So far in 2010 the S&P 500 Index has experienced a 9.50% return while the GreenHaven Continuous Commodity Index (GCC), an equal weighted commodity index, has seen a gain of nearly 17.08%. Much of this year’s return has been driven by metals, more specifically; precious metals. And, while commodities have outperformed equities this year, commodities have been an area of strength for the past decade.
The media has given you the impression that Gold was leading the precious metals race, while in actuality we find that Palladium and Silver are actually outperforming gold by a substantial margin. And while fear-mongers and gold peddlers are urging you to buy gold (and guns) and store it in your backyard, both Tin and Copper have beat the S&P 500 and Gold, and Cotton is up 85.78% for the year. So this may be a good time to buy linens, particularly high count Egyptian cotton sheets before prices increases work through the system.
Gold, while up 26.84% for the year is underperforming a basket of 20 Precious Metals related company’s stocks, which, as an aggregate, are up 36.55% for the year. So, a case can easily be made for turning to commodity-related equity ETFs as a way to get exposure to both commodities and equities. Now that we know what choices we have, the question is, "should you own the commodity ETF or a commodity-related company ETF?"
For answers contact me-
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, December 2, 2010
Tuesday, November 30, 2010
Shifting Economic Power
Recently, the G-20 meeting took place in Seoul, South Korea. The participants stated goals prior to the event were to “ensure global economic recovery and strengthening the global financial system”. I am offering no commentary here, as to the outcome.
The main economic council for ‘wealthy’ nations was expanded from the G-8 to the G-20in September 2009. This major shift in G’s is significant and confirms that emerging markets can no longer be ignored, as the current composition of the G’s serves as an accurate ‘mirror’ of where economic power currently resides.
Importantly: economic power is no longer measured in terms of output– consumption is equally valued.
When I ran a relative strength analysis of the G-20 participants emerging market members sat atop the grid as follows: Turkey, Indonesia, Mexico, and India, while the lower ranked participants come from developed markets - Germany, Italy, France, and the European Monetary Union (the EU is a member organization).
As the G-8 has evolved into the G-20 we too must evolve our portfolios to mirror this shift in economic power.
The main economic council for ‘wealthy’ nations was expanded from the G-8 to the G-20in September 2009. This major shift in G’s is significant and confirms that emerging markets can no longer be ignored, as the current composition of the G’s serves as an accurate ‘mirror’ of where economic power currently resides.
Importantly: economic power is no longer measured in terms of output– consumption is equally valued.
When I ran a relative strength analysis of the G-20 participants emerging market members sat atop the grid as follows: Turkey, Indonesia, Mexico, and India, while the lower ranked participants come from developed markets - Germany, Italy, France, and the European Monetary Union (the EU is a member organization).
As the G-8 has evolved into the G-20 we too must evolve our portfolios to mirror this shift in economic power.
Tuesday, November 2, 2010
Putting your head in the sand is not a portfolio strategy
Many investors are frustrated at the perceived lack of results from the quick fixes enacted to stimulate the US economy, and thus remain wary of investing in equities. Money flows are still showing net reductions in equity funds and inflows to bond funds, with the ten year treasury yielding approximately 2.7%!?!
I believe this is wrong; there are a lot of opportunities ahead and the theme is ‘global’: global growth, global demand, global business opportunities and global investment opportunities.
Let’s examine the facts. Post WW II there were 600 million consumers between Europe, Japan & the US coming-on-line. Today, there are 2.5 – 3 billion (yes, billion) consumers coming on-line in the emerging economies. And while developed economies like (western) Europe, Japan & the US may lag, developing economies such as (eastern) Europe, Latin America, Asia and even parts of the Middle East are experiencing expanding economies. First-hand experiences travelling the world taught me that people with increasing affluence want to consume; the progression I observed is as follows: American cigarettes (Marlboro) and alcohol (Budweiser & Johnnie Walker; red & black), boom boxes, TVs and refrigerators, a more powerful motor bike and then an automobile. Already, automobile manufacturers including GM and Mercedes are having their Chinese design studios contribute greatly to the designs of new automobiles, thus enhancing global (and domestic) sales. Today, Mercedes sells more top-of-the-line cars in China than in the US. Bottom line, there is a lot of pent-up demand because of the desire to live the ‘good-life’ enjoyed in the West.
The growing affluence of the masses living in what is best described as ‘emerging markets’ and their consumption habits are where I believe the best potential for investing will reside for some time to come. US companies positioned to capitalize on this growth in demand will be the domestic beneficiaries, as will well managed companies domiciled in other parts of the world. So stop worrying about weak domestic economic growth and start focusing on the opportunities that abound around the globe and the companies which will benefit.
I believe this is wrong; there are a lot of opportunities ahead and the theme is ‘global’: global growth, global demand, global business opportunities and global investment opportunities.
