as long as The Bernank keeps talking ;-)
Last time I’d said:
In general, the metals are looking a bit “bottomed”. Might be a good time to go shopping for miners for longer term economic recovery. The option based ETNs (Exchange Traded Notes) will tend to flatten and drop as volatility fades, but still, JJT Tin looks like it has tradable “ripple” to it and might be starting a small recovery longer term.
That was too tepid. I’d not realized the impact Bernanke would have. We’ve got JJP showing a good rise ( a ‘precious metals’ basket) along with JJT Tin, JJN Nickel and even JJC Copper. OK: Metals 1, currency 0. Got it…
DBB - Base Metals ETF GLD - Gold (physical metal) ETF JJU - Aluminum ETN JJN - Nickel ETN JJC - Copper ETN JJP - Precious Metals ETN ld - Lead ETN JJT - Tin ETN SLV - Silver (physical metal) ETF PALL - Palladium (physical metal) ETF
Gold has started a new run higher, with ADX rising toward 20 or so. MACD above zero and ‘blue on top’. We had a spike up in the miners on The Bernank speech. Last time I’d said:
and the high real gold price will give them great earnings reports. At this point I’d be in the miners rather than the metal itself.
If only I’d taken my own advice, but I was traveling, so not trading. GDX, the miners, just rocketed up.
Sugar continues strong, the coffee rise has turned down, and most things look ‘not so interesting’. Mostly, though, not much of interest. As these are mostly Exchange Traded Notes (so hold things like options and futures contracts) they tend to a slow decay of value over time. Mostly just usable for short fast trades. JJG, grains, took a nice bounce, but only back to that downtrending trend line…
The close up view of sugar and Brazil has not changed. CZZ is looking “bottomed”. Sugar prices are rising nicely, but so is the Real, so profit at CZZ is likely flat in Real terms.
The Real continues a slow “melt up” against the dollar, but it is not reflected in the Brazilian stock market EWZ. Ever since their return to the Socialist Agenda, their market has been under the SPY. CZZ is fighting that trend on the sugar strength, but not very strongly. Once folks are worried about return of their assets, they don’t care so much about return “on” their investments.
Just looking like a ‘dead money’ trade in CZZ. Better to just hold the currency.
Monthly Running Stock Sectors
So what “won” and “lost” over the last months? (though remember, they may not be the winners next month… it’s just to provide ‘context’).
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Gambling Index 12.99% Dow Jones U.S. Tires Index 11.61% Dow Jones U.S. Clothing & Accessories Index 11.33% Dow Jones U.S. Footwear Index 10.66% Dow Jones U.S. Platinum & Precious Metals Index 10.11% Dow Jones U.S. Gold Mining Index 9.81% Dow Jones U.S. Nonferrous Metals Index 8.33% Dow Jones U.S. Apparel Retailers Index 8.14% Dow Jones U.S. Consumer Finance Index 7.92% Dow Jones U.S. Transportation Services Index 7.72%
Same as last time, but with metals added instead of industrial suppliers:
Well, a “consumer not dead yet” clothing and shoes, restaurants, bars, retail, etc. with just a touch of “Industrial Suppliers”
That “Transportation Services” might be worth looking into…
How about the losers?
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Specialty Finance Index -6.90% Dow Jones U.S. Airlines Index -5.63% Dow Jones U.S. Real Estate Services Index -4.67% Dow Jones U.S. Investment Services Index -3.83% Dow Jones U.S. Business Training & Employment Agencies Index -3.59% Dow Jones U.S. Heavy Construction Index -3.50% Dow Jones U.S. Mortgage REIT Index -3.14% Dow Jones U.S. Tobacco Index -3.08% Dow Jones U.S. Real Estate Holding & Development -2.93% Dow Jones U.S. Construction & Materials Index -2.87%
Nice “up/down” ratio with up percentages well ahead of down percentages. Continued ‘be out of finance as the Government Hates It’ Sovereign Risk trade. Real Estate and Construction continuing weak. And Airlines… NEVER invest in an airline…
Any change vs. “lately”?
Weekly Running Stock Sectors
The best and worst of the week? Do they tell a different story on the short term trade? What moved up the most in this recent rally, and what was left behind?
