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Utilities at the Crossroads

commodities, educational newsletters, ETFS, jay kaeppel, Mutual funds

A lot of eyes are firmly fixed on Utilities at the moment.  And for good reason.  As you can see in Figure 1, the Dow Jones Utilities Average is presently facing a key resistance level.  If it breaks out above the likelihood of a good seasonal rally (more in a moment) increases significantly.

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Figure 1 – Utilities and resistance (Courtesy AIQ TradingExpert)

One concern may be the fact that a 5-wave Elliott Wave advance appears to possibly have about run its course (according to the algorithmically drawn wave count from ProfitSource by HUBB which I use).  See Figure 2.

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Figure 2 – Utilities and Elliott Wave (Courtesy ProfitSource by HUBB)

For what it is worth, the March through July timeframe is “typically” favorable for utilities.  Figure 3 displays the growth of $1,000 invested in the Fidelity Select Sector Utilities fund (ticker FSUTX) ONLY during the months of March through July each year starting in 1982.

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Figure 3 – Growth of $1,000 invested in ticker FSUTX Mar-Jul every year (1982-2018)

For the record:

*# times UP = 29 (78%)

*# times DOWN = 8 (22%)

*Average UP = +9.3%

*Average DOWN = (-5.8%)

*Largest UP = +21.1% (1989)

*Largest DOWN = (-25.8%) (2002)

*Solid performance but obviously by no means nowhere close to “a sure thing”.

*It should be noted that several of the “Down” years occurred when the S&P 500 was already in a pretty clearly established downtrend (2001, 2002 and 2008), i.e., below its 10-month moving average.  See Figure 4.

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Figure 4 – S&P Index w/10-month moving average (Courtesy AIQ TradingExpert)

Summary

Utilities are flirting with new all-time highs and March through July is a “seasonally bullish” period for utilities.  Does that mean “happy days are here again, and we should all be piling into utilities?  Yeah, isn’t that always the thing about the markets?  There is rarely a 100% clear indication for anything.

As always, my “prediction” about what will happen next in utilities is irrelevant and I am NOT pounding the table urging you to pile in.  But I can tell you what I am watching closely at the moment:

*The S&P 500 Index is flirting right around its 10-month moving average (roughly 2,752 on the S&P 500 Index).  If it starts to break down from there then perhaps 2019 may not pan out so well for utilities.

*The Dow Jones Utility Average is facing a serious test of resistance and may run out of steam (according to Elliott Wave).

*But a breakout to the upside could well clear the decks for utilities to be a market leader for the next several months

Focus people, focus.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

It Really Was the Most Platinum Time of the Year; What Time is it Now?

chart patterns, educational newsletters, ETFS, jay kaeppel

In this article I highlighted the fact that platinum tends to be a consistent performer during the months of January and February combined.  2019 held serve as platinum futures registered their 23rd Jan-Feb gain in the last 24 years.  The Platinum ETF (ticker PPLT) registered a two month gain of +9.6%.  See Figure 1.

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Figure 1 – Ticker PPLT (Courtesy AIQ TradingExpert)

Figure 2 displays the updated hypothetical growth of equity achieved by holding long 1 platinum futures contract during January and February every year starting in 1979.

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Figure 2 – Platinum futures $ +(-) during Jan-Feb; 1979-2019

Since most investors will never trade platinum futures, Figure 3 displays the growth of $1,000 invested in ticker PPLT only during Jan and Feb since 2011.

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Figure 3 – Cumulative % growth of $1,000 invested in ticker PPLT ONLY during Jan. and Feb.; 2011-2019

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Figure 4 – Yearly % +(-) for PPLT during Jan-Feb

Going Forward

So platinum was great, but what have you done for me lately?  For what it is worth, historically two sectors that “should” be doing well in the March-April period are energies and grains (please remember that seasonal trends DO NOT always work every year).   As you can see in Figure 5, energies have been rallying since late December (though lots of consternation regarding crude oil remains a constant).

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Figure 5 – Ticker DBE (Energies) – so far so good; (Courtesy ProfitSource by HUBB)

Grains have been a bust so far (their “favorable seasonal period” typically begins in late January-early February – no dice this time around).  Where too from here?  One of two scenarios: either this is just going to be an off year for grains, or right now will be looked back upon as a buying opportunity.  Only time will tell.

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Figure 6 – Ticker DBA (Agricultural) – so far NOT so good; (Courtesy ProfitSource by HUBB)

And of course, don’t forget that the stock market tends to do pretty well March through May….

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The V-Trade, Part 5: Technical Analysis—Moving Average Support & Resistance And Volatility Bands

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The AIQ EDS file for Sylvain Vervoort’s July 2018 article in S&C, “The V-Trade, Part 5: Technical Analysis—Moving Average Support & Resistance And Volatility Bands,” can be obtained on request via email to info@TradersEdgeSystems.com. The code is also available below.