Let’s examine the facts. Post WW II there were 600 million consumers between Europe, Japan & the US coming-on-line. Today, there are 2.5 – 3 billion (yes, billion) consumers coming on-line in the emerging economies. And while developed economies like (western) Europe, Japan & the US may lag, developing economies such as (eastern) Europe, Latin America, Asia and even parts of the Middle East are experiencing expanding economies. First-hand experiences travelling the world taught me that people with increasing affluence want to consume; the progression I observed is as follows: American cigarettes (Marlboro) and alcohol (Budweiser & Johnnie Walker; red & black), boom boxes, TVs and refrigerators, a more powerful motor bike and then an automobile. Already, automobile manufacturers including GM and Mercedes are having their Chinese design studios contribute greatly to the designs of new automobiles, thus enhancing global (and domestic) sales. Today, Mercedes sells more top-of-the-line cars in China than in the US. Bottom line, there is a lot of pent-up demand because of the desire to live the ‘good-life’ enjoyed in the West.
The growing affluence of the masses living in what is best described as ‘emerging markets’ and their consumption habits are where I believe the best potential for investing will reside for some time to come. US companies positioned to capitalize on this growth in demand will be the domestic beneficiaries, as will well managed companies domiciled in other parts of the world. So stop worrying about weak domestic economic growth and start focusing on the opportunities that abound around the globe and the companies which will benefit.
Tuesday, October 5, 2010
There's more to investing than the S&P 500!
The media regularly quotes the S&P 500 (SPX) Capitalization Weighted Index. This index has seen two of the biggest hits in its history during the last decade, and is down 23.44% for the decade, but there are many areas of the market which are up for the decade. Take those same 500 stocks, equal weight them and they are up 47.53%. What about Small Cap stocks? The iShares S&P SmallCap 600 Index (IJR) is up 76% since December 31, 1999. Similarly, the Vanguard Emerging Markets ETF (VWO) is up 112.62% and the GreenHaven Continuous Commodity Index (GCC) is up 102.29%.
I have been providing this type of guidance; implementing a proactive and disciplined investment plan for clients since 1983.
I have been providing this type of guidance; implementing a proactive and disciplined investment plan for clients since 1983.
Tuesday, August 31, 2010
US or international?
The natural tendency for investors in the US is to overweight US holdings. However, at times - like now, international equities are favored over the US because the asset class as a whole is performing well relative to US asset classes, as a whole.
Two popular and widely used ETFs are EFA (Europe, Far East & Asia) and EEM (Emerging Markets). The two largest holdings represented in the EFA are Japan and the United Kingdom, with a 22% and 21% weighting respectively. By contrast, the EEM's two largest country weightings are China and Brazil at 18% and 16% respectively. The relative strength relationship between EFA and EEM continues to favor EEM, telling me that emerging markets continue to outperform developed markets. However, by taking this analysis one step further, FRN (Frontier Markets) is exhibiting better strength than EEM. FRN’s largest country weighting is Chile at 31%.
It is this type of analysis which helps me to determine where to invest your funds. As I peel back the layers of the proverbial onion; international over US, emerging over developed, frontier over emerging…I am able to peer deeper into the international space and I can provide further analysis into where actual strengths may reside.
The trials and tribulations of the developed markets have been front & center in the news lately, suggesting a more defensive posture with respect to the developed and US equity markets at this time. On the other hand, we continue to see positive developments in the International equity space and superior strength still present in the Frontier and Emerging Markets.
Two popular and widely used ETFs are EFA (Europe, Far East & Asia) and EEM (Emerging Markets). The two largest holdings represented in the EFA are Japan and the United Kingdom, with a 22% and 21% weighting respectively. By contrast, the EEM's two largest country weightings are China and Brazil at 18% and 16% respectively. The relative strength relationship between EFA and EEM continues to favor EEM, telling me that emerging markets continue to outperform developed markets. However, by taking this analysis one step further, FRN (Frontier Markets) is exhibiting better strength than EEM. FRN’s largest country weighting is Chile at 31%.
It is this type of analysis which helps me to determine where to invest your funds. As I peel back the layers of the proverbial onion; international over US, emerging over developed, frontier over emerging…I am able to peer deeper into the international space and I can provide further analysis into where actual strengths may reside.
The trials and tribulations of the developed markets have been front & center in the news lately, suggesting a more defensive posture with respect to the developed and US equity markets at this time. On the other hand, we continue to see positive developments in the International equity space and superior strength still present in the Frontier and Emerging Markets.
Monday, August 16, 2010
Take a step back and look at the facts
After a day like Wednesday (8/11/10), which left many investors feeling a little rattled as the market exhaled, it is important to take a step back and look at the facts.