10 Best Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Gold Mining Index 2.79% Dow Jones U.S. Platinum & Precious Metals Index 1.37% Dow Jones U.S. Nondurable Household Products Index -0.42% Dow Jones U.S. Pharmaceuticals Index -0.49% Dow Jones U.S. Clothing & Accessories Index -0.60% Dow Jones U.S. Gambling Index -0.72% Dow Jones U.S. Restaurants & Bars Index -0.80% Dow Jones U.S. Pharmaceuticals & Biotechnology Index -0.99% Dow Jones U.S. Food Retailers & Wholesalers Index -1.03% Dow Jones U.S. Brewers Index -1.07%
Well, first off, notice that the only “up” sectors this week even in the “top ten up” are Gold Mining and Platinum & Precious Metals. When being down 1% puts you in the “top 10”, it was a bad market week.
10 Worst Performing Industries Industry Name Percent Change (over time selected) Dow Jones U.S. Real Estate Services Index -11.51% Dow Jones U.S. Business Training & Employment Agencies Index -10.27% Dow Jones U.S. Real Estate Holding & Development -7.55% Dow Jones U.S. Recreational Products Index -7.42% Dow Jones U.S. Recreational Services Index -7.31% Dow Jones U.S. Electrical Components & Equipment Index -7.18% Dow Jones U.S. Semiconductors Index -7.11% Dow Jones U.S. Airlines Index -7.10% Dow Jones U.S. Specialty Finance Index -7.00% Dow Jones U.S. Hotels Index -6.60%
Very bad. Real Estate and Business / Employment dropping big time. Recreation down too. And, of course, those Airlines again. Not expecting a lot of vacation money to be spent on hotels, airlines, and ‘recreation’. Nor on expanded electronics and electrical goods.
Last time we had:
Airlines, home building and major renovation, “reinsurance” on global disaster levels, … but notice that as a “worst”, only the first two actually dropped. The others just rose slowly. Low volatility electric utilities and drugs. Beer. OK, so the “consumer going to buy anyway” defensive lagged and the “consumer on vacation” won…
Someone is not being very creative at the large hedge funds if that’s the best game they’ve got. Vacation stocks in summer?
It looks to me like the Hedge Funds dumped their “vacation play” and went to gold. The Bernank causing a bit of a panic, IMHO.
What Is Our Asset Class Context?
Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a 20 year+ maturity bond fund, oil, gold, Yen. I’ve temporarily taken SLV off of this chart so the other tickers are more clearly visible.
SPY The S&P 500 ETF GLD Gold ETF USO Oil ETF FXY Japanese Yen currency fund TLT 20 Year U.S. Treasury Bond fund FXE Euro currency ETF SLV Silver fund BZF Brazilian currency ETF EWA Australia ETF WOOD A wood and paper products fund
IMHO, the “short cover” I’d speculated on last time is now over in WOOD, Oil, and EWA. They had their DCB and are now in the ‘ring down’ phase. Oil tends to move fast, so don’t expect it to ‘lay there’ for long. WOOD will take a housing demand restart to get rising. Australia? EWA is showing a direct drop after April. My guess is that the news on Ms. Gillard has put the market down, but her probable demise in the next election is now stabilizing the drop.
Shorting The Broad Market
Not seeing a reason to short, but as ‘tactical protection’ of long positions it has it’s uses. If that MACD crosses above zero and / or gets a strong ‘blue on top’ a short term tactical short could be useful. For now, I’m more inclined toward “long side” swing trades than “short side”.
10 Day Hourly Fast Trader Chart
Violently going nowhere. Up for a week. Down for a week. Almost all the lines ending close to the zero line. Maybe sitting out wasn’t such a bad idea…
What about Brazil? Also India and China.
A ‘data artifact’ has one price quote distorting the chart. Almost certainly a bit of bad data. At any rate, reading around it…
EWZ - Brazil GLD - Gold fund BZF - Brazilian Real currency FXA - Australian currency FXI - China EWA - Australia EPI - India - WIsdom Tree fund EWC - Canada EWW - Mexico GUR - Middle East Fund
Both the Australian and Brazilian currencies rising, along with Gold. Wonder what China is buying?…
Closeup on Gold
Continued on it’s run from lower left to upper right.
VIX the Volatility Index
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
Last time I’d said:
Vix is very low. Worry when that happens. It happens at “local tops”.
And I think the drop of the stock market in the last week validates that statement.
