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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

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

Hello Folks

I continue to be 100% S-Fund, with no changes expected, even in light of the cathartic Greek crisis.   On Monday June 29, Greek banks will remain closed, and “capital controls put into place”, in an apparent last-ditch effort by Greek government to prevent citizens from draining their bank accounts and to prevent a likely bank run.   I reported in previous posts that a payment to the IMF is due on June 30.   There is no signal that Greece can, or even really wants, to make this payment.  Failure to making this payment is technically a default on the IMF loan(s).

By all indications, Greece will soon be exiting the Eurozone and will probably never be able to borrow another penny from anybody, akin to a FICA score of zero.   Which, probably is best for everyone, except the Greeks.

Dow Futures are down 200 points during the evening of Sunday June 28.    Monday June 29 will be a volatile day in the stock markets, but my question is “Does Greece Matter?”   I discussed this in my prior May 7 post, please take a look, and reflect on whether or not Greece can really cause any damage to world markets (the opinions are wide-ranging).

I continue to be 100% S-Fund until further advised.   Fasten the seat belts, this week ahead will be somewhat bumpy.

Talk to you soon….

– Bill Pritchard

Hello Everyone

It appears that as of Sunday June 14, Greek Debt talks have broken down (again), with Greece pushing-back on creditor requests that Greek pensions be cut.  Another IMF payment is due on June 30, and many feel that Greece will not be able to pay it.   SP 500 overnight futures are trading lower, reflecting the break-down in debt talks.

In other news, the Federal Open Market Committee (FOMC) will meet this week and upon finishing their meeting, will have a press conference at 2:30PM Eastern Time on Wednesday June 17.  During this meeting, my opinion is that it is unlikely we see any acceleration of the pending interest rate hikes (my opinion is not until 2016).  I feel this meeting will be a “non-event” and not much different from the last meeting.

Other news pending this week, on June 16, is the “Housing Starts Report”, this report includes building permits, housing starts and housing completions data.  As we digest this report, which will likely be positive, and reflect an improvement over the last period, one must consider that home buyers who were “on the fence” between buying and renting, in light of potential interest rate hikes, are now in the “buyer” category.  So recent positive Housing Starts reports, must be viewed thru this lens.  In addition, May and June are typically the months of elevated real estate activity, as people get moved into position, and into a house, prior to the end of summer.   For those who have PCS’ed, this is a multi-month process, packing out, selling your house, obtaining a new home, obtaining financing (“Quick close mortgage” is still approx 20 days), etc etc.   So this does not happen overnight.  As I am learning via my own PCS move, May and June are very active with large numbers of quick buyers waiting in the shadows to pounce on the nice homes with good schools.  In light of the above events, we may have a turbulent market week, so keep those seat-belts fastened.

That is all I have for now….I remain 100% S-Fund, any changes I make to my TSP Allocation will be posted on this site.

Thank you for reading and everybody have a great week…

– Bill Pritchard

Hello Everyone !

I apologize for reduced activity, I am in the middle of a PCS transfer, from overseas/foreign location to domestic USA, so I am juggling numerous things and have been off the grid to some extent.

I remain 100% S-Fund.  While I-Fund indeed flashed some signs of life in April and early May, it then deteriorated and went south (performance wise), compared to the other funds.   The S-Fund was top performer for May returns.   The I-Fund was a negative performer and indeed carries additional risks for those who are in the I-Fund.  So again, I am maintaining course and remain 100% S-Fund.

On Friday June 5, the Labor Department released its most recent “jobs report”, which reflected an unemployment rate of 5.5%, which is a slight worsening of the prior rate, of 5.4%.   Whether the FOMC will raise rates or not in 2015, is still a hot debate, however I just don’t see it happening until sometime 2016.  My opinion.

For in-depth discussion regarding my opinion on rate hikes, go to my March 12 Post at this link:  http://www.thefedtrader.com/march-12-update-interest-ratespart-2/

Remember we are looking at BOTH Jobs/Employment data AND the PCE Inflation data.  If the FOMC’s publicly advertised parameters (to include congressional testimony) are to be adhered to, then BOTH of the above need to be fulfilled prior to rate hikes.

