The Fed Trader

Hello Folks

Clearly things have not started well this new year.  I actually want to discuss and post more than I can right now, I will attempt to do that over the weekend.  Long story short, increased selling (distribution) is coming into the indexes and markets are (in all of my indicators and analysis) headed further lower.   I remain 100% G-Fund.  Note:  Jan 07 (Thursday) market action is potentially going to be very bloody, as tonight, China markets have suspended trading due to volatility concerns and “Circuit Breakers” being activated in their computerized systems.  I have mentioned on this site previously my concerns with Chinese economic data (they self-report, no outside verification) and their Chinese version of the US Housing Bubble.  I even labeled China my “big worry” in regards to things affecting the market, in my November 15, 2015 post.

I stated:

“….In addition, me, personally, I have other concerns about the market.   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. 

Chinese authorities have cut Chinese interest rates numerous times, and this has had little, if any, positive impact on their economy.  So we have numerous data sources which reflect that China is slowing down.  With that said, like the SARS Virus, a flu in the Chinese markets can (and will) infect the rest of the world.”

In my November 5, 2015 post, I discussed my concerns with the integrity of Chinese data and economic reports:

“…Numerous things continue to challenge the markets, some of which are:

• Difficult to verify economic reports from China, a Communist country, reflecting a slowing Chinese economy.  Some believe that if the data could be fully vetted, the data would be much worse….”

Next update, more detailed, in the next couple of days.  I remain 100% G-Fund.

Thank You

-Bill Pritchard

Guys, I want to wish everyone a HAPPY NEW YEAR.   Lets all be safe and make good decisions as we celebrate the closure of the year and the beginning of the New Year.   I would like to post some final market comments before we all go off the grid for the next couple of days.

2015 was a challenging and difficult year, for all.  You and I, are not alone in our frustrations.   It is not just me, a TSP participant and “non Wall Streeter” who had struggles, finally going to G-Fund back in August.  Bloomberg Business had a segment regarding 2015’s market struggles, please take a look:

With that said, lets take a quick flash-back to my first post of 2015, dated January 7, 2015.  In that post, I commented:

“….The first trading day of January is symbolic as it tends to “set the tone” for things to come.    Then on Monday, January 5, arguably the first trading day “operationally speaking”, due to the New Year’s weekend now past, witnessed the Dow Jones closing down 330 points.  Then Tuesday, January 6, the Dow Jones closed down 130 points.

While I am the first guy in a crowd to try to look for the positive when surrounded by bad news, I admit there just isn’t anything positive so far this new year from a market standpoint….”

Flash back to today, December 31, 2015, and we have the Dow Jones Index (the same index discussed in my January 7, 2014 post) has had its first annual loss since 2008.

Today the Dow traded lower by 178 points.  While volumes during the holidays are indeed light, I would have sure preferred a flat close or a close of just a few points positive versus losing 178 points on the last trading day of the year.  The Dow Jones is joined in poor 2015 performance by the SP 500 index, also going negative for the year.  In fairness, many Dow Components are also components of the SP 500, but the bigger point is that these indexes represent (in theory) the largest, most financially stable companies that trade on the stock exchanges.  The NASDAQ is positive for the year, but note that some of the larger NASDAQ components aka Apple, NetFlix, and Amazon, on their own, had great individual performances, thus giving some updraft to the overall index.

Note that historically the year before a Presidential election year (that means now, 2015) is typically bullish, or up.   This year it was not.  See Table:

It is obvious that 2015 is not up 10%, not anywhere close, we are negative for the year (aside from some NASDAQ stocks).

The positive to all this is that a Presidential Election, no matter what party or candidate, typically will kick a Bull Market off as it is a “catalyst” event.  So lets keep our fingers crossed on that.   Besides an election, 2016 is expected to see multiple additional interest rate hikes.

At this point, my TSP balance is safely tucked into bed, resting under the warm blanket called the G-Fund.   Interesting to note is that the G-Fund was the only positive fund in December, per the home page on GovExec website.  The official TSP home page does not show December returns yet, however per GovExec, the worst performing (non-Lifecycle) December funds were the S-Fund and I-Fund.  While some may snicker at my admitted conservative approach, positive returns are always better than negative returns.   There is no economic theory, business school analysis, or magic investing formula, that will refute that.   None.

