Second Thoughts on Gold

July 4th, 2014

July 4, 2014..

I think my GLD position needs to get skinnier.  So skinny,….. it disappears.

True, GLD is on a mechanical buy signal, as are SPY and VTI.  But, if my thinking about why stocks will head higher is correct,…..(yield differentials among USA bonds , European bonds  and the earnings yield of USA stocks.) then,

1 ) The USA dollar will appreciate against  the Euro and Yen.

2) Gold will fall against the dollar.

3) I should exit GLD and eat a small loss ( $169 of a $25,000 position ) before I end up shaking hands with myself on SPY and VTI but biting my lip on GLD.

Thursdays abbreviated stock market session confirmed that yield differentials are widening and the markets are reacting as I thought they would.  If what I see is true, GLD can’t  move higher unless a Black Swan suddenly appears from behind the curtains.

For now overseas QE is the theme and that could make for a fun SPY ride.

 

Richard Maurice Gore

 

 

Buy Signal – Gold ( GLD )

July 2nd, 2014

July 2, 2014

Today is day one for a GLD buy trade.  GLD ended June 30 above its 200 day moving average.  But, I only have a 2.5% portfolio exposure at  $128.01 instead of 5%..

The back testing results for a GLD trade ( month end price above 200 day moving average  ) are not as compelling as the results for SPY and VTI.  The last five trades closed  March 31, 2014 ( loss 3.14%  ), January 31, 2013 ( loss 1.84% ) , March 31, 2012 ( loss 4.25% )….But, before that December 31, 2011 ( plus 37.4% ) and August 31, 2008 ( plus 75.67% ).

In my opinion, at present, there are too many political, monetary, cultural and speculative forces at work to say why a GLD  position will prove profitable  But, I do  like the idea of having some exposure to GLD and I do  prefer to  rely on mechanics to  control my impulses.

As for VTI and SPY….They sailed through June 30 safely in buy territory.  So, as mentioned in my last post I bought more SPY and will continue to accumulate at each month end.  It is outperforming VTI .  My present position is more than 1,000 shares of SPY at a cost basis of $ 190.89.

What is giving me courage  to invest  more money into the market monthly is my expectation that USA bond interest yields, although low, will continue to attract more money from the rest of the world where interest rates are even lower.  And, USA bond yields  offer less than formidable competition to USA  equity yields ( earnings divided by a stock’s price ).   I’ll do this ( average into the stock market via SPY ) despite lower than average  market  volume….I’d probably go all in now  if equity market  volume ( conviction ) picked up significantly. That is the wind I’d like to feel in my sails !  Well at least we are moving in the right direction.  Although strong economic numbers could raise inflationary fears, I believe low interest rates will count as the  stronger driver in the market

And, as long as our low interest rates remain relatively high versus Europe….the dollar should strengthen ( yep, versus gold too) , and that’s another reason for my skinny GLD position.

And, while you are at it, keep an your eye on our ( USA ) 10 year Treasury yield versus the S&P 500 twelve month projected earnings yield.

Nice little jig saw puzzle.

I hope I have all the pieces !!

Richard Maurice Gore

 

Cautious Me

June 11th, 2014

June 11, 2014

Considering  present equity market data, I’m glad my bias is toward trend following rather than predicting the  market’s direction. And, I’m very happy that I’m so mindful of Investing Rule number one…..preserve capital.

Given the foregoing  and, recognizing  I can be very emotionally receptive and reactive to both positive and negative noise ,  please understand how difficult it should be  for me to contain my enthusiasm for equities at the present moment.

Dan Sullivan, the highly  esteemed editor of ” The Chartist” newsletter ( I subscribe ) indicated in his June 5 mutual fund  hotline that the market is signaling it intends to trend higher.  He cites the recent series of new S&P 500 highs in 7 of 8 sessions, that the Dow Industrials and Dow Transports have made new bull market highs (  A Dow Theory buy signal ) and that the 200 day trend line of the Advance / Decline line is moving higher remaining well above its 200 day moving average.  All positive signs.

Add to this,  the very good news relating to employment, GDP gains, Putin and earnings forecasts.

Worried about higher interest rates de-railing  the uptrend ?  Forget it.  An explanation has emerged as to why the USA bond market is rallying and not at the expense of stocks. The explanation is that  European ECB action is forcing European bond yields lower than USA bond yields ( Example: Spain where it’s risk laden 10 year bond is being offered at a lower yield than the risk free 10 year USA Treasury Bond. )  This is causing European bond investors to invest in higher yielding USA bonds driving USA bond  yields lower. Plus, the supply of USA government bonds is shrinking in the face of this growing overseas demand. Since USA bond yields compete with equity earnings yields for investment dollars,  lower bond yield expectations competing with higher earnings yield expectations can be very , very bullish for equities.

