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.
Tuesday, May 18, 2010
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.
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