!THE V-TRADE, PART 5
!Author: Sylvain Vervoort, TASC July 2018
!Coded by: Richard Denning 11/15/18
!www.TradersEdgeSystems,com

!ABBREVIATIONS:
C is [close].
C1 is valresult(C,1).
C2 is valresult(C,2).
C3 is valresult(C,3).
C4 is valresult(C,4).
C5 is valresult(C,5).
C6 is valresult(C,6).
C7 is valresult(C,7).
C8 is valresult(C,8).
C9 is valresult(C,9).
C10 is valresult(C,10).
C11 is valresult(C,11).
C12 is valresult(C,12).
C13 is valresult(C,13).
C14 is valresult(C,14).
C15 is valresult(C,15).
C16 is valresult(C,16).
C17 is valresult(C,17).
C18 is valresult(C,18).
C19 is valresult(C,19).
PD is {position days}.
PEP is {position entry price}.

!MOVING AVERAGES:
!SIMPLE MOVING AVERAGES:
smaLen1 is 50.
smaLen2 is 100.
smaLen3 is 200.
esaLen is 20.
esaBandPct is 10.

sma1 is simpleavg(C,smaLen1).
sma2 is simpleavg(C,smaLen2).
sma3 is simpleavg(C,smaLen3).

!LINEAR WEIGHTED 
LWMA is (C*20+C1*19+C2*18+C3*17+C4*16
      +C5*15+C6*14+C7*13+C8*12+C9*11
      +C10*10+C11*9+C12*8+C13*7+C14*6
      +C15*5+C16*4+C17*3+C18*2+C19*1)/210.

!ESA BANDS:
esa is expavg(C,esaLen).
upperESA is esa*(1+esaBandPct/100).
lowerESA is esa*(1-esaBandPct/100).

!BOLLINGER BANDS:
!SET PARAMETERS FOR BANDS:
 BBlen 	is 20.!Default is 20
 Mult1 	is 2. !Default is 2
 Mult2 	is 2. !Default is 2

Variance is Variance([close],BBlen).
StdDev is Sqrt(Variance).
SMA is simpleavg([close],BBlen).
UpperBB is SMA + StdDev *  Mult1.
LowerBB is SMA - StdDev *  Mult2.

ShowValues if 1.

Squeeze if upperESA > UpperBB and lowerESA < LowerBB.

SqIndicator is iff(Squeeze,1,iff(not Squeeze,0,-1)).

Buy if upperESA < UpperBB  and valrule(Squeeze,1)
	 and C > sma3 and C<LWMA. 
Sell if (PD>=3 and  LWMA < valresult(LWMA,1)) or C < PEP.

The EDS file contains the code for the various moving averages mentioned in the article as well as code for the Bollinger Bands and exponential bands. I did not code the SVE bands discussed by Vervoort in his article. I coded a system that uses the concept of a squeeze, as discussed in the article.

A squeeze occurs when the Bollinger Bands are inside the exponential bands. Figure 8 shows a sample trade from the system on NVDA.

Figure 9 shows the EDS summary report for a four-year backtest using the NASDAQ 100 list of stocks.

Sample Chart

FIGURE 8: AIQ. This shows a sample trade from the squeeze system.

Sample Chart

Bean There, Done That

commodities, educational newsletters, jay kaeppel

In this piece I wrote about a strong seasonal tendency in corn based on the planting cycle.  Turns out soybeans are in the same boat.  This can be a good thing for traders who are, a) willing to speculate, b) not dumb enough to the bet the ranch.

The Trend

Figure 1 displays the annual seasonal trend for soybeans (from www.sentimentrader.com).  Just as with corn, the months of February through April tend to see positive results.  Please note the use of the word “tend” and the lack of the words “sure” or “thing”.

bean seasonality

Figure 1- Soybean Annual Seasonal Trend (Courtesy Sentimentrader.com)

The History

Figure 2 displays a monthly chart for soybeans going back 4 decades.

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Figure 2 – Monthly chart for Soybeans (Courtesy ProfitSource by HUBB)

Here are the two things to note (using some pretty technical terms):

*Soybeans (like most commodities)  spend a lot of time “churning”, “grinding”, “consolidating” and generally going “nowhere”

*HOWEVER, “when beans go they really go!” (hopefully that wasn’t “too technical”)

*The primary thing to remember is that when soybeans get going to the upside, typically the best thing to do is to banish the word from “overbought” from your trading lexicon.  See Figure 3.3

Figure 3 – Big moves in Beans (Courtesy ProfitSource by HUBB)

Now let’s focus on the months of February, March and April.  Figure 4 displays the hypothetical $ growth (no slippage or commissions) from holding long a 1-lot of soybean futures during February, March and April every year starting in 1976.

