Category Archives: ETFS

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

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.

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.

All Eyes on Energy

May 30, 2018ETFS, indexes, jay kaeppel, Uncategorizedadmin

The energy sector – not just unloved, but pretty much reviled not that long ago – is suddenly everybody’s favorite sector. And why not, what with crude oil rallying steadily in the last year and pulling pretty much everything energy related higher with it?

Anecdotally, everything I read seems to be on board with a continuation of the energy rally. And that may well prove to be the case. But at least for the moment I am waiting for some confirmation.

Two Concerns

The first – which I mentioned in this article – is the fact that the best time of year for energy is the February into early May period. See Figure 1.

Figure 1 – Ticker XLE Seasonality (www.Sentimentrader.com)

With that period just about past it is possible that the energy sector may at least pause for a while.

The second concern is that a lot of “things” in the energy sector are presently “bumping their head” against resistance. Here is the point:

*This does not preclude a breakout and further run to higher ground.

*But until the breakout is confirmed a little bit of caution is in order.

I created an index comprised of a variety of energy related ETFs. As you can see in Figures 2 through 4 that index recently was turned away at a significant resistance level.

Figure 3 shows the same information on a weekly chart.

Figure 3 – Jay’s Energy ETF Index – Weekly (Courtesy AIQ TradingExpert)

Figure 4 zooms in to view the action on a daily basis.

Figure 4 – Jay’s Energy ETF Index – Daily (Courtesy AIQ TradingExpert)

As you can see in Figure 4, the index made an effort to break out above the January high then reversed and closed lower before declining a little bit more the next day.

The action displayed in the charts above may prove to be nothing more that “the pause that refreshes.” If price breaks out to the upside another bull leg may well ensue. But note also in Figure 5 that ticker XLE – the broad-based SPDR Energy ETF – demonstrated the same type of hesitation as the ETF Index in the previous charts.

It too faces it’s own significant resistance levels as seen in Figure 5.

Figure 5 – Ticker XLE faces resistance (Courtesy AIQ TradingExpert)

Summary

Energies have showed great relative strength of late even in the context of a choppy stock market overall. So there is no reason to believe that the rally can’t continue. But two things to watch for:

1. If energy related assets clear their recent resistance levels a powerful new upleg may ensue.

2. Until those resistance levels are pierced, a bit of caution is in order. Energy has been the leading sector of late. Any time the leading sector runs into trouble it pays to “keep an eye out” for trouble in the broader market.

No predictions one way or the other – just some encouragement to pay close attention at a potentially critical juncture.

Jay Kaeppel

Does it all Hinge on BID?

May 22, 2018chart patterns, educational newsletters, ETFS, jay kaeppeladmin

The question posed in the title is essentially, “does the fate of the stock market hinge on the action of Sotheby’s Holdings” (ticker BID)? Sotheby’s is the oldest stock on the NYSE and is the only publicly traded investment opportunity in the art market. As the art market is highly sensitive to the overall economy it has been argued that BID is a potential stock market “bellwether”.

Still, the most obvious answer to the question posed above is of course “No.” Of course the performance of the whole stock market does not come down to the performance of one stock. That’s the obvious answer.

The more curious answer is arrived at by first looking at Figure 1. Figure 1 displays a monthly bar chart for BID in the top clip and the S&P 500 Index in the bottom clip. What is interesting is that historically when BID tops out, bad things tend to follow for the broader stock market.

Figure 1 – BID tops often foreshadow SPX weakness (Courtesy AIQ TradingExpert)

Consider:

*The bear market of 2000-2002 was presaged by a dramatic top for BID in 1999, and confirmed again in late 2000.

*The great bear market of 2008 was also preceded by a top and breakdown in BID.

*The 2011 top in BID was followed by a quick but sharp -21% SPX decline.

*The 2013-2014 BID top was followed by roughly 2 years of sideways SPX price action.

*More recently the top in 2017-2018 top has been accompanied by much volatility and consternation in the broader market.

Figure 2 “zooms in” to recent years using weekly data.

Figure 2 – BID Weekly chart (Courtesy AIQ TradingExpert)

In Figure 2 we can see how poor performance for BID presaged an extended period of sideways trading for the SPX. At the far right we can also see that BID is at something of a critical juncture. If it punches through to the upside and moves higher it could be something of an “All Clear” sign for the market. On the other hand, if BID fails here and forms a clear multiple top, well, history suggests that that might be an ominous sign for the broader market.

Other Bellwethers

BID is one of four market “bellwethers” that I like to monitor. The other 3 are SMH (semiconductor index), TRAN (Dow Transports) and ZIV (inverse VIX). You can see the status of each in Figure 3.

