The Fed Trader

Hello Folks

I am happy to report that I am exiting the G-Fund and returning to the stock funds, more specifically 50% S-Fund and 50% C-Fund, via interfund transfer and a contribution allocation reflecting this percentage (FAQ #10).   Small Cap stocks (S-Fund) have performed very well in recent weeks, however it is probable that Large Caps (C-Fund) will also be responding well, thus I am getting some exposure to both funds.

Recent market action reflects a growing uptrend, on lackluster volume, however the market volume picked up the afternoon of 03-29-16, after FOMC Chairwoman Yellen spoke regarding her assessments of the economy.  In addition, the SP-500 futures trading during the evening hours of 03-29-16, broke to a new recent All-Time-High, reflecting positive sentiment in the evening hours.  See chart:

This return to stock funds is a welcome event, nobody enjoys sitting on the beach while everyone else is out in the ocean playing in the waves and enjoying their surfboards.  However I believe the continued position in G-Fund will cause me to miss future gains, and that the market environment is indeed much less risky than 60-90 days ago.   At some point, we can’t “risk assess” ourselves out of existence, at some point we have to get out of bed, and go out into the world and face whatever obstacles come across our path.  There are only so many factors one can control, or influence.  Based on my review of the chart action, the improving volume action, and the Accumulation/Distribution activity in the indexes, I feel that the threat level is much reduced, and a return to stock funds is justified.   Just FYI that things may go south, depending on how the elections go.  Let’s stay alert and aware.

Again, I will be 50% S-Fund and 50% C-Fund.   Any TSP changes submitted by COB on Wednesday should take effect by Friday evening.  If the market dips slightly over the next few days, that is fine, you are entering while it is slightly down.   Remember, we are looking at long-term behavior (note that I have been in G-Fund since August) in the markets, not one-day or even one-week cycles.   This serves as partial explanation as to why I only post every week to two weeks.

Thank you for reading, hope everyone is doing well.   Have a great week

-Bill Pritchard

Hello Everybody

Thank you for the various messages and emails, let me say that if anyone wants to be out of G-Fund, it is me.  However for a variety of reasons, I remain 100% G-Fund.   Allow me to explain.

Since the apparent finding-of-support on Feb-11 at 1810 area by the SP-500 Index (see chart), the index has climbed upward, almost on a daily basis.  “Let’s get back in, we are missing gains” is often mentioned (typically via strongly phrased email!)   Well, while technically correct, yes the indexes have gone up, getting back in carries additional risk of being creamed if the markets go south, as the volume levels since Feb-11 have not been anything (in my opinion) to help protect against downside moves.   Let’s look at a chart, as pictures are worth a thousand words, and sometimes my words are clear as mud.

As can be seen, volumes are below average, with the exception of Friday March 4, which was slightly above average, and which was discussed in my post dated Monday March 7, in which I shared my observations regarding the prior week.    If you take a look at the red box, above, this reflects volume action since my March 7 post, you can see that it is below average.

In my self-assessment, I determined that in our hunger for an uptrend, in our desperation to exit the G-Fund, that confirmation bias is happening, and the financial media is suffering from this also.  Confirmation Bias describes our tendency to seek out and trust information that confirms what we already think or believe or want to believe, and to avoid or discount information that goes against what we believe or want to believe.  Imagine driving down a strange road at night, and your co-pilot (possibly a spouse) has reminded you numerous times that you indeed seem lost and unable to find the correct street.  Your IQ, vision, and decision to even get married have been mentioned by your co-pilot, as you haplessly navigate the dark neighborhood.  Soon, your headlights illuminate a green street reflective street sign, and, surprise, you activate the turn signal and announce that “this is the street.”   Sadly, it was not the correct street, and your spouse is even more vocal.   Another example is the airplane pilot, attempting to land at night on a foggy runway, he sees streetlights and starts to descend to land, only to crash the airplane due to mistaking the street for the runway.