I remain 100% G-Fund.   Happy New Year to all and lets make 2016 another great year for subscriber growth.   If my site has caused piqued interest in your own TSP performance, triggered an elevated interest in the stock markets, or caused a heightened monitoring of your finances, that is great.   If someone else, a colleague or coworker, would benefit in a similar manner, please share my site with them and encourage them to subscribe.   This (free) site is run by a real human (me), a fellow TSP participant with “skin in the game.”   Some of the “other sites” have difficult to identify ownership (who is this dude), unknown bigger intentions (are they trying to sell me something?), and other practices.

Thank you for a great year in subscriber growth and see you in 2016.

Happy New Year everyone

-Bill Pritchard

I wanted to wish all the readers and subscribers a MERRY CHRISTMAS and a Happy New Year.

Also, market action remains volatile and volumes are much reduced due to the holiday time period.   With that said, don’t over analyze things until the market action gets back into full swing, which will likely be on Jan-4.

In what has become an often repeated statement every year, my subscriber growth remains very impressive.  Thank you for the emails and positive support, this site has clearly filled a void that existed.  God Bless your friends, families, and this great country called the United States of America.  MERRY CHRISTMAS.

– Bill Pritchard

Hello Folks

Mere days after my Dec-9 post, regarding deteriorating market conditions, a severe sell off was observed in all the indexes, with the Dow Jones Index shedding 300+ points on Friday Dec-11.

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

I remain committed to this statement, and flash forward almost four months later, we can see that the attempted rally from early October until early November, has grown weak.   In numerous prior posts, I made reference to the importance of the 2120 level on the SP 500.  This level is recognized by me to be a required trigger, prior to moving money out of the G-Fund.   We can see that 2120 never happened, and by all appearances, will not be happening anytime soon.  As a matter of act, the 2020 level, an important support level, was breached on Friday.   See charts:

This was done on high volume, which means Friday was yet another Distribution Day.   As oft-discussed before, numerous distribution days within a few weeks, in almost all cases, will kill the rally and typically send the trend into Bear market territory.

One causal factor, in addition to the looming interest rate hikes and Chinese economic concerns, is the dropping price of oil.  In my opinion, buying oil investments right now would be akin to trying to catch a falling knife with your bare hands.   Lets look at some charts:

As can be seen, Crude Oil is trading at $35 a barrel.  One advantage that I have, being from West Texas, is access to folks who actually work and pay their mortgage via the oil industry, unlike traders in New York or Chicago watching a computer screen on Wall Street, who probably think a lowboy is a small child, a bobcat is a wild animal, tripping is when you step on your untied shoelace, and mud is what happens to your garden when it rains.   I had one such industry professional at my house for dinner last weekend, who confessed that he was “concerned” about things in the oil industry.   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.

Regarding interest rate hikes, the FOMC meets this week, on Wednesday Dec-16, will announce their action regarding interest rate hikes.   So let’s keep an eye out for that event.  That is a pretty big deal- in my opinion, timing could not be worse, this meeting will occur just before a major holiday break by Wall Street traders and money managers.  If rates are raised, these folks are going to dump shares, not “hold onto them and monitor things.”   They are going to hit the sell button with both hands, and be “out” of positions so that they can enjoy the holidays worry free.

Again, I remain 100% G-Fund.   I hope everyone has a productive and safe week…talk to you soon.

-Bill Pritchard

Hello Folks

I am disappointed to report that the market’s action this week have reflecting additional selling, aka “distribution”, in the indexes, with the “Distribution Day” count now at eight, on the SP 500.  As discussed in my October 14, 2015 post, Five or more days within 20 days can typically send the markets into a new downtrend.  Again, we have had eight.   I am further concerned that these distribution days were on rising volume.  Note that the recent “Dow up triple digit” days, which many high-fived themselves over, happened on low volume, and without volume to fuel the flames, the fire will go out soon thereafter.