Figure 3 – Four stock market “Bellwethers” (Courtesy AIQ TradingExpert)

To sum up the current status of these bellwethers:

*All 4 (including ZIV as of the latest close) are above their respective 200-day moving average. So technically, they are all in “up trends.”

*All 4 are also threatening to create some sort of topping formation.

In sum, as long as all four of these bellwethers continue to trend higher, “Life is Good” in the stock market. At the same time, if some or all of these fail to break through and begin to top out, the broader market may experience more trouble.

Bottom line: Now is a good time to pay close attention to the stock market for “tells”.

Jay Kaeppel

Lines in the Sand; The Bonds, REIT and MLP Edition

April 30, 2018ETFS, indexes, jay kaeppeladmin

Last week I wrote an article purporting to highlight significant levels of support and resistance across a variety of financial markets. Well, it turns out there are more.

More Notes on “Lines”

I certainly look at the markets more from the “technical” side than the “fundamental” side (not even a conscious choice really – I just never really had much success buying things based on fundamentals. That doesn’t mean I think fundamentals are useless or that they don’t “work” – they just didn’t work for me).

Once I settled on the technical side of things, I started reading books about technical analysis. All the classics. I learned about chart patterns and trend lines. By definition, a trend line is a line drawn on a price chart that connects two or more successive lows or highs.

And then I got to work looking through charts and applying everything that I thought I had learned. And like a lot of “newbie” technicians – and a surprising number of seasoned ones – I typically ended up drawing “lines on charts” that would resemble something like what you see in Figure 1.

Figure 1 – “Important” trend lines (or not?) (Courtesy AIQ TradingExpert)

For a technical analyst this is sort of the equivalent of “throwing up” on a chart (and the real pisser was that back in the day a fresh updated booklet of charts would show up in the mail each week – so you had to “throw up’ all over all the charts again and redraw every #$^& “important” line!!).

At some point I realized that perhaps every “important” line that I was drawing on a multitude of charts was perhaps maybe not so “important” after all. This revelation led me to establish the following maxim (as much to force me to “fight the urge” as anything:

Jay’s Trading Maxim #18: If you draw enough lines on a bar chart, price will eventually hit one or more of them.

(See also JayOnTheMarkets.com: The Line(s) in the Sand for Everything)

True Confession Time

There are certain dirty little secrets that no respectable technician should ever utter. But just to “get a little crazy” (OK, at last by my standards – which are quite low, apparently) I’m going to put it down in print:

I hate trend lines

There, I said it. Now for the record, up sloping and down sloping trend lines are a perfectly viable trading tool if used properly. I personally know plenty of people trading successfully using trend lines drawn on a price chart. Sadly, I’m just not one of them.

So remember the lesson I learned the hard way – “There is no defense for user error.”

The full truth is that I have nothing against trend lines, and yes I understand that there are “objective” methods out there detailing the “correct” method for choosing which two points to connect to draw a proper trend line (DeMark, Magee, I think Pring to name a few). But I somehow seem to have failed that lesson.

One Line I Do Like

I still draw slanting trend lines from time to time. But the only lines I really like are lines that are drawn horizontally across a bar chart – i.e., “support” and “resistance” lines. A multiple top or a multiple bottom marks a level where the bulls or the bears made a run and could not break through. Now that’s an “important” price level. If that price level ultimately holds it means the charge failed and that a significant reversal is imminent. If it ultimately fails to hold it means a breakout and a possible new charge to ever further new highs or lows as the case may be (for the record, it could also mean that a false breakout followed by a whipsaw is about to occur. But, hey, that’s the price of admission).

I also like horizontal lines because even if very single horizontal line does not prove to be useful as a trading tool, it can still serve a purpose as a “perspective tool”. Rather than explaining that theory let’s just “go to the charts.”

More “Lines in the Sand”

Figure 2 displays an index of bond and income related ETFs that I created. Roughly half of the ETFs have a higher correlation to treasury bonds and the other half to the S&P 500 Index (i.e., CWB – convertible bonds, JNK – high yield corporate, PFF – preferred stock and XLU – utilities all react to interest rates but are more correlated to the stock market than to treasury bonds).

Figure 2 – Bond and Income Related ETF Index (Courtesy AIQ TradingExpert)

This monthly chart clearly illustrates the struggle going on in the interest rate related sector. Interest rates mostly bottomed out in 2013 and have been grinding sideways to higher since. As you can see, interest rate related securities have been trapped in a sort of large trading range for years. Eventually, if the long-term trend in rates turns higher this chart should be expected to break through the lower (support) line Figure 2.