Folks, I don’t want to fall victim to this, and continue to remain in G-Fund.  I sheepishly admit that I partially indeed had some confimation bias, but a little cold water on my face and “stepping back” and disconnecting from all the stimuli has put a stop to it.  You and I both want to be out of G-Fund, but me personally, not yet.    I believe that the FOMC Meeting, due to conclude on March-16, and Crude Oil prices, are the market’s challenges right now.   Crude Oil, previously close to $39, has backed away from that, returning to the $36 area.  See chart:

In addition, the good folks over at Investors Business Daily are reporting five (5) Distribution Days on the NASDAQ index.   Research has shown that four to seven Distribution Days within multiple weeks is a negative sign and typically will put a stop to any new uptrends.

As anyone who is not living in a cave knows, the evening of March 15 witnessed the results of the most recent voting.  I won’t get into politics here, but the below chart reflect the SP-500 futures (which trade overnight) and their reaction once the results were in, regarding the voting (they reversed).

The reader will be pleased to know that my oft-unintelligible rantings are about to conclude.   In summary, the volume just is not there, and we are in a dangerous situation because volume is the legs that keep the table off the floor.   Weak legs and the table can topple over.  I hesitate to jump back onto the table yet.   100% G-Fund for me until further advised.   Watch that confirmation bias.   And always bring a GPS.

Talk to you soon…

-Bill Pritchard

Hello Folks

I am happy to report that the markets did pretty darn well last week, with the SP 500 breaking the important 1950 level.   However, volume could have been stronger, but was not weak, per-se.   I however would prefer some additional volume above its average volume, just as a confirmation sign that “the move” (the price movement of the index) is indeed real.   Lets look at some charts:

March 4 volume indeed was above average, but very slightly.

Unfortunately, the markets remain married to the price of Crude Oil, which is now trading at $36 per barrel, depicted on the chart below:

I say “unfortunately” because right now, whatever Crude does, the stock market will do, which means our TSP stock funds and the US stock market is unfortunately at the mercy of oil ministers in the middle east, and will respond to whatever public comments those oil ministers decide to make for radio and TV broadcast.  In US-based news, on Friday March-4, the “Jobs Report” was released by the Department of Labor, reflecting a 4.9% unemployment rate in February.   This rate is very good, which could prompt a return to “Good News is Bad News” thinking, as a strengthening economy, reflected by numerous indicators (the Jobs Report is one), may signal to the FOMC that interest rate hikes should continue on schedule.  Rate hikes tend to dampen stock markets.   However, by all appearances, the markets “liked” the Jobs Report and rallied higher.

Some important events will happen this month, on March 10 the European Central Bank (ECB) will have a meeting to discuss their fiscal stimulus efforts in the region.  Any plans for additional stimulus will likely be positive for the markets, at least in the short term.  Additionally, there is an FOMC Meeting on March 15-16, no doubt that rate hikes will be at least discussed, whether rates are actioned-on is another story.

In summary, we have 1950 penetrated, but I would like the volume to improve.  No, I am not going to wait ten more years for the volume.   I remain 100% G-Fund, however to put this into language we all understand, last week’s action has caused me to come out of the holster, and into a ready position, with my finger resting near the S/C Fund trigger guard.

Thank you for reading and talk to you soon…

-Bill Pritchard

Hello Everyone

On Feb-25, the SP-500 broke the previously discussed 1950 level, hitting 1951.83, before closing at 1951.70, however volume was lackluster… below the average trading volume and less than the prior day’s volume.   As many readers know, volume is the horsepower behind the move.   Please see charts:

While I celebrate the fact that we broke thru 1950, I am less than celebratory regarding the volume.  As such, I remain cautious and will not be making any moves out of G-Fund until I see volume pick up.  As discussed in my prior post, we need to break above 1950 (we did that), and we need volume (we don’t have that), to sustain any new trend change.

All of this, (surprise) is tied to crude oil movement.   I heard someone the other day mention that whether we know it or not, we are all “oil traders” now.  I agree with that assessment, as every time that crude oil makes a move, the stock investor is affected.   Another factor (yet another shocker) is that reports of a slowing Global economy, and slowdown in China, are impacting our markets.