The financial headlines: "Global Fears Strike Stocks", "Market Woes", Stocks Tumble", etc. make an investor doubt their positions and convictions, for fear the sky is falling. But it's important to keep all rallies and declines in perspective.
Over the course of the past month the Dow Jones Industrial Average (DJIA) has gained roughly 1000 points, but with the Dow losing 265 points on Wednesday that rally came to an abrupt stop. To gain perspective on this decline I evaluated the longer term (100 point box) chart of the Dow. After attaining a high of 10,700 earlier this month, the Dow has pulled back to 10,400. Thus far, the pullback is a normal, and healthy, pullback within the confines of an overall positive trend for the DJIA.
There is no way to tell what the future holds however, by evaluating the underlying supply and demand relationship of tthe market we can gain some insight that might not otherwise exist, and is sorely lacking in the media reports.
The financial headlines: "Global Fears Strike Stocks", "Market Woes", Stocks Tumble", etc. make an investor doubt their positions and convictions, for fear the sky is falling. But it's important to keep all rallies and declines in perspective.
Over the course of the past month the Dow Jones Industrial Average (DJIA) has gained roughly 1000 points, but with the Dow losing 265 points on Wednesday that rally came to an abrupt stop. To gain perspective on this decline I evaluated the longer term (100 point box) chart of the Dow. After attaining a high of 10,700 earlier this month, the Dow has pulled back to 10,400. Thus far, the pullback is a normal, and healthy, pullback within the confines of an overall positive trend for the DJIA.
There is no way to tell what the future holds however, by evaluating the underlying supply and demand relationship of tthe market we can gain some insight that might not otherwise exist, and is sorely lacking in the media reports.
Tuesday, June 15, 2010
Ranking The World Cup Teams and the Market
The S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) each fell below their February correction lows during the most recent correction as did many of the broader based international equity indices. However, such as is often the case, a further look underneath the surface shows some pretty interesting developments. First, there are a number of indices that have remained above their February correction lows. Secondly, those indices that remain above their February lows are also those areas that have been exhibiting superior relative strength characteristics for some time now. They include: US Small Cap, US Mid Cap, US Equal Weighted S&P, and Growth. In other words, these indices are showing a positive divergence versus the rest of the broad equity market.
How do I know this? I will provide an example using national soccer teams:
The World Cup, one of the world's most watched sporting events, started this past weekend, 32 national soccer teams will compete in South Africa; like the Olympics, the World Cup rotates around the world every four years.
If you see the Brazilian team play, you'll notice a game of quick dance-like moves, efficient passing, and flare. However, if you see the Italian team, they play with staunch defense, but will suddenly and aggressively implement a counter-attacking strategy that often catches their opponents flat-footed. Although the two styles of play differ immensely, Brazil and Italy have won over half of the World Cups played. These two very different approaches have been tremendously successful, proving there is indeed more than one ‘right answer’ to the question of how to win a world cup. In soccer like in my business, employing a sound strategy and employing it well, leads to success over time. There is no one single investment approach that is right for the temperament of all investors, but a great many that can be ‘right’ if applied correctly. Relative Strength-based risk management using the Point and Figure methodology is my ‘style of play,’ and it works for me.
One reason I rely on relative strength is the simple fact that it gives me the objective capability to rank different assets and instruments. It does not matter if it's a stock or an ETF, I can compare it against another, and then rank them from strongest to weakest. This same concept of using rankings can be found almost everywhere in sports, including soccer. The Fédération Internationale de Football Association (FIFA) puts together the FIFA/Coca-Cola World Rankings to objectively rank the national teams from strongest to weakest - with the expectation that those at the top will most likely continue to perform better than the teams at the bottom. Does this sound familiar? The ranking tools I employ operate similarly, comparing different assets against each other and then ranking them from strongest to weakest, the assets at the top of the matrix have developed trends of outperformance, and history has demonstrated that these trends tend to sustain themselves for extended durations of time, so I look to these leaders to remain leaders until proven otherwise.
Currently, Brazil, Spain, Portugal, Netherlands, and Italy are the five strongest teams out of 202 entering the tournament. Simply put, the teams at the top have been performing better relative to the other teams. So, by having the strongest performance over the last few years, the teams at the top, have exemplary relative strength characteristics – just like what I want to own in your portfolio. The teams at the bottom of the ranking exhibit the lowest RS readings. In anticipation of the World Cup, we should expect to find Brazil and Spain making a strong push toward the finals.
In summary, by using relative strength I am able to rank the different ‘parts’ of the market. So as we go through the current market correction, we continue to hold the strongest sectors and shed those sectors dropping in rank while keeping an eye toward the future market leaders so we can add them to the portfolio when the time is right.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
How do I know this? I will provide an example using national soccer teams:
The World Cup, one of the world's most watched sporting events, started this past weekend, 32 national soccer teams will compete in South Africa; like the Olympics, the World Cup rotates around the world every four years.
