Category Archives: educational newsletters

Dollar and Gold ‘To the Barricades’

July 13, 2018chart patterns, educational newsletters, ETFS, jay kaeppeladmin

This week it is the U.S. dollar and Gold taking their turns testing critical inflection points.

U.S. Dollar

As you can see in Figure 1, on a seasonal basis the dollar is moving into a traditionally weaker time of year.Figure 1 – U.S. Dollar seasonality (Courtesy Sentimentrader.com)

In Figure 2 you can see that traders have been and remain pretty optimistic. This is traditionally a bearish contrarian sign.Figure 2 – U.S. Dollar trade sentiment (Courtesy Sentimentrader.com)

In Figure 3 we see the “line in the sand” for ticker UUP – an ETF that tracks the U.S. Dollar. Unless and until UUP punches through to the upside there is significant potential downside risk.Figure 3 – U.S. Dollar w/resistance (Courtesy AIQ TradingExpert)

Gold

As you can see in Figure 4, on a seasonal basis the dollar is moving into a traditionally stronger time of year.Figure 4 – Gold seasonality (Courtesy Sentimentrader.com)

In Figure 5 you can see that traders have been and remain pretty pessimistic. This is traditionally a bullish contrarian sign.Figure 5 – Gold trader sentiment (Courtesy Sentimentrader.com)

In Figure 6 we see the “line(s) in the sand” for ticker GLD – an ETF that tracks gold bullion.

Figure 6 – Gold w/support (Courtesy AIQ TradingExpert)

I would be hesitant about trying to “pick a bottom” as gold still looks pretty week. But if:

a) GLD does hold above the support area in Figure 6 and begins to perk up,

AND

b) Ticker UUP fails to break out to the upside

Things could look a lot better for gold very quickly.

Summary

As usual I am not actually making any “predictions” here or calling for any particular action. I mainly just want to encourage gold and/or dollar traders to be paying close attention in the days and weeks ahead, as the potential for a major reversal in both markets appears possible.

Likewise, if no reversal does take place – and if the dollar breaks out to the upside and gold breaks down, both markets may be “off to the races.”

So dollar and gold traders – take a deep breath; focus your attention; and prepare for action…one way or the other.

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.

Here Are The Warning Signs to Watch For

July 5, 2018chart patterns, educational newsletters, ETFS, group and sector, indexes, jay kaeppeladmin

Here’s a number for you – 88%. Since 1948, over any 10-year period the Dow has showed a gain 88% of the time. That’s a pretty good number. It also explains why we should give bull markets the benefit of the doubt (for the record, if you only hold the Dow between the end of October and the end of May every year you would have a showed a 10-year gain 98% of the time! But this article is not about seasonality per se, so that’s a topic for another day).

Of course, there is a lot of variability along the way, and if you Google “current signs of a bear market” you come up with 4,280,000 articles to peruse. So, few investors ever feel “contented”. We’re always waiting for the “other shoe to drop.”

Some Warning Signs to Look For

#1. Major Indexes

Figure 1 displays the four major average – Dow, S&P 500, Nasdaq 100 and Russell 2000 with their respective 200-day moving averages. In the last few days the Dow slipped a little below its 200-day average, the other three remain above.

(click to enlarge)Figure 1 – Four major market averages with 200-day moving averages (Courtesy AIQ TradingExpert)

Warning Sign to Watch For: If 3 or more of these averages drop below their 200-day moving average.

#2. Market Bellwethers

Figure 2 displays my four market “bellwhethers” – tickers SMH (semiconductors), TRAN (Dow Transports), ZIV (inverse VIX) and BID (Sotheby’s Holdings) with their respective 200-day moving averages. At the moment only ZIV is below it’s 200-day moving average but some of the others are close

(click to enlarge)Figure 2 – Four market bellwethers with 200-dqy moving averages (Courtesy AIQ TradingExpert)

Warning Sign to Watch For: If 3 or more of these averages drop below their 200-day moving average.

#3. S&P 500 Monthly Method

In this article I detailed a simple timing method using S&P 500 Index monthly closing prices. Figure 3 show the S&P 500 Index with it’s “trigger warning” price of 2,532.69 highlighted.

