Monthly Archives: August 2015

Hello Folks

Well, last week we saw the markets rise, however volume on each “up day” was less than the prior day’s volume, classic signs of a rally with no steam.   Most rallies with any chance of lasting have strong volume behind them, and such volume tends to rise or be greater than the prior “up day”.   We are not seeing that right now.  Also, due to the price action on the SP 500 Index, we have a pending 50-day Moving Average and 200-day Moving Average crossover, which for some is considered an additional bearish signal.  For me, I have enough “go to the sidelines” signals, and I am in G-Fund.

Let’s look at some charts:

If we take a look at the above chart, the red arrow reflects the downward action of the Index, it is accompanied by rising volume, “backing up” the potential that the just-occurred movement (downward action) is strong (versus weak) and likely to endure (versus not endure).   The SP 500 Index finds a bottom in the 1870 area then on August 26, rallies higher.   For those who do not understand the importance of volume, many believed that “the storm clouds are behind us” and many talking heads on CNBC proclaimed that the market was back on track, having just “hiccupped” days earlier.   Others, like me, who study volume, were concerned with the high volume on the prior down days, and started to observe that the volume each “up day” was lesser than the prior “up day”.   Notice that while yes, the market did go up, on Aug-26, 27, 28, the volume went down.  Poor volume “reduces the credibility” of any potential reversal, with reduced probability that the perceived rally will endure.

Over the weekend, I also concluded that the only thing causing rallies, weak ones or not, was super positive headline news, and not the result of normal inflows into investments.   Absent super headline news, (such as reports that the Chinese government themselves were now buying zillion dollars of Chinese stocks) the markets fall apart a few days later.   A general “cloud” of worry seems to cover the landscape, and volatility is at record levels.   Note that in my opinion, the FOMC is not going to consider the stock market’s performance or what is happening in China, as part of their rate increase decision process.  It is also my opinion that we do not see a rate hike in September, but not because of China or the markets.  Furthermore, my opinion is that the previous well-intended plain vanilla FOMC statements are leaving the markets jittery, as they seek more clarity and try to determine the direction the FOMC is headed.

Poor and flawed information pushed out in the financial press, to include reports that “this is a standard correction”, are not helping investors.   I don’t recall 1000 point losses in one day (in mere minutes), nor mid-day White House Press Secretary live appearances to soothe investors, in “standard corrections”.

During the evening of Monday Aug-31, BBC Business released a report that China’s economy is indeed slowing down.  Nighttime Dow Jones Futures are trading 250 points down.   This is not the mark of a positive regular market day for Tuesday Sept 1, the day following a triple digit (115 points) loss on Monday.   The week is not exactly getting started well.  See chart:

In summary, my balance remains 100% G-Fund.   I lost a little on the way thru the exit door, but my account is protected from additional damage.

Let’s keep an eye on things this week.   Until then, take care and talk to you soon.

– Bill Pritchard

Good Evening Folks

As an update, I am now 100% G-Fund in my TSP, both my Contribution Allocations and Interfund Transfer now reflect 100% G-Fund.  I submitted this request on Sunday August-23 late PM.  When you are having trouble sleeping, the simple adage is “reduce your exposure until you can sleep again.”   In short, that is what happened, almost literally.

The SP 500 has penetrated the 2040 “support area” which was discussed in my July 8 post , this happened Thursday, late in the afternoon, then again on Friday, we saw additional damage caused.  It is unfortunate that our markets are almost controlled, to an extent, by what is happening overseas, versus the other way around.

Long-term, 3+ year look-back, we are still positive, lets take a look at the SP 500 chart.   Observe that this bull market (well, former bull market) got started in early 2009, so we are 6+ years into this, and the vitality and momentum of this mature market has indeed apparently ceased.   See weekly chart, which reduces the noise associated with daily price action:

So since 2009, we have enjoyed a mostly upward trend, with some turbulence along the way, but in light of the recent market behavior, I see “cracks appearing” and feel that a move to G-Fund is prudent.   I may lose some additional money as I exit, as the TSP processes my allocation request over two business days, however it takes months, not mere days, for a bear market to fully materialize.   Exiting this week, is much preferred over exiting three months from now, assuming this correction continues.

So what is a Bear Market?   Note that we are not in a bear market yet.  Most professional money managers define a bear market as 15% decline in an index from a recent all time high.   Note also that the Dow Jones only contains 30 companies, two of which are Oil companies (Oil is at $40 a barrel), two of which are PC-computer related- Intel and Microsoft, (does anybody go out and purposely buy a new PC these days), and some other companies that just are not keeping up with modern times.  So yes, the Dow is getting creamed.   But so are the other indexes.    So, to obtain bear status, our indexes need to reach (decimals not used):

Dow Jones:  15751

SP 500: 1815

NASDAQ:  4447

With the global turmoil underway, the vague statements by our FOMC, resulting in additional nervousness in the markets, the 2040 being penetrated twice on back to back days, and my overall lack of sleep due to the markets, I pulled the trigger and went G-Fund.

I hope everyone has a good week, and thank you for reading.

– Bill Pritchard

Well, like most folks, I just want this week to be over.  I mean, wow, just wow.  Almost 400 points negative on the Dow on Thursday.  Someone stop the bleeding.