A close up on the last 6 months:
Last time I’d said:
Notice that end of April start of May VIX drop? Look back up at SPY. It was just then that it had a nice run up, then rolled over and dropped. I’m not liking that low VIX…
Now you know why I watch the VIX…
The present spike up argues for a better next week. Tuesday?
Ideas of the Week
Not many, really. The rush to commodities ought to slow. The week long stock plunge ought to muddle to a halt. Maybe some foreign currencies? US Integrated Oils and midwestern refiners ought to be good for a while.
Or maybe I’ll just hang out by the pool instead ;-)
Oil And Fuels?
Oil is down some. UGA – Gasoline – is up. That suggests the Oil Refiners are raking in buckets of money. Later I’ll need to make a ‘refiners comparison’ page. TSO, VLO, SU, MRO, etc.
The UGA ‘roller’ looks like it is following pattern too.
The 10 day chart is just a mess. Fast jumps and wiggles each way with not much to show for it. Mostly “gold and gasoline” with the UGA roller starting to roll up a few days back.
So what happened in the Tech Market relative to world markets?
QQQQ Nasdaq 100 mostly Tech companies DIA Dow Jones 30 Industrials SPY S & P 500 largest companies in the U.S.A. MDY Midcap (Middle sized in terms of market capitalization) RUT Russel 2000 - a collection of 2000 companies from small to large. EWZ Brazil fund EWA Australia fund EWO Austria fund EWW Mexico fund
For all the news about GOOG Google earnings being great and AAPL Apple selling gear like hot cakes, at the end of the ‘topping roll’ period on this chart, we’re at near zero gain for the 6 months. To me, it all just looks like the slop and jump you get in a topping market. MACD is above zero and headed sideways. Slow Stochastic is setting up for a ‘buy in’ crossover. DMI is muddled with ADX at a low 21 or so (so Slow Stochastic and faster trades are in order) and with the red and blue DMI lines nearly equal and low.
Sideways roller swing trades, not investments, is what that says. None of the other markets particularly stands out either.
Were Bonds a good idea?
OK, lets take a peak at the Bonds Race but with TBT (the “long term bonds” short sell ETN – that is, the thing that “shorts bonds”) as the main ticker symbol:
Bonds have mostly vibrated sideways the last few weeks. TIP being best, as folks are concerned about The Fed buggering the dollar. WIP showing how Euro concerns have weakened them.
Some Selected Global Oils:
XOM Exxon Mobil - Largest, U.S. / Global COP Conoco Philips - U.S. with Russian exposure CVX Chevron Texaco - U.S. PBR Petrobras - Brazil PCZ Petro Canada HAS NOW MERGED WITH SU SUNCOR BP British Petroleum STO Norway E Eni Italy TOT Total - France RDSA Royal Dutch Shell IMO Imperial Oil - Canada Oil and Oil Sands SU Suncor - Canadian Oil Sands SSL Sasol - South African Synthetic Oil Company
At last, a theme… COP has announced it is splitting refining off from exploration and production, so at some point that ticker will turn into two new ones. But it’s pretty clear that they, along with CVX and IMO have started a bit of a rise.
Last time I’d said:
Long down trend with a ‘short cover blip’ at the end. Down is likely over for now, but that doesn’t mean up is a sure thing. Watch for a nice MACD continued upward and prices staying above the SMA stack. That confirms a new up trend, not just a ‘shorted to uninteresting to short”…
And that is exactly what we had at the end of June / start of July. Note that PBR Petrobras, one of the premier oil companies of the world with $Billions of new reserves discoveries is dribbling along the bottom. Why? That Brazilian Sovereign Risk Premium being applied. Return OF my money vs return ON my money. That’s a large part of why I look so closely at any move of a government toward more Socialism and yank investments at first light. You don’t want to be the last one out that particular door, and it always moves the same way. Note, too, that BP has continued to be lackluster. When someone does not run their business well (and blowing a few $Billion on blown out wells from sloppy and too cheap actions IS poorly running…) there is little motivation to buy them.
The European oils don’t look that good either. Eni and Total drifting down. So it looks like US oriented is the way to go. Brent costing a lot more than West Texas, the midwest refiners have the lowest feed stock costs and benefit from the high gas prices. As long as Obama is tied up in the Budget Crisis and not noticing someone making money he can steal… That Sovereign Risk thing again…
What about oil service companies? Or that Sugar and CZZ?