(click to enlarge)Figure 3 – S&P 500 Index Monthly Method Trigger Points (Courtesy AIQ TradingExpert)

Warning Sign to Watch For: If SPX closes below 2532.69 without first taking out the January high of 2872.87

#4. International Growth Stocks

When growth stocks around the world are performing well, things are good. When they top out, try to rebound and then fail, things are (typically) not so good. The last two major U.S. bear markets were presaged by a break in ticker VWIGX (Vanguard International Growth) as seen in Figure 4.

(click to enlarge)Figure 4 – Dow Jones Industrials Average (top) and previous warnings from ticker VWIGX (bottom)(Courtesy AIQ TradingExpert)

Warning Sign to Watch For: Technically this one is currently flashing a warning sign. That warning will remain active unless and until VWIGX takes out the January high of 33.19.

#5. The 10-Year minus 2-Year Yield Spread

This is one of the most misrepresented indicators, so I will state it as plainly as possible:

*A narrowing yield curve IS NOT a bearish sign for the stock market

*An actual inverted yield curve IS a bearish sign for the stock market

Figure 5 displays the latest 10-year minus 2-year spread. Yes, it has narrowed quite a bit. This has launched a bazillion and one erroneously frightening articles. But remember the rules above.

(click to enlarge)Figure 5 – 10-year treasury yield minus 2-year treasury yield (Courtesy: www.StockCharts.com)

Warning Sign to Watch For: If the 10-year yield minus the 2-year yield falls into negative territory it will flash a powerful warning sign for the stock market and the overall economy. Until then ignore all the hand-wringing about a “flattening” yield curve.

Summary

We are in a seasonally unfavorable period for the stock market and – as always – we are bombarded daily with a thousand and one reasons why the next bear market is imminent.

So my advice is to do the following:

1. Ignore it all and keep track of the items listed above

2. The more warning signs that appear – if any – the more defensive you should become

In the meantime, try to go ahead and enjoy your summer.

Jay Kaeppel

What in the World to Watch

June 21, 2018educational newsletters, ETFS, indexes, jay kaeppeladmin

If an investor were to sit down and peruse the Web looking for guidance regarding the stock market, there is a good chance they would come away bewildered and confused.

So, let’s try to simplify things a bit.

The Current Trend

Here I will defer to:

Jay’s Trading Maxim #14: When in doubt, usually the best question to ask is “What is the trend right now?”

There are always a million and one reasons why an investor may feel doubt. But answering that simple question can often lead to a much greater deal of clarity. Like now for instance.

In Figure 1 we see the Dow, Nasdaq 100, Russell 200 small-cap index and the S&P 500. The key thing to note is that all 4 of them are above their respective 200-day moving average, i.e., “right now” the trend is up.

Which leads to:

Jay’s Trading Maxim #14a: If the trend right now is “Up”, act accordingly. At least until the answer changes.

Figure 1 – Major U.S. Indexes in Up Trends (Courtesy AIQ TradingExpert)

SPX Monthly Trend-Following

I wrote here and here about a simple monthly trend-following method using the S&P 500 Index.

This method gave an “alert” when the S&P 500 went 3 calendar months (Feb, March and April) without making a new high.

The “line in the sand” is the low during this period of 2532,69. As long as price holds above this level, this method deems the trend as still “Up”.

It will take a move above the January high 2872.87 to eliminate this line in the sand. Between here and there there is resistance at 2801.90.

Figure 2 – S&P 500 Index key support and resistance (Courtesy AIQ TradingExpert)

The (Problematic) World

I am not speaking in any geopolitical sense here. And I don’t want to sound like the Ugly American. But while the U.S. stock market is “taking care of business” and moving higher, the stock markets of much of the rest of the world are not. And I am not sure if I should worry about this or not.

But for what it is worth, all 4 regional single country ETF indexes that I created (Americas, Asia/Pacific, Europe and Middle East) and follow are not looking terribly inspiring at the moment.

(click to enlarge)

Figure 3 – The Rest of the World Lags (Courtesy AIQ TradingExpert)

Summary

The trend “right now” is “Up”. So enjoy.

