401K Monthly Analysis 10/9/11

Ran my monthly analysis to see which mutual funds I should be in for my (2) 401Ks. Results are same as last month. The only two funds that popped up green were Fidelity Government Income Fund and PIMCO Real Retn Admin fund. No change. I remain in my allocation of cash, Fidelity Government Income and PIMCO Real Retn Admin, depending on each 401K choice.

The market is again at a crucial juncture. After the bounce last week, it is drawing in breath before trying to break through the previous high on 9/27. If it succeeds in doing that, then I would expect a pullback that would accomplish a higher low and another move up. Will that happen or will the market get run over by the bears who will use the bounce to take the market down another leg, deeper than the last one? No one really knows.  The pundits will only guess. Half of them will be right and half wrong! The technicals still say down and my monthly system told me I needed to remain defensive in my 401K fund choices. That is all that matters.

The Bear is growling 9/30/11

Let me point out that my chart on SPY gave an exit signal on long and my 401K monthly system has had me in cash, bond funds and Fidelity Government Income funds for a while now and this has kept me out of recent troubles. I hear the bear growling. When I look at stock charts I am amazed at some of the drops I see. IR has dropped from a peak of 51 to 31. Solar technology has been decimated. The ETF TAN has gone from a 2011 peak of 9 to 3.4. HRS after failing to rise above its previous high did a double top at 52 and is now sitting at 35.Remember my blog on HRS where I said that I would buy HRS only if it crossed its previous high and broke out?  JCI did the same and was turned down and double topped at 43 and is now at 27. And I think there is another leg down coming. Energy has been heading down as the dollar has been strengthening and ANR dropped from 68 to 18.  The pristine DJ30 stocks have held up well under the circumstances but even they have been feeling the heat. Look at CAT which dropped from its 116 peak to 77 this year. And the financial sector has been hit with Europe’s woes and the inability to shed itself of the mortgage foreclosure problems in the US. Look at the gold standard in financials in the US, Goldman Sachs GS, dropping from 175 to 95. And we don't need to talk of BAC or C.

My sense is that many individual stocks have dropped much worse than the large index funds and while the market reports the big indexes like the Dow Jones 30, many individual portfolios have been hurt badly already. The broad indexes have been in a trading range for the last few months and been bouncing off a support. We are very close to that support again and my gut tells me that support will eventually fail to hold. The global fundamentals are just too weak and any solutions in Europe and US are all temporary. We have to face pain ahead; but not in my portfolio if I can avoid it.

I was looking at a scan I do in TC2007 which says “Climbers with Volume”. This scan idea came from “Lady Climber” who was knighted by the Worden Bros in TC quite a few years back. You have to know the TC and Worden Bros system that used to knight letter contributors to know what I am saying but that system is also unfortunately gone... Lady Climber funded her kid’s education by buying these stocks that were Climbers and she showed us the scan she used to pick those stocks. Here is what my version of that scan shows. There were only 13 (unlucky 13) stocks that showed up on the scan today. 10 of them were bear funds! The remaining 3 were stocks like Goodrich GR which was recently purchased at a high price and is now unlikely to move at all. In the currency markets UUP – the US dollar has been showing some upward trajectory.

I have run for the hills. There is a chance that support will hold and we will see a surge back up. If that happens, I will certainly look to jump on that bandwagon. Meanwhile we are still in one of those bear flag sideways movements and the eventual next leg will be…. no one really knows but quite possibly down. Why risk my capital while the bear growls? I will take some small bear positions if there is a breakdown. In any case, I am glad I am sitting out for now. I don’t have to get mauled by the bear, regardless of what some of those Wall street brains want me to think.

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.