That is all I have now…tomorrow Sunday my day will be filled with more real estate and home shopping activity, I will be off the grid for another week or two, but WILL be monitoring things market-wise.   ANY changes to my TSP will be posted here.

Thanks for being a subscriber and please continue to share this site with your friends and colleagues.

– Bill Pritchard

Hello Everybody

Continuing my current 100% S-Fund TSP Allocation, I am happy to report that for the first time ever, the SP-500 Index has finally closed above 2120, versus just break thru it, and settle lower, which it did on May 4.   A “close price” is the final price that market participants have “settled on” by the time the markets closed for business, which is important for determination of sentiment.    Lets take a look at two charts, showing “close only prices” reflected by dots.   This is a less common method of displaying market activity, but still very useful.   Observe my previously and often discussed levels at 2040/2080/2120.

The markets appear to be embracing the fact that the economy, while doing well, is not doing so well as to warrant interest rate hikes soon.  Remember the public declarations made in front of Congress and in published policy statements by the FOMC, focused on both PCE Inflation data and Unemployment/Jobs data.  Also remember Presidential elections are coming sooner and not later.  I doubt any major deviations from these public statements will be occurring any time soon.   Maybe, not impossible, but my opinion is we probably won’t see any rate hikes soon.

In my May 7 post, I opined on the pending May 8 jobs report:  My opinion, the desired numbers are 225,000 to 250,000 jobs added and unemployment rate of 5.5 to 5.7%.    The market should react very positively to those numbers.

The May 8 report was then released and reflected 223,000 jobs added, and an unemployment rate of 5.4%, very close to my personal estimates published prior to the report.   As previously stated, the market has indeed embraced this data, resulting (finally) in a closure above 2120.   NOTE:  May and June historically are frustrating months, the kind where you pull your hair out, due to erratic price action.   Knowing that indeed, this is “typical” behavior, I typically remain fully invested (versus “Sell in May” strategy).   Unless of course additional red flags or storm clouds are observed.   But a “rainy month” does not mean necessarily that a Hurricane is about to hit us, if one has historical patterns and data on hand.   Some additional trivia is Aug/Sept/Oct are the markets worst performing months, historically.   

On May 12, Greece adhered to their repayment schedule and made a payment to the IMF.   While it is still questionable whether they will be able to make additional repayments, this May 12 payment was at least reassuring.  In addition, Asian stocks have rallied, resulting in the first weekly advance in three weeks.   This will likely benefit the I-Fund, which has exposure to Asian markets.

I may make a TSP Allocation change later this month to reflect 100% I-Fund or 50% I-Fund and 50% C-Fund.   I will post any such change on this site.  

At the present time, I remain 100% S-Fund.  Thank you for reading and please continue to share this site with your friends and colleagues.    Again, May (and June) are frustrating months, lets “hang in there” barring red flags or abnormal and negative market action.

Talk to you soon….

– Bill Pritchard

Hello everybody !

My current TSP Allocation of 100% S-Fund may change later this month of May, probably the third or fourth week of the month.    

It should be noted that the large cap stocks (represented by the C-Fund) are starting to outperform rather consistently the small and mid-cap stocks, on a domestic (non-international) basis.   When this occurs, it is important to look at other technical and fundamental indicators to get a “big picture” outlook on the markets.  Long story short, at the end of a bull market cycle, in almost all cases, the large caps are the “last to die”, and in many professional money management circles, this therefore is an important indicator of weakening bull market.   Why does this happen ?   One reason is large cap stocks are the inhabitants of thousands of mutual funds, pension plans, and hedge funds, these funds have literally billions of dollars invested.   These large funds, akin to cruise ships in the ocean, cannot “turn on a dime” and dump shares immediately.

Exiting holdings by these major players will occur over many month’s time, not one day or one week.   Some other reasons exist as to why this indicator is accurate, but I will save you the boredom, suffice to say that we need to keep an eye on this six-year old bull market, as it may be running out of steam soon.

