Monthly Archives: January 2014

Good Evening

Despite my personal opinion that the US economy is improving and we are entering healthier financial situations, both at the individual/personal level and also at the corporate, government, and political levels, the market continues to challenge my sanity and ability to sleep at night.    It appears that this is associated to emerging market fears, a downturn in China manufacturing (who manufactures goods for the US), and the QE reduction.   But at the end of the day, I react to the market itself.

Today, it traded lower on increased volume, reflecting yet another Distribution Day within a span of a few weeks.   In addition, the SP 500 has made no progress up towards its 50-day Moving Average, instead closing lower today, than it has any other day during the entire month of January.

Observe that the January Barometer, with two days left, basically has no chance of “going positive” for the month and with a 90% accuracy rate (I am happy to have it inaccurate this year, but….), the crystal ball is forewarning a flat or down year.  Yes, I hope I am wrong.

For the above reasons, I am trying to set my emotions and personal convictions aside and respond objectively to the market itself.  Quite frankly, I confess that I am running out of excuses for the market and the reasons to stay in stock funds are nonexistent.  I have a picture of a duck, and I am turning it on its side, flipping it upside down, looking at it with one eye closed, changing the lighting in the room, and I just can’t make the picture not be a duck.

The market may indeed rally up in a few days or display some up days, but in the grand scheme of things, a possible new downtrend is potentially in the works.   If correct, this will take many weeks to form, then typically break hard down, and continue down for multiple months or longer.  Tonight, I submitted a request to change my TSP Allocation to reflect 100% G-Fund.  Please see FAQ #10 regarding exactly what I do when I make a change to my TSP Allocation.

This allocation change will prevent further account damage and in the event of a severe stock market break downward, those in G-Fund will be protected.    The FAQ on this free site discusses my investing strategy, I have had some new subscribers (thank you for signing up) asking me multiple questions, most of it is answered on the FAQ.

Please be familiar with the disclaimer section and that how your manage your TSP is up to you.   I think everybody “gets it”, so with legalese aside, I am moving to 100% G-Fund.

Thanks guys, talk to you soon…

– Bill Pritchard

Hello everyone

Today’s Jan-28 stock market action resulted in the SP 500 index trading above yesterday’s range, and on (slightly) above average volume.   This is a positive development, and a desired change in the water temperature after multiple days of losses.  It closed above 1790, which is a level that I believe to be important, and closed at 1792.50.   The next level I am watching is 1806, as that is the 50-day Moving Average of the SP 500 index, any close above that, and we can all breathe somewhat easier.  In light of AAPL’s poor performance, the indexes displayed complimentary strength.  Overnight markets in Asia (open while America is closed) are trading positively, which is a good sign.

As most know, tonight was the State of the Union Address, and the discussion was basically about jobs (job creation, training, education) and energy (move automobiles to natural gas versus gasoline and discussed pro-solar energy stance).   My December 10 post discussed the importance of jobs, under Point #4.  Clearly the President’s economic team has advised him of the importance of jobs, and this announcement is not a surprise to me, as we also have the QE reduction in effect, and the FOMC meeting which concludes tomorrow, Wednesday.   So a few economic policy items are in motion and magically on the first State of the Union address of 2014, we hear about jobs.  No, I am not going to claim that I predicted this announcement regarding the importance of jobs, but you heard it discussed on The Fed Trader before our President mentioned it…

Moving forward, lets take a look at a snapshot of tonight’s intra-day SP 500 futures approximately ten minutes before the President began speaking.   As you can see, they ticked upward leading up to the speech:

Now, lets take a look at the same chart, at the end of the President’s speech:

What is clear is that the SP 500 futures went upward, an apparent positive response to the President’s speech.  Evening futures typically act as a preview to the upcoming daytime market trading’s behavior.

Summary:   Today’s stock markets traded up, and could have traded higher had they not been dragged down by AAPL.   State of Union address discussed many things but jobs appeared to be hot topic.   SP 500 futures, trading during evening, displayed positive reaction to the President’s speech.   Evening Asian markets are positive.  “Next goal” for SP 500 is close above 1806.

My TSP Allocation remains 50% S-Fund and 50% C-Fund.

– Bill Pritchard

Good Evening

I apologize for the chimes on your Blackberry as you receive this update, late at night, however I felt it was important to send this update out.   Please note, my TSP Allocation has not changed, yet.  With that said, today the SP 500 indeed penetrated downward thru the 1790 level, which was the low of the previous session, reflecting a continued downtrend of price action.   Fortunately, volume was lower than the prior trading day, which serves to temper my concerns, somewhat.  After hours, the Dow Futures and SP 500 futures were trading up, having found support and not trading below the day session’s lows as of 1AM Eastern Time.   See charts:

This act of resilience by the indexes provides me with some optimism that the markets will not go down without a fight, and I am not changing my current TSP Allocation (not yet). Observe my prior post, in which I discussed that perceived problems in Argentina and international markets have caused some panic selling by institutional investors.  In addition, it appears China is having some issues, combine this with the FOMC meeting this week, and the unknown statements on Tuesday’s State of the Union address, and it appears the markets are overly nervous.

