Monthly Archives: May 2014

Hello everybody

The markets continue to behave in a frustrating manner.  While new highs have been attained, we have not seen any volume that would serve as combustion for a solid new uptrend, ideally launching the markets out of the recent quagmire going back basically two months.

The new high made on May 13, was a “one day flash in the pan” which then collapsed lower the next day, largely due to a lack of volume to sustain things.   The high made on May 23, may or may not repeat the same behavior, as it too, was attained on low volume.

What we are looking for is the following criteria before any confidence can begin regarding a new uptrend.   The following criteria have been established by Investor’s Business Daily, of which I follow closely, albeit I have tweaked some of their strategies to accommodate my personal TSP and stock portfolios.

We need to see:

1.  +1.7% Gain or better on the SP 500 or NASDAQ index (after the market closes for the day)

2.  On volume ABOVE/HIGHER than the prior session volume.

3.  Volume for the day should be ABOVE AVERAGE, ideally 25% or more.

IF all three are met, this is STILL NOT a green light to dive immediately back into stocks/stock funds.  It is an “almost, darn-close, green light”, requiring us to monitor things for additional signals.

My earlier statements regarding support and resistance still stand, however, “one-day penetrations” of prior levels are not really reasons to raise the level or to suddenly delete the yellow caution flag.   In other words, a few weeks ago, I spoke of 1885 as being overhead support.   Well, as luck would have it, this was penetrated for a day or two, only for the trend to reverse back down.   Note that almost all recent penetrations have been on low volume.   As stated numerous times before on this site, volume is the “credibility” behind the move.   Low volume = low credibility.   High volume = good credibility (that the move will continue).

Lets take a look at a chart of the SP 500:

This indeed is challenging and frustrating.   It should be noted that it takes volume to prop up, and sustain, new uptrends and bull markets.   It does NOT take volume to prevent a market from collapsing under its own weight or otherwise falling apart.    So in the current market climate, I remain 100% G-Fund.   Yes, “we made new highs” this month, and if anybody wants to jump back in, it is me.   However I think it is a very risky proposition without the volume to validate the recent moves up.

With that said, for entertainment value, I have posted a 2011 video of a Mark Cuban interview (TV show Shark Tank, supporter of Iraq War Veterans).   Video is courtesy of YouTube and Wall Street Journal.     Mark Cuban is no stranger to “speaking his mind” and making his stance known, whether it be the NBA or tech investing.   In this video, he discusses his opinion that Buy and Hold is a Crock of S**t (time stamp 1:07) and his thoughts on being “in cash.”  

That’s all I have for now.   Again, my TSP Allocation remains 100% G-Fund.  Thanks for reading and please share with your friends and colleagues.

– Bill Pritchard

Hello Everybody

Today, May 12 2014, the markets staged a rally, with the NASDAQ (a tech heavy index, as discussed in prior posts), performing best, with a 1.77% gain over the previous session close which was May 9.   The other indexes, the SP 500 and Dow Jones, preferably would have returned a similar performance, however they returned 0.97% and 0.68%.   Again, the NASDAQ is tech heavy, while the SP 500 is more of a broad based index.  Financial press reporting reflects that GOOG (Google) and AAPL (Apple) stock helped lift the NASDAQ higher today.   Whether GOOG and AAPL represent the entire universe or the entire US economy is yet to be seen, hence my dependence on the SP 500 versus the NASDAQ as a market barometer.

It should be noted that a gain of 1.7% or higher, in the NASDAQ or SP 500, on higher volume than the previous trading session, qualifies as a Follow Thru Day (FTD), per the authors of Investors Business Daily.   Since we don’t have the volume criteria met, today did not qualify as an FTD Day.   Lets take a look at a chart of the SP 500:

As such, I hate to say it, but “we have seen this show before.”   The markets rally on reduced volume, everybody celebrates and high-fives each other, then they crash a few days later.   Can we trickle ourselves into a new uptrend ?   A little each day on low volume ?   Well I suppose anything is possible however historical studies have shown that all credible uptrends are ignited with strong volume (which we still do not have).  Without volume to support the foundation of the house, the house may be a house of cards, liable to fall apart and crash on the hapless occupant.

