The Fed Trader

Hello Folks

Excuse the slight delay in updates, but I took some vacation time and was out visiting the Silicon Valley area in July (San Jose, CA area) on a vacation-and-research trip.  While out there, I was fortunate to have dinner with some folks who are employed in the tech sector; I am quite impressed by that sector (Semiconductors – General Computer/IT – Networking/Communications/Internet).  I feel that the way we live and operate today, in 2016, will be largely improved, and made easier, in the next 5 years because of this sector.  In support of this trip, I flew Virgin America (VRD), to evaluate their product, and honestly to “try something new.”  It should be noted that Alaska Airlines recently announced that they will merge with Virgin America, however they are unsure on whether they will merge the actual brands (paint the VRD planes in Alaska colors, etc) or not merge the brands.   My opinion is (Hello, Alaska?) do not merge, as the VRD product is very unique, and high quality, at a price point (out of Dallas Love Field anyway) competitive with the major airlines.  The brand carries a cult-like following of customers and fans.  If it is not broken, don’t fix it.

With that said (the above demonstrates that I was out “working” for my subscribers, not just goofing off and sight-seeing), small cap stocks (S-Fund) continue to be my favorite area.  Preliminary TSP data reflects that the S-Fund was the top July performer, with a 5.4% return, with the next best performers being I-Fund/5.07%, and C-Fund/3.69%.  Me personally, I-Fund is not worth the risk, so for me, I will remove that from consideration, with that said, my opinion is the 50/50 S and C-Fund allocation represents the ideal allocation mix for my TSP Account.

August begins a historical “worst 2-month pattern” for the stock markets, as August and September are indeed poor performing months, over the last 30 years or so.   I have had some readers reach out and share some concern that “the market is selling off” – this is normal for August.  Expect a listless August, and worse September, if history is any guide.  See graphic:

Place a down August in the “Ops Normal” column, and don’t lose too much sweat, unless volumes drastically go thru the roof and more aggressive selling occurs.  Let’s look at some charts, first the SP-500 Index itself, then the SPY Exchange Traded Fund, which is helpful for volume analysis:

As is evident in the charts, the period of July 18 to August 1 was basically flat, with minimal volume action.  Apparently Wall Street goes on vacation in the summer (like everyone else), as volumes were very quiet.  Then on Aug-2, we had a sell-off, but again, this is historically not abnormal for August.   In fact, the first nine days of August typically are sell-off days.  Note that the sell-off volume observed so far was only slightly on above average volume.  Do we move to G-Fund, if we already know that August and Sept are poor performers ?  Negative Ghost Rider.  G-Fund is the 911, Hurricane Shelter, safe haven, used for protection, when a bear market is probable or severe decline is pending.   I plan to remain fully invested in stock funds during Aug/Sept.  Recall I remained in stock funds during the entire BREXIT debacle.  Stocks recovered just as, dare I say, it, I expected.  However, others felt differently:  Federal News Radio is reporting that $2.1 Billion in TSP funds were shifted to G-Fund after the BREXIT vote.   Humorous note:  These were not likely my subscribers……  

Hopefully I have pacified some nervous folks; let me wrap this up with the observation that the SP-500 made an All Time High on Aug-1, reaching 2178.09.  This is great behavior, and strength begets strength.   I did have some folks ask the very legit question “Isn’t it too high now, I am worried things will crash” but remember you want to invest on the strongest performers, not the weakest.  You wouldn’t invest in real estate in a neighborhood with crashing home values would you (well, I wouldn’t….) ?   And being “too high” is very subjective, as we simply want to ride the wave until it goes the other direction.   And a “rest” is normal, even NFL superstar running back Walter Payton had to sit down and take a break at times.   Nobody worried that his proven, demonstrated, historical, track record would suddenly stop when he sat down and took a break.

