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Jim Farrish
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Jim Farrish is the Founder of Money Strategies Inc, a registered investment advisory firm. He has professionally managed money for nearly 30 years. His extensive research on the markets is published daily on his proprietary site Jimsnotes.com. His primary goal is to educate people about... More
My company:
Money Strategies
My blog:
Jim's Notes
My book:
Money Rules: Rule Your Money vs. Your Money Ruling You
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  • Gold Rally Waiting In The Wings

    Looking at my list of ETFs that I track regularly, energy, industrials, financials, bonds, utilities, transports and gold miners were showing green on a day when the major indexes were down slightly. For the most part they made sense, the defensive sectors, flight to safety sectors and then there is gold miners? Why? Gold was actually flat on the day and is in the process of testing a key support level, but yet the miners posted a solid gain… did I miss something in the reports and scans relative to gold prices? Not sure, but below we look at the charts and add it to our watch list of things to follow moving forward.

    Looking at the chart of SPDR Gold Trust (NYSEARCA:GLD) below you can see the price continues to flirt with support at the $123.50 level. That corresponds to the price support at $1277 on the metal, of which was touch again in intraday trading. We have been discussing the outlook for gold and what is driving or in this case, not driving the price? Demand is flat, inflation is "under control" according to the Fed, and the dollar is gaining slightly in strength. Overall there is no momentum relative to the metal and that leaves the traders to push price up and down. A break of support a this level would invite the short sellers into the mix, a bounce back above the $124.50 level may invite the upside traders back into the mix, but until there is a defined catalyst it is not likely to accomplish much.

    gld

    Keeping in mind what we see on the chart above, the chart below shows some divergence in the price of the gold mining stocks today as seen in the Market Vectors Gold Miners ETF (NYSEARCA:GDX). They were up 2% as gold was flat. This is worth our attention looking forward as you would anticipate gold to rise or the miners to fall. Either way it is a trading opportunity short term.

    GDX

    Taking this one step further we can scan or filter through the holdings of the ETF to determine what is leading and it may give us further clues relative to the movement of GDX today. Seabridge Gold (NYSE:SA) announced an asset sale today and pushed the stock up 6.7% to lead the sector, that is a one time event and not likely to add much more on the upside near term. Harmony Gold (NYSE:HMY) was up 4.1%, but no real news. I found it interesting reading the news and comments of the top performing stocks. There were plenty of comments on a top being establish in several stocks, overbought indicators in others, and nothing about the potential upside looking forward. There was nothing overly positive to define the move in the stocks of late. My summary of the comments would be the sector is going to move lower, not higher. Of course taking a contrarian view is always an option, but then you would have to believe the metal prices are going to rise near term. At this point I am going be Switzerland and be neutral. It will become clear which side of the trade to be on soon enough, and I have it on my watch list of opportunities to take the side that shows the greatest potential.

    Tags: GLD, GDX, HMY, SA, Gold
    Apr 24 10:30 AM | Link | Comment!
  • What Is Portfolio Happiness?

    Having been a financial consultant/adviser for the last thirty plus years, there is one question that haunts me everyday. When working with clients this is the question I like to start with, what is portfolio happiness? Unfortunately most everyone defines it in terms of performance. To me, that is a recipe for disaster. It is so easy to get caught up in the performance game we forget what we really want from our money. I understand the argument that performance is the way we keep score and see how managers did during specific market environments, etc. etc. But, The best money managers I know are focused on managing risk, first and foremost. I can only speak for myself, and my money, relative to what is portfolio happiness. That is simply safety of principle first and performance will follow. I have a quote on my desk and trading screens to remind me, "I can always make up for lost opportunities, but I can never make up for lost principle."

    I speak and correspond with investors everyday, and it does not surprise me in the least the number one question I am asked as an adviser is, "what is your performance?" Not, how do you manage the risk of a portfolio. Not, if my objective is an income of 4% per year, how do you manage the assets to provide the income while protecting my principle? No, we cut right to the chase and focus on performance. I get that you have been educated and trained to focus on those variables. Mutual fund companies do it, hedge funds do it, hell, half the spam email I get daily is telling me what the senders performance was last week trading straddles, spreads and condors on options. It is a habit and habits aren't easy to break. However, when it come to managing your money it is vital to develop habits that get you to the goal, not living and dying by performance.

    An example of this is a model we built many years ago that focuses on the ten sectors that make up the S&P 500 index. The strategy is break down the sectors and determine which offers the best opportunity relative risk/reward looking forward. For example, Financial Services is currently 16.1% of the S&P 500 index by weighting. If we conclude from our analysis that the sector has a high degree of risk, we can reduce the weighting by 50% to reduce the risk of the portfolio, or I can assign a 0% weighting to avoid the sector all together. If on the other hand we determine the risk is low relative to our analysis we can increase the weighting by 25% for more exposure to the sector. The goal is to control the weighting of the ten sectors relative to the risk that exist currently and looking forward. This allows me as the investor to manage my risk in accordance with my goals and objectives.