This morning I heard a guest analyst responding to another guest’s comments on the advanced age of this bull market by saying market ends are not date driven, they are data driven  and not to be surprised if this bull market goes on for another 2 or 3 years

So…..why am I  not ” All In ” ?

I’m not arguing with any of this.  All I am saying is that as  equities grind higher,  why is the climb being supported by fewer and fewer stocks participating in terms of  making new 52 week highs ?   And, why is daily volume so low in relation to 30 day normal volume?   I like to think of volume as  conviction, as thrust,  and as the wind in the market’s sails. Prices are moving higher but daily volume is not anywhere near 30 day volume averages.  Nobody seems to be saying anything about this.  But, I don’t like it.  So, I can’t be ” All In ” . In fact, as of this moment, the morning of June 11, 2014,  I’m only 35% invested in US equity ETFs ,  42% invested in Bond and Income ETFs and 23% in Cash.

Maybe lower than normal  market volume and narrower  participation in making new 52 week  highs means only that there will be a ” normal ” ” healthy ”  10% correction.  That’s perfectly OK , but corrections, healthy or not , are not my thing.

But, because I want to be ” All In ” and not  ” Miss Out ” on all the fun to be had and profit to be made, my plan now is to take out 1/ 12 of all non-equity money ( including cash ) on the first trading day of  each month and invest it in SPY, VTI , and  QQQ,  exiting these and  all investments by going to cash ( the money market )  when the 200 day moving average of VTI is above its price as of a month end close.  Then, re-entering the market ” All In ” when VTI next finishes above its 200 day moving average at a month end.

Richard Maurice Gore

May ” Go Away ” Update

May 31st, 2014

Saturday, May 31, 2014

 

May is in the books and VTI ( Vanguard Entire USA Stock Market )  is still on the buy signal that sounded December 31, 2011.   This trade is now 605 days old and shows a positive 62.04% return,  an average gain of 2.14% PER MONTH !   Since January 1, 2014 VTI has gained 4.2%, with half the gain in May.  This says to me the bull case is still viable and , for the moment, its OK to be in the water……but not  deep water,  because second tier indicators are signaling loss of thrust and potential stallout.

Although the NYSE  advance / decline line is making new highs  ( as are the Dow Industrials and S&P 500 ) ,  Volume is missing and fewer and fewer stocks are making new 52 week highs.  So, I’m keeping my powder dry ( 20%  invested in ETF equities, 40% fixed income ETFs and 40% cash. ) Next review date is  at June 30 close.

GOLD: Still on the March 31 sell signal.  On March 31 I took a $3,000 loss, selling GLD ( ETF =physical gold  bars )  at $123.79.    Todays price is  $120.43. I’ll invest again at the first monthly close when GLD finds itself above its 200 day moving average.

FIXED INCOME ETFs : There has been more and more talk about money flowing away from equities and into bonds….primarily the ten year US Treasury.  The ETF ” IEF ” represents 7 to 10 year US Treasuries.  There is talk from respected pundits and players saying the new normal for the ten year Treasury is not 3% but a less robust 2%, reflecting less than world beating growth by China, the US consumer and US housing.   It  has been suggested to buy ten year Treasuries at 3% and sell at 2% because 2% is where the yield will head given  lackluster economic growth conditions.  At present the 10 year Treasury yield is about midway between 2% and 3%.  The price of  IEF, $103.98 is about midway in its 52 week range of $98.60 ( low ) and  $107.59 ( high ).  Making a prediction of the future ten year Treasury  yield and IEF  price is beyond my physical risk tolerance. I’ll respect the direction if it is clear and supported by trading volume.

Pending clearly confirmed  directional movement,  I’ll just sit here on my surf board ( in 3 feet of water ) with my eyes glued to the horizon searching for ” rollers ”  and / or fins.

Richard Maurice Gore

 

 

Still Water Runs Deep and ……..?

May 21st, 2014

May 21, 2014

That’s the way I’d describe what is transpiring in this market  ( January 1 ,2014 till May 20 close )  Still water and ideal for saltwater Crocs.