Observation:  Pro-athletes, and markets, reach the end of their cycles at some point, (athletes typically retire, markets retreat) but I am very optimistic for the rest of this year.  I feel that the elections in November will give the markets some horsepower to go higher, as it represents a change of the old-guard, over to a fresh, new team.   We all know it will happen (a change) but the energy of the election, a new President sitting in the Oval Office, and a new team, should serve as combustion for a new uptrend.  New, new, new.

That is all I have for now, unless something hot and urgent comes across my radar, I will likely be in quiet-mode for the next week or two or three.   Again, Aug-Sept are historically down months, with things clearing up after that.  My personal TSP Allocation remains 50% S-Fund and 50% C-Fund.

Thanks for reading and talk to you soon…

-Bill Pritchard

Hello Folks

Hope everybody had a good July 4th weekend and post holiday week.  I am quite pleased to report that my decision to remain 50% S-Fund and 50% C-Fund, in light of BREXIT sell-offs and panic, has apparently (so far) been the correct decision, as the markets have performed very strongly since my June 29 post.   As a matter of fact, the SP 500 Index hit an intraday high of 2131.71 on Friday July 8, 2016.  This is very close to a historical All-Time-High (ATH), with the benchmark being 2134.72, which was set on May 20, 2015.  Once it breaks this level (we can call it “2135“), the index will be at a record ATH.   Let’s take a look at some charts:

Note that on Friday July 8, the often watched (by the financial press) Dow Jones Index gained 250 points.  Anytime you have such a performance on a Friday, which is the last trading day before the weekend, it is a very positive sign.  To be fair, all indexes gained, and this was largely fueled by the June Non-farm Payrolls report, which revealed a gain of 287,000 jobs, which was much more than an expected gain of 170-175,000 jobs.

It would appear that BREXIT has turned into a non-event, (FORGET-IT?) with the US markets rising strongly in past sessions, on above average volume.  The day after the affirmative BREXIT vote, the markets crashed hard, and on June 24 I posted the following comments:

“…I personally am not leaving stock funds, most reactions to this are panic selling and I anticipate things will stabilize in one to two weeks….”

In a not uncommon event on this (free) website, my analysis was spot-on, 100% accurate, as the markets indeed stabilized (and recovered), and two weeks later (July 8 is 14 calendar days, or two weeks, after June 24), the markets are closing at new highs, having recovered all BREXIT losses. 

This price behavior, and the above average volume,  is easily seen via analysis of the SPY Exchange Traded Fund, which is a proxy for the SP 500 Index.  Charts below:

Of all the TSP stock funds, I anticipate strong monthly July performance out of the S-Fund and C-Fund, assuming the market’s behavior continues.  As of present, the S-Fund is tracking as best monthly performer, C-Fund is next, and I-Fund is last.

That is all I have for now, my personal TSP contributions and allocations remain 50% S-Fund and 50% C-Fund.  

Thanks for reading, talk to you soon…

-Bill Pritchard

Hello Folks

As Robert Herjavec from CNBC’s Shark Tank program would say…“wow” – That is my reaction to this BREXIT stuff.

Let me be clear:  I, and most of the world, would have preferred a “Stay” vote, and indeed, the recent carnage (drama?) would have been avoided (or could it have been?).  Lets do a quick walk-thru of the house that recently caught fire.  However by the end of this post, you [hopefully] will feel a little more comfortable that things will be OK.  Note that the BREXIT vote falls under the category of Political change/economic policy catalyst, discussed in FAQ #9 on this site (this FAQ has been posted for years and is nothing new or revolutionary.)   Also note that for what seems like years, I have shared my concerns on this site with investing in the I-Fund.  It seems that volatile crude oil prices, financial scandals in Emerging Market countries, terrorist concerns, and political unrest are not enough reasons to keep some folks (this is not a criticism, but…) from the tempting potential returns in the I-Fund, but maybe the BREXIT scenario will serve as a wake-up call.  I am disappointed at the financial media and “experts” who push diversification and exposure to Europe as being helpful for your portfolio.  In fact, recent studies have revealed that diversification does not necessarily work in a stock portfolio, and may not be effective even if using multiple funds/ETFs as a diversification method.

