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traderbear
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I have been investing for over 40 years, evolving from investor to trader. The bear part comes from my degree from Cal: Go Bears! From 1982 to 2000, I managed a 17% return trading mutual funds on the basis of relative strength. This success was, of course, helped by an historic bull market, but... More
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  • ETF Blog For 10/20: Keep It Simple, Look For An Uptrend

    Market Moving News (Summary of 15 Articles)

    Retail Sales softened slightly. Despite weakness in the latest readings, ICSC-Goldman describes store sales as strong and discretionary spending, which is getting a boost from low gas prices, as healthy. Redbook describes the week's sales as positive led by fall apparel and Halloween shopping. Redbook notes that Halloween falls on a Friday this year which retailers see as a positive for traffic. Retail sales in September declined 0.3% after jumping 0.6% in August. Analysts forecast a 0.1% dip for September. Excluding autos, sales slipped 0.2% after gaining 0.3% in August.

    Manufacturing is slightly mixed, but strong overall. Empire State manufacturing index fell to 6.17 from September's 5-year high of 27.54, the slowest rate of monthly growth since April. New orders contracted to minus 1.73 vs September's 16.86 and shipments were barely above the zero line at 1.12 vs 27.08. In contrast, the Philly Fed's manufacturing sector general conditions index was steady, at 20.7 vs September's 22.5. The new orders index rose to 17.3 vs 15.5. Industrial production jumped an outsized 1.0% in September after a decline of 0.2% in August. Manufacturing rebounded 0.5% in September after a 0.5% decline the month before.

    Inflation at the producer level has turned negative. The PPI for total final demand in September slipped 0.1, following no change the month before. The Federal Reserve Bank of Atlanta's business inflation expectations (NYSE:BIE) survey showed the year-ahead inflation expectations of businesses to be 1.9% in October.

    Housing is stagnant and statistics are volatile. The purchases index fell 1.0% in the week for a year-on-year decline of 4.0%. The problem is lack of traffic from first-time home buyers. In contrast, but the home refinancing index surged 11.0% in the October 10 week as the average mortgage rate fell10 basis points in the week to 4.20%, the lowest average since June last year. Housing starts for September rebounded 6.3% after dropping 12.8% in August. Overall, housing made a comeback from a weak August and is showing only slow improvement.

    Job growth is strong. A stunning 23,000 decline in in the October 11 week brought initial jobless claims to 264,000, the lowest level since April 2000. The decline pulls the 4-week average fell 4,250 to 283,500 which is the lowest since June 2000 and is more than 15,000 below the month-ago trend. Continuing claims rose 8,000 in the October 4 week from the prior week's recovery low to 2.389 million. But the 4-week average continues to make new recovery lows, down 10,000 to 2.404 million.

    Sentiment is Positive

    Drops in current job openings and capital spending plans pulled down the small business optimism index in September to 95.3 from 96.1 in August. In contrast, the Bloomberg Consumer Comfort Index reported expectations for the economy in October climbing to the highest level in almost two years as a pickup in hiring, falling gasoline prices, and low borrowing costs heartened households. However, the Bloomberg gauge of personal finances index dropped to 50 from 51, its lowest since late May. A gallon of regular fuel at the pump cost $3.18 on average as of October 14, down from a high of $3.70 in April, according to AAA.

    Consumer sentiment continues to rise, up 1.8 points to 86.4 for the mid-month October reading which is a new high going back to July 2007. The effect of low gas prices is seen in 1-year inflation expectations which are down 2 tenths to plus 2.8%, low for this reading.

    (click to enlarge)

    The VIX reacted to what I perceive to be vague fears about Europe, Russia, and Ebola. Cramer spent much time hyping ebola while his pundit partners assured us they were not fear mongering. The atmosphere seemed to calm on Friday, but the measure closed at 22, which is in my "concern" category. Had it stayed over 30, the category is "panic." A continued fall can be a signal for a new rally.