Let’s continue to monitor things, volume in particular.   To demonstrate what “strong volume” looks like, take a look at the below March 2003 chart of the SP-500, in which the NASDAQ-bear market (2000-2003) finally reversed itself.  Compare this chart to the above charts:

Clearly the above 2003 volume is not what we are seeing right now.  The catalyst and trigger event for this volume was the March 2003 invasion of Iraq by US military forces.   Yes, a pretty big catalyst.  The above 2003 chart, when I saw that, I couldn’t get out of G-Fund fast enough.  Back then, this site did not exist, and my TSP analysis was via a Yahoo email list, sent to about 20 of my co-workers. 

Back to the future, or at least to the present.  Right now, I am 100% G-Fund and still sitting tight.   Everybody have a great weekend and talk to you in a week or two, as we continue to watch things.  Thank you for reading !

-Bill Pritchard

Hello Everybody

Well, for the first time, in a long time, the indexes are showing some signs of life, and a desire to establish a new direction.   Unfortunately volume is “not there yet” but it indeed is trying.  This action was fueled by two things, a slight rise in Crude Oil prices, now at $33 per barrel, off its prior lows of sub-$30.  This rise was fueled (no pun intended) by news that some OPEC nations will not increase production, and this resulted in a price increase.  In my opinion this price rise is temporary, and we may see a return to $30 or sub-$30 in the near future.  In addition, the January 26-27 FOMC Meeting minutes were released, the notes are reflective of an FOMC that is wary of raising interest rates.  I personally believe (my opinion…) this could be called “FOMC in an election year”, however the language and phraseology will obviously reflect economic reasons, not political, for hitting pause on further rate hikes.   Again, my opinion.   I think (and many others do also…) that the time has come to resume slight interest rate hikes, as the economic data indeed is much improved since as recent as 12 months ago.

Lets take a look at some charts, first without notations, then one with notations.   Observe we are concerned with the SP 500 Index, and need to keep an eye on the 1950 overhead resistance level, which is determined by me to be important.   The most recent touching of this level was on Jan-13, in which the index hit 1950.33, and then again it came close, on Feb-01, reaching 1947.20.

As can be seen on the charts, for the last three trading sessions, the index has closed higher than the price day, on rising volume.   However, as also can be seen, volume is still basically “average” and not the desired “clear and convincing power and strength” which would be witnessed with volume 25% or more above the average volume.  Trading volume on Feb-17 was slightly above average.  However in light of recent market turmoil, I desire much more powerful volume.

Note that a sudden reversal and positive climb thru 1950, does not automatically mean we have blue skies ahead.   I am cautiously optimistic, if we get both, a penetration of 1950, on strong volume, that would be potential trigger to leave the G-Fund.

I remain 100% G-Fund.   Thank you for reading and talk to you soon.

-Bill Pritchard

Good Morning

FYI that Dow Jones Futures are trading lower 300 points, largely triggered by a new low price of Crude Oil, now trading at $27.   G-Fund remains an excellent safe haven…I remain 100% G-Fund.

I will submit another post in the near future.  Observe that the US stock markets will be closed on Monday Feb-15.

Thank You

Hello Folks

Thanks for the emails, yes I am still here (and always will be….), however I try not to push out email traffic or site updates unless clearly warranted and when something worthwhile needs reporting.   A constant barrage of depressing emails tends to push folks away, so I have held back.  I am trying to allow the New Year to bring something positive to report.  However, we are now into the second month of the year, and February has not started off very well.   The last trading day of January, Jan-29, ended with the Dow positive almost 400 points.   The subsequent high-fives and “we are out of the woods” chanter and applause trickled out of various websites and financial television networks, however one wonders if such chanting is like witchcraft, as the markets reversed lower again.  January TSP fund data reflects that the S-Fund and I-Fund had the worst Year to Date performance.  

My current assessment of things has not changed at all, from my Jan-14 post.