NOT good, is that Apple Computer stock dropped 8% in after hours trading, due to disappointing sales and revenue outlooks.   This is a huge drop, as Apple is a large-cap stock, and a member of the NASDAQ 100.   You can fully expect that the market action on Jan 28 will be dragged down by AAPL.

No matter what happens this week, it will take a miracle to kick the month into a “positive month” in which we have a positive, and not a negative, percentage return.  With that said, if you subscribe to the January Barometer theory, as I do, the calendar year is not looking good for trading.   That may be reason alone to reduce exposure to stock funds and move partially to the G-Fund, as this is based on documented historical data, not hocus pocus or complicated economic theories.

Next up this week is the FOMC meeting, State of the Union address, and observing how the market absorbs the AAPL news.

My TSP Allocation remains 50% S-Fund and 50% C-Fund.

– Bill Pritchard

Good Evening

Last week was not pretty in the markets, US indexes and the international indexes witnessed severe losses on above average volume.  This is reflective of institutional selling, which is clearly a “red flag” and reason to moving the trigger finger closer to the G-Fund.   The sell-off in the markets appears to be attributed to financial problems in Argentina, in which inflation rates of over 30%, currency valuation issues, and low currency reserves, have prompted fears for international markets.   The worst performing markets last week were Argentina, France, and Germany.   Not surprisingly, the I-Fund was hit hardest last week, C-Fund next worse (#2 place on the worst list), and S-Fund being hit but escaping with the least damage.

Some fear that Argentina, running out of currency reserves (have we seen this show before?) , may default on current debt obligations, which will impact the lenders and impact credit ratings.  Seeing this, institutional investors likely got nervous and bailed out of other emerging and international markets.   The problems started Thursday, and continued into Friday.

My analysis of this, is that this was “panic selling” akin to when someone yells “Fire” in a movie theater.  Nobody is sticking around to analyze the fire, or how fast it is spreading.   People are just hitting the exits, and will look back once they get outside.   With that said, it is my opinion that institutional money bailed out on Thursday, and on Friday, they continued to hit the exits because they did not want any surprises over the weekend.  They could “rest easy” over the weekend, knowing that they had liquidated positions and were out.   Hopefully, on Monday Jan 27, people will reassess things and decide that Thursday and Friday were overreactions based on fear and not fact.   The following observations prompt me to believe that the US economy is back on track and things structurally are improving, home in the USA.  These are all available via google search, I have assembled some of them here:

1.  2013 home sales numbers higher than any year since 2006

2. Improving labor market evidenced by reduction in jobless claims data

3. Lower foreclosure rates (admittedly this may not mean anything, most foreclosures were related to 5-year ARM mortgages, and the peak of the housing cycle was approximately late 2007, more than 5 years ago.)  In other words, the “real estate boom foreclosure” cycle is behind us, if using the 5-year ARM as a reference point

4. Record new car sales numbers in 2013

5.  Record numbers of airline travelers, and airlines ordering record numbers of new airplanes, and hiring pilots.

6.  Gold prices in a downtrend, which began in late 2012.   “Safe haven” investment of gold loses favor in good economic climates as investors pull their money out of gold seeking better returns elsewhere, typically in stock markets.

7.  Corporate Earnings, Retail Sales data generally improved in 2013 over 2012.  I say generally because one needs to view this with a grain of salt.  “Sears reports poor earnings” or “Kmart has a bad year” does not necessarily mean that Joe Customer is broke / unemployed / bankrupt and therefore not shopping and stimulating things.  He is possibly one of many customers who are spending their dollars via Amazon.Com or at other stores, and saving gas and not having to park the car.  Just FYI when someone tells you that America is doomed because the local K-mart is empty.   Actually, America may be better off without having to step on gum in the parking lot, walking around a spilled Slurpee in the aisle, and old hot dogs spinning on the warmer, and two out of 10 cash registers staffed, all part of the “shopping experience” I have had myself.