    The Market (S&P 500)

    (click to enlarge)

    After two days of whipsaw off the low of 182, the S&P 500 bounced up on Friday. All the gain was in the overnight gap. Later, confidence fell to cause the day's candlestick to become a doji. The market needs to remain at this level and reduce volatility in order to confirm a bottom.

    Small Caps (NYSEARCA:IWM)

    (click to enlarge)

    The Russell 2000 did better Wednesday and Thursday than the S&P 500, but showed less conviction on Friday. Until there is a sustained move higher of this index, I don't think the market will recover. The loss from top to bottom since September has been 12%.

    Core Sectors

    (click to enlarge)

    In the core sectors group, real estate, (IYR, pink) has shown the most strength over the last month. I don't know enough about the REIT sector to know why, other than it was previously severely beaten down. You can see the extreme weakness in energy (NYSEARCA:XLE). Until there are signs of relief of the oil glut, this sector is not likely to recover. Healthcare (NYSEARCA:XLV), financials (NYSEARCA:XLF), and transport (NYSEARCA:IYT) are possible leaders, clustering on the chart at -4%.

    Best Relative Strength

    (click to enlarge)

    The chart above shows the strongest funds among the 36 ETF's I follow, led by the three indices, SPY, QQQ and IWM. SPY was the strongest index last week. Utilities (NYSEARCA:XLU) and agriculture (NYSEARCA:DBA) lead in strength, but I don't look to either sector for a rebound. Overall, biotech, real estate, financials, and transport are the most promising sectors.

    Trades Last Week

    Holding: AGNC

    Bought: AAPL

    Both stocks are covered by puts.

    Conclusions and Action

    This market is all about psychology, driven by geopolitical fears and relief from fear. Virtually all stocks (except those making hazmat suits) are reacting together. The market's herd instinct was on full display, probably amplified by high speed trading. The biggest real geopolitical issue is Europe's economy and the threat that Russia could cut off gas, severely threatening the economies of several countries, and possibly political stability.

    If the fears calm, the U.S. economy seems able to drive the market higher from as severely beaten-down stocks recover.

    While volatility remains high, there is merit to keeping it simple. Owning just a few stocks makes it easier to protect your portfolio from another sharp selloff. My index of choice is SSO, the 2x S&P 500 ETF. If an overall uptrend begins, I will consider IYR, and possibly XLF, IAI, and XLV. My initial stops will be tight, until they can be moved to guarantee a profitable trade. If the trend continues higher, I'll follow with looser stops.

    Have a great week!

    Tags: SSO
    Oct 19 12:31 PM | Link | Comment!
  • ETF Blog For 10/13:

    Market Moving News (Summary of 15 Articles)

    Americans' spending is strong. Americans' daily self-reports of spending averaged $87 in September, down from $94 in August but still higher than the $84 in September 2013. September dips in spending have been common. Store sales edged higher in the October 4 week, up 0.1% for a plus 3.9% year-on-year same-store pace. Redbook's same-store sales tally is up 5.4% in the week. Chain stores are reporting moderate increases in rates of year-on-year sales growth in September. Revolving credit slipped $0.2 billion to end five straight months of gains.

    Manufacturing may slow soon. Wholesale trade inventories swelled in August by 0.7% against a sharp 0.7% decline in sales. The mismatch drove the stock-to-sales ratio in the sector up 2 notches, to 1.19 from 1.17, the heaviest reading since February. Much of the build is tied to autos; other sectors showing heavy inventories include farm products, lumber, professional equipment, and petroleum products.

    Inflation is tame and interest rates will remain low. The Fed is expecting taper to end with the October FOMC meeting. But the mood is still dovish with concern about overseas economic growth and below target inflation in the U.S. Year-on-year, prices of imported consumer goods excluding autos show the greatest increase, at plus 0.9%, and with imported motor vehicles showing the greatest decrease at minus 0.7%. Strength in the dollar is containing import-price inflation.

    The housing purchase index is suddenly showing a little life, up 2.0% in the October 3 week to the best level since July. Year-on-year, the index, which had been trending in the low negative double digits, is now down 8.0%. The refinance index also gained, up a strong 5.0% in the week. Mortgage rates were down 3 basis points in the week for the average conforming 30-year mortgage ($417,000 or less) to 4.30%.