If you see the Brazilian team play, you'll notice a game of quick dance-like moves, efficient passing, and flare. However, if you see the Italian team, they play with staunch defense, but will suddenly and aggressively implement a counter-attacking strategy that often catches their opponents flat-footed. Although the two styles of play differ immensely, Brazil and Italy have won over half of the World Cups played. These two very different approaches have been tremendously successful, proving there is indeed more than one ‘right answer’ to the question of how to win a world cup. In soccer like in my business, employing a sound strategy and employing it well, leads to success over time. There is no one single investment approach that is right for the temperament of all investors, but a great many that can be ‘right’ if applied correctly. Relative Strength-based risk management using the Point and Figure methodology is my ‘style of play,’ and it works for me.
One reason I rely on relative strength is the simple fact that it gives me the objective capability to rank different assets and instruments. It does not matter if it's a stock or an ETF, I can compare it against another, and then rank them from strongest to weakest. This same concept of using rankings can be found almost everywhere in sports, including soccer. The Fédération Internationale de Football Association (FIFA) puts together the FIFA/Coca-Cola World Rankings to objectively rank the national teams from strongest to weakest - with the expectation that those at the top will most likely continue to perform better than the teams at the bottom. Does this sound familiar? The ranking tools I employ operate similarly, comparing different assets against each other and then ranking them from strongest to weakest, the assets at the top of the matrix have developed trends of outperformance, and history has demonstrated that these trends tend to sustain themselves for extended durations of time, so I look to these leaders to remain leaders until proven otherwise.
Currently, Brazil, Spain, Portugal, Netherlands, and Italy are the five strongest teams out of 202 entering the tournament. Simply put, the teams at the top have been performing better relative to the other teams. So, by having the strongest performance over the last few years, the teams at the top, have exemplary relative strength characteristics – just like what I want to own in your portfolio. The teams at the bottom of the ranking exhibit the lowest RS readings. In anticipation of the World Cup, we should expect to find Brazil and Spain making a strong push toward the finals.
In summary, by using relative strength I am able to rank the different ‘parts’ of the market. So as we go through the current market correction, we continue to hold the strongest sectors and shed those sectors dropping in rank while keeping an eye toward the future market leaders so we can add them to the portfolio when the time is right.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, June 3, 2010
Looking Under the 'Hood' of the Market
Since peaking about a month ago, the S&P 500 (SPX) has given back about 12%; however, as I continue to look ‘under the hood’ of the market, there have been some interesting developments from a relative strength (RS) perspective.
Today, there are 13 out of the 40 US economic sectors that have a higher RS reading than on April 23rd. By the way, 38 out of the 40 economic sectors produced positive returns last year (2009) and certainly, some sectors did better than others, but simply being in the market produced attractive returns. However, as we are now five months into 2010 it is becoming more and more apparent that having a tactical sector rotation strategy is going to be extremely important going forward. So far, there are 22 out of the 40 sectors which have produced positive returns this year. In other words, without a disciplined strategy you had roughly a 50 / 50 chance at picking a winning sector this year.
The correction for the vast majority of strong relative strength names has been just that - a correction, many investments are still in positive trends with strong technical attributes.
While volatility can wreck havoc on an investor's psyche, it is also the reason why equity returns are higher than returns on more stable assets like CD's.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Today, there are 13 out of the 40 US economic sectors that have a higher RS reading than on April 23rd. By the way, 38 out of the 40 economic sectors produced positive returns last year (2009) and certainly, some sectors did better than others, but simply being in the market produced attractive returns. However, as we are now five months into 2010 it is becoming more and more apparent that having a tactical sector rotation strategy is going to be extremely important going forward. So far, there are 22 out of the 40 sectors which have produced positive returns this year. In other words, without a disciplined strategy you had roughly a 50 / 50 chance at picking a winning sector this year.
The correction for the vast majority of strong relative strength names has been just that - a correction, many investments are still in positive trends with strong technical attributes.
While volatility can wreck havoc on an investor's psyche, it is also the reason why equity returns are higher than returns on more stable assets like CD's.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, May 18, 2010
Big Picture: reversion to the mean & relative strength
Last week, I discussed how the pull-back in early May (mostly on the 6th of May) resolved what had been a generally overbought market; and in doing so has set up better entry points. Realize that a reversion to the mean is healthy and is not unusual when the market experiences a pull-back. Occasionally we see even the strongest ETFs and stocks give initial sell signals. But what is important is the bigger picture -- that of overall trend and relative strength characteristics.