Readers will recall my observations that the I-Fund was performing well in January, but I stated that I wanted to give things a little more time before making any decisions regarding the I-Fund, which (over the last few years) is hyper-sensitive to world political problems and economic concerns.   While we are on the subject of January, the January Barometer is not looking good right now.  Some may recall that this indicator predicts how the markets will perform for the rest of the calendar year, with an accuracy rate of 90%.    Lets take a look at the SP 500 Chart so far, from the start of January until present:

As can be seen, we are currently not “up” in January.   This concerns me, as the January Barometer is a highly accurate predictive indicator for the year to come.  We have five more days of trading left, Jan 27, 28, 29, 30, 31, and January is over, done, El Fin.   We need some miracles this upcoming week because that is what it will take to go from 1790.29 (Jan 24 close), and go above its highest close of 1848.38 (Jan 15), a which means that in one week the SP 500 has to gain 58 points.   Think of this as a football game, and as far as January is concerned, we are in the last quarter.   The markets have to regain some points if the January Barometer is used as a yardstick for the year.  1848 is the key level we are watching, for those CNN/CNBC ticker watchers.   1790 is the key low to watch, anything below that, and a cautionary move to G-Fund is almost obligatory.   Some of the “ride it out, it will come back” fans will surely email me (as they always do) but hey, I know what I am gonna do.   Control the bleeding and seek cover and concealment.

I have no additional charts or graphics this post, I wanted to mostly address what happened Thursday and Friday and provide my analysis.

For now, my TSP Allocation remains 50% S-Fund and 50% C-Fund.
However, I am very close to moving to G-Fund, which I hope does not occur, based on my opinions above regarding the US economy and the reasons the market sold off last week.  Hopefully, calmer minds surface next week and the markets recover.  At the end of the day, the market knows all, and opinion, speculation, theory, do not matter and we must respond to the market itself.    Let’s all be heads up next week as to how things play out.

Thank you for reading….

Bill Pritchard

I apologize….As a follow-up to my post 15 minutes ago, my TSP Allocation remains 50% S-Fund and 50% C-Fund.   BUT 100% S-Fund is fine also, that information should have come out that way in the first message but I hit “publish” too soon.   I need to stop multitasking and trying to send out blackberry PIN messages while I work on this site.

My TSP Allocation:  50% S-Fund and 50% C-Fund.

Good evening folks

Today, Jan 15, was a very good day in the markets, as was yesterday Jan 14.   Monday Jan 13 was pretty dismal, with a large sell off on above average volume.  Jan 13 was clearly a “red flag” day and not something we want to see occur often.  As can be expected, many naysayers and market bears came out taking credit for predicting the “coming crash” etc. nonsense, only to have things rebound the next day.   Aforementioned naysayers then disappeared back into the shadows.  The market continues to turn on a dime from one day to the next, so it is helpful to analyze things not only from a daily view, but zoom out to a weekly-monthly-quarterly view, to get a better snapshot of behavior.  For additional understanding of this, take a look at my March 1 2013 post, regarding “report cards.”

Volume on Jan 14 was above average, with the index closing up for the day, then on Jan 15, volume was even greater than Jan 14 volume, with another close up.   This behavior is consistent with institutional money flowing into stocks, such as money managed by mutual fund managers, hedge funds, retirement programs such as the TSP and state employee pension plans.   This is the money that moves markets and “primes the pump” for continued upward action, so it is critical that we monitor volume and price action in the markets.

With that said, on Jan 15, the SP 500 index (my default index for monitoring the health of the market) had a “Gap Up Day” in which the low price of Jan 15, 1840.25, was higher than the high price of the prior Jan 14 trading day, 1839.26.  This causes a “gap” to appear on the price chart.   This is a very bullish signal, and if the fundamental and economic factors are bullish (they are, things are recovering), this in almost all cases is a “buy signal” or at least a huge vote of confidence for bullish market conditions.    See charts below, one without comments, one with comments:

As a result of the prior two day’s action, my concerns which existed on Jan 13 have subsided to some extent, but not completely.   This is due to the “January Barometer”, a concept developed by Jeffrey Hirsch and discussed in his book The Almanac Investor, of which I have copy (now worn out). The January Barometer, with an accuracy rate of 90%, is an indicator in which every “down January” precedes the rest of the year going down, or flat, for stocks.  An “up January” precedes an up year.   Down or flat is not good, and so far this January has been mostly flat.   We are only two weeks into the month, so lets keep our fingers crossed.   The action on Jan 14 and Jan 15 may be what we need to light the firewood.

Regarding the TSP Funds, the S-Fund and I-Fund are the top performers right now, with the I-Fund outperforming all the other funds (so far) this month.   Before anyone is quick to pull the trigger on fund changes, my opinion is lets allow January to close out and then assess things.  My personal TSP Allocation remains 50% S-Fund and 50% C-Fund.  EDITED on 01-15-14 9PM  

Once again, “thank you” for all the great emails, and please continue to share this site with anyone who will benefit.

Thanks guys

Bill Pritchard