    Jobs continue improving. There were 4.835 million job openings on the last business day of August and the rate was 3.4%, the highest level since January 2001. Over the 12 months ending in August 2014, hires totaled 56.2 million and separations totaled 53.6 million, yielding a net employment gain of 2.5 million. Initial claims edged 1,000 lower to a lower-than-expected 287,000 in the October 4 week while the 4-week average fell a 7,250 in the week to 287,750, its lowest level since February 2006. Continuing claims and the 4-week average fell to new recovery lows of 2.414 million.

    Sentiment

    Sentiment metrics (in September) were very positive. TD Ameritrade clients increased equity exposure in September, sending the IMX to its third highest level since tracking of the index began.

    Gallup's Economic Confidence Index (ECI) was steady in September at minus 15 for the month, similar to the minus 16 it averaged in August. In September, 39% of Americans said the economy is getting better, while 55% said it is getting worse. This resulted in an economic outlook score of minus 16 -- the best since May, when it was minus 14.

    The Bloomberg Consumer Comfort Index climbed to 36.8 in the period ended October 5 from a four-month low of 34.8. A gauge of attitudes about the world's largest economy registered the biggest increase since 2007. The buying climate index, which asks whether this is a good time to make purchases, increased to 33.8, the highest since mid-July, from 31.9.

    The Market (S&P 500)

    (click to enlarge)

    Volatility sharply increased last week as the market fell to new lows after being interrupted by a manic swing higher on the Fed minutes. The large swings and higher volume suggest emotional trading amplified by algorithms, or perhaps manipulation. There is support going back to early August that may bring in some buying next week.

    The VIX

    (click to enlarge)

    The VIX is a measure of option prices that peaked at a new 3-month high on Friday, indicating that institutions are protecting their portfolios. Note the gradual rise from the August 25 low as the market continued to deteriorate.

    Small Caps (NYSEARCA:IWM)

    (click to enlarge)

    To better understand the small caps, I used a 1-year chart of the Russell 2000 (IWM), which is falling at a rate close to 100%/year, has lost 11% from its September 1 high, and 13% from all-time high around July 1. There may be support near 104 from one year ago, but I won't be betting on a bounce.

    Core Sectors

    (click to enlarge)

    The core sectors relative strength chart shows steep drops in energy (NYSEARCA:XLE), emerging markets (NYSEARCA:EEM), that exceed the rate of small caps (IWM). Foreign stocks (NYSEARCA:EFA) have also fallen to the level of IWM. Healthcare (NYSEARCA:XLV) and financials (NYSEARCA:XLF) are suffering the least damage.

    Money is flowing into REITs (NYSEARCA:IYR), which bottomed on October 2 and has since gained 3%.

    Best Relative Strength

    (click to enlarge)
    Reviewing the 36 ETF's I follow, I found several that are beating QQQ, which continues to outperform IWM. Agriculture (NYSEARCA:DBA) has formed a cup-and-handle, but is quite volatile. Likewise, utilities (NYSEARCA:XLU) are in a volatile uptrend. Real estate (IYR) has formed a rounded bottom and until Friday, was climbing higher. Healthcare (XLV) is heavy in pharma. It and pharmaceuticals (NYSEARCA:PJP) are moving lower in broadening tops, but may lead a trend reversal.

    Trades Last Week

    Sold: AAPL

    Holding: AGNC

    I stayed out of the market last week, as AAPL sold on Monday. AGNC, a mortgage REIT, is a specialized investment that pays an 11% dividend, but is controversial. It is the granddaddy of the genre and you can learn much about it by following the ticker in Seeking Alpha. My strategy is not to collect the dividend, but to buy after the drop on the ex-dividend date.

    Conclusion and Action

    The market is in a major correction that began in the small caps on September 1 and in the large caps on September 22. Chart patterns gave us warning. Early in September I speculated that failure of the small caps to reverse would bring the rest of the market down. Later, the bearish formation of the broadening top preceded the larger sell-off.

