The Fed Trader

Greetings Everyone

As most know by now, trading on May 17 was pretty bloody, with the Dow Jones closing down 372 points.   No sector or industry group was spared, and NASDAQ stocks, an index which contains almost all small-caps (think S-Fund), was hit badly.   Allow me to share my views.

Bottom Line up Front, I remain 100% S-Fund but have been contemplating a move over to I-Fund and C-Fund.  As crazy as the world geopolitical climate has been, it is hard to argue with cold hard cash, and that is what the I-Fund has produced all year.   While some may believe that “it is too late to get in now”, in the investment world, when an index is doing very strongly, it behooves the investor to jump onto the train early, versus later.   As we approach June, six months since Mr. Trump was sworn in, the international stocks have reacted very positively.  There is no reason they cannot continue to do well.

Note that most sell-offs tend to be panic-driven, versus fact-driven, and as such, I avoid decision making with a lot of dust is in the air.  It is hard to see, and hard to navigate.    In aviation, it is taught that the first thing a Pilot should do after an engine failure or malfunction is “wind his watch.”  In summary, the Pilot should take a deep breath, look away from the litany of illuminated warning lights, and for a brief moment, do another task.

It appears confidence is waning due to what is happening in the political arena.   When in doubt, sell, and many on Wall Street appear to be doing just that.   Lets take a look at some charts:

As can be seen from the charts, the May 17 volume on the SP 500 Index was very high, consistent with institutional investors selling positions.

As I stated before, the markets are no longer about interest rates, and instead are about policy, and policy’s close cousin, politics.   Indeed, rate watchers have a date approaching, the FOMC Meeting on June 13-14 may shed some light on future rate hikes.   However rate hikes are no longer the main attraction in the current show (circus?) right now.

Now for some positive energy:   Dystopian views aside, the SP 500, while closing lower today on high volume, is still above a the lows of March and April.  The  new critical level to monitor is 2360.00, basically we need the index to quickly to back above that level, any contrary behavior gives cause for additional concern.   While I continue to consider a move to I-Fund, this recent turn of events may change my approach, which may include my first safe-haven move to G-Fund in a long time.

Until then, lets monitor things.   I remain 100% S-Fund and am contemplating an allocation change to include I-Fund and C-Fund in the near future.  I may move to G-Fund if conditions worsen.

Thank you for reading and talk to you soon…

-Bill Pritchard

Good Morning Everyone

I hope this update finds everyone well.  I had intended to publish this on Thursday April 20 night, due to my celebratory mood triggered by the Dow Jones closing up 174 points that day.  However I said “self, as soon as you publish this, the market will go lower the next day [one of my subscribers, who I personally know, reminds me of this…Hello SJO…]” so I waited until the weekend.  The market indeed did go lower, obviously I had nothing to do with it, so maybe loyal follower SJO will be kindler and gentler with me in the future.

With that said, if anything can sum up the market, it is the fact that it is losing confidence in the current administration.  Observe that it celebrated things post-election, but the Paul Ryan failed AHCA really kicked it downward.  As a recap, on March 23, Paul Ryan’s Health Care reform (basically the repeal of Obamacare) was pulled after Ryan advised President Trump that it would not have the votes for passage.   The markets sold off very hard over the next few days, and this laid the ground work for April.

Lets take a look at some charts of the SP 500:

As can be seen, the 2017 peak in the market occurred on March 1, with the SP 500 attaining 2400.98.  It then drifted downward, and was pummeled after AHCA failed.   I say “failed” because it was never voted on, which is the same as “did not pass” – the markets have since become very skittish and have lost confidence in future administration policies and initiatives oft-mentioned during the elections.

News outlets are reporting that on Wednesday April 26, a “major announcement” on the new tax plan will be released.   This week also has a another event, the current Continuing Resolution (CR) expires on April 28.

