Category Archives: ETFS

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.

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.

A Long and Short-Term Bond Market Perspective, Part I

commodities, ETFS, jay kaeppel

Meanwhile, back in the bond market.  Yes, the stock market has been the place for “action” recently.  First a massive decline in short order followed immediately by a stunning advance.  But many investors also look to the bond market in order to achieve their long-term goals.  So, let’s try to put things in perspective a bit.

The Main Points

*Point A: Rates will likely work their way higher over time

There has historically been a roughly 60-year cycle in interest rates (See Figure 1).  If this holds to form, odds are the next 30 years will not look anything like the last 30 years in the bond market, i.e., rates will likely work their way higher over time.

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Figure 1 – 60-year cycle in rates suggest higher yields in years ahead (Source: mcoscillator.com)

*Point B: Investors should be wary of buying and holding long-term bonds

Figure 1 does not mean that rates will rise in a straight-line advance.  But again, odds are that rates will rise over time, so as a result, investors should be wary of buying and holding long-term bonds (as they stand to get hurt the most if rates rise).  That being said, in the short-term anything can happen, and long-term bonds may still be useful to shorter-term traders, BUT…

…Short to intermediate term bond funds are better now for investors than long-term bonds (if rates rise over time investors in short/intermediate term bonds can reinvest more quickly at higher rates, while long-term bond holders just lose principal).

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Figure 2 – Affect of rising rates on bonds of various maturities (Source: AAII.com)

*Point C: It appears to be too soon to declare a confirmed “Bond Bear Market!!!”

Bond yields looked in 2018 like they were staging a major upside breakout – and then reversed back to the downside.  So – Point A above not withstanding – it appears to be too soon to declare confirmed “Bond Bear Market!!!”

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Figure 3 – 10-year treasury yield “breakout fake out” (Source: AIQ TradingExpert)

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Figure 4 – 30-year treasury yield tested 120-month moving average, then failed  (Source: AIQ TradingExpert)

*Point D: Corporate bonds as a whole carry more risk than in years past

The risk associated with corporate bonds as an asset class are higher than in the past due to A) a higher rate of debt, and B) a large segment of the corporate bond market is now in the BBB or BBB- rating category.  If they drop one grade they are no longer considered “investment grade” and many institutional holders will have no choice but to sell those bonds en masse.  Which raises the age-old question, “too whom?”

For more on this topic see here, here and here.5Figure 5 – Rising corporate debt (Source: Real Investment Advice)

*Point E:

On the brighter side, two bond market models that I follow are presently bullish.  More about these in Part II.

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.

When to Buy Energy Stocks

back testing, educational newsletters, ETFS, jay kaeppel, Mutual funds

Crude oil and pretty much the entire energy sector has been crushed in recent months. This type of action sometimes causes investors to wonder if a buying opportunity may be forming.

The answer may well be, “Yes, but not just yet.”

Seasonality and Energy

Historically the energy sector shows strength during the February into May period.  This is especially true if the November through January period is negative.  Let’s take a closer look.

The Test

If Fidelity Select Energy (ticker FSENX) shows a loss during November through January then we will buy and hold FSENX from the end of January through the end of May.  The cumulative growth of $1,000 appears in Figure 1 and the yearly results in Figure 2.

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Figure 1 – Growth of $1,000 invested in FSENX ONLY during Feb-May ONLY IF Nov-Jan shows a loss

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Figure 2 – % + (-) from holding FSENX during Feb-May ONLY IF Nov-Jan shows a loss

Figure 3 displays ticker XLE (an energy ETF that tracks loosely with FSENX).  As you can see, at the moment the Nov-Jan return is down roughly -15%.

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Figure 3 – Ticker XLE (Courtesy AIQ TradingExpert)

All of this suggests remaining patient and not trying to pick a bottom in the fickle energy sector. If, however, the energy sector shows a 3-month loss at the end of January, history suggests a buying opportunity may then be at end.

Summary

Paraphrasing here – “Patience, ah, people, patience”.

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.