Monthly Archives: November 2013

Good Evening Folks

I wanted to send out an update before a lot of my audience goes out on leave / steps away from their computers during Thanksgiving week…  Some interesting topics are covered in this update, and I promise that you won’t be bored (or puzzled by over-technical terminology, which I have always sought to avoid).

I have received some great reader emails over the last week or so, thank you for the positive comments.   One common question remains “when you change your current TSP allocation, what do you mean by that”.   I ask that if you have that question, please take a look at the FAQ #10, as it is discussed there.  

A review of recent trading activity on the SP 500, which is my personal “go-to” index for market health and analysis, shows that the index made yet another All Time High on November 22, 2013, reaching 1804.84.   See chart below:

The new highs during recent days have been on lackluster volume, which is the only negative in an otherwise positive situation.   As I have explained in prior posts, volume is the “horsepower” behind a price move…we ideally want new highs to be made on average to (more preferred) above average volume.   However, I will take new highs, if that’s all I can get.   The prior week’s trading reflects that small-cap stocks (S-Fund) outperformed large caps, however a longer look-back reflect that large-caps (C-Fund) are still outperforming on a two to four week view.   Simple version, my current TSP Allocation of 50% S-Fund and 50% C-Fund is probably the most ideal allocation right now.

I wanted to post a 2013 article from Federal News Radio, regarding a reader letter (to Federal News Radio), from a member of the TSP Millionaires club.   As most of my subscribership knows, I feel that the G-Fund is best for safety and protection, not for gains.  I also feel that it is wise to move to G-Fund when the market itself (not somebody’s crystal ball) signals possible trouble ahead.   With that diatribe over, allow me to post a link, and cut and paste (in italics) portions of the article.   Article is property of Federal News Radio and is not mine.

http://www.federalnewsradio.com/20/3458095/Federal-TSP-millionaire-tells-how-to-join-the-club

“…I am one of the 929 TSP millionaires mentioned in your column. Not born with a silver spoon in my mouth either, for growing up, my family never even had a car. I’m 58 years old and have over $1 million in the TSP, beginning with contributions 25 years ago. Attached is a plot showing how it happened, by putting the maximum amount available (although past 50, due to other financial obligations I did not even add the catch-up available for 50+). I did make sound investments with timing, for I made double-digit growth extraordinaire during the booms, and was fortunate to avoid the busts by moving it temporarily to the G fund. I have some advice that I think you should offer the young bloods out there joining the federal government and that they must contribute their maximum amount to the TSP. That is rule #1.

There you go folks, someone independent of this site with a similar opinion regarding the G-Fund.   You know my opinions regarding buy-and-hold, versus the usage of the other funds as tactical protection vehicles.   Some other sites have differing views on topics such as Buy and Hold, the use of the G-Fund, and other stuff.  Welcome to America, we all can have a voice.   But read the TSP Millionaire’s letter, to another very reputable site, and make your own decision on what works and what doesn’t.   If folks want to Buy-and-Hope Hold during bear markets such as 2000-2002 or 2007-2009, hey good luck, just don’t take your buddies with you.

As a transition to that, I noticed in the media some Market Bears coming out of the woods.   As many know, a “Bear” is someone who believes the market will be going down soon (“soon” never being clearly defined) and that doomsday is around the corner.  Allow me to post some links

Goldman Sachs predicts 10% drop in SP 500  This is an interesting article, you have to love the folks who stick their neck outs a little bit, but not too much, as they can claim “being right” if they indeed get their predictions accidently correct, and if they are wrong, well no big deal, they weren’t predicting anything huge anyway.    Kind of like that guy at work, who we all know, who silently applied for a promotion, and when prompted by a colleague, his response is “I am not expecting it, I doubt I will be pulled away from (insert name of incredibly important project here) that I am working on” or similar statement.   I mean, if he is not promoted, this guy is “right” and can take credit for his accurate prediction.   If he is wrong, well, he gets promoted and tells everyone how “shocked” he was.   Bro, come on.    The better answer is “Yeah Larry, I applied, lets see what shakes out.”