As I said in numerous posts before, the market is policy driven, and no longer interest rate driven.  When was the last time anybody mentioned interest rates ?  Exactly my point.  Policy, or lack of, is driving events.   North Korea, Syria, and other hot-spots do not help matters.

Note that all of April has witnessed low to average volume, indicating that nobody is “getting back into” the market or jumping in with both feet.  You have probably three categories of participants right now: the 1) Scared/Non Believers, they are out now, 2) Believers and still in, but getting worried (me), and 3) Those who are out a long time ago or are in only partially, and waiting for the proper time to invest 100%, aka “waiting for the perfect time to enter” (out=not invested, in=yes in stocks and investments-  70% G-Fund and 30% C-Fund would be “partially in.”)  The levels to watch are 2335 as a support level on the SP 500, anything below that is a major red flag.  The overhead resistance level remains 2360.  We cannot begin to celebrate any trend reversal until the index can break upward through that level.

Interestingly, small cap stocks (S-Fund) have responded best on the few days the market has performed well.  Overall, my preliminary data reflects that small cap stocks have performed best (or, least-worse) in April.   If only we could get a trend change, and we would be good to go.

I remain 100% S-Fund until further advised.   Two big events this week, a reported “tax plan announcement” on April 26, and a CR Expiration on April 28.   I have no issue jumping to G-Fund but as stormy and cloud as the skies are, I am not quite there yet and remain 100% S-Fund.

I apologize if this post sounds like a political commentary-  I did not intend that.  However the markets are driven by policy, and its close brother, politics, right now…I felt it was worthy to share my opinion.

Thanks for reading, everybody have a great week.

-Bill Pritchard

Hello Everybody

As we enter the month of April, typically the best month of the year for the Dow Jones Index (see image below), we continue to see lethargic performance, mostly believed to be associated with stalled policy making efforts by President Trump.  Observe that the month of March, which historically is a positive one, was negative for US stocks and only positive for foreign markets.  See image of historical monthly returns:

My chosen allocation of 100% S-Fund resulted in a negative March performance.  Indeed, the S-Fund, primarily small-cap stocks which are typically listed on the NASDAQ, got beat up pretty good as soon as the believed-to-occur tailwinds for small business suddenly evaporated, soon after Paul Ryan was unable to secure passage of the Affordable Care Act.   Let’s take a look at some charts, which unfortunately display above average volume with price movement to the downside, which means “selling” or “distribution” on the indexes.   The SP-500 chart and the SPY ETF is displayed, as volume activity is often more apparent via the SPY ETF.

Apparent in the charts is that we have had at least six distribution days since March 20.  Note that a high distribution day count has the potential to turn an uptrend into a downtrend, and a subsequent bear market condition.  We are not there yet but clearly I am not over joyed about the current situation.

The key level on the SP-500 remains 2360, this was mentioned in prior posts however it remains an important area to watch.   In recent days the index has penetrated this level, only to fall back down through it.   Market action on 04-05-17 was positive in the morning, upon the release of a strong Jobs Report, with 263,000 jobs added, much higher than the original believed amount of 170-185,000.   Unfortunately, the market now remains susceptible and largely news-driven, a motorless boat in the ocean, quick to react to any light blinking from the shore:   Federal Open Market Committee (FOMC) Minutes released during the afternoon, indicating potential interest rate hikes in 2017, quickly sent the market back downward.

I stated the following in my 02-05-17 post:

“….the markets are no longer interest-rate driven, they are now policy-driven, policies and positions being advocated by Mr. Trump and Congress….”

I strongly feel this remains the case, however I want to insert that “lack of policy” is sure to drive the markets south.  If we continue to have lack of policy passage, and lack of agreement in Washington, the markets could continue lower.

Until then, I remain 100% S-Fund: accepting the fact that March was negative, once we get unstuck and things in Washington (hopefully) get resolved, the small caps will take off higher, in my opinion.   Again, I remain 100% S-Fund.

