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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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  • Performance For October 2013

    October is not just scary due to Halloween, the market has historically held its own horror show in October.

    According to, October is known as the jinx month because of the crashes in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and more recently October 2008 (lest we not forget).

    Seasonally, October ends the worst 6 month period for performance annually and marks the beginning of the best season six month period of the year.

    So I probably don't need to tell you the horror story we experienced in October! These numbers really tell the story!

    (click to enlarge)

    Yes, that is right! Big gains! Not carnage at all!

    It certainly fooled me as I failed to keep the "petal to the metal" in our separate accounts due to worries of a pullback in October that never materialized. In fact, I am beginning to wonder if real market driven corrections are a thing of the past in this new Fed driven environment.

    What worries me is the day the Fed stops supporting this market. Could we see another October 27, 1997?

    It's worth considering and its also worth planning for that day, lest you be the last one to sit down when the music stops. Performance

    Despite my problems in our separate accounts, did pretty well in October. As they say the "trend was our friend!"

    (click to enlarge)

    (click to enlarge)

    It still holds that the S&P 500 index has been near impossible to beat in 2013! In fact, it is during periods like these that we sometimes get our separate account clients pulling out 401(k) statements and crowing about their investment management skills due to the returns in the S&P 500 Index fund this year. They then turn to us and say "how come you haven't done this in 2013"

    The answer is always the same "every dog has his day and this is just the S&P 500's day." Truth is we could be months or even years away from the next trending market where we outperform. That market may be the next bear market. I do no it will come and that their will be a reversion to the mean (upward) for trend followers. There always is!

    Our sample Equal Weighted Portfolio had its best returns in October. Difficult cross currents in the commodity, gold and dollar complexes hurt returns for the sample Global Opportunities Portfolio.

    Please note that the benchmark NewEdge CTA Trend Following Sub-Index has a decent month. Our strategies continue to outperform this index of the largest Commodity Trading Advisors due primarily to greater equity exposure and less exposure to the murderous commodity sectors of the market.

    Market Forecast - Balance of 2013

    Sunny and beautiful with a light winds from Washington. In other words, seasonality is now on our side. The Fed continues to provide support for the market. So aside from brief periods of profit taking or market consolidation, this market is likely heading up despite the fact that many long-term indicators are flashing "overbought."

    I personally feel this market will ignore those metrics as long as the Fed remains accommodative. If it decides to taper, watch out!

    However, how can it taper? We already saw that just the hint the Fed might taper its Quantitative Easing (QE) program sent interest rates spiraling upward. Can the U.S. really afford higher interest rates on top of spiraling government borrowing? The answer to that is no! The Fed is trapped in QE to infinity!

    Nov 04 2:53 PM | Link | Comment!
  • Could "Risk Off" Be Here Again

    There has been one constant since the March 2009 market lows and that is change. This market has been one of constant rotation between "risk on" and "risk off" trades.

    This trade has even become so prevalent that a number of ETF providers have even fashioned ETFs to provide coverage to one or both trades. The first provider to do so was PowerShares with the S&P 500 High Beta ETF (SPHB) and their S&P 500 Low Volatility ETF (SPLV).

    The high beta ETF (or high volatility) includes the usual suspects including financials, technology, consumer discretionary, industrials and material stocks. The low volatility portfolio includes health care, energy, utilities, and consumer staple stocks.

    Prior to the introduction of these two ETFs, the best way to get a handle on risk on vs. risk off was to compare consumer discretionary to consumer staples on relative basis, as you can see below.

    (click to enlarge)

    When this chart shows rising prices, consumer discretionary is leading and risk is on. When price is declining, consumer staples is leading and risk is off.

    With the introduction of these two risk on / risk off ETFs, that comparison is even simpler! Here is a chart of the High Beta (risk on) ETF relative to the Low Volatility (risk off) ETF.

    (click to enlarge)

    So what are these charts telling us today?

    Let's start with the consumer discretionary / staples price relative chart. As you can see, risk has turned down and it appears that risk off will be the place to be until we reach support at the red diagonal trend line. Based on the past, this could be a period as long as three - six months.

