Swiss Surprise 1/17/15

Earlier this week the Swiss National Bank (SNB) scrapped its three-year-old cap on the franc against the euro. The announcement came as a huge surprise to the currency markets and within minutes the Swiss franc jumped 30% against the euro and the US dollar. In the world of Forex currency trading, where Billions are traded and retail traders can take advantage of high leverage, a 30% move meant those with short positions on the Swiss franc had their accounts wiped out in minutes. Liquidity completely disappeared. There were no takers on the opposite side. Those with stop losses found that brokerages had shut down trading. Stop losses mean nothing when trading is stopped. 

Retail traders were snuffed out. Understand that with a $10,000 account you could be controlling $200,000 in currency – that is leverage. When there is a 30% move the other way against you in such a short time, it creates a $60,000 loss. The small $10,000 account is wiped out. Then the FX broker is scrambling to shut down his position while there is no liquidity. Major FX trading houses like Alpari (UK) failed… wiped out. FXCM in the US was chest deep in debt and had to have money poured into them from outside. A large Everest capital hedge fund has closed. The fund had been betting that the Swiss franc would decline. Many will ask, why were they not truly hedged... hedging costs money. In the chase for larger returns, we leave ourselves open to more risk. While shorting (selling) the Swiss franc against the USD or euro, one could buy calls out of the money and hedge one's position, reducing risk. Most don't.  

Looking at the chart below on FXF we can see that the technicals were pointing downward for the Swiss franc when the announcement came. However after the announcement by the SNB and FXF spiked. FXF is not a leveraged instrument but FX currency trading is and so are futures.

Some people came out like bandits. Maybe rich Russians who had moved money out of the ruble and stuck them in Swiss francs in Swiss banks…  Swiss chocolates, Swiss vacations and Swiss cheese are now a lot more expensive… all this makes me realize the risks in leveraging. While returns can be quick and fast, a major black swan event will wipe out accounts, brokerages and create massive losses for the major banks and it did. I will always remember the ugly side of leveraging…and hope it never gets me...these are the dangers of trading FX and futures markets... risk and reward are inexorably tied together.. just different ends of the same spectrum.

401K Monthly Analysis – Happy New Year 1/2/15

Market background: The chart on SPY shows an Exit Up signal. Meanwhile DIA (Dow Jones 30) is still holding on to an Up signal. Long term Bond funds TLT is rising (See charts for all 3 below). Oil is getting decimated. The chart on USL slopes downwards at 45 degrees with an unrelenting drop. Gold remains weak and could slide lower with the US Dollar strengthening.. Real estate IYR is up. And the US Dollar is strong against most international currencies… with the weakest having been the Ruble. After the Russians raised interest rates on the Ruble from 10% to 17%, the Ruble appears to have found a more solid footing. However the Russian economy is in the tank due to lower oil revenues caused by low oil prices and a sliding Ruble.

Top choices for my current employer’s 401K monthly analysis using my momentum analysis are Fidelity Growth, Spartan 500 and Fidelity Blue Chip.

In my previous employer’s 401K top fund picks are Cohen & Steers Realty Fund, Fidelity Mt Vernon Growth and Vanguard Instl Index.

The economy shows strong GDP. Market is still pointing upward. Interest rates are low.  And should we be thanking the speculators for dropping oil prices since we blamed them when oil prices were above $100?

Markets Swoon 12/13/14

Is this just a pullback? Could be. I hear that from the market gurus on TV. We have been on a tear heading up and it is unlikely that the markets will do an about face and head South without a thought. But there is one thing unique about the current market. And that is how fast and furious the slide of oil has been.

I remember reading Thomas L Friedman’s book “The Lexus and the Olive Tree” thanks to my daughter. She had just developed a strong interest in International Relations and gave me the book to read. I felt I should read is just because she was interested. Since then I found Thomas Friedman to have a wonderful mind. I recall him writing about the Mexican Minister wringing his hands and watching the monitor in his office that showed the Mexican Pesos in free fall and asking why are they doing this to us? Who is the “they”? “They” is not just another country. “They” is not just the banks. “They” is an enemy he cannot see. “They” is the collective. “They” is the collective’s punishment to his country for their inefficient policies and for corruptions that prevent efficiency in the markets. The collective will punish inefficiencies.

