Markets Analysis 9/15/12

I was looking back at the Up signal I posted on the India fund (IIF) back in 6/15/12 end-of-day. Since then it has weaved its way up from $14.62 to $17.11, a quiet but very impressive +17% gain in 3 months. It has also done a couple more impressive things from a technical view point.

- It has taken out the previous high of $15.79, establishing its uptrend. By definition, an uptrend is a series of higher highs.

- It has also climbed its way above the bold black line on the chart, its 200 day exponential moving average. Nice…The markets have taken note of that. See chart posted below.

Being cautious, if someone was looking to enter now, I would take a small position and wait for the pullback to add to.

Needless to say, let me contrast this move with the chart on SPY (S&P500), which too has been pointed long by my technicals since 7/2/12. In the chart posted below, there was a second confirming Up signal on SPY on 7/30/12. Right now, it has taken out its previous high and is starting to smell some rarified air above. The chart on SPY is clearly stronger than IIF which has been struggling for months dipping lower and lower and staying below its 200 day exp moving average.  

What goes high can go higher. The markets loved the fresh dose of QE3 it got from the Feds. My only concern was that 11/12 on the committee voted for the QE3; leaving little doubt that they feel the economy is making a weak recovery and could slip back into a recession. Without the smelling salts, and instead if we chose a harsher and stricter path like the Europeans have done, we would certainly be languishing in another recession – perhaps depression. But this is no political forum. We have come back from an enormous chasm and I am just glad that my portfolio is positive. I will also keep my enthusiasm down and make sure we not give up these gains. October through the end of this year is usually a positive period. Let’s hope that’s how it plays out.

Waiting to be discovered…

401K Monthly Analysis - 9/8/12

The S&P500 (SPY) chart points long, same as it did last month. The pullback that I was expecting in August did not happen and instead the market continued to push upward. Last month I went stronger into equities in my 401K and it was the right decision. The monthly 401K analysis that follows remains somewhat mild in its selections as it is weighed with bond funds picks. Being as conservative, I also hedge my long positions using SPY put options in a separate account. I am extremely averse to large losses and will do everything I can to prevent that, including giving up as much as third of my upside through buying “fund insurance”.

Going into my current company’s 401K the top funds selected by my monthly analysis are Fidelity Equity Income, Fidelity Government Income fund, Royce Opportunity and Fidelity Blue Chip Growth fund. Royce Opportunity requires a long stay in the fund and I will have to consider whether I want to get into it or not as I don’t want to deal with the redemption fee should I want to get out earlier. See charts below on these funds. I will move some money out of Fidelity Fund and place it into the Fidelity Blue Chip Growth fund, Monday. I already have monies in Fidelity Govt Income.

As far as the 401K monthly analysis on my previous employer’s funds, top of the picks is Cohen & Steers Realty fund (same as last month). Next picks are PIMCO Real Retn Admin and American Century Equity Income Instl. The choices are same as last month and I will leave these all unchanged Monday.

Notes:  The methodology I am using has been written up in the past and is based on a momentum strategy where I put my money into the funds with the best performance based on a slower monthly rate of change analysis using 3 and 6 months performance data. I conduct the analysis 1 month, always during the weekend between the 2^nd and 9^th day of the month. All my change orders are submitted Sunday night and are effected after 4 pm Monday.

Safe but steady returns 9/3/12

A past associate of mine who has a Master’s degree in Science and also in Business asked me the following question:

“I was trying to find out, if you know a source or person who could invest on your behalf (not 401k) and charge a fee but be relatively safe bet in picking stocks etc?”

What is “a relatively safe bet”? Money magazine gives us as their cover, 101 ways to build wealth. Everyone seems to have a great solution. Then why is it so difficult for me to answer my friend’s question simply without giving him a feel for the risks involved in trading? The only safe place to park your money and reduce risk is a money market fund delivering some awful 0.2% return. Even that is open to currency valuation risks down the road. Gone are the days a retiree could live off the interest when the banks were paying 5-6%. Of course inflation was much higher then, and we easily forget the net value of out holdings. Is too much knowledge a dangerous thing?

If my friend invests his money with an advisor who puts him in a basket of stocks balanced with a basket of bond funds, in a real recession, he is still likely to see a drop of 20-30%. That is completely unacceptable to him/me.

If he were to put all his money in SPY (S&P500) then he would see a loss potential of 30-40% in terrible down years. Unacceptable for sure.

Alternately Taleb suggests a less risky strategy is to only take very high risk with a small portion of your portfolio and leave the rest in a safer haven.

Most people go off their investment plan when they lose a lot of money. The first and most important question is not how much you want to make but how much you can afford to lose. I had a rich consortium of investors approach me to manage their money if I could generate 50-60% return per month and safely in the Forex markets. The reward potential for me was huge. But can you really separate risk from reward? I don’t think so. It would certainly be worthy of a PhD paper if one could actually dissociate the two in the investing world. Wall Street is littered with genius’ who thought they could.