But maybe check back again soon. Just in case.

Jay Kaeppel

World, Interrupted

June 18, 2018educational newsletters, ETFS, indexes, jay kaeppeladmin

I suppose a more accurate title would be, “A Bunch of Single Country ETFs, Interrupted”, but, well, that just doesn’t have quite the same succinct simplicity.

I always (always, always) try to make an effort to focus on “the current trend” and to avoid focusing on things that “maybe might prove to be ominous signs in retrospect” or to imply that a certain tidbit of information is predictive when in reality it is mostly just anecdotal. Still, human nature is – unfortunately, in this case – a powerful force. Which reminds me to invoke:

Jay’s Trading Maxim #17: Human nature is a detriment to trading and investment success, and should be avoided as much as, well, humanly possible.

The bottom line is that despite my very own warnings and admonitions, sometimes that pesky human nature gets the best of me.

What Has My Attention

OK, rather than me telling you what I think, please simply peruse the charts in Figures 1, 2 and 3 and see if anything jumps out at you.

(click to enlarge)

Figure 1 – India, Sweden, Japan, Germany (clockwise); (Courtesy AIQ TradingExpert)

(click to enlarge)

Figure 2 – Switzerland, Netherlands, South Korea, Austria (clockwise); (Courtesy AIQ TradingExpert)

(click to enlarge)

Figure 3 – South Africa, China, Taiwan, Thailand (clockwise); (Courtesy AIQ TradingExpert)

Perhaps you noticed the same thing I did, i.e., a whole bunch of single country ETF’s hitting new highs or testing old resistance and getting rejected. In a number of cases, after appearing to break out to new highs for a period of weeks or month only to fall back below the “line in the sand.”

It’s sort of like the World Cup of Failed Breakouts.

Summary

Now here’s the thing. I have displayed a bunch of charts that anecdotally seem to imply something bearish. To spell it out, failed breakouts are often – though definitely not always – followed by something much worse.

So the line of reasoning goes like this, “If the stock market in umpteen countries is failing to advance then this must be a bad thing.”

But the reality is that all these markets have to do is rally and this whole sort of made up area of concern goes away.

Still, until that actually happens I think I will:

a) Enjoy the rally here in the U.S.

b) Remain vigilant

It seems like a reasonable plan.

Jay Kaeppel

Buy Low(?)

June 8, 2018educational newsletters, ETFS, group and sector, indexes, jay kaeppeladmin

There are a lot of ways to play this game.

For the record, I am a big believer in trend-following. Picking tops and bottoms with any consistency is essentially impossible (at least in my opinion and/or experience). So from that perspective going with the trend makes a lot of sense. I am also a big believer in relative strength. Much evidence over the years suggests that buying what is “already moving” is a very viable approach to investing. Other studies have demonstrated pretty clearly that you are generally much more likely to succeed by buying stocks making new highs than by buying stocks making new lows.

These approaches make good sense and they work very well over time. Despite this many (most?) investors still feel those pangs to “buy low” in hopes of getting in early and riding a major trend. And the truth (I think) is that this can work too, if done correctly.

Like I said, there are a lot of ways to play this game. But there is a definite “right” way and “wrong” way when it comes to “buying low.”

Buying Low (The Wrong Way): Buy things are plummeting or that have recently plummeted.

The Right Way (The Right Way): Buy things that have, a) plummeted, b) stopped plummeting and, c) have since been moving sideways for some period of time.

Last year I wrote about a “Buy Low” portfolio that I had concocted at the time. Unfortunately, several of the ETFs involved have since ceased trading. So in this piece I will introduce my updated “Buy Low” portfolio. For the record – and as always – I am not “recommending” this portfolio. It is essentially an experiment in one alternative approach to investing.

The “Buy Low” Portfolio

The Buy Low Portfolio consists of the following ETF’s and ETN’s:

CANE – Tecrium Sugar

JJOFF – Coffee Subindex Total Return

DBA – PowerShares Agricultural

WEAT – Tecrium Wheat

GLD – StreetTracks Gold Trust

PPLT – ETFS Physical Platinum Shares

SLV – iShares Silver Trust

GDX – Market Vectors Gold Miners

UNG – United States Natural Gas

URA – Global X Uranium

Monthly charts for these tickers appear in Figures 1 through 3. A chart of the composite index I created by combining all of these appears in Figure 4 (Click any chart to enlarge).