And now a major country like Russia is asking the same question. The price of a barrel of crude oil and the Russian ruble has fall precipitously. While Russia flies its war planes cruising around the world, looking for the enemy, it cannot see its real enemy bringing their economy down…. themselves… traders are punishing Russia for invading Crimea and not using oil monies to develop its own industries and infrastructure. Lack of open markets. Harassing American businesses. Taking over foreign companies… Inefficiencies. All these make Russian markets less efficient and the collective heaps a fitting punishment on Russia for that.

And where are the American politicians who were once blaming the speculators for driving up the price of oil? Why are we not singing praises for those speculators now for bringing down the price of crude? Oil has roiled the markets and created an eerie new uncertainty. This is a place we have not been before. It should feel good…. I know I am paying less for gas (petrol) than I have paid in a very long time…. And the price of goods should come down as transportation costs should be less. Airlines are making higher profits. Planes are full. The retail industry has lower costs moving goods. Schools and State budgets are seeing a massive drop in expense for busing kids to school. So why is the market sending down signals? The answer is one word… uncertainty has increased.

Take a look at charts on DIA (Dow Jones 30) and SPY (S&P500). They are both flagging down signals. QQQ (Nasdaq100) also has a down signal. And you guessed it… Long term treasury bonds have been flashing an Up signal. See chart below on TLT. I have sold call spreads on QQQ betting on a down side for the short term. I sold off my holdings in SPY and QQQ. And I purchased some TLT that is up right now. I do have some long holdings in my 401K that I will need to exit that is pulling me down. Fidelity will be sending me their nasty letters about frequent trading… I hate that. I will never get a Fidelity trading account outside of my 401k for this hypocrisy. But I should never say never… time to work on my next project….

401K Monthly Analysis – More of the Same 120614

The chart on SPY shows an Up signal. The 401K monthly analysis suggests more of the same.

Top choices for my current employer’s 401K monthly analysis suggests top fund picks using my momentum analysis as Fidelity Growth, Spartan 500 and WFA SPL Midcap VL.

In my previous employer’s 401K top fund picks are Cohen & Steers Realty Fund, Vanguard Instl Index and Fidelity Contrafund.

The economy shows strong job growth. Market is still pointing upward.

A Case for Buy and Hold – 11/22/14

Buy and Hold works well when the market has been ripping forward as it has over the last 5 years. While we debate how long this can last, it beats all the pundits predictions of pullbacks and keeps going forward while frustrating many technical analysis oriented frequent traders.

When I think of the huge drop commodities (such as DBC) have seen, I tell myself you can’t rely on buy and hold. But this blog will be about how can you do a buy and hold and not all the afflictions against it.

Many months back, listening to a visiting speaker at AAII (American Association of Individual investors) I heard of a superb method to invest if you had lots of money.

The speaker (I cannot remember his name or face) told us about this rich widow who lives in Florida. He manages her investments by putting her money in high quality dividend paying stocks that will appreciate in value over time. She just lives off the dividend. His logic was that by buying a high quality stock such as these for $40, she would get 3% dividend annually ($1.20 for each stock held). In a few years, this stock could hit $60 and her dividend would be 3% of $60 ($1.80 for each stock held) – an increase of 50% in dividend or a net 4.5% dividend on her original investment. That would more than keep up with the pace of inflation. Sounds too good to be true? Not at all… he was right on the money. And how do I know? Because I created a list of his stock selections two years back and put them in a folder and I am amazed at the appreciation her portfolio has seen in capital value as well as dividend growth!

Below is a list of the el primo stocks he gave us that day in her portfolio. All I had to do was stick my money into those, forget about the ups and downs any individual stock went through and kept the dividends… alright with my technical analysis, I could even just have stayed on stocks with an up signal. And based on a long term view, that could have been just based on a weekly chart and not the daily chart shown below! Therefore there is a case to be made for Buy and Hold… as long as I do that with top quality, high free cash flow, diverse set of stocks such as listed below….