The way I see it, you are either “with them” or “with us”, and not a flip-flopper or wishy-washy.  Stocks ?  Or Not ?  That is just me, but it is important to understand my view on the topic of stocks.

As most of us who own a TV or have some sort of internet dial-up or faster connection, we know that the BREXIT vote was official on Friday June 24.   It appears the “Leave/Yes” vote was chosen by the demographic of the blue-collar worker, lower class income (versus upper), and with no college education.  The sub-argument that blue-collar workers indeed would have an income lower than the wealthy is another topic for another day.   The observation made (by me) is that the Pro-BREXIT camp possibly did not understand what potential negative consequences, nor had any broader concept in mind, what their vote would do for the UK.  Note also that the UK is technically four countries, England, Scotland, Wales, and Northern Ireland, with the capital being London (the largest financial center outside of NYC), and the Prime Minster (since resigned) being a guy who was born in London.   As such, Britain was awarded the first two letters in BREXIT, and carries the most horsepower of all the UK members, for a variety of reasons.

Further note that the “Stay/No” vote demographic was determined to be the wealthy, upper class, college educated, and white-collar workers.   Warren Buffett, Richard Branson (Virgin Atlantic fame), Prime Minister Cameron, and others, all expressed concern (rightfully so, as we saw…) about a vote to leave.   However the leave camp won the vote.   This led to a huge sell off, at least initially, on Friday, and again on Monday.  The fact that the weekend was sandwiched between both sell off days should not go unnoticed as it carries large psychological importance in this situation.  Friday was a big sell off because folks panicked and unloaded positions, wishing to be “out” over the weekend, a period when the markets are closed, and then on Monday, whoever could not get out on Friday, having spent the entire weekend sulking and scared to death,  dumped their positions as soon as possible on Monday, fearing calamity and disaster just around the corner.

Soon after markets recovered, and in my opinion, will continue to recover.   Here is why:

-This wrench tossed into the global market place will almost certainly quash any US interest rate hike this year.

-Money previously invested in European markets may be re-directed to reliable and safe USA, which for all of its issues, remains one of the safest places for equities/stock market investment.   This may gain additional momentum once the current President is changed out.

-BREXIT itself has not happened yet.  This factoid has been missed by many.   The vote indeed happened, but the physical divorce has not happened yet.  This requires an “Article 50” action, which is a formal legal process to begin the divorce, an event which is allowed to take up to two years.   The most recent Prime Minister has refused to begin the Article 50 process, and instead said he will leave it for the next Prime Minister, who report on Sept 2, 2016.  Also, nobody has a clear yes/no answer on whether a new election can be pursued regarding BREXIT, and this could be an option.

-Gold, a safe haven currency, came off recent BREXIT panic highs, simultaneously as the US markets recovered up.   This is classic safe-haven money flow behavior, and reflects that the recent upticks in US markets are not merely a mirage in the desert.    See Gold Chart:

-For all the damage done on Friday and on Monday, the indexes are closing near mid-June (pre-BREXIT) levels.  “Close Price” meaning the price they traded at when the exchange closed or stopped trading, for the day.   These are depicted as “Dots” on a chart, known as a “Dot Chart”, see below:

-Recent uptick action on Tuesday and Wednesday was on above average volume.  I don’t think we will see upticks on any volume greater than the sell-off volume on Friday (which was a panic sell off), as re-entry to markets is usually done cautiously and slowly.  But above average volume merely days after the vote is a positive sign.

The major damage done was that done to the Dow Jones Index, and this happened because JPM (JP Morgan), AXP (American Express), and BA (Boeing) are all companies with large financial exposure to European markets.   Those stocks got creamed Friday, thus taking the Dow Jones down with them.

In my opinion, the market response to BREXIT was an overreaction, and we will see a return to normalcy in the coming weeks.  Did I say this was my opinion ?

