Chart Talk {S&P Retest 09.29.15}

Besides a retest the thing that may help stocks the next few days is that both the month and the 3rd quarter ends on Wednesday.  One of the worst quarters we've seen in the past few years.

Back Wednesday.

Original unannotated chart is from FINVIZ.com.

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

Chart Talk {09.24.15}

"Sell Rosh Hashanah, Buy Yom Kippur" is one of those old Wall Street saws that more or less has proved out over the years.  Rosh Hashanah is the Jewish new year and Yom Kippur is the Jewish Day of Atonement.  Why this has worked is a source of endless debate.  The most likely reality is that the period always coincides with a cyclical period of market weakness.  

Nevertheless over the years following this advice would have theoretically saved an investor a bit over 1%.  I say theoretically because the impact of trading costs and taxes would likely mean your return would have been smaller if you followed this advice.  Also it's fair to point out that this strategy hasn't always made investors a profit.  Anyway in the chart above of SPY I've circled the respective dates for 2015.  Following this strategy would have theoretically saved an investor about 1.25%.  The more interesting statistic would be to follow what happens if you buy Yom Kippur and hold till the end of the year.  My guess is that system is a winning strategy in most years.  Maybe I'll test that at some point.  

I am out tomorrow and Monday so the next post here will be either Tuesday or Wednesday unless I feel the need to break in.

The original unannotated chart of the SPY  is from Stockcharts.com.  

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

Chart Talk {09.23.15-ONEQ}

Chart of ONEQ which is an ETF that represents the Nasdaq Composite.  The Nasdaq unlike most other indices is flirting with positive returns this year.  However, it's chart looks like so many others so I think it's illustrative to show the dynamic that it has to deal with going forward.  

Note that the original unannotated chart is from FINVIZ.com.  

ONEQ like many others shows in the yellow shaded areas almost a year of resistance and trapped longs at higher prices that at some point the index must contend with.  There is clearly defined support a few percentage points lower and a downward sloping trendline converging with resistance that probability suggests should be a struggle.  Clues will be garnered by seeing how ONEQ contends with each of these levels.

*Long ONEQ in certain client accounts.  Long ETFs related to the Nasdaq 100 in client and personal accounts although these can change at any time without notice.

Chart Talk {09.22.15-Energy}

While I don't know if this is the bottom in energy names, the pattern here is suggestive enough for us to at least pay attention to what happens when these two lines intersect.  Either energy names will break support or they will break this downward trend line and possible show proof of consolidation of the current region of support.   Just because the index finds a bottom does not necessarily mean that it will begin an immediate recovery.  It is also likely that we'll see a period of basing as the index finds a bottom.  If the past is any guide the stocks in this index will likely start to recover before you see a large uptick in price.  Index would really benefit if oil stabilizes and moves slightly higher.  

Original unannotated chart is from FINVIZ.com.

*Long XLE in client and personal accounts and certain other energy related ETFs.  Please note that these positions can change at any time without notice to our readers.

Chart Talk {09.20.15}

Chart of the S&P 500 ETF SPY.  Original unannotated chart is from FINVIZ.com.  SPY suffered a nasty reversal that began after the Federal Reserve decided not to raise interest rates last week.  Seems the dovish comments in conjunction with that meeting made certain market participants nervous.  It also might be that in the short term the market was over bought and had reached resistance while also rallying nearly 3% prior to the Fed meeting.   

As I stated in the chart above, probability now suggests a greater likelihood that the market will now in some manner retest the lower end of the range as we are still not oversold in the near term by our work.  Clues to future market direction and strategy will be taken from how investors react to support on the chart if such a retest occurs.

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

After The Fact

Well I was wrong and the Federal Reserve did not raise interest rates yesterday.  Stocks are selling off this morning based on the futures but that needs to be viewed against the nearly 3% rise we'd seen in stocks this week prior to yesterday's decision.  Profit taking was likely going to happen irregardless of what they did yesterday. The Feds seemed to take more stock in global economic weakness than the strength here at home.  They did note that there were currently no inflationary pressures here in the US.  They also left the door open to raise rates at their October and December meetings should that be necessary.  Very few market watchers expect that to occur this year.  

