The Fed Trader

Hello everybody

Well, the previous week brought no real progress to things, market-wise.   The SP 500 indeed broke thru 1880 and touched 1891.33, on Friday May 2, in response to the “Jobs Report” released on the same date at 8:30 AM Eastern Time.

This is above my previously discussed “overhead resistance level” of 1880.   However a little more is going on behind the scenes, so lets talk about it.   Lets take a look at the one-day chart of the SP 500 for May 2, below, one without comments, then one with comments, before we start our assessment of May 2.   It should be noted that the mainstream media is putting out that the SP 500 and Dow Jones have hit record highs, which is technically correct…what they fail to tell you is that the highs were hit at 10:30 AM Eastern time and that the indexes went lower the rest of the day.  The markets open at 9:30 AM, so the indexes only lasted one hour before rolling over.  So, no, people are not diving back into the markets with both feet, and sending stocks higher.  Lets look at some charts:

What apparently happened, is that the worry, tension, and concern over the jobs report, was digested as “good news” initially, but then folks decided the news was not really so good as believed.  The financial press, largely read by Wall Street, were quick to criticize the report, with most editorials all stating the strong assertion (multiple, different publications) that people have simply stopped looking for jobs and/or are retired-out of the workplace, thus affecting the data in the report.

Not saying one person over another is “right” or “wrong”, 288K jobs created is better than no jobs created, but in any event, opinion/right/wrong/theory/etc. do not matter, what matters is how the market itself acts and responds.  Unfortunately, the jobs report euphoria lasted about one hour and the indexes rolled over and closed lower by the end of the day.  (But remember the headlines, “Indexes make new highs” etc. etc.)…

Important to note is that the current unemployment rate is 6.3%, which is below the 6.5% threshold level believed by many to be the “green light” that the FOMC needs to raise the Federal Funds Rate.   Furthermore, “rate hikes” are not welcomed with open arms by Wall Street, and this will cause additional indigestion for the markets.  Many speculate the next rate hike will occur in Summer/Fall 2015.

Lets go back to the week itself (the title of this update is Week in Review….), before we start the discussion, here are two SP 500 Index charts, one with no comments, one with comments:

What is apparent from looking at the charts is that little volume is occurring in the indexes and we are seeing little serious upward movement, aka yardage-gained.   Yes, as discussed above, we hit 1891 on Friday but now we all see that there is “more to the story.” 

It should be noted that on April 24 and 30, slightly above average volume occurred on the SP 500, with a slight upward movement, and on April 28, above average volume occurred, with minimal upward movement.   This is associated to a behavior known as “Stalling” or “Churning”, discussed further by Investors Business Daily (the folks who pioneered the concept) at this link.   In short, stalling is when the index fails to make any decent upward progress, even though it may have some volume activity which could serve to send it upward.   When this happens, it is akin to a crowded shopping mall, except in this case, the “shoppers” are not buying nor selling, they are just walking around browsing.   The un-informed observer (mainstream media) would report “the mall parking lot is packed with cars, and people are filling the stores, therefore the stores must be selling a lot of merchandise.”  Except, they are not.   

Maybe that example does not make sense but that is my best attempt to explain stalling in the indexes.   We have some volume, just no resulting action.   It should be noted that many professionals consider a “stalling day” as unhealthy as a “sell off day”.    AGENTS NOTE (yes I said that LOL):   The “above average” volume April 24 and April 30 was nothing earth shattering anyway….

NOTE:  On May 1, 2014, Investors Business Daily newspaper went ahead and affirmed that stalling was indeed occurring on the NASDAQ index.  The SP 500 was not mentioned.

With that said, I remain 100% G-Fund.   In the current climate, I don’t look at things as “missing opportunities”, as the indexes have not really done anything except flop around.  If I miss a sudden, violent, sell-off, or worse, the start of a new bear trend, something not impossible right now, then great.   Missed opportunities ?   Right now, based on my optic, there is no opportunity to be had, and nothing missed.

I remain 100% G-Fund.

Thanks for reading !    Talk to everyone soon…

Hello Everybody

Well, mom used to tell me that “if you have nothing nice to say, just don’t say anything at all” and her advice applies to the markets as well.   Sadly, I have no positive news, since my last post which occurred April 13, in which I advised that I was moving 100% to G-Fund.

