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Jeff Diercks
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Jeff Diercks, is an investapreneur and recovering CPA. He actively trades his own money and manages the assets of a select group of clients at InTrust Advisors, a Tampa, Florida based wealth management firm focused on trend following and price momentum strategies utilizing ETF securities. Mr.... More
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  • Warning–Is The Rest Of The World Already In A Correction?

    It seems every part of the world is trying to stimulate their economies these days. Why not? With global economic growth at less than 3.4% of GDP in Q2 and much of that growth coming from the U.S., there is certainly not much to write home about here.

    In fact, the fear of a deflationary spiral has gotten so bad that reflationary Quantitative Easing Programs are now in place in both Europe and Japan. As an example just a little over a week ago the ECB thought this risk was enough to lower rates even further by 10 basis points to .05% (almost zero) and lower its deposit rate to banks to -.20%.

    Yes, that is right! Banks are paying to park their excess reserves at the ECB.

    Even more impressive the ECB announced that it would begin its asset based security (NYSE:ABS) and covered bond purchase programs after its October meeting. ECB President Mario Draghi also opened the door to full Fed-style Quantitative Easing through outright purchases of public (sovereign) and private (corporate) bonds. Which I am sure is come!

    Why am I so sure?

    How did the market react to his? With a yawn!

    (click to enlarge)

    Here is a monthly chart of the Europe 350 index. Notice how the current price action was contained within a rising wedge pattern in black? That price action has now broken that pattern and technically is likely headed for its long-term trend line and a retest of $40. That represents a 13.7% decline from current levels.

    Note also how the lower MACD indicator moving averages have crossed and the histogram is below the zero line? If the month were to close like this, this would likely lead to the same kind of decline the IEV experienced in the 2011-2012 period, or worse.

    At this point, all we can say for sure is it appears that if the month were to end today, the European market looks like it wants to correct and the rising long-term trend line looks like an obvious place for a retest of support.

    What about global markets?

    (click to enlarge)

    They are a carbon copy of Europe!

    It appears the last bastion of growth is here in the U.S. and how much longer can that last with the rest of the world fighting slow growth and declining stock markets. It will be interesting to see what happens!

    Just as an FYI our subscribers have been short or inverse the EAFE global index since July 11th. Maybe it's time you give a free trial? What do you have to lose?

    Tags: IEV, EFA
    Sep 12 11:46 AM | Link | Comment!
  • Performance For August 2014

    August was an excellent month for the broader market averages! After a late July and early August swoon of a mere -4.35%, the equity markets rallied to brand new highs over the balance of the month of August as you can see below. Only the European markets failed to earn 3% plus markets.

    Of course I sarcastically used the word "swoon" above. Really a 4.35% correction is tiny in market terms! We still have not seen a significant correction in this "managed market" since the summer of 2011. A view of the weekly stock chart of the S&P 500 shows just how "managed" this market has been.

    Can you see the difference between the two periods highlighted in orange and green?

    Look at 2009-2013 in orange, this market was also managed during this period, but it was managed only at points where the powers that be thought it might crumble and fall much precipitously. This was not good for trend followers because we committed to the inverse or short positions just to have the Central Bankers stimulate significant reversals on those positions on very short notice, but at least there was some market volatility at this time.

    In the new managed market (in green; 2013 to date) there is no volatility. This market just keeps creeping up. Which makes me very nervous!

    So the natural questions becomes, why don't you just add leverage and enjoy the ride as others have done? Or change our trend following models to be less sensitive to what market volatility there in the market at the moment?

    The simple answer comes down to the story of the frog and the boiling water.

    They say that if you put a frog into a pot of boiling water,
    it will leap out right away to escape the danger.

    But, if you put a frog in a kettle that is filled with water that is cool and pleasant,
    and then you gradually heat the kettle until it starts boiling,
    the frog will not become aware of the threat until it is too late.
    The frog's survival instincts are geared towards detecting sudden changes.

    This is a story that is used to illustrate how people might get themselves into terrible trouble.
    This parable is often used to illustrate how humans have to be careful to watch slowly changing trends in the environment, not just the sudden changes. Its a warning to keep us paying attention not just to obvious threats but to more slowly developing ones.

    It's natural to start ignoring trend following signals since they have not been working well, but just like the the frog and the boiling water, if we don't stay vigilant we may just find our selves in very hot water. In all my years of investing, now over 20 years, I have never seen a more dangerous market and one in which so many participants are total complacent.

    Also making profitable returns is only half the equation, the other half is making sure you keep those returns! That my friends is what I view as the biggest challenge ahead and is why I am a trend follower! Performance

    So here is the rub for August. did very well in indexes with bullish buy signals. This would make sense since "buy and hold" still continues to rule actively managed strategies. did poorly in indexes with signal changes in general and roughly broke even in bearish continuation signals from the prior month.