Market may Tank  An entertaining article with interesting adjectives to include the word “overstretched” and stones going over cliffs.   Yet another mention in the press of “the economic cycle.”    Do ANY of these authors understand that the stock market is a LEADING INDICATOR of the economic cycle ?   If you WAIT for the economic cycle to become healthy/reflect healthiness, and THEN invest in stocks, you will be buying very likely as the market’s fuel tank is about to hit empty and come to a halt.   No wonder (unfortunately) most of the public cannot amp-up their returns, it’s not their fault, it is the fault of the media and the “experts” out there.   In the “don’t take my word for it” (TSP Millionaire letter is also in that category) category, lets link over to New York’s Stern Business school.

 The current index of leading indicators (it changes from time to time) combines the following series:

Leading Indicators

1. Hours of production workers in manufacturing

5. New claims for unemployment insurance

8. Value of new orders for consumer goods

19. S&P 500 Composite Stock Index

Doomsday Investors – Market may Crash  May 24 2013 article claiming market will crash.  Posted on CNN Money, with who knows how many millions of viewers.   I have no data regarding how many grandmothers cashed out their E-Trade account after reading this article.  I hope not many.   May 24 2013 SP 500 close was 1650.51.   Nov 22 2013 SP 500 close was 1804.76, reflecting a gain of approximately +9.3 %

So there you go folks, while I can’t tell anybody to completely stop reading market news (and yes, I watch CNBC, read WSJ, etc.), I ask that you exercise some skepticism when you listen to purported experts or read things (and yes this includes this site.   Put that in the “refreshingly honest” category).    Take everything with a grain of salt and at the end of the day, do what makes you feel most comfortable.

With that said, a quick Nov-24 evening look at the SP 500 futures reflect yet another new high on that index (the futures index).   See chart below

As can be seen, the SP 500 futures index hit 1809.25, before pulling back slightly.  While my crystal ball is still inop, my opinion is that this is possibly a positive response to the recent Iran/USA nuclear agreement signed over the weekend, which is apparently not a final-final agreement but a “first step” towards a larger agreement.  Crude Oil futures went lower as a result, and everybody likes cheaper gasoline for Holiday Travel (whether this will show up at the pump is yet to be seen).   However, any stability (perceived or not, perception is reality) in the middle east, especially regarding OPEC members and countries with nuclear capability, is likely a positive for the markets.  SP-500 Sunday evening futures typically are a reliable indication of how the Monday daytime trading on the stock exchanges will be.

During this upcoming Thanksgiving week, trading will be very light (markets are closed on Thanksgiving day) and as such, any behavior in the markets this week will not be genuine signals of anything important.   Expect light back-and-forth, mostly flat trading.

In closing, my personal TSP Allocation remains 50% S-Fund and 50% C-Fund.   I hope you enjoyed this most recent update, and I ask that you please share this site with your friends and co-workers (my free site’s revenue stream [zero] cannot afford advertisements in the Wall Street Journal).   

Everybody have a GREAT THANKSGIVING and talk to you soon.  Remember, one day of defrost per 5 pounds of frozen turkey.   Know that now or deal with a divorce attorney later.   Been there, done that…..  

– Bill Pritchard

Hello everybody

On todays date, Nov-13, the SP 500 made a new 52 week high of 1782.00, and penetrated the previous 1775 overhead resistance level, which has existed since approximately Oct-29.   Since Oct-29, until today, the index has frustratingly remained within a narrow 1755-1775 channel, ping-ponging back and forth between those levels.  Today’s volume was average and nothing earth shattering, which is a disappointment in light of the new 52 week high.  I prefer to see volume 25% or more, above and beyond the average daily trading volume, to really give me a solid feeling of confidence.  The lack of volume is reflective that the new high may not be sustainable and the index may drift back down again.  However “new 52 week highs” flashing across the headlines will stimulate optimism and lift people’s spirits, and possibly encourage more investing, so nothing wrong with that.  Investors Business Daily newspaper, which is very credible and one of the tools in my toolbox, after observing today’s new high, has advised subscribers that the “uptrend continues.”