The flames are looking dim, at least this week.   Lets look at some charts:

As can be seen above, my oft-mentioned 2120 level was never attained, and this was a very important trigger criteria as part of my decision to leave the G-Fund.  Well, 2120 never happened, and I remain 100% G-Fund.   2020 is the new level I am looking at, which represents a support level, which the SP 500 index touched in mid-November.   If the index breaks below this level, that is an additional negative signal and reflective of a pending Bear market.

What is causing this action ?   Again, I hesitate to guess, and will not bury you in boring data, but 1) China and 2) US interest rates are the big reasons.   Data continues to stream out of China which indicates that their economy is slowing down.   China, with 1.4 billion people, is worthwhile to pay attention to.   Compared to the USA, with 320 million people, China is quadruple the population of USA.  Any recession or slow-down in China will impact other trading partners.

Regarding interest rates, the FOMC has finally started using phraseology to point towards a clear-cut action (whether it be raised, or do nothing, at least we have some clarity).   It appears (and I would not be surprised) that rates will be raised at the December 15-16 meeting.  If not, most likely in early 2016.  What is troubling about a rate-hike in December, is that this is just before the Christmas and New Year holidays, a time when most of Wall Street goes on vacation, not to return until after the New Year.   It could be argued that many money managers on Wall Street (if they are already not easing out of positions…) will hit the “sell” button, no questions asked, if rates are hiked, thus allowing them to go home during the holidays worry free.

Fellow trend follower and billion dollar+ hedge fund manager Stanley Druckenmiller, is also exiting positions, likely due to his own belief of an upcoming bear market.   Lets take a look at a video from Bloomberg News, which happens to be a pretty reliable source of financial news by the way:

Apparently I am not only person with a conservative stance.  With that said, lets monitor things and keep an eye on 2020 on the SP 500.  Volume is very important:  no volume, and the fire (either direction) will burn out.   High volume, in any direction, will light things hotter and sustain the flames into that direction.

I remain 100% G-Fund.   Thank you for reading and please mention this site, and forward these emails, to anyone who may benefit.   The only reason I have multi-thousand subscribers, is largely due to word of mouth and the fact that you find value in The Fed Trader website.  Again, thank you.

Talk to you soon….

-Bill Pritchard

Happy Thanksgiving to everyone.  This week’s trading has been rather subdued, due to the holiday and market closure on Thanksgiving Day, and early closure on Friday. With that said, the SP 500 Index has managed to hold onto recent gains yet has been unable to trade higher than the all-important 2120 level.  Let’s keep our fingers crossed for next week’s action, and hope we can go more vertical.

Happy Thanksgiving guys

-Bill Pritchard

Hello everyone

As the world grieves the cowardly terror attacks in Paris, and prays for the victims and their families, let’s take a look at the recent market action.

I am disappointed to report that the recent uptrend, which started in, and lasted, all of October, has apparently started to break down.  I previously discussed the 2120 area on the SP 500 Index, and this proved to be a pretty accurate resistance area, as the index failed to break through that level and deteriorated shortly afterwards.   I was contemplating a possible exit out of G-Fund, if 2120 was breached, but that thought has now subsided in light of recent action.   Let’s take a look at some charts:

As can be seen above, the October uptrend began to break down during the first few trading days of November.   The distribution day count on the SP 500 is now six days, using Investors Business Daily reporting.   Prior historical data reflects that five or more distribution days within a few weeks time, will typically set the stage up for a new downtrend.  These days are occurring on higher volume, which is a negative sign, likely due to concerns of a December interest rate hike and the ongoing weak corporate earnings reports.  The Friday Nov-13 Paris terror attacks, which occurred Friday afternoon, are not to be considered in our analysis of last week’s action.

Please see additional charts:

In addition, me, personally, I have other concerns about the market.   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.  See graphic:

Chinese authorities have cut Chinese interest rates numerous times, and this has had little, if any, positive impact on their economy.  So we have numerous data sources which reflect that China is slowing down.  With that said, like the SARS Virus, a flu in the Chinese markets can (and will) infect the rest of the world.