I would like to re-mention that the revolutionary idea (to some) to be in G-Fund to protect your balance is not an idea invented by me, and thus is not something I can trademark, patent, or copyright.   That use of the G-Fund is mentioned by both me (on this website) and on TSP’s own official site, so take a look at my Jan-14 post for additional discussion on that.   “Stay invested” / “keep buying” / “don’t move your money” / “think long term” [what is long term, age 150 years?] is in my opinion a theory pushed out by some money managers (along with their own fancy math and “explanation”) who want your money to stay under their management.  Observe that you will find no such idea anywhere on the official TSP website.   Investment decisions (when I move my funds over to G-Fund, that is a decision) can make or break your retirement.  The Dallas Police and Fire Pension system (a pension plan run by money managers), is suffering bad decisions, what Dallas PD Chief Brown calls:

“….The pension fund is a very serious problem,” he said Tuesday, referring to what Dallas Mayor Mike Rawlings calls “the billion-dollar hole” in the middle of the Dallas Police and Fire Pension System that pays the city’s retired rescue workers. It’s actually a $1.4-billion-sized hole following years of bad investments and poor management, and the pension fund is in danger of going broke by 2030….”

The importance of good decisions is paramount in regards to our retirement, and each TSP participant should look at himself as their own fund manager, and approach their balance with that mindset.  With that said, lets look at a chart of the SP 500.  Take a look at the horizontal lines I have placed on the chart, our recent overhead resistance and support levels are going to be 1950 (Overhead) and 1870 (Support).

The indexes have witnessed numerous Distribution Days, with the NASDAQ having four (4) days recently.  Four to Six days will typically send the markets into a resumed downtrend.   Interesting to note is that the folks at Investors Business Daily (I am a paid subscriber) proclaimed that a “Follow-Through Day” (FTD) occurred on Jan-26, long story short, this type of day is symbolic of a potential reversal of a downtrend, and such a declaration could result in some people returning to the stock market and investing their money.    As a paid subscriber, and customer, the customer is always right, and I advised them of my discord:

Note that IBD has an excellent reputation overall, but their recent “market calls” have been questionable.  I don’t hesitate to share my opinion with them, via various means, when I disagree.

The challenges remain the same, Crude Oil, China, and Interest Rates, or sub-challenges derived out of those categories.   It should be noted that the most recent Unemployment Rate data reflects the lowest rate in 8 years, 4.9%.   It is my opinion that the FOMC will continue to raise interest rates this year, and not “push pause on additional hikes” as some on Wall Street desire.   This would invite (especially in an election year) criticism that the FOMC, a purported independent body, to be in bed with Wall Street:  FOMC Chairwoman Yellen is a Presidential nominee, and with the fact that one female candidate from the same party is currently facing allegations of highly paid speeches and her own alleged close ties to Wall Street, long story short, interest rate hikes will continue in 2016.   Plus the “data” supports it, great unemployment numbers,  along with recent PCE Inflation data reflecting very slight improvement towards the FOMC target of 2%.   Again, in my opinion, interest rate hikes will continue in 2016.

Regarding China, fund manager and multi-billionaire George Soros made some comments on Bloomberg, on Jan-7, strikingly similar to mine (however my TSP balance is a little smaller than Soros’ accounts…), made on Nov-15:

Soros / Jan-7-2016:

“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Pritchard / Nov-15-2015:

“One big worry I have is “China”- my opinion is China today, is what USA was in 2007.  My opinion is the economic situation in China is very similar to our Sub-Prime mortgage crisis of 2007-2009.  In addition to China’s housing situation, their GDP has slowed to 6.9%, which is below the desired 7% rate, the first time it has been below that level since 2009.”

Crude Oil continues to be a challenge, however it is somewhat married to the other challenges.   A slowing economy in China will result in lower oil consumption, and interest rate hikes (in theory) could result in reduced spending and a desire to increase efficiencies by major corporations.  Don’t let “cheap gas” fool you into thinking that airlines, trucking companies, etc suddenly don’t look at fuel expenses.   These sectors will always seek to maximize fuel savings and are constantly seeking new engine technology, and new strategies, in regards to fuel expenses.