Still focusing on interest rate related sectors, Figure 3 displays a monthly index comprised of 3 REITs. Talk about a market sector trapped in a range.

Figure 3 – REIT Index; Monthly (Courtesy AIQ TradingExpert)

For what it is worth, Figure 4 displays a weekly chart of the same index with an indicator I call Vixfixaverage (code for this indicator appears at the end of the article). Typically, when this indicator exceeds 60 and then tops out, a decent rally often ensues (one word of warning, there is also often some further downside before that rally ensues to caution is in order).

Figure 4 – REIT Index; Weekly (Courtesy AIQ TradingExpert)

Speaking of oversold “things”, Figure 5 displays an index of Master Limited Partnerships (MLP’s). As you can see in Figure 5, a) divergences between price and the 4-month RSI are often followed by significant rallies, and b) a new such divergence has just been established. Does this mean that MLP’s are destined to rally higher? Not necessarily, but given the information in Figure 5 and the fact that everybody hates MLP’s right now, it’s something to think about.

Figure 5 – MLP Index (Courtesy AIQ TradingExpert)

AIQ TradingExpert Code for Vixfixaverage

hivalclose is hival([close],22).

vixfix is (((hivalclose-[low])/hivalclose)*100)+50.

vixfixaverage is Expavg(vixfix,3).

Jay Kaeppel

What to Watch in Energies

April 20, 2018commodities, educational newsletters, ETFS, jay kaeppeladmin

With crude oil hitting its highest level since November of 2014, the energy sector is suddenly drawing a lot of interest. But there are few caveats that investors might want to keep in mind before getting too far ahead of themselves.

(BTW: If you enjoy reading JayOnTheMarkets.com – heck, even if you hate reading JayOnTheMarkets.com – please tell others and encourage them to stop by, “Like” an article, link an article, etc.. Thanks, The Management)

Energy Seasonality

Figure 1 (from www.Sentimentrader.com, which is quickly becoming one of my favorite sites) displays the annual seasonal calendar for ticker XLE – the SPDR Energy ETF. While it should be pointed out that it certainly is not like every year plays out like this chart, the primary point is that the “meat” part of year of from the end of January through the end of April is nearing the end of the line.Figure 1 – XLE Seasonality (Courtesy: www.Sentimentrader.com)

XLE Overhead Resistance

XLE has had a terrific month of April, rallying over 14% since the low on 4/2. And while it has been an impressive show of momentum, a look at the “bigger picture” points to some key levels of potential resistance just ahead.

Figure 2 is a monthly bar chart of XLE with two significant resistance levels drawn (at roughly $78.25 and $80.50). XLE has failed twice previously at roughly $78.40 – in December 2016 and again in January of 2018.Figure 2 – XLE Monthly with overhead resistance (Courtesy ProfitSource by HUBB)

On the plus side, XLE is clearly trending higher at the moment and there is still another 6.4% and 9.4% of upside potential between the current price and the resistance levels drawn in Figure 2. So short-term upside potential remains.

The only real “warning” I am raising is to pay attention to “what happens (if and) when we get there” (“there” being the $78.25-$80.50 range).

Jay’s Energy ETF Index

I created and follow an index of all manner of energy related ETFs (it combines traditional fossil fuel related ETFs with alternative energy source ETFs). A monthly chart with a significant resistance level drawn appears in Figure 3.Figure 3 – Jay’s Energy ETF Index (Courtesy AIQ TradingExpert)

Figure 4 “zooms in” on Figure 3 using a daily bar chart of my Energy ETF Index. As you can see, as nice as the latest rally has been, there is a “day of reckoning” looming out there somewhere if the energy sectors keeps going and retests this significant level.

Figure 4 – Jay’s Energy ETF Index; Daily (Courtesy AIQ TradingExpert)

For the record this index is comprised of:

GEX – Alternative Energy

KOL – Coal

LIT – Lithium

NLR – Nuclear

OIH – Oil Service

TAN – Solar

UGA – Gasoline

UHN – Heating Oil

UNG – Natural Gas

URA – Uranium

USO – Crude Oil

XLE – Energy Sector

Summary

Some might interpret this piece as a bearish to neutral word of warning related to the energy sector. In reality I am pretty agnostic when it comes to energy and (sadly) can’t offer you a “prediction” that would do you any good.

But I will be watching closely to see what happens to XLE and my own index if and when the key resistance levels are tested – especially if that test occurs after the end of the most favorable February through April period.

Commodity related assets – such as energy, especially fossil fuels – appear “due” for a favorable move relative to stocks. If and when these key resistance levels are pierced we could see an “off to the races” situation unfold.

Until then, be careful about “bumping your head.”

Jay Kaeppel