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Figure 4 – Long 1 soybean futures contract during Feb-Mar-Apr every year since 1976

The Results

Some things to note regarding Feb-Apr in soybeans:

*# of times UP = 33

*# of times DOWN = 10

*Average $ gain = +$3,808

*Average $ loss = (-$1,788)

*Largest gain = +$15,025

*Largest loss = (-$3,775)

In sum, a winners to losers ratio of 3.3 (or 76% winners), an average win to average loss ratio of 2.13-to-1

Bottom line: these are great numbers for traders BUT they entail the assumption of significant risk (2017 saw a loss of over -$3,400)

An Alternative Way to Play

Ticker SOYB is the Teucrium ETF designed to track the price of soybeans.  SOYB allows traders to buy soybeans just as they would buy shares of stock.  Just remember that you don’t get the same leverage buying SOYB as you would buying a futures contract.

Figure 5 displays a monthly chart for SOYB and Figure 6 displays a daily chart.  Note the significant resistance level at around $16.96 a share.  If SOYB takes out that level sooner than later it might be a bullish sign.

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Figure 5 – SOYB Monthly (Courtesy AIQ TradingExpert)

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Figure 6 – SOYB Daily (Courtesy AIQ TradingExpert)

Summary

Soybeans have been beaten down a bit over the last several years.  If (and “yes”, that is a big “If”) beans are going to make a move higher, history suggests that the Feb through April period is a likely time for that to happen.

Am I “recommending” or even “merely suggesting” that you should buy soybean futures or ticker SOYB?  Not at all.  I adhere to that old media adage of “We (I) report, you decide.”

Which is better I think than the current motto of major media which appears to be “We decide, then we report our decision.”

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Can Corn?

commodities, educational newsletters, ETFS, jay kaeppel

It’s January.  It’s cold.  And the ground in the Midwest is frozen (and getting more frozen by the moment I might #$%^ add).  So of course, it is time to thinking about planting corn!

Wait, what!?

Well, yes as it turns out just about everyone involved in the agricultural industry has questions (doubts?) about corn planting in the spring and the eventual crop harvested in fall.  And the big questions are, “How will planting go?” and “how much corn will be produced?”  As it relates to corm the whole supply/demand thing you learned about way back when hinges on the ultimate answers to those two questions.

In a nutshell, there is “doubt.”  No surprise really as there is absolutely not a single corn seed planted anywhere in the Midwest at this moment.  So, who knows for sure?

One thing we do know for sure is that a lot of people are aware of this phenomenon in corn and feel compelled to “hedge their bets”, typically on an annual basis.  Figure 1 displays an annual seasonal chart for corn futures from www.sentimentrader.com.1Figure 1 – Annual Seasonal trend for Corn (Courtesy Sentimentrader.com)

As you can see, price strength is typical in the first 4 to 5 months of the year.  This should not be surprising because – as I described above – doubt about supply causes buying pressure (typically).

So for traders the real question is “should I be buying corn in anticipation of buying pressure?”  The answer is “definitely, maybe!”  Let’s take a closer look.

Figure 2 displays spot corn prices since 2001.

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Figure 2 – Spot Corn prices (Courtesy ProfitSource by HUBB)

We can notice two things:

*Corn is presently in a fairly prolonged consolidation/compression range

*Previous consolidation/compression ranges have been followed by some significant advances

Despite this, one should not necessarily assume that corn is about to burst higher in price.  So let’s look at things from a more technical/tactical trading point of view.

How to Play Corn

*The “purest’ play is corn futures.  However, corn futures are not for most people.  In Figure 2, corn is trading at “350”, which equates to $3.50 a bushel in corn futures parlance.  Here is what you need to know:

If one were to buy a corn futures contract at $3.50 a bushel, a move to $4.50 a bushel would generate a gain of +$5,000 and a move to $2.50 a bushel would generate a loss of -$5,000.

In sum, a great way to make a lot of money if you are right and a great way to lose a lot of money if you are wrong.  There is an alternative for the “average” investor.

*Ticker CORN is the Teucrium Corn ETF which allows investors to trade corn like they would trade shares of stock.  Figure 3 displays a daily chart for ticker CORN.

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Figure 3 – Ticker CORN with a significant resistance level around $16.53 (Courtesy AIQ TradingExpert)

Note that I have drawn a horizontal line $16.53, which connect the January 2018 low and the December 2018 high.  As with any line that one might arbitrarily draw on a bar chart, there is nothing “magic” about this price level.  But it does represent a potential line in the sand that be utilized in the following “highly complex” manner:

*CORN above $16.53 = (Possibly) Good

*CORN below $16.53 = Bad

The Choices

So what’s an investor to do?  As always, there are choices.

Choice #1 is flush this idea and forget all about corn.

Choice #2 is to buy now in hopes of an upside breakout, possibly with a stop-loss under the September 2018 low of $15.39.

Choice #3 is to wait for an upside breakout above $16.53 as confirmation that an actual bullish trend is forming.

Summary

I don’t make “recommendations” here at JOTM, so whether you prefer #1, #2 or #3 above is entirely up to you.  The key points though are:

It appears that there may be an opportunity forming (higher seasonal corn prices based on perceptions of problematic weather for planting and a long consolidation/compression in price).

A trader considering this idea needs to make decisions regarding what to trade (futures or CORN ETF), when to actually get in (before the breakout or after) and where to place a stop-loss.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.