So, are we in a recession yet ?   No, however my opinion is the market is a leading, not lagging indicator, of economic conditions.  As discussed on this site before, go to other sources and listen to other trusted financial experts, all whom believe, like I do, that the stock market is indeed a leading indicator, such as Charles Schwab, New York NYU Stern Business School, Chicago Booth School of Business and the American Institute for Economic Research.

It it is possible that in late 2016, our economy could be declared to be entering a recession.  That word, similar to “fire” in the Movie Theater industry, or the word “sink” in the Cruise Ship industry, is a pretty powerful word, folks in political circles and leadership roles in the financial industry will do everything they can to avoid saying that word.   Just keep in mind that the markets don’t lie, and they always lead.  We may hear that word mentioned in late 2016.  With that said, let’s monitor the 1950/1870 levels on the SP 500.  I remain 100% G-Fund until further advised.

Thank you and talk to you soon.   Please continue to share this site with your friends and coworkers.  Thank you !

-Bill Pritchard

Hello Everyone

Today, Jan-19, and post-MLK holiday, I was entertained on my drive to work listening to the various business news stations, which celebrated the “triple digit open”  (on the Dow Jones) and the fact that the markets “came back from the holiday, refreshed and ready to rally.”   I say entertained because such talk is indeed entertainment, as the “big open” subsequently went into a decline for most of the remainder of the day, which is reflective of selling/distribution.

It is important to note that the previously discussed support level of 1865 on the SP 500 was breached on Jan-15, when the SP 500 hit 1857.83.  It then recovered slightly but this new 52-week low is lower than any point since October 2014.  See chart:

I am disappointed that the market’s behavior during the day, carried over into the nighttime futures session, with the Dow Jones Futures trading 200 points to the negative as of 10:05 PM CDT on Jan-19.   See graphic:

Why is this happening ?  Again, my crystal ball tends to be unreliable, but most believe that China, Crude Oil, and potential interest rate hikes in 2016 are choking the market.  Note that I discussed my own personal concerns with China and Crude Oil almost one year ago, on this site.   Other business sites, cable news, etc are just now waking up to those issues. 

As can be seen below, Crude Oil is trading at new lows, of $28.79 (a new record low):

The market remains a risky minefield, and I remain 100% G-Fund.

Thank you and talk to you soon…

-Bill Pritchard

Please be advised that Dow Jones Futures, which trade overnight, are trading down (to the negative) almost 400 points as of 8:05 AM Central Time on 01-15-2016.   See chart:

Causal factor behind this is believed to be Crude Oil, which is now at new lows of $29.55:

Today will likely be a challenging day in the markets.   Watch the 1865 support level on SP 500.

I remain 100% G-Fund. 

-Bill Pritchard

Hello Everybody

I am disappointed to report that 2016 continues to return poor market action, this is not the way we want the “tone” set for the rest of the year.  I had similar sentiment last year, and in what is an apparent Déjà vu “been here before” post, dated January 7, 2015, the markets started 2015 poorly, and we all know how that worked out for us.  Some may disclaim the “January Barometer”, but it works pretty good in my opinion.

The only difference between then and now, primarily, is that now, we had a recent interest rate hike, and additionally, more hikes are expected this year (2016).  One other difference is the “$50 cheap oil” last January?  Well that oil is now priced at $30 per barrel, or 40% cheaper than the January 2015 price.

Indeed oil is a major concern for the markets, and prices have continued below the $35 level, previously considered by some to be a “support level” or “bottom” prompting many to invest in oil related industries.  I expressed some concern to some friends who wanted to “get in” on “cheap” oil stocks.  “It can’t get any cheaper” etc was often tossed about.  The funny thing about the market is that it’s pretty hard to outsmart, unless catching falling Ginsu Knives with your bare hands is something you like to do.  Flash forward to January 2016, and Crude Oil is trading at $30 a barrel, and even touched sub-$30 on January 12.  Crude Oil was discussed in my December 13, 2015 post, in which I stated:

“….Prices per barrel, need to be $55, for the oil companies to make a profit and yet not result in super expensive gasoline prices for the consumer.  This person felt that prices could continue lower, into the “sub-30’s” for price per barrel.    We are at $35 now…”