Since then, the markets have really done nothing.  Sure, they trended up, on average volume, and just as everyone was thinking about getting back into the action, on Friday April 25, the markets closed lower, with the Dow Jones Index down 140 points for the day.   Potential reasons (I hesitate to crystal-ball the markets) offered by mainstream media continue to be the Ukraine crisis, and some less than stellar earnings reports coming out of corporate America.  However, in the end, we have to follow the market itself, and with that said, here are some charts of the SP 500 Index, and SP 500 Futures (white chart), both without comments, then with comments:

Lets take a look at the action since my April 13 post.  From April 11 to April 15, the SP 500 Index (as discussed numerous times before, this is my “go to” barometer of market health) “found a bottom” (aka support) at basically the 1815 level.   It then proceeded to rebound upwards off 1815, however the volume was average volume on almost all days.   To really kick-start a new uptrend or break thru the frozen ice layer above us, I like to see above average volume, ideally 25% above the average volume, behind any new upticks in price.   This of course never happened and the index indeed went up, but on average volume.

April 22 to April 24, the index met overhead resistance at the 1885 area.   For the purposes of my ongoing analysis, I will continue to use 1880 the observed overhead resistance level, and 1840 as the support level.   Action between 1840 and 1880 appears to be akin to chasing a ping-pong ball around and attempting to predict where it will bounce.  So basically, I am only interested in action outside of those levels.   Let me clarify that, any action within those levels but occurring on above average volume, we need to pay attention to.   Note that 1815 is indeed a number to watch, as the market touched on it but bounced back up.   Any action below 1815 is clearly a negative. 

Some recent “high fliers” in the market have taken some blows lately, to include Facebook (FB), Amazon (AMZN), NetFlix (NFLX) and the Biotech sector.   Observe that these stocks are all NASDAQ stocks, and as such, the NASDAQ index will reflect a little more pain than the other indexes.   Time will tell regarding how these stocks perform.  Individual stock selection is not the focus of this site, there are hundreds of sites and information sources out there which offer such services.   Monitoring the markets and the TSP is hard enough.

The evening April 27,  SP 500 futures are trading rather flat, unable to trade higher than the prior session high, which would be April 25 session.   This may indicate that the Monday April 28 daytime action in the regular markets may be listless or a down day.

My TSP Allocation remains 100% G-Fund, as I prefer to “keep my powder dry” right now, and I see no signals or indications that moving to the stock funds would be a profitable thing to do right now.

Quick Re-Cap:  1840 to 1880 is to be disregarded UNLESS the movement is on above average volume.  Chasing the index in this area is like chasing a ping pong ball.  Ideally we get back above, and remain above, 1880.  Below 1840 is not desired.   Below 1815 is worrisome and troubling.

I don’t know if I am “buying” the media’s theory that the markets are down due to Ukraine.   Gold Prices (Gold is the “safe haven” investment) are lower, and Crude Oil prices are lower, than they were a few weeks ago.   Gold tends to rise, in times of political instability / war / etc, and Crude Oil, due to perceived supply disruptions due to war / combat actions, historically, will rise also.   See charts:

Not that Russia v. Ukraine is Iraq v. Kuwait (from an oil supply perspective) but the point is this:   Crude and Gold are LOWER, not higher, than they were a few weeks ago, meanwhile the Ukraine/Russia situation has reportedly worsened.    What this means is that the markets may be going down for other reasons, which is more of a concern for me, than the theorized-temporary mood swing out of Ukraine nervousness. 

Lets keep our fingers crossed and see how this week turns out.   Thank you for reading and please share my (your) site with your colleagues.

Talk to everybody soon…

– Bill Pritchard

Hello everyone

I am changing my TSP to 100% G-Fund.   I wanted to be optimistic and look for some rays of sunshine behind last week’s market storm, however I (sadly) cannot find any.   The market is our ultimate indicator- theories, crystal-balls, opinions, or for that matter emotion, should not drive our investment decisions or strategy.    Allow me to post some charts and share my opinions behind my move to 100% G-Fund.

Lets take a look at the 18 month view of the SP 500, below, then a 6 month chart along with my comments below (and on the chart).

As can be seen, we have been in a trading range since basically late March, on the SP 500, with 1840 being the bottom or support level, and 1880 area being the overhead resistance level or ceiling.  Any penetrations of these levels are important to look at.  We had some new highs established on the SP 500 early this month, however this was on below average volume.   I mentioned this activity in my April 3 posting.

With that said (and by now, most everyone has an understanding of why volume is so important…) , the new highs were on below average volume, and then things broke down and deteriorated.  The SP 500 then broke down thru its support level of 1840, on above average volume, something clearly not desirable.   I counted 8 days of selling in recent weeks, on above average volume, with 6 days of buying, on below average volume.

