Where is Ford headed? 5/26/12

I spent several years working with people from Ford and Visteon and have mixed feelings about the company. One thing is for sure, the people were smart, intelligent and hard working. It did not matter whether they were tall or short, black or white or brown, male or female, old or young. Many were from top schools but many were not. It was hard for me to see so many of them lose so much of their retirement wealth through losses in their 401K when tools from technical analysis could have kept them out of trouble.

I remember volunteering for an evening business school class at Ford where we had a rapt audience with many questions and strong interest.

So I wondered where I see F heading next.

The chart current points downwards. Let me be very clear. That means I would not own F stock just right now. The exit signal occurred around 2/24/12 around $12.27 stock price and it has dropped since then to the current price of $10.60. That is a drop of 13.3% in a few months.

Fundamentally on the positive side, F looks promising as the price of oil has been dropping steadily although gas prices have not dropped as much. Perhaps after the Memorial Day weekend we will see further drops. Lower gas prices seem to encourage car buyers. Ford is profitable and also has taken a move to reduce its indebtedness. Thought I saw where their rating had been raised recently. Yet the charts could run a course similar to what happened in July 2011 where it bounced up and then dropped precipitously.  The Koreans are doing very well and Hyundai/Kia a strong competitor.  Companies like Honda and Toyota are also coming back strongly. It would be much safer to be exited on F right now and wait for a technical entry signal. We may see weakness in the markets from the Euro crisis and since many European countries is in a recessionary mode. High unemployment does not favor car buying. The last technical entry signal yielded a 15% return and although I participated in that, I did not do as well as a friend of mine from Ford who rolled his entire Ford 401K in that move and enjoyed a nice 15%+ move upward. He went to cash for the rest the year till date. I know he is patiently waiting for the next upward move signal. Too much risk for me; but risk and reward are tied and one can argue that going in whole hog for a short while and then exiting the market may very well be a safer strategy then being in there all the time or most of the time and being exposed to the vagaries of the market.

I have thought about starting a subscription service for stocks where I would send signals to the subscribers and they would take the responsibility of acting on the signals and keep charge of their accounts. If someone had followed the signals generated from the F chart, they would have done much better than running a 401k without this guidance. Maybe one of these days…

Why Trade a Bond Fund? 5/19/12

Recently I was asked why trade a bond fund as the interest rates are so low, interest rates can only go up and the bond fund would go down. Let me qualify this comment as I am paraphrasing what was said to me. This person is a COO for a nice sized company, West Point graduate, and also a graduate from a well known business school and we were discussing the value of bond funds in portfolios.

Technicals allow me to trade stocks and commodities and allow me to protect my portfolio and slowly grow it. Fundamentals will often drive the technicals; but so will world events, news, as well as the latest debacle the company has got into, like the $2Billion + loss in trading at JP Morgan Chase. JPM stock is down well over 10% in a few days; far more than the trading loss would dictate; but then once the fear of uncertainty sets in, the stock continues to be preyed upon by traders. After all, it is not clear what is known and what is hidden by the CEO such as changes in risk measurement tools.

Back to the point I was blogging about… I find that with proper technicals, I know that I can trade all kinds of alternate funds that offer me the chance to offset portfolio losses from my equity holdings that are trading at a different, slower monthly time frame. Stocks had a terrible week as I write this. SPY dropped 4.3% this week. My last posting reiterated the exit on long position on SPY. However I run my 401K analysis on a slower 1/month system and it has been slowly shifting directions towards bond funds; but still weighed more towards equity. With the goal of never having a loss year; I find trades like these on the TLT (ETF Bond fund) help me offset losses and hold on to earlier profits from the run up in equities.

I entered the TLT trade at around $116 and took my exit Friday on a limit order I placed at night the previous day for $124 and change. That was a 6.8% gain in about a month. Not bad for a bond fund, eh?  I see that TLT is overbought and I am happy to take the profits off the table. I will consider re-entering TLT when it pulls back some and the rate of change of stochastics bottoms out after the pullback. I don’t think this pullback in the market is over but we are probably due for a bounce soon, and during that time, TLT will pull back. The chart is still showing an up signal for the primary indicator. The minor indicators are saying TLT is overbought and will pullback – see the orange balloons hanging on top of the price bars.

Why trade a bond fund? Because it is often contrarian to equity funds and traders move into it as a flight from risk driving its price up. TLT is a long term ETF and is often seen trading opposite to the direction of the market; but it is best to trade it with technicals on its own. I find the same applies for manufacturing processes. People who are “experts” with a process understand its basic behavior; but to understand the real intricacies and properly control them, one needs to use technicals tools to understand the cause-and-effect relationships so that one knows exactly which knob to turn to make the volume rise and which knob to turn to change the channel. End-of-day chart on TLT attached below as well as the latest chart on SPY showing exit on long signal on April 10^th..

Daily chart on TLT

Daily chart on SPY

Spy is still Exit on Long 5/12/12

No change on SPY. It is still showing an exit on long, and my portfolio is gradually withdrawing from its previous highs, despite the hedges. It would have been a much sharper pull back without the hedge; but I still don’t like it. I had tried to sell a vertical spread call on CAT when I got the last down signal on it; but it was a limit order and did not take. I would be better off doing a market order when I want to take a position. I place these orders on the weekend or at night and do not track it through the day as I have a day job and do not want a conflict with it. I want to follow my systems end-of-day or end-of-month. The 401K is of course slower being once per month analysis and decision.

I am attaching the chart on SPY below

The next thing I want to think about is looking at doing some credit spreads to generate some income based on directional strategies. I still want to look at a faster system that is small risk but it has to be directional and fluid.

401K - Pointing North but Changing 5/5/12

It is time to do my monthly analysis on my two 401Ks in Fidelity. My 401K system is a slow moving system that looks at long trends and does not react jerkily or fast. It is not affected by recency as our minds are. Therefore the selections it makes works well over a long term basis and can leave me at odds with what my brain wants to do when it sees a large market drop. My SPY chart has been cautioning me with an Exit long that I reported a few weeks back. My 401K system does not understand that. And I am faced with what I must do given this conflict and recent market drops

My first Fidelity 401K report is based on my current employer. The direction there is to continue with Royce Opportunity, Fidelity Blue Chip Growth, and put some in Fidelity Government Income fund. The addition of the Fidelity Government Income Fund is the first sign of shifting to a more cautious position and my brain is relieved to see that. I know it is impossible to predict how long a signal lasts. But my daily charts flagged a down signal whereas the monthly momentum method is going to slowly shift and not move quickly. My brain says this is an election year and I do not see everything going to pots; but I have to compartmentalize confusions in my personal thinking and do what my systems tell me to. A good disciplined approach will beat an emotional reactionary approach in the markets.

In my second Fidelity 401K, top of the list is Cohen & Steers Realty Fund. I am not surprised with that as I see IYR and SPY rocking on my daily charts. I am sure some people would be surprised with the first choice. Other selections that I am being “steered” towards are Artisan MidCap FD (Symbol ARTMX and not ARTQX), Fidelity Contrafund. PIMCO Global BD Admin is the only bond fund that is showing up as a possible candidate for those who are cautious (like I am). So there it is…

Keep in mind that I have my long positions hedged with SPY options and also have some down positions using put options on SNDK and GOOG. Also, I own TIP and TLT which tend to do better in down markets. I am still long on PCP and HOG.

People wish to learn to swim and at the same time to keep one foot on the ground.

- Marcel Proust