That is all I have for now….I remain 50% S-Fund and 50% C-Fund in my TSP.

If you enjoyed this post, and prior posts, please share my site and emails with others who may benefit.   My recent polling information (some advised they could not use the embedded links due to restrictions on their work computers) indicate that 72% of my followers use this site as their only or as their primary TSP and market analysis site.  92% stated that this site has expanded their knowledge of the TSP and the stock market.  My huge subscriber growth is not by accident or magic, and I thank you guys for being part of this success.  Please continue to share my site with your colleagues and friends.  Thank you !

-Bill Pritchard

Good Morning

As many know, the BREXIT vote is now official, and it is “Yes”, UK will be leaving the EU.   Overnight futures CRASHED in response to this, and today’s (and into next week) markets will react very badly to this news.   This event is a reminder of the delicate nature of the I-Fund, which will suffer from this.   I have discussed this regarding the I-Fund numerous times on this site….big returns, however big risks (at times).

This will serve as fodder to keep US interest rates low, as we cannot have a BREXIT and a fragile US climate financially, which raising interest rates would contribute to.

I personally am not leaving stock funds, most reactions to this are panic selling and I anticipate things will stabilize in one to two weeks.   The fact that it is Friday, with major money managers not wishing to “see what happens” over the weekend, and instead prefer to unload positions, is not helping.

I remain 50% S-Fund and 50% C-Fund.

Thank You

-Bill Pritchard

Hello Folks

The most important thing facing TSP Participants this week is the BREXIT vote which will begin in approximately 2.5 hours from time of this post.   If British Pound Futures are any indication of what the vote will be, it (for now) is reflective of a “No” vote or “Do not Exit”, as indicated by their recent uptrending behavior.  Polls are great, but market behavior is better.  Please see evening charts below:

By Friday June 24 “sunrise” in USA, all voting results across the ocean in UK should be official and we will know the final and official BREXIT vote status.  Lets continue to monitor things between now and then, however as of now, we are on track for a “No vote” on BREXIT, which is positive for TSP Participants.

Thank you for reading…

-Bill Pritchard

Hello Everyone

Well, “as predicted” on this site, on May 18, 2016 and June 8, 2016, in which I spoke about the “expected” (by major financial press reporting) June interest rate hikes, and explained why I felt it would not happen, as I pat myself on the back, my contrary stance has yet again been correct:  The Federal Open Market Committee (FOMC) did not raise interest rates on June 15.   Their reasons echoed many of the same opinions expressed by me in my prior posts.   With that speed bump behind us, lets move forward and try to explain away the recent market doldrums

Note that the indexes were doing fine until June 8, at which point they started to go down, however this was on low volume, and hence I am not worrying (too much) about the recent hiccups in the market’s step.   The “2100 level” on the SP-500 Index continues to act as an important area.   Lets look at some charts:

This downtrending action stopped, albeit possibly temporarily, on June 16, with the markets closing in positive territory.

The next challenge for the markets is the BREXIT Situation in Europe.    The date of this vote is June 23.  What the heck is BREXIT ?   This is the term for the BRitain EXIT vote from the European Union (EU).   Actually the United Kingdom (UK) but nobody can pronounce UKEXIT so it is BREXIT.  Similar to GREXIT which was GReece EXIT.

Without going into a 25 page dissertation on UK politics and EU relations, the supporters of staying IN the EU is the UK Prime Minister himself, also our US President is supportive, also Germany, and China, are supportive of UK’s continued relationship with the EU.   Others are not supportive, their argument being that (among other things) the EU is “dragging down” (due to various weaker member countries and spill-over contamination) the UK and thus exiting will solve immigration issues, promote UK financial health, and free the UK from general EU headaches.

In sum, most BREXIT watchers believe an exit would be negative for the US markets and negative for UK overall.   This bears watching by TSP participants since, as we know, US markets do not like uncertainty and in today’s era, our markets are very sensitive to activity overseas.