Let’s take a look at the chart below:

As far as the overall broader markets are concerned, today small cap stocks (represented by the S-Fund) outperformed all other stocks, with large caps stocks coming into second place (represented by the C-Fund).   Emerging markets are on their 10th day of declines and this may be indicative of money out-flows leaving emerging markets and going somewhere else.  Emerging markets are not represented by the I-Fund, which instead represents developed markets, but both have an international nexus, and most international indexes act in parallel fashion.  As such,the I-Fund is underperforming, over the last couple of weeks.

Note:  Anytime a stock or index goes down, it is because the supply/demand ratio of share volume reflects more selling than buying.   So for whatever reason, the emerging markets have not done well for the last ten trading days.

One “roadblock” acting on the markets is the yet-again concern over QE tapering.   I have discussed my hospital patient analogy numerous times here and once again, it is appropriate.   By most indications (see Secretary Lew comments below for additional) , the economy is coming back, and what happens when we get good economic news ?   People start to worry that the QE life support will stop.  This in my opinion, is a roadblock to a renewed uptrend in the markets.

From a financial/economic news standpoint (as most know, I let the market itself tell me what to do…), we have had some positive news come out in recent days.   While I don’t take news reports as gospel, I like to have a broad grasp on issues facing the economy and understand the overall climate of things.

Treasury Secretary Lew (a political appointee, who may be compelled to “present things” in a certain light…) reported that the US Economy is thriving.   I concur that it is indeed getting better, as equities markets tend to act as a lead indicator on the economy.   And the markets have been on a strong uptrend since January 2013.   Readers may recall (available via search on this site) my earlier “field interviews” and intelligence collection efforts regarding economic activity, and I reached the conclusion earlier in the year that the economy was indeed coming back.   I still feel this way today.    In addition, our friends across the pond at the Bank of England are reporting that the economy in the U.K. is coming back.

In Nov-13 after hours trading, Cisco reported less than stellar financial performance this past quarter, and shares were down 10% in after hours trading.  This is a huge move, as Cisco is a major NASDAQ component and  member of the Dow Jones Index.   Cisco shares (CSCO) may drag those indexes down on Nov-14 trading, which may falsely signal that the “markets are going down”.    This is not the case in this particular example.  Cisco was a internet-boom poster boy stock from the late 90’s, when it more than quadrupled in value.   However today is not 1998 and I am not sure how many people go to Best Buy to buy a Cisco router anymore, to hook to their Windows PC (and then log into AOL) .  In light of competition from other devices, technologies, and companies, such as Huawei , Cisco may be loosing its dominance.

At 10 PM Central Time, the SP 500 futures are trading higher than the day session, apparently ignoring the Cisco news.   Lets hope that the daytime trading on the stock exchanges tomorrow (Nov-14) act accordingly, if yes, we may have a good day in the markets on Nov-14.   See SP 500 futures chart below:

As of today Nov-13, my assessment of the markets reflects that the C-Fund has outperformed the S-Fund on a 30-day look-back period, however for a one week period, the S-Fund is resuming it’s strength and coming back.   As already discussed, international markets (I-Fund) are underperforming.  With hard chart data and my performance analysis, I combine documented historical data, which reflects that small cap stocks commonly outperform large caps in the months of November and December, assuming that the overall market is in a positive uptrend / “bull” condition (which it is).   With that said, effective today Nov-13, I have adjusted my TSP Allocation to reflect 50% S-Fund and 50% C-Fund.  This is due to my opinion that this allocation is the “best of both worlds” as we finish out the year, as both large caps and small caps are doing well.    From mid-November forward, trading volumes start to dry up as Wall Street traders and financial professionals start to focus on the holidays and start taking time off.   So basically mid-November forward, you will not see any drastic behavior changes, IE:  one fund suddenly outperforming another one.