Thank you for reading and please continue to share this site with your friends and colleagues.

-Bill Pritchard

More of a FYI email than anything else, Dow Jones futures are trading to the negative 139 points this morning.  Typically when the regular markets open for trading, any move on the futures markets are amplified much greater.

See Chart:

The theory that President Trump’s inability to obtain passage on American Health Care Act (AHCA) last week, which I mentioned last week, is being widely adopted in media circles as the reason behind the market’s malaise.

Indeed today 03-27, the stock markets will take a beating, hopefully I am wrong but I don’t think I will be.   I hesitate to make any decisions until the rest of the week forms up.

-Bill Pritchard

Hello Folks

Just in time for my “routine update” comes a troublesome sell-off/distribution day in the markets, with the oft-watched Dow Jones Index closing on March 21 with a 237 point loss.  Most impacted were the NASDAQ members and small-cap stocks (think “S-Fund”), with international stocks least impacted.

A variety of speculation exists as to why this occurred, most of it pointing towards the Thursday March 23 vote on Paul Ryan’s American Health Care Act (AHCA), which will pave the way to repeal Obama Care.  Reportedly some GOP members are against this, a major action-item for President Trump’s team, and if it encounters problems with passage, then it is believed that other action-items will also see problems ahead.   As I have mentioned here before, the markets are largely (…mostly…) psychological in nature, and do not like uncertainty or confusion.  Those are the elements of triple digit losses.

Lets take a look at some charts.  Evident is that the volume was almost double its average volume, with price action to the downside.  This is a red-flag in my book and something to keep an eye on.   It is important that the SP 500 recover back to the 2360 level as soon as possible.

A look at the SPY Exchange Traded Fund (ETF), which mirrors the SP 500 index, is helpful for volume analysis:

So in summary, the action on March 21 was undesirable and warrants close monitoring.  As discussed, we want the SP 500 to return to at or above 2360 as soon as possible.  I remain 100% S-Fund for the time being.

Thank you for reading…talk to you soon…

-Bill Pritchard

As most know, the stock markets rallied strongly on Wednesday March 1, the day after President Trump’s address to Congress – a performance which obtained positive reviews from CNN, The New York Times, and NBC, all media outlets not known to be cheerleaders for Mr. Trump.   More importantly, the markets liked his performance, with overnight futures increasing by 100 points and a daytime trading session with a 1.5% to almost 2% gain across all indexes, a pretty big deal.  (When you wake up at 5AM to check Dow Futures  which you then send to your WhatsApp buddies, you realize you have no life…) The SP 500 “gapped higher” which is a very bullish behavior.   Note that small caps stocks led the rally today, outperforming all other stocks.  Lets take a look at some charts:

As can be observed, the SP 500 leaped above the prior day’s trading range, this is known as a Gap Up, observe also that the volume was above average, another positive sign.  In sum, I see no indications of “danger ahead” (contrary to the majority of press reporting…) in the markets and hesitate to try to guess when the trend will stop.  Unless the market tells me to get out, I am in.

This brings up another item, the monthly returns for the TSP Funds.  As crystal-balled here before, the C-Fund indeed outperformed in February.   See graphic:

The C-Fund, composed of large cap stocks, and designed to replicate the SP-500 Index performance, responded very well to Mr. Trump’s policy statements and talking points about infrastructure, defense, and reducing regulation.  Not surprisingly, large cap companies in the sectors of construction, defense/military, and financial/healthcare are the top performing stocks presently.   The argument to move to C-Fund is somewhat stronger now, however I prefer to monitor things a bit longer.   I still refrain from I-Fund due to unpredictability with the international markets.   Add the fact that I believe institutional money will seek the best return-  I believe this will be found in US stocks, not in international stocks.   As more swimmers get confident about Swimming Pool USA, they will leave other pools and thus those stocks will see lower returns.