I hesitate to rely on crystal balls or get too heavy into economic analysis, as “price knows all” and at the end of the day, the market is always right.  My preliminary analysis shows that the markets will likely continue to lag, and using a 30-day and 90-day look-back, I-fund is the worst performer, with S-Fund the next worst performer, for those time periods, according to my analysis.  C-Fund is also performing poorly.  The SP 500 index is negative for the year.

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

-Bill Pritchard

Hello Everybody

If one thing is for certain, it is that when the markets get frustrating, my reader feedback, website page views, and new subscriber sign-ups sharply increase.  Thank you for your feedback, I truly appreciate it.  With that said, yes the markets have rallied but only just now are they back to the point they were at in August.  The recent uptrend has been on rather lethargic volume, in light of the high volume sell-off back in August.  My default benchmark, the SP 500, has apparently encountered overhead resistance (again) in the 2100 area, it seems that every time it penetrates thru that level, imaginary hands reach out and pull it back down.

Lets take a look at some charts:

The SP 500’s recent highs have been 2114 on July 31, and 2116 on November 3.  Prior to that, it had activity at or near the 2130 area, since May.    I know I spoke of prior (and different) overhead support levels in prior posts, but the market is not a static, stationary animal, so as its behavior changes, it is useful to apply different benchmarks, albeit not grossly different.  With that said, I am eager to see the index penetrate the 2120 level before I move any of my funds back to stocks.

Numerous things continue to challenge the markets, some of which are:

• Growing frustration with no interest rate hikes from the “just get it over with” crowd on Wall Street.   Rates indeed may rise in December.   This is the #1 challenge right now.
• Difficult to verify economic reports from China, a Communist country, reflecting a slowing Chinese economy.  Some believe that if the data could be fully vetted, the data would be much worse.
• A slowing world economy, downplayed by European cheerleaders who seek investment in their own (slowing) economies.
• Select, specific, sectors/industries that are booming, causing markets to go up, not necessarily reflective of the bigger picture.  Severe Dow Jones index swings are triggered by this.

So while some may point out that I “missed” some gains from last month until present, a period of 45 days,  these same folks are the ones who advocate “in it for the long haul”, “look at long-term time horizons”, etc mantra.   So what is it, long-term or not long-term ?   Get tripped up over my investment during the last 45 days but claim that they themselves are long-term investors ?  In my line of work, those are called contradictory statements.

Observe it is hard to quantify the safety the G-Fund gives us, akin to the seat-belt when a traffic accident is looming ahead or opening the umbrella as you walk to the car, with thunder heard outside.  How do we put a number, how do we measure, the usefulness of the seat-belt, if indeed you never wrecked your car, how to we obtain a value, of the umbrella, if it didn’t rain after all ?  This indeed is difficult, as we are trying to measure protection for things that never needed protecting (in the end).  This is all outside of the scope of this website, however we all pay insurance on our homes, every year.   Did you stop paying this year because you “just never had a fire yet” ?   Of course not.

With that said, I am 100% G-Fund, in my TSP account. 

Observe that I am eligible to retire in less than 5 years, so I may indeed be too conservative for some readers.  If anybody wants to be out of G-Fund, it is me.  If anybody could use some gains in their account, it is me.   But if you have watched the market long enough, you learn to trust your gut instincts.  If you have 40 more years of government service, G-Fund may not be the place right now.  But, me – still 100% G-Fund.  I will continue to monitor things and post updates here accordingly.   Thank you for being a reader and please continue to pass the word to friends and coworkers, as you obviously have already been doing.

If I stay in G-Fund any longer, I may soon change my website name from The Fed Trader to The Scared Trader…(Fed Chicken was recommended by a coworker, I may go with that…)

Thank You again

– Bill Pritchard

Hello Folks

I apologize for this later than typical post, I typically try to post every 14 days or so, and we are past that point.  If my subscriber emails are any indication, many are frustrated by the markets, and justifiably so.   Lets try to make some sense out of the recent market action.   Note that I remain 100% G-Fund.