Figure 1 – CANE/DBA/GDX/GLD (courtesy AIQ TradingExpert Pro)

Figure 2 – JJOFF/PPLT/SLV/UNG (courtesy AIQ TradingExpert Pro)

Figure 3 – URA/UNG (courtesy AIQ TradingExpert Pro)

Figure 4 – Buy Low Composite Index (courtesy AIQ TradingExpert Pro)

Editors note: To create an index like Jay’s Trending Low, follow the instructions at the end of this article ‘Creating an index for a group of tickers in Data Manager’

Summary

Securities that have plummeted in price and then moved sideways for a period of time can (unfortunately) continue to move sideways for quite a while longer before (hopefully) breaking out to the upside. Even worst, they can also fail and breakdown through the previous low. But extended consolidation patterns are often followed by something good.

As you can see all of the tickers in the list above are commodity related. As I’ve written about here and here there is reason to believe that commodities will outperform in the years ahead. That being said, with the stock market rallying in the near-term and with the U.S. Dollar strong there is no compelling reason to think that this “Buy Low Portfolio” is going to make a lot of headway anytime soon.

The Index in Figure 4 is presently 8.2% above its January 2016 low. As long as that low holds I’ll give this experiment more time to work out.

Jay Kaeppel

Creating an index for a group of tickers in Data Manager

NOTE: tickers with X in list need to be added to the Data Manager as new tickers and downloaded from your data service

When you create an index for a group of tickers, you can display a chart of the index as well as the underlying tickers. A group index can be analyzed on charts using technical indicators, and Expert Ratings are generated for the group index (except for mutual fund
groups).

The procedure for creating an index for a group of tickers is as follows:

First, create a group ticker for the index.
Then create a list to insert the group ticker into.
Add tickers to the group.
Finally, create the index by executing the Compute Group/Sector Indices function.

To create an index for a group of tickers, follow the steps below.

First, create a group ticker:

1. First, add a new group ticker to your Master Ticker List. Select the
Ticker command on the menu bar. Then select New to display the
New Ticker dialog box.
2. Enter a ticker for the new group, then be sure to enter the proper
Type designation (group or mutual fund group).
3. Click OK, and the second dialog box for entering a new ticker
appears.
4. Type in a name (Description) and the First Date for data. The
remaining default settings on this second dialog box can remain the
same.
5. Click OK and the group ticker is added to your Master Ticker List.

Then, create a list to insert the group ticker into:

1. Select the List command on the menu bar.
2. Select New on the drop-down menu and a dialog box appears.
3. Type in a name (8 characters maximum) in the text box.
4. Click OK and the list name appears in the Selected List text box
located on the toolbar.
5. The list name is also displayed in the List window. Insert the group
ticker from your Master Ticker List under the list name. To insert a ticker directly under a list, do the following:

Highlight (by clicking) the group ticker in the Master Ticker List.
Click the list name in the List window.
Click the Insert to List button on the toolbar (or select the Insert Ticker command from the List sub-menu).
The group ticker will appear in the List window under the list name.

6. Next, insert tickers into the group. To insert tickers into a group:
Under the new group, insert all of the tickers that will make up the
group by doing the following:

Select the group ticker in the List window by clicking on it.
Select in your Master Ticker List the tickers that you want to add to the group. If you are inserting multiple tickers, hold down the Ctrl key while clicking each ticker.
Click the Insert to List button on the toolbar (or select the Insert Ticker command from the List sub-menu).
The tickers will appear in the List window under the group ticker.

7. Finally, compute the index for the new group. To compute a group index:

Select Compute Group/Sector Indices from the Utilities sub-menu.
In the Compute Group/Sector Indices dialog box, click the Compute List(s) option button.
In the text box for Compute List(s), select the name of the list you created above.
Under Range, choose Update from Last Date of Data and click OK.