In sum, I remain 100% S-Fund until further notice.  I may modify my TSP Allocation/Contributions to include, some, or all, C-Fund, in the next 30-90 days.   Until then, I remain 100% S-Fund.

“Congrats” to my numerous subscribers who have crossed the $1M mark in the last month.  While my site is not a money printer and I cannot take any credit for those TSP balances, the feedback received is that this site has raised general awareness of market events and many of the $1M folks have remained fully invested in stocks as a result-  by doing so, they witnessed substantial gains in their accounts.

Thanks for reading and talk to you soon.

-Bill Pritchard

I am sure the title of this post got your attention.  I rarely make proclamations, however I am going to take the position that the bull market is just getting started.  You will read why below.

Before I share my rationale, allow me to discuss a very famous “Trend Follower” trader.   The trend following school of thought, one that I subscribe to, states that maximum returns are obtained from large, long-term trends, and smaller sub-trends within the large trend.  It also states that trying to guess the future is a futile endeavor.   A gentleman by the name of Ed Seykota, a professional trend follower, having managed money for others, coined what is termed “The Magazine Cover theory”  This theory saw its birth in the 70’s, pre-internet, but the concept still applies, only now you should include any big-name news website in addition to print magazines.

In sum, whatever a magazine cover says about the market, just do the opposite.   And you typically will see gains in your portfolio.  Note that many in the press are promising a crash to the “Trump Rally” and in doing so, they are throwing everything at the wall just to see what sticks.   Remember, the Trump Stock Market is all about policy-driven events, not interest rates.  Also observe that Mr. Trump claimed we would learn more details regarding his tax reforms within the first 100 days of his administration.  With any luck, America’s parents will have some extra cheer in their step just in time for summer vacation, and some breathing room in the family budget to take junior to Wally World.

What has happened in the markets since my last post ?  On February 9, the SP 500 broke thru the 2300 level, and in doing so, in my opinion it added new energy to the current uptrend.   The first “kickoff” of the uptrend occurred after the elections, then a second “confirmation” occurred on December 7.  Another way to look at this action is an “uptrend within an uptrend”.  Lets take a look at some charts, the second version of the charts below have my comments on the charts:

As can be seen above, the markets are doing quite well, making new All Time Highs in recent days and displaying positive volume action.   On a 30-day look back, the S-Fund and C-Fund are running pretty closely neck-and-neck with each other.  Top sectors/industry groups are Financial Stocks, Mining, and metal producers.  These are all “old school” large-cap stocks, so some argument exists that a move to C-Fund is warranted.   C-Fund indeed may outperform S-Fund in the next 30-60 days.   However I remain 100% S-Fund, since small cap stocks in almost all cases outperform their larger cap brothers.  I-Fund had some bursts of energy in January but in my opinion, the world is about to jump in with both feet into US stocks.   If that occurs, the domestic stock funds (overly complicated term for C/S Funds, or the L-Funds with C/S exposure) will do very well.   I hesitate to guess which fund will do best, if you want that, numerous TSP advice sites Ad-nauseam exist, all trying to outguess and outpredict each other (and all with no identifiable real human owner behind their content…).  I offer no performance claims, but I will share this old screen shot from a 2014 Corporate Finance class I was taking as part of an MBA program.  The screen shot involved a “stock market trading simulation.”  Some in the audience will recognize my username.  I post this here for entertainment value only….

Instead of a crystal ball, I respond to what is happening, and right now, we have C-Fund and S-Fund both performing very well.

In summary, we have a potential argument in support of why I think the Bull Market just got started.   With a little luck, hopefully I am right.   Thank you for reading and please continue to share this site with your friends and colleagues.