Changing gears, I would like to say “Thank You” to everyone who has participated in the various polls.   If you have not participated, please do so.  Some have brought to my attention some browser/computer issues when they open the polls, what I recommend, is go to the below links, right-click on the link, choose “Open Link in New Tab” then vote in the poll in that new tab.  

Return to this page and repeat the process until you are done with all Polls.

http://www.poll-maker.com/poll715808x03964090-29

http://www.poll-maker.com/poll715812x388f14f4-29

http://www.poll-maker.com/poll715816x1Ceb4E8d-29

http://www.poll-maker.com/poll715821xd304c19E-29

http://www.poll-maker.com/poll715825xDEa84F39-29

I appreciate your participation as it allows me to stay in tune with the audience.

Nothing else to report, No Further Information (NFI) for the many of us that have used that terminology in reports….talk to you soon and thank you for reading.   Have a great weekend.

-Bill Pritchard

Hello Everyone

I am happy to report that my decision back on March 30, 2016, to return to the S/C Funds appears to have been the correct one.  I am a little surprised that the I-Fund has performed as well as it has lately, but as I have said before, the I-Fund, with all of its potential for positive returns, comes with it an increased risk factor due to the international nature of the fund.   With that said, lets take a look at the recent market action.

In my May 5, 2016 post, I discussed the “Sell in May” strategy and the historical returns (monthly) of the markets.  As a short mini-review, the Sell in May crowd believes (admittedly they have the historic data to prove it) that since the markets typically go down in May, and typically don’t return positive until September, they “Sell in May” and take the summer off.  I, however, being a trend follower, using my own self-developed proprietary methods, tend to just listen to what the market is telling me.  This at times can be boring, and even seem lazy, with large periods of inactivity as we “wait for the market” to tell us what to do.  In short, the market gave me no indication to sell in May, and I am glad I didn’t because the SP-500 and Dow Jones Index both had positive May performances, somewhat contrary to past history.  This, in and of itself, is a positive sign.

Wall Street employs a lot of financial whiz kids who are busy analyzing earnings, fundamental value, balance sheets, and other stuff that I have no desire to research.   At the end of the day, price and volume, are the only things that matter, period, the end.    With that said, our “price” on the SP-500 has recently reached a 11-month (almost a year) All-Time-High, having hit 2120.55.   See chart:

The last time the index was at these levels was July 2015.  This behavior is bullish (good) and reflective of a continued uptrend.  This action is in the face of recent concerns about interest rate hikes, however I have discussed on this site Ad nauseam that I don’t believe rates will be raised anytime soon (please take a look at prior posts).   To add fuel to my argument is the recent news out of the Department of Labor that the US job market notched its weakest monthly gain in more than five years.  It appears that Wall Street is starting to reach the same conclusion and feel that our economy is not quite ready for a rate hike.  If companies are not hiring now, what will they be doing if rates go higher and the cost of capital and loans becomes more expensive ?   Etc ?

The TSP Funds have done quite well since March 30, 2016, as demonstrated by this graphic:

My preliminary analysis reflects that the S-Fund remains the top performer (data as of June 8, 2016) on both a one-week, one-month, and 90-day look-back period.   The I-Fund, interestingly, is starting to gain ground and is in second place behind the S-Fund.   NOTE:  At some point, I may decide to move a portion of my TSP into the I-Fund.   However remember that the I-Fund carries additional risks.  One overseas terrorist event, a Crude Oil panic, or a currency/debt crisis, could all erase those gains in the I-Fund.

For now, my TSP Allocation is 50% S-Fund and 50% C-Fund.

With that, lets talk about subscriber polls.  I ask that you participate (participate once, using the honor system…) so that I can stay in tune with my readers and get a glimpse into their tastes/preferences regarding this site.

http://goo.gl/PZzD3x

http://goo.gl/35fqxL

http://goo.gl/A38Dz0

http://goo.gl/J5mjG3

http://goo.gl/MkQsi8

That’s all for now folks……Thank You for reading and talk to you soon….!