    The sample portfolios (see below) generated positive returns, but we dragged down by a late signal change in the high yield (8/15) and by sideways action in an inverse position in the EAFE Index.

    I also want to point out that in July, the NewEdge CTA Trend Follower Index appeared to top, but this average was dramatically adjusted after posting to a loss of -1.06%. So despite this month's dramatic outperformance by the former index, cumulative year-to-date returns are not as strong as originally thought and most of its y-t-d outperformance came last month from the commodities and currencies positions most CTA overweight vs. the above sample portfolios.

    Of the above indexes, the EAFE index in particular has yet to give us a buy signal. Despite an oversold bounce in this index, our signals so far are saying there is more trouble to come here.

    (click to enlarge)

    Note how the EAFE Index has yet to move to new highs or break resistance at 1944. It's 20 period moving average is also below its 50 period moving average of daily price.

    After seeing the recent PMI figure for the Eurozone of just 50.7, this market appears to be in trouble! This is the lowest PMI in more than a year and was well below the 51.8 of July and the flash estimate of 50.8 by economists.

    Unfortunately, in life timing is everything and this market rallied enough to erase many of our earlier gains and hurt our sample portfolio performances.

    High yield gave us a buy signal in the middle of the month, but it certainly does not look very healthy. Take a look at the chart of the high yield index.

    (click to enlarge)

    Note how price moved to the former highs but now appears to be rolling back over. The moving averages are also lower relative to the prior time price was at the highs. This divergence with price is considered at least a short-term negative.

    I must also add that many times the high yield index seems to lead equity indexes in a move either up or down. Could this be the direction U.S. equity markets want to head as well? Only time will tell but obviously care must be exercised here not to fall victim to slowly rising water temperatures like the frog in hot water who never realizes that his goose is cooked literally!

    Our Market Forecast

    This exercise used to be a whole lot easier before the aforementioned Central Bank managing of markets. Today it is kind of like living in Florida where every day is warm and sunny and there is really no need to listen to the weather unless there is a hurricane in the Atlantic or Gulf of Mexico.

    However, given that disclaimer, I will go out on a limb and say that absent Quantitative Easing in Europe, the European markets are rolling over and is entering a recessionary period. Some Eurozone countries are already in recession.

    This is easy to see when you look at interest rates in those countries (below). Falling rates generally mean slowing or slow growth. Note even the economic engine of Europe, Germany, appears to be slowing.

    (click to enlarge)

    Even if QE is introduced in Euro, I just don't see how much it will really do to ease recessionary pressures since it has already been proven here and in Japan that it only kicks the can down the road and that it does not stimulate real growth.

    Look for European equities and the EAFE Index to be in bear market mode before the end of this calendar year, if not sooner. That is my bold forecast for European equities.

    I believe U.S. equities will muddle along into 2015 when we likewise will be hit with further recessionary pressures. In the mean time, there is probably further upside into year end in U.S. equities.

    Sep 03 9:08 AM | Link | Comment!
  • The Higher It Goes, Does Not Have To Mean The Harder It Falls

    Nervous retail investors have watched from the sidelines as the S&P 500 has surged past the 2,000 level this week. According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, individual investors are "still nervous, their concerned" according to a CNBC article entitled The Strange Dynamic That's Guiding Stocks Higher.

    He went on to say "Even though we're into this rally over five years now, and they're getting very little if they're sitting in a bank or some alternatives, they are not moving back into the market."

    So what is the solution for these retail investors?

    My suggestion is they take a little responsibility for their investments and stop buying and praying (holding).

    My suggestion is that they put a system in place that is not predictive, but reactive to tell them "now is the time to get out."

    Where is such a system available? is the answer.

    If an investor did nothing but follow our S&P 500 index signals (see below) they would have the confidence to know when to get out (and just as importantly when to get in).

    (click to enlarge)

    Sure this indicator is not perfect as you can see from its signals in 2010 and 2011, but it is better than just investing and hoping for the best. Since 2000 you can see (below) how these signals kept you out of trouble and smoothed your return stream.

    Now for the disclaimers. Past performance is not indicative of future returns. This performance is back tested and not based on real portfolios as only provides signals and not portfolio management. However, these exact same models are used in managing actual client assets by our sister company, InTrust Advisors, Inc. performance is calculated using back tested buy and sell signals for this index applied to the index's actual price history. This back tested performance is gross of fees.

    Why not get a free trial of For a low monthly (or annual) subscription rate, you will get the buy and sell signals you need for the peace of mind to move off the sidelines and take advantage of this once in a lifetime market opportunity where central banks are driving stock prices to historic heights.

    Tags: SPY
    Aug 26 4:48 PM | Link | Comment!
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