Now that this is out of the way we can go about our normal lives obsessing about the next big bad event which will likely be some jobs number, the Fed's October meeting or the likelihood of a government shutdown over the defunding of Planned Parenthood.  Stocks were overbought in the short run and this provides an excuse to take some profits.  Stocks hitting resistance levels yesterday also didn't help.  Seasonal patterns are also still negative.  I think we're still in that basing stage where stocks are trying to establish a bottom and the next base from which to move forward.  This chop is all part of that process.  We'll look t some charts next week to try and discern where we might be headed going into the end of the year.  

Thoughts {09.16.15}

Market had a nice move yesterday.  I noted in my last post that I thought markets had the ability to react positively to whatever decision the Federal Reserve comes out with tomorrow.  I'm wondering like a lot of investors if we didn't steal a bit of that away yesterday.

Dr. Ed Yardeni notes in his latest post that the S&P 500 was up 1.3% yesterday.  It is up 5.9% on August 25th.  He thought back then that day might be the low and notes that we are now only down 7.2% from the May 21st record high in the index. 

That's it.  We're on Fed Watch today and tomorrow.  Markets are likely to be random till after the decision's announced tomorrow at 1:00 Chicago Time.  We'll be back on Friday.  In the meantime for those of you obsessed with your iPhone go read "The Five Biggest Changes Coming in IOS 9". 

*Long ETFs related to the S&P 500 in client and personal accounts.

PS.  For a bizarre and apparently true story from World War II go read "That Time When Americans and Germans Fought Together During WWII"!

Thoughts {09.14.15}

Posting today but will be out tomorrow.  Markets likely to be on hold this week until the Federal Reserve's decision on interest rates later in the week.  It seems as though the world is evenly split on whether they raise on Thursday.  I think they go higher but that's a guess and I wouldn't want to have to live on the difference.  I think markets have the potential to react positively either way but we'll just have to wait and see.

One of the reasons I think we might see a raise is that the US economy is doing pretty well right now.  See this excerpt from Dr. Ed Yardmen's blog:

"Notwithstanding the slow pace of global economic activity, we expect enough strength in the US to drive earnings higher. While the S&P 500 Transportation index is down 19.3% from its record high on January 22, measures of actual transportation activity are very strong in the US. Railcar loadings of intermodal containers rose to a record high in early September, up 5.3% y/y based on the 26-week moving average of the data. 

The ATA Truck Tonnage Index rebounded 2.8% m/m during July, remaining on its solid upward trend with a y/y gain of 3.7%. It’s just shy of its all-time high reached in January of this year. 

The plunge in gasoline prices has supercharged gasoline usage, which is up 3.2% y/y through early September. Vehicle miles traveled rose to a record high during June. It’s hard to do all that driving without stopping along the way to do some shopping." 

Now there are still issues with growth here at home compared with the rebounds from last recessions.  We're about a point behind in annualized GDP in relation to previous rebounds.  That is GDP growth remains in the 2-3% range versus the 3-5% range we've seen in previous recoveries.  But we ARE growing and things have continued to get better.  I think this is suggestive of a market that finds a floor at some point for this decline if we haven't already.  Economic bear markets begin after the economy has peaked usually not before.  So far we've seen no evidence of this.

And just so we don't seem one-sided in terms of the markets go read "Don't expect New Stock Market Highs Any Time Soon" from MoneyBeat.  They are basically making the argument we made here back on August 31. 

Back Wednesday.

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

Thoughts {09.11.15}

Markets seem to be trying to scratch out a bottom.  If we ended the day trading where we are about now then the major indices would be up for the week.  Investors seem to be frozen right now, waiting on next week's Federal Reserve meeting on interest rates.  This decision seems to be all anybody has been able to talk about in the financial press for the past few months.  Personally I'm tired of it and can't believe a 1/4 point raise is going to derail the economy.

