Monthly Archives: July 2015

Hello Folks

First, I remain 100% S-fund, even in light of some under-performance in the S-Fund the last few months.   It appears that we got past the Greece situation but more hurdles have been placed in front of us, namely “China.”   Before I go further, if you read my December 9, 2014 post, which describes basically the same thing that happened Monday July 27  (yes, we have seen this before), you will understand what is happening in China.   But, my question is:  does China really matter ?  Many on Wall Street are having panic attacks that China’s economy is propped up by government efforts, such as easy lending and low-interest rates, similar to USA in the 2000’s, peaking in 2007 and then crashing hard.   But if China did matter, why didn’t their markets behave in unison with the US markets, from 2009 to present ?  I guess my question is “why [does it matter] now?”   Lets look at a chart of the Shanghai Composite and SP 500.

What is immediately apparent is that the SP 500 has steadily climbed since 2009 (the mortgage and financial crisis was 2007-2009), while the Shanghai Composite has basically been sideways since 2009, only climbing in 2014 until present, at which point it started to crash.   So my point is this:  Since 2009, China and US markets did not act in similar manners, which typically occurs amongst global markets.   Lets look at additional major stock indexes, notably the Nikkei Index (Japan), FTSE “Footsee” Index (London), and the German DAX Index (Germany/Frankfurt).   While we study these indexes, lets agree that the prior US bear market ended in April 2009, and since 2009 has been in a uptrend.   Actually the chart says that, not me.    Observe how the other indexes (all major indexes above represent strong economies) behaved mostly in unison with the US Markets.   The SP 500 is now placed first, and the Shanghai Index placed last, to provide for easier analysis.

So, again, since 2009 China was disconnected from other world markets (I don’t care why, as it just doesn’t matter, I care more about how to I act based on the information in front of me), and suddenly, now, China is crashing, and now, for some reason or another, the US markets “should” crash along with China ?  Why now?  It never mattered before.   China’s bull market apparently got started in late 2014, and summer 2015 (nine months later) is now crashing.   So our 6 year bull market “should” crash because China’s nine month bull market is crashing ?   Maybe I am half looney-tunes to pontificate on this topic, but I think our recent sell offs are an over reaction to China.   Note also that I could be dead wrong and our US markets could be in for a painful crash.   I invite you to read my past posts however, and see how many times I have been wrong.

In short, it is best not to judge a market based on solely Monday action, so lets allow the week to play out and see how things look.  I am cautiously optimistic and remain 100% S-Fund.

Talk to you soon….

– Bill Pritchard

Hello Everyone

Well it appears that Greece waved the white flag and agreed to economic reforms, thus receiving additional European Central Bank (ECB) monetary assistance and backing.  While this is probably in the “then what has changed then?” category, it is important to note that this is the first time that the new Greek President and his team conceded that they indeed have issues and are agreeing to revamp things.   Whether it will happen or not, is to be seen, but the markets liked it.  As discussed in a prior post, Greece apparently “hit rock bottom” and finally admitted that a change of behavior is needed.

I felt fairly confident that this situation would be resolved, and thus did not bail out over to G-Fund.   The seas got somewhat rocky, but fortitude sometimes pays rewards, at least when you “call it” correctly anyway.   This time, my crystal-ball was right.

Monday July 13 and Thursday July 16 witnessed heavy buying activity/accumulation, reflecting a resumption of confidence in the markets by major funds.  This past week, I-Fund outperformed all others, largely due to the relief over Greece (international stocks climbed), but in my opinion, I-Fund carries increased risk which I am not inclined to play with right now (that may change in the future).   The S-Fund and C-Fund are performing almost equally, on a one-week to two-week look back.  I remain 100% S-Fund at the present time.

2135 is the new overhead resistance level on the SP 500, a penetration of that reflects new All-Time-Highs and hopefully a new uptrend in the markets.   We are away from the worrisome 2040 area.  See charts:

That is about all I have for now folks.  Again, things are starting to look positive… lets keep our fingers crossed.   I am 100% S-fund until further notice.

Thanks for reading…..

Bill Pritchard

Hello Folks

Last week I just didn’t bother posting, as I expected the Greece situation to be all over the map (no pun intended) with yes/agreement, no/agreement, etc etc.  The Greek Finance Minister tweeted how “he will be standing strong” (or similar language) then like two days later, CNN was reporting he had resigned. Depending on what news channel and what time of the day, it seemed another Greece version of events was playing out.   I almost just turned off all media last week, except for the Shark Tank on ABC.

With that said, the markets are indeed in stormy seas.  I am sticking my neck (and my TSP balance) out on a limb somewhat, this is “in line with” my previously discussed stance that I would reduce my jumps into G-Fund (a result of some tweaks to my system).   As such, well, here I am, still S-Fund.   Lets talk about that and what is happening in the markets, as many have asked me why the markets are so volatile.

Greece:   It has been said that the true, 180 degree reversal and “wake up call” for an addict is when he hits rock bottom.  This means a drug addict may “get it” when he wakes up, homeless, under a bridge, in the cold rain, shivering, with the only thing to warm him being a memory of his 5-year-old boy who his mom is raising by herself, in a house with changed locks.  That addict may say, gee, this sure sucks, I need help.    Well, Greece has been an addicted to loans and other people’s money, and refused help via fiscal reforms, cultural changes, and a display of cooperation with lenders.  (I have ranted on this, ad nauseam, in previous posts…).   With the IMF’s hard stance and holding Greece to the fire, Greece appears to be hitting rock bottom, and is waving the white flag.   A possible, maybe, possible deal may be in the works between Greece and neighboring countries, many of whom have huge loans out to Greece, namely France and Germany.   See below graphic, from BBC, outlining probable scenarios:

There is huge pressure on Greece to “pull their head out” and present a plan forward.   Open source internet reporting reflects the following upcoming dates as being important or Greece entire banking system will shut down and an expulsion from the Eurozone (they are still in however for not much longer…).

• Thursday 9 July: deadline for Greece to submit proposals
• Saturday 11 July: eurozone finance ministers meet
• Sunday 12 July: all 28 members of the European Union meet to decide Greece’s fate
• Monday 20 July: $3Bpayment due from Greece to the European Central Bank

So, long story short, the IMF is giving Greece a “last chance deal” this week, and after Sunday July 12, Greece is either in the Eurozone or not.

Market Behavior:

“2040” has become our new support level for the SP 500, my overall benchmark index of the stock market since it represents five hundred large cap, major companies, all invested in by major mutual funds and retirement plans.   2040 is a round number which is psychologically important for traders.  Lets take a look at two charts, first with no graphics, second with the 2040 area circled, in March 2015 when it was touched, and recently, where it was almost touched, this week:

Apparent is that a penetration below 2040 (the index goes to 2038, 2035, etc) is a negative and indicates additional weakening of things.   A move to G-Fund will become likely if this occurs.

In addition, the recent Federal Open Market Committee (FOMC) minutes were released, and the FOMC is expressing concern about Greece, while expressing satisfaction with the current economy.  A rate hike is not expected until September.  My personal opinion is no rate hike until 2016, but I have been wrong before.   As we get closer to September, the market appears to get more nervous, now add Greece into the mix, and welcome to the current situation.

Investors Business Daily newsletter, a trusted source of information that I back my own analysis with, is considering the current market to still be “uptrend”, so I am not the only optimist.

That is all I have for now.   Thank you for reading and please continue to share with your friends and coworkers.

I remain 100% S-Fund until further advised.

– Bill Pritchard