-Bill Pritchard

Hello Everyone

May 18, 2016 market action was disappointing, and directly tied to the Federal Open Market Committee (FOMC) minutes release which appeared to signal a possible rate hike in June.  I say “appeared” because that is the consensus of the financial press, however I am not so convinced that a rate hike will occur.  I encourage readers take a look at a prior post, on March 12, 2015, as almost a year later, I am posting a very similar analysis again.

First, most of the (often a paid subscription is required…) business and financial news sites on the evening of May 18, 2016 are publishing some iteration of “If the economy improves further, rates will go up.”  I don’t know about you, but that reporting does not appear to be very earth-shattering. Unfortunately (why does that word seem to occupy most of my posts this year….?) the market, in recent typical fashion, over-reacted and at one point during the day the Dow was down triple digits.  Fortunately, the indexes calmed down towards the end of the day, with the SP-500 actually closing slightly above its open price.  Lets take a look at the one-day “intraday” chart of the SP-500, again, my default index:

The violent downward action at the 2PM mark coincides with the FOMC minutes release.  Traders were hitting “sell” and I don’t even think they were reading the release.   However, I did read it (you can too…); allow me to share some views.   Again, these are not unlike my views from 2015.

Let’s observe that since maybe 2014 (and definitely since 2015), the FOMC has set two benchmarks, which both must be met, in order for them to consider raising rates.  The FOMC, and Ms. Yellen (the chairperson), has said these in numerous events, pubic press briefings, and to Congress.  These benchmarks are:

•  “Maximum Employment” – Unemployment Rate below 6.5% =    desired, the lower the rate, the better, the closer to 6.5%, not so good
•  Core 12-Month PCE Inflation (minus Food and Energy) Rate:  2%

We indeed have much improved unemployment rates, with the most recent data reflecting a 5% unemployment rate, however this rate is slightly worsened from prior months.   The data for May unemployment will be released on June 3, 2016.   See Image:

As can be seen, our unemployment rates have been mostly steady, since August, however “steady” also means that no huge improvements are happening either.

On to Core PCE Inflation, we are not at 2% yet, and as a matter of fact, it has drifted (slightly) the wrong direction, from 1.7% to 1.6%.   See Image:

If you read the FOMC Minutes, a comment is made that “Over the 12 months ending in March, total consumer prices as measured by the consumer price index (CPI) rose 1 percent, while core CPI inflation was 2-1/4 percent. In light of the CPI data, both total and core PCE price inflation on a 12-month basis appeared to slow a bit in March.”

A reference to the desired 2 percent level is also mentioned:

“The 12-month change in core PCE prices also continued to run below 2 percent, but it moved up to 1.7 percent in January and February from 1.4 percent at the end of 2015. Despite the recent rise in core inflation, some participants continued to see progress toward the Committee’s 2 percent inflation objective as likely to be gradual….”

“…Still, with 12-month PCE inflation continuing to run below the Committee’s 2 percent objective, a number of participants judged that it would be appropriate to proceed cautiously in removing policy accommodation….”

The FOMC discussed many items in the minutes, from housing, to energy prices, to GDP, but if we are to follow the benchmarks above, which the FOMC is already on record as being the requirements prior to a rate hike, then we do indeed have the unemployment benchmark met, but we do not have the Core PCE benchmark met.  

Add in the fact that we are in “election season”, I am not so sure that the President Obama-appointed Fed Chairperson Yellen and also-appointed Vice-Chairperson Fisher want to support a rate hike this summer, June or after.  A rate hike will likely cause some turmoil in the markets (temporary or not, we don’t know) , turmoil which may be remembered at the voting machines.   Not getting into politics, but it is what it is.