    The next step of the process deals with performance or return on investment. We have assigned an objective of earning 1% per month to the above strategy, with the focus on not loosing principle. Note, that even though we are assigning an ROI objective to the strategy, our primary objective is preservation of principle. Therefore, we set out everyday to manage the money with the end objective in mind, but we are willing to forego the performance if the risk of obtaining it is too high. If the focus is to get the maximum performance relative to the objective, we loose sight of the risk taken to accomplish the performance. Some say that is semantics, but it isn't when you see how money is managed by both individuals and professionals in practice. I was taught at a very young age, your first loss is your best loss, and that is why risk management of a portfolio take precedence over performance. If you manage risk performance will take care of itself over time.

    So the next time you sit down and review your portfolio, ask yourself, does my portfolio provide me happiness and peace of mind? Or, do I stay awake at night worried about the losses or volatility of my money? Portfolio happiness is getting what you want and need from money without having to worry or take undue risk with your principle. Try this process and see if your happiness factor rises along with your peace of mind and visit JimsNotes.com and try the site for 5 days free.

    Apr 25 2:58 PM | Link | Comment!
  • Notes For The Trading Week 4/22/2013

    The outlook for the coming week is one of a defining moment for the broad markets. Following a week of ups and downs for the broad indexes investors are ready for definitive decisions on direction. The latest polls out over the weekend show that Americans are more pessimistic about the economy, big shock! This isn't really a surprise when you consider the data over the last six weeks hasn't been exactly encouraging relative to growth and jobs. Thus, we are cautious as we start the week as investor focus has shifted to specific opportunities versus broad generalities about the markets overall. Breaking the data down for the upcoming week there is plenty on tap relative to earnings, economic data and politics. The goal is to sort through all the news and gossip to find the best opportunities… short or long.

    Technology has been a laggard for the broad market indexes and it holds some mixed signals as you dig into the stocks making up the sector. This promises to be a week of definitive direction as the technology sector takes center stage for earnings. The reports from Yahoo, Intel, IBM and others last week were a mixed start to what looks to be the decisive votes coming from Qualcomm Amazon, Netflix, Apple, Texas Instruments… and others. The semiconductors have been struggling as computer sales lag, but the other areas of the chip sector are looking better. The SOX index tested support again and managed to bounce on Friday. Watch for SOXX to make a move back towards the top end of the current trading range. Tech will play a key role in how the week unfolds.

    Apple (NASDAQ:AAPL), fro my view, will be one of the primary earnings reports of the week. What are the expectations? That question will be answered on Tuesday, but from my view it will be the fourth consecutive disappointment from Apple. In fact, $350 ish on the stocks looks realistic as the next test on the downside. iPhones sales have been positive, but due to the fact they have had no new products launched nor a serious upgrade to the existing line doesn't bode well for the outcome. Verizon's news Friday lifted the stock in early trading, but that failed to hold as the stock closed lower on Friday. Are there hints in the reports from both Cirrus and Verizon about the report coming from Apple this week? Lower iPhone 5 sales seem to be the challenge and could be a big negative for the quarter. Apple is still paying a 2.5% dividend at these levels, but the downside risk makes even a value play unattractive. With the sentiment in negative territory, even positive news is likely to be twisted to a negative. The play remains on the downside barring any surprise on Tuesday… none expected.

    Intel is starting to gain some attention from analyst and investors. What is the attraction? The 4% dividend yield paid to shareholders to hold the stock as it figures out the semiconductor market transition to alternative devices for computing. The stock is trading at 11 times current earnings and technically the break from the consolidation range on Friday is a positive. The move above $22.50 on Friday was the first sign of a move higher and worth our attention. See the Watch List for more details.

    There are plenty of issues facing investors this week as we gain a glimpse into some key sectors earnings. Ford will announce on Wednesday and show how the bottom line is shaping up relative to the automotive industry. Caterpillar is on Monday for the industrials. Haliburton, ExxonMobil and ConocoPhillips will impact the energy sector. Eli Lilly, Glaxo, J&J and Pfizer for the drug sector. Technology as mentioned above will also provide insight. Throw in the economic data of existing home sales, PMI manufacturing, durable goods orders, energy inventories, jobless claims, GDP for Q1 and consumer sentiment, all will be watched as this will prove to be a make or break week for the markets.

    Tags: AAPL, technology
    Apr 22 11:25 AM | Link | Comment!
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