While your holdings did indeed pull-back, the trend and relative strength traits remained firmly positive for most holdings. Those that deteriorated have been sold. In other words, the holdings I have retained still have exemplary relative strength versus their peer group and the market.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
While your holdings did indeed pull-back, the trend and relative strength traits remained firmly positive for most holdings. Those that deteriorated have been sold. In other words, the holdings I have retained still have exemplary relative strength versus their peer group and the market.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, May 13, 2010
International Markets Fall Out of Favor
Whether it is a computer “glitch”, bailout announcement, or an employment numbers surprise, it appears that the markets are just looking for some news (good or bad) to react to. Without a doubt, the past week has been a whirlwind within the financial markets with the Dow Jones Industrial Average (DJIA) down nearly 1000 points at one point Thursday afternoon. Then on Monday morning we see the same index up more than 400 points. Whether we like it or not, these moves did in fact take place. The good news is that as a result of last week's action, we have seen the generally overbought condition in the market reversed; as most stocks, indexes, and ETFs have pulled back toward the middle of their ten-week trading bands.
The international markets and the trouble in Greece have also grabbed their fair share of headlines over the last couple of weeks and that has made investors nervous about international holdings. Throw in the fact that the US Dollar has been rising and this activity did affect out market indicators: International Equities have moved out of an emphasized position. This sets up a situation where international holdings need to be examined more closely - I am in the process of eliminating the weakest international holdings from portfolios.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
The international markets and the trouble in Greece have also grabbed their fair share of headlines over the last couple of weeks and that has made investors nervous about international holdings. Throw in the fact that the US Dollar has been rising and this activity did affect out market indicators: International Equities have moved out of an emphasized position. This sets up a situation where international holdings need to be examined more closely - I am in the process of eliminating the weakest international holdings from portfolios.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, May 6, 2010
Putting the Market's Drop in Perspective
Last Tuesday brought one of the biggest declines of 2010 and that always makes investors nervous. This Tuesday brought more of the same. Are these one or two-day events or the start of something more dramatic and prolonged? Thus far these two sessions don't appear to be anything out of the ordinary.
For some perspective we need to understand the Dow Jones Industrial Average. When Charles Dow developed this index over 100 years ago, he added up the prices of the stocks in the index and then divided by the number of companies; the result was an average of the price. Today, the Dow remains a price weighted index. Over the years, stocks rose in price and then split, this caused the divisor in the Dow to decline. Today, there have been enough splits in the Dow that the divisor has fallen below 1, to 0.132319125. In other words, the ‘divisor’ has now become a ‘multiplier’. Let’s look back at an example: the divisor was around 7 back in the late 1970’s. If every stock in the Dow gained $1 back then, it would have produced a move in the Dow of 4.29 points ($1 times 30 stocks, divided by 7). Today the move is far greater. The same 1 point move in each of the 30 Dow stocks results in the index moving 226.72 points. This is basically what we saw the past two Tuesdays. While a 200+ point decline is not a lot of fun, a little perspective can help. I don’t like to see huge declines in the market anymore than the next guy, but in the grand scheme of things these declines were not as significant as they first appear, or as the media makes it out to be...
Last Tuesday’s market drop caused my primary indicator, the NYSE Bullish Percent indicator (BPNYSE), to fall by 0.56. This Tuesday it dropped 1.42, this means that the indicator remains at 77.654%. To bring the defensive team onto the field it would need to drop to 74%. Normally it takes a number of days or even weeks to see the Bullish Percent reverse direction, up or down. There are exceptions, but those typically occur at market bottoms and not market tops, as bottoms tend to be far more volatile than tops. Lastly, before the Bullish Percent reverses down, we typically see a number of other indicators reverse and turn negative as a ‘heads up’ of sorts - I have not yet seen that either.
In summary, despite a ‘large’ decline in the DJIA last week and today, the indicators remain positive at this time.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
For some perspective we need to understand the Dow Jones Industrial Average. When Charles Dow developed this index over 100 years ago, he added up the prices of the stocks in the index and then divided by the number of companies; the result was an average of the price. Today, the Dow remains a price weighted index. Over the years, stocks rose in price and then split, this caused the divisor in the Dow to decline. Today, there have been enough splits in the Dow that the divisor has fallen below 1, to 0.132319125. In other words, the ‘divisor’ has now become a ‘multiplier’. Let’s look back at an example: the divisor was around 7 back in the late 1970’s. If every stock in the Dow gained $1 back then, it would have produced a move in the Dow of 4.29 points ($1 times 30 stocks, divided by 7). Today the move is far greater. The same 1 point move in each of the 30 Dow stocks results in the index moving 226.72 points. This is basically what we saw the past two Tuesdays. While a 200+ point decline is not a lot of fun, a little perspective can help. I don’t like to see huge declines in the market anymore than the next guy, but in the grand scheme of things these declines were not as significant as they first appear, or as the media makes it out to be...