-Bill Pritchard

Hello Everybody

January is now behind us-  a lot of exciting things have happened up to now.  First, let me state that my TSP remains 100% S-Fund, which I have held since late November, an apparently correct decision as the S-Fund has been the best performing domestic stock fund since the election.  The I-Fund, representing international stocks, has outperformed the S-Fund, however those investments carry additional risk.  I am inclined to monitor the I-Fund for another 30 days before considering investing in that category of stocks.   Observe that we are seeking to capture long-term trends, and not fretting over what the market does over a few days.  Market cycles, if structurally sound, remain intact for months to years at a time.  Don’t jump on the first train that leaves the station, stand on the sidelines and let a few trains leave….identify the ones that are indeed headed the direction you are going before committing.

As I discuss market hiccups over a span of a few days, this brings to mind the prior week.  Many folks reached out to me (rightfully so…) in panic attacks over the Dow Jones Index dropping 122 points on Jan-30, breaking below the oft-mentioned 20,0000 level.  Mere days after, on Feb-3, the Dow Jones closed up 186.55 points, back above the 20,000 level, its best one day performance of 2017.

The SP 500 Index, my go-to market health thermometer, is performing well and is above my previously mentioned 2280 overhead resistance level (now “expired” since the index has demonstrated its ability to remain above 2280).  Recent volume action reflects accumulation by institutional investors.  The good folks at Investors Business Daily are rating the recent volume Accumulation as “B” out of grades A to F.  Price alone does not tell us everything, volume is half of the picture.  I often get asked “what is the best index to monitor XYZ” and I always recommend one that provides volume information.  Lets take a look at the charts:

Which brings to the forefront my opinion that the markets are no longer interest-rate driven, they are now policy-driven, policies and positions being advocated by Mr. Trump and Congress.  My crystal-ball prediction for the market ahead are that any industry with heavy current regulation, to include financial stocks, healthcare, transportation, and smaller, non-Fortune 500 type businesses, will have their stock prices perform well going into the future, as the current administration seeks to reduce regulation and create a business friendly climate.

As many know, the current administration is also seeking to review how our business is conducted in the federal workplace:   “Federal Government Inc” goes under a review.  Without getting in to politics, my personal opinion is that the folks charged with protecting the citizens or defending the country, should not lose much sleep.  In my study and review of the various statements and positions communicated since the election, I have determined that the following are pending action:

1. A plan to terminate/fire Federal Employees quicker
2. Hiring freezes (already happening)
3. Federal Employee Retirement system under review.  Important Note:  To change anything in regards to current employees, will be a large hurdle, as much of the current retirement system has anchors in existing federal law and regulation.  Future employees, that is another story.   Under Ronald Reagan, FERS was born, FYI.
4.  Changes to agency future roles and missions

In light of recent scrutiny of the federal workforce, this is a reminder that becoming informed about your retirement and benefits is even more critical than ever.   While I encourage folks to utilize The Fed Trader as an information source in regards to the stock markets and TSP fund performance, my forte diminishes in other areas.   Actually I am suspicious of anyone who claims to know every segment of the investing and financial planning space.   I do however, recommend my retired FBI Special Agent colleague (at least once a month on average, we have comms over a reader question or to clarify a concern…) Dan Jamison, CPA of The FERS Guide

If you have a question in regards to your benefits, Social Security supplement, life insurance, or pension/divorce dynamics, he arguably THE expert in the nation on this.  As “one of us” he understands our unique situations and is trusted and vetted as an information provider in the benefits space.   Please take a look at his site as you may find it useful.

That is all I have for now.   Again, I remain 100% S-Fund and may entertain an adjustment to I-Fund in the future.   100% S-Fund for now.   Thank you for reading and please share this site with your coworkers and colleagues.

-Bill Pritchard

Hello Folks

I wanted to let 2017 market behavior “shape up” before my first post of the year, we have now reached that point as I type this in the late evening hours of Jan-12.  Bottom Line Up Front (shout out to A.V.T.) – I remain 100% S-Fund.   The markets have traded for approximately two weeks now…. as I discuss recent market behavior and other events, keep in mind the theory known as the “January Barometer” – an indicator which asserts that January sets the tone for the rest of the year.  Like such topics as Extraterrestrial life, global warming, fracking, and other interesting things, this theory is not without naysayers and critics.  However, me, I am a believer in this indicator.