Let’s take a quick look at the recent SP-500 chart as we close out this update:

Apparent in the chart is that the sideways action continues, with the 2050 level remaining an important area for the index.   The close on May 18, 2016 was 2047.63, slightly below 2050 but much recovered from its intraday low of 2034.49.  Fortunately things improved in the afternoon.   Nobody said investing (or trading) was easy, and the last few years, say mid-2014 until present, have been especially challenging.

Before I close this recent iteration of my unofficial ongoing two-week cycle of updates, some important calendar dates are as follows:

June 3:  Unemployment Rate Data.  Will it improve or worsen ?

June 6:  FOMC Chairperson Yellen speaks in Philadelphia, and possibly offers a glimpse into the next event:

June 14-15:  FOMC Meeting, possible action to increase interest rates.

As some say, these are “Exciting Times.”   For now, I continue to be 50% S-Fund and 50% C-Fund in my TSP account.   The market itself remains the ultimate thermometer, not outside news, noise, or events.  If one or two triggers are driving the market, it indeed is important to understand those triggers.   But I am not going to overload you (or myself) with inane economic data or try to use lumber sales at Home Depot to predict the housing cycle.  I just don’t think it is useful or effective.  Lets stick to our bread and butter, and monitor the volume and price action, and keep an eye on the 2050 level.

Thanks for reading and talk to you soon….

-Bill Pritchard

Hello everyone

As we enter the month of May, one of the historically negative months for the Dow Jones Index (only 30 stocks, FYI…), history appears to be repeating itself, as all indexes have performed poorly.  The questions then becomes “Is this time different [and a real bear market underway] ?”  and “Or should I hang in there and not be concerned?”   Before we proceed further, let’s insert a chart of the Dow Jones Index historical monthly performance, as published by the good team over at Stock Traders Almanac:

The May behavior gives some credence to the “Sell in May” strategy, discussed in FAQ #19, which was sent to me by a colleague in a sister agency.   Note that (and this is what I said in my FAQ answer) I follow behavior of the market, and not automatic strategies, however I do find value in historical information and past behavior.   With that said, in answer to the above questions, I am not overly concerned, but I am not over-joyed either by the market’s recent behavior.   I am cognizant that (history is my guide) any chance for a positive gain in May is slim.  So going into May, I already know that this month will not be great.   Using the SP 500 (500 stocks, versus 30…) as my default index, we can see increased distribution on the index, which reflects selling by institutional investors.   This selling began on April 28.   Lets take a look at some charts:

The above are charts of the SP 500 Index.   Below are charts of the SPY Exchange Traded Fund, which is a proxy to the index.   The SPY ETF is useful for volume analysis.  Let’s take a look below:

The breakdown is evident on the charts,  which began on April 28.   Major “follow on” selling is obvious on April 29.

While no single event can be associated to this, it arguably could be tied to campaign activity which is firming up, with numerous candidates dropping out. (and this means either party…Hillary becoming a front runner = bad/good, Donald Trump becoming a front runner = bad/good…if you have a crystal ball to accurately predict the upcoming election, please use it and buy both of us Power Ball tickets…).   It could be numerous things, or…..could just be typical, historical, May behavior.    The high volume above does have me a little worried though.

I am keeping an eye on the 2050 level on the SP 500, which appears to be a strong magnet for the index.   Every time that it climbs above 2050, it gets sucked back to that level, causing headaches and frustrations for all.    Friday May 6 is the date of the April “jobs report”, so the markets may improve (or not) pending the results of that report.

In other news, retailer Aeropostale has filed for bankruptcy, which is testimony to my numerous prior posts that old-school shopping malls and big box stores are a thing of the past, replaced by Amazon Prime, online stores, and other forms of shopping.  In addition, many of today’s clothing stores, which you and I likely shopped at circa 1988-1994 (with an Orange Julius in hand, as we walked to the indoor mall movie theater to watch Top Gun), are just not hot anymore, and are having a difficult time attracting today’s Gen-Y customer.   Aeropostale, The Gap, Banana Republic, Old Navy, I just don’t see much future in those stores anymore.   Since this should be focused on the TSP, and not Retail Fashion analysis, I will stop, but some fundamental changes need to happen in the retail shopping mall industry overall.

