Archive for July, 2014

July 31 All Clear

Thursday, July 31st, 2014

July 31, 2014

No black swans in sight.

My technical barometer, the Vanguard VTI ( total  stock market ) trade of December 30, 2011 , in which I have no investment, is now 647 days old and returning 66.36%.  For my purposes it confirms stock market trend until August 31.  At that time, I’ll look to see if VTI’s price is still above it’s 2oo day moving average.  If it is, my technical barometer signals positive.  If VTI’s price is below it’s 200 day moving average, I sell everything and wait at least  until October 1, for  a safe to re-enter signal.

Confirming my technical barometer is my take on global interest rates.  European central banks are attempting to reflate similar to our early QE  efforts. by pumping money into their economies.  This money  will flow to the highest return ( after considering risk ).  That means that the US 10 year treasury note ( yielding 2.5 % ) is competing for new money with say  Spain’s risky debt at  approximately  the same interest rate.  Let’s say ( and I do say ) it is  logical for a lot of this new money to flow here to relatively risk free instruments. In this market, the yield on bonds competes for money with the earnings yields  ( earnings divided by price )  on stocks..  As more overseas investors move money the Dollar will strengthen, the Euro will weaken and Gold will weaken and bond yields will exhibit a downward bias as bond prices are bid up.  Now entering the ring is USA stocks whose earnings yields are widening in relation to USA bonds  ( whose yields are under downward pressure because of increased demand and shrinking supply) .  And the winner is…..USA stocks.  For me, this is additional confirmation that the positive trend for stocks continues.

My QQQ/Zacks theoretical  portfolio of February 18, plus 10.2%, is outperforming  SPY. But, this is momentum stuff and can turn on a dime and underperform SPY on the downside.

But, this outperformance has caused me to invest ( as of yesterday ) $28,000 in the seven Zacks number 1 rated equities which appear as a component of the QQQ 100. How is that for no research !  Just Zacks opinion and being a component of the outperforming QQQ 100…since April 30. I invested $7,000 apiece in  Avgo Technologies, Broadcom Corp., Celgene, Charter Communications, F5 Networks, Intel and Nividia. This portfolio will be on a very short leash.

I will continue to Dollar Cost Average into SPY….( 1/12 of my remaining cash ) using VTI rules.

I will continue to monitor daily  volume activity of a whole host of  equities and ETFs I’m interested in.

And I will get back to you, new IRA investors,  to let you know what I’m up to and why.

 

Richard Maurice Gore

PS – With the market falling today as a result of overseas debt problems – I will postpone my SPY purchase for a day or two to see if I can purchase at a more attractive price. My thesis still stands.  Fear money arriving from Europe will only serve to lower US Bond yields making US stock yields even more attractive on a relative basis.  The dollar is strengthening as the fear level rises. Here comes the money !

PS 2-  I don’t see Argentina and Portugal as Black Swan events because third world debt problems are no surprise to the global market.  Maybe this is a good opportunity to shake equities from weak hands.  The 200 day moving average model is good till August 31.  Could be a long 30 days. !

PS3 – According to Friday NY Times , citing Bloomberg as its source,  the yield on the 10 year Treasury note is less than half it’s fifty year average.  Compare that to the projected earning yield on USA stocks and I think it makes a pretty compelling case for the continuance of the USA bull market  ..especially against the backdrop of Europe creating even cheaper money to spur reflation.

 

 

 

 

 

 

 

 

Second Thoughts on Gold

Friday, 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 )

Wednesday, 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