In summary:  The SP 500 index hit a new 52 week high today, which is good news, however this was achieved on average volume.  Ideally such moves are on above average volume.  As such, the index may fall back down below its new high.  Effective Nov-13, I am adjusting my TSP Allocation to reflect 50% S-Fund and 50% C-Fund.  It is my opinion that no major red flags exist regarding the markets, but recent average volume levels and stagnation occurring at the 1775 level continues to be a challenge.

As always, thank you for reading, and please encourage your friends and coworkers to subscribe for timely and accurate market analysis and commentary.  Hope everybody has a great rest-of-the-week and talk to you soon.

Thank You

– Bill Pritchard

Good Evening

We are now 14 trading days past the post-debt ceiling agreement and all the indexes are doing well, for the most part.   I say “most part” because the SP 500 Index has had trouble getting much altitude above the 1760 psychological level, first discussed in my October 25 2013 post.   This sideways action (it is actually a very slight drift downward but in my opinion not a “downtrend” per se…) has commenced on October 29, when the index lost energy and started to go sideways.

See chart, with comments, below:

I am not overly concerned, because of two important things:

1.  Historically, November and December are very good months for stock market performance, December being the best month out of the year, and November being the second best, out of the year.    This is backed up by documented and historical data/studies.

2.  The volume on the indexes during these recent sideways days has been mostly below average, indicating that there is money “on the sidelines” waiting for some sort of opportunity to buy stocks, and no major additional buying has occurred by institutional level managers (such as mutual fund managers at Fidelity, USAA, Vanguard, etc.) in recent weeks.  My opinion is also that no significant selling has occurred either, by money already invested in the markets.  

Note that we need buying to stimulate the markets, and propel stocks further upward.  My opinion is the debt ceiling circus left a lot of folks tired and fatigued, and this possibly put a damper on some things.  I have not seen downward price action, on above average volume, which is a red flag.  However we must be vigilant at all times.

The C-Fund and I-Fund ended up outperforming the S-Fund in the month of October, however YTD, the S-Fund is still the top performer.   I am a little skittish on I-Fund (even though it has given some good returns) due to my own admitted weariness with the never-ending fires and problems which seem to be arising internationally.    I will give it one more week and possibly modify my TSP allocation, but at this point folks, these are minor tweaks, as we have grabbed the bulk of the years gains already, and I am sure everybody’s balances reflect that.   In layman’s terms, we have been driving a Shelby Mustang all year long, and have won every race, and now we decided that we need it to go 10 MPH faster on the track, just “because”.    I try to save my TSP movements for bona-fide, justified reasons, versus trying to pick up 1 percent here and there.    I shoot for the long term trend, and I think we all accomplished that this year.  More importantly, is the usage of G-Fund as a protection fund, as if you can mitigate your losses, and allow the gains to run, then that is the difference between stellar performance and lackluster performance. 

Speaking of trends, and the importance to not fight them (also loosely categorized under “don’t buy dips”) is a story which came out regarding hedge fund Axial Capital Management, which had at one point 1.8 Billion dollars under management.  Article and video provided by CNBC.

Axial had some smart folks onboard, no doubt, however it pays to not fight the trend, as Axial was primarily a short-fund / bear market fund in which it “sold short” stocks, which means basically it placed investments with the theory that they market would go down further.  Which is great, when the market is indeed going down.   However, as most of us know, this year the market has rallied with our own TSP showing 25 to 30% returns.    Don’t fight the trend.  Put the crystal ball away.  Don’t try to outsmart the market.  

Based on the news article, Axial will be shut down and closed for business, due to severe losses.

As I write this post, at 10:45 PM CDT, the night trading in the SP 500 futures has shown an abnormal jump upward, at 21:30 and 22:30, for reasons I cannot quite pinpoint.  Asian markets are also trading positively (Asia is awake right now).   If this continues into the morning, this may be a sneak peek into a positive trading day for US markets on Weds Nov-6.   See chart to observe price jump, below:

I will continue to monitor things and in another 1-2 weeks, will advise if I make any allocation changes to my TSP account.    If you find this site interesting or useful, please share it with your friends and colleagues.    Thanks guys and have a great week.

– Bill Pritchard