I will use the SP 500 and NASDAQ indexes for most of my discussion.  Lets go back to September 29, where the SP 500 index appeared to have “found a bottom” at the 1880 area, and rallied higher, on above average volume.   This is clearly a desired behavior.   Then, over the next few days, the markets continued higher, with October 2 action witnessing a solid upward “punch” on above average volume.  That behavior is exactly what we need, and my finger moved very close to the “Leave the G-Fund” trigger guard.  Due to the fact that we are indeed in a mature, 6-year uptrend, and arguably “due” for a bear market correction, and other factors, I am not ready to be quick on the trigger, and instead want to continue to assess things.  So I was disappointed that the market action in the subsequent days was not as healthy, and thankful that I elected to opt for a safer approach, remaining in G-Fund.  Volumes immediately dried up (got lower) and the indexes seemed to lose their energy, with the SP 500 hitting resistance at the 2020 area.   The SP 500 is below its 200-day Moving Average, where it has been since August, the 200-day Moving Average being a key trend line watched by many professional money managers (above it is good, below it is bad).  The NASDAQ index is below both the 50-day and the 200-day Moving Average.

Before we proceed further, lets look at some charts:

Furthermore, in addition to the lackluster action since October-2, (designated by the reputable newsletter Investors Business Daily as a “follow-thru day”), we started to see some signs of selling or distribution.  After an apparent rally, the worst thing to see is selling immediately thereafter.  This can indicate many things, namely and perhaps primarily, that investors who had some losses back in August, have waited until the markets rallied and then they decided to get out, thus recovering some damage done a few weeks previously.   We have not seen subsequent high volume, “up days” since Oct-2, which are needed to solidify and validate the recent rally attempt  (now-subsided).   We have had three Distribution days since Oct-2.  It should be noted that five distribution days within 20 trading days (until Nov-3 for our scenario) is typically enough to kill any rally attempt and re-send the market into a downward vector.   So again, we have had three, if we have five prior to Nov-3, that is clearly a negative signal.

The above is the “chart action” which is 99% of what I use for my investing and trading decisions, as the “market knows all” and trying to crystal-ball things is often a fruitless endeavor.   Some may ask what is causing all of this ?   I am entering speculation, aka take-a-guess mode (which is what the talk show hosts on CNBC and Bloomberg do themselves, and nothing more), but will propose that the following are causal factors:

• China’s Slowing Economy
• Indecision or Perception of indecision by the FOMC to raise rates
• Recent corporate Quarterly earnings reports reflecting slowing economy, aka Wal-Mart, NetFlix
• Poor retail sales data, possibly reflecting reduced spending by the consumer

With that said, at the end of the day, all that matters is price, and volume.  As much as I dislike it, the information conveyed by those indicators have required that I remain 100% G-Fund.  I would be cautious of any reports that the economy is healthy and running on all cylinders.  Also, the stock markets are a leading, not lagging indicator, and stock markets will decline well before a recession is declared.   Be careful when you hear claims otherwise.   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

Lets keep an eye on the distribution day count up until Nov-3, and also the general price and volume action in the indexes.

Thank you for the great emails and for being a reader.   If you have any friends or colleagues that may benefit from this site, please spread the word.   Thank you again everyone and talk to you soon.

– Bill Pritchard

Hello Everyone

Markets closed significantly lower on Sept-22, largely due to additional reports that the economy in China is slowing down.  Lets take a look at some charts, the SP 500 Index itself and the “SPY” Exchange Traded Fund (ETF) which is a proxy for the SP 500 and often useful for volume analysis.

Evident via the charts is that the markets have closed down on above average trading volume days, and have had minimal “up days” on above average volume.   They indeed had those types of days on August 26, 27, and 28, but volume waned quickly and dropped off.  We are now approximately one-month since the late August sell-offs, and from my optic, the markets do not appear to be improving, and additional selling/distribution activity being observed is not conducive to an improvement of things.  My opinion is additional downward action is possible, over the next 30-90 days, as large participants such as large mutual funds and hedge funds slowly exit positions.

I remain 100% G-Fund.   Take care, I will plan on another update possibly in one to two weeks.   Thank you for reading.

– Bill Pritchard