    The best reason for this action may be that Europe is reporting effects of sanctions on Russia at the same time China, Japan, and South America are experiencing slowdowns. Corporations are reducing exports and Europe could have a very difficult winter if Russia cuts off their gas. This is the probable cause of the VIX spike, as institutions gear up for an economic downturn.

    Contributing to volatility are on the strength of the American economy along with fear of what the Fed will do (much of it irrational in my opinion) about increasing interest rates. The Fed was probably dovish on Wednesday because they are looking ahead at Europe, not reacting to the strong September economic reports.

    While the market remains volatile, I'm out, except possibly to buy IYR.

    Have a great week!

    Disclosure: The author is long AGNC.

    Tags: REIT's
    Oct 11 12:18 PM | Link | Comment!
  • ETF Blog For 10/06: Technical Reversal Signals Amid High Volatility

    Market Moving News (Summary of 25 Articles)

    Spending is mixed. ICSC-Goldman sees healthy sales for September as a whole, in the plus 4 to plus 5% year-on-year range. Redbook's same-store index year-on-year growth rose to 4.3% from 3.7% in the prior week. Sales of cars and light trucks fell 6.3% in September compared to an extraordinarily strong August. Construction spending declined 0.8% in August after a 1.2% rebound in July. Market expectations were for a 0.5% gain.

    Manufacturing is strong but softening slightly. Anecdotal reports out of the manufacturing sector have been stronger than the hard data The Dallas Fed manufacturing production index rose from 6.8 to 17.6, a faster pace than in August. The new orders index climbed 5 points to 7.5. The capacity utilization index surged to 20.2 after dipping to 3.6 in August, with nearly a third of manufacturers noting an increase. Costs are moderating. The raw materials price index fell seven points to a reading of 19.5. The Chicago PMI reported a composite index of 60.5 vs 64.3 in August. Raw material prices had the highest rate of monthly increase since November 2012. Employment is described as steady and soft. The September Markit US manufacturing report showed steady growth at 57.5. The report describes rates of output and new order growth as strong. Employment was at a 2-1/2 year high. Input and output prices are showing their sharpest rise since December 2013. The ISM manufacturing index fell 2.4 points to 56.6. Growth in new orders slowed noticeably, down 6.7 points from August, but is still very strong at a reading of 60.0. Employment fell 3.5 points to 54.6, and prices paid, rose 1.5 points to 59.5. Skewed by Boeing airshow orders, Factory Orders fell 10.1% in August after soaring 10.5% in July. Together, the two months point to flat order growth for the nation's manufacturing sector.

    Personal income grew 0.3% in August, following a 0.2% rise in July. Wages & salaries gained 0.4%, vs. 0.2% increase in the prior month. Personal spending jumped 0.5% after no change in July. PCE inflation was unchanged in August. Core PCE inflation posted at 0.1%.

    The trade deficit is slowly shrinking, helped by petroleum, which was $1.31 billion vs. 14.5 billion in July. Lower oil prices mean more discretionary income for consumers. Demand is rising among higher non-oil imports.

    Markit's US service sector report was strong 58.9 in September vs 58.5 at mid-month and 59.5 in final August. Half of the respondents expect business activity to increase over the next year and only 5% see a reduction.

    Housing remains weak. Pending home sales fell 1.0% in August. Year-on-year sales in August were down 2.2%. Case-Shiller 20-city prices were down 0.5% for the third straight decline. It was the steepest monthly drop since November 2011. The mortgage purchase index was unchanged in the September 26 week, (down 11% annualized) and the refinance index was down 0.3. The average 30-year conforming mortgage ($417,000 or less) fell 6 basis points to 4.33%.

