EXIT Long on SPY 9/22/11

Well well well… that was a short lived long signal on SPY. Today we got an exit on long signal. See chart below. I had mentioned in my last post that I was going to buy on dips but with the exit signal, scratch that plan. It was wise to look for a dip to go long and not jump in after 5 up days. I was thinking of taking on some long positions but I think I’ll wait. The real question is are we retesting previous lows and looking to recover and go long or are we just beginning a long downturn? What I think does not matter. The market will do what it will do. A Greek default would pull the rug under this support; and a resolution of the Greek debt would give the market a nice boost.

For now, I will go with the down signal and sit on the side lines, relatively flat performance so far for the year.

SPY Buy signal 9/16/11

SPY exceeded the buy stop value of 121.47 and the long signal was triggered. See my last post and also chart below. Buy at your own risk.

It is interesting that the buy signal came after over 6 months of waiting after receiving the exit on long on SPY back in 2/23/11. Does that mean the signal is strong? No. It means nothing more than we have an up signal and nothing is guaranteed. That is the very nature of trading. It does mean for me that I will now be looking for a pullback after 5 up days to go long. The chart on SPY also shows the prices approaching the 50 day moving average – the red line. That could provide some resistance. I had long signals on several of the stocks that I track earlier in the week; but stayed on the side line as the direction on SPY was still down or exit on long. Now I feel more enthused to head in the direction of the tide according to my technicals.

Stronger stocks like AMZN, AAPL, AZO, PCP have already started climbing and approaching their highs. These stocks did not take much of a beating on the downturn over the last few months. I still see fundamentals as weak – consumer confidence, GDP, political climate, and Western world debt which weighs down on growth. On the other hand this is a pre-election year, interest rates are low, and several big corporations are flush with cash and making solid profits. As usual the future is grey and cloudy.

They say the market likes to climb a wall of worries.  We will see. 

SPY Wakes Up 91511

We have a possible buy opportunity signal on SPY. The chart would read “If today’s high for SPY is exceeded tomorrow, take a long position on SPY”. Buy Stop at 121.47. After 4 consecutive Up days now, I have also seen some buy signals pop up on AMD, SNDK, and AAPL etc earlier this week. I chose to ignore them because the overall market (SPY) was pointed down. Yet the thrust upwards was quite nice and each of the up signals would have resulted in positive trades. Perhaps the Up signal early in the week on the Nasdaq Q’s was a good indicator of the strengthening in the technology sector.

September can be a bearish month. Europe’s troubles are not over. The US has plenty of debt. Is it worth getting excited on the up side? Best thing to do is simply follow the signals and let the charts provide the direction.

For now we have possible buy opportunity on SPY. Once SPY is long, I would look to take long positions on a dip.

What kind of Recovery is this? 9/10/11

The Recession ended 26 months ago. What kind of Recovery is this? No. This is not meant to be a political statement. My blog is all about investing and although I remain a technical investor, the fundamentals are the backdrop to what creates the technicals.

Recently I attended another excellent presentation. This time by John M Simms, Ph.D., CFA and Chief Investment Officer for a company in North Carolina... John had made a similar presentation last year and had suggested buying GLD, Gold and more gold. Since then GLD is up 50%.

”Too much debt. Price to be paid. Run for the hills”. That just about summarizes his sentiments. We are already in the beginnings of the double dip recession as GDP growth is <2% last quarter. Each time it dropped to below 2% we have had recessions that followed. Reducing unemployment from the current 9.1% to 7% will require a job growth of 208,250 per month for the next 3 years. That is unlikely. We have a long slog ahead. Consumer confidence is dropping but it can drop steeper. Higher debt means slower growth. Is the US same as Japan? Yes and no. The Japanese have been great savers and own most of their debt. We don’t.

John makes excellent points with his charts and data to show that US growth has been replaced with US Government transfer payments as we have got more and more indebted.

He uses Tobin’s Q and other charts to show that profit margins are at historical highs and profit projections are being based out of these highs, and are likely to disappoint in the future. Feds will probably have a QE3 that will be called something else. The Feds can “goose” the financial system but after QE1 and QE2, the Feds have a real exit problem. If the Fed cannot control the release of reserves, we are likely to have a real inflation problem, although John feels we are likely to have deflation or low inflation first before high inflation.

Is Gold in a bubble? John did a quick test of who owned GLD in the group and how much. Seeing the low numbers, he added, you don’t have a bubble till everyone owns GLD. John expects GLD to get up to much higher numbers based on the failure of Europe and the debt laden US. He did not hesitate to use numbers as high as $4000 - $5000 per ounce. That is a lot higher than the current $1800 per ounce. He sees the US dollar as the likely choice versus the Euro, just as US treasuries is a safer haven than equities. Europe banks are likely to continue to go down as they are weighed down by Greek debt. Then there is Spain, Italy, Portugal and Ireland. Did you know that pricing of credit default swaps show that it costs more to insure France against default than Chile or Columbia? And it is not because of Columbian coffee.