And speaking of the economy, I noticed this last week over at Barry Ritholtz's blog and wanted to pass it along. It's a pretty succinct look at what's going right with the US economy, although you wouldn't know most of this by reading most of the press.  Remember our mantra for the past several years has been that things are getting better here i the US.  The economist, Jim Smith, thinks the Fed ought to raise rates it seems based on the data:

"If you read The Wall Street Journal, you would never know about the record-breaking results for all measures of corporate profits. You would certainly not realize that, after several previous records that have all been revised away, we finally saw a record for real disposable personal income set in July. That is huge and it should last this time, as the data have been creeping steadily toward this record for some time. What all this means is that when the FOMC meets on September 16 and 17, they will be looking at a US economy in which more people are employed than ever before, earning more money than ever before, producing more goods and services than ever before, and with personal consumption expenditures and corporate profits at the highest levels ever seen. If that is not a prescription for finally raising the Fed Funds rate, then I can’t imagine what it would take to get them to move."

Back to stocks.  While markets seem to be trying to find their lows, probability suggests at least a 50% possibility of a retest.  We also have moved off the most extreme of our oversold readings.  Interesting to me that stocks never got so deeply oversold by our indicators as we've seen in the past, even during this bull market.  That's another reason to at least entertain the possibility that we might see a retest at some point.

Finally I pointed out in a post on July 30th that it has been my historic observation from years traveling to Rhode Island that the summer is basically dreck for stocks.  I took a look at the markets going back to 1983 when I first started vacationing out east and found out that the S&P 500 had returned -.72% during that period that I defined as the end of May till the end of July.  This year was more of the same, albeit with a worse return.  The S&P 500 as represented by its ETF SPY was down -6.37% this year during that period.  I haven't updated the long term averages but I'll give you those results at some other point.  

Finally this is the anniversary of the 9/11/2001 events.  We will not spend a lot of time dwelling on that day, although it remains etched in our minds like it occurred yesterday.  Others can do a much better job of that, particularly those that were closest to the events.  Suffice it to say to all the victims and their families that they remain in the nation's thoughts and prayers today.  God Bless.

Back Tuesday next week.

Chart Talk {09.10.15}

Chart of the S&P 500 ETF SPY.  Original unannotated chart is from FINVIZ.com.

*Long ETFs related to the S&P 500 in client and personal accounts although positions can change at any time.

Dieu Et Mon Droit!

Today we salute Her Majesty, Elizabeth II who passes Queen Victoria as the longest ever ruling Monarch of the United Kingdom.  Elizabeth has ruled 63 years and seven months as of today!  God Bless and to many more years of health and prosperity!

Ave Elizabeth, Regina Angliae Dei gratia!  

an tSionna {Nowhere to Hide}

200 day charts going back to mid-November last year, a time when many are now considering that last year's rally ended.  As you can see there's been basically nowhere to hide since then.  

Above you can see that the Nasdaq Composite Index {2nd in from the left} has actually scratched positive during this time.  Emerging markets have been taken to the woodshed.

This 2nd chart shows more of the same.  Emerging markets and Asian shares have taken it on the chin.  US bonds against all expectations have also risen.  This wasn't supposed to happen in a year when the Federal Reserve was going to raise interest rates.  

What isn't shown in these charts is cash.  Cash is often derided by the commentary corp as it yields nothing in the current environment.  My retort to that is that sometimes holding an asset cash that yields nothing beats losing something.  A weighted index of each of the ETFs in these charts {adjusted for the fact that emerging markets are overweighted above} shows a decline of just over 8% during the period.  As an aside I'm going to revamp these charts when I have some time because they in retrospect aren't as diversified as I would like and thus aren't representative enough for illustration purposes.

Hopefully back Thursday with some longer thoughts as promised.

*We are long various asset classes depicted above via ETFs or via ETFs related to the S&P 500 in client and or personal accounts.  Positions can vary in accounts depending on account strategy and the unique risk/reward characteristics of our clients.

