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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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  • Markets Are Back To Risk On

    The terrible correction of 2014 now seems to be over with, at least for now (sarcasm)! What I thought might have the capability of registering a 10% plus correction (the first since 2011) ran out of steam pretty fast.

    It is amazing what a little easy money can do to traditional market movements?

    Of course professional traders are still away on vacation and could come back and push this market down with authority, but it sure seems it wants to head up. Assuming that is the case and the trend continues in that direction, where is the action?

    First, let's confirm the premise that risk is back on which you can see in this chart of the PowerShares S&P 500 High Beta ETF relative to the PowerShares S&P 500 Low Volatility ETF.

    (click to enlarge)

    Note the black and red relative price line is heading up and is setting new highs. So at least for now, risk is on!

    Now that the Risk on / Risk off debate is decided, the next question is where is the action? I think we can tell that by looking at the components of both PowerShares ETFs. First, let's start with the risk on sectors:

    (click to enlarge)

    Note how all but the industrials are performing in line or greater than the S&P 500 (horizontal red line). Even the industrials are racing to catch up right now!

    Now the Risk off sectors:

    (click to enlarge)

    Here there is a different story! Only health care stocks are outperforming! All other sectors (utilities, energy, and consumer staples) are lagging.

    This should provide you with some idea where the action is as this market pushes higher! Right now it appears the place to put your money is with the risk on trade in technology, materials, cyclicals or health care. Second tier bets would be a recovering industrials and financials.

    Aug 20 1:09 PM | Link | Comment!
  • All Signs Point To Slower Growth

    Contrary to the picture the main stream news and our politicians are painting, the market is pointing to slower economic growth ahead.

    Slower growth generally means lower or weak equity markets and deflationary, not inflationary pressures. Now I know most of you think that inflation lies ahead, but it appears we will first have to deal with more deflationary pressures, then maybe inflationary pressures.

    Also remember that not every part of the economy has to experience these pressures. In fact, we are seeing governments raising tax rates all over the U.S. As an example, my local government just proposed a 5%+ increase in property taxes and is looking at a 1% jump in the sales tax here in Hillsborough County. Those tax increases are inflationary, but they will result in slower growth as now the end consumer has less, not more, disposable capital to spend on consumer goods which drives 70% of our GDP. The end result is the government entity will see a temporary boost in revenues and then a longer term drop in growth and consumption that will lower their overall tax revenues…..not very smart! This whole process is a contributor to the slower growth that the markets are seeing in certain key sectors.

    So let's take a look a couple of markets that are tipping their hands to slower growth.

    First up is commodities. If global growth was really happening, commodity prices would be rising. Instead we have weak commodity prices and only pockets of rising prices based on select market dynamics. An example is that droughts in the Western U.S. have led to higher food costs here in America.

    However, as you can see from the Reuters/Jeffries CRB index, below, commodities continue to drift lower after basing for several months.

    (click to enlarge)

    We could see commodities bounce here in the short-term and challenge the red horizontal resistance line, but it appears commodity prices are ultimately headed lower as you can see in this weekly chart, below.

    (click to enlarge)

    Next up is the ten year treasury note yield.

    We have all heard the predictions that interest rates are going to rise from these very low historical levels and devastate bond holders and quite frankly I agree they will someday. However, today is not that day!

    Note how ten year treasury note rates are declining in this weekly chart and the TRIX trend index is even below the zero line. This argues for even more economic weakness and even lower ten year yields.

    (click to enlarge)

    These are not the signs of a bustling economy! In fact, these are the signs of an economy seriously lacking growth.

    I read yesterday in email my dad sent me (thanks dad) where James Rickards, the author of Currency Wars and The Death of Money, had this to say about this very subject "Listening to mainstream market commentary on television and reading the financial press leaves one with the impression that the economic recovery is gaining strength and that stock market indexes, at or near all-time highs, will go higher still.

    The litany of market happy talk is impressive. The unemployment rate has dropped to 6.1%, down about four percentage points from its peak, and is expected to go lower in the months ahead. The economy created about 230,000 jobs per month in the first half of 2014, which brings the increase in jobs to nine million since the economic recovery began in mid-2009.

    Interest rates remain low, which supports high asset valuations in stocks and housing. Inflation is tame and expectations about future inflation are well-anchored. To hear the stock market bulls tell the story, all is right with the world.

    But all is not right. In fact, the fundamentals of the U.S. economy are in awful condition and are getting worse."

    Mr. Rickards goes on to debunk the employment numbers and show that productivity is actually dropping along with the number of full time positions. He also shows where corporations have actually hired more part-time workers rather than invest in new capital improvements, because the part-time help costs can be jettisoned at any time.

    Finally he makes this very important point "So the conundrum is complete. Stock indexes march to all-time highs. Economic fundamentals fall apart. The two will be reconciled either with a spectacular turnaround in growth or a spectacular collapse in stock prices. The problem is that a turnaround in growth can only come from structural reform, not money printing.

    Structural reform is the job of the White House and Congress, not the Federal Reserve. Since the White House and Congress are barely speaking, no help should be expected from that direction."

    In our opinion that structural reform will not come without another crisis.

    So buckle up and be glad that you are getting the signals to keep you out of trouble when this market finally starts a sustained descent! We believe that time is not far off!

    Aug 12 9:59 AM | Link | Comment!
  • Performance For July 2014

    July was quite a month! We started the month making new highs and continued with market averages pushing higher despite falling price momentum. Finally as the month progressed global risks overtook strong earnings and combined with falling price momentum to push stocks lower over the last several days of the month.

    These late month losses erased gains in most major market averages.

    Here is how the major averages finished:

    For many investors, this has to be a shock to see the market averages in the red. Such monthly losses has been the exception….not the rule since 2011.

    I believe this time could be different. Intermediate term divergences between stock prices and basic indicators, slowing momentum and technical price breaks below prior support in several industry groups could lead to a more normal 10%+ correction here. Performance

    Since the month started strong, we spent the first half long most of our seven indexes. We started getting some sell signals around the second and third weeks of the month. These signals help to insulate us from significant declines (on average), but only partially offset indexes that did not give sell signals and sustained monthly losses (i.e. the S&P 500 and Nasdaq Indexes).

    The bottom line is our index and sample portfolio performance was mixed, but better than the overall markets on average in July. We have still been beaten up on a year-to-date basis by the high degree of range bound trading by most indexes in 2014, which has not allowed us to really capture any great trends or market moves.

    Our Market Forecast

    Every month we try to give a hint at our thoughts about where the markets are headed and every month since the 2007-2008 Financial Crisis, the Fed has made this exercise a true guessing game. However, the impact of Central Bank intervention in the markets is lessening and the true strength of global growth without such intervention is not enough to keep global markets moving higher, in our opinion.

    What we are probably witnessing currently is just an overdue correction, but it bears close watching. It could reflect a turn in the market or at least a warning shot across the bow that we are close to that turn.

    Our guess is the Central Bankers will find a way to prop up the markets and the actual turn will be delayed until later in the year or early in 2015.

    Don't be caught unprepared! The next Bear Market will likely be another nail bitter! Why not give a Free Try?

    Aug 05 12:09 PM | Link | Comment!
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