Forgetting the risk(s) associated with individual stocks and focusing entirely on market risk, holders of ETF market index baskets  have seen the following progress since January 1: DOW – 1.2%,   S&P 500 index +1.3%, NASDAQ -1.9%.  On the other hand, those who invested in the fixed income ETF…..I shares / Barclays 7 – 10 year US Treasury notes ” IEF ” have enjoyed a market gain of 4.4% not considering a 1.9% per annum dividend.  A shift.

On top of this, I have noticed that the equity market’s engine…volume…has been far, far less than what I would describe as ” robust “,  giving rise to my suspicion that money is leaving the equity market and flowing….?  Money flow analysis  aims to track this as a momentum indicator that uses price and volume to PREDICT trend.  This is done  by comparing positive money flow versus negative money flow..  It is described as a more rigid indicator than Relative Strength because it is volume weighted.

I don’t do this type of formula driven analysis..  I track about 50 stocks each night for price / volume and then look for follow  through in subsequent days.  This gives me a sense of thrust or no thrust.  I act on a reasonable suspicion that thrust has left the market.  Over the past week, I have gradually decreased my market exposure to 20%  ( SPY, VTI, RSP, RPG ) with 60% in fixed income ETFs ( BOND, HYS, VCIT, LQD, HYG, JNK ) with 20% in CASH.

I believe that in terms of price and volume, this market would qualify as being ” dull “.  The common phrase when dealing with a dull market is ” Never short a dull market ”  Some believe dull markets indicate that energy is being stored for a rally……Really ?  Since my number 1 rule is to preserve capital, I’d say it would be reckless of me to assume that the energy being stored is for a trip north rather than a trip south.

That’s what makes me a trend FOLLOWER rather than a trend PREDICTOR… I’d rather give up some profit before jumping aboard .  My goal is to hop aboard BEFORE the train reaches full speed  and AFTER I know its direction is north rather than south.

Richard Maurice Gore

Mea Culpa

May 12th, 2014

May 12, 2014

If you have read my posts, you know how dead set I am against investing in individual equities.  This is  especially true of  those equities which can be characterized as ” momentum ” stocks.  The risk of market direction ..ie .Market Risk… is way safer than the Specific Risk associated with owning all the possible  surprises  that go with owning a  specific equity.

The more diversification in your portfolio, the more you are aligned with Market Risk and separated from Specific Risk.

Not only that; in today’s USA market, diversification comes cheap.

You can buy the ETF….”. SPY “…. A basket of 500 stocks…By paying a commission as low as  $7  you own all 500 stocks in the basket.  To buy each of these stocks separately, to create your own basket, and it will still involve a commission of $7 ……FOR EACH OF THE  500 PURCHASE TRANSACTIONS …Total cost $3,500  versus $7. !

Despite this knowledge , I took a realized loss of $11,000 this morning because I exempted myself from taking my own advice.  Why ? I didn’t see myself as an average investor ( hubris ) and couldn’t resist the lure of TESLA and FACEBOOOK.  I strongly believe in their future. BUT, that has nothing to do with making  money by owning them now. And, for me, the future is now !

So, I stepped up and took my loss,  understanding ( I hope forever ) that I am nothing more than the average investor, maybe with  a little more knowledge,  but sporting  a set of emotions that can easily nullify that advantage ).  It isn’t the loss that’s bothering  me.  Its that I broke my own rule #1  one for capital preservation.

Now that I have paid $11,000 for my hubris,  I feel relief  about confronting myself and taking the loss, rather than continuing to hold these stocks and inviting an even deeper loss..

In time I will forgive myself.  I just better realize I  am an average investor.  All I should aim for  is an average return….3x  rate of a 10 year government bond plus an inflation kicker. And,  forget about hitting for the fences.

Richard Maurice Gore

Tricky Trail to Follow

April 30th, 2014

April 30, 2014

VTI is still officially on a ” buy ” ( price above 200 day moving average at month end ) and showing a profit of  58.12%  if bought on December 30, 2011. The buy signal has now lasted 583 days.

However, since January 1, 2014 VTI has appreciated only 2.1%. . Hardly enough to provide a living   !  So, I  ventured out of VTI and into other Index and Sector ETFs and enjoyed  a very similar result. Definitely not thrilling !

On top of this so-so performance, the market as a whole has been consistently flashing ” Non Confirmation ” via weak volume on any daily price gains which, at first glance, appear encouraging.

I examine the price / volume action of about 50 Equity and ETF positions every night.  In  rare cases where volume confirmed positive price action,  over  the next few days, there was no follow  through.

Where is this trail leading me ?  Away from” play in May ” …yes…..  Away from a Ukrainian Black Swan….yes.

It is leading me toward Investor Rule # 1 - DON’T LOSE CAPITAL.

To get a more risk friendly return I have begun to invest in some of the fixed income ETFs till things sort themselves out. ( BOND, HYS,JNK,HYG,LQD ).  I’m looking to minimize interest rate risk via shorter duration holdings.

And, at some point I would be willing to average down on Equity Index ETFs ( not individual  stocks ! )  if market action, the  Fed and Putin non- action indicate a break in the clouds.

At the moment, I’m continuing to sell into whatever  strength shows in any of my long positions.

GOLD ended April below its 200 day moving average, so it will be at least another month before I invest in GLD

Now, lets see whether 2014 will be a ” Play till May, then go away ” year !

 

Richard Maurice Gore

 

Still Chugging Along

April 14th, 2014

April 14,2014

The VTI trade is now 572 days old and showing a profit of 53.7%.  Not that this specific trade is doing me any  good because I’m not in it.

To me its a signal that its still  ok to trade in this very changeable, volatile  market.  Up 2% ( $20,000 on a million ) one day and down 2% the next and so on.

I’m beginning to think that our new Fed Chairman, a heralded White Swan could, at some point,  be perceived as  a dreaded Black Swan by Wall Street.

This market is showing me that if you have a queasy  stomach, high momentum stocks are the last place to be.  Give me the far more gentle ride on a SPY, or  VTI.

I do own some stocks because I fancy myself to be something more than an ordinary investor.  Pure hubris on my part.  But, trust me,  I’ve learned my lesson and eagerly await a profitable , safe and final exit from Tesla and Facebook on the shore.

My core ETF  holdings…RPG, QQEW, XLV, ITA, XLF, QQEW, VB, VDE and IBB

My core Equity holdings…FB, TSLA, ITT, GE, CNQ, DFS.

Presently, my consolidated Portfolio is underwater 4.7%.

I intend to hold my positions until VTI tells me otherwise.

Richard Maurice Gore

 

 

 

Sell Signal for Gold – No Foolin !

April 1st, 2014

April 1, 2014

Gold did not survive March.  It closed below its 200 day moving average March 31,  so I sold my entire position this morning at the market open…at a loss of 3 %

On the other hand VTI ended March safely above it’s 200 day moving average.  Price $97.47…..200 day moving average $90.17.

Since its VTI that keeps me in the market, I thought I’d round out a few long positions.  I increased my holdings  in RPG, my #1 position,  ITA, XLV and XLF.

I am very interested in XBI and IBB, but they  represent too much beta for me to deal with at the moment.

Richard Maurice Gore

Cross Currents

March 24th, 2014

March 24, 2014,

VTI ( Vanguard Entire USA Equity Market )  As of the close March 21, 2014, the ETF ….VTI completed 557 days with no sell signal.  Accumulated profit, including dividends,  is 58.37%.    On March 31, VTI’s close, relative to it’s 200 day moving average,  will tell me to stay in or get out of the trade and the surf altogether…except for GLD which has its own month end  eject button..

GOLD ( GLD )   Friday concluded the 15th day of the long trade with a gain of 0.67%.  Yes, I know that the Crimea question looks to be concluded, but that is only part of what’s impacting GLD.  I’m just following the trail to the next bend ( March 31 )  to decide whether to sell.   Or,  add another 3% of my liquid net worth to my GLD  holding because GLD’s 50 day moving average has swung upward to positively intersect its 200 day moving average

QQEW / ZACK February 18 ( Fictional ) Portfolio. This portfolio is down 2.7% since inception.  The portfolio is comprised of any of the 100 stocks in the QQQ  100 Index which are accorded a Rank of 1 ( strong buy ) or 2 ( buy ) by Zacks.  My understanding is that the Zack #1 or # 2 Rank is given only to equities whose performance is derived from positive reporting, especially relating to positive earnings surprises.  This portfolio was constructed to tell me something about the thrust of the market.  Here, two factors could be impacting performance…the harsh impact our weather is having on GDP and/ or the market pausing for a refresher.  So, while the existing VTI signal says its safe to stay in the water. the recent performance of these stocks has me looking over my shoulder to make certain my water wings haven’t sprung a leak.

Think I’ll spend part of today checking the relative performance of some of the sector ETF s  in my portfolio and on my watch list.  These include VDE, ITA, XLF, XIV, XBI, RPG, and VB.

Richard Maurice Gore