Last Tuesday’s market drop caused my primary indicator, the NYSE Bullish Percent indicator (BPNYSE), to fall by 0.56. This Tuesday it dropped 1.42, this means that the indicator remains at 77.654%. To bring the defensive team onto the field it would need to drop to 74%. Normally it takes a number of days or even weeks to see the Bullish Percent reverse direction, up or down. There are exceptions, but those typically occur at market bottoms and not market tops, as bottoms tend to be far more volatile than tops. Lastly, before the Bullish Percent reverses down, we typically see a number of other indicators reverse and turn negative as a ‘heads up’ of sorts - I have not yet seen that either.
In summary, despite a ‘large’ decline in the DJIA last week and today, the indicators remain positive at this time.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, April 28, 2010
Q1 - 2010 Review
Despite all of the negative news surrounding the economy, the uncertainty regarding the recent healthcare legislation and the bearish sentiment overhanging the market - the markets continued to rally. "What is, is..." The fact of the matter is that we continue to see the domestic and emerging markets show more buy signals than sell signals which indicates that demand remains in control. With demand in control, we are running wealth accumulation strategies.
There is no doubt that over the past few months the equity market has seen its fair share of ups and downs, and at times the market rally seemed on the verge of running out of gas. As a matter of fact, the correction earlier this year was nothing more than a normal pullback within the confines of an overall positive trend; using statistical jargon, we saw a reversion to the mean.
International Equities, as an asset class, have underperformed the domestic equity universe this year. For the first three months of the year the iShares MSCI EAFE Index (EFA) is up just 1.27% and the iShares MSCI Emerging Markets ETF (EEM) is up 1.20%. This compares to gains in the broad domestic equity universe between 5 and 8% for the first quarter. Despite the lower return from the benchmark indexes, this does not mean there have not been opportunities within individual countries and regions; investors able, or willing, to tactically allocate money within the International Equity universe have been rewarded so far this year.
So, as we head into the second quarter of 2010, the bias of our indicators still overwhelming suggest a positive stance on the US markets, with Small and Mid Cap continuing to handily beat their Large Cap cousins. Emerging international markets exhibit better strength than the developed international markets. We will run wealth accumulation strategies until supply overtakes demand, and continue to allocate tactically to take advantage of the stronger domestic & international areas.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
There is no doubt that over the past few months the equity market has seen its fair share of ups and downs, and at times the market rally seemed on the verge of running out of gas. As a matter of fact, the correction earlier this year was nothing more than a normal pullback within the confines of an overall positive trend; using statistical jargon, we saw a reversion to the mean.
International Equities, as an asset class, have underperformed the domestic equity universe this year. For the first three months of the year the iShares MSCI EAFE Index (EFA) is up just 1.27% and the iShares MSCI Emerging Markets ETF (EEM) is up 1.20%. This compares to gains in the broad domestic equity universe between 5 and 8% for the first quarter. Despite the lower return from the benchmark indexes, this does not mean there have not been opportunities within individual countries and regions; investors able, or willing, to tactically allocate money within the International Equity universe have been rewarded so far this year.
So, as we head into the second quarter of 2010, the bias of our indicators still overwhelming suggest a positive stance on the US markets, with Small and Mid Cap continuing to handily beat their Large Cap cousins. Emerging international markets exhibit better strength than the developed international markets. We will run wealth accumulation strategies until supply overtakes demand, and continue to allocate tactically to take advantage of the stronger domestic & international areas.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Thursday, March 25, 2010
Inhaling & Exhaling
The market has a natural ebb and flow to it; a pattern of inhales and exhales. While we can never predict the exact duration or depth of the next ‘breath’, we can determine if it is inhaling or exhaling, and when we have reached a statistical extreme in either direction.
A look across the equity landscape clearly suggests that the weight of the evidence remains positive as all of the market indicators are positive at this time. The most notable observation over the last couple of weeks is that the equities market has progressed from moderately overbought to significantly overbought on a near-term basis.
The most recent market cycle has created quite a noticeable gap in performance between domestic and international assets. Keep in mind that International equity assets moved into favor back in April 2009, and remained an emphasized asset class until falling out of favor just a few weeks ago. The recent market cycle has produced new highs for much of the US market but very few of the International markets; the exception being developing markets. A snapshot of where the relative strength resided in June 2009 is very telling, as developed markets were at the bottom of the relative strength matrix and developing markets were situated atop the matrix, foretelling what has come to pass: the developing international markets outperforming the developed international markets.
A look across the equity landscape clearly suggests that the weight of the evidence remains positive as all of the market indicators are positive at this time. The most notable observation over the last couple of weeks is that the equities market has progressed from moderately overbought to significantly overbought on a near-term basis.