So what does all this mumbo-jumbo mean for the TSP Investor ?   Well, the only one I can speak about is me, so it should be no surprise that I remain 100% G-Fund.   I occasionally get emails as to why I state (FAQ #12) that the G-Fund is good place to protect your account from a loss.  “Why do you say that” or “How did you come up with that [lame brained] idea” is sometimes asked.   Well, I hate to break the harsh news to anyone, but I am not the only one who feels that way, the TSP folks themselves say the same thing on their own website.   Lets take a look:

So again, yes,  yours truly goes to G-Fund when he sees storm clouds ahead, which is not in disagreement with the doctrine put forth on the TSP home page.  So when a coworker or someone admonishes you for being in G-Fund, please send them to TSP’s own website !

Moving forward, lets talk about the markets.  The Dow Jones and SP 500 (NOTE:  some stocks exist at the same time on both indexes, such as Boeing/BA) have witnessed 50-day and 200-day moving average crossovers to the downside, while the NASDAQ is witnessing an almost-crossover (did not occur yet, but soon).   These crossovers are a pretty reliable “bear market” signal, especially when used in conjunction with volume analysis and backdrop fundamental analysis (interest rate hikes).   Lets take a look at some charts, the 50/200 cross is shown via a red circle:

The last chart shown is the SP 500, my “go to” index for market analysis, as it contains a mixture of NASDAQ, NYSE, tech, industrial, and other stocks, and (in theory) represents the biggest, healthiest companies in America.   Allow me to post a closer-range shot of the SP 500 index, but for my discussion, please refer to Chart #3 above, and the below charts.

As can be seen, since the beginning of 2016, the index been in a downtrend, on above average volume, reflecting distribution.  Some believe this is the worst calendar year-start, ever, in history.   The chart with the yellow portion above reflects an approximate trend line, indicating that 1950 must be attained before we can even think that this trend has started any attempt to reverse.   Looking at the larger charts, it is apparent that 1865 is a pretty good area to consider “support”, as this is slightly below the August 25, 2015 low of 1867.30, and subsequent close calls to that area.   So again, the areas we need to watch are 1865/Support, and 1950/Trend reversal.   If the index hits 1950, this is by no means a sign the downtrend has stopped, merely a sign that it is trying to regain some life.

The Dow Jones traded higher on Thursday January 14, which feels great and makes nice headlines for cable news networks, however sadly it did not trade higher than the day prior (January 13).   This inability to trade higher than the prior day means by default that the trend is not reversed, no matter how many “points up” the market is that particular day.   To put this into perspective (or maybe muddy the water), Trainee Jones has a PT test next month, and this week, on Monday, he was able to do 100 push ups until exhaustion.   Tuesday he did 80 push ups, Wednesday, he did 60, Thursday he did 40, and on Friday, he does 38, which is much better than expected, but he did not exceed Thursday’s performance and is clearly not on the path to improvement, being far below his Monday performance of 100.  We want Trainee Jones (Or Mr. Dow Jones) to display a definite trend of improvement and recovery, and one-day bursts of good performance do not necessarily represent that the pattern is reversed.

All TSP Stock Funds are all performing poorly, with December data reflecting that S-Fund and I-Fund were the worst performers of all the funds:

In what is sounding like a broken record, some may recall that I went 100% G-Fund in August (I remain 100% G-Fund at the present time), and may remember my remarks in my August 23, 2015 post that

“…..it takes months, not mere days, for a bear market to fully materialize…”

Well folks, August is four months behind us, and what do we have materializing now ?   Who told you first ?  If at all ?  In all likelihood, it was here.

Our challenges right now include cheap oil, continued interest rate hikes, and uncertainties in China/Asia.  Those are the meat and potatoes, headline issues right now, period, end of story.  Be wary of any magazine, website, or reported expert who points you to other issues.  Lets keep an eye on the 1865/1950 levels and see how things play out over the next few weeks.

Thank you for reading and if you find my (opinion-based) posts useful, informative, or otherwise entertaining, please share this site with others.   Talk to you soon…

-Bill Pritchard