IIF gives an Up signal!

What do you know? IIF gave an up signal yesterday. IIF is an exchange traded fund that invests in the public equity markets of India. It is the Morgan Stanley India Investment Fund, Inc     

http://finance.yahoo.com/q?s=iif&ql=1

Looks like my earlier post noting that IIF has broken the down trend line was a fore-runner to the latest move. Also notice how it broke the previous resistance of recent highs and pushed its way up. It is hard to say if there will be a little pullback to give us a better buying opportunity or not. Probably better to wait for a pullback.

SPY – What is it?

SPY – is an exchange traded fund that represents the S&P 500. The official description goes something like this:

“The SPDR S&P 500 ETF represents ownership in the SPDR Trust Series 1, a unit investment trust established to accumulate and hold a portfolio of the equity securities that comprise the Standard & Poor's 500 Composite Stock Price Index. SPDRs seek investment results that, before expenses, generally correspond to the price and yield performance of the Standard & Poor's 500 Composite Stock Price Index. There is no assurance that the price and yield performance of the S&P 500 Index can be fully matched. “

I like to keep a watch on the performance of SPY as it represents the performance of the broad US market. Sure there are other indexes to watch as well. But for me, the first is SPY.  It will change value through the day based on what the individual equities are doing. SPY can be bought and sold just like a stock and its ticker symbol is SPY. I look at an end-of-day chart on SPY after I am back home from work and the US market is closed. Long term, most money managers and mutual funds cannot beat the performance of SPY. For a long term investor in the US markets one could simply buy SPY. The reason I don’t like to do that is that SPY can drop 30-40% during a bear market and I cannot tolerate that big a loss. Some people say it isn’t a loss tell you sell it. That I am afraid is hogwash because I take the current value of the portfolio as what I own. No more. No less. If I buy SPY, I would buy it based on technicals and using a trading system as I am showing on the chart below. My software will place the up, down arrows and exit signal blue balloons after it processes each day's end-of-day data. This particular system is more biased to the upside, so one should be cautious when an exit signal (blue balloon) is generated after an up arrow. Meaning it could drop a lot without showing a down arrow.

When I look at the market, I look at it top – down. I start by pulling up the SPY chart and see what my trading system is saying. If it is above its 20 and 50 day exp moving average, I would say it has a bullish bias. If it drops below these moving averages then consider that it is showing weakness. Options on SPY are also very liquid and have a tight spread. I like to use put options on SPY to hedge my 401K portfolio when the SPY trading system is showing weakness. See chart for SPY below.

My trading system still shows an exit signal on SPY. But notice that the price chart is above its 20 (blue), 50 (red) and 200 (black) day exp mov averages. That alone is enough reason to remain biased long. For safe keeping I still have my hedge on. If I see the most recent high taken out, I would definitely say the market is back on a bull track. For now we cannot say if it will go sideways or if it will falter and turn back down or if it will take the most recent highs out.

The War Effect

Two dates come to mind. January 17th 1991 and March 20th 2003.

The initial effort to oust Iraqi forces from Kuwait began with aerial bombardment on January 17th 1991. SPY (S&P500 Exchange Traded Fund) started moving up from a value of 31.52 on January 17th 1991 to 41.94 in a year; a 30+% gain.

The Iraq war began on March 20th 2003. SPY moved from a value of 87.56 on March 20th 2003, to 111.82 in a year. That was another 30+% gain in a year.

Could there be a war effect on the stock market that makes it jump so?

The Libyan war started with aerial bombardment 0n 3/21/11. I cannot help but notice that the announcement of the UN resolution on Friday certainly triggered an upside move that was strong. Yet I feel the volume was not quite there on a cloudy note. So what do we do and what does this mean? Where will SPY be in a year from now? Will there be another war effect?