Some other topics, are Greece and the Friday May 8 Jobs Report.

I won’t spend much time on Greece, as it is the same song: they owe money, they won’t pay under previously agreed to parameters, and they want to change the rules.   This has turned into a political mud wrestling match, with Greece, Germany, and the IMF all in the ring.    On May 12, Greece is required to make a payment to the IMF.  This is not contested and is without doubt, a payment is due on May 12.  Missing this payment, is considered in most circles, to put Greece into “default” status.   What will happen ?   As a trained investigator, I prefer to go to hard evidence, and historical patterns, versus just try to guess or crystal-ball things.    I went back to all the major, headline-issue, international financial crisis situations, all of which the US either paid money to help bail them out, or had our necks exposed due to US investment and business interests in those regions.   From the Mexico Peso devaluation, to Argentina, I analyzed SP 500 index “behavior” (remember, behind the markets are people) during the times of the above events.  Our crashes of 2000-2003 and 2007-2009 had no international triggers.  See chart:

So, how much damage did these prior international fiscal crisis/scandals/events do to our markets ?  Very little.

With that said, the Greece issue is a hot topic.  Some argue that the interconnectivity, post-internet, of world markets, makes this situation “different.”   Others say nothing will happen.   Me?  I don’t know.   To be honest I am not so sure a default in Greece really “matters”, but the markets are going to do what they are going to do.    The I-Fund is starting to do very well, and the impact of a default in Greece, which will clearly hurt Europe,  on the I-Fund, is not known.   Contrary to what some erroneously believe, even if you are not in the driver’s seat in a car crash, you can still be hurt.  Heck, you don’t even need to be in the car.   Secondary crashes, flying debris, can hurt you also.  So, no, the I-Fund has no Greece holdings, but ripple effects and chain reaction events in the close proximity can still reach out and touch us.   The I-Fund could be impacted by deteriorating markets in France and Germany, both of which have large exposure to the Greek debt situation. 

Regarding the jobs report, due to be released at 8:30 AM Eastern Time on Friday May 8, we are looking at jobs being added, and at the unemployment rate percentage.   If we see 300,000 jobs added, that is very good news and reflects a very healthy economy.   If the percentage data for unemployment is 5.4% or less, that also is good.   However, good news increases the probability of an interest rate hike this calendar year.   Nobody wants bad news either, as employment is indeed a large engine of the economy, therefore 250,000 jobs added is being considered the “ideal amount” to reflect a healthy economy, while not prompting a rate hike.   The “preferred” unemployment rate is 5.5%, as this indeed reflects a good economy, but will likely not spur interest rate hikes by the FOMC.   My opinion is that getting 300,000 jobs added will be almost impossible, in light of the massive layoffs in the oil sector.    The oil sector, will be the hot topic regarding the jobs report.  My opinion, the desired numbers are 225,000 to 250,000 jobs added and unemployment rate of 5.5 to 5.7%.    The market should react very positively to those numbers.  325,000 jobs added and unemployment rate of 4.5% (the chance that the numbers on Friday are close to those is nil) will result in an almost guaranteed rate hike this calendar year, along with a market downturn. 

With that discussion behind us, how are the markets doing ?   The SP 500 showed some strength as April finished, breaking the 2120 overhead resistance level on April 23, 24, 27, and on May 4.   Since then, it resumed downward.   See charts:

April TSP data has come in, and as expected and discussed on this site numerous times, resulting in yet another accurate Fed Trader prediction, the I-Fund outperformed in April.  The S-Fund, was negative, but we are looking at longer term, behavioral, trends, in order to determine appropriate fund allocations, and not single month numbers.  The I-Fund is overall YTD performer but some risk comes with those gains.  See graphic:

With that said, I may be moving 50% C-Fund and 50% I-Fund in late May or possibly 100% C-Fund.  At the present time, I remain 100% S-Fund.

Thank you for reading and please continue to share this site with your friends and colleagues.   I continue to be surprised by the huge numbers of new subscribers each month, and enjoy the emails that I get from the readership.   Thank You ! 

– Bill Pritchard