In addition, the SP 500 failed to find support at the 50-day Moving Average, an important short-term trend indicator, and activity below this level is not desired.   It is still however a healthy distance from the 200-day Moving Average indicator, which is a longer term indicator that major institutions sometimes make buying or selling decisions at.  Ideally, it stays away from the 200-day and finds support somewhere.

Sometimes the volumes on the index are hard to “decipher” so allow me to insert a chart of the ETF (Exchange Traded Fund) ticker symbol SPY, which “tracks” the SP 500 index and can be actually traded back and forth by investors.  It is one of the largest holdings in many big-name mutual funds.  I will not post comments, as nothing is changed from my discussion of the SP 500 Index.   However take a look at the volume behavior going back a couple weeks.

Now, with my primary market indicator, the SP 500, having been addressed, lets take a look at the NASDAQ Index.  As I have mentioned before, the NASDAQ tends to be tech-heavy, and if Apple Computer reports losing market share to Android, this can drive the NASDAQ lower.   Does this mean the world is ending and the market is crashing ?  No.  However one must be cognizant that the NASDAQ is heavily weighted towards tech companies.   With that said, the S-Fund has a lot of NASDAQ exposure, as most smaller companies are listed on the NASDAQ versus the NYSE exchange.  Therefore, the NASDAQ cannot be ignored completely.   Lets take a look at the NASDAQ 18 month chart and a closer 6-month chart with my comments.

As can be seen, the NASDAQ is below its 50-day Moving Average and close to its 200-day Moving Average, which is an important long term trend indicator and where many institutions and financial media tend to announce “bear market” territory for the respective index or stock.   This can be dangerous, as some market prophecies can then become self-fulfilling.   The market reaches bear market territory, and everyone then proclaims “yes, it’s a bear market” , and then everyone gets out of the market, thus pushing it down further.  Then soon after, people say “I told you so, it’s a bear market” and the fear and panic feeds on itself.   So the 200-day Moving Average bears monitoring.

The NASDAQ’s support level is basically “4000”, and on April 11, we saw a low of 3991.64 on the NASDAQ, penetrating this level to the downside, which is troubling.

For the reasons outlined above, I am moving to 100% G-Fund in my TSP.   I might add these turning points in the markets are also periods of “increased” reader email.   For every email I get saying “gee thanks, yes I feel better being out right now” I tend to get three that say “man, I sure don’t want to miss a good up day, I am going to wait a little longer” or “bro, we just missed a 200 point gain on the Dow, and we are in G-Fund, are you confident in your analysis” etc.   Or variations of those.    Sometimes people email me that “we are already down quite a bit, getting out now seems silly.  Lets just monitor things.”   Well, if you are #1 on the entry team, and Mr. Bad Guy puts one round (of many more soon to come) into your ballistic vest, are you staying in the same position ?  I mean, your vest already stopped one round, why not “stay in place and monitor things.”    I doubt anybody would really do that.

I appreciate the feedback, but remember it is not chasing gains that makes us money, it is minimizing losses.  Minimize losses and errors, and the scoreboard will take care of itself.  The TSP is not something to gamble with, it is the primary source of retirement income for FERS’s participants.  Hence I have no issue sliding over to G-Fund when I see trouble brewing.

Some theories and opinions abound as to why the market is going down, some say QE Program being cut back, some say Congressional Mid-Term elections, I have heard numerous theories/etc.   At the end of the day, evaporative water science, meteorology, rain fall statistics, etc., do not dictate whether I am using an umbrella.  I am using one if I start to feel raindrops physically hit my skin and I see rain clouds overhead.   The market itself, not theory, is the ultimate indicator.

Again, I am 100% G-Fund.  Hopefully not for long…..

Take care folks

– Bill Pritchard

Hello Folks

As most are aware, Friday April 4, and Monday April 7, were challenging days in the markets.   The tech-heavy NASDAQ was hit hardest, due to weakness in Biotechnology and Internet related companies.   That is why I utilize the SP 500 to assess market health, it is a broader picture of the market, across numerous sectors.   However, to be clear, all indexes saw above average volume, and downward price action, which is something we do not want to see.   For a variety of reasons, outlined in this post, I am remaining 100% S-Fund (for now).