I think that there is a strong upside potential possible with the stock market with the war effect. I will watch for trigger signals to participate in the up move and not be afraid to take the risk of sitting out and losing the gain possible. The trading system that I use on SPY is good, very good; but it is not infallible. I will be watching my charts closely to define these triggers, independent of my trading system, and when I see them crossed, I will pull my trigger. Hopefully my expert intelligent system on SPY will provide an up signal as well; but even if it does not; if my triggers are crossed I will participate. But I must not trade emotionally and if I jump in I should have an exit plan. That exit plan should be known at the point of entry. If the war effect is real and positive I could see my portfolio grow. And if it is not, I should be willing to accept that and follow my systems and signals and exit when I need to..

SPY remains exit on long positions 3/19/11

The SPY ETF long exit signal that came on 2/23/11 and posted that day on my blog remains unchanged. The markets and the world have certainly seen huge unexpected events. The earthquake and Tsunami in Japan and the 4 nuclear reactors that remain on the edge of meltdown. Unrest in Libya and more recently the decision by the UN to impose a no-fly zone over Libya. Yet the market behavior when you step back and look at the daily chart on SPY has been surprisingly predictable.  There has been a rise in volatility for sure.

There are many market pundits predicting either an upside or a downside. I am sure they will both be right, given enough time. But what is the use of such advice unless you can actually use it to time the markets either in the near term or the longer term?

I am a conservative investor and I use separate systems and separate time frames to diversify my portfolio. For now, I remain in reduced long stock mutual positions in my 401K that are hedged with SPY put options. That still keeps me slightly long biased I will admit but with limited exposure. I reckon that is a personal decision based on SPY still comfortably above its 200 day exponential moving average and also biased long, despite the exit signal. If the market slowly twisted and turned and remained down, my slower 401K system would switch me into bond funds anyway and the SPY puts would then be used to generate a little upside, or at least offset past losses to keep me flat.

No one can predict the distant future. For today I can say I see the weakness has grown. I cannot say how long the weakness will last. Chances are it will not even get as low as the 200 day ema, and then move back upwards; but predictions are not my business. All I see is the exit signal on the long for now.

Murphy is watching

Have you ever noticed when you buy a stock because everything looks good, that as soon as you enter, it goes the wrong way? Then comes the pain of loss. You can’t take it anymore. You get out. And it immediately proceeds to go in the direction you had called! Well that has happened to me more often then I care to remember. I call it Murphy is watching.

I think the only answer is to keep disciplined and follow the system each time. Then eventually the odds will stack up in my favor, assuming I did my homework and chose a decent trading system to begin with.

Overall, I am hedged and incurring much less loss over this down turn than most people who are not market timers. But there is this one stock that I got a long entry on that I entered a few days back. It is an energy related company. It moved up a couple of days after I bought it; but has sharply turned down. I will follow my system and eat the loss if that is what I have to do when it tells me to exit. But then I will re-enter it each time it tells me to. I cannot be right all the time. In the meantime, Murphy must be watching me…

Trading Humour 3.13.11

About DiversificationThings go wrong all at once, but things go right gradually.

Madoff behind bars: Day One
Prison roommate: Lemme get this straight, I give you one cigarette and next week you give me ten?!!
Madoff: It’s that simple

The focus is Japan

First an earthquake with an 8.9 magnitude. Second a Tsunami with a wave 23 feet high sweeping cars. people, building and everything in its path. The Tsunami is much more powerful than a tornado. And now the 3^rd largest economy in the world is reeling from the effects of what nature has hurled against it. Makes us realize how mortal we are.

Recently we were doing car shopping and a competing dealership was telling us that Nissan is strongly hit and cannot produce cars. Not sure how much truth there is to that but I was wondering how the Japan ETF (exchange traded fund) is doing under this attack. Not well at all as you can see below.

My exit signal arrived before the major damage that has been done. The unfortunate thing is that the trading business is ruthless and predatory. Traders are like a pack of wolves. They like to feed on the weakest, the youngest and the lamest EWJ gapped down on high volume. Not a good sign at all.