In the “Value-Add” column, I want to point out a benefit you have if you are a Blue Cross/Blue Shield member.  I discussed this in 2015 but will refresh it here.  My not-scientific poll reflects that 90% of BCBS members do not know about this, at least not the ones I know.    It is called “Healthways” and provides for $25 gym membership, for each adult member ($25 for you, $25 for your wife, or $50 total) who is entitled to your BCBS benefits (children do not have access to this Healthways program).   The link for additional information is here:

https://www.blue365deals.com/healthways-national-standing-25-monthly-fee-access-network-9000-gyms-nationwide

The site is somewhat difficult to navigate, sometimes it is better to call a real human and talk to them.   The phone number for additional information is 1-888-242-2060.

I remain 50% S-Fund and 50% C-Fund.   2050 remains an important support level on the SP 500.    Please note that in the next week or two, I will send out a Poll to all subscribers, as I seek to continue to capture reader preferences and opinion.   The last poll was in April 2015, and almost 2,000 folks replied.   The past poll is here:  http://www.poll-maker.com/results258354x7A08455c-10#tab-2

Thanks everyone, hope everyone has a great weekend and remember to call Mom on Sunday….

-Bill Pritchard

Hello Folks

Hope everyone is doing well…you have every reason to be pleased if your TSP Allocation currently reflects any combination of C/S/I-Funds, as all have done very well during the last two weeks.   As a matter of fact, the Dow Jones Index (only 30 large cap stocks, FYI…) just posted its largest weekly gain in over a month.

My decision on March 29 to change my TSP fund allocations and contributions to 50% S-Fund and 50% C-Fund appears (so far…) to have been the correct decision.  The market declined very slightly immediately after March 29, which invited some “fan mail” regarding my decision to return to the markets.

However this slight decline simply meant that my fund change resulted in a re-entry to the markets at a “cheaper price”.   Observe that my decision on March 29 was based on months of analysis and monitoring the market’s behavior, since August 2015.

On April 13, the SP-500 Index “gapped up” (explained here before, also explained at this link here ), on higher volume than the previous day.  A gap-up, on high volume, is extremely positive and is akin to a huge splash in a small pond when an elephant jumps in.  Lets take a look at that action:

The index then traded higher the next day on April 14, and hit 2087.84, which is the highest level since December 7, 2015; this is definitely a positive sign.   See longer range chart below:

To back up my chart analysis, I have consulted other resources and I am pleased to see that the good folks over at Investors Business Daily report that the Accumulation/Distribution grade in the markets are “B” (A is best), which is an improvement over the prior 30-60 days, reflecting that institutions are coming back into the markets.  Volume action is still lower overall, however the price action is trending upward, so for now, I am pleased with the market’s behavior.

A factor behind this uptrend, is rising Crude Oil prices, currently priced in the $40 range, much higher than prior levels, and getting closer to the $50-55 level which most feel is the “sweet spot” for oil companies to be profitable again, yet not so high as to trigger high-priced gasoline for the retail customer (mom and dad) at the pump.  Even $45 would be a good level to seek and stabilize at.  Lets take a look at a chart of Crude Oil:

As can be seen, since February, the price has recovered, albeit not without a slight downtrend in late March.

In my opinion, there are no major challenges for the markets at the present time.  We are indeed in earnings season, but I don’t get too wrapped around the axle about “earnings season” because the way I see it, all year is earnings season.  The next FOMC meeting with a public announcement by Chair Janet Yellen will be June 15, a rate hike may or may not be announced or discussed.

In sum, the markets have done very well since my decision to return to stock funds- my TSP reflects 50% S-Fund and 50% C-Fund.

Thank You and have a great weekend everybody

-Bill Pritchard