Observe that April got started on a great note, making new highs every day of the month, up until Friday April 4.   Also observe that Friday and Monday arguably carry some additional psychological weight to them, Friday is the “pre-weekend” day, as in, “lets sell our holdings, I want to sleep easy over the weekend” and Monday is the “pre-rest of the week day”, as in, “I am worried about the week, I am selling everything on Monday.”   If this does not make sense, let me explain it another way:  I would be more concerned if we had down days on above average volume had they occurred Tuesday, Weds, or Thursday.  We have heard “totality of the circumstances”….I apply it to trading also.  If a down day or days occur, I step back, and try to see a bigger picture before I panic.

Lets take a look at a chart of the SP 500, with daily volume and price action, along with my comments on the chart:

This “close up” view of the SP 500 clearly shows the downward price action on Friday and on Monday.  However, it also shows that the Tuesday April 8 action “found support” basically at the 50-day Moving Average, an important trend indicator.   Support found at this indicator is a positive sign, and reason to not completely panic yet.

Lets take a look at a longer term chart:

Observe in the above chart that the 1840 area on the SP 500 is clearly an important support level, and bears watching, as does the 50-day moving average.  

After the daytime session closes on the markets at 4PM Eastern Time, I tend to seek out additional “intel” on how the next session will trade.  One great tool I use are the SP 500 futures, which trade almost 24 hours, electronically, and are frequently indicative of sentiment and how the stock markets will trade the next day.   Fortunately for the TSP participants, tonight’s SP 500 session is trading positively.   See chart:

My explanations above reflect why I am remaining 100% S-Fund.   Allow me to be clear:  All the indexes (and funds) took a beating over that last few days.  I can’t sugar coat that or spin the news, it is what it is.  This site is about facts and analysis, and I am required to report accordingly.  The S-Fund got hit pretty hard, due to small-cap and NASDAQ exposure.   However, the overall trend is still intact (for now).   The market itself is our ultimate indicator, and I try not to crystal-ball or offer theories on why or what is happening.   If the market continues down, on high volume, then we need to evaluate a move to G-Fund.

However, I am not there, yet, and remain 100% in S-Fund.

Thank You for reading and talk to everyone soon…

– Bill Pritchard

Hello Folks

Well the month of April is off to a great start, with the SP 500 index making new All Time Highs each day of the month so far.   This type of behavior is very desirable and a clear indication of bullishness and strength.   It appears the market has digested the Russia/Ukraine situation and is moving forward, past the prior worries associated to the emerging international markets.

Lets take a look at some charts, one without comments, one with comments, of the SP 500 Index:

On a 30-day look-back period, the C-Fund has outperformed the other funds.   On a one (1) week look-back, the S-Fund has outperformed.   My current balance remains 100% S-Fund, however 50% S-Fund and 50% C-Fund would also likely be a productive allocation.

The only negative associated to the market’s performance so far is that it has occurred on less than average volume.   Numerous times I have discussed how volume is the “horsepower behind the move” and unfortunately the volumes have been light so far.   Lets see what happens as the month becomes more mature.

Speaking of volume, the subject of High Frequency Trading has been in the news lately, with author Michael Lewis speaking of “rigged markets” and unfair advantages by professional traders.   Lets take a look at a video by CNBC:

http://video.cnbc.com/gallery/?video=3000263240

The premise of this theory is that professional traders may be able to enter trades at better prices than the other guy, due to high speed trading systems and communications lines.   I suppose a 5 cent advantage per share is clearly an advantage if you are trading $1B dollars.   Why is this discussion important for the TSP investor ?  Because my system (of which literally thousands of The Fed Trader subscribers read about, yes I can say that, thousands….) is more of a long-term trend following and momentum based strategy.  I am not looking to gain a two-cent edge on the intraday price of Google shares.   I am looking at long-term, behavioral, trends.  Patterns of behavior.   And while High Frequency Trading and all the (alleged) magic black boxes and secret programs may indeed give professionals some advantages, at the end of the day, you can’t hide the volume of shares traded.   And volume tells us what is going on behind the scenes.

As an example, lets take a look at TSLA (Tesla) chart.   This is a stock I traded personally, and was able to obtain some profits from.   Keep in mind my often discussed theories of overhead resistance (in TSLA example it was $40 area) and “breakouts” and All Time Highs on above average volume.   Was High Frequency Trading in play here ?   I am sure it was.   Did it matter for me ?  No.    Charts with no comments, then with comments.