Soon after the first trading day of the year (Jan-2), the SP 500, my benchmark market-health index, made an All-Time-High on Jan-6, reaching 2282.10.   Also, some market confirmation behavior has been underway, confirming my belief that the stock markets are beginning a new Bull Phase (commenced in November):  this behavior being the increase in the stock indexes, and a decrease in the price of Gold.  Gold is typically the worldwide safe haven investment, our G-Fund and the dollar bills in our pockets are ultimately backed by Gold.   As such, Gold in almost all cases will rise when threats are perceived to exist to stock market investments, and the reverse will happen when the majority feel that stocks are a safe place for their money.  Gold indeed has risen since Jan-2, while the stock markets have remained mostly flat, versus gone down.   So the recent rise in Gold is not worrisome yet.   Lets take a look at some charts:

Evident above, is the “confirmation” Phenomenon.   Furthermore, oft discussed here, is the fact that crude oil actually climbs in bull stock markets.  Contrary to conventional wisdom, higher crude oil prices (to a point, we are not talking $300 a barrel…) reflect a well-functioning economy.  My own research reflects that $55-$65 a barrel is the “ideal” price, one that will not kill the retail consumer at the fuel pump, and will still allow profits to the big oil companies who employ thousands of employees worldwide.   Lets take a look at the Crude Oil chart:

So, from a technical analysis view, all the indicators and signals are reflecting that a bull market is underway.  An interesting observation: historically, small caps always outperform everything else, in a new bull market.  That is happening now, at least in regards to United States stocks.   The S-Fund, and other small cap indexes, are outperforming.   So throw all my charts into the garbage and you have additional indicators that reflect a bull market is in the works.  Note that very recently the I-Fund has started to performed very well, however I am still a little skittish about international stocks.   I may change my mind in the next 30-90 days though.

A negative observation along with all of this, one that I cannot overlook, especially since volume action is very important to me, is the fact that volume has been running at average, or below average, on the SP 500 index, since Jan-2.  Why, I do not know (I can only read the charts…) but it is possible that market participants are waiting for the 2017 Presidential Inauguration (Jan-20) prior to additional investment.  I anticipate a renewal of the uptrend after Jan-20.  I saw “renewal” because the markets have been mostly flat so far, bound by an SP 500 support level of 2250, and overhead resistance of 2280:

On the above chart, I deleted an outlier-day, Dec-30, which had some weird odd behavior, hitting a low of 2233.62 that day.  One day does not determine the market’s health, with Dec-30 being a Friday, and the last trading day of 2016, possibly the traders on Wall Street (very few of them— that day was low volume) were getting a little carried away with their Jim Cramer sell-sell-sell buttons.  I removed that day from my analysis, and consider 2250/2280 to be important levels to watch.  With the exception of big box retail and mall-based stores, the US economy appears to be doing fine.   With Mr. Trump’s expected tax cuts, regulation reduction, and focus on US jobs, the economy should continue to improve into 2017.

On that note, I will sign off.   I remain 100% S-fund, however depending on how the next 30-90 days go, I may consider modifying my allocations.

Until then, thank you for reading and talk to you soon…

-Bill Pritchard

Good Morning Folks

As we approach December 25, I wanted to say Merry Christmas and Happy New Year to the audience.  Thank you for making The Fed Trader website a success, your feedback and input over the years has been appreciated.  A number of subscribers have reported crossing the $1M threshold in their TSP accounts, congratulations to them as they celebrate some added joy during the holidays.

As many of us celebrate Christmas home with our families, let’s keep in our thoughts and prayers the law enforcement, public safety, first responders, and military professionals who may be working during the holidays, keeping the rest of us safe.

Merry Christmas !

-Bill Pritchard