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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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  • Worried About Interest Rates? Don't Be!

    As an advisor, I get so many email solicitations from the various Wall Street brokerage firms with titles like "Are You Prepared For Rising Rates?, What Will You Do For Your Clients When Rates Rise?, and What Are Your Alternatives To Bonds?" Just to name a few!

    It would seem logical that with how fast the Fed's printing presses are pushing out dollars (and it's much faster and greater than the Fed is telling us), rates should be rising.

    However, the charts just are not supporting that logic yet! As you can see below in this monthly chart of ten year treasury yields:

    (click to enlarge)

    Note how yields have been falling since December of last year. I believe with the MACD moving averages and histogram rolling over, we could see rates down to support (solid pink line) at 2.25% for the ten year treasuries from the current yield of 2.52%, or another -10%.

    Why?

    My guess is growth is no where near as strong as the government's statistics would lead you to believe. In fact, I believe like many (see www.Shadowstats.com) that real GDP is actually negative and has been for some time.

    Also, the Fed is not only printing new money and issuing treasuries, but it is also the largest buyer of treasuries. So in effect, there is very little real effect on the economy.

    We can see this in the velocity of money or how much of the money is being used to buy goods and services, which is then used to buy more goods and services and so on.

    (click to enlarge)

    The simple answer is there is velocity of money and it continues to fall. That money is going to buy back treasuries and then right back to the Fed in the form of bank reserves on deposit at the Fed, see below.

    (click to enlarge)

    So right now the place to be is long bonds and bond like equities!

    So how do you protect yourself from a sudden reversal of this trend? My suggesting is to buy long and sell short your bond portfolio just like hedge fund managers do equities.

    How do you do this?

    Using trend following signals and the wide array of both long only and inverse/short ETFs now available at your discount broker. It is simple to do and it will keep you from big losses if this slide in rates sudden stops and reverses.

    For example, you could use the iShares Barclay's Aggregate Bond Index (NYSEARCA:AGG) for long exposure and the Direxion Daily Total Bond Market Bear 1X Shares (NYSEARCA:SAGG) for inverse exposure. Right now I am using a 11 period weekly EMA and a 9 period weekly Rate Of Change (NYSE:ROC) Indicator with a 7 period EMA overlay on the ROC to give me my signals.

    When price drops through the 11 period EMA AND the ROC below its 7 period EMA, you have a sell signal. You get a buy signal on the inverse move where price and the ROC both move above their respective EMAs.

    Too complex? In the coming months, Stock-Signal will be adding an 8th index - the Barclay's Aggregate Bond Index to our site. You can just follow our signals when that goes live later in the year. In the mean time, why not try a 30 day free trial of Stock-Signal.com?

    Jul 25 3:36 PM | Link | Comment!
  • Is It Time To Own Gold?

    So many subscribers to Stock-Signal have been asking me the question: Is it time to own gold yet?

    The answer up to this point has been a bit murky.

    Yes, gold is a store of value and hard asset. It would stand to reason that with Central Banks around the world printing currency with abandon that gold (or silver) should be something you want to hold.

    Unfortunately, that line of thinking has not lined up with the technical perspective of gold and silver, that is until recently.

    We still don't have a gold buy signal, but I must say we are getting closer and it appears to me this current consolidation in gold is going to lead to a great opportunity to profit from the yellow metal and potentially erase our year-to-date loss in gold as it has consolidated (the bane of trend followers).

    Let's take a look.

    First, the long-term view of gold as represented by GLD (paper gold) below:

    (click to enlarge)

    Note a few things in this monthly chart. First, gold has a big run up of over a decade without a significant correction. The correction finally came at the end of 2012 and we are consolidating those gains now.

    However, the good news is we are building a base. On balance (buy vs. sell volume) is starting to stabilize and rise (middle chart window). The trend is looking up as both the moving averages and MACD histogram are moving towards crosses that would signal a long-term buy (top and bottom windows, respectively).

    The bad news, we are not there yet!

    Take a look at this weekly chart of GLD (intermediate term chart)! GLD is still trading in a slightly downward channel (dotted black lines) and we still do not have a channel break to the upside (or downside). In fact, we have been here before and GLD reverted to the bottom of the channel.

    (click to enlarge)

    It is hard to know what will happen this time. However, my guess (based on the daily short term charts - not shown) is that we have reached a short-term top in GLD and it will pull back here. It may reach up for its previous short term highs of $133.69, but its basically out of upward momentum.

    We could, though, get a moving average cross buy on the weekly charts before that upward momentum runs its course and we get a pullback. So gold is getting very interesting here!

    Of course, I don't control currency devaluations, wars or any number of events that could suddenly push gold prices higher despite what the charts are telling us.

    So we remain in a holding pattern. Liking physical gold and silver as a long-term asset, but not liking gold as an intermediate term trade (yet that is).

    Want to be the first to get the gold buy signal? Why not get a free trial to Stock-Signal.com?

    Tags: GLD, Gold
    Jul 21 11:44 AM | Link | 2 Comments
  • Could The CBOE SKEW Index Be Projecting A Major Change Of Trend?

    The SKEW index has been a popular subject of the alternative media over the past few days. I saw it first in a video by Gregory Mannarino over the weekend. It's pundits would say it could be forecasting a major event.

    As a trend follower, I would love it to forecast a major change in market trend quite frankly. It has been a tough ride up on the Fed's money for trend followers and I believe the ride down will be much more profitable for us.

    So what is the SKEW Index?

    For starters, the CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew".

    You can see the recent CBOE graphs of the SKEW Index and CBOE Volatility Index (VIX) below:

    The thing that instantly stands out to me is (1) that extremes above 140 on the SKEW do seem to correlate roughly with market tops in 2000, 2007-2008 and quite possibly 2014; and (2) the VIX is near 10 in the above graph and was last at this level in 2007, the last major bear market.

    Here is a close up of recent trading in the SKEW Index.

    As a trend follower, this index is interesting! It brings hope that maybe we are ready for a major trend change, which would be good for us.

    However, the first rule of trend following is that we do not predict markets, our models react instead. This is what allows trend followers to capture higher unexpected returns in both directions in a strong trending market. That is because the trend usually goes further than anyone would have expected. In this case, this bull market has gone much farther than I would have expected.

    So the obvious question is what do our models say?

    The simple answer is most intermediate term models are still stuck in "bull or buy" mode. Some shorter term models are now bearish, but this market has much to prove before I could possibly call this a top.

    For you at home, the simple way for you to know what to do is consider a Free 30 Trial to Stock-Signal.com. We will give you the buy and sell signals on 7 major indexes including the broad S&P 500. Many subscribers use this one signal (i.e., the S&P 500 buy and sell signals) to time whether their portfolio should be in or out of the markets since its signals do not occur very often.

    You can see the past buy and sell signals, below, since 2007:

    (click to enlarge)

    Alternatively, if you have access to charting software, you could watch for a break of the rising wedge pattern (dotted blue lines of middle price chart) by the S&P 500 on a monthly chart and that might give you a pretty good signal as well on when to get out. Your only problem is eventually you will need a good signal on when to get back in. This chart does not give you that information.

    (click to enlarge)

    So the bottom line is the SKEW Index may be telling us something or it may not. You noticed we hit highs above 140 on several recent occasions and just realized one day market sell offs.

    So it is way too early to call a top and trying to predict the future is certainly a fool's game!

    Jul 21 11:42 AM | Link | 6 Comments
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