Remember, we are looking for changes in sentiment, changes in behavior, changes in mood, when assessing the markets and individual stocks.   If anyone saw the March 2014 print version of Money Magazine, a notoriously conservative (but high quality) magazine (any cover story will advocate bond investing), an article appeared which semi-endorsed momentum investing.   Indeed, many find it difficult to buy All Time Highs, and instead buy on the way down, instead of on the way up.    I caution against trying to catch falling knifes, and advocate buying strength, versus weakness.

This is directly applicable to TSP investing, as many in TSP land feel that every time the markets make a new high, that doomsday is around the corner and a market crash is pending.    In my opinion, that way of thinking will negatively impact your rates of return.

I am presently 100% S-Fund for the time being.   I ask that if you find my site and emails/updates informative, please pass them to others who may benefit.   I had a reader communicate to me that this (completely free) site was “worth its weight in gold” as his TSP was up over $50,000 in the last 12 months, an amount not likely possible had this reader not become educated regarding the markets and TSP….this person had initially planned to be in the G and F-funds.   Do you know anyone who seeks to become more educated and informed regarding the markets and its correlation to the TSP ?   Please pass the word.

Thank you and talk to you soon…..

– Bill Pritchard

Hello Folks

Hope everyone is doing well.  The last few weeks in the markets have been rather unexciting.  It seems that our SP 500 uptrend has paused, after making yet another All Time High on March 7, hitting 1883.67.  It then fell into a trading range between basically 1840 and 1880 since that date.   This back and forth trading has been on below average volume, indicating a lack of conviction by the market in any certain direction, not up, and not down.  With that said, 1840 is a level we do not want to go below.  Let’s take a look at the SP 500 chart, one with no comments and one with:

One item of interest, and possible explanation of the prior low volumes (remember we must react to the market itself, and avoid playing crystal ball or over-analyzing the “why”), is the Russian/Ukraine situation, which began late February but has dragged on until present.   Another item of interest was the March 19 speech by Federal Reserve Chair Janet Yellen, in which her remarks appear to indicate a hike in interest rates by Spring 2015.  One should observe that this was her first speech, so any remarks must be taken with a grain of salt, as the original intent of the message may have missed its mark or otherwise lost.

Overnight March 19 SP 500 futures did not drop precipitously…they did come down somewhat but nothing crazy, and did not trade lower than the prior trading session.  See chart:

March 20 daytime market trading may be lower on the indexes due to the Yellen speech, but I think this will be digested quickly and the markets will (hopefully) return into an uptrend in the next week or two.

I would not be surprised if rates do go up, as our economy continues to recover and improve.  My own “sector”, aviation, is seeing a rebound in aircraft orders and sales, both from a private aviation standpoint and commercial / airliner standpoint.   Aviation is very sensitive to the economy (all though an airline is very hard to “kill”), as the slightest increase in expenses coupled with the slightest decrease in corporate earnings, results in the shareholders ordering the corporate jet to be sold.   My point is, when you see aviation improving, that is a good barometer for the economy.   I think we are “past” the worry and uncertainty about rising interest rates, most market players have accepted that it will happen, and I feel that this is mostly “priced into” the market at this point, temporary market drops or hiccups aside.

I had a reader e-mail me a good question recently, allow me to answer a paraphrased version here, as these posts/updates get much better viewership than my FAQ page gets:

Q:  Why do you use the SP 500 index to gage the market’s health if the S-Fund (which you are invested in) is small cap stocks versus SP 500 large cap stocks ?

A:  That is a great question.  The SP 500 is my overall, general purpose, market-health indicator, as America’s largest companies are members of that index.   When 500 of corporate America’s largest company stocks, many of which typically have exposure internationally also, are performing well, it is a better indicator than the Dow Jones Index (only 30 companies) or the NASDAQ (largely tech related companies or small cap stocks).  With that said, I do cross-compare the various funds and analyze each fund’s health at any given time of the week, month, and/or quarter.  However, of all the indexes, I have found the SP 500 to be the best indicator regarding stock market health.

With that said, the S-Fund continues to be the top performer, the C-Fund is next, and the I-Fund is last, largely due to its international nature and various pockets of tension and worry flaring up around the globe and thus affecting the I-Fund’s performance.

My current TSP Allocation remains 100% S-Fund.  In addition, I see no “red flags” in the market’s recent past behavior.   This of course can change.   Indeed, some concern and worry exists regarding Ms. Yellen’s remarks and some tension around the globe.   However I feel we will overcome this and I am optimistic the uptrend will resume.