ABT, COP, INTC, JNJ, KO, MDT, MMM, PEP, PFE, PG, SYK, SYY, UTX, WMT, XOM.

For now, I will trade these in the direction of the long signals as they come up, although some look pretty overbought now… take a look at WMT, KO etc…I am in KO and PEP and sold JNJ, ABT, WMT recently.

401K Monthly Analysis – Back in the Game 11/7/14

SPY (S&P500 ETF) gave a buy signal using my ICE trading system. This particular system is slow to react and less jerky but it has been a little slow in response time lately. My mistake would be to abandon it and move to something else.

The trading system I use on DIA (Dow Jones 30 ETF) is my own creation. It gave an entry signal much earlier. I used that to sell put option spreads. The notion being that with a long signal indicator on DIA, it will likely move up or go sideways and give me better odds to sell option put spreads on the down side. The risk is capped using a spread and time decay is in my favor. See charts below on SPY and DIA.

My 401K monthly analysis on my current employer’s fund options suggests that I should put my monies into mid-cap funds, mainly the WFA SPL Midcap VL and NB Midcap GRTH TRUST. The Spartan 500 Index follows behind these two.

My previous employer’s 401K monthly analysis shows the strongest funds to be Fidelity Growth Co, Artisan MidCap VL INST and Fidelity Contra fund.

I am back in the game. 

Fear of Ebola 101814

How quickly markets fall I think. Yet if I look at a chart of EWG (Germany) the exit signal occurred back in 6/14 or if I look at EWC (Canada) the exit signal occurred in 9/14. Because I am biased towards US markets, I look at SPY and that was the last to show weakness (exception being IIF the India fund). This time it was a multitude of reasons but the one standing in front of 95% of Americans is the fear of Ebola virus. Just last month I took my regular once a year flu shot knowing that it covers a majority of flu issues but not the grand master of all, the ebola virus. I was curious to read what my classmates posted on Nassim Taleb of “Black Swan” fame about Ebola. After reading this article I felt his opinion was quite sound.

http://www.businessinsider.in/Nassim-Taleb-Heres-What-People-Dont-Understand-About-Ebola/articleshow/44864143.cms

Ebola is a multiplicative virus. The growth rate is certainly non-linear. The number of people catching it doubles every 20 days. The key to controlling it is at the beginning and at the source. Travel bans may seem excessive but travel bans in the 3 affected areas is more important than trying to close borders – we know we are not effective at border control anyway. Reminds me of the old movie “Outbreak” I think… building a dome around the contagion? This all sounds crazy and rarely do our politicians agree on anything other than that which helps them all get elected. I expect we will see both parties calling for travel bans. And do we prevent Texas folks from traveling to the rest of the US? After all the nurse that stepped on the Frontier plane risked spreading the disease all around the country?

My cab driver from the airport last week has his home in Sierra Leone, West Africa. He is 69 years old, has been driving a cab for 15 years and will keep working for another 2 years till his oldest son can complete his Dentistry schooling….. He worries about his family in Sierra Leone. He says that all schools are closed. Taleb is right. See article in Forbes on the devastating effect on its economy...

http://www.forbes.com/sites/mfonobongnsehe/2014/10/16/ebolas-impact-on-sierra-leones-once-flourishing-business-sector/

We need to take the fight to Africa. I think the real heroes are the Doctors and social workers and organizations who are sending medical supplies to Africa and some with the incredible courage to go to Africa to help. I include as heroes the Doctors and Nurses in the US who stepped up to the front line in this fight.

The markets have shown a significant increase in volatility as we well know. I have been on the side lines and was considering dipping my toes back as I think we have seen a reversal but work and travel has kept me busy. I will most likely add to my negative stance when the market bounces a little more, as I expect a retest of the lows or another leg down. Overall the drop in oil prices have been catastrophic for “oil” countries such as Russia, Saudi Arabia, Canada etc. Question is will the US economy hold up and keep the rest of the World stable or the other way around…no one really knows.