With that said, my TSP Allocation remains 100% G-Fund.  Let there be no doubt, today was a welcome performance and change in behavior from the lethargic back and forth action seen over recent weeks. Now the question remains if this is a short lived event, or the start of a new uptrend.   If the latter, I will move my TSP Allocation accordingly.   Until then, I remain G-Fund.  Nobody is ready to get out of G-Fund more than I am, believe me.   I don’t like “hanging out” in G-Fund anymore than the next guy.   Lets cross our fingers and see how the rest of the week shakes out.

Thanks for reading and talk to everyone soon…

– Bill Pritchard

Hello everybody

Well, the previous week brought no real progress to things, market-wise.   The SP 500 indeed broke thru 1880 and touched 1891.33, on Friday May 2, in response to the “Jobs Report” released on the same date at 8:30 AM Eastern Time.

This is above my previously discussed “overhead resistance level” of 1880.   However a little more is going on behind the scenes, so lets talk about it.   Lets take a look at the one-day chart of the SP 500 for May 2, below, one without comments, then one with comments, before we start our assessment of May 2.   It should be noted that the mainstream media is putting out that the SP 500 and Dow Jones have hit record highs, which is technically correct…what they fail to tell you is that the highs were hit at 10:30 AM Eastern time and that the indexes went lower the rest of the day.  The markets open at 9:30 AM, so the indexes only lasted one hour before rolling over.  So, no, people are not diving back into the markets with both feet, and sending stocks higher.  Lets look at some charts:

What apparently happened, is that the worry, tension, and concern over the jobs report, was digested as “good news” initially, but then folks decided the news was not really so good as believed.  The financial press, largely read by Wall Street, were quick to criticize the report, with most editorials all stating the strong assertion (multiple, different publications) that people have simply stopped looking for jobs and/or are retired-out of the workplace, thus affecting the data in the report.

Not saying one person over another is “right” or “wrong”, 288K jobs created is better than no jobs created, but in any event, opinion/right/wrong/theory/etc. do not matter, what matters is how the market itself acts and responds.  Unfortunately, the jobs report euphoria lasted about one hour and the indexes rolled over and closed lower by the end of the day.  (But remember the headlines, “Indexes make new highs” etc. etc.)…

Important to note is that the current unemployment rate is 6.3%, which is below the 6.5% threshold level believed by many to be the “green light” that the FOMC needs to raise the Federal Funds Rate.   Furthermore, “rate hikes” are not welcomed with open arms by Wall Street, and this will cause additional indigestion for the markets.  Many speculate the next rate hike will occur in Summer/Fall 2015.

Lets go back to the week itself (the title of this update is Week in Review….), before we start the discussion, here are two SP 500 Index charts, one with no comments, one with comments:

What is apparent from looking at the charts is that little volume is occurring in the indexes and we are seeing little serious upward movement, aka yardage-gained.   Yes, as discussed above, we hit 1891 on Friday but now we all see that there is “more to the story.” 

It should be noted that on April 24 and 30, slightly above average volume occurred on the SP 500, with a slight upward movement, and on April 28, above average volume occurred, with minimal upward movement.   This is associated to a behavior known as “Stalling” or “Churning”, discussed further by Investors Business Daily (the folks who pioneered the concept) at this link.   In short, stalling is when the index fails to make any decent upward progress, even though it may have some volume activity which could serve to send it upward.   When this happens, it is akin to a crowded shopping mall, except in this case, the “shoppers” are not buying nor selling, they are just walking around browsing.   The un-informed observer (mainstream media) would report “the mall parking lot is packed with cars, and people are filling the stores, therefore the stores must be selling a lot of merchandise.”  Except, they are not.   

Maybe that example does not make sense but that is my best attempt to explain stalling in the indexes.   We have some volume, just no resulting action.   It should be noted that many professionals consider a “stalling day” as unhealthy as a “sell off day”.    AGENTS NOTE (yes I said that LOL):   The “above average” volume April 24 and April 30 was nothing earth shattering anyway….

NOTE:  On May 1, 2014, Investors Business Daily newspaper went ahead and affirmed that stalling was indeed occurring on the NASDAQ index.  The SP 500 was not mentioned.

With that said, I remain 100% G-Fund.   In the current climate, I don’t look at things as “missing opportunities”, as the indexes have not really done anything except flop around.  If I miss a sudden, violent, sell-off, or worse, the start of a new bear trend, something not impossible right now, then great.   Missed opportunities ?   Right now, based on my optic, there is no opportunity to be had, and nothing missed.

I remain 100% G-Fund.

Thanks for reading !    Talk to everyone soon…