Thank you for reading.   Thank you for the great emails and requests, ideas, etc on what material is more important to the audience versus not important.  Some of my charts and lingo can sound like Greek, yes I know.  This site is for you and I seek to continue to improve the site material, and increase the   subscriber base and viewership.  It is pretty cool when you travel away from your home-base, and meet other professional colleagues, who ask “are you the same guy” with “that TSP site we all follow.”   What a great vote of confidence, hearing things like that.  Thank You.

If you find this site informative, please share it with your friends and coworkers.

Talk to you soon…

– Bill Pritchard

Good Evening everyone

February is now behind us, and the month was clearly a positive one.  This was a welcome breath of fresh air, after having put January, a negative month, to rest.  I might add that per TSP site data, January ended up being a negative month across all the stock funds, and most of the bleeding occurred in the later portion of the month.   During the first week of February, support on the SP 500 Index was found at the 1740 area, and then a weak uptrend began, on low volume.

As discussed in numerous prior posts, volume is the “horsepower behind the move” and can also be associated to “the credibility of the move”, and high volume is much more credible than low volume.  During the first week of February, the index trickled up, then went flat, from Feb 14 to Feb 23, trading around the 1835 area.   Lets take a look at some charts, first is unmarked, second is marked:

As can be seen on the charts, we had lackluster volume (and thus I was not eager to “jump in with both feet” quite yet) during the first week of February, then some flat action, then on Feb 24, a very strong “up” day with the SP 500 Index making a new All Time High.   This was discussed in my Feb 25 blog post, and a few days later, the national news media “experts” decided that they too, would report on it.

As we enter March, we have had some international events throw water onto the market’s fire, with the I-Fund being (not shockingly) hit the worst, due to it’s international nature.   These events were primarily the Russian military action in Ukraine.   The indexes were hit hard, and the Dow was down triple digits after Russian actions on March 3, which also happened to be a Monday for US markets.  Mondays are not a good day, market-wise, to have one country invade another country.   However, on the big picture scale (and why I did not panic) is that neither country was a huge economic engine or financial powerhouse.   Russia invading Ukraine (in my view) is akin to Venezuela invading Aruba.  Not a total surprise was that on March 4, the markets were up huge, with the Dow up 227 points, in a quick one-day reversal of investor sentiment towards the Russia/Ukraine situation.

I continue to be 100% S-Fund, however will add that C-Fund is doing well also.   The I-Fund (as discussed before) is an excellent investment vehicle, and in the past, has put great returns on the table, but it is more volatile and sensitive to international events.  Me personally, if I-Fund is only slightly outperforming S/C-Fund, I am probably going to just go with the domestic S/C-Funds.

Before I close out, thank you for the numerous emails and compliments.  

“Thanks for giving us some insight into the many fund choices and market’s behavior.  While I do not follow your moves 100% exactly, I enjoy your site, and no longer have to play Pin the Tale on the Donkey and try to guess which fund out of ten choices is the one to be in.   Thanks.”

With that said, lets take a look at some quotes from Paul Tudor Jones, a very successful hedge fund manager and trend follower.  Trend following is a practice that I use for my own investing, both TSP and in my personal account.   Allow me to cut and paste some of his quotes:

“If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”
Paul Tudor Jones

“Don’t focus on making money; focus on protecting what you have.”
Paul Tudor Jones

Sound familiar ?    Have you heard a similar philosophy here ?

Thanks for reading and please share my site with your friends and colleagues.

– Bill Pritchard

Hello Folks

Thank you for the numerous emails and inquiries if I was alive.  I am indeed alive, however I was on a recent 6-week TDY detail and mostly out of touch.  I am still trying to recover, and am using music therapy to stay awake and post this…

With that said, I am returning to 100% S-Fund.   The SP 500 index in February ticked upward, indeed, however this was on less than average volume.  That type of volume aka “less than enthusiastic volume” is reflective of an uptrend which can collapse and reverse.   Remember, volume is the “horsepower” behind the move.   Today, Feb-24, the SP 500 reached 1858.71, a new All-Time-High (ATH), on above average volume.   Readers may recall via past postings that I am very fond of the All-Time-High and above average volume, as this is a solid indicator.

Lets take a look at some charts, first with no comments, second with comments:

As you can see, the 1850 level represented overhead resistance and a barrier to continued progress, however today, the market (not me, or other “experts”) itself decided that it indeed was in a new uptrend and powered thru the 1850 level on above average volume.   This is when opinion, theory, emotion, etc should be set aside and the investor respond to the market itself.