The most recent market cycle has created quite a noticeable gap in performance between domestic and international assets. Keep in mind that International equity assets moved into favor back in April 2009, and remained an emphasized asset class until falling out of favor just a few weeks ago. The recent market cycle has produced new highs for much of the US market but very few of the International markets; the exception being developing markets. A snapshot of where the relative strength resided in June 2009 is very telling, as developed markets were at the bottom of the relative strength matrix and developing markets were situated atop the matrix, foretelling what has come to pass: the developing international markets outperforming the developed international markets.
Monday, March 1, 2010
Gold Medal Worthy?
Every four years when the Winter Olympics come around, I can't help but stay glued to the television and watch with awe the extraordinary athleticism, agility, speed, and calculated recklessness on display. It's astounding to think that out of the thousands of athletes that compete in these sports, the ones who end up on the medal podium are the ‘cream of the crop’ or, ‘world class’.
The same can be said about a number of stocks and ETFs currently – they are out performing their peers. Much like an Olympic athlete who has to compete against others in his/ her respective event so too do investments. Think about it for a second; there are thousands of stocks that are traded throughout the world, all of these stocks have to compete against their peers and the overall market. So when determining which stock or ETF is worthy of that coveted gold medal – i.e. a place in the portfolio -- it's best to start by putting the stock or ETF through a relative strength competition so that your portfolio is populated with gold, silver & bronze ‘medalists’ and not the has-beens. This is best done by analyzing trend and relative strength.
Thus far a snapshot of returns for the major equity benchmarks suggests a dearth of medals, with a rather tepid start to the year. With eight weeks of 2010 already recorded history, the S&P 500 (SPX) is down just 0.95%, while the S&P Equal-weighted Index is up 0.72%. These numbers do not tell the entire story, since over the duration of those 8 weeks the market experienced some rather defined phases; beginning with a strong push to new highs at the start of the year, which fizzled in mid-January. From that point the overall markets regressed to mean, and then beyond, falling 7-10% based on the major equity benchmarks. Subsequently, the markets have fought back to essentially where they began the year. US Equities remain an emphasized asset class while non-emerging market international has fallen from favor. The general trend characteristics remain positive, but risk levels are elevated. This has caused me to take a ‘tapping the brakes’ approach with respect to Equity exposure.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
The same can be said about a number of stocks and ETFs currently – they are out performing their peers. Much like an Olympic athlete who has to compete against others in his/ her respective event so too do investments. Think about it for a second; there are thousands of stocks that are traded throughout the world, all of these stocks have to compete against their peers and the overall market. So when determining which stock or ETF is worthy of that coveted gold medal – i.e. a place in the portfolio -- it's best to start by putting the stock or ETF through a relative strength competition so that your portfolio is populated with gold, silver & bronze ‘medalists’ and not the has-beens. This is best done by analyzing trend and relative strength.
Thus far a snapshot of returns for the major equity benchmarks suggests a dearth of medals, with a rather tepid start to the year. With eight weeks of 2010 already recorded history, the S&P 500 (SPX) is down just 0.95%, while the S&P Equal-weighted Index is up 0.72%. These numbers do not tell the entire story, since over the duration of those 8 weeks the market experienced some rather defined phases; beginning with a strong push to new highs at the start of the year, which fizzled in mid-January. From that point the overall markets regressed to mean, and then beyond, falling 7-10% based on the major equity benchmarks. Subsequently, the markets have fought back to essentially where they began the year. US Equities remain an emphasized asset class while non-emerging market international has fallen from favor. The general trend characteristics remain positive, but risk levels are elevated. This has caused me to take a ‘tapping the brakes’ approach with respect to Equity exposure.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
Friday, February 19, 2010
Consequences of a Rising Dollar
The recent strength in the US dollar has had an impact on the market. First, let’s consider what broad effects a rising US dollar traditionally has on the market: historically a rising dollar has coincided with a decline in commodity prices and a decline in international equities.
With that said, the international markets are on defense; interestingly emerging markets continue to exhibit positive relative strength versus the developed countries. The systematic discipline of the portfolio has reduced exposure to the International/Global equity ETF's that exhibited weakness.
Commodities, particularly metals, had been a portfolio holding for a while as metals were showing some of the strongest relative strength in the commodity area. That strength quickly evaporated with the dollars rise and, as a result, Silver was one of the first positions to be sold.
Overall, we're at an interesting spot right now as we've had some indicators reverse down, but others remain positive. When looking at a trend chart of the S&P it appears that we had a well needed reversion to the mean. Of course, that could change, but I am pleased with how the portfolios handled what was a difficult market for many in 2009.
Certainly there are many cross-currents today and it would be helpful to have some means for accurately predicting what the next pieces of information will be, however the reality is that the future will not reveal itself to us until it is upon us, so we use the information that we have today to make the best decisions possible.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
With that said, the international markets are on defense; interestingly emerging markets continue to exhibit positive relative strength versus the developed countries. The systematic discipline of the portfolio has reduced exposure to the International/Global equity ETF's that exhibited weakness.