The Japanese are resilient people. I wish them the very best and hope other countries can come to their assistance in this time of need.

Rising oil prices causes no pain?

Recently I saw a headline:

Exxon CEO says oil prices not yet hurting economy

Exxon's Tillerson says oil prices not yet hurting US economy, but $4 gas would hit families

Yeah – right… who is this guy kidding…?

Maybe he would change his mind if his stock price dropped. I am envious of course - of the immense wealth that these CEOs make riding the stock of one of the best all-time performers in the stock market.…XOM is approaching its all time high and I am a little envious I must admit.

I work for a company in the plastics parts business, and we have seen incredible price increases for all resins. High oil prices immediately affect resin prices and many customers push back and don’t want to pay for the higher material prices. Unfortunately in the pricing model of most plastic products, it is material, material and material that controls profits largely. 60% of the cost or more is material costs. There is no doubt that the rising oil prices will adversely affect  profitability of many companies. That in turn will cause disappointing earnings and cause stock prices to come down again.

There is also of course the consumer who has got a lot more cautious in spending. Higher oil prices will bring back the past fears of 2008. Less spending will mean lower demand of product and a possibility for lower earnings.

But in the end the process of supply and demand is partially (can’t forget OPEC can we) self – regulating and less demand will bring down oil prices and material prices and the cycle will see newer gains.

Best way to be one with the markets is to time it and not trust the bogus comments from some of these self-serving CEOs who will cloak the truth with ridiculous comments such as these for their own gains. I am attaching a chart of XOM done with a gentle trading system I developed a while back aimed at providing major turning points.  XOM has been riding the increase in oil prices like a surfer catching a big wave,

All big waves come to an end however.

SPY remains in long Exit signal mode 3/8/11

SPY was up today and did not hit or penetrate the sell stop level of $130.74. Therefore no short side trade or signal took effect and the chart remains as before with an exit signal on the long trade...
The market continues to show a resilience to falling and time alone will show its cards. Long exit signal remains in effect.

Downside SPY opportunity 3/7/11

My SPY trading system has identified a potential sell short opportunity at $130.74 stop limit based on end-of-day data 3/7/11. I do not short stocks, or ETFs and use put options triggered based on movements of the underlying (SPY).  In fact I already have put positions to provide protection to my 401K positions as a hedge and have reduced my long positions.

If SPY does not go below $130.74 tomorrow, this signal will dispappear.  Also I have read that probability models say long term upside is expected over 6-12 months. Think I'll wait for my system to signal the same, or if higher highs are made to say we are back on track for the up movement. How about you?

Down trend line broken

Charting techniques such as trend lines can be useful in analyzing stock charts. A good example of that is visible on the IIF India exchange traded fund now. The fund has seen a retracement from a peak of $30.41 to a low of $21.02 and is currently at $22.79 and in a down trend. A good definition of a down trend is when the stock is making lower lows as has been seen through the recent decline from November 2010. There is however a small change in behavior now. The down trend line is broken for the India Fund chart.

The down trend line is drawn by connecting the peaks of the price chart as it attempts to bounce back after each drop in the down trend. The bounce fails to cross previous highs and the down trend continues to make new lows. Once the selling is stemmed, the stock chart starts moving sideways and breaks the down trend line. This has just recently happened. See the green down trend line and how IIF has crossed over to the right hand side of the line.

The next step to break the down trend is for IIF to make a higher high. The previous recent high was $23.02 and IIF was able to get up to $23.07 before being turned down. In order to break the down trend it will have to decisively cross the previous local high and establish its new strength. Sometimes a stock will go sideways and channel for a while before making new highs and resuming an up trend. Or it may fail and break down and continue its down trend.

In this case I see some strong support at $19.94 as shown by the dotted blue horizontal line. That does not mean that there are any guarantees it will hold. For now, it is a positive sign that IIF has broken the down trend line. Note that the trading signal is still down.