Thank you for reading everybody, talk to you soon.  Please share this post and my website with your colleagues and coworkers, and tell them I am back from TDY and still alive….

– Bill Pritchard

Hello folks

The last week of January is over, and the month was down, instead of up, in large part to the sell off which started in the last two weeks of January.   The first trading day of February, Feb 3, is over, and it was not pretty, with the markets closing hard down and the Dow Jones Index loosing over 300 points by end of day.  All indexes and sectors got creamed, large cap, small cap, international, nothing was immune.

With the month of January now behind us, I am able to review the behavior of the SP 500 index (my “go to” index for assessing market behavior) and I have observed a possible Head and Shoulders Pattern developing.  This pattern, if it occurs within the structure of a topping bull market, can be a very reliable indicator of a pending trend reversal.   While no hard, set-in-stone, rules exist defining this pattern, it is generally accepted to be composed of a left shoulder, a head, and a right shoulder, with all of the above sitting on a “neckline.”   The neckline currently is 1770 on the SP 500.   NOTE:  Due to evening data issues, charts on this update do not account for today’s action (it does not make a difference, today was down, not up).  A picture-perfect head and shoulders pattern (H/S) should be 5 (five) months or longer in length, from left shoulder, thru the head, to the right shoulder, and the left shoulder and right shoulder typically, but not always, similar in size.    Let’s take a look, see images and comments on the images:

Same image, with comments:

As can be seen, this pattern (which is not complete, the right shoulder is yet to be fully developed yet, we are too early in my opinion….) began to form on/about Nov 11, 2013.   The 5 (five) month completion point will occur on/about April 11, 2014.  Dates are approximate and as stated above, no hard rules exist for these patterns, because behind the pattern, is human behavior, which causes the pattern.    With that said, the current left shoulder is six weeks long, the head is six weeks long, and the right shoulder began approx Jan 27, 2014.  Again, the sizes do not have to be identical.  The volume on this possible H/S pattern on does not meet the picture-perfect H/S volume criteria, likely due to some holidays in each of the last three months and reduced trading activity.

After the formation of the right shoulder, the “neckline” then gets violated to the downside (current still-being-formed neckline of 1770 was broken today Feb 3).  Typically the market will rally back up to the neckline, and break down again, usually on huge volume, thus commencing a new downtrend and bear market.  “False rallies” back up to the neckline will catch the uninformed and unwary, who blindly return to stocks, because the market “is coming back”, not knowing of the bloodbath lurking around the corner.

If this pattern continues to develop into a correctly formed H/S, we will see flatness and lack of uptrend for the next few weeks, and then a break downward, thus commencing a new downtrend.  I am personally 100% in G-Fund, and captured the gains of Jan 30, 2014 on my way out the door, due to the two-day processing time for TSP change requests.  My opinion is, I don’t know if I would be remaining in stock investments “just a little longer” in order to “see what happens”.  Or “I am already down, might as well stay where I am at, no sense getting out now.”  Let me put it to you this way, you are on a raid, and in the hallway, you take two rounds to your raid vest.   And all indications are that the bullets are not going to stop coming.  You gonna stay in the hallway, because “you already took two rounds” ?    Didn’t think so.

Taking a look at January, it can be seen that the index is still below the 50-day Moving Average, which is a commonly used trend indicator used by technical analysts and money managers.  The index has gone below the 50-day in the past, during June, Aug, and October, but this time the January volume has been much higher than the prior 50-day violations.  Let’s take a look:

Red circles indicate points of 50-day violation with attention called to volume on bottom of chart:

As can be seen, January’s volume definitely increased and was higher than prior occasions when the 50-day was violated to the downside.   Volume is the “horsepower behind the move”, and any move up or down accompanied by high volume is highly credible.  In other words, if something goes up or down on high volume, then the probability is high that it will continue to go up or down.