As most market watchers know, all the stock indexes are down hard, due to multiple factors, mostly 1) the approaching September Federal Open Market Committee (FOMC) meeting in which interest rates may be increased, 2) Reports that the economy in China is slowing, and 3) Oil Prices at record lows.   Oil is at $42 a barrel, most in the industry feel $55 a barrel is where it needs to be for oil companies to be profitable and not lay off workers, yet allow prices at the gas pump to be not so expensive that it affects consumers.

While one should never argue or try to fight the market, I remain 100% S-Fund.   Had the above market behavior occurred in 2012, using my 2012 methodology, I probably would have been G-Fund by now.   However, I am running my “2012” system (in other words, exact same system as 2012 and prior, we can call this system Fed Trader 1.0) along side my beta system (a tweaked version of 2012), this Beta system was discussed in my Sept 10 2014 post, and my decision is to remain 100% S-Fund.   The beta-system is not for public consumption yet, however I do run it side-by-side with my other indicators.

It is important to mention that August and September are already documented in history as being bad months.   So even without interest rate fear mongering, or China issues, or other challenges, it is ops-normal for August and September to be poorly performing months.   Bring some headline news issues into the picture, and what do you get ?   You get a week like this one.   Using my weather analogy, if you are in Miami in August and surrounded by thunderstorms, it does not mean a Hurricane is coming.   Now, couple this with “Hurricane talk” on Twitter, cable news shows, and the Wall Street Journal, and now magically a hurricane is now approaching, even if only imagined.

Indeed, the raindrops are real, no argument there, and I suppose the question is “how much rain can I take” before we move to G-Fund.   I guess my answer is this, if you already went to G-Fund, nobody will second guess that decision.   However, me, personally, I am still in S-Fund, in light of the above observations.   All funds are down this month, and we will likely see I-Fund as having taken the majority of the damage, and thus be down the most. 

I invite folks to read my prior two posts, published Aug 10 and July 27 regarding Interest rate hikes and on China.

Friday August 21 is “options expiration day”  which for our purposes, all we care about is that volumes are increased (increased number of shares traded) on those days in the markets.  This makes it harder to assess what the market is “really” doing on those days, as the volume picture is clouded by the options expirations.

Everyone try to enjoy the weekend, something inside me tells me this storm cloud will pass.

Talk to you soon….

– Bill Pritchard

Hello Folks

In the “good news” category, on Monday Aug-10, the markets rallied strongly, erasing all of last week’s losses.  The SP-500 Exchange Traded Fund (ETF), ticker symbol SPY, “gapped up” which is a bullish and positive sign.  While optimistic, last week’s poor performance cannot go ignored, nor can my numerous emails in my inbox, which I will basically answer via this post.  I have received quite a few questions, all reflecting nervousness over the past week in the markets- I hope to pacify and answer some of these questions here.  Let’s get started with some history:  The months of August and September are the worst performing months, market-wise, of the entire year.  So get ready for some rough waters until we are out of September.

We must view the prior week’s performance thru that optic, the optic of historical poor performance.  The rumored interest rate hike, rumored by those in the financial press to occur in September 2015 (the FOMC will meet Sept 16-17) remains front and center largely due to improving “jobs reports”, the most recent one having been released on Friday August 7, which reflected 5.3% unemployment rate.   This “good news” is “bad news” for the potential rate-hike-camp, as it reflects an improving economy, one which may warrant a rate hike.  On Monday Aug-10, FOMC Vice Chairman Stanley Fischer told Bloomberg News that inflation remains to be a concern and that a September rate hike is not assured yet.

This is not news for the subscribers of this free website, as I have discussed this very topic numerous times, actually five times,  and only now is the FOMC starting to talk about this with the media.   Bloomberg, CNBC, Marketwatch, have covered this topic only minimally.   I have covered it five times already.

Allow me to discuss why I believe the Sept rate hike will not happen.

The September FOMC meeting is rapidly approaching.  What is not so rapid is the movement of PCE Inflation data towards the desired 2% target.  I have uploaded a .PDF file of the most recent FOMC meeting minutes, with important areas highlighted, and bolded, by me:  FOMC-JUNE-MINUTES-2015

So, if we are to believe FOMC published statements and proclamations, we are “not there yet” regarding the PCE Inflation benchmark.  We are at 1.3% on PCE Inflation, not 2%.  Please see below graphics reflecting recent PCE measurements

Until we get 2% inflation as determined by PCE measures, no rate hike in my opinion.

On to the markets:   The 2070 area represents a support level for the SP 500 Index.    We have had activity in and near that area since late July, until present, but the index has not gone below that level.   Hence it is now “support.”  See charts, representing the past 30 days of activity:

Fortunately, Monday Aug-10 trading got us up and away from the 2070 level.  It is important to monitor this, as a return to this level is undesirable.

My current TSP Allocation remains 100% S-Fund.  S-Fund is lagging the other funds and my goal is to simply be with the best performer; this appears to be I-Fund and next best is the C-Fund, on a 30 to 60-day look-back period.   I indeed may change my TSP Allocation later this month.

Takeaways from this post are:

1.   August and Sept are historically bad months, any down days should not result in panic attacks, absent additional information.  Summer rain in south Florida does not mean that a Hurricane is imminent.

2.  September interest rate hike is unlikely to occur, in my opinion.

3.  A TSP allocation re-adjustment may occur in my TSP later this month.

4.  PCE Inflation, not jobs data, is the FOMC’s roadblock right now.

That is all for now, thank you for reading.   I remain 100% S-Fund.  I hope everyone has a great week ahead.

Thank You

– Bill Pritchard