Same as last time:
“Flat Roller”. Swing trade, don’t invest… Looks like Slow Stochastic doing a good job of calling the in / out on 20 / 80 followed by a crossover.
With RSI bouncing along at 80, then the start of a drop, I’d expect “down soon”. Probably will depend on a new crop year in whatever place has “had issues” that let the price rise like this. We’re at the same price as the prior high, so watch for “failure to advance” at this price point. Anyone who uses sugar is going to have a bit of profit squeeze.
Ag and Ag support / Input companies
For the third posting in a row, TNH is the clear winner. China HOGS the looser. (Folks don’t like the risk of questionable honesty and accounting standards that the recent China issues have raised…) MON and MOS took a small bounce recently, as did POT. Perhaps a bit of trade there. A “Dig Here” for later in the week, I think.
TNH continues to look good with continued positive indications on the chart / indicators. RSI in a 50 / 75 sort of roll. MACD with mostly “blue on top” and well above the zero line. DMI “blue on top” and steady sideways.
SEE the SEA!
Well that’s pretty horrible. HRZ has just fallen off a cliff. The other shippers pretty much dropping too, but at a slower rate. Had a nice counter trend rally in CCL / RCL, but that trade is over and we’re back to trend (down). Maybe some day it will be an interesting sector again.
Here is the RCL / CCL cruise lines chart. You can see how these have much more range (or “beta”) that the S&P 500 SPY fund.
Last time I’d said:
The trade up to the SMA stack from below worked well, time to step out and wait for “fall away down” in continued downtrend, or “break through and return from the topside” with buy back on that topside return to the SMA stack. Indicators ARE positive, so the courageous could just hold a long to see if the bottom forms. ME? I’m never courageous on stock trades….
And now you can see why “courage” is not an asset in trading…
Now watch that price closely. IFF it fails to reach further than that last dip down, we have “failure to advance” to the downside and a probable bottom. CCL is already looking a bit like that. If MACD goes to “blue on top” and “over zero” after a failure to advance to the downside, we’ve got a good ride ahead for a few months at least. It will likely take until mid August to fully form the bottom.
As noted last time:
REITS (selected) are rolling. BXP an office REIT is doing nicely. Some of the others have a “dip” a week or two back, but rising nicely out of it. Liking that BXP…
This is a nice example of how a “Race” works. Pick a lot of the bigger and better names in a sector, put them on a Race Chart. Then check it every so often. One will start to breakaway upside. That’s your primary ride. Then, as it tops out (often many months later) and folks start dumping money into the weaker (but cheaper) stocks, you will see other tickers “make a bottom” and start to catch up. That’s when you change horses. “Lower left rising to upper right” and “who’s on top”; then “who’s catching up”. Yes, it’s really that simple.
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
The Long Term Context
This is a very long duration chart (5 years) of NYSE and one of the S&P 500 (SPY). They will not change much from week to week (just one tick mark) so guides longer term attitude. I’ve moved it to the bottom as you really don’t need to look at it often.
As this is a very slow chart, the observations from last time still hold:
Notice that Slow Stochastic is saying “be in”? ADX saying that trend is very low, so use Slow Stochastic. So it called our (just happened) rally and has not yet said ‘be out’.. but look at the shape of the top of that price data. Long rises that “go flat” with “failure to advance” tend to be followed by a big dip… Yet we ARE on the SMA stack in a long term rising market.
So this is a ‘hard spot’… not a clear trend. Possibility of a ‘buy the dip’ moment only partly done; but with a ‘head and shoulders’ being printed (but also not done). I’ve managed risk by stepping out; but if it heads up, that confirms to get back in. Frankly, I suspect folks are sitting tight waiting for either the Euro Zone or the USA to stop having Sovereign Risk Issues…
SPY isn’t much better. W%R saying “be in”. RSI saying “just had a ‘buy the dip’ moment”. Rate Of Change saying “gone flat”… RSI also saying “lower highs – be afraid…)
I’m adding another chart of 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 on this long term chart.
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 as “momentum” no 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.
So 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. I've been 'stepped out' for some vacation time. Now I'm 'reengaging'. Probably start with short swing trades and work into longer positions.
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.
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.