Let’s move to another topic, the January Barometer.  As can be expected, some media outlets are bashing this indicator as being unreliable.  I don’t know what to tell you, I mean, you gotta make your own decisions on what or who to believe.  The developers of this indicator publish the Stock Market Almanac, I have purchased their products and dealt with the company, always had a positive experience.  Nobody has a perfect crystal ball obviously, but I am a believer in their products and studies.  Reliable, credible data reflects that the January Barometer is valid to the point that it should at least be a part of your toolbox.   The market itself, is the ultimate signal, but I use some supplementals to assist me and the January Barometer is one of them.   The theory behind the January barometer is that it “sets the tone” for the rest of the year.   Anybody who watched the Super Bowl, probably said “wow, great start Broncos” as this picture unfolded (I know I did…) :

So are we to believe the January Barometer?  You tell me.  Worst January since 2012, and a very bad first day of February, and this behavior (remember, behind market moves, are people…) in the markets is just, not important ?  Means nothing ?   Was the “tone set” for the Broncos from the beginning ?   A fairly basic action (a snap), in the earliest stages of the most important game of the year, bungled ?   How much  did Denver rehearse for this game ?  Denver has been to the Super Bowl before, they know the drill.   Is there any linkage between this being bungled, early in football’s most important game, to their huge loss to Seattle ?   Did Denver “get started on the right foot” Etc ?   Did this fuel or de-fuel Seattle’s already powerful confidence?  In summary, you must form your own opinion on the January Barometer, which for me is a supplemental indicator to the primary signal, the market itself.

Having called everyone’s attention to the prior 50-day Moving Average violations, and my observation that the volume during January’s violation was much higher than on prior occasions, it is important to note that making headlines is the fact that the SP 500 recently had the longest weekly drop since 2012.

In summary, January was a difficult month, and far worse than any month going back to 2012.   The first trading day of February was a disaster.  Let’s see how February shapes up and hope the storm clouds clear up.

Due to my analysis and observations, and opinion that a new downtrend and possible bear market may be underway, all of which was discussed in my Jan 29 2014 posting, my TSP Allocation is 100% G-Fund.   My preliminary review of similar TSP websites (many of which are paid membership sites of $150 or more annually) tells me that The Fed Trader has been the first, and currently, is the only site, which has provided timely forewarning of a possible downtrend.   Folks have to be careful who to trust.  If you can figure out the ownership behind many of these sites, typically associated to PO BOX’s and mysterious LLC’s, good for you.  Here, I sign everything with my name, and if that is not enough, folks have my email and picture, in the event they go bankrupt or their TSP goes to zero based on my market analysis.  Many in the audience know me or know someone who knows me, and can track me down to vent in person.  Here, I believe in transparency and plain, easy to understand analysis, that my audience can relate to.  Advice of the opposite type is common and they even made a movie about it.  Just a heads-up as in the coming weeks, confusion and misinformation will be pumped out by the media outlets, investment websites, and major brokerages.

Talk to everybody soon, and thanks for reading………. – Bill Pritchard

Good Evening

Despite my personal opinion that the US economy is improving and we are entering healthier financial situations, both at the individual/personal level and also at the corporate, government, and political levels, the market continues to challenge my sanity and ability to sleep at night.    It appears that this is associated to emerging market fears, a downturn in China manufacturing (who manufactures goods for the US), and the QE reduction.   But at the end of the day, I react to the market itself.

Today, it traded lower on increased volume, reflecting yet another Distribution Day within a span of a few weeks.   In addition, the SP 500 has made no progress up towards its 50-day Moving Average, instead closing lower today, than it has any other day during the entire month of January.

Observe that the January Barometer, with two days left, basically has no chance of “going positive” for the month and with a 90% accuracy rate (I am happy to have it inaccurate this year, but….), the crystal ball is forewarning a flat or down year.  Yes, I hope I am wrong.

For the above reasons, I am trying to set my emotions and personal convictions aside and respond objectively to the market itself.  Quite frankly, I confess that I am running out of excuses for the market and the reasons to stay in stock funds are nonexistent.  I have a picture of a duck, and I am turning it on its side, flipping it upside down, looking at it with one eye closed, changing the lighting in the room, and I just can’t make the picture not be a duck.

The market may indeed rally up in a few days or display some up days, but in the grand scheme of things, a possible new downtrend is potentially in the works.   If correct, this will take many weeks to form, then typically break hard down, and continue down for multiple months or longer.  Tonight, I submitted a request to change my TSP Allocation to reflect 100% G-Fund.  Please see FAQ #10 regarding exactly what I do when I make a change to my TSP Allocation.

This allocation change will prevent further account damage and in the event of a severe stock market break downward, those in G-Fund will be protected.    The FAQ on this free site discusses my investing strategy, I have had some new subscribers (thank you for signing up) asking me multiple questions, most of it is answered on the FAQ.

Please be familiar with the disclaimer section and that how your manage your TSP is up to you.   I think everybody “gets it”, so with legalese aside, I am moving to 100% G-Fund.

Thanks guys, talk to you soon…

– Bill Pritchard