    Jobs improved greatly, but there is no wage inflation. Initial claims fell 8,000 in the September 27 week to 287,000, pulling down the 4-week average by 4,250 to 294,750 which is nearly 10,000 below the month-ago comparison. Continuing claims for the September 20 week fell 45,000 to a new recovery low of 2.398 million. The 4-week average was down 20,000 to a new recovery low of 2.441 million. The Employment Situation report rallied the market with nonfarm payroll jobs gaining 248,000, after rising 180,000 in August and 243,000 in July. Net revisions for July and August were up a sharp 69,000. The unemployment rate declined to 5.9% from 6.1% in August. Average hourly earnings were unchanged in September after a 0.3% rise the month before. Average weekly hours ticked up to 34.6 hours versus 34.5 hours in August and expectations for 34.5 hours.

    Sentiment

    Consumer confidence has suddenly reversed course, falling to 86.0 from August's revised recovery high of 93.4. Fewer consumers described current job openings as plentiful, at 15.1% vs August's 17.6%.

    The Bloomberg Consumer Comfort Index declined to 34.8 in the period ended September 28, the lowest reading since May 25, from 35.5. Views of the economy were also the weakest in four months, and the personal finances gauge dropped to its lowest reading since early August. The recent setback in sentiment has been concentrated among lower-income households, underscoring the need for faster wage gains as the labor market recovers.

    Soaring confidence among institutional investors in Europe lifted State Street's investor confidence index to 123.9 from a revised 120.1 in August. Despite weak economic growth in Europe, the index for the region rose 12.6 points to a record 140.0 reflecting demand for equities vs fixed income investments. Risk appetite among both North American and Asian investors fell with North America down 5.1 points to 103.0 and Asia down 4.5 points to 97.1.

    (click to enlarge)

    The VIX shows heightened concern about the market, modulated by a big move down when the employment report came out on Friday. The market seems to be reacting to everything-down on reports of slowing economies in China, South America, and Europe. Weighed down by geopolitical events, or buoyed by the best employment news since 2008.

    The Market (S&P 500)

    (click to enlarge)

    The S&P 500 continues a down trend in a wide channel created by high volatility. Each day is a surprise, and there is no consistent support for a potential uptrend. Thursday's doji was a high-volume drop and recovery. The 3-day Wednesday through Friday pattern is called a morning star, or morning doji star, and is supposed to signal a reversal. If we can get support on gradually rising volume, Thursday's low may be a bottom.

    Small Caps (NYSEARCA:IWM)

    (click to enlarge)

    The small caps are in a sharper downtrend, losing 8.6% from September 1. They were strong on Friday, but need to show support. A good pattern might look like the period from August 1 to August 11. Similar to the S&P 500, the Wednesday-Friday pattern is a "tweezers bottom and piercing pattern," also an indicator of a possible reversal.

    Core Sectors

    (click to enlarge)

    Emerging markets (NYSEARCA:EEM), energy (NYSEARCA:XLE), foreign stocks (NYSEARCA:EFA), and real estate (NYSEARCA:IYR) are weaker than the Russell 2000 which, as shown by the IWM, is still in a downtrend. Healthcare (NYSEARCA:XLV) and financials (NYSEARCA:XLF) are the strongest core sectors. Watch Transportation (NYSEARCA:IYT) and retail (NYSEARCA:XRT) for possible rebounds.

    Best Relative Strength

    (click to enlarge)

    This chart compares the strongest of the 36 ETF's I follow with the Nasdaq 100 (NASDAQ:QQQ). Pharmaceuticals (NYSEARCA:PJP), biotech (IBB, BBH) continue to lead, followed by brokers (NYSEARCA:IAI) which is performing near the level of utilities (NYSEARCA:XLU). Most chart patterns are similar to the morning star. The stronger ones just lost less on the downswing.

    Trades Last Week

    Holding: AAPL

    Conclusion and Action

    Last week, I stayed out of the market. News and sentiment continue sending mixed signals, and as long as volatility stays high, I view short rallies with suspicion. Some stocks like NFLX made profitable day trades on Friday. I am watching AAPL and NFLX for further rises, and may get back into QQQ, XLF, IAI, BBH, and PJP if they show support. Otherwise, it's time to take a break from the market.

    Disclosure: The author is long AAPL.

    Tags: PJP, IHI, BBH
    Oct 05 12:46 PM | Link | Comment!
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