Valuation {09.03.15}

The S&P 500 closed yesterday at 1,948.86  which is a decline  of 8.84% from 2,127.97 when we last reviewed these numbers back on May 19, 2015.   Below is our current analysis.  We are leaving our 2015 earnings estimates unchanged at this point.  We are using a range of $118-121 for 2015 but have modified slightly lower our mid-point range to $119.00.   We also use a simple color code to give you some reference for these numbers.  Green will indicate that the valuation on the index on a strictly historical basis has become more attractive from the last time we did this review.  Red will indicate the opposite. 

Our Midpoint S&P 500 Earnings Estimate of $119.00 {Year End 2015}

Current PE:                     16.38

Earnings Yield:                 6.10%

Dividend Yield:                1.96% {Estimated.} 

Current Expected Price Cone of Probability {COP}:   1,750-2,200.  While energy price and the dollar have been headwinds for earnings other economic data is supportive of evidence showing that the economy is still growing.  Given both of these and the recent price decline we have lowered   the COP 's top end of the range to 2,200.  

Rolling Four Quarter Estimate for the S&P 500, Our Estimate $124.00*:

Current PE:                     15.71

Earnings Yield:                 6.34%

*We are using our current estimate as we believe that earnings from the energy sector will be better than the market expects and the dollar is becoming less of a headwind for corporations.  The change in our view is not material to earnings analysis.  Please also note that the rolling four quarter estimate will likely increase at the end of this month as the market starts to incorporate Q4 2016 estimates into it's calculations.  Based on a preliminary analysis of that number the current PE would be around 15 and the earnings yield about 6.5%.

The current yield on the 10 year US Treasury is 2.18%  and has declined 11 basis points since the last time we did this analysis.    

The Cone of Probability {COP} is our current assessment of the trading range within which we think stocks have the potential to trade during the described time period.  It is a probabilistic assessment based on a many factors.  Some of these inputs are: Earnings estimates, also are those estimates rising or falling, dividend yield, earnings yield and the current yield on the US 10 year treasury.  This is not an exhaustive list of all of the variables that are used in creating the cone.  The Cone of Probability is used solely for analytical purposes.  It will fluctuate with market conditions and changes to the data inputs.  Index prices can and have traded outside of the range of the cone.  The data supplied when we discuss the cone is for informational use only.  There should be no expectation that this price range will be accurate and there are no guarantees that this information is correct.

Back next week with some longer thoughts about where we are and where we may be going.  Happy Labor Day.  

*Long ETFs related to the S&P 500 in client accounts, although positions can change at any time.

Thoughts {09.02.15}

I'm swamped today so I'm going to save some longer reflections for later in the week.  I'll just say that probability still suggests we are trying to put in a bottom of some sort here.  Bottoms don't have to retest the absolute lows from last week and can undercut it slightly.  It is more about a reaction to the event or events than anything else.  Days like yesterday when 499 of the 500 S&P 500 stocks were down is suggestive that the process of bottoming is still in place.  

Also we are not oversold yet on our longer term indicators.  Short term is a different story.  Advisors and the public have become much more negative in the past 10 days so that "bears" watching as well.

Back later in the week.  Hope today's rally holds.

*Long ETFs related to the S&P 500 in client and personal accounts.  Please note these positions can change at any time without notice to our readers.

Thoughts {09.01.15}

Stocks are set to take another leg down this morning.  I'll have more to say about this tomorrow.  Two quick things.

I've always thought a retest of the lows or some level lower was a high probability event.  The important thing to watch will be how markets react after this sell off.  To that end, the close today will likely be more important than the open.  Also remember that this is still a vacation week out east so markets still trade a bit thin.

Stocks are more oversold now than they were a week ago by our work.  Our indicators are not quite yet at ultimate oversold levels but we're getting closer.  

Back tomorrow.

Oh and one last thing.  Markets are held hostage to China, oil and the Federal Reserve meeting later this month when the next decision on raising interest rates is discussed.  Until one or more of these is brought to more clarity or resolved or end gamed, markets will continue to be volatile and under pressure.