Category Archives: indexes

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

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.

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.

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

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

“Yes”, We are at a Critical Juncture

April 6, 2018indexes, jay kaeppel, market timingadmin

There are times when the market just moves along from day-to-day and us “junkies” might hang on every move but to the average investor what happens today or tomorrow is really not all that meaningful in the whole big spectrum of things.

And then there are times like now. As you can see in Figure 1, the major market indexes are struggling and are testing their respective 200-day moving averages. How this “dance” plays out may have important implications for virtually all stock market investors.

(click to enlarge)

Figure 1 – Major indexes “on the edge” (Courtesy AIQ TradingExpert)

First off let me say this: There is nothing “magic” about a 200-day moving average. It was interesting that the other day when the S&P 500 Index closed below its 200-day average (it was the only major index to do so) roughly 22,367 articles appeared on the internet sounding the alarm. Now I do pay a lot of attention to moving averages, but more to get a sense of trend than as automatic buy and sell triggers. Which leads me to invoke:

Jay’s Trading Maxim #81: Contrary to popular belief, a price drop below a “key” moving average does NOT imply the onset of immediate and total Armageddon.

And

Jay’s Trading Maxim #81a: Um, but it could. So best to pay attention.

3 Possibilities

Actually there are a few others but the most likely outcomes – and the implications – are:

1. A reversal back to the upside – If the major averages hold here above their recent lows. If this happens a strong rally to the upside is a strong possibility. Which is one reason it is too soon to “jump ship.”

2. A breakdown by all major indexes – If a majority of the major indexes break down below their recent lows investors are urged to take defensive measure. Whether that involves selling shares/funds/ETFs/etc or hedging with options and/or inverse products is up to each investor.

3. A whipsaw – One other dreaded possibility involves both of the above – i.e., the average break down far enough briefly to trigger a defensive action only to quickly reverse back to the upside. This often leaves a lot of investors standing there dumbstruck and unable to pull the trigger to get back in.

Like I said, this is a critical juncture. Whatever happens, investors need to pay attention and stand ready to, a) do nothing, or, b) take defensive action, or, c) take defensive action and then undo the defensive action and get bullish again (in the event of a whipsaw).

Steady, people, steady….

Jay Kaeppel