I have asked my friend how much money he wants to invest, how much he can afford to lose, and what return % he is looking for. I am a conservative investor and don’t like to lose money. I find it safest to hedge my transactions, to lop off the high loss potential with put options. Next I diversify and also use stocks and also different trading systems. Finally I also sell near month options to generate a credit against my synthetic call position when I have a long signal. All sounds quite complicated, and so it is. It takes time to manage these positions as they are all end-of-day. I have hesitated to manage other people’s money because of lack of time. With my job that keeps me out for long hours, it is difficult. I have friends who have successfully made money through selling out-of-the-money options over shorter trading periods. But in every case, there is a risk and reward equation that cannot be ignored. Reduce risk and you reduce your reward.

Confucius said  “Real knowledge is to know the extent of one's ignorance.”

Gold scores a minor Victory 8/26/12

Gold has been going sideways in a triangle for 3 months now and finally broke out of the triangle heading upwards, scoring a minor victory. See the chart below where I drew in the green upper triangle line and the red lower triangle line. If it had broken to the downside, that would not have bode well for Gold buffs.

As it stands, GLD is now bumping up against another resistance level shown by the blue bold line touching the tops of a larger triangle. For now I am on the long side of GLD and saw a modest increase in my holdings.  See the entry signal. It had been a little confused before and had been consolidating.

The contrary picture is of course the US Dollar. As GLD has gained strength, the dollar has weakened, This is the Yin Yang of currencies - a strong negative correlation in statistical terms. As holders of UUP (US $) take flight, there is a rise in GLD. Of course if you were simply trading the US$ you could also place your money into UDN which is the reverse of the US$.

UDN goes up when UUP goes down.

Gold is much more beautiful though and any time I take a look at my wife’s 1 oz coins or better still, her Indian 22 kt jewelry, I am awed by its shine and luster.

In trading however, GLD or IAU is the way to buy Gold holdings. No emotions there. When there is the down signal, I exit and sell…

Is CREE finally changing? 8/18/12

CREE has had a rough going over the last year. Reaching a high of $72.47 in 12/10/2010 it has tumbled all the way down to $20 before recovering and sitting at $28.35 and right at its 200 day exp moving average shown as a black line on my chart below.

Is the worst behind CREE now? Has all the selling ended?

Hard to predict the future very far out but the technical analysis certainly shows a change in character. Why I say that is because CREE has now established a higher low for the first time since it started its dramatic drop in December 2010.. Next step for CREE will be to achieve a higher high above $33.10. Or it may go sideways for a while before it picks up from here. Still, this is encouraging for the stock.

Maybe the world of LEDs is looking up for CREE finally…

Otherwise, SPY is still pointed up. PCP turned in an Up signal and I am long in it now. Same with SCCO. Still long on SNDK and GLD. And still hanging on to my losing Q’s  put options for no reason at all other than the market has to take a breather somewhere! I have been violating my system direction on the Q’s which has been pointed long for a while and have felt the pain for doing so. Fortunately the max loss is a small limited amount based on my holding a small option position but this is exactly why traders lose – having a plan and not following it. Can happen in a hurry… and get out of control... I will need to learn my lesson here and change direction.

Yin and Yang 8/12/12

Yin and Yang. Two complementary principles of Chinese philosophy. One is negative and dark and feminine and the other is positive and bright and masculine. TLT and SPY are like Yin and Yang in the market. Currently we have an Up signal for SPY whereas last week TLT dropped and produced a Down signal. That is the current state of the market today.

I was expecting a drop and then a strong buy point but the market chose to ignore the drop and just went up. My system triggers were spot on.

I am much more heavily biased towards the up side in my 401K as I wrote last weekend. But I do have some offsetting put options and a position in TLT that I closed last week when I confronted the sell signal on TLT. I remain holding put options on PCP and HOG which still point down. I am long on GLD, and have been for a while as it stays in a sideways position. Also long on SNDK. I closed my position on Ford F with a small profit. And I am guilty of incurring losses on put options on the Q’s and copper against the up signal that my system gave me. I felt that the stochastics were reaching high and it would soon take a breather and go down, and I would exit. Wrong… best to just follow the systems.

I need to continually remind myself that I do not know what the market will do next; but my portfolio will do fine if I just follow my well tested systems in the long haul...

401K Analysis - 8/5/12

The S&P500 (SPY) points long. This sets the stage for going deeper into equities in my 401K and less in bond funds like Fidelity Government Income.

I am expecting a pullback in August and then a push up but it will be hard to time that and easier to just follow my monthly analysis. In any case, the fund selections are somewhat mild and weighed with bond funds to partially neutralize any steep drops.

Going into my current company’s 401K the top funds selected by my monthly analysis are Fidelity Equity Income, Fidelity Fund and Fidelity Government Income fund.  See charts below on all these funds. I will move some money out of the money market and place it into Fidelity Fund and Fidelity Equity Income Monday. I already have monies in Fidelity Govt Income.

As far as the 401K analysis on my previous employer’s funds, I see that top of the picks is Cohen & Steers Realty fund that I have already been invested in. No change required for that. Next picks are PIMCO Real Retn Admin and American Century Equity Income Instl..  I will move money away from the PIMCO Glbl Bond and Fidelity Contrafund into these two on Monday.

Fidelity typically requires you to keep money in funds for 1 month minimum, 30 days I think. Otherwise they hassle you with real threats to freeze you from changing investments and make you feel like a common criminal. Some funds have longer requirements for investing otherwise they charge a redemption fee. I think the funds selected here are not affected by that; but it always weighs on my mind.