After listening to all the gloom and doom from John, I must say that I am glad my technicals are in line with what he was saying. I will take a closer look at opportunities to buy GLD on dips as well as pick up some inverse funds on bounces. Watch out. There is trouble ahead.

Position Status 9/5/11

My current position is cash, money market, PIMCO Global Bond funds and Fidelity Government Income funds. I don’t see any buy signals on equities. My monthly 401K funds analysis showed for my first 401K that the only fund with a green to invest in is Fidelity Government Income fund, and I am already in it. In my other 401K, three funds are green; PIMCO Real Retn Admin, PIMCO Global Bond fund and Fidelity Government Income fund and I am in two of the three, so no change is required in my 401K choices for the next month.

I had seen opportunities to bet on the downside last week after the bounce. Unfortunately my buy to open put option orders were all limit orders and the market opened with a gap down past my limit prices. I will have to pass on the down trades now as I do not want to chase it.

-         Lesson learned is that I should have been buying put positions slowly as the bounce was taking place before the market turned down.

It is Monday night. Labor Day weekend is over. Markets were closed in the US. Europe has taken the US flat jobs report really hard. Europe banks are all down 5-9% today. All the big names were hit hard. Tomorrow will be interesting with the huge gap down on futures. I think any bounce will probably be an opportunity for traders to take the down position. Still, traders will be watching to see the market reaction in the morning.  

Attached chart on SPY begs the question whether the previous support will hold. It is interesting how the market looks like it is playing out a repeat of June 2010. I think global fundamentals are actually a lot weaker than last year.

Do not buy after multiple days of Higher Highs 9/4/11

In my last blog I pointed out my resisting buying CREE after multiple days of rises as the stock is still in a downtrend. Since then CREE dropped about 8% and my hesitation looks justified. Still these opinions are based on averages and not a specific example. So I thought I would post an old article that had caught my eye about whether you would gain by buying a stock that had just made several days of higher highs. The answer is no. It is better to buy a stock that is in an uptrend on a dip. Here is the article...Keep in mind it is simply pointing out short term results over a week's time frame and not long term. The main point I want to make here is not to chase a stock that just made several days of higher highs. It is far better to buy a stock that has been in an uptrend that has just had several days of lower lows. And for me, I prefer to have the technicals pull these out and help me establish an exit criteria after I am in the trade, in case the trade goes wrong.
I am still cautious trying to catch a falling knife - so I prefer to make sure my system says a stock is in an uptrend before I look to buy it as it is falling. Contrarian traders do well buying after weakness; but that also takes a strong stomach in a major downtrend as weak can get weaker in a hurry.. be careful.

Higher Highs/ Lower Lows?                                                                 12/24/06

TradingMarkets Research article

“Higher Highs
We looked at stocks that made at least three consecutive days of higher highs, all the way to stocks that made at least seven consecutive days of higher highs. The results revealed a number of interesting findings, some of which are highlighted here:
- In all but one case, the average return of stocks that made "multiple days of higher highs" underperformed the benchmark.  
- In most cases the average returns of stocks that made "multiple days of higher highs" were negative, 1 day, 2 days and 1 week later.
- The results on average showed even greater weakness when we looked at stocks that made at least five consecutive days of higher highs.

In other words, on average, stocks that make "multiple days of higher highs" should not be bought.

"Lower Lows"
We looked at stocks that made at least three consecutive days of lower lows, all the way to stocks that made at least seven consecutive days of lower lows. Here's what we found:
- The average returns of stocks that made "multiple days of lower lows" were positive 1 day, 2 days and 1 week later.
- In every single case the average returns of stocks that made "multiple days of lower lows", outperfperformed the benchmark.
- The results were even stronger when we looked at stocks that had made 5 consecutive days of lower lows.
That means traders should look to build strategies around stocks that make at least five consecutive days of lower lows.
As you can see, on average, stocks that make at least five consecutive days of higher highs show a negative return over the next week (-0.20%). By comparison, stocks that make at least five consecutive days of lower lows show a positive return (+0.76%).
Once again, our research shows that both news and emotions lead investors to do the opposite of what they should be doing. They are buying when stocks make multiple higher highs and selling when they make multiple lower lows. In both cases, on average, this is will lead to negative returns. Much like my previous article on "Gaps and Laps", we found even greater opportunities by adding simple conditions, like stocks trading above or below the 200-day moving average, or combining multiple higher highs/lower lows with PowerRatings, etc.
Our research showed time and again, across almost every possible parameter, that the notion multiple higher highs are bullish, and multiple lower lows are bearish is incorrect. The statistics clearly show that, on average, it has been better to be a buyer of multiple lower lows, rather than multiple higher highs.
So, rephrasing the question asked at the beginning of this article, "Is it better to be a seller of stocks that have been strong and have made multiple days of higher highs? And, is it better to be a buyer of stocks that have been weak and have made multiple days of lower lows?" The answer (to both) is a resounding "yes".
Ashton Dorkins, Editor-in-Chief
* Our research looked at 7,050,517 trades since Jan 1, 1995. We applied a price and liquidity filter that required all stocks be priced above $5 and have a 100-day moving average of volume greater than 250,000 shares.