Commodities, particularly metals, had been a portfolio holding for a while as metals were showing some of the strongest relative strength in the commodity area. That strength quickly evaporated with the dollars rise and, as a result, Silver was one of the first positions to be sold.
Overall, we're at an interesting spot right now as we've had some indicators reverse down, but others remain positive. When looking at a trend chart of the S&P it appears that we had a well needed reversion to the mean. Of course, that could change, but I am pleased with how the portfolios handled what was a difficult market for many in 2009.
Certainly there are many cross-currents today and it would be helpful to have some means for accurately predicting what the next pieces of information will be, however the reality is that the future will not reveal itself to us until it is upon us, so we use the information that we have today to make the best decisions possible.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, February 3, 2010
Please - No knee jerk reactions
Through the first half of January 2010 all of the major indexes had posted gains of close to 2% before the last three days of last week brought much of that to a screeching halt. Despite the fact that indexes like the Dow Jones Industrial Average fell more than 400 points in a week’s time we have mostly seen a reversion to the mean from statistically overbought levels. In layman’s terms: demand had pushed prices way up and this pullback has brought prices back to the middle of the ‘field’.
A knee jerk reaction is not necessary, nor productive. What we have not seen is deterioration in the trend charts of major indices or in the relative strength relationship between cash and market indices. Stated another way, equities as a group, are still exhibiting superior relative strength when compared to cash. Instead of a knee jerk I will take some time and review the current positions in the portfolio. If your stocks are giving sell signals, violating major areas of support, violating trendlines or dropping in score, I will be sure to take some action. Otherwise, the only action that may need to be taken is to raise stop loss points.
150 point swings in the market may seem like a relic of 2008 but, the fact of the matter is that for most investors such moves are simply ‘noise’. What is far more meaningful is not whether the market is fluctuating (as surely it will), but what trends can be deduced from those fluctuations. Is the market still moving higher on rallies, and is it able to find buyers at higher levels than on previous declines? Those are the questions that are worthwhile to investors and also what the Point & Figure chart is designed to evaluate. Right now we are still observing general trends of higher tops and higher bottoms from the equity benchmarks.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
A knee jerk reaction is not necessary, nor productive. What we have not seen is deterioration in the trend charts of major indices or in the relative strength relationship between cash and market indices. Stated another way, equities as a group, are still exhibiting superior relative strength when compared to cash. Instead of a knee jerk I will take some time and review the current positions in the portfolio. If your stocks are giving sell signals, violating major areas of support, violating trendlines or dropping in score, I will be sure to take some action. Otherwise, the only action that may need to be taken is to raise stop loss points.
150 point swings in the market may seem like a relic of 2008 but, the fact of the matter is that for most investors such moves are simply ‘noise’. What is far more meaningful is not whether the market is fluctuating (as surely it will), but what trends can be deduced from those fluctuations. Is the market still moving higher on rallies, and is it able to find buyers at higher levels than on previous declines? Those are the questions that are worthwhile to investors and also what the Point & Figure chart is designed to evaluate. Right now we are still observing general trends of higher tops and higher bottoms from the equity benchmarks.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, January 5, 2010
Top Ten Ways to Sabotage Your Portfolio
1. Forget that the Driving Force of Any Market is Supply & Demand
The price of anything comes down to supply and demand – it’s that simple. I don’t care whether we are talking about oil, iPods, golf, lemonade, or the stock market. Simply said, when there are more buyers than sellers willing to sell, prices will move higher. When there are more sellers than buyers willing to buy, prices will move lower. In the end, there is nothing else. The reason that the prices of produce in the supermarkets change, is the very same reason that prices on Wall Street change.
The process that I use to determine if supply or demand is in control is called Point & Figure. It is a logical, sensible and organized way of recording the supply and demand relationship. It arranges the non-stop flow of information that is available in a way that makes sense to me. A Point & Figure chart is just a way of organizing the price data for a stock, ETF or mutual fund into a pattern that makes more sense.
As always, if you would like more information regarding this subject, or any other, feel free to contact me.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
The price of anything comes down to supply and demand – it’s that simple. I don’t care whether we are talking about oil, iPods, golf, lemonade, or the stock market. Simply said, when there are more buyers than sellers willing to sell, prices will move higher. When there are more sellers than buyers willing to buy, prices will move lower. In the end, there is nothing else. The reason that the prices of produce in the supermarkets change, is the very same reason that prices on Wall Street change.
The process that I use to determine if supply or demand is in control is called Point & Figure. It is a logical, sensible and organized way of recording the supply and demand relationship. It arranges the non-stop flow of information that is available in a way that makes sense to me. A Point & Figure chart is just a way of organizing the price data for a stock, ETF or mutual fund into a pattern that makes more sense.
As always, if you would like more information regarding this subject, or any other, feel free to contact me.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
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