    The second High Beta / Low Volatility price relative chart is telling us that the risk on trade is at 2012 resistance (black horizontal line). It is also telling us that much of the past 6-7 month's climb has been within a wedge pattern that is usually a bearish pattern (blue dashed lines) and ultimately resolves its self to the downside. Finally, this chart is telling us the former pattern has been broken and we are now hanging around in "no man's land" between prior channel support (pink dashed lines) and 2012 resistance.

    A break of channel support would likely mean a move to the bottom of the channel. Since risk is usually associated with rising markets, this would likely mean a corrective or sideways market would ensue.

    If the risk on relative to risk off can break 2012 resistance, we will likely see further market gains. However, given both price relative charts, I see this as a slim possibility.

    This is probably what all the hedge fund managers are seeing and why they have been and continue to pull money out of this market.

    Hedge Funds Just Unloaded The Most Stock Since December 2008 via @themoneygame

    - (@Stock_Signal) October 30, 2013

    Tags: SPLV, SPHB, XLY, XLP
    Oct 30 12:13 PM | Link | Comment!
  • Dollar Chart Shows Something Has To Happen Soon!

    If you were to visit this planet for the first time, you would probably think that the U.S. population was some kind of zombie society. Why? Because our elected leaders have tried to reeducate us that debt is good and even more debt is better and we are bought it hook, line and sinker. This idea however would leave any smart alien scratching their head (or space helmet).

    Just last week as an example, President Obama spoke about the terrible consequences ahead if we don't raise our debt ceiling. What consequences? You mean the ones that require we learn to live within our means and quit spending other people's money. Those consequences?

    Yet, you can see it in the general populace, they have already fallen prey to the debt is good and more debt is even better lie. Every day I see people living a lifestyle they cannot afford by further indebting themselves and their families. This is no different than our politicians and certainly it is exactly what they have suggested we do.

    As we all know, debt is a tool. However, too much can overwhelm cash flows and put your whole financial well being in jeopardy. In the case of our country, too much can overwhelm our ability to pay without further taxes. Higher taxes then drain our economy of growth and make it even harder to repay the interest, let alone the principal. This then begins a vicious cycle of borrowing more, taxing more and realizing even slower growth that is guaranteed to end badly.

    So when politicians speak about the evils of not raising our ability to borrow more, it is really political speak for "we may have to cut back our spending." "This would cause a change in behavior and some sacrifice on everyone's part and most importantly, I may not get reelected." This is what they really mean.

    However, the damage by this kind of short-term thinking is just untold to our nation and economy.

    As an example, if we look at the monthly chart of the U.S. dollar, we can begin to see some the damage our high debt levels have already done.

    (click to enlarge)

    Notice the U.S. dollar has been in serious decline since the 2000 internet bubble. This just also happens to be the period we have added the most new borrowings to our national debt. According to our national debt stood at just $5.6 trillion in 2000 and now it stands just shy of $17 trillion (per, more than three fold in just 13 years.

    However, since the 2007-2008 financial crisis we also see the U.S. dollar has been in a consolidation pattern. Why? My guess is that this is when other developed nations started borrowing massively as well and it stabilized the dollar vs. a basket of other currencies. However, all consolidation patterns eventually end and most continue in the direction they were traveling before the consolidation pattern began… this case down.

    From a technical perspective, the price activity of the U.S. dollar is well below the 200 period moving average. This speaks of a bearish trend.

    The top indicator window shows the RSI index. This index has been unable to get above 60 in recent years. This is bearish and also speaks of a bearish trend.

    The blue MACD histogram, the indicator right below the middle price chart, has now dipped below the zero line. This indicates the trend is now down and we can expect a test of the consolidation pattern lows or even a breakdown below the lows.

    The bottom indicator window shows a mostly positive correlation with equities. This line has started to rollover, which could mean equities will also have to follow suit.

    So the bottom line is it appears to me the U.S. dollar is ready to begin another leg down over the next 6-12 months. This will likely mean trouble for our economy and our standing in the world. It also likely means that investors believe the U.S. will continue to borrow rather than fix its financial house. With that in my mind, being short the U.S. dollar could be one of the greatest trades of the next decade!

    Disclosure: I am long UDN.

    Tags: UUP, UDN
    Oct 21 11:02 AM | Link | Comment!
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