Archive for May, 2014

May ” Go Away ” Update